Landlord and tenant — Covenants — Covenant by landlord — Enforcement by tenant against another tenant of landlord — Landlord and Tenant (Covenants) Act 1995 — Restrictive covenant — Whether covenant enforceable under section 3(5) of 1995 Act — Whether enforceable as restrictive covenant
By a lease dated February 28 1997 S granted a 20-year term of
premises in a large building to the claimant (the Oceanic lease). The premises
were intended to be operated as a shop in connection with an aquarium. The
lease contained a covenant by S that it ‘shall not permit any other gift shop
to be operated in the building provided that the restriction shall not apply to
any hotel in the building’: clause 4.6. By a lease dated July 15 1998, S
granted a 15-year term of further premises in the building to the defendant
(the United lease). Under the United lease the defendant was entitled to use
the premises as a ‘football hall of fame’; there was no restriction against
gift shop use. The claimant sought an injunction restraining the defendant from
using any part of its premises as a gift shop, and claimed damages. At the
hearing of cross-applications for summary judgment, the claimant contended, inter
alia, that: (1) clause 4.6 of the Oceanic lease was not only a covenant
under which S agreed that third parties would not use any part of the building
as a gift shop, but it also carried with it an obligation on S not to use any
part of the building as a gift shop; and (2) the clause was enforceable against
the defendant by virtue of section 3(5) of the Landlord and Tenant (Covenants)
Act 1995 or because the defendant had notice of it before it entered into its
lease.
with it an obligation on S not to use any part of the building as a gift shop.
The expression ‘any demised premises’ in section 3(5) of the Landlord and
Tenant (Covenants) Act 1995 has a limited meaning and refers only to any of the
premises demised by the lease in question; accordingly, clause 4.6 could not be
enforced by the claimant under section 3(5). Clause 4.6 was not entered on the
title register as a restrictive covenant; in the light of the provisions of
sections 19(2) and 20(1) of the Land Registration Act 1925, the defendant, in
taking the United lease, did not take it subject to such a restrictive
covenant. That was the position even if the defendant had actual or
constructive notice of clause 4.6. Although the restriction in clause 4.6 was
not capable of protection by notice under section 50(1) of the Land
Registration Act 1925, it was not open to the claimant to contend that the
defendant could be bound by the clause as a result of having had constructive
or actual notice. The use to which the defendant’s premises were put, in so far
as they were a shop, constituted a breach of clause 4.6.
The following cases are referred to in this report.
Dartstone Ltd
v Cleveland Petroleum Co Ltd (No 2) [1969] 1 WLR 1807; [1969] 3 All ER
668; 20 P&CR 795
Freer v Unwins
Ltd [1976] Ch 288; [1976] 2 WLR 609; [1976] 1 All ER 634; (1975) 31
P&CR 335
Gafford v Graham
(1999) 77 P&CR 73; [1999] 3 EGLR 75; [1999] 41 EG 159
Grant v Edmondson
[1931] 1 Ch 1
Investors
Compensation Scheme Ltd v West Bromwich Building Society [1998] 1
WLR 896; [1998] 1 All ER 98, HL
Kemp v Bird
(1877) 5 Ch 974
Kumar v Dunning
[1989] QB 193; [1987] 3 WLR 1167; [1987] 2 All ER 801; [1987] 2 EGLR 39;
(1987) 283 EG 59, CA
Lewis (A) & Co
(Westminster) Ltd v Bell Property Trust Ltd [1940] Ch 345
Norwich Union Life
Insurance Society v British Railways Board [1987] 2 EGLR 137; (1987)
283 EG 846
Tea Trade
Properties Ltd v CIN Properties Ltd [1990] 1 EGLR 155; [1990] 22 EG
67
Wrotham Park
Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798; [1974] 2 All ER
321; (1973) 27 P&CR 296
This was the hearing of cross-applications for summary judgment in
proceedings by the claimant, Oceanic Village Ltd, for an injunction and damages
for breach of covenant against the defendant, United Attractions Ltd.
Jonathan Gaunt QC and
David Lloyd (instructed by Goldsmiths) appeared for the claimant; Timothy
Fancourt (instructed by Ashurst Morris Crisp) represented the defendant.
Giving judgment, NEUBERGER
J said: These proceedings raise a number of points of some difficulty and
interest relating to the nature of a landlord’s covenant and its enforceability
by a third party under the provisions of the Land Registration Act 1925 (the
1925 Act) and the Landlord and Tenant (Covenants) Act 1995 (the 1995 Act).
Basic Facts
Shirayama Shokusan Co Ltd and four individuals (together Shirayama)
acquired a 999-year lease, and subsequently the freehold, of a complex of land
and buildings formerly known as County Hall in London (the building). Shirayama
became registered as the proprietor of the freehold of the building at HM Land
Registry under title number TGL 109080.
On 28 February 1997 Shirayama granted a lease (the Oceanic lease)
to the claimant, Oceanic Village Ltd, of premises (the Oceanic premises) in the
building for a term of 20 years. These premises were intended to be operated as
a shop in conjunction with the London Aquarium, which Shirayama had just
completed, also within the building. Clause 3.27 of the Oceanic lease includes
the following covenant on the part of the claimant:
3.27.1 Not to use or permit or suffer to be used the whole or any
part of the [Oceanic] premises for any sale by auction or any offensive or
dangerous trade…
3.27.3 Not without the consent in writing of the Landlord to use
the [Oceanic] premises or permit or suffer them to be used otherwise than [as a
high quality gift shop]
Clause 4.6 of the Oceanic lease, which is the centrally relevant
provision for the purpose of these proceedings, is in the following terms:
The Landlord [sc Shirayama] shall not permit any other gift
shop to be operated in the Building provided that the restriction shall not
apply to any hotel in the Building.
On 15 July 1998 Shirayama granted to the defendant, United
Attractions Ltd, a lease (the United lease) of another part of the building
(the United premises) for a term of 15 years. Under the United lease, the use
of the United premises is restricted to a Football Hall of Fame and ancillary
commercial uses, but it contains no restriction in relation to the United
premises so far as a gift shop is concerned.
In January 1999 the claimant’s solicitors wrote to the defendant
referring to clause 4.6 of the Oceanic lease and seeking confirmation that
there was ‘no question of your company operating a shop selling gifts including
football shirts when the… Football Hall of Fame becomes operational’. Some
three weeks later, the defendant replied, refusing to give such an assurance
and pointing out that there was no prohibition on gift shop use in the United
lease. Following some further correspondence, on 3 June 1999 the claimant
issued these proceedings, seeking an injunction restraining the use of any part
of the United premises as a gift shop and further or alternative damages
against the defendant. On 2 July 1999 the claimant applied for summary judgment
on the whole of the claim; one week later, the defendant applied for summary
judgment on the whole or, in the alternative, on parts of the claim. These two
applications are now before me.
