Rectification — Lease — Assignment of term — Whether landlord entitled to rectification — Whether assignee bona fide purchaser for value — Whether landlord’s right of rectification binds assignee under section 70(1)(g) of Land Registration Act 1925 — Burden of proof for rectification — Whether landlord had ‘clean hands’
In November 1990 the defendant landlord granted a
25-year term of commercial premises to L Ltd. The lease provided that the rent
payable for the first five years was £207,683 pa (equivalent to £3.50 per sq
ft) and thereafter subject to an upwards-only review. The lease also provided
for an additional payment of £59,338 pa in years four and five of the term
(equivalent to an additional £1 per sq ft). In 1995 L Ltd, which had changed
its name, assigned the lease to the plaintiff tenant with the consent of the
landlord. Until the early part of 1997 the tenant continued to pay rent at the
rate of £267,021 pa (equivalent to £4.50 per sq ft). In June 1997 the tenant
issued the present proceedings seeking a declaration that the rent under the lease
was £207,683 pa. The landlord counterclaimed, contending there was an agreement
prior to the grant of the lease that the rent in years four and five of the
term was to be at the rate of £4.50 per sq ft and thereafter upwards-only, and
seeking rectification of the lease. It was submitted on behalf of the tenant
that the landlord was not entitled to rectification as the tenant was a bona
fide purchaser for value without notice of the right to rectification.
application for rectification was dismissed. The tenant had given consideration
for the assignment of the lease by an express obligation in favour of the
assignor, the original tenant, to pay the rents and indemnify the assignor. The
tenant was a bona fide purchaser for value of the lease without notice of any
claim by the landlord to rectify it. However, if the landlord had a valid claim
to rectify the lease, the tenant would, in principle, be bound by that claim in
the light of section 70(1)(g) of the Land Registration Act 1925. The
landlord was ‘in receipt of the rents and profits’, and a right to
rectification can bind successors in title and was a ‘right’ within the meaning
of section 70(1)(g). The landlord had not discharged the burden of proof
to justify an order for rectification. If an order for rectification had been
otherwise appropriate, the ‘clean hands’ doctrine would not have prevented such
an order being made.
The following cases are
referred to in this report.
Blacklocks v JB
Developments (Godalming) Ltd [1982] Ch 183; [1981] 3 WLR 554; [1981] 3 All
ER 392
Boots the Chemist Ltd v Street [1983] 2 EGLR 51; (1983) 268 EG 817
Equity & Law Life Assurance Society Ltd v Coltness Group Ltd [1983] 2 EGLR 118; (1983) 267 EG 949
Harris v Tubb
(1889) 42 ChD 79
Johnsey Estates Ltd v Lewis & Manley (Engineering) Ltd (1987) 54 P&CR
296; [1987] 2 EGLR 69; 284 EG 1240-1243, CA
Joscelyne v Nissen
[1970] 2 QB 86; [1970] 2 WLR 509; [1970] 1 All ER 1213, CA
Lee-Parker v Izzet
[1971] 1 WLR 1688; [1971] 3 All ER 1099
Lee-Parker v Izzet
(No 2) [1972] 1 WLR 775; [1972] 2
All ER 8000; (1972) 23 P&CR 301
Midland Bank Trust Co Ltd v Green [1981] AC 513; [1981] 2 WLR 28; [1981] 1 All ER 153,
HL
National Provincial Bank Ltd v Hastings Car Mart Ltd [1965] AC 1175; [1965] 3 WLR 1;
[1965] 2 All ER 472, HL
National Provincial Bank Ltd v Hastings Car Mart Ltd [1964] Ch 665; [1964] 2 WLR 751;
[1964] 1 All ER 688, CA
Price v Jenkins
(1877) 5 ChD 619
Pride of Derby and Derbyshire Angling
Association Ltd v British Celanese Ltd
[1953] Ch 149; [1953] 2 WLR 58; [1953] 1 All ER 179; (1953) 51 LGR 121; [1953]
JPL 292; 117 JP 52, CA
Smith v Jones
[1954] 1 WLR 1089
Snook v London
& West Riding Investments Ltd [1967] 2 QB 786; [1967] 2 WLR 1020;
[1967] 1 All ER 518, CA
Stump v Gaby
(1852) 2 De GM&G 623
Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505; [1981] 1 All ER
1077; (1980) 41 P&CR 345; [1981] 1 EGLR 91; 257 EG 381
Williams & Glyn’s Bank Ltd v Boland [1981] AC 487; [1980] 3 WLR 138; [1980] 2 All ER
408; (1980) 40 P&CR 451, HL
This was an application
by the tenant, Nurdin & Peacock plc, seeking a declaration as to the rent
payable under a lease and the recovery of an overpayment of rent. The landlord,
DB Ramsden & Co Ltd, counterclaimed for rectification of a lease.
Jonathan Brock QC and Alexander Hill-Smith
(instructed by Brookstreet Des Roches, of Witney) appeared for the plaintiff;
Edward Nugee QC and Patrick Walker (instructed by John Barkers, of Grimsby)
represented the defendant.
Giving judgment, NEUBERGER J said:
Introduction
This case involves a claim by a landlord to
rectify the provisions relating to rent in a lease. It is brought against the
original tenant and the current tenant, to whom the lease was assigned by the
original tenant.
Outline of the uncontroversial facts
Before the grant of the lease
DB Ramsden & Co Ltd (DBR) is a company that is
and was at all relevant times effectively owned and controlled by Mr Dudley
Ramsden (Mr Ramsden). In 1990 DBR ran a retail cash-and-carry operation from
three substantial properties in the north of England. Two of these properties
were owned freehold by DBR, and one of them, at Leads Road, Hull (the
premises), was held under a long lease. Through trade connections, Mr Ramsden
knew Mr Roy Hall, and his son Mr Andrew Hall (Mr Hall), who were respectively
the chairman and managing director of Roy Hall Cash & Carry Ltd, a company
that had been a Hall family company until it had been acquired, in 1988, by
Fitzwilton (UK) plc, a wholly owned English subsidiary of Fitzwilton plc, an Irish
company. By the summer of 1990 Mr Ramsden wished to sell the business being
carried on by DBR at the premises, and he entered into discussions with Mr Hall
around early October 1990 to that end.
By 17 October 1990
negotiations were sufficiently far advanced for Mr Richard Robinson, a partner
in Wilkin & Chapman, DBR’s solicitors, to write a letter to Mr Hall
summarising the proposals. They involved, inter alia, the grant of an
underlease (the lease) of the premises for a term of 15 or 25 years at a rent
equivalent to £4.50 per sq ft pa with ‘rent reviews every five years’, the sale
of the business carried on at the premises for £350,000, payable in three
instalments, and a covenant against competition. The letter envisaged that
completion would take place in early November. Negotiations then ensued.
Although the initial
rent sought by DBR was based on £4.50 per sq ft pa, the solicitor instructed by
Mr Hall, Mr Philip Cowen (then a partner in Cowen & Co) informed Mr
Robinson on about 30 October that the rent under the lease should be at a rate
of £3.50 per sq ft pa. This figure was based on valuation advice received from
a surveyor instructed by Fitzwilton UK, David Rose of the Elliott Partnership,
who had already been in negotiations with a surveyor instructed by DBR,
Mr
On 2 November Mr
Ramsden met Mr Hall to discuss various outstanding items (including the rent
payable under the projected lease). They reached an accord upon which they
shook hands. The accord they reached is summarised in a fairly full note
prepared by Mr Ramsden. The note included the following:
As a compromise we
have finished up at £3.50 for years 1, 2 and 3, rising to £4.50 at years 4 and
5.
The solicitors then
got down to the detailed drafting of the various documents. It was envisaged
that the proposed transaction would be effected by three documents, namely: a
sale agreement, involving the sale of the business at the premises by DBR; the
lease, which was to be granted by DBR for a term of 25 years from 17 November
1990; and an anti-competition covenant, to be entered into by Mr Ramsden (the
covenant). In the case of each document, the other party (ie the purchaser
under the sale agreement, the tenant under the lease and the beneficiary under
the covenant) was a company called Linrock Ltd (Linrock), which had been
acquired ‘off the shelf’ on about 6
Hall was appointed sole director of Linrock on 9
Linrock changed its name to Roy Hall (Hull) Ltd on 19 November 1990, but I
shall refer to it as Linrock for the purposes of this judgment). Mr Cowen was
responsible for drafting all the documents on Linrock’s side, but, while Mr
Robinson retained responsibility for the drafting of the sale agreement and the
covenant on DBR’s side, the responsibility for drafting the lease was that of
his conveyancing partner, Mr Sutcliffe.
On 13 November a
meeting took place at Mr Robinson’s office in Grimsby. That meeting was
attended by Mr Ramsden and Mr Robinson, for DBR, and Mr Cowen and Mr Roy Hall,
who was standing in for his son, who was away on business, for Linrock. The
purpose of the meeting was to deal with any uncertainties or disagreements that
had arisen during the drafting negotiations. Although there was a suggestion to
the contrary in the oral evidence, it seems unlikely that anything significant
was said about the rent payable under the lease at that meeting. There had been
an accord on 2
was no need to discuss it 11 days later, because neither side wished to resile
from the accord. By the end of the meeting, all existing problems had been
sorted out, and it was effectively agreed that Linrock would take over the
business and the premises over the weekend of the 17/18 November, which is what
in fact happened.
Thereafter, the
solicitors continued trying to finalise the precise terms of the documentation,
and Mr Sutcliffe was seeking the consent of DBR’s mortgagee, Midland Bank plc
(the bank), for the grant of the lease. On 16 November 1990 he wrote to the
bank confirming that the premises were to be let at a rent of £3.50 per sq ft
for the first three years and £4.50 per sq ft for the fourth and fifth years.
