Landlord and tenant — Break clause — Agency — Commercial underlease containing break clause permitting tenant to end lease by giving six months’ notice — Such notice given in name of other company in tenant’s group — Landlord asserting that notice invalid and underlease continuing — Whether notice valid — Whether notice given by tenant as required by underlease — Whether notice given by third party acting as agent for tenant
The claimant held a lease of a warehouse and distribution facility for a term of 10 years from August 2005 at a rent of £184,000 pa. The rent rose to £191,900 pa in August 2008, with an upward-only rent review in August 2010. In January 2008, the claimant granted the defendant an underlease of the premises for the same term less two days, on a similar basis as to rent. The underlease identified the tenant by reference to the defendant’s company name. The “prescribed clauses” section referred specifically to the defendant’s company registration number. A break clause gave the defendant the option to determine the underlease in October 2009 by giving six months’ prior written notice to the landlord.
In August 2007, following a merger, the defendant became part of the same group of companies to which ES belonged. In 2008, the claimant received a letter, on the headed notepaper of ES and with that company’s registration number at the foot of the page, announcing that the defendant was to change its name to ES and providing a new address to which all future invoices were to be sent. In the event, the name change did not take effect; the defendant remained separate from ES. In April 2009, the claimant received another letter, again on ES headed paper, purporting to give notice to exercise the break clause. The notice was signed by ES’s account manager “for and on behalf of” that company. The claimant queried whether the underlease had been assigned to ES; when the defendant confirmed that it had not, the claimant questioned the validity of the notice.
By a claim brought in December 2009, the claimant sought a declaration that the underlease continued and the payment of various sums accordingly. The defendant counter-claimed for a declaration that the break clause had been validly exercised.
Held: The claim was allowed; the counter-claim was dismissed. (1) In order to be effective, a tenant’s notice must fulfil the formal requirements imposed by the lease. A break notice under the defendant’s underlease was valid only if served by the defendant as tenant under the underlease rather than by a third party. A break notice served without the authority of the tenant cannot be treated as having been served by that tenant even if a reasonable recipient would think that it had been so served. Subsequent ratification by the tenant, acting unilaterally and without the recipient’s participation, cannot save a break notice that has been given by the wrong party, as principal, so as to turn a notice that was bad when given into one that is good. A notice given on the headed paper of ES and stated to be given for and on its behalf was a notice given by ES. There was no evidence that the defendant had decided to serve the notice. Accordingly, the break notice was invalid because it had been given not by the tenant under the underlease but by a third party. (2) The notice was not saved by any principle of the law of agency. It had been given by ES as principal rather than as agent for the defendant. The defendant had not authorised the account manager of ES to serve the notice and the account manager had intended the notice to be given for and on behalf of ES. (3) Furthermore, an agent could not serve a valid break notice in its own name, without disclosing the fact of the agency on the face of the notice, unless either: (i) the recipient could in all the circumstances act on the notice safe in the knowledge that it would be binding on the principal; or (ii) there was a general agency under which the agent had authority to undertake anything in respect of the subject matter of its principal’s lease, even to the extent of destroying that subject matter without reference to the principal. The claimant could not safely rely on the notice binding the defendant as principal because the notepaper on which the notice was written made it clear that the party giving it was not the original tenant under the underlease and it was not clear to the claimant that the lease had not been assigned to ES. No general agency had been created expressly and none could be inferred in the absence of clear evidence in support. Accordingly, the break notice served by ES was invalid.
The following cases are referred to in this report.
Divall v Harrison [1992] 2 EGLR 64; [1992] 38 EG 147, CA
Dun & Bradstreet Software Services (England) Ltd v Provident Mutual Life Assurance Association [1998] 2 EGLR 175; [1996] EGCS 62, CA
Havant International Holdings Ltd v H Lionsgate Investment Ltd [2000] L&TR 297
Lemmerbell Ltd v Britannia LAS Direct Ltd [1998] 3 EGLR 67; [1998] 48 EG 188, CA
Lemon v Lardeur [1946] KB 613
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; [1997] 2 WLR 945; [1997] 3 All ER 352; [1997] 1 EGLR 57; [1997] 24 EG 122; [1997] 25 EG 138, HL
Procter & Gamble Technical Centres Ltd v Brixton Estates plc [2002] EWHC 2835 (Ch); [2003] 2 EGLR 24; [2003] 32 EG 69
Wiszniewski v Central Manchester Health Authority; sub nom Wisniewski v Central Manchester Health Authority [1998] Lloyd’s Rep Med 223; [1998] PIQR P324, CA
This was the hearing of a claim by the claimant, Hexstone Holdings Ltd, against the defendant, AHC Westlink Ltd, for declaratory relief as to the continuance of a commercial lease and for the payment of money under that lease; and a counter-claim by the defendant for declaratory relief as to the valid exercise of a break clause.
Thomas Grant (instructed by Eversheds LLP, of Manchester) appeared for the claimant; Mark Halliwell (instructed by Hammonds LLP, of Manchester) represented the defendant. |page:14|
Giving judgment, Mr Edward Bartley-Jones QC said:
Introduction
[1] The primary issue in this action is whether the term created by an underlease entered into on 7 January 2008 (the underlease) was determined on 31 October 2009 through the exercise by the tenant of a break provision. In addition, the landlord also brings a claim for rent accruing due under the underlease after 31 October 2009 for the payment of a specific sum of £6,000 under clause 3.12 of the underlease (which was payable only in the event of non-exercise by the tenant of the break provision) and interest. Counsel were agreed that the monetary claims were arithmetical calculations that could be addressed consensually in the event that it was held that the term created by the underlease continued.