Claimant’s case
The claimant’s case is that it is entitled to the relief it seeks
against the defendant and involves it establishing the following propositions:
1. clause 4.6 of the Oceanic lease (clause 4.6) is not only a
covenant under which Shirayama agrees that third parties will not use any part
of the building as a gift shop, but it also carries with it an obligation on
Shirayama not to use any part of the building as a gift shop;
2. clause 4.6 is enforceable against the defendant, as a subsequent
tenant of another part of the building;
(a) by virtue of section 3(5) of the 1995 Act; or
(b) because United had notice of clause 4.6 before it entered into
the United lease;
3. the defendant is using part of the United premises as a gift
shop, and is therefore in breach of clause 4.6;
4. while the claimant may be entitled to the injunction it seeks in
these circumstances, it would be content with (and, indeed, would be entitled
to) damages assessed on what one may refer to, in shorthand, as an equitable
basis, rather than a common law basis; provided damages are assessed and paid
on that basis, the claimant would not seek an injunction.
With the exception of the last one, these points are all in
dispute. I propose to deal with the points at issue in the same order as I have
summarised them above. However, before doing so, it is right to mention that
these are summary proceedings, and it may therefore not be appropriate, or
indeed possible, to determine at least some of the issues at this stage. In
this connection, it is common ground between the parties that if the claimant
succeeds on proposition 2(b) in principle, the question of whether the
defendant had notice of clause 4.6 would have to be determined at trial.
Further, although each party contended that I could and should find in its
favour on proposition 3, Mr Jonathan Gaunt QC and Mr David Lord, for the
claimant, and Mr Timothy Fancourt, for the defendant, each accepted that I
might conclude that the point is one that could only be safely determined after
hearing more detailed evidence that was subject to cross-examination.
Construction of clause 4.6
The issue between the parties is whether, as the defendant
contends, the effect of clause 4.6 is only that Shirayama will not permit any
third party to operate a gift shop in the building or whether, as the claimant
contends, the covenant also carries with it an obligation on Shirayama itself
not to operate a gift shop in the building. The distinction between the two
contentions may appear to be very fine, but, at least on the basis of the
arguments developed on behalf of each party before me, it is a crucial
distinction. If the defendant’s contention is correct, then it is accepted by
the claimant that clause 4.6 could not be directly enforced by the claimant
against the defendant, because it would not be a restrictive user covenant
and/or because it would not be a covenant that could run with the land for the
purpose of proposition 2(b), and because clause 4.6 would not be a covenant
that could be effectively enforced against the defendant under the 1995 Act for
the purpose of proposition 2(a).
As a matter of ordinary language, it appears to me that if a
covenantor agrees simply that he will not permit something to be done, then
that agreement would carry with it an obligation on the covenantor himself not
to do that thing. Careful attention must, of course, be paid to the precise
wording of the covenant in question: if, for instance, the words ‘by any other
tenant’ had been included after the word ‘operated’ in clause 4.6, that would
clearly indicate a different conclusion, because the identity of the person
whose gift shop operation was precluded would have been identified and limited.
However, where, as in clause 4.6, the parties have not expressly (or, to my
mind, impliedly) identified or limited the class of individuals to whom the
covenant was to extend, it does not seem to me, as a matter of language, that
there is any good reason to exclude the covenantor himself from its ambit.
Indeed, if the covenantor is agreeing that no one over whom he has control or
potential control will carry on a particular business, it would seem odd if the
person over whom he has, almost by definition,
the ambit of the covenant.
As Mr Gaunt argued, this conclusion is rather reinforced when one
remembers that the original lessor under the Oceanic lease was or included a
company, and, indeed, if the reversion to the Oceanic lease were assigned, one
would expect any successor in title of Shirayama to be a company rather than an
individual. A company cannot directly operate a gift shop itself, and could
only do so through the medium of employees or agents. It appears to me that
that consideration emphasises the artificiality of the content that if a company
covenants not to permit something to be done, it is not in breach of the
covenant if, through the medium of employees or agents, it does the thing
itself.
There are, however, two arguments the other way. First, Mr Fancourt
relied on the circumstances surrounding the execution of the Oceanic lease, as
to which there is a fair amount of evidence, because Shirayama unsuccessfully
sought to rectify clause 4.6 in an action against the claimant, which I heard
last year. The parties would not have anticipated that Shirayama, a
foreign-owned property company, would have wanted to operate a gift shop
itself. What was envisaged was, and, indeed, what has transpired is, that
Shirayama would let other parts of the building to tenants who would operate
attractions (eg the Football Hall of Fame and the Millennium Wheel), with the
possibility of a shop being included as part of, or ancillary to, the
attraction. Clause 4.6 was included in the Oceanic lease not so much because of
the claimant’s wish to prevent any other gift shop opening in the building, but
more to enable the claimant to ensure either that it ran any such gift shop or
that it could receive compensation if any such gift shop was run by a third
party.
Second, Mr Fancourt argued that there is a well-established form of
words used in drafting a restrictive covenant if it is intended not only that
the covenantor should prevent third parties within his control carrying on a
business but also that he should not carry on the business himself.
Furthermore, as he said, it is clear that the draftsman of the Oceanic lease
was well aware of that form of words, because he incorporated it in clause
3.27.1 and 3.27.3 of the Oceanic lease itself: it involves a covenantor
agreeing ‘not to use or permit to be used…’ (and, quite commonly, with the
addition of ‘or suffer to be used’).
So far as the surrounding circumstances are concerned, I do not
consider that they assist the defendant’s case much. The fact that the claimant
wished to use clause 4.6 more to ensure that it had a right to run any other
gift shop that opened in the building, or else to receive compensation in lieu,
does not seem to me to take the issue between the parties any further. If
anything, I consider this is more consistent with the claimant’s case on the construction
of clause 4.6. There is rather more force in the point that the parties would
not have envisaged that Shirayama would itself open a gift shop in the
building. However, there was no intrinsic reason why Shirayama should not, in
practice, have considered opening a gift shop in the building. If it were to
transpire to be in Shirayama’s interest to do so, the claimant had no reason to
think that Shirayama would not at least consider that course. Further, the
parties could well have contemplated that Shirayama might sell another part of
the building to a third party who might be interested in running a gift shop.
Mr Fancourt’s points, based upon the way in which clause 4.6 is
drafted when compared with clause 3.27 and the forms of words familiar to those
drafting leases, appear to me to have rather more force. Thus, in Kemp v
Bird (1877) 5 Ch 974 at p976-977, James LJ, when explaining why he
favoured a particular construction of a user covenant, said at p976:
If it had been intended that there should have been a positive
restriction on the use of the premises during the term, there is a well-known
form which the parties might have used, and which would have been binding on
the owner, and on his representatives, and on the assignee…
and he then went on to set out the well-known form of words that he
had in mind.
In my judgment, while it is right to take into account the fact
that the draftsman of the lease has departed from, or has omitted part of, a
well-established form of words, that will not, at least on its own, normally be
a sufficient reason for not giving the words he has used the natural meaning
that they would otherwise bear. The fact that the draftsman has used a
different form of words in relation to two provisions of a lease concerned with
the same concept, in this case the use to which land is not to be put, is also
something that should be taken into account when construing either of those
provisions; but, again, I do not consider that it should normally justify
departing from the natural meaning of either provision.