Meanwhile, Mr Hall
had informed Mr Rose, the surveyor appointed by Fitzwilton UK, what he had
agreed with Mr Ramsden with regard to the rent. On 14 November Mr Rose wrote to
Mr Hall (with a copy to Mr Cowen) repeating his advice that the premises were
worth between £3.25 and £3.50 per sq ft pa, and that the level of rent that Mr
Hall had agreed represented ‘an average rental of £3.90 per square foot’ and
that, on the assumption that the rent review provisions in the lease were in
normal ‘upwards-only’ form, the minimum rent on the commencement of the sixth
year of the term would be £4.50 per sq ft, which might well be substantially in
excess of the market rent at that time. A copy of this letter was received by
Mr Cowen on 16 November. On 19 November Mr
say that the proposed rent of £4.50 per sq ft for the fourth and fifth years of
the term was too high, and suggesting that the rent remained fixed, based on
£3.50 per sq ft, for the whole of the first five years of the term, and that,
during the fourth and fifth years of the term, an annual payment, not being
rent, but representing the difference between a rent based on £4.50 per sq ft
and a rent based on £3.50 per sq ft, be paid. Mr Robinson made a brief note of
that telephone conversation. That note also records something about the
position after the first review date under the lease.
On 19 November Mr
Cowen sent a fax to Mr Robinson stating that ‘Andrew [sc Mr Hall] has spoken
with Dudley [sc Mr Ramsden] and it has been agreed as follows’. There then
followed five topics, the third of which was as follows:
For the reasons
explained to you my clients can only agree to the lease rent being at no more
than £3.50… for the first five years. I understand that your client agreed to
this but that there would be a side agreement (or a suitable amendment to the
lease) to provide for my clients to make a contribution towards the cost of
repairs in year 4 and 5 at the rate of £1 per foot in those years only.
Mr Cowen then went
on to deal with the question of certain repairs to the premises, which DBR was
to carry out under the terms of the lease.
The following day,
20 November, Mr Robinson sent a four-page fax to Mr Cowen, which began by
setting out what he understood had been agreed in relation to certain sums
payable on completion of the sale agreement. The fax then went on to say ‘As I
see it the following points are still to be resolved’, and there then followed
two items in respect of the lease, three items in respect of the sale agreement
and a question relating to the warranty of the accounts. The second item that
was ‘still to be resolved’ in relation to the lease was in the following terms.
The agreement will
be amended to reflect that the rent for the five year period will be £3.50 per
square foot but that your clients will pay a contribution of £1 per square foot
in years four and five towards repairs such payments to be invoiced and made on
the same dates as the rent payments. I have spoken to Dudley Ramsden about the
basis of the rent review in year six and he is quite adamant that when he and
Andrew Hall agreed matters, it was on the basis that the rent for years four
and five would be £4.50 per square foot and hence that the minimum rent in year
six would be £4.50 per square foot. He would not wish to alter that
arrangement. Of course by that stage it may be that the market rent is in
excess of £4.50 per square foot but I would like it quite specifically agreed
that that is the base rent for year six which cannot be reduced even if
arbitration is called for.
Mr Robinson’s fax went on to deal with certain
‘minor amendments’, and ended by pointing out that Linrock had taken over the
business and been in occupation of the premises since Saturday
17
Thereafter, Mr Robinson
and Mr Cowen appear to have finalised the terms of the sale agreement and the
lease over the telephone on the morning of 21 November (the Tuesday after the
weekend when the premises had been handed over to Linrock). Formal exchange of
the sale agreement, the lease and the covenant was effected over the telephone
at 12.30pm on 21 November. Mr Hall executed the three documents on behalf of
Linrock, having been authorised to do so by a board meeting of Fitzwilton UK
held at 9.00am on the morning of 21
The relevant provisions of the lease and sale
agreement
The reddendum in the lease provided for the
rent to be:
The rent specified in the second schedule hereto
such rent to be paid by equal quarterly payments in advance on the 1st
February, 1st May, 1st August and 1st November in each year…
Para 1 of Part II of the second schedule to the
lease (the schedule) stated that ‘Review Period’ meant each five-year period
starting on every fifth anniversary of the term of the lease. Para 2 of the
schedule provided:
The yearly rent shall be:–
(a) From the commencement date until the first
revue [sic] date the 7th day of November 1995 a rental of £207,683.00 at
£3.50 per square foot calculated on an area of 59,338 square feet or such
increased rent as may have been agreed as a condition of giving consent to an
underletting under Clause 2(h)(ii) hereof and
(b) during each successive Review Period a rent
equal to the rent previously payable hereunder or such revised rent as may be
ascertained as herein provided whichever be the greater
The schedule then went on to set out the machinery
pursuant to which such revised rent was to be determined.
Clause 2 of the lease contained the tenant’s
covenants, the first two of which were:
(a) to pay the reserved rents at the times and in
manner aforesaid without any deduction or set-off whatsoever
(b) to pay (or in the absence of a direct
assessment on the Tenant to repay to the Landlord a fair proportion of) all
existing and future rates taxes assessments impositions and outgoings payable
by law in respect of the Premises either by the owner or occupier thereof
together with the sum of £59,338.00 in each of years four and five of the term
payable in equal instalments on the rent payment dates
In addition to DBR and Linrock, both Fitzwilton
and Fitzwilton UK were parties to the sale agreement for the purpose of
guaranteeing certain liabilities of Linrock thereunder. The sale agreement made
reference to the lease: indeed it was appended to it in draft form precisely in
the terms in which it was executed. The sale agreement contained an obligation
on DBR to grant the lease to Linrock; there was no express obligation on
Linrock to take the lease, presumably because, given that under the sale
agreement Linrock was acquiring the. goodwill, stock and fixtures of the
business carried on at the premises, there was no question but that Linrock
would take the intended lease of the premises.
After the grant of the lease
On 26 November Mr Sutcliffe wrote to the bank
informing it that the lease had been completed on 21 November and that it was:
For a term of 25 years from the 17th November
1990 and the initial rent for the first five years is £207,683.00 at £3.05
[which is obviously a misprint for £3.50] per square foot.
Thereafter, nothing of note happened until 1994,
when Nurdin & Peacock plc (Nurdin) entered into negotiations with
Fitzwilton to acquire its shareholdings in a number of companies, including
Linrock. Nurdin instructed solicitors, Macfarlanes, and surveyors, GL Hearn
& Partners, to advise it in connection with the acquisition. Mr RW Cobb, a
partner in Hearns, had the role of advising on the value of the property interests
owned by the various companies. When dealing with the premises, he advised that
their then current rental value was in the region of £200,000 pa, and he drew
attention to the fact that, at least as far as he was concerned, it was unclear
whether the minimum rent, with effect from the first rent review on 17 November
1995, was £207,683 pa or £267,430 pa. When reporting to Nurdin on title,
Macfarlanes initially indicated that ‘further details… are awaited’ in relation
to the payments due in the fourth and fifth years under clause 2(b) of the
lease. However, as they could get no details from Fitzwilton UK’s solicitors,
presumably due to the fact that the transaction was being completed in
something of a hurry, Macfarlanes ultimately reported to Nurdin that they had
‘no further details in relation to the payment of these sums’.
Following that advice, Nurdin acquired the shares
in Linrock and certain other companies owned by Fitzwilton UK, pursuant to a
share purchase agreement dated 12 April 1994 (the share purchase agreement).
The share purchase agreement contained details of the properties owned by the
various companies being acquired, and the details of the premises recorded the
‘current rent’ as £267,430 pa.
It appears that the lease and land certificate
could not be found, and a statutory declaration was sworn on 11 May 1994 by Mr
Terence Vincent, a director of Linrock. At para 3 of the declaration he
said, quite inaccurately on the evidence
I have heard, that:
At the time of the grant of the… lease I…
supervised the taking of the lease on behalf of [Linrock].
Having dealt with various other matters, Mr
Vincent concluded his statutory declaration as follows:
I am not aware of any question or doubt affecting
[Linrock’s] interest in the title or any part thereof or of any matter or thing
whereby the title is or may be impeached, affected or called in question in any
manner whatsoever [the ‘title’ in question clearly being Linrock’s title to the
lease].
It appears that the lease and land certificate
were found shortly afterwards, and the statutory declaration had no further
part to play.
On 23 December 1994 Linrock (together with the
other companies whose shareholdings were acquired by Nurdin pursuant to the
share purchase agreement) entered into a written agreement to transfer the
lease (and other property interests held by such companies) to Nurdin. About a
week earlier, DBR’s licence for the assignment of the lease to Nurdin had been
sought, and had been given in principle: it was eventually formally granted by
a licence to assign dated 18 May 1995. The assignment was executed on 1 June
1995 (the 1995 transfer), resulting in Nurdin becoming the registered
proprietor of the lease at the Land Registry on 15 June 1995. Under the 1995
transfer, Nurdin covenanted with Linrock that Nurdin would ‘at all times
throughout the residue of the term of the lease pay the rents reserved… and
observe and perform the covenants and conditions and other obligations on the
part of the tenant contained… in the lease’; Nurdin also agreed to ‘indemnify
and keep [Linrock] fully indemnified against all… losses… and expenses which
may be suffered… by [Linrock] in respect of any breach or failure to observe
and perform those covenants’.
Until the early part of 1997, Nurdin continued to
pay DBR at the rate of £267,021 pa on the quarter days prescribed by the lease,
without either party raising with the other any question in connection with the
rent review due with effect from 17 November 1995, and in particular the rent
payable with effect from that date under the lease. (It is right to record that
there was a dispute as to the interest payable in respect of a late payment,
which probably touched on the level of rent, in the strict sense, under the
lease, but that is not relevant, at least in relation to the issues I have to
determine now.)
In early 1997, all the shares in Nurdin were
acquired by the Booker group of companies, and, for the first time, on 17
February 1997, the question was raised on behalf of the tenant, Nurdin, whether
the quarterly payments should be £66,765.25 (plus VAT), as had apparently been
assumed by the parties (and as DBR claimed in an invoice), or whether they
should be £51,920.75 (plus VAT) per quarter.
Bookers referred back to Mr Robinson, who
initially wrote suggesting that the ‘correct interpretation’ was that the rent
was ‘£267,021 per annum for the five year term with a reduction in years one to
three taking into account the repairing covenants’. This was not accepted by
Nurdin, who none the less continued to pay at the rate of £267,021 pa on the
basis, recorded in an internal Booker memorandum, of ‘legal advice… that the
rent at the higher level must continue to be paid. If we are successful a
refund can then be obtained.’