[2] The underlease was made between Hexstone Holdings Ltd (Hexstone), as landlord, and AHC Westlink Ltd (AHC), as tenant. AHC’s company registration number is 01670942 and that registration number was specifically referred to in the prescribed clauses part of the underlease. Subject to the break provision (contained in clause 7 of the underlease), the term was from 31 October 2007 to and including 24 August 2015 (less two days). The passing rent was £191,900 (reviewable upward-only on 25 August 2010). The property demised by the underlease was a warehousing and distribution site with yard and ancillary offices at Foundry Lane, Widnes (the property).
[3] The action was commenced by a claim form issued on 10 December 2009. Hexstone is the claimant and seeks declaratory relief that the underlease continues and payment of the monetary sums that I have mentioned. AHC brings a counter-claim seeking only a declaration that the term as created by the underlease has ended.
AHC
[4] In para 6 of its defence, AHC states that the whole of the issued share capital in AHC’s parent company, Westlink Group Ltd, was acquired by Stobart Group Ltd on 15 August 2007 and that, on that date, AHC became part of the same group of companies as Eddie Stobart Ltd. Eddie Stobart is company registration no 995045. The reply to the defence does not admit this allegation, putting AHC to proof thereof. As will be seen, the relationship between AHC and the Stobart Group (in particular Eddie Stobart) is of vital importance for the purposes of the issues that arise in this action. It is therefore more than somewhat surprising that this action proceeded to trial without any adequate evidence to establish the allegations in para 6 of the defence.
[5] Before me at trial was what was said to be a family tree identifying the complex structure of the Stobart Group. As will be seen, there were issues as to the accuracy and provenance of this document. Indeed, there were issues as to what particular point in time it reflected. I will, however, for the purposes of exposition, give a brief description of the contents of this family tree. It shows the ultimate holding company of the Stobart Group to be a Guernsey company known as Stobart Group. The Guernsey company has eight wholly owned subsidiaries, all of which (with the exception of James Irlam & Sons Ltd) in turn have wholly or partly owned subsidiaries. Those subsidiaries then have wholly or partly owned subsidiaries of their own, and so on. There are more than 50 companies identified on the family tree. AHC is shown as a wholly owned subsidiary of Westlink Group, which in turn is shown as a wholly owned subsidiary of the holding company in Guernsey, Stobart Group. As to Eddie Stobart, this is shown as a wholly owned subsidiary of Eddie Stobart Group, which in turn is shown as a wholly owned subsidiary of Stobart Holdings. This latter company is then shown as a wholly owned subsidiary of the holding company in Guernsey, Stobart Group.
[6] Assuming that this family tree correctly represented the company structure at all material times, the important point is that it discloses no obvious reason why Eddie Stobart (as opposed to some other company in the Stobart Group) should have been the agent for, and acting under the authority and direction of, AHC. Before me is a brief company search in respect of AHC. That shows that its status is active and that its last annual return was made up to 31 December 2009. Its next annual return is said to be due on 28 January 2011. Quite clearly, AHC continues therefore to exist and it must have its own board of directors. Indeed, Mr David Nixon (who gave the only oral evidence on behalf of AHC) described it as an “operating” company that was part of the Stobart Group in an e-mail of 29 May 2009.
[7] I shall turn to analyse in due course the evidence given on behalf of AHC by Mr Nixon. For present purposes, it is sufficient to say that although he clearly and honestly believed that he (and Eddie Stobart) were entitled to do what he (and Eddie Stobart) did, he was wholly unable to satisfy me as to how and why he had been authorised by AHC so to act. This is no criticism of him or of the evidence that he gave orally. He was a patently honest and frank witness. He was simply not competent to give the relevant evidence that would establish that AHC had constituted either him or Eddie Stobart as its agent to act in the name of AHC in the way in which he (or Eddie Stobart) acted.
Basic facts
[8] By a lease dated 20 October 2005 (the lease), the property was demised to Hexstone (under its then name of Decca (Wilmslow) Ltd) for a term of 10 years from and including 25 August 2005. The yearly rent reserved was £184,400 from 25 August 2007 to and including 24 August 2008 and, thereafter, the yearly sum of £191,900. There was to be an upward-only rent review on 25 August 2010.
[9] The property became surplus to Hexstone’s requirements and, on 1 November 2007, an agreement for underlease was entered into between (1) Hexstone and (2) AHC. If para 6 of the defence is correct, this agreement was entered into when AHC was already part of the Stobart Group. Under the agreement, AHC was allowed into occupation of the property as licensee pending grant of the underlease. The licence fee payable equated to the rent payable by Hexstone under the lease (save for a free period up to 1 December 2007).
[10] In pursuance of the agreement, the underlease was granted on 7 January 2008 (albeit that its frontispiece and particulars wrongly bore the date 2007). The term was the term of the lease (less two days) and the rent reserved was the same as the rent payable under the lease. In accordance with the terms of the agreement, the underlease was contracted out of protection under Part II of the Landlord and Tenant Act 1954 (the 1954 Act): see clause 8.
[11] Clause 7 of the underlease was in the following terms :
7. Tenant’s option to determine
7.1 Subject to the Pre-Conditions (as hereinafter defined) being satisfied the Tenant may determine the Term on 31 October 2009 (the “Option Date“) (time being of the essence for such date) by giving to the Landlord six months’ prior written notice (time to be of the essence for such notice) and on the Option Date the Term shall thereupon cease and determine but without prejudice to the remedies of either party against the other in respect of any antecedent claim or breach of covenant
7.2 For the purposes of sub-clause 7.1 above the Pre-Conditions are that on the Option Date;
7.2.1 Vacant possession of the whole of the Property is given to the Landlord; and
7.2.2 this Underlease remains vested in the Tenant named herein; and
7.2.3 no notice pursuant to section 26 of the 1954 Act has been served by the Tenant and [sic]
7.3 Should the Tenant exercise its option to terminate this Underlease in accordance with clause 7.1 the Landlord shall within 7 days from the termination date reimburse to the Tenant any rent and insurance rent paid by the Tenant for the period in advance of the termination date apportioned on a daily rate.