While it is appropriate for the court to contrast a provision that
falls to be construed with a well-established form of words or with the way in
which another provision in the lease is drafted, it is also right for the court
to bear in mind the way that leases are drafted in practice. It is well known
that draftsmen of leases will frequently use many expressions where one will
do: see eg per Hoffmann J in Norwich Union Life Insurance Society
v British Railways Board [1987] 2 EGLR 137* at p138D-F and in Tea
Trade Properties Ltd v CIN Properties Ltd [1990] 1 EGLR 155† at
p158A. Furthermore, draftsmen may take the wording of different clauses from
different precedents and different clauses may come from different hands. The
present case provides a good example, because, unusually, owing to Shirayama’s
earlier rectification action, the circumstances in which the Oceanic lease was
drafted are clear. Experienced solicitors had drafted a lease for Shirayama to
let another part of the building, and this had been the genesis of the Oceanic
lease (including, for instance, clause 3.27). Clause 4.6 was introduced for the
first time at the meeting at which the Oceanic lease was executed, and was
drafted by the claimant’s solicitor virtually at the last minute on little, if
any, notice. I am not at all sure that those are specific factors that could be
taken into account when construing clause 4.6; I merely refer to them as
illustrations of why it can be dangerous and unrealistic to place too much
weight upon the drafting points such as those upon which Mr Fancourt relies. In
effect, it seems to me that those considerations are insufficient to justify a
departure from what clause 4.6 means as a matter of ordinary language. In this
connection, it is right to add that the construction favoured both at first
instance and in the Court of Appeal in Kemp appears to have been based
on the natural meaning of the words used in the covenant under consideration in
that case.
* Editor’s note: Also reported at (1987) 283 EG 846
† Editor’s note: Also reported at [1990] 22 EG 67
In these circumstances, I consider that Oceanic’s proposition 1 is correct
and that clause 4.6 carries with it an obligation on Shirayama not to use any
part of the building as a gift shop.
Is the defendant bound by clause 4.6 as a
result of the 1995 Act?
All references to sections in this part of the judgment are to sections
of the 1995 Act, unless the contrary is stated.
Introductory
The 1995 Act, which came into force on 1 January 1996, introduces a
new code relating to the enforceability of covenants by landlords and tenants.
The first main purpose of the 1995 Act is to change, and indeed to cut down,
the law relating to privity of contract in relation to leases, ie substantially to reduce the extent to
which an original covenantor remains liable after the term or the reversion has
been transferred. Second, and more relevantly to these proceedings, the 1995
Act alters the law relating to the transmission of benefits and burdens of
covenants contained in leases. The entirety of the amendments to the law
affected by the 1995 Act applies to leases, such as the Oceanic lease and the
United lease, granted after 1 January 1996.
The central provision of the 1995 Act, upon which the claimant
rests its case, is section 3(5), which is in the following terms:
Any landlord or tenant covenant of a tenancy which is restrictive
of the user of land shall, as well as being capable of enforcement against an
assignee, be capable of being enforced against any other person who is the
owner or occupier of any demised premises to which the covenant relates, even
though there is no express provision in the tenancy to that effect.
Section 28(1) is the interpretation provision, and subsection (1)
contains the following definition:
‘landlord’ and ‘tenant’, in relation to a tenancy, mean the person
for the time being entitled to the reversion expectant on the term of the
tenancy and the person so entitled to that term respectively;
‘landlord covenant’, in relation to a tenancy, means a covenant
falling to be complied with by the landlord of the premises demised by the
tenancy;
‘tenant covenant’, in relation to a tenancy, means a covenant
falling to be complied with by the tenant of premises demised by the tenancy.’
In order to follow the argument in this case, it is also necessary
to make reference to the first three subsections of section 3. Section 3(1) and
3(2) provides as follows
(1) The benefit and burden of all landlord and tenant covenants of
a tenancy —
(a) shall be annexed and incident to the whole, and to each and
every part, of the premises demised by the tenancy and of the reversion in them,
and
(b) shall in accordance with this section pass on an assignment of
the whole or any part of those premises or of the reversion in them.
(2) Where the assignment is by the tenant under the tenancy, then
as from the assignment the assignee —
(a) becomes bound by the tenant covenants of the tenancy except to
the extent that —
(i) immediately before the assignment they did not bind the
assignor,
or
(ii) they fall to be complied with in relation to any demised
premises not comprised in the assignment; and
(b) becomes entitled to the benefit of the landlord covenants of
the tenancy except to the extent that they fall to be complied with in relation
to any such premises.
Section 3(3) deals with the converse of section 3(2), namely where
the assignment is by the landlord — ie a transfer of the reversion — and it is
in identical terms to section 3(2), save that the words ‘landlord’ and ‘tenant’
are transposed.
Under the law in its original form, a successor in title to the
landlord or the tenant could only be bound by a covenant by the landlord or the
tenant, as the case may be, if the covenant ‘touched or concerned’, ‘related
to’ or ‘ran with’ the land. The 1995 Act makes the law much simpler, and
provides in section 2(1):
This Act applies to a landlord covenant or a tenant covenant of a
tenancy —
(a) whether or not the covenant has reference to the subject
matter of the tenancy, and
(b) whether the covenant is express, implied or imposed by law,
but does not apply to a covenant falling within subsection (2).
On behalf of the claimant, Mr Gaunt contended: first, that clause
4.6 is a ‘landlord covenant’ within section 28(1); second, that clause 4.6 is a
covenant that falls within section 2(1); and, third, that the defendant is a
‘person who is the…occupier of any demised premises to which the covenant
relates’; accordingly, he said that, as a result of section 3(5), clause 4.6
can be enforced directly by the claimant against the defendant.
While accepting that clause 4.6 is a covenant falling within section
2(1), Mr Fancourt, on behalf of the defendant, contended that it is not a
‘landlord covenant’, and, even if it were a ‘landlord covenant’, that the
United premises are not within the expression ‘any demised premises to which
the covenant relates’ in section 3(5).
Is clause 4.6 a ‘landlord covenant’?
So far as the first point taken on behalf of the defendant is
concerned, it is difficult, at first sight, to see why clause 4.6 is not ‘in
relation to a tenancy’, namely the Oceanic lease, ‘a covenant falling to be
complied with by the landlord of premises demised by the tenancy’, namely by
Shirayama. However, Mr Fancourt fastened on the closing six words of the
definition of ‘landlord covenant’ in section 28(1). He pointed out that the
words ‘of premises demised by the tenancy’ are redundant if construed
literally, because the references to ‘the landlord’ in the definition of
‘landlord covenant’ must be a reference to the landlord in relation to the
tenancy convened, in light of the definition of ‘landlord’ in section 28(1)
itself.