Proceedings
By a writ issued on 12 June 1997 Nurdin sought a
declaration to the effect that, as tenant under the lease, it was liable to pay
rent at the rate of £207,683 pa with effect from 17 November 1995; Nurdin also
sought repayment of the sums overpaid on the assumption that that construction
was correct. DBR, at least on the pleadings, disputed the issue of
construction, and sought, in the alternative, rectification of the lease so
that the rent, with effect from 17 November 1995, was £267,021 pa.
In these circumstances, the following issues
arise:
1. On its true construction, what is the rent
under the lease with effect from 17 November 1995 (on the basis of there having
been no review of the rent from that date)?
2. Assuming the answer to that question is
£207,683 pa, is DBR entitled to rectification of the lease as against Linrock
so that the rent from 17 November 1995 is £267,021 pa?
3. Assuming that the answer to the immediately
preceding question is ‘yes’, is DBR entitled to such rectification against
Nurdin?
4. If DBR is not entitled to rectification against
Nurdin, is Nurdin entitled to recover any overpayments made since and including
the payments made in respect of 1 November 1995?
Issue 1 is no longer in contention: DBR accepts
that, as a matter of construction, the provisions of clause 2(b) effectively
fall away at the end of the fifth year of the term, that the payments
thereunder are plainly not ‘rent’ under the lease, and that, accordingly, ‘the
rent previously payable hereunder’ in para 2(b) of the schedule must be
£207,583 pa. I propose to deal with issue 3 before issue 2. First, that is the
basis upon which the case has been argued, and the approach I have been invited
to adopt by both parties. Second, it was the approach of the court in both
aspects of the Lee-Parker v Izzet litigation, at [1971] 1 WLR
1688 and [1972] 1 WLR 775. Issues 2 and 3 themselves raise subissues, at least
some of which are of some general interest. I do not propose at this stage to
consider issue 4: the parties are agreed that this is better left over for
argument and determination after the other issues have been dealt with*.
*Editor’s note: See Nurdin & Peacock plc
v DB Ramsden & Co Ltd (No 2) [1999] 1 EGLR 15
So far as issue 3 is concerned, Nurdin claims to
be a bona fide purchaser for value of the lease without notice of any claim by
DBR to rectify the lease, and that, in those circumstances, even if DBR has any
claim to rectify the lease, that claim cannot be binding on Nurdin. DBR puts
forward two arguments against this. The first is that Nurdin was not a bona
fide purchaser for value without notice; the second is that, even if Nurdin was
such a purchaser, it none the less took the lease subject to any claim by DBR
for rectification by virtue of the provisions of section 70(1)(g) of the
Land Registration Act 1925.
So far as the first argument is concerned, DBR
contends that Nurdin had ‘notice’ of the right to rectify, that Nurdin was not
a ‘purchaser’ and/or Nurdin was not a purchaser ‘for value’. So far as the
latter point is concerned, Nurdin claims to be a purchaser for value on three
possible bases: that the 1995 transfer should be seen as part of the share
purchase agreement; that the 1995 transfer was for consideration of £1; and
that the 1995 transfer was in consideration of Nurdin taking on liability under
the covenants in the lease. As to the second argument, DBR contends that any
right that it had to rectify is an overriding interest.
As to issue 2, DBR contends that, on the evidence,
the necessary ingredients for rectification of the lease have been established,
and that an order for rectification should therefore, in principle, be made.
Nurdin puts forward two arguments to the contrary. The first is that, on the
evidence, DBR has not made out its claim for rectification in principle. In the
alternative, Nurdin contends that, even if a claim for rectification can be
made out in principle, it should be rejected on equitable grounds.
Was Nurdin a bona fide purchaser for value
without notice?
Did Nurdin have ‘notice’ of the claim to
rectify?
It would seem clear from the advice given to
Nurdin, both by Macfarlanes and by Hearns, shortly before Nurdin entered into
the share purchase agreement, that Nurdin was aware that there was uncertainty
as to whether the base rent, with effect from 17 November 1995, included the
payments due under clause 2(b) of the lease, ie whether the base rent was
£207,683 pa or £267,021 pa. Mr Edward Nugee QC, who appeared for DBR together
with Mr Patrick Walker, also pointed out that it is very unusual for the rent
to fall under a commercial lease, especially when that lease provides in terms
for each quinquennial review of the rent to be ‘upwards only’. He argued that,
in these circumstances, Nurdin was sufficiently put on inquiry that it should
be treated as having had ‘notice’ of the possibility of a claim to rectify the
lease. He also relied on the fact that, under the share purchase agreement pursuant
to which Nurdin paid out over £20m for the shares in Linrock (and a number of
other companies), the lease is recorded as reserving a rent of about £267,021
pa.
I do not accept this argument. The point of which
Nurdin had notice was that the status and effect of the sums payable in the
fourth and fifth years under clause 2(b) of the lease were uncertain, as a
matter of construction. The fact that a document is unclear may render a claim
for rectification easier to maintain, at least if all the fundamental
requirements for rectification are present, but it is not, to my mind,
sufficient on its own to constitute notice of the possibility of a claim for
rectification, save, perhaps, in an extreme case.
While I accept that it is unusual for the rent
payable under a commercial lease to be reduced during the term, particularly
where, as in the present case, the rent review provisions are ‘upwards only’, I
do not consider that anything much can be made of that point in the present
case. The sums payable under clause 2(b) of the lease were not ‘rent’, and it
is quite common for other payments due under a lease (eg service charges,
insurance payments, rates, payments for electricity etc) to decrease, as well
as to increase, year on year. Furthermore, to find a liability to pay a large
quarterly sum during the fourth and fifth years of a lease in a covenant such
as clause 2(b) is very unusual, and the fact that it leads to an unusual
result, such as a subsequent reduction in the amount receivable by the landlord
from the tenant, is not therefore particularly surprising.
As to the fact that the rent payable under the
lease is recorded in the share purchase agreement as £267,021 pa, it seems to
me that this was not an unreasonable shorthand way of expressing the amount
then receivable by the landlord under the lease. The furthest it goes, in my
view, is to weaken any argument that Nurdin might otherwise have to the effect
that if there is, in principle, a right to rectify against Nurdin, it would be
unjust to Nurdin to rectify.
It was also suggested, on behalf of Nurdin, that
it had the benefit of Mr Vincent’s statutory declaration, which it had no
reason to know was inaccurate, and which stated that, as far as Linrock was
aware, no rights existed outside the lease. That is not a point that takes
things much further as there is no evidence that Nurdin relied on the statutory
declaration in any way. None the less, it does rather reinforce Nurdin’s case
so far as absence of notice is concerned.
Was Nurdin a ‘purchaser’?
Mr Nugee contended that, even if Nurdin should be
treated as having acquired the lease ‘for value’, and did so ‘without notice’
of DBR’s claim to rectify, it would none the less be bound by the claim because
it was not a ‘purchaser’. He contended that, far from being a purchaser, Nurdin
simply acquired the lease pursuant to a reorganisation of the companies, or
alternatively a reallocation of ownership of assets between the various
companies, within the Nurdin group.
In my judgment, while it may well be that, in the
context of ordinary language, it could be said that Nurdin was not ‘a
purchaser’, this argument overlooks the fact that the word ‘purchaser’ in the
expression ‘bona fide purchaser for value without notice’ has a rather special
meaning. It is well explained by the authors of Megarry & Wade on The
Law of Real Property 5th ed at p50, in these terms:
In this technical sense ‘purchaser’ is a person
who takes property by grant (eg by gift or sale) and not by mere
operation of law (eg by intestacy).
Indeed, unless ‘purchaser’ is given this rather
technical meaning, it is rather hard to see what the words ‘for value’ add in
the expression ‘bona fide purchaser for value’.
Was Nurdin a purchaser ‘for value’?
First, Mr Jonathan Brock QC, who appeared with Mr
Alexander Hill-Smith on behalf of Nurdin, contended that the transfer of the
lease should be treated as having been effected for value on the basis that it
was really part of the transaction involving the transfer of the shares in
Linrock (among other companies), for which the total consideration was £21.9m;
ie that the transfer of the lease to Nurdin should be treated
judgment, this argument is not tenable. The share purchase agreement, in so far
as it related to Linrock and its assets, simply involved a transfer of all the
shares in Linrock from Fitzwilton UK to Nurdin: although the lease was referred
to in the share purchase agreement as one of Linrock’s assets, there is nothing
to suggest that the share purchase agreement even involved the parties thereto
contemplating that the lease would be transferred from Linrock to Nurdin, let
alone that it gave rise to any contractual obligation on anyone to execute such
a transfer. I accept that, in the absence of the share purchase agreement
having taken place, and Nurdin having acquired all the shares in Linrock, there
may well have been no subsequent assignment of the lease by Linrock to Nurdin.
However, I cannot see that any part of the £21.9m payable by Nurdin, or any
other obligation assumed by Nurdin, under the share purchase agreement could
fairly be said to have been paid or assumed by Nurdin as consideration for the
subsequent transfer of the lease to Nurdin.
Second, it was contended that the payment of £1
under the 1995 transfer constituted sufficient ‘value’ to render Nurdin a
‘purchaser for value’. In the field of contract, it is well established that
the court does not inquire to the adequacy of consideration: once it is established
that some consideration has moved, that is enough for the purpose of
establishing the essential prerequisite of a contract. However, the doctrine of
consideration has been developed in the context of the common law, whereas the
concept of a ‘purchaser for value’ in a case such as this has a very different
history, being solidly based on equity. In this connection, it is worth
remembering that equity looks at the substance and not at the form. It seems to
me that, particularly in the context of an intra-group transfer, the substance
of a payment of £1 does not render a transferee a ‘purchaser for value’.
Mr Nugee referred to the decision of the House of
Lords in Midland Bank Trust Co Ltd v Green [1981] AC 513, which
raised, among other points, the issue of whether a person was a ‘purchaser’
within the meaning of the Land Charges Act 1925, which, by section 20(8),
defined a purchaser as being a person ‘who, for valuable consideration, takes
any interest in land’. Valuable consideration is to be contrasted with ‘nominal
consideration’, and at p532C Lord Wilberforce said:
‘Nominal consideration’ and a ‘nominal sum’ in
the law appear to me, as terms of art, to refer to a sum or consideration which
can be mentioned as consideration but is not necessarily paid.