[12] Clause 7.2.3 is a little strange. This is not merely because it contains a hanging “and” but because the underlease was contracted out of 1954 Act protection. Nor is clause 7.3 a masterpiece of clear drafting. Presumably what was intended was reimbursement of rent (paid in advance) for a period after 31 October 2009.
[13] Although the underlease contained a covenant by AHC (clause 3.1) to pay the rents thereby reserved by bankers’ standing order or direct debit, that is not what occurred in practice. Rather, a company known as Decco issued (on behalf of Hexstone) rent invoices to AHC. These invoices wrongly described the payment demanded as a “Licence to Occupy”, but this error appears to have been simply a hangover from |page:15| the form of invoice used when AHC was occupying under its licence as granted by the agreement for underlease. These invoices were duly paid by AHC by cheques drawn on its own account.
[14] On or around 19 August 2008, Hexstone received a standard form announcement (the announcement) that had apparently been sent to all suppliers of AHC. The announcement is on the notepaper of Eddie Stobart (with Eddie Stobart’s company registration number being given in small type at the bottom). The announcement commences as follows:
Reference: AHC Westlink Ltd to Eddie Stobart Limited
Dear Supplier
Following the successful merger with the Stobart Group in September 2007 I am pleased to inform you that with the effect from 1 July 2008 AHC Westlink Ltd will change its name and beknown as Eddie Stobart Ltd. The company will continue to operate from our Widnes site but the new contact details will be;
Eddie Stobart Ltd,
Foundry Lane,
Widnes
[15] The announcement went on to ask that all future invoices or statements be sent to the accounts department of Eddie Stobart in Carlisle. The announcement was signed by a Mr Graham Bradburne “on behalf of AHC Westlink Ltd”.
[16] Although the announcement was written on the notepaper of Eddie Stobart, Mr Bradburne was clearly claiming express authority to write on behalf of AHC, and what he was announcing was a company name change. In reliance on the announcement, Hexstone (acting via Decco) directed all future rent invoices to the accounts department of Eddie Stobart in Carlisle and these invoices were duly paid by CHAPS transfer. There was, however, nothing in the announcement, and nothing in what subsequently occurred, to suggest to Hexstone that there had been anything other than a simple change of company name (and change of location of the accounts department).
[17] The change of name did not in fact occur. Thus, as at April 2009, the true name of the original tenant under the underlease remained “AHC Westlink Limited”. AHC and Eddie Stobart remained entirely separate companies (bearing their own original names). It is common ground that Hexstone was not informed that the change of name referred to in the announcement had not occurred.
[18] In April 2009, it was desired to exercise the break provision contained in clause 7 of the underlease. Notices to that effect were sent to each of Decco and Hexstone. It is common ground that the notice to Hexstone (the notice) was duly received on 28 April 2009. The notice was written on the notepaper of Eddie Stobart (which bore the company registration number of Eddie Stobart in small type. This was the only company registration number that appeared on the face of the notice. The notice bore the date 23 April 2009 and was stated to have been sent by recorded delivery. The notice was in the following terms:
Dear Sirs
Re: Property Premises and Land at Foundry Lane, Widnes Lease dated 7th January 2008 between Hexstone Holdings Limited and AHC Westlink Limited (Eddie Stobart Ltd) “the Lease”
We refer to the above mentioned Lease which was for an 8 year term from and including 31st October 2007.
In accordance with Clause 7.1, we hereby give notice to terminate the Lease on 31st October 2009, being the third anniversary of the Contractual Term and the specified break clause date.
We would be grateful if you could acknowledge receipt of this letter by signing and returning the duplicate copy in the pre paid envelope provided.
Yours faithfully
David Nixon
For and on behalf of Eddie Stobart Ltd
Account Manager
[19] The references in the notice to the underlease being for an eight-year term and to 31 October 2009 as being the third anniversary of the contractual term are obviously inaccurate. However, it is not suggested that these inaccuracies have any consequences.
[20] By letter of 12 May 2009, Hexstone’s then solicitor wrote to Eddie Stobart pointing out that, according to its client’s records, the underlease was vested in AHC and asking whether there had in fact been an assignment to Eddie Stobart. This letter appears to have got somewhat lost. By e-mail of 29 May 2009, Mr Nixon responded to Hexstone’s solicitor confirming that AHC was an “operating” company that was part of the Stobart Group. By letter of 3 June 2009 to Hexstone’s solicitor, Mr Nixon confirmed that the underlease was still vested in AHC. The tenor of this e-mail and the letter indicate, clearly, that Mr Nixon was blissfully unaware of the issues that were about to arise. He clearly thought that his answers should be more than sufficient to satisfy Hexstone’s solicitor.
[21] By letter of 6 July 2009, Hexstone’s new solicitor (Eversheds) challenged the validity of the notice in determining the underlease. It is unnecessary for me to analyse the contents of this and subsequent correspondence save to say that from the very beginning Hexstone alleged that the notice had not been served by the tenant under the underlease. From the very beginning, therefore, AHC knew that issues arose as to who had given the notice and as to the authority of Mr Nixon (or Eddie Stobart) to act as they did in giving the notice. This only, therefore, makes the defects in AHC’s evidence at trial all the more surprising. Certainly by 28 October 2009, the relevance of these points had been firmly taken on board. On that date, an attempt was made to return the keys to Hexstone. This incident is of itself unimportant because it is not suggested that there has been any surrender by a return of the keys. However, the keys were returned under cover of a letter signed by Mr Nixon this time clearly “for and on behalf of AHC Westlink Ltd”. Moreover, the underlease is described as having been made between (1) Hexstone and (2) AHC. Still, however, this letter was written on the notepaper of Eddie Stobart.