While I agree that the closing six words of the definition of
‘landlord covenant’ in section 28(1) appear to be surplusage, I do not think
that that justifies re-writing those words to have a different meaning, which
is what Mr Fancourt’s argument involves. His construction effectively requires
the words ‘of premises…’ at the end of the definition of ‘landlord covenant’
to be re-written as meaning ‘only in so far as they concern…’ or some such
similar expression. Not only does this seem to me to involve re-writing the
definition, but I also consider that it attributes to the legislature an
intention which was, in many ways, inconsistent with one of the main purposes
of the 1995 Act. In this connection, it will be recalled that section 2(1)
emphasises that the 1995 Act applies to a covenant even if it ‘has [no]
reference to the subject matter of the tenancy’. It seems to me that, when
enacting the 1995 Act, the legislature was seeking to get away from the
unsatisfactory and outdated rules relating to the question of whether or not a
covenant ‘touched and concerned’, ‘related to’ or ‘ran with’ the land. As long
ago as 1930, Romer LJ said in Grant v Edmondson [1931] 1 Ch 1 at
p28:
in connection with the subject of covenants running with the land,
it is impossible to reason by analogy. The established rules concerning it are
purely arbitrary, and the distinctions, for the most part, quite illogical’
(cited more recently with approval by the Court of Appeal in Kumar
v Dunning [1989] QB 193* at
p200E).
* Editor’s note: Also reported at [1987] 2 EGLR 39; (1987) 283 EG
59
As I see it, therefore, apart from involving a rewriting of the
closing words of the definition, Mr Fancourt’s argument involves reintroducing
(possibly with the added disadvantage of uncertain variations) the arbitrary
old law, in circumstances when one of the main functions of the 1995 Act was to
do away with that.
Meaning of section 3(5)
The second point raised by Mr Fancourt on behalf of the defendant
concerns the difficult question as to the meaning of ‘any demised premises’ in
section 3(5). As Mr Gaunt realistically accepted, the words cannot be intended
to apply to any premises that happen from time to time to be demised, and it is
therefore common ground between the parties that some qualified words must be
implied into the subsection. Thus, this is not a case where the issue between
the parties is whether any words needed to be implied into the relevant
statutory provisions at all. The issue is: what words should be implied into
the subsection?
Mr Gaunt’s case was that the reference to ‘any demised premises’ in
section 3(5) is a reference to any premises demised by the landlord. On the
other hand, Mr Fancourt argued on behalf of the defendant for a more limited
meaning of ‘any demised premises’, namely any of the premises demised by the
lease in question. If one confines oneself solely to the question of the
meaning of section 3(5), if read in isolation, it appears to me that either of
the two contentions could be correct, but the claimant’s construction is the
rather more natural reading. Either construction could be correct, because each
involves implying into the general expression ‘any demised premises’ words of
limitation that are comprehensible. I consider that the claimant’s construction
is a somewhat more natural reading, principally because of the use of the word
‘any’, which tends to suggest that the legislature had in mind a departure from
the actual premises demised by the lease on their own.
However, section 3(5) is not to be construed in isolation, and,
once one casts one’s eyes more widely, it appears to me that the construction
for which the defendant argued is to be preferred.
Subsection (5) is not the only subsection of section 3 in which
there is reference to ‘any demised premises’: that expression is to be found in
para (a) and (ii) of subsection (2) and of subsection (3). It is common ground
between the parties (and rightly so) that the reference in those two
subsections to ‘any demised premises not comprised in the assignment’ must be a
reference to any part of the premises demised by the relevant lease not
comprised in the assignment. Again, read literally,
demised premises not comprised in the assignment’ is a reference to any
premises that happened to be demised, but are not subject to the assignment in
question. However, it is not merely common ground between the parties that some
limitation must be implied into the expressions in section 3(2) and (3), but it
is also common ground that the effect of the implication is to cut down the
expression, in the same way as the defendant contends that the expression ‘any
demised premises’ should be treated as cut down in section 3(5), and not in the
way that the claimant so contends.
I accept Mr Gaunt’s submission that the mere fact that the
expression ‘any demised premises not comprised in the assignment’ should be
treated as cut down in a certain way in one subsection of section 3 does not
automatically mean that ‘any demised premises’ should be treated as cut down in
the same way in another subsection of the same section. None the less, it does
appear to me that, where the legislature has used the same expression, not
merely in the same statute but in three different subsections of the same
section, and in the case of two of those subsections it is common ground that
the expression must be treated as qualified in a certain way, one would expect
the qualification to be the same in the third case unless there was a good
reason to the contrary.
Far from there being a good reason to the contrary, I consider that
the construction of section 3(5) advanced on behalf of the claimant throws up
problems, once one considers its consequences. Is the reference to ‘any demised
premises’ a reference to premises that happen to be demised from the landlord
from time to time during the currency of the lease in question, or a reference
to premises that were owned by the landlord at the date of the lease? Apart
from the ambiguity, either alternative presents a difficulty. If the first
alternative is correct, then section 3(5) grants substantive rights, in that it
would extend to land not only owned by the landlord at the date of the grant of
the lease, but also to land acquired thereafter. If the latter alternative is
correct, then a person who purchases part of the burdened land from the
landlord after the grant of the lease, and who for some reason (eg want of
notice or registration) takes free of the restrictive covenant, will impose the
covenant on a tenant if and when he grants a lease of the land in question.
Quite apart from this, as Mr Fancourt argued, it would seem somewhat
extraordinary if section 3(5) was intended to apply to land demised under a
very long lease (eg 2000 years) but not to a case where the land was
transferred outright.
There is one apparent weakness in the defendant’s construction of
section 3(5), which Mr Fancourt himself fairly identified. The possible
weakness in the defendant’s case is that if one gives the reference to ‘any
demised premises’ the meaning for which the defendant contends, it is difficult
to see what application section 3(5) would have to a landlord covenant. While
that is a point that fairly may be taken, and indeed was taken, by Mr Gaunt on
behalf of the claimant, it does not cause me to alter the view I have reached.
First, as Mr Fancourt pointed out, section 3(5) could apply to a case where the
landlord reserves a right to enter on to part or the whole of the demised
premises for certain purposes (and, in this connection, a right in the landlord
to carry out works of repair to the demised premises is quite usual, and even a
right to carry out more extensive work is not very unusual). Second, and
perhaps rather more weakly, he said that section 3(5), on the defendant’s
construction, could apply to cases where there may be concurrent leases
(although it is fair to say that such leases are specifically dealt with in
section 15). Third, it is by no means inconceivable that the legislature had in
mind the possibility of part of the demised premises being acquired by the
landlord during the currency of the lease. As is specifically contemplated by
section 3(2)(a)(ii) and (b), a tenant may assign part or parts of the demised
premises to a different person or to different persons; it is not difficult to
imagine that one or more of those persons may either surrender their part of
the demised premises back to the landlord or have their severed leases
forfeited by the landlord. In those circumstances, the landlord may obtain
possession of part of the demised premises, and therefore be free to use part
of the demised premises, subject to any restriction that might exist in law, as
he chooses, at a time when the remainder of the demised premises remains
subject to the lease. In such an event, while depending upon whether the
landlord’s covenant was framed appropriately, it seems to me that the tenant
might well be able to benefit from section 3(5). Given that, when drafting the
1995 Act, the legislature clearly contemplated the possibility of the lease
being severed (and, indeed, forfeiture or disclaimer being limited to part of
the premises originally demised — see section 21), it does not appear to me
that it is fanciful to attribute to the legislature the contemplation of such a
possibility.