Immediately before that passage, he had said that
he would ‘have great difficulty’ in holding that the sum in that case, £500,
was nominal consideration, because:
To equate ‘nominal’ with ‘inadequate’ or even
‘grossly inadequate’ would embark the law upon inquiries which I cannot think
were contemplated by Parliament.
As the last part of the observation indicates,
that case can only be of limited relevance to the present instance, because it
was concerned with the construction of a statute, whereas in the present case,
one is concerned with equitable principles. None the less, I do find those
observations of assistance.
The same points can be made about the decision at
first instance in Johnsey Estates Ltd v Lewis & Manley
(Engineering) Ltd (1987) 54 P&CR 296*. In that case, the county court
judge held that, in the context of an assignment of the lease, the payment of
£1 for the assignment was not ‘valuable consideration’ within the meaning of
section 77(1)(c) of the Law of Property Act 1925. The county court judge
is quoted in the judgment of Glidewell LJ at p299 as having said:
As to whether the payment of £1 amounts to
valuable consideration, it appears to me that, on its own, it does not. It was
a payment in money but of a very small amount.
*Editor’s note: Also reported at [1987] 2 EGLR
69; (1987) 284 EG 1240-1243
As Glidewell LJ went on to say, there was no
appeal on this point, and neither he nor Bingham LJ expressed a view on it. As
in Midland Bank v Green, the issue in that case concerned
statutory construction, but none the less it appears to me that it provides a
useful analogy.
In all these circumstances, I consider that the
payment of £1 in 1995 was ‘nominal consideration’ as that expression was used
by Lord Wilberforce, and I do not think that payment of ‘nominal consideration’
by a transferee renders him a ‘purchaser for value’.
Finally on this aspect, there is Mr Brock’s
argument that the liability assumed by Nurdin, and the indemnity given to
Linrock by Nurdin, in respect of all the tenant’s obligations under the lease
in the 1995 transfer, was sufficient consideration to render Nurdin a
‘purchaser for value’.
In my judgment, that is a good argument. One of
the reasons for rejecting the contention that £1 constituted sufficient
consideration to render Nurdin a purchaser ‘for value’ appears to me to be that
one should look at the substance of the transaction rather than the form. In
the present case, the tenant’s liabilities under the covenants in the lease,
and in particular the covenant to pay rent together with the additional sums
under clause 2(b), can fairly be considered as onerous. Particularly in the context
of a lease that provides for payments to the landlord significantly in excess
of the current market value of the premises, it appears to me rather
unrealistic to argue that the provision of an indemnity against future
liability does not constitute ‘value’. While it is not necessary for me so to
decide in the present case, I consider that, even where the rent is no more
than the current market rental value of the premises, an indemnity by an
assignee, such as that found in the 1995 transfer, would constitute ‘value’ for
this purpose. It is true that, at least in relation to a lease granted before 1
January 1996 (when the Landlord and Tenant (Covenants) Act 1995 came into
force) is concerned, an original tenant, such as Linrock, remains liable on the
covenants, including the obligation to pay rent, throughout the duration of the
lease, notwithstanding an assignment, and can be sued on those covenants by the
landlord, without his having to join any assignee. However, not only is this
continuation of liability the explanation for the inclusion of an indemnity
such as that contained in the 1995 assignment, it also emphasises the
importance and value of such an indemnity to an assignor, particularly in the
context of a lease that has more than 20 years to run and that reserves a
substantial rent, which (ignoring the additional payments) is not only subject
to ‘upwards only’ review, but is also in excess of the market rental value of
the premises. The fact that such an indemnity is an obvious quid pro quo
for the assignment of the lease does not appear to me to detract in any way
from the fact that it constitutes ‘value’ as a matter of ordinary language and
commercial reality.
I draw support for this conclusion from the
decision and reasoning of the Court of Appeal in Johnsey. As I have
said, it was concerned with a different point, namely whether such an indemnity
constituted ‘valuable consideration’ under section 77(1) of the Law of Property
Act 1925. In that case, apart from the payment of £1 (to which I have already
referred), there was no express reference in the assignment to any
consideration in connection with the assignment. However, Bingham LJ said at
p301:
If [counsel’s] argument is correct, it must
follow… that this was a conveyance without valuable consideration. In my
judgment it plainly was not. The assignor obtained an obvious benefit because,
although remaining liable to the landlord under his original contract, he
ceased to be primarily liable and gained the benefit of another party being
also liable. The assignee for his part undertook a responsibility in that he
undertook a responsibility to pay rent to the original landlord. Looking at the
matter as a commercial transaction and ignoring the £1, it is in my judgment
quite impossible to regard this transaction as one otherwise than for valuable
consideration.
While I accept that that decision, and the
reasoning it involved, is not binding on me because it was concerned with the
meaning of ‘valuable consideration’ in a statute, I think that it provides
indirect support for my conclusion that an express obligation on the assignee,
in favour of the assignor, to pay the rent and observe the covenants in the
lease, coupled with an express indemnity from the assignee in favour of the
assignor in relation to the assignor’s liability under the lease, does
constitute ‘value’ for the assignment, particularly in the context of a lease
at a substantial rent, which is, indeed, in excess of the market rent of the
demised premises.
It is right to mention Equity & Law Life
Assurance Society Ltd v Coltness Group Ltd (1983) 267 EG 949*, where
Whitford J said at p950:
What was advanced… was that… [the assignees of an
underlease] undertook certain obligations when they took the assignment of the
underlease, and that no doubt is true. But it does not, in my judgment make
them a purchaser for value.
*Editor’s note: Also reported at [1983] 2 EGLR
118
The decision in Midland Bank v Green
does not appear to have been cited, and the decision in Johnsey Estates
was, self-evidently, not available to be cited to Whitford J; he does not seem
to have considered the issue in any great detail; the point appears to have
been obiter, not least because he had already concluded that there had
been no ‘purchase’. While there is no doubt that I should not easily depart
from a decision of another first instance judge, it appears to me that, in the
circumstances of this case, where the point has been more fully argued, and
where there is assistance, albeit of an indirect nature, from the House of
Lords and Court of Appeal, and where the earlier decision was obiter, I
can and should do so.
Since drafting this judgment, I have had my
attention drawn to Harris v Tubb (1889) 42 ChD 79, a decision of
Kekewich J, not cited in any relevant textbook but discovered through the
researches of Mr
reluctance) applied the reasoning of the Court of Appeal in Price v Jenkins
(1877) 5 ChD 619, as a result of which he held that an assignment of a lease,
even without an express covenant or indemnity by the assignee in favour of the
assignor (as there is here), rendered the assignee a purchaser for value.
Fortunately, the conclusion I reached on the point in ignorance of this case is
consistent with it.
Conclusion
In light of the facts that, under the terms of the
1995 transfer, Nurdin effectively agreed to assume primary liability under the
covenants in the lease, and also agreed to indemnify Linrock against any
liabilities it might have under the lease, and that Nurdin had no reason to
know of, or even suspect, the existence of a claim by DBR to rectify the lease,
I consider that Nurdin was a bona fide purchaser for value of the lease without
notice of DBR’s claim to rectify.
Section 70(1)(g) of the 1925 Act
By virtue of section 23(1)(c) of the Land
Registration Act 1925, the registration of Nurdin as proprietor of the lease at
the Land Registry on 15 June 1995 vested the lease in Nurdin ‘subject… to the
overriding interests, if any, affecting the [leasehold interest]’. By virtue of
section 70(1)(g), overriding interests include:
The rights of every person in actual occupation
of the land or in receipt of the rents and profits thereof, save where enquiry
is made of such person and the rights are not disclosed.
DBR’s argument is that:
1. DBR was a person ‘in receipt of the rents and
profits’ of the land in question;
2. one of DBR’s ‘rights’ was its claim to have the
lease rectified;
3. no inquiry was made of DBR by Nurdin; and
4. in those circumstances, DBR’s right to rectify
is an ‘overriding interest’ binding on Nurdin.
Apart from the question of whether DBR should
succeed in its claim to rectify the lease at all, the only issue between the
parties in relation to the above argument is whether DBR’s claim to rectify the
lease is a ‘right’ within the ambit of section 70(1)(g).
In this connection, on behalf of Nurdin, Mr Brock
contended that a claim to rectify is not a ‘right’ within section 70(1)(g)
essentially for two reasons. The first reason was that there is no ‘right’ to
rectify; Mr
remedy that is therefore at the discretion of the court, but it is a remedy
that is particularly susceptible to being defeated on equitable grounds. In my
judgment, that argument involves giving an artificially and unrealistically
narrow meaning to the word ‘rights’ in section 70(1)(g). If the court
concludes that it is appropriate to rectify the lease, then the person in whose
favour the rectification would be ordered can be said, as a matter of ordinary
language, to have a ‘right’ to rectify the lease. In a sense, nobody can be
sure that he has a ‘right’, whether legal or equitable, until the court decides
that he does.
Furthermore, while equitable remedies such as
rectification are often described as ‘discretionary’, this is not really an
accurate description. In Pride of Derby and Derbyshire Angling Association
Ltd v British Celanese Ltd [1953] Ch 149 Sir Raymond Evershed MR
said at p181:
I venture to think that the fallacy which
underlies this part of the corporation’s argument is based on the statement
made on their part that an injunction is purely discretionary — if by that is
meant that in a case where a person’s rights, such as the plaintiffs’ rights,
are being damaged, and there is a threat of continuing damage, the question
whether an injunction will be granted is determined by the court upon balance
of convenience on one side or the other.
In my judgment, that is not a correct statement
of the position. It is, I think, well settled that if A proves that his
proprietary rights are being wrongfully interfered with by B, and that B
intends to continue his wrong, then A is prima facie entitled to an
injunction, and he will be deprived of that remedy only if special
circumstances exist, including the circumstance that damages are an adequate
remedy for the wrong that he has suffered.
In other words, as Mr Nugee put it, because
rectification is an equitable remedy, it will not be granted if there is an
equitable defence available. However, that no more renders rectification a
discretionary remedy or something other than a ‘right’ than a claim for damages
is rendered discretionary or prevented from being a ‘right’ because it may be
defeated by a defence based, for instance, upon limitation, estoppel or waiver.