Witnesses
[22] Mr Steven Westbrook gave evidence on behalf of Hexstone. He was totally honest and straightforward but, granted the issues that arise, he had little of any great relevance to say. He confirmed that he was aware that AHC had been “taken over” by the Stobart Group but he said that he had no knowledge whatsoever of the details of the transaction. He and Hexstone had no knowledge as to who within the Stobart Group had control of AHC. He said, and I accept, that Hexstone took the announcement at its face value namely that all that was occurring was a change of name. The notice, he said, raised issues in his mind because of its terms. He caused a company search to be made that made him realise that the company known as Eddie Stobart was not AHC. There was some cross-examination to suggest both that: (i) Hexstone must have been aware that there had been no assignment of the underlease to Eddie Stobart because no notice of assignment had been given to Hexstone under clause 3.8.3 of the underlease; and (ii) accordingly, he (as reader of the notice on behalf of Hexstone) could not have been confused thereby. The relevance of this escaped me. To the extent that the issues that arise are affected by the decision of the House of Lords in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749*, what matters is the objective perception of the reasonable recipient (not the subjective perception of Mr Westbrook). In any event, Mr Westbrook was frank. It was not so much that he was confused by the notice but rather that the notice had been written in such terms (and on the notepaper of Eddie Stobart) so as to give rise to issues in his mind that he then sought to investigate. I have no hesitation in accepting Mr Westbrook’s evidence.
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* Editor’s note: Also reported at [1997] 1 EGLR 57
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[23] Mr Mark Halliwell (who appeared for AHC) described in his skeleton argument Hexstone’s present arguments as “unattractive and opportunistic”. I do not so see them. AHC was, by clause 7 of the underlease, given a contractual right that it had to exercise in accordance with the terms of that contractual right and certain basic principles of law where agency was involved. There is nothing “unattractive and opportunistic” in a landlord saying that a contractual right has not been exercised in accordance with its terms (nor in a landlord saying that the requirements of the general law in respect of the service of notices by agents have not been fulfilled). It may, perhaps, be that the requisite |page:16| “general agency” (see below) could have been established in this case by AHC by different evidence. However, there is nothing “unattractive and opportunistic” in Hexstone saying that AHC has failed to adduce such evidence at trial.
[24] Mr Nixon was the sole witness for AHC. The primary relevance of his evidence was in support of the contention in para 21 of the defence that “Eddie Stobart Limited and/or Mr Nixon were authorised by AHC” to give the notice. That was expanded in para 22 of the defence by an allegation that Eddie Stobart and its employees were authorised to enter into correspondence on behalf of AHC, and regularly did so. There was also an allegation in para 24.2 of the defence that, in the light of the announcement, Hexstone “was aware or ought to have been aware” that the notice was sent by or on behalf of AHC using the name of Eddie Stobart. These are the only allegations in respect of authorisation or agency that appear in the defence. In particular, there are no allegations of “general agency”. In his skeleton argument for the trial, Mr Halliwell said (and said only) this:
11. In the light of the witness statement of David Nixon, it is submitted that the answer to this question [Is the notice invalid on the grounds it was not written or given on behalf of AHC?] is plainly no. At all material times, AHC was controlled by Stobart Group Limited. David Nixon was authorised to give the notice on behalf of AHC and he gave the notice on behalf of AHC.
12. If, contrary to AHC’s primary case, authority was not expressly given to David Nixon, or, more generally, to Stobart Group Limited or ESL [Eddie Stobart Ltd], to serve such a notice on behalf of AHC, it would plainly have been implied from a course of conduct under which both parties acted on the footing that AHC’s name had been changed to “Eddie Stobart Limited” and were content to deliver invoices to ESL and making payment on that basis.
Again, therefore, there is no allegation of “general agency”. The allegation (para 11) is that Mr Nixon was expressly authorised (where, how and by whom is not stated) to give the notice on behalf of AHC. Paragraph 12 somewhat expands this by suggesting that express authority was given to Mr Nixon or, more generally, Stobart Group or Eddie Stobart. The allegation of “implied authority” in the alternative is said to derive entirely from the course of conduct that Hexstone followed from the date of the announcement. This latter allegation I do not understand. I do not understand how “implied authority” can be said to have been given by A to B on the basis of a course of dealings between B and C (unless it be said that A expressly or impliedly authorised that particular course of dealings). Ostensible authority and implied authority are fundamentally different things. The former is concerned not with whether a person has authority but on whether he has been held out to have authority. The latter is concerned with whether a person has authority, irrespective of whether he is being held out as having such authority. However, more fundamentally, it seems to me that para 12 of the skeleton argument limits the source of “implied authority” merely to the course of dealings. This is why I do not understand the point because as I see matters, and as a result of the announcement, Hexstone was dealing with Eddie Stobart not on the basis that Eddie Stobart was acting for and on behalf of AHC but on the basis that Eddie Stobart was AHC.