Quite apart from this, I consider that it is important to bear in
mind that section 3(5) is concerned with the enforceability of tenant
covenants, as well as of landlord covenants. Section 3(5) was clearly a
provision that it was vital to include so far as tenant covenants were concerned:
it represents a fundamental component of the scheme of the 1995 Act. The
legislature may well have concluded that it would be safer and fairer to apply
Section 3(5) to both types of covenant, even though it would have been obvious
that it would be far more frequently appropriate to tenant covenants and it may
have been hard to envisage that it would often apply to landlord covenants.
Over and above these considerations, Mr Fancourt sought to draw
support from the argument that section 3 is really meant to replace sections 78
and 79 (in so far as they applied to covenants in leases) and sections 141 and
142 of the Law of Property Act 1925 (which are all disapplied to leases granted
after 1 January 1996 by section 30(4) of the 1995 Act). Mr Fancourt suggested
that it was unlikely to have been the intention of the legislature in passing
the 1995 Act to make such a radical change to the law relating to the
enforceability of restrictive covenants entered into between landlord and
tenant, as the construction of section 3(5) advanced by Mr Gaunt would suggest.
Given that the 1995 Act was clearly intended to make changes in the law in
relation to the enforceability of covenants in leases, I do not regard that as
a particularly strong point.
Conclusion
None the less, for the reasons given above, I do not accept
proposition 2(a) of the claimant.
Is clause 4.6 binding on United if
(but only if) United had notice?
All references to sections in this part of the judgment are to
sections of the 1925 Act, unless the contrary is stated.
Introductory
As I have mentioned, Shirayama’s freehold interest in the building
is a title registered at HM Land Registry. Accordingly, any transfer by
Shirayama of the freehold of the whole or part of the building would require to
be registered, and the grant of the lease by Shirayama of the whole or part of
the building for a term of more than 21 years would also require to be
registered: see sections 8 and 123. However, as those sections indicate, a
lease granted for a term of less than 21 years would not be registerable.
Part III of the 1925 Act is concerned with ‘Registered Dealings
with Registered Land’. Section 18(1) provides, so far as relevant, as follows:
Where the registered land is a freehold estate the proprietor may,
in the prescribed manner, transfer the registered estate in the land or any
part thereof, and… may in the prescribed manner… grant… a lease of the
registered land or any part thereof…
Section 19(2) states:
All interests transferred or created by dispositions by the
proprietor, other than a transfer of the registered estate in the land, or part
thereof, shall… be completed by registration in the same manner and with the
same effect as provided by this Act with respect to transfers of registered
estates and notice thereof shall be noted on the register:
Every such disposition shall, when registered, take effect as a
registered disposition, and a lease made by the registered proprietor under the
last foregoing section but which is not required to be registered or noted on
the register shall nevertheless take effect as if it were a registered
disposition immediately on being granted.
Section 20(1) provides:
In the case of a freehold estate registered with an absolute
title, a disposition of the registered land or of a legal estate therein,
including a lease thereof, for valuable consideration shall, when registered,
confer on the transferee or grantee an estate in fee simple or the term of
years absolute… subject —
(a) to the encumbrances and other entries, if any, appearing on
the register…; and
(b) unless the contrary is expressed on the register, to the
overriding interests, if any, affecting the estate transferred or created…
The ‘overriding interests’ therein referred to are identified in
section 70, and, for the purpose of the argument in the present case, no
reliance is placed by the claimant on that section.
A person who claims an interest in, or right over, registered land
such as a restrictive covenant can (and should) normally enable his right or
interest to be protected as against a subsequent purchaser or lessee of the
land by ensuring that it appears on the register, as contemplated by section
20(1)(a). In that connection, section 50(1) provides:
Any person entitled to the benefit of a restrictive covenant or
agreement (not being a covenant or agreement made between a lessor and lessee)
with respect to the building on or other user of registered land may apply to
the registrar to enter notice thereof on the register…
Thus, the covenantee under a restrictive covenant over land that is
registered can protect himself against a purchaser of that land by registering
a notice against that land, provided that the covenant does not fall within the
bracketed words of section 50(1), which I shall call ‘the exception to section
50(1)’.
Section 50(2) provides that:
When such a notice is entered the proprietor of the land and the
persons deriving title under him… shall be deemed to be affected with notice of
the covenant or agreement as being an incumbrance on the land.
In the present case, Mr Gaunt argued on behalf of the claimant
that, in light of the exception to section 50(1), it was not open to the
claimant to register a notice in respect of clause 4.6 against Shirayama’s
title, and that, in those circumstances, the correct conclusion is that,
provided that the defendant had actual or constructive notice of the existence
of clause 4.6 before the United lease was granted, it is bound by the
provisions of clause 4.6. Mr Fancourt challenged both of those propositions. First,
he contended that, despite the exception to section 50(1), clause 4.6 is
registerable against Shirayama’s registered title. In the alternative, he
contended that the law of actual or constructive notice has no part to play in
registered conveyancing.
Before statute intervened, the question of whether a restrictive
covenant was binding on a successor (eg a purchaser or a tenant) of the
original covenantor was normally determined by considering whether the
successor was a ‘bona fide purchaser for value without notice’ of the covenant.
In this connection, the Court of Equity developed, through the cases,
principles relating to what constituted notice, including the circumstances in
which a person would be treated as having had notice.
During the 19th century, statute intervened, and, with the 1925
legislation, the law had developed so as to replace, at least in most cases,
the doctrine of notice as developed by the courts, with the rule that if a
covenantee wished to be protected against successors of the covenant, he should
enter his covenant on a register. In relation to unregistered land, the law was
contained in the Land Charges Act 1925 (the Land Charges Act), which has now
been re-enacted and (in aspects that are generally of importance, but are not of
significance in the present case) amended by the Land Charges Act 1972. Section
10 of the Land Charges Act set out the various classes of charges that may be
registered against unregistered land, and, so far as relevant, it was in the
following terms:
The following classes of charges on, or obligations affecting,
land may be registered as land charges in the Register of Land Charges, namely:
—
…
Class D:– A charge or obligation affecting land of any of the
following kinds namely:–
(ii) a covenant or agreement (not being a covenant or agreement
made between a lessor and a lessee) restrictive of the user of land entered
into after the commencement of the Act.
Section 13(2) of the Land Charges Act provided that any interest
registerable under section 10 thereof ‘shall be void against a purchaser of the
land charge therewith, or of any interest in the land’ unless it was registered
prior to the relevant disposal.