The second argument raised by Mr Brock was that a
right to rectify is a personal right or ‘mere equity’, which is not within the
ambit of the ‘rights’ falling within section 70(1)(g). In this
connection, Russell LJ said in National Provincial Bank Ltd v Hastings
Car Mart Ltd [1964] Ch 665 at p696:
It seems to me that section 70 in all its parts
is dealing with rights in reference to land which have the quality of being
capable of enduring through different ownership of the land, according to
normal conceptions of title to real property.
On appeal, this observation was approved by all
members of the House of Lords at [1965] AC 1175 at p1226F (Lord Hodson, with
whom Lord Guest agreed at p1229A), p1228D (Lord Cohen), p1240D (Lord Upjohn)
and p1262B (Lord Wilberforce).
Mr Brock contended that a right to rectify does
not satisfy that test. The short answer to that point, in my judgment, is that
a right of a landlord to rectify a lease is self-evidently ‘capable of enduring
through different ownerships’ of the tenant, because a purchaser from the
tenant is bound by the right to rectify unless he is a bona fide purchaser for
value of the tenancy without notice of the claim to rectify. The very reason it
is necessary to consider in the present case whether Nurdin had notice of the
right to rectify was that, if it had had such notice, Nurdin would have been
bound by DBR’s claim to rectify even though Nurdin would have been a purchaser
for value.
In other words, a right to rectify, unlike for
instance a contractual licence, can bind successors in title of the original
contracting party, and therefore appears to me to be a ‘right’ within section
70(1)(g).
By the same token, it seems to me pretty plain
that the right of a landlord to rectify a lease must be assignable together
with the reversion. Indeed, it has been held that, where an original landlord
had a right to rectify the lease, and he assigned the reversion without any
reference having been made to any claim for rectification, the right to rectify
was none the less assigned together with the reversion by virtue of section 63
of the Law of Property Act 1925, which, by subsection (1) provides:
Every conveyance is effectual to pass all the
estate, right, title, interest, claim and demand which the conveyancing parties
respectively have, in, to, or on the property conveyed…
The case in question was Boots the Chemist Ltd
v Street [1983] 2 EGLR 51*, where Falconer J said at p52A:
[Counsel] submits, I think rightly so, that under
that provision the transfer, which was a transfer of the freehold reversion,
subject, of course, to the lease, from the original landlords to the present
plaintiffs, is effective to pass such interest as there may be or may have been
in the original landlords to have the lease rectified in the manner now sought
to have it rectified.
*Editor’s note: Also reported at (1983) 268 EG
817
It is true that, in that observation, the right to
rectify the lease is treated as an ‘interest’ rather than a ‘right’ (both words
being found in section 62(1) of the Law of Property Act 1925) and that section
70(1)(g) of the Land Registration Act 1925 speaks only of ‘rights’. In
my judgment, however, there is nothing in that distinction. While I accept that
one cannot blindly rely on the reasoning
in a case involving the construction of the Law of Property Act 1925 rather
than the Land Registration Act 1925, and involving the benefit rather than the
burden of the right to rectify, it appears to me that the decision and
reasoning in Street tends to support the conclusion I have reached.
I have not so far referred to the decision of
Judge Mervyn Davies QC in Blacklocks v JB Developments (Godalming)
Ltd [1982] Ch 183. In that case, the essential facts, somewhat simplified,
were as follows. The plaintiff agreed to sell land to G, and, by mistake, the
contract and conveyance plans included a plot (the disputed plot) that was not
in fact the subject of the arrangement. After the conveyance was completed, G
registered his title including the disputed plot, but the plaintiff remained in
occupation of the disputed plot. Thereafter, G sold the disputed plot to the
defendant, and the question of principle was whether the plaintiff could
rectify the contract plan, the lease plan, and the entries of the Land
Registry, so as to excise the disputed plot from the defendant’s title, and add
the disputed plot to the plaintiff’s title. The point was specifically taken
that ‘the right to rectify is a mere equity or personal right… not within
section 70’ and the learned judge cited the observations of Russell LJ from
which I have quoted (at pp194G-195C).
Judge Mervyn Davies then distinguished between ‘an
equity which is and an equity which is not accompanied by an equitable
interest’ and pointed out that ‘the wife’s equity in Hastings was naked
and alone and had not the enduring quality that might render it capable of being
a right under section 70′ (at p195E). Then, referring to the facts of the case
before him, he said:
But was
the mere equity possessed by the plaintiff of the same kind, or was it an
equity ancillary to an interest in land? If the equity was of the latter kind
it may be transmissible and so would have the ‘quality of being capable of
enduring’ spoken of by Russell LJ.
Having considered cases such as Stump v Gaby
(1852) 2 De GM&G 623, where Lord St Leonards LC held ‘that a right to set
aside a deed may be assigned or devised’ (at p195F), Judge Mervyn Davies said
that he regarded the right to rectify as being ‘of the enduring character
explained by Russell LJ in… Hastings…’ (at p196D). He then went on at p196E:
The plaintiff had an equity that was ancillary to
an interest in land, being an equity and an ancillary interest that was
transmissible. It follows that he had a right within Section 70(1)(g) of
the Land Registration Act 1925.
The decision in Blacklocks was attacked by
Mr Brock, and indeed has been the subject of some published adverse criticism
(see for instance an article by Professor Barnsley ‘Rectification, Trusts and
Overriding Interests’ [1983] Conv 361). As will perhaps be apparent from the
above discussion, I am satisfied that Blacklocks was rightly decided. It
is, perhaps, none the less appropriate to deal briefly with one or two of the
criticisms that have been made of the decision.
First, it is said to be inconsistent with the
decision of Upjohn J in Smith v Jones [1954] 1 WLR 1089, and,
indeed, it has been said that it is peculiar that there was no reference to
that decision in the judgment in Blacklocks. It appears to me that that
criticism is misconceived. Smith v Jones was concerned with
unregistered land, whereas Blacklocks (like this case) was concerned
with registered land. Lord Wilberforce, in a passage expressly cited by Judge
Mervyn Davies in Blacklocks (at pp193G-194D), said in Williams &
Glyn’s Bank Ltd v Boland [1981] AC 487 at p504B:
In my opinion… the law as to notice as it may
affect purchasers of unregistered land, whether contained in decided cases or
in the statute… has no application even by analogy to registered land. Whether
a particular right is an overriding interest, and whether it affects a purchaser,
is to be decided upon the terms of section 70, and other relevant provisions of
the Land Registration Act 1925, and upon nothing else.
In these circumstances, it is scarcely surprising
that a landlord’s right to rectify a registered lease could be binding on a
purchaser from the tenant in circumstances where, if the lease were
unregistered, it would not be binding. The point is emphasised by contrasting
the statutory provision under consideration in Smith v Jones,
namely section 199(1) of the Law of Property Act 1925, with section 70(1)(g).
Section 199(1) provides, so far as relevant:
A purchaser shall not be prejudicially affected
by… (ii) any other instrument or matter… unless… (a) it is within his
own knowledge, or would have come to his knowledge if such inquiries and
inspections had been made as ought reasonably to have been made by him.
Under section 70(1)(g) a purchaser of
registered land takes subject to the ‘rights’ if he makes no inquiry of the
relevant person, even if the court was satisfied that, had he made such
inquiry, the relevant person would not have informed him of the right. The
position is pretty plainly different under section 199(1) of the Law of
Property Act 1925: a purchaser is only bound by a ‘matter’ if he ought to have
made inquiries that would have revealed it. I should add that, in my judgment,
this analysis of section 199(1) explains why Judge Mervyn Davies expressed the
view in Blacklocks that he would have reached the same conclusion even
if the land in question had been unregistered (at p196F‑E): ‘On the
particular facts’ of the case before him, he would have taken the view that,
had the defendant asked the plaintiff, who was in occupation of the disputed
land, whether he claimed any rights in respect of it, he would have been told
that the plaintiff claimed to own it. That is to be contrasted with the view
taken by Upjohn J on the facts before him in Smith v Jones.
Second, it is said that the conclusion reached in Blacklocks
was inconvenient and unrealistic, in that a purchaser of land would not expect
to have to make inquiries as to whether the occupier of that land claims a
right of rectification. It appears to me that, in substance, that argument has
already been disposed of by the decision of the House of Lords in Boland.
That case effectively established that, in order
to take free of any rights that might be claimed by a person falling within
section 70(1)(g), it is necessary for a purchaser to have made inquiries
of that person. If, as Mr Lampard of Macfarlanes suggested in his evidence,
that is an unusual course that conveyancers often eschew, particularly in the
context of acquisitions of shares or businesses, then it appears to me that
purchasers in such circumstances should perhaps either insist on a change in
practice, or be warned of the risks they are taking. Furthermore, it is not as
if a prospective purchaser needs to protect himself by asking the relevant
person whether he claims a right to rectify, or that the purchaser can be
prejudiced by the relevant person refusing to answer. In my judgment, all that
the prospective purchaser of a registered lease need do, is to ask the landlord
whether he claims any rights that are not contained within the four corners of
the lease as executed, and, unless the landlord identifies a claim to rectify
the lease (either by specifically identifying such a claim or by revealing
facts that would give rise to such a claim), the prospective purchaser will
take free of any such rights. It should be emphasised that I am not seeking to
lay
sufficient answer in every case.
I should mention two further points that have been
made about Blacklocks. First, it was said either to have been decided on
the basis that it was concerned merely with a claim to rectify the register, or
else that it should be limited to such types of claim for rectification. As to
the first limb of that argument, it appears to me clear that Judge Mervyn
Davies was concerned with the right to rectify the contract and conveyance in
that case, and the claim to rectify the register was ancillary relief:
certainly, it appears to me that the judge decided the case on the basis of the
claim to rectify the contract and the conveyance. Quite apart from this,
particularly in light of the arguments considered above, I see no reason for
limiting the decision in Blacklocks as suggested.
Second, it was said that Blacklocks was
decided on the basis of the plaintiff having an equitable interest in the
relevant land, because, as the last paragraph of the judgment indicates, it was
held on trust for him by G, and then by the defendant. Accordingly, it was said
that in that case the plaintiff had an equitable interest, whereas in the
present case DBR would have had no more than a right to rectify, namely a mere
equity. That does not seem to me to be a valid point. In the context of
determining whether an equitable right is binding on a purchaser, the
distinction between equitable rights and mere equities is only relevant where
the purchaser satisfies two requirements, namely that he is a purchaser of an
equitable, and not a legal, estate, and that he has no notice of the equitable
right: see Snell’s Equity, 29th ed at pp49-50. In Blacklocks, as
in the present case, the court was concerned with the purchaser of the legal
estate, and therefore the distinction has no relevance. Further, the nature of
the ‘rights’ covered by section 70(1)(g) has been authoritatively
identified by the House of Lords.