[25] Mr Nixon’s first witness statement was bland on the issue of authorisation or agency. Having indicated that he had been employed by Eddie Stobart for a period of 21 years and that he was an accounts manager, he indicated that it was he who was responsible for the integration of the property into the Stobart Group on what he describes as the “merger” of the Stobart Group with AHC in July 2008 (not September 2007). Over and above this he said very little. He said that, during the latter half of 2008, a decision was taken (he does not say by whom) that the property would be shut down. He refers to receiving a copy of the underlease from Mr Graham Bradburne. He refers to various discussions that he had with Mr Bradburne and Mr Trevor Howarth, who he describes as the group legal director for the Stobart Group. He then says that he prepared the notice “in the name of Eddie Stobart Limited” (my emphasis). There is no allegation whatsoever that he was authorised so to act by the board of or anyone within or by anyone acting with the authority of AHC.
[26] No doubt as a result of the limited content of his first witness statement a second witness statement was produced from Mr Nixon just a few days before the trial. The second witness statement is extremely short but, in para 4, Mr Nixon says:
4. As stated in my earlier statement, I have been employed by Eddie Stobart Limited for twenty one years. The Stobart Group Limited acquired the business of AHC Westlink in July 2008. Following the acquisition, AHC Westlink became and remains entirely controlled by Stobart Group Limited. I was specifically given responsibility by Stobart Group Limited and AHC Westlink for the integration of the AHC Westlink business into the Stobart Group business and I was given authority by Stobart Group Ltd to manage all the operations of AHC Westlink
In para 6, Mr Nixon confirmed that he had authority from AHC Westlink and from the Stobart Group to serve the notice and that he served it on “their” behalf. The suggestion that the notice was served on “their” behalf seems to be in tension with Mr Nixon’s statement in his first witness statement that he had prepared the notice in the name of Eddie Stobart.
[27] These two paragraphs in the second witness statement beg as many if not more questions than they purport to answer. Assuming that the first reference to the Stobart Group is a reference to the ultimate Guernsey holding company, the suggestion that the ultimate holding company acquired merely “the business”, as opposed to 100% of the shareholding in AHC, and did so in July 2008, is not what is pleaded in the defence. However, clearly, Mr Nixon is saying that he was specifically given responsibility by each of the Guernsey holding company and AHC for the integration of the AHC business into the Stobart Group business. He does not say how or when this occurred nor does he exhibit any minutes of the meeting of the boards of either company giving him this responsibility. Nor are any such minutes disclosed in this action. He then goes on to say that he was given authority by the Guernsey holding company to manage all the operations of AHC again he does not indicate how or when. Moreover, in respect of this authorisation he suggests that his authority came only from the Guernsey holding company (and not from AHC). As I understood his oral evidence, however, he did not, in such oral evidence, seem to be suggesting that he had ever received any authorisation directly from the Guernsey holding company. He then refers (para 6) specifically to the notice. In respect of the notice, he confirms that he had authority from AHC and from the Guernsey holding company to serve the notice on their behalf. Nowhere does he refer to any authorisation from Eddie Stobart nor does he indicate how and when AHC and the Guernsey holding company gave him the authority referred to in para 6. Again, no minutes of board meetings of any company, or other documents, are exhibited to support the contentions made and none has been disclosed.
[28] In his oral evidence, Mr Nixon very frankly told a somewhat different story, the essential features of which were as follows:
(1) His job was that of accounts manager charged, among other things, with running the business as carried on at the property and incorporating it as part of business of the Stobart Group.
(2) He had not the slightest idea as to what had happened, in legal technical terms, when the “merger” had occurred. That was not, to use his phrase, “my bag of beans” and he was not party to board decisions at any level of the company structure. At one point in his oral evidence, Mr Nixon confused himself, and everyone else, by referring to what had occurred as a “reverse merger”. He was then wholly unable to explain what he meant by a “reverse merger”.
(3) He derived his perception of his authority to do what he did from instructions given to him by a Mr Sean Brogan, whom he described as the managing director of warehousing within the Stobart Group. That these instructions had been validly given to him by Mr Brogan he had no doubt, but over and above that he had no idea at all where Mr Brogan’s authorisation (to instruct him to act as he did) came from. Mr Nixon recalled meeting a Mr William Stobart at the property at an early stage. He knew Mr William Stobart to be very important and assumed that he was a main board director (but Mr Nixon did not know). |page:17|
(4) Mr Nixon knew that AHC and Eddie Stobart were separate entities and that the name change had never been effected. He saw himself as running AHC on behalf of Eddie Stobart, but it is quite clear that he saw this only because of the duties that had been placed on him by Mr Brogan. He was prepared to accept that, in all probability, AHC continued to have a board of directors, but he had not the slightest idea who they were. Indeed, he had not the slightest idea who the directors were of the Guernsey holding company and, as far as I perceived, who were the directors of Eddie Stobart Group (the parent of Eddie Stobart) and Stobart Holdings (the parent of Eddie Stobart Group).
(5) As to the family tree to which I have referred above and that, by his first witness statement, Mr Nixon produced and verified, he thought that he had never seen it before the trial. He recalled seeing certain simpler family trees (perhaps for organisational purposes), but the contents of this particular family tree he said that he could not verify because it related to matters well outside his knowledge and authority level.
(6) Although recognising that he is employed by Eddie Stobart and that he had never been an employee of AHC, he was confused in his evidence concerning the status of the underlease. He said that he knew that it had not been transferred to Eddie Stobart but, as he saw it, the underlease was controlled by Eddie Stobart. The rent was being paid by Eddie Stobart. It was because he thought that Eddie Stobart was “in control” of the underlease that he served the notice in the terms in which he did. Asked whether, in serving the notice, he gave a moment’s thought to AHC, he answered “no”. He said that that was because he thought the underlease was under the control of Eddie Stobart. To Mr Nixon it did not matter because, as he saw it, AHC was operating as part of Eddie Stobart. Thus, the evidence in para 8 of his first witness statement that he prepared the notice in the name of Eddie Stobart.