In Dartstone Ltd v Cleveland Petroleum Co Ltd (No 2)
[1969] 1 WLR 1807, the facts (slightly simplified) were as follows. The
defendants were lessees of unregistered land under a lease that contained a
covenant restricting the use of the lessor’s adjoining unregistered land; the
lessor subsequently granted a lease of the adjoining land to the plaintiffs.
The question was whether the restrictive covenant was enforceable by the
defendants against the plaintiffs, given that the covenant had not been
registered pursuant to the Land Charges Act. The principal argument for the
plaintiff was that, although the covenant was between a lessor and lessee, it
was none the less registerable under section 10 of the Land Charges Act,
because the exception to that section was limited to apply to covenants that
affected the land the subject matter of the lease. In other words, the
plaintiffs argued that, because the covenant in that case extended to the
adjoining land, and was not, as with most covenants between landlord and
tenant, limited to the land the subject matter of the lease, it could have been
registered, and should have been registered if it was to be binding on third
parties.
At p1810D, Pennycuick J said that this construction of section
10(1) of the Land Charges Act:
really involves writing into it words which are not there, but
that is not a legislative course unless the context shows beyond doubt that the
intention of the provision must be such that the additional words are requisite
in order to give the effect to it.
The judge rejected the plaintiffs’ contention that the additional
words, which he considered were needed to support such a construction, were in
fact requisite, and accordingly he held that the covenant was indeed
unregisterable. In those circumstances, neither section 10 nor section 13 of
the Land Charges Act applied to the covenant. The judge therefore concluded
that, at least in relation to unregistered land, the old law relating to actual
or constructive notice applied.
Mr Gaunt’s argument on behalf of the claimant can be said to amount
to contending that the two conclusions in Dartstone, namely that
covenants in leases are not registerable even if they extend to land other than
that demised by the lease, and that therefore the old law of actual or
constructive notice applies, apply equally to registered land as they do to
unregistered land.
Is there room for the doctrine of
notice?
A convenient way of considering this issue, in my opinion, is to
turn first to the question of whether, if the covenant in clause 4.6 is indeed
not registerable under section 50(1), it would none the less be binding on the
defendant if it had had actual or constructive notice of the covenant. In my
judgment, the answer to that question must be in the negative, in light of the
provisions of sections 19(2) and 20(1). Although the United lease was not a
registered disposition, the last passage I have quoted from section 19(2)
indicates that it is to be treated for this purpose in the same way as if it
were a registered disposition. Section 20(1) stipulates that a registered
disposition (and therefore the grant of a lease) confers on the grantee a title
‘free from all… estates and interests’ other than two categories of interest,
namely, in short; (a) those entered on the register; and (b) overriding
interests. To conclude that a grantee, such as the defendant in the present
case under the United lease, takes subject to a restrictive covenant, which is
neither on the register nor an overriding interest, appears to me to be flatly
contrary to the clear words of section 20(1). It can be said that one of the
main purposes of the 1925 Act is and was to ensure that, subject to the
exception of certain specific instances, particularly overriding interests as
set out in section 70, the question of whether rights subsist against tenants
or purchasers from the covenantor should depend upon whether
conclusion is also consistent with the general purpose of the 1925 Act.
The fact that this means that the result of a covenant such as
clause 4.6 being unregisterable (if it is indeed unregisterable) produces a
different result in relation to registered land from that that applies in
relation to unregistered land does not cause me to reconsider this conclusion.
The difference results from the contrast between section 13 of the Land Charges
Act and section 20 of the 1925 Act. The former provides that only
non-registration of a registerable covenant will render the covenant
unenforceable against a successor of the covenantor; accordingly, it simply
does not purport to alter the law in relation to cases where non-registerable
covenants are unregistered. On the other hand, in section 20(1), the 1925 Act
specifically provides that a successor of the covenantor shall take free of all
covenants except those falling within paras (a) and (b) thereof. In this
connection, see Freer v Unwins Ltd [1976] 1 Ch 288 at p296G-H.
In light of this conclusion, it follows that I reject the
claimant’s proposition 2(b): even if the defendant had actual or constructive
notice of clause 4.6 before it entered into the United lease, it would not be
bound by the covenant, subject to any other argument open to the claimant.
In these circumstances, it is not strictly necessary to consider
the second question which arises in this connection, namely whether a covenant
such as clause 4.6 is registerable under section 50(1), notwithstanding the
exception thereto. However, it does appear to me that that issue and the issue
I have just been discussing are interrelated. Thus, if a covenant such as clause
4.6 falls outside section 50(1), and the law relating to actual or constructive
notice does not apply, is there no way in which a covenantee such as the
claimant, namely a tenant under a lease for a term of less than 21 years with
the benefit of a landlord’s covenant restrictive of the use of other land, can
protect his rights under the covenant against purchasers or lessees of that
land? If so, that could help Mr Gaunt’s argument on the point I have just been
considering. In this connection, it should be explained that the reason why
covenantees who are tenants under leases of more than 21 years may have such
protection in some cases, arises from the fact that leases of more than 21
years (unlike leases of less than 21 years) have to be noted in the charges
register of the landlord’s title pursuant to rr 7(b) and 188 of the Land
Registration Rules 1925. Accordingly, at least where the land burdened by the
covenant is included in the same title as the land demised by the lease, the
effect of section 20(1)(a) would seem to be that a tenant under such a lease
could enforce such a covenant against the proprietor for the time being of the
burdened land. However, where the burdened land is held by the landlord under a
different title from the demised land, the position of a tenant holding the
demised land under a lease for more than 21 years would seem to be the same as
that of a tenant under a lease of less than 21 years.
Was clause 4.6 registrable under
section 50(1)?
In a case such as this, then, where the lease contains a
restrictive covenant extending to land other than that demised by the lease,
the question of whether the exception to section 50(1) prevents the covenant
being registered is not an easy one. As Pennycuick J said in the passage that I
have quoted from Dartstone, the natural meaning of the exception is that
it applies to any covenant between a lessor and a lessee. On the other hand, it
does seem most unsatisfactory if a tenant under a lease of 21 years with the
benefit of a landlord’s covenant, restrictive of the use of other land, is
unable to protect his position as against subsequent owners or tenants of that
land. Mr Fancourt suggested that this is such an unsatisfactory result that it
justifies implying words into the exception to the effect that it only applies
to covenants (whether by the landlord or the tenant) that relate to the demised
land, and does not extend to covenants that relate to other lands.
Although I was attracted to that argument, I have come to the
conclusion that it should be rejected. Not merely would it produce a different
result for registered land and unregistered land (which would not be
particularly surprising), but it would involve giving a form of words in
section 50(1) of the 1925 Act a different meaning from that given to precisely
the same form of words dealing with the same matter in the contemporaneous Land
Charges Act in Dartstone, a decision that, while it has had its critics,
has stood for over 30 years. Of course, it is a trite point that the same form
of words can have a different meaning in different statutes, and it is well
established that the principles applicable to unregistered land provide, at
best, very suspect guidance as to the principles applicable to registered land.