It is fair to say that there is something in Mr
Brock’s point that rectification is rather an unusual remedy, almost sui
generis, particularly so far as third parties are concerned. As was said by
Upjohn
In my judgment the defendant [as assignee of a
lease] is entitled and bound to rely on the terms of the document, and the
document speaks for itself.
However, that point would not only apply to a
claim for rectification: it would also apply to a claim for rescission. Quite
apart from this, I do not think that this point is strong enough to justify
distinguishing between different types of claims for equitable relief in the
present context.
Accordingly, even though Nurdin was a bona fide
purchaser for value of the lease, it still seems to me that, in light of
section 70(1)(g), it is bound by DBR’s right to rectify, if there is
such right, which is the issue to which I now turn.
Does DBR have a right to rectify the lease?
Rectification in principle
DBR’s claim is that the lease should be rectified
so as to provide that the minimum rent payable under the lease with effect from
the fifth year of the term, 17 November 1995, is £267,021 pa, which is, of
course, rent at the rate of £4.50 per sq ft. In order to succeed in such a claim
for rectification, DBR has to establish that it was the common continuing
intention of the parties, that is DBR and Linrock, that the lease should so
provide, and that the intention had some outward expression: see for instance Joscelyne
v Nissen [1970] 2 QB 86.
There was some debate about the standard of proof
to be applied. I adopt the approach laid down in two passages in the judgments
in the Court of Appeal in Thomas Bates & Son Ltd v Wyndham’s
(Lingerie) Ltd [1981] 1 WLR 505. At p514F-G Buckley LJ said, in connection
with a claim for rectification:
The requisite degree of cogency of proof will
vary with the nature of the facts to be established in the circumstances of the
case. I would say that in civil proceedings a fact must be proved with that
degree of certainty which justice requires in the circumstances of the
particular case. In every case the balance of probability must be discharged,
but in some cases that balance may be more easily tipped than in others.
Brightman
LJ said at p521F-G
The standard of proof required in an action of
rectification to establish the common intention of the parties is, in my view,
the civil standard of balance of probability. But as the alleged common
intention ex hypothesi contradicts the written instrument, convincing
proof is required in order to counteract the cogent evidence of the parties’
intention displayed by the instrument itself. It is not, I think, the standard
of proof that is high, so differing from the normal civil standard, but the
evidential requirement needed to counteract the inherent probability that the
written instrument truly represents the parties’ intention because it is a
document signed by the parties.
Four witnesses were called on behalf of DBR to
support its claim for rectification. They were Mr Ramsden, Mr Hall, Mr Robinson
and Mr Cowen. In accordance with the modern practice, each of them provided a
signed witness statement.
In his witness statement, Mr Ramsden referred to
the meeting with Mr Hall of 2 November 1990, where it was agreed in principle
that the rent would be based on £3.50 per sq ft for the first three years and
£4.50 per sq ft for the fourth and fifth years, and stated that he was
subsequently contacted by Mr Hall and Mr Robinson because Mr Hall ‘felt he had
obligations to his surveyors and to the Fitzwilton board which was putting him
under some pressure’. In his witness statement, Mr Ramsden went on to say that
Mr Hall made a number of suggestions to
get around the problem, and that Mr Ramsden made it clear to him that he was
happy with any solution, provided that the overall payments received by DBR in
the fourth and fifth years of the term were equivalent to a rent based on £4.50
per sq ft and that a rent based on £4.50 per sq ft ‘was in fact to be rental
for the purposes of any review’. He then stated that a completion meeting took
place at Mr
Mr
intention was that £4.50… would form the basis for any rent review in year
five’. His witness statement then effectively concluded by saying that his
intention, and as far as he understood it, the intention of Mr Hall, was that
the rent was to be treated as being based on £4.50 per sq ft for the purpose of
review under the lease.
In his witness statement, Mr Hall confirmed the
understanding that Mr Ramsden said in his witness statement that Mr Hall had,
and also stated that Mr Ramsden did indeed make it clear that he wanted the
rent, for the purposes of the review, to be treated as being based on £4.50 per
sq ft. He said that he did not attend ‘the completion meeting’ but that his
father did so in his place.
In his witness statement, Mr Cowen was
substantially less emphatic, but he stated that he attended Mr Robinson’s
offices on 21 November 1990 with Mr Roy Hall to complete the transaction. He
also stated that he ‘did not consider the point about rent review after five
years, nor was it referred to by Mr Robinson. We simply failed to consider the
matter…’.
In his witness statement, Mr Robinson referred to
the telephone conversation he had with Mr Cowen on 19 November and the fax that
Mr Cowen sent thereafter on the same day, in which, it will be recalled, Mr
Cowen suggested that an annual sum equivalent to a rent based on £1 per sq ft
be paid in years four and five, and that the rent throughout the first five
years be based on £3.50 per sq ft. Mr Robinson also stated that he then
discussed the matter with Mr Ramsden, following which he sent the four-page fax
of 20 November to Mr Cowen, and that ‘the Halls and their solicitors have never
disputed’ the requirement expressed in that fax that the reviewed rent with
effect from 17 November l995 would not be reduced below £4.50 per sq ft. He
then went on to say that the amendments that were made at the last minute to
the lease were ‘on the understanding of all parties that the full payment of
£4.50… would form the basis for any rent review thereafter’.
As Mr Brock said, if one takes these statements at
face value, they appear to provide a pretty strong basis for rectification. The
individual controlling the landlord (Mr Ramsden), the individual representing
the
be clear about the common intention and its outward accord, and the solicitor
for the tenant (Mr Cowen) appears to say nothing inconsistent with that.
However, even before cross-examination, three of these four witnesses had to
amend their evidence-in-chief. It being clear that there was not any relevant
meeting, let alone any completion meeting, on 21 November 1990, Mr Ramsden had
to retract what he said was understood at the alleged completion meeting on 21
November. However, he said that there was a meeting, and his mistake was simply
to identify it as a completion meeting taking place on 21 November: the
relevant meeting was on 13 November. He said that his recollection remained as
in his witness statement, save that the evidence about what was said and
understood at the completion meeting of 21 November should be treated as
evidence as to what was said and understood at the drafting meeting of 13
November.
Mr Hall similarly had to amend his evidence, but
only to a less significant extent, because his reference to a completion meeting
is undated, and in any event he did not attend it.
In chief, Mr Cowen not only amended his witness
statement by deleting reference to the completion meeting. In his witness
statement, he had originally said that ‘the lease may not reflect fully what my
clients tell me was their intention as to the base rental for a review after
year five’; although this was a fairly uncontroversial observation, he withdrew
it, and effectively said that it should be replaced by the statement that, at
least to the best of his recollection (having been in court while Mr Ramsden,
Mr Hall and Mr Robinson had given their evidence), he believed that the lease
as executed conformed with his client’s instructions.
DBR’s case on rectification was further weakened,
in my judgment, as a result of cross-examination of the four witnesses. So far
as Mr
relevance was said at the meeting of 13 November, because it seems clear (in
light of both the contemporary documentation and the oral evidence) that the
accord that had been struck between Mr Ramsden and Mr Hall with regard to the
rent on 2 November remained unquestioned and unchanged, so far as DBR and its advisers
were concerned, until 19 November. Further, neither Mr Robinson nor
Mr
13
said and understood about the rent at the 13 November meeting is to be
rejected, in so far as it goes further than this: he and Mr
agreed the rent for the first five years and Mr Sutcliffe had sent a draft
lease to Mr Cowen with ‘upward only’ rent reviews. To that extent, as at 13
it would have been the position that the rent at the end of the fifth year and,
therefore, the minimum rent on review, would have been based on £4.50 per sq
ft. However, I do not consider that anyone made reference to this at the
meeting of 13 November.
Mr Ramsden also said in cross-examination that, to
the best of his recollection, he was not involved in any negotiations after
13
Robinson, to negotiate after that date. If that is right, then there is very
little, if any, relevant direct evidence that Mr Ramsden can give as to what,
if any, understanding was reached between the parties between 19 and
21
Mr Cowen and the Wednesday when the lease was finally executed. Mr Ramsden’s
recollection in this connection may well be wrong, because Mr Hall’s evidence
suggested the contrary and Mr
Robinson, referred to a discussion having taken place between Mr Ramsden and Mr
Hall, and that is not controverted by Mr Robinson in his fax in reply to Mr
Cowen on 20 November.
More broadly, Mr Ramsden struck me as a man who
expected to get his own way, and who was not above persuading himself that
something that he wanted to have happened, or thought ought to have happened,
did happen, when in fact it did not. His recollection generally did not seem
particularly reliable.
So far as Mr Hall is concerned, his reliability as
a witness was, in my judgment, also called into question as a result of his
cross-examination. In particular, I am bound to say that he was evasive and
unconvincing when asked to explain why it had been necessary, on 19 November,
to ask DBR to recast the way in which what had previously been the increased
rental payments for the fourth and fifth years of the term should be
characterised in the lease. It seems clear to me that he, personally, was not
concerned about the way in which the payments were characterised. He was not
prepared to accept that the concern was ultimately that of Fitzwilton, the
ultimate owner of Linrock, in light of the advice received from Mr Rose, its
surveyor, in his letter of 14
which the rent had been negotiated on 2 November could not be justified in
valuation terms. It seems to me that this clearly was the reason for the
renegotiation on 19
Rose’s letter of 14
Second, it is consistent with Mr Cowen’s evidence that the reason for his
telephoning Mr Robinson on Monday 19 November, and sending him the fax on the
same day, was the valuation advice his clients had received from Mr Rose.