(7) As to Mr Bradburne, Mr Nixon’s recollection was that he had been AHC’s accountant but that all AHC’s employees had been the subject matter of a TUPE transfer to Eddie Stobart in June 2008. Mr Bradburne was now in an entirely separate division of the Stobart Group, namely Stobart Ports.
(8) Mr Nixon confirmed that he had received the underlease from Mr Bradburne and that he had had discussions over the form of the notice with Mr Bradburne and Mr Howarth. However, as to the notice itself, Mr Nixon was frank “I wrote it I sent it”.
[29] As I have said, Mr Nixon gave his oral evidence with candour and frankness. I have no hesitation in accepting what he said to me orally (albeit that there was clearly an element of confusion in his thinking and perceptions because he did not understand the legal technicalities). I have not the slightest hesitation in preferring Mr Nixon’s oral evidence to what is contained in his witness statements (which had quite clearly been professionally prepared for him). The net effect of this is:
(1) Although Mr Nixon obviously honestly believed that he had been fully entitled to do what he had, his evidence entirely failed to establish the existence of any chain of authority to do what he had deriving from AHC. Whether that chain of authority could have been established by different evidence given by more senior personnel within the Stobart Group is irrelevant. AHC has failed to establish in this action, relying as it does on Mr Nixon’s evidence alone, that it expressly conferred any form of authority on either Mr Nixon or Eddie Stobart to act as they had in serving the notice. It follows that I reject the allegations of specific grant of authority contained in paras 4 and 6 of Mr Nixon’s second witness statement. Moreover, Mr Halliwell, under some judicial pressure, accepted in his closing submissions that authorisation had, in the light of Mr Nixon’s oral evidence, to be inferred.
(2) It is quite clear that the concluding words of the notice (which appear below Mr Nixon’s name) are no mistake. Not merely was the notice given on the notepaper of Eddie Stobart but Mr Nixon had intended the notice to be given “for and on behalf of Eddie Stobart Limited”.
[30] Mr Thomas Grant (on behalf of Hexstone) submitted to me that I should draw adverse inferences against AHC from the fact that neither Mr Bradburne nor Mr Howarth, nor any director of AHC, had attended to give evidence. Further, he said that I should draw adverse inferences from the fact that not a single minute of the meetings of the board of directors of AHC has been disclosed nor have there been disclosed any documents that purport to confer some authority on Mr Nixon or Eddie Stobart to act as agents for AHC. Indeed, I further note that AHC’s disclosure statement in this action was actually signed by Mr Howarth, describing himself somewhat opaquely as “Defendant’s Group Legal Director and Company Secretary”. In support of the making of such inferences, Mr Grant referred me to the decision of the Court of Appeal in Wiszniewski v Central Manchester Health Authority [1998] PIQR P324. To my mind, the issue is not the drawing of inferences (adverse or otherwise). The point is slightly different. I can try this action only on the basis of the evidence that AHC has chosen to advance and, indeed, the documents that AHC has actually disclosed. It would be quite wrong for me to speculate as to what evidence might have been advanced or what documents might have been relevant, especially when persons who might have been able to help (such as the directors of AHC or Mr Howarth) have not given evidence and where documents that should exist (for example, minutes of meetings of the board of AHC or other relevant companies in the Stobart Group) have not been disclosed.
Giver of the notice
[31] Although Mr Grant, for Hexstone, commenced his submissions with a point as to the true construction of clause 7, I shall leave that point until later in my judgment. I start with what was his second line of attack on the validity of the notice. Put simply, he said that the notice had not been given by AHC at all. Rather, it had been given by Eddie Stobart, and by Eddie Stobart as principal. There is no question of Eddie Stobart having given the notice as agent for AHC.
[32] Two important points need to be made concerning this submission:
(1) Mr Grant submitted, in my judgment correctly, that the decision of the House of Lords in Mannai does not affect this submission in any way. It is not a question of what the reasonable recipient might think. Rather, the question is was the notice given by the tenant under the underlease or was it given by a third party? As Neuberger J said in Procter & Gamble Technical Centres Ltd v Brixton Estates plc [2002] EWHC 2835 (Ch); [2003] 2 EGLR 24, in [17], there is a fundamental distinction between the formal requirements for a notice, as set out in the relevant clause in the lease, and the wholly separate question of whether the notice, as given, is effective to convey the information required by the clause. Mannai affects only the second question. This is the essence of the blue paper/pink paper distinction identified by Lord Hoffmann in Mannai, where he said, at p776B:
If the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease. But the condition in clause 7(13) related solely to the meaning which the notice had to communicate to the landlord. If compliance had to be judged by applying the ordinary techniques for interpreting communications, there was strict compliance.
I did not ultimately detect Mr Halliwell to dissent from this proposition.
(2) Subsequent ratification cannot save a break notice that is given by the wrong person as principal. This proposition is expressly stated in para 17.228 of vol 1 of Woodfall: Landlord and Tenant, where, in particular, the authority of Divall v Harrison [1992] 2 EGLR 64 is cited. The proposition was conceded by Mr Halliwell. The logic is, in my judgment, clear. Subsequent ratification cannot turn unilaterally (and without the participation of the recipient) a notice that was bad when it was given into a good one. The notice was either good or bad when given.
[33] Here, the notice was given on the notepaper of Eddie Stobart and is expressly stated to have been given “for and on behalf of Eddie Stobart Limited”. I fail to see why, in these circumstances, the giver of the notice should be regarded as anyone other than Eddie Stobart. The giver most certainly cannot be regarded as AHC. There is not the slightest evidence to suggest that AHC itself made any decision to give the notice. Conversely, Mr Nixon’s oral evidence was clear. With the knowledge that there had been no name change and |page:18| with the knowledge that AHC and Eddie Stobart were separate entities, he chose to give the notice in the name of Eddie Stobart because the underlease was “controlled” by Eddie Stobart.