However, when one sees precisely the same form of words dealing with precisely
the same sort of concept in relation to registered land and unregistered land
in the 1925 legislation, the court should, I believe, be slow to conclude that
the two expressions have different effects, unless, of course, there is good
reason for doing so.
Mr Fancourt argued that there is a good reason for doing so in the
present case, because otherwise a covenantee such as the claimant could not
take steps to ensure effectively that he could enforce the covenant against a
successor of the original covenantor. I believe that there are two answers to
this. The first answer is that precisely the same argument could have been (and
presumably was) raised in Dartstone. If that decision is correct, and
the covenantee was the tenant of unregistered land, it would only be able to
ensure that it could enforce the covenant against a successor to the burdened
land if it could ensure that actual or constructive notice of the covenant was
given to that successor before he acquired his interest in the burdened land.
In the absence of being able to register the covenant under the Land Charges
Act, that would appear to present the covenantee with the same sort of
difficulty that appears to exist in relation to registered land.
In fact, and this is the second answer to Mr Fancourt, assuming
that the reasoning in Dartstone applies to a lease of registered land,
it appears to me that a covenantee in the claimant’s position can protect
himself more satisfactorily under the current land registration regime than he
could if the land in question were unregistered. Para 21-19 in Ruoff &
Roper on Registered Conveyancing (loose leaf ed, April 1999) states:
Although it is not possible to enter a notice in respect of a
covenant made between a lessor and lessee which affects land of the covenantor
other than the demised premises, the covenantor might agree to the entry on the
register of the title to that land of an appropriate form of restriction
whereby no disposition can be registered unless notice has first been given to
the covenantee.
Alternatively, if it is anticipated that a disposition is likely
to lead to a breach of the covenant, a caution might be entered on the grounds
that the covenantee was a person interested in the land. This would likewise
ensure that the existence of the covenant was brought to the attention of
anyone seeking to acquire the land affected.
The consequences of the entry of a restriction under section 58(1),
and, even more, the consequences of an entry of a caution under section 54(1),
can fairly be said to be potentially more complex, time-consuming, expensive
and uncertain than the consequences of the entry of a notice under section
50(1). However, the consequences of entering a restriction on the landlord’s registered
title to the burdened land should not, at least in principle, present much of a
difficulty. The restriction would record the fact that there should be no entry
in the property or charges register of the burdened land without the tenant’s
consent, and the landlord and tenant would agree that the tenant would have to
give its consent if the disposition by the landlord of the burdened land
required the successor to observe the covenant in question for the benefit of
tenant for the time being under the lease, and, no doubt, also to agree to a
similar restriction. I accept that that course is seldom taken in practice,
but, particularly in light of what is said in the leading textbook on
registered land, there appears to be no good reason why the landlord should not
consent to this course. If it is prepared to agree a restrictive covenant such
as clause 4.6, it is hard to see why it should not be prepared to agree an
arrangement whereby the covenant is effectively enforceable. Indeed, such a
restriction could be said to be for the landlord’s benefit, as subsequent
failure to impose
to the tenant in damages for breach of the covenant.
None the less, it does appear to me that, if my conclusion is
correct, the position under the Land Charges Act and under the 1925 Act is not
satisfactory in so far as they both appear to preclude a tenant from
registering a covenant, such as clause 4.6 in the present case, against the
burdened land using the simple unilateral registration procedure. It appears to
me that, when enacting the 1925 legislation, the legislature either overlooked
the fact that leases not infrequently contained covenants by the landlord, and,
indeed, by the tenant, relating to other specific land, or else the legislature
took the view that it would, for some reason, be inconvenient to permit notices
to be entered in respect of such covenants. While I find it a little hard to
see why the legislature should have taken that view, it may have been because
it is sometimes difficult to identify to what precise land the covenant
relates, or because of a fear that parties to leases, and, in particular,
tenants, would start registering a plethora of notices in respect of express or
implied covenants in leases. In relation to the first possibility, restrictive
covenants relating to other land will often be expressed in somewhat vague
terms so far as the burdened land is concerned, such as not to open a competing
business within a certain radius of the demised premises (traditionally, such
covenants have been given by landlords, but more recently, particularly where
turnover rents or anchor occupiers are involved, by tenants). So far as the second
type of possible problem is concerned, there are the landlord’s covenants
(often implied, but sometimes expressed) for support and protection from
adjoining property.
Conclusion
In the event, although I have come to the conclusion that clause
4.6 was not capable of protection by notice under section 50(1), it is not open
to the claimant to contend that the defendant could be bound by the clause as a
result of having had constructive or actual notice, and, accordingly, I
consider that the claimant’s proposition 2(b) is incorrect.
Is the defendant’s use in breach of
clause 4.6?
This question involves considering the meaning of clause 4.6 and
asking whether the defendant’s user of the United premises constitutes a breach
of the clause.
As with many expressions, it is difficult to define with any
precision, and without reference to examples, quite what is meant by ‘gift
shop’, particularly if one is considering that question in the abstract. As
with any expression, one must bear in mind its generally understood meaning (to
the extent that it has such a meaning), but one must also take into account the
nature and the terms of the document in which the expression is found, namely
the Oceanic lease, and the surrounding circumstances known to both parties,
namely Shirayama and the claimant, when that lease was entered into,
disregarding what they said in their negotiations and their subjective
intentions: see per Lord Hoffmann in Investors Compensation Scheme
Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pp912H to
913E.
Apart from the restriction to gift shop use in the Oceanic lease,
it seems to me that there are two other tenant’s covenants that could be said
to throw some light on the meaning of ‘gift shop’ in that document. First,
there is clause 3.42, under which the claimant covenanted that its employees
working in the gift shop at the Oceanic premises would ‘wear exactly the same
uniforms as those for the London Aquarium in the Building’. Second, and perhaps
of more relevance, the claimant covenanted in clause 3.43 that it would
maintain in that gift shop ‘London Aquarium’s original design products of more
than 20% of its turnover’. Given that the use of the Oceanic premises was to be
limited to gift shop use, it appears to me that those covenants, together with
such other evidence as is available in connection with the claimant’s intended
use of the Oceanic premises, must be taken into account, and may be of real
assistance, when considering what is meant by ‘gift shop’ in clause 4.6 of the
Oceanic lease.
There is evidence as to the use to which the Oceanic premises are
put. While, ex hypothesi, that use post-dates the Oceanic lease, and
therefore appears to be something one cannot take into account when construing
that lease, the use is very much that that was contemplated by Oceanic and
Shirayama when they were negotiating that lease. The Oceanic premises are said:
[To] contain… items which are related to the Aquarium, ie they
have official sea theme or are decorated with such themes and logos. They include
such items as T-shirts, Baseball Caps, Bags, Cards, Soft Toys, Puzzles, Videos,
Pens, Posters, Mugs and Key Rings.