Third, it is clear from its face that a copy of the fax sent by Mr Cowen to Mr
Robinson on 19 November was sent to Mr
executive committee of Fitzwilton, who was taking an interest in the
transaction. Finally, Mr Robinson said that the purpose of drafting the lease in
the unusual way in which it was drafted was ‘in light of [Mr Rose’s] advice and
the involvement of the Fitzwilton Board’, and Mr Ramsden stated that, as he
understood it, the lease was redrafted ‘to help the Halls in their relationship
with the Fitzwilton Group’.
Judged by his evidence on this aspect, and indeed
by his evidence and demeanour generally, Mr Hall did not impress me as a
reliable witness. He may have been over-influenced by his friendship with Mr
Ramsden, he may have been persuaded by Mr Ramsden’s strong character and strong
feelings or he may not have wanted to go back on a rather incautiously signed
witness statement. Whatever the reason may be, I would not be comfortable about
relying on his uncorroborated evidence, particularly on a contentious or
difficult issue.
Mr Robinson, on the other hand, was a plainly
honest witness. Apart from anything else, he had obviously taken considerably
more care over his witness statement before signing it: his was the only
witness statement that contained no reference to the non-existent completion
meeting of 21 November. However, it seems to me that one can search in vain
through this witness statement for a clear and specific statement to the effect
that, at least so far as he was concerned, there was a clearly expressed accord
that the lease should provide for a minimum rent based on £4.50 per sq ft with
effect from 17 November 1995. His statement indicates that, not surprisingly,
the question was first raised between the parties in his fax to Mr Cowen of 20
November, and he does not say that Linrock, Mr Hall or Mr Cowen agreed to it,
but merely that ‘the Halls and their solicitors have never disputed the point’.
It is true that, when referring to the amendments that he agreed with Mr Cowen,
Mr Robinson says that those changes ‘were purely cosmetic so far as I was
concerned and simply reflected our willingness to co-operate with the Halls,
but on the understanding of all parties that the full payment of £4.50… due in
the years four and five would form the basis for any rent review thereafter’.
However, at least on one reading that merely means that this is what he assumed
without anything being said; quite apart from this, it is rather unspecific
about any accord in the context of a claim for rectification. It is also true
that he said in his statement that he was satisfied ‘that all parties were
agreed that the additional payments in year four and five… would be regarded as
rental for the purposes of any rent review thereafter’, but that is, if
anything, even less specific.
In his oral evidence, Mr Robinson suggested that
some writing in the note of his telephone conversation with Mr Cowen of 19
November suggests to him that he discussed with Mr Cowen the question of the
rent review with effect from 17 November 1995, in light of the new proposals Mr
Cowen was putting forward on the telephone. On this point, I do not think Mr
Robinson’s recollection, which was anyway really no more than an inference from
the handwriting and the note generally, was correct. The different ink in the
two parts of the note
the telephone conversation with Mr Cowen. The point then found its way into his
fax of 20 November, which is expressed in terms that rather suggest that the
point was being raised for the first time. Furthermore, I think that if the
point had been raised with Mr Cowen on 19 November, he would have mentioned it
in his fax later on the same day, particularly as a copy was sent to Mr Dowling.
Mr Robinson also suggested in his evidence that
the passage I have quoted from his fax of 20 November to Mr Cowen represented
what had been agreed. I do not accept that. As a matter of ordinary language,
it appears to me that the passage in his letter is clearly governed by the
words: ‘As I see it the following points are still to be resolved’. Further,
there is the way in which Mr Robinson expressed himself in his fax when
discussing the point at issue in this case: he appears to me pretty clearly to
be putting forward his client’s position in the hope that it will be agreed,
not recording what had been agreed. Mr Robinson’s suggestion that what he wrote
was meant to indicate that the issue was to be resolved as a drafting matter
between solicitors, having been agreed between clients, is supported neither by
the language of the letter, nor by consideration of the other matters included
under those words, nor by the other documentation around this time, nor indeed
by the evidence of Mr Cowen. Furthermore, it does seem as if Mr
recollection of these matters was not good even in 1997, when, it will be
recalled, he wrote a letter, inaccurately explaining how the payments for the
first five years under the lease had been agreed.
Overall, Mr Robinson was, as I have mentioned, an
honest witness, but he did not have a reliable or convincing recollection of
the relevant facts. Furthermore, he was clearly aware that, if the lease had
been wrongly drafted and could not be rectified, he and his firm might find
themselves liable to DBR for breach of duty. I have no doubt that Mr Robinson
did his best to ensure that this factor did not influence him, but I am bound
to say that I think it did so to some extent.
I found it difficult to evaluate Mr Cowen as a witness.
The fact that he had sat through the whole of the evidence of the other three
witnesses was, I think, something of a mixed blessing so far as his reliability
was concerned. On the one hand, it may have jogged his memory on certain
matters; on the other hand, having seen the difficulties into which the other
witnesses got on occasion, he could have been opting for an easier time in the
witness box by making the amendments he did to his witness statement.
Furthermore, the fact that he, as a solicitor, was prepared to sign a witness
statement saying that he had attended a completion meeting on 21 November that
never took place, does not suggest that he is particularly reliable. Against
that, although he was only in the witness box for a short period, he did strike
me as an honest witness who was doing his best, and it is fair to him to say
that he made it clear in his witness statement that he had a weak recollection
of this matter, and that he had not retained his papers.
He said in evidence that he appreciated at the
time that the amendment to the lease effected on 21 November would result in
the minimum rent on the first review being based on £3.50 per sq ft and not
£4.50 per sq ft. On closer examination of his evidence, I think that he was
really saying that that is what he must have thought at the time, because that
is how it struck him as a result of having been in court. I do not accept that
evidence, although it should be emphasised that I do not consider that Mr Cowen
was seeking to mislead. Apart from anything else, if that was his evidence, it
was inconsistent with the observation (which he did not say should be deleted)
in his witness statement that he ‘did not consider the point about rent review
after five years’. In my judgment, it was as a result of sitting in the court
for more than two days and listening to the evidence that Mr Cowen effectively
convinced himself that he must have thought of the point in November 1990,
although he did not do so.
However, subject to there being strong evidence
the other way, I would be inclined to accept Mr Cowen’s evidence that, as far
as he was concerned at the time, the lease, as engrossed and executed, did
represent the instructions he understood he had from his clients.
In light of this analysis of the oral evidence,
DBR’s case on rectification is, to put it at its lowest, considerably weaker
than at first appeared from looking at the witness statements upon which DBR
relied. Although it is tempting to conclude, simply as a result of this
analysis of the oral evidence, that DBR’s case on rectification should fail, I
consider that it is appropriate to look at matters a little further.
First, there is the argument advanced by Mr Nugee
that there was never any real departure from the accord reached on 2 November
between Mr Ramsden and Mr Hall, and, as that would have involved a minimum rent
based on £4.50 per sq ft with effect from 17 November 1995, and the lease does
not reflect that, the lease should be appropriately rectified. I do not accept
that argument. First, what was agreed on 2 November was simply the level of
rent for each of the first five years of the term. There is no record in Mr
Ramsden’s note, or any other suggestion, that anything was said about the basis
for review of the rent. It may have been assumed that it would be ‘upwards
only’ and based on £4.50 per sq ft, but I have no evidence to that effect.
Second, it is clear that what was negotiated between 19 and 21 November with
regard to the payments for the fourth and fifth years of the term represented a
change in the level of proposed rent. It is common ground that, as a result of
the change, at least in terms of the construction of the lease, there was a
consequential effect as to the minimum level of rent on review. However, unless
I am satisfied on the evidence that there was some sort of agreement that this
redrafting should leave unchanged the minimum rent that would have been payable
on review, it seems to me that what was agreed on 2 November would anyway not
be of help to DBR’s case on rectification.
Second, Mr Nugee argued that, even though there
were, on any view, problems with the case put forward on the evidence by DBR in
the witness statements, it would be wrong to overlook the fact that the two
most important witnesses, namely the respective representatives of the two
parties to the lease, Mr Ramsden and Mr Hall, strongly and unequivocally
maintained the position that it had been intended and agreed by each of them
that the reviewed rent with effect from 17 November 1995 was to be assessed on
the assumption that the passing rent was based on £4.50 per sq ft. In the first
place, I am not happy about relying on the evidence of Mr Ramsden or Mr Hall,
unless it was clearly corroborated by other witnesses or documents, because I
did not find either of them to be a reliable witness. Second, Mr Ramsden’s
evidence to the effect that he ceased to be involved in any negotiations, so
far as he could recollect, from 13 November, renders him a witness of pretty
questionable value on the issue of rectification arising from amendments made
pursuant to discussions that began on 19 November. Third, Mr Hall’s evidence as
to what was allegedly agreed or understood in relation to negotiations on a
point in respect of which his evidence is not merely unreliable but, in my
judgment, misleading, cannot be of much assistance.
Mr Nugee also relied on the evidence of Mr Hall to
the effect that Fitzwilton ‘were prepared to pay more than the market rent’ and
that ‘they would over-rent property’. In the first place, I did not, as I have
mentioned, find Mr Hall a reliable witness, particularly with respect to
Fitzwilton’s involvement. Second, while it is clear that Fitzwilton were
prepared to make extra payments for the fourth and fifth years, it seems
equally clear they were not prepared to pay a higher rent than could be
justified by reference to the market. Third, this is something of a makeweight
point in any event.
Bearing in mind the observations of Buckley and
Brightman LJJ as to the standard of proof in a rectification action, I have
reached the conclusion that DBR has failed to discharge the burden upon it. I
do not reach this conclusion with any great enthusiasm, because I must confess
to a real suspicion that the oral evidence called on behalf of DBR did not do
its case justice. First, I have already referred to the fact that there could
well have been discussions between Mr Ramsden and Mr Hall on 19 November, which
Mr Ramsden had forgotten. Second, it also appears to me that there must have
been some discussion, which no one now appears to recall, after Mr Robinson’s
fax of 20 November, as to the precise formulation of the extra payments in the
fourth and fifth years of the lease: if one goes by the faxes of 19 and 20
November, it seems clear that the parties envisaged that the payments would be
linked in some way to repairs, and at some point this idea must have
been abandoned. Third, the question of the base rent for the purpose of the
rent review was specifically and clearly raised in Mr Robinson’s fax of 20
November: the position of his client, DBR, was there unequivocally set out, and
one would have expected the matter to have been resolved before the execution
of the lease.