[34] Unless, therefore, saved by some principle of the law of agency, the notice must be invalid because it had not been given by “the tenant” under the underlease but by a third party: see, for example, Lemon v Lardeur [1946] KB 613 and Divall.
Agency
[35] The notice does not state that it had been given by Eddie Stobart as any form of agent for AHC. In my judgment, on proper analysis of the facts and, also, the oral evidence of Mr Nixon, the notice had been given by Eddie Stobart as principal, and no question whatsoever arises of it having been given by Eddie Stobart in the capacity of agent for anyone. That finding of itself is sufficient to dispose of all of AHCs agency and authority arguments.
[36] However, lest I be incorrect in such analysis, I will go on to consider further issues. In his closing speech, Mr Halliwell submitted that the true analysis of what had occurred here was that there was a “general agency”. The significance of this submission is that (as Mr Grant conceded) a valid break notice may be given by a general agent in his own name and without disclosing the fact of his agency on the face of the break notice.
[37] As Peter Gibson LJ said in Lemmerbell Ltd v Britannia LAS Direct Ltd [1998] 3 EGLR 67, a general agency is an unusual commercial relationship, particularly where a tenant is the principal, the agent having authority to do anything in respect of the subject matter of the demise even to the extent of destroying that subject matter without reference to the principal. The inference of such an agency, in the absence of express authority creating the agency, requires clear evidence to support it. The mere payment of rent coupled with occupation does not necessarily indicate that the payer has the tenant’s authority to terminate the estate. Peter Gibson LJ referred to the earlier decision of the Court of Appeal in Dun & Bradstreet Software Services (England) Ltd v Provident Mutual Life Assurance Association [1998] 2 EGLR 175.
[38] No allegation of “general agency” is made in AHCs defence. Nor is any such allegation made in Mr Halliwell’s skeleton argument. Nor was any application made to amend AHCs defence to raise this issue during the course of the trial. For that reason alone, Mr Grant submitted that the claim to “general agency” is not available to AHC. Hexstone has been prejudiced, he submitted, because had the “general agency” been pleaded there might well have been an application for further information/clarification or specific disclosure. I am sympathetic to this submission and would, if necessary, have rejected the plea of “general agency” on this basis alone. However, it seems to me that I can and should go further. There is not the slightest evidence before me as to how this “general agency” was allegedly expressly created. Mr Halliwell sought to persuade me that it could somehow be implied from the facts, but I fail to see how. Why should the “general agent” have been either Mr Nixon or Eddie Stobart (as opposed to some other entity or person within the Stobart Group to whose direction Mr Nixon or Eddie Stobart were acting)? How and when is such “general agency” supposed to have been created? Why should such a “general agency” necessarily have been created at all ?
[39] I note all the various factors that, in Dun & Bradstreet, it was submitted were sufficient to establish the appropriate “general agency”: see p178C. However, the Court of Appeal held that the judge below had been wrong, on the material before him, to find that the second plaintiff had been acting as “general agent” of the first plaintiff in serving the break notice. Quite simply, I do not have any material before me to enable me to find that a “general agency” was impliedly created. Whether different material, and a differently pleaded defence, would have caused me to reach a different conclusion is irrelevant.
[40] Mr Halliwell accepted that only a “general agent” is capable of serving a valid break notice in his own name (without disclosing the fact of agency on the face of the break notice). Nevertheless, out of an abundance of caution, I should go further and consider whether:
(i) AHC has established that Eddie Stobart or Mr Nixon were in fact duly authorised by it (albeit not under a “general agency”) to give the notice; and
(ii) if so, the notice might have been valid (notwithstanding the absence of any reference to agency on its face).
[41] In my judgment, AHC has entirely failed to establish that it duly authorised Eddie Stobart or Mr Nixon to give the notice on its behalf. The grant of express authority has not been established and I do not see how such authority can be implied from the material before me.
[42] However, even if Eddie Stobart or Mr Nixon had been duly authorised by AHC to give the notice, still, because of the absence of reference to agency on the face of the notice, the same could not possibly have been valid on this analysis unless the circumstances were such that Hexstone, as recipient, could act on the notice safely in the knowledge that it would be binding on the principal (AHC). I take this from propositions 3 and 4 put forward by Mr Jonathan Gaunt QC to the Court of Appeal in Lemmerbell, which propositions the Court of Appeal appears to have accepted.
[43] I find it impossible to see how Hexstone could safely have acted on the notice in the knowledge that it would be binding on AHC. There is no question of Hexstone knowing that Eddie Stobart had been authorised to give the notice: proposition 4(a). Nor is there any question of AHC having held out Eddie Stobart as being authorised to give the notice: proposition 4(b). What in fact had happened, by the announcement, is not a case of “holding out” but, rather, an assertion that AHC would henceforth be known as Eddie Stobart. It might be said that by the announcement Hexstone had been led to believe that the giver of the notice was the principal (because Hexstone had been told that AHC would henceforth be known as Eddie Stobart): proposition 4(c). However, that proposition was immediately negated by the terms of Eddie Stobart’s notepaper (with a company registration number that was different from that of the company registration number given for the tenant in the particulars of the underlease). The details that are required by statute to be set out on company notepaper are important. They cannot simply be overlooked or be regarded as irrelevant.
[44] Accordingly, it seems to me that the notepaper on which the notice was written announced that the party giving the notice was not the original tenant under the underlease. Once that point is appreciated, I find it impossible to see how Hexstone could safely have relied on the notice in the knowledge that it would be binding on the true principal. For all Hexstone knew, the underlease could perhaps have been assigned to Eddie Stobart. As Neuberger J pointed out in Procter & Gamble, in [40], it is trite law that a lease can be effectively assigned by the tenant without the landlord’s knowledge or consent even where, as in that case, there was a covenant against assignment without the landlord’s consent.