The claimant also sells:
Non-Aquarium branded [goods] which may be found in gift shops
around London such as Black Cab Toys, models of Beafeaters, Big Ben and the
like. It also sells food items like fudge, chocolate, jam and canned drinks.
It appears to me that this use is what was contemplated by
Shirayama and the claimant when they were negotiating the Oceanic lease
(according to the evidence I heard on the rectification action), and it is a
use that constitutes a gift shop, according to the normal understanding of that
expression. I do not consider that the piscine aspect of the use assists the
defendant, because, while it is a peculiar aspect of the use of the Oceanic
premises, it in no way cuts down the general meaning of the expression ‘gift
shop’ in the Oceanic lease, particularly in light of the specific covenant in
clause 3.43, to which I have referred.
The United premises were designed, and are indeed used according to
the defendant’s evidence, as a combined ‘Football Hall of Fame, an area called
Football Legends, an interactive area and a merchandising retail shop’. The
last of these four uses is the use to which objection is made by the claimant,
and it represents about 10% of the total area of the United premises. This shop
sells:
Predominantly football merchandise such as football shirts,
scarves and other items of branded clothing. It also sells footballs, books
relating to football, autograph books and the like… [It] does sell some items
which some people might describe as ‘gifts’ in a colloquial sense, such as key
rings, mugs, pens, sweets and models. However these items form only a minor
part of the shop’s sales (14% of sales to date) and are ancillary to the shop’s
main business which is selling football merchandise.
In my view, in so far as they are used as a shop, the United
premises are used as a gift shop within the meaning of clause 4.6 of the
Oceanic lease.
Although clause 4.6 is a restrictive covenant expressed in somewhat
imprecise terms (in the sense that ‘gift shop’ is not a precise expression),
its commercial purpose seems to me to be important. In one way or another, its
rationale was to give the claimant what Mr Gaunt called a ‘lock’ on gift shop
use within the building. Given that, at the time that the Oceanic lease was
entered into, it was envisaged that other parts of the building would be used
for other attractions (such as the Football Hall of Fame and the Millennium
Wheel), it seems to me that the sort of shop that the parties would have had in
mind when agreeing clause 4.6 would have included shops that sold items with a
theme that reflected the attraction to which they were connected.
As I see it, both shops have a style, and stock a significant
proportion of merchandise, that reflect the attraction with which they are
connected (the Aquarium in the claimant’s case and the rest of the Football
Hall of Fame in the defendant’s case), but each of them also has a substantial
proportion of turnover of goods that appeal to visitors to these sort of
attractions generally, including tourists, which may be said to be of a
keepsake or trinket nature. The goods sold from each shop appear to me to be
appropriate for gifts, albeit that at least much of the football-related
mechanise sold at the United premises could be said to be directed more
specifically to people who are interested in football, and, indeed, other than
merchandise relating to the national team, to supporters of the specific clubs
to which the goods relate. In the case of each shop, I consider that one would
expect, in comparison with more normal retail shops, a high proportion of the
goods would be appropriate for purchase as gifts.
The fact that the defendant’s evidence is to the effect that ‘the
merchandise sold in the Aquarium Gift Shop and the Hall of Fame Shop
could [not] be said to compete or be in anyway comparable’ seems to me to miss
the point. Both as a matter of language and bearing in mind the commercial
purpose of clause 4.6, it does not appear to me that this argument affects the
conclusion that the United premises are used, in part, as a gift shop. Anyway,
those interested in football goods may be interested in Aquarium goods (and
vice versa). In any event, there will presumably be a significant number of
visitors to the building who go both to the Football Hall of Fame and to the
Aquarium, and, one imagines, who have a limited amount of money to spend.
Furthermore, as the evidence shows, a significant proportion of the goods sold
from each shop are similar.
Mr Fancourt also raised the argument that one should consider the
use of the United premises as a whole, and that, viewed as such, it could not
be said that United was operating a gift shop within the meaning of clause 4.6.
In this connection, he relied on the decision of Simonds J in A Lewis &
Co (Westminster) Ltd v Bell Property Trust Ltd [1940] Ch 345. In
that case, there was held to be no breach of a covenant not to permit adjoining
property to be used ‘for the purpose of the business of the sale of tobacco,
cigars and cigarettes’, where premises were used as a tea shop, and (to quote
from the head note) ‘in the course of carrying on that business cigarettes were
sold to customers at the cashiers desk’. In my judgment, the difference between
that case and this case is best illustrated by a quotation from the judgment at
p348:
I find it difficult to take the view that anybody being asked this
question: ‘What is the business which… [the occupiers] carry on at this shop?’
would reply: ‘They carry on several businesses; they carry on the business of
selling refreshments; they carry on the business of selling confectionery; they
carry on the business of selling tobacco, cigars and cigarettes.’
In this case, it seems to me that, as can be demonstrated from the
passage I have quoted from its own evidence, the defendant can fairly be said
to carry on at least two, and possibly four, businesses, one of which is the
shop.
In these circumstances, it appears to me that the use to which the
United premises are put, in so far as they are a shop, constitutes a breach of
clause 4.6. It is right to mention that I have wondered whether it is
appropriate for me to decide that issue at this stage, rather than letting the
matter go to trial, so that more detailed evidence, tested by
cross-examination, can be called on this issue. I have come to the conclusion
that the point is one that I can properly decide at this stage, essentially for
the reasons set out above. I take comfort from the fact that the primary
position of each of the parties was that the issue could and should indeed be
decided at this stage. In these circumstances, I consider that the claimant’s
proposition 3 is well founded.
Conclusion
If the claimant had established its propositions so far, there
could have been a question as to whether or not it was appropriate to grant an
injunction restraining the defendant from using the United premises in breach
of clause 4.6, rather than awarding damages. However, as I have mentioned,
provided that it was accepted that any damages would be assessed in accordance
with the principles considered in Wrotham Park Estate Co Ltd v Parkside
Homes Ltd [1974] 1 WLR 798 and Gafford v Graham (1999) 77
P&CR 73*, and provided that such damages were paid by the defendant in full
once they were assessed, the claimant would not have been seeking an
injunction.
* Editor’s note: Also reported at [1999] 3 EGLR 75; [1999] 41 EG
159
The defendant accepts that, if the claimant had been entitled to
enforce clause 4.6 against the defendant, damages in lieu of an injunction
would be assessed in accordance with those principles, and, accordingly, it
would have agreed with what is suggested on behalf of the claimant. In those
circumstances, if I had concluded that the claimant was entitled to enforce
clause 4.6 against the defendant, I would have ordered an inquiry as to damages
(to be assessed in accordance with the principles in the cases to which I have
just referred). As to the claimant’s claim for an injunction, I would have
stood it over on the basis that the claim for an injunction would be dismissed
if and when the damages had been assessed and paid, but if for some reason the
damages were not so assessed and paid, the claimant would have had liberty to
restore for the purpose of considering whether or not to grant the injunction
sought.
In the event, because I consider that the claimant has not made out
its case under proposition 2(a) or proposition 2(b), I dismiss the claim.
Claim dismissed.