However, those points, even when taken together
with the oral evidence put forward on behalf of DBR, in so far as it can be
relied on, do not persuade me that DBR should succeed. By 19 November
completion of the sale agreement and of the lease was a matter of particular
urgency, because Linrock had already gone into occupation of the premises and
taken over the business: it is quite possible that, in the rush, the question
of base rent on the rent review under the lease, although clearly raised by Mr
Robinson in his fax of 20 November, was simply overlooked. Furthermore, there is
this question to be considered: if, as was the case in my view, Linrock (in
light of Mr Rose’s advice and Fitzwilton’s view) was not prepared to pay a rent
based on £4.50 per sq ft for the fourth and fifth years of the term, why should
it be prepared to pay rent at that rate for the sixth and subsequent years of
the term? The question was put to Mr Hall, who was wholly unable to answer it;
it was then put to Mr Robinson, who was able to provide some sort of answer,
but it was not particularly convincing. There is also a further factor to bear
in mind. Mr Ramsden made it quite clear in his evidence that, as at November
1990, he was pretty confident that, whatever the rental value of the premises
then, it would exceed £4.50 per sq ft in five years’ time. If that is what he
really thought, then it should not occasion great surprise that he was prepared
to take the risk that the minimum rent on 17 November 1995 under the lease
would be based on £3.50 per sq ft, given that he would be able to obtain the
then market rent if it was higher (and which he was anticipating would pretty
comfortably exceed £4.50 per sq ft).
Additionally, while far from being a point of
central significance, I consider that Mr Brock was entitled to comment on the
fact that Mr Sutcliffe was not called to give evidence. He was responsible for
drafting the lease, and there appears to be a note prepared by him suggesting
that at some point he was conscious of the fact that the renegotiation on the
basis of payment for the fourth and fifth years of the term might produce a
different minimum rent on the first rent review under the lease. Further, the
two letters of 16 and 26 November that he wrote to the bank were somewhat
different in their terms. Additionally, it appears that he had a separate meeting
with Mr Ramsden on 13 November. It may well be that, as Mr Nugee suggested, Mr
Sutcliffe would have nothing to add.
However, particularly when the claim for
rectification relates to facts that occurred more than seven years ago, and the
evidence of the witnesses who are called is unsatisfactory, it seems to me that
it is a little surprising that the person primarily responsible for drafting
the document in question (albeit that I accept that Mr Robinson is responsible
for negotiating the rent provisions) should not have been called, especially
when it appears that he prepared a note that appears to be of some relevance,
he may well have attended a relevant meeting and he wrote two arguably
contrasting letters, which could be said to have some bearing on the central
issue.
On the other hand, the absence of Mr Dowling or
anyone else from Fitzwilton should not result in any adverse inference for
Linrock, not least because Fitzwilton’s involvement in the negotiations has not
been pleaded on behalf of DBR.
In all these circumstances, the claim for
rectification fails.
The argument that rectification should be
refused anyway
Strictly speaking, it is not necessary to consider
Mr Brock’s further argument to the effect that, even if I was satisfied that
DBR had established the necessary common accord and intention, rectification
should none the less be refused, effectively because DBR does not come to court
with clean hands. However, I shall do so, briefly.
Two points are relied on to justify this
contention, each of which, of course, involves assuming (contrary to the fact)
that I have accepted the thrust of the evidence of Mr Ramsden and Mr Hall as to
their accord and common understanding to the effect that, despite the way in
which the lease was drafted, it was intended that the minimum rent, with effect
from the first review date under the lease, would be based on £4.50 per sq ft.
The first factor relied on by Nurdin is that the
effect of that evidence would have been that the description of the sums in
clause 2(b) was effectively a sham: Mr Ramsden described the way in which the
lease was drafted in this connection as ‘cosmetic’, as did Mr Robinson.
Mr
simply a disguise for the actual rental to be paid’.
In this connection, I was referred to the
well-known and authoritative observations of Diplock LJ in Snook v London
& West Riding Investments Ltd [1967] 2 QB 786, where he said at
p802D-F:
one thing, I think, is clear in legal principle,
morality and the authorities… that for acts or documents to be a ‘sham,’ with
whatever legal consequences follow from this, all the parties thereto must have
a common intention that the acts or documents are not to create the legal
rights and obligations which they give the appearance of creating. No
unexpressed intentions of a ‘shammer’ affect the rights of a party whom he
deceived.
With some force, Mr Brock contended that words
such as ‘disguise’ and ‘cosmetic’ mean much the same as ‘sham’. As a matter of
principle, he argued, it would not be right for the court to grant relief,
particularly equitable relief, to a party who was actively involved in the
sham, especially when the sham is directly connected with the very aspect in
respect of which equitable relief is sought. The drafting of the lease was
dressed up in a particular way with a view to deceiving third parties. Nurdin
is a third party, indeed the sort of third party whom equity is particularly
concerned to protect (namely a bona fide purchaser for value without notice),
and Nurdin would, indeed, have been deceived by the dressing-up of the payments
under the lease if the claim for rectification were granted.
Second, Mr Brock argued that the dressing up of
the payments in the fourth or fifth years was specifically designed to disguise
what was intended to be the true rent under the lease from Fitzwilton. In
particular, he invited me to find that when the Fitzwilton UK board sanctioned
Mr Hall executing the lease and the sale agreement on the morning of 21
November, they did so in the belief that the lease would be in the form in
which it was executed, and were therefore misled into believing that the
payments in the fourth and the fifth years of the term were not rent, and would
not be taken into account when assessing the base rent for the purpose of the
rent review under the lease.
If I had been satisfied that DBR was otherwise
entitled to rectify the lease, these arguments would not have persuaded me that
it was in all the circumstances inappropriate to order rectification. So far as
Mr Brock’s first argument is concerned, I accept that there was an element of
artificiality in the way in which the lease was finally redrafted, but it did
not amount to a sham: on any view of the evidence, all the parties to the lease
intended that rent to be paid at a rate based on £3.50 per sq ft for the first
five years of the term, but that a further payment based on an extra £1 per sq
ft be paid in the fourth and fifth years of the term, and they also intended
that this latter sum should not be treated as part of the rent in respect of
those two years. In that sense, far from representing a sham, the lease as
executed represented what the parties intended.
However, on the hypothesis on which I am now
proceeding, namely that there was a common accord and intention that the
minimum rent on review be based on a rate of £4.50 per sq ft, the lease did not
reflect that intention, but that was because the parties had not appreciated
that the redrafting of the lease carried that consequence with it. Furthermore,
there was no intention of deceiving any third party purchaser such as Nurdin;
indeed, it is hard to see how there could have been any such intention, given
that the parties had not appreciated that the lease did not represent what
they, on this assumption, intended.
While the cross-examination of Mr Hall, and the
reference to Fitzwilton in the evidence of Mr Robinson and Mr Ramsden, provide
some support for Mr Brock’s suggestion that the way in which the lease was
finally redrafted was to mislead Fitzwilton, I am not satisfied that that was
in fact the case. I bear in mind the following factors. First, Mr Hall said
that Mr Dowling, who was on the executive committee of
repairs; while, as indicated, I have considerable reservations about relying
upon Mr Hall’s evidence, I see no reason to doubt his evidence on this point,
which is consistent with my view that Fitzwilton was involved in the
negotiations, and indeed consistent with Mr Cowen’s evidence. Mr Dowling was
therefore involved with the negotiations. Second, given that Mr Cowen was, as I
find, communicating not only with Mr Hall but also with Mr Dowling, I think it
more likely than not that he would have kept Fitzwilton in touch with what was
going on in the negotiations and drafting, at least in general terms (a view
obviously supported by the fact that he sent to Mr
fax of 19 November to Mr Robinson). Third, while I am not convinced that it is
a particularly important point, it seems to me that if (as to which I entertain
some doubts) the whole of the draft sale agreement, together with the draft
lease as an appendix, was before the Fitzwilton board on the morning of 21
November, when they gave Mr Hall the appropriate authorisation, it is more
likely than not that the draft lease was in a form that had not been amended to
reflect the final drafting negotiations between Mr Robinson and Mr
drafting negotiations took place over the telephone on the morning of 21
November, and, in the absence of evidence to the contrary, I would not be
prepared to assume that they were completed in sufficient time for a draft of
the lease in its final form to have been faxed from Mr Cowen’s office in
Manchester to the London hotel where the Fitzwilton board meeting took place at
9.00am. Mr Brock had the opportunity to put to Mr Robinson and to Mr Cowen that
the drafting negotiation took place unusually early in the morning of
21
agreement that has been produced to the court has the lease in its final draft
form amended does not seem to me to be of much assistance on the issue of the
form of the draft lease attached to the draft sale agreement that was before
the Fitzwilton board at 9am on 21
complete draft.
I should add that I do not regard this last
conclusion as assisting DBR’s case on rectification. The members of the
Fitzwilton board who authorised Mr Hall to execute the lease (and indeed the
sale agreement) on behalf of Linrock are most unlikely, in my judgment, to have
considered the detailed provisions of the draft sale agreement and the draft
lease attached thereto (if any): in so far as they were concerned with the
detailed terms, they were relying on Mr Cowen to tell them what they were. That
opinion is supported by the fact that a copy of Mr
November to Mr Robinson was sent to Mr
Mr Dowling would have been led to believe that the rent would remain at a
figure based on £3.50 per sq ft for the first five years, but that additional
sums would be payable in the fourth and fifth years of the term; that is what
the lease provided. The only variation to what was contained in the fax in this
connection was the subsequent abandonment of the idea that these sums would be
attributable to repairs.
Conclusions
In these circumstances, I conclude as follows.
1. Nurdin was a bona fide purchaser for value of
the lease without notice of any claim by DBR to rectify it.
2. However, if DBR had a valid claim to rectify
the lease, Nurdin would, in principle, be bound by that claim in light of
section 70(1)(g).
3. DBR has not discharged the burden of proof to
justify an order for rectification.
4. If an order for rectification would otherwise
have been appropriate, the ‘clean hands’ doctrine would not have prevented such
an order being made.
5. In the event, DBR’s claim on construction
having been abandoned, its claim for rectification fails.
6. Nurdin’s counterclaim for the repayment of sums
that it overpaid under the lease remains to be determined at a later hearing.
Application dismissed.