[45] For all the above reasons therefore, in my judgment, the notice was invalid and accordingly entirely ineffective to determine the term created by the underlease on 31 October 2009.
[46] Mr Grant advanced a further set of submissions to me based on Mannai. His contention was that the reasonable recipient would be left in great doubt as a result of the contents of the notice and, to that extent, the notice had been ineffective to convey the information required by clause 7.1 of the underlease. Analysing matters as I have done above, this submission seems to me to become surplusage. If a “general agent” can serve a break notice in his own name and without disclosing the fact of agency, it is difficult to see why any reasonable recipient could have been misled by the notice or why the notice did not convey the information required by clause 7.1 of the underlease. The problem for AHC, of course, is that such “general agency” is not established and that is why the notice becomes confusing to the reasonable recipient. Moreover, if a valid break notice could be served by a specifically authorised agent (other than a “general agent”) in his own name and without disclosing the fact of agency, the question that arises, in my judgment, is whether the circumstances are such that the recipient can safely act on the break notice in the knowledge that it will be binding on the principal. If the recipient could indeed safely so act, it is difficult, to my mind, to see why the break notice should have been confusing |page:19| to the reasonable recipient or have failed to convey the information required by clause 7.1 of the underlease. I am not, however, necessarily confident that my reasoning is consistent with, for example, the reasoning adopted by Neuberger J in Procter & Gamble, (in particular in [40]). I would therefore, should my approach be incorrect and the issue is not surplusage, have found that the notice was misleading to a reasonable recipient and failed to communicate the information required by clause 7.1 of the underlease, in that it would have been quite unclear to any reasonable recipient in what capacity Eddie Stobart was acting. Any reasonable recipient would have been able to ascertain from the company registration number on Eddie Stobart’s notepaper that Eddie Stobart was not the original tenant under the underlease. Any reasonable recipient, therefore, would wonder whether: (a) there had been an assignment of the term created by the underlease; or (b) Eddie Stobart was acting in its own right as principal or purportedly for and on behalf of the original tenant. That confusion is not cured by the announcement because the announcement said that Eddie Stobart would be the new name of the original tenant, but the notepaper made it quite clear, through its use of a different company registration number, that that was not the true position.
[47] In conclusion, I should just add that Mr Halliwell did seek to draw assistance from the decision of Hart J in Havant International Holdings Ltd v H Lionsgate Investment Ltd [2000] L&TR 297. That case, however, was entirely different on its facts. In the present case, I have found that the notice was given by Eddie Stobart as principal and, in any event, general or specific agency (conferred by AHC on Eddie Stobart or Mr Nixon) has not been established. As I have indicated, in the present case I have found that the notice was given by the wrong party. If and to the extent that it be suggested (as I think it probably was by Mr Halliwell’s submissions) that the decision of Hart J is authority for a proposition that a notice given by the wrong party (which is not saved under principles of agency) is saveable because, under the Mannai test, a reasonable recipient would read the notice as having been given by the correct person, I would respectfully disagree. A notice given by X without the authority of Y cannot be treated as a notice given by Y simply because the reasonable recipient would think that it was given by Y. How could this be if, for example, Y did not want to exercise its break rights under the lease?
Construction
[48] Mr Grant commenced his submissions with an argument as to the true construction of the underlease. Granted the conclusions to which I have already come, I can deal with this point of construction relatively briefly. His argument was simplicity itself. He said that the second reference in clause 7.1 (time to be of the essence of such notice) meant that the break notice had to be given or at least had to take effect from 30 April 2009 and that date only. Only such construction, he said, gave any meaning to the second use, albeit in parenthesis, of the phrase “time to be the essence of such notice” .
[49] On any objective analysis of the words used in clause 7.1 of the underlease, it seems to me to be a commercial absurdity to suggest that the parties had intended that the break notice had to be given on 30 April 2009 and only on that date (or if given earlier had to be drafted in such a way that whatever the date of receipt the same was expressed to take effect only on 30 April 2009). If this were the true construction of clause 7.1 it is, at the very least, highly surprising that the parties did not expressly state this to be the case. Rather, it seems to me that by the use of the words in parenthesis “time to be of the essence of such notice” all that was being emphasised was that time was of the essence of the period of six months. Mr Grant submitted that this would mean that the words in question are surplusage because of course a notice given less than six months prior to 31 October 2009 would, by definition, be bad. Perhaps the words were indeed surplusage. However, clause 7 is not after all the most happily drafted of clauses granted the hanging “and” that appears at the end of clause 7.2.3, the somewhat surprising reference to section 26 of the 1954 Act in clause 7.2.3 (when the underlease is, in fact, contracted out of protection under Part II of the 1954 Act) and the terms of clause 7.3.
[50] Ultimately, as with many points of construction, the issue is a short one. It is not, I think, a point that benefits from detailed analysis or indeed a detailed recitation of the principles applicable to construction. Especially is this so granted the fact that I have already decided this case in Hexstone’s favour.
[51] Accordingly, I reject the construction argument as advanced by Mr Grant on behalf of Hexstone. The notice, had it otherwise been valid, would have been given within the time limits required by clause 7.1 of the underlease.
Conclusion
[52] For the reasons given above, I hold that the notice as given in the letter dated 23 April 2009 from Eddie Stobart to Hexstone was not a valid notice under and in accordance with the terms of clause 7.1 of the underlease. Accordingly, the underlease continues for the remainder of its term.
Claim allowed; counter-claim dismissed.