Embankment Place Hotels (Blackfriars) Ltd. v Blackfriars Hotels Ltd. & Anor

(As approved by the Court)

1. LORD JUSTICE ALDOUS: With leave of this Court, Embankment Place Hotels (Blackfriars) Limited ("Embankment") appeal against the order of Forbes J. In that order he, amongst other things, dismissed an application by Embankment for a declaration that they had given a notice as required by a development agreement dated 7th July 1998 between themselves and the respondents Blackfriars Hotels Ltd ("Blackfriars").

2. The development agreement concerns the development of office premises at Blackfriars House, 19 Newbridge Street, London EC4V 6BD into a hotel to be run as a Crowne Plaza Hotel. Embankment were the developers. Blackfriars were to be the owners and Six Continents Hotels (UK) Limited were to be the managers.

3. Under the development agreement, the developers took on duties of appointing a professional team, procuring the preparation of design documents, applying for and obtaining relevant consents, appointing and employing the building contractor, and completing the development and fitting it out in the way defined in the agreement.

4. The primary obligation upon Blackfriars was to pay the contract price of £28,140,000. That became payable together with any interest due under clause 9.1 "on the completion date". The completion date was defined as:

"the date on which both of the following have occurred:

(i) the Statement of Practical Completion has been issued; and

(ii) the Certificate of Operability has been issued."

5. The statement of practical completion was defined as meaning:

"the statement to be issued by the Employer's Agent under the Building Contract that Practical Completion has occurred."

6. The certificate of operability was defined as:

"the Certificate issued pursuant to the provisions of paragraph 13 of Schedule 2."

7. The relevant parts of paragraph 13 of schedule 2 were in this form:

"13 Issue of the Certificate of Operability

13.1 The Developer will give at least 8 working weeks notice to the Manager of the date by which it will have complied with all those of its obligations under this Agreement compliance with which shall be required in order to enable the Manager to open and operate the Premises as a fully operational licensed hotel as envisaged by this Agreement

13.2 The Manager shall arrange for its appropriate representatives in conjunction with appropriate representatives appointed by the Developer to carry out all appropriate inspections tests and procedures as are required with a view to their issuing the Crowne Plaza Hotel Opening Certificate, Fire Safety Systems Certificate and Hotel Operating/Occupancy Certificate in accordance with the Crowne Plaza Standard Specification

13.3 In carrying out its obligations under clause 13.2 the Manager and the Developer shall and shall ensure that their respective representatives act in good faith and that any deficiencies, omissions, defects or other circumstances which prevent the issue of any of those certificates shall be notified to the Developer as soon as possible. The Manager shall then arrange for a reinspection as soon as practicable after the Developer has notified the Manager in writing that it considers that the relevant item has been rectified

13.4 Within 2 working days of the issue of the last of the certificates referred to in paragraph 13.2 above the Manager and the Developer shall issue a copy of the Certificate of Operability

13.5 If the Manager and the Developer shall be unable to agree on the issue of the Certificate of Operability the dispute shall be referred at the instigation of either the Manager or the Developer to a suitably qualified and experienced independent surveyor appointed (failing agreement by the parties) by the President for the time being of the Royal Institution of Chartered Surveyors upon the application of either party such person acting as expert to resolve the matter and his decision shall be final and binding on the Owner and the Manager and Developer and his costs relating to this referral (plus VAT) shall be borne by such party as he shall direct. Any failure or refusal on the part of the Manager to arrange for any inspection test or procedure under paragraph 13.2 following reasonable notice from the Developer shall be a dispute for the purposes of this paragraph 13.5."

8. We were told that there are a number of disputes between the parties as to the work that was done or not done and whose fault it was. It seems that those disputes are of a substantial nature as the hotel has not yet opened.

9. A statement of practical completion was issued on 30th January 2002. It stated:

"Under the terms of the above mentioned Contract and subject to the Contractor having failed to achieve the relevant ceiling heights and floor areas in various locations (and in relation to which the Employer's rights are fully reserved) and completing the outstanding items set out in the schedules attached in accordance with the completion programme, the works were practically complete on:

25 January 2002."

10. It followed, at least in theory, that the first barrel aimed at completion had been fired and that the developers were looking or starting to look to completion and receipt of the £28 million.

11. This appeal is concerned with a narrow issue, namely whether Embankment served a notice under paragraph 13.1 of schedule 2. Embankment contend that such a notice was served in a letter written by them on 4th January 2002, alternatively in a letter of 11th April of that year. Blackfriars contend that neither of those letters were valid paragraph 13.1 notices.

12. The relevant parts of those letters are as follows. The letter of 4th January is addressed by Embankment to Mr Jackman of Six Continents Hotels. It concludes in this way:

"As of today's date a certificate of Practical Completion has not been issued, but the issue of that certificate is imminent. We therefore give you notice that it will be issued within the next several days and formally request that you instigate those procedures set out in the Development Agreement requisite for achieving the Certificate of Operability.

As we discussed with you, at our meeting on 23rd October, the issues with regard to floor areas and ceiling heights in a small number of areas, remain unchanged. It is therefore very much in your court to look into this matter and tell us how you will approach it so that the matter can be finalised. It is our view that those areas are not substantial and do not affect the profitability or operability of the hotel in any way. We look forward to hearing your views."

13. The letter of 11th April was as follows:

"Dear Sirs

Blackfriars House Hotel

We are writing to give notice, on behalf of our client, Embankment Place Hotels (Blackfriars) Limited ('EPH'), pursuant to Schedule 2, paragraph 13.1 of the Development Agreement, of compliance with all of its obligations under the Development Agreement.

This notice is given without prejudice to our client's position that it has previously given valid notices pursuant to Schedule 2, paragraph 13.1 of the Development Agreement."

That letter was written by the solicitors on behalf of Embankment to Blackfriars Hotels Ltd.

14. Mr John Blackburn QC, who appeared on behalf of Embankment, submitted that it was not necessary to include in a notice given pursuant to paragraph 13.1 an express specified date. That was supported by considering the purpose of the notice and its effect. The purpose of the giving of the notice was to initiate an inspection process provided for in paragraph 13.2. In effect paragraph 13.1 required Embankment to give a notice of the time by which they considered the hotel would be operable. But operability of the hotel was not a matter over which Embankment had sole control. The certificate of operability was to be issued two days after the last of the certificates referred to in paragraph 13.2. It was, Mr Blackburn submitted, clear that those certificates could not be issued unilaterally, they required both parties to have taken steps. In any case paragraph 13.5 provided for a method of resolving disputes between the parties as to when the certificate of operability should be issued. Thus he submitted it was pointless for Embankment to have to specify a date by which the hotel would be operable. The purpose of the notice required under paragraph 13.1 was to initiate the procedure which would ultimately lead to the certificate being granted. He submitted that in those circumstances the letter of 4th January was sufficient compliance with paragraph 13.1, but in any case the position was quite clear from the letter of 11th April. He submitted the effect of the letter of 11th April and of 4th January was to initiate the procedure leading to the certificate of operability and that the date of the notice effectively gave the earliest date, being eight weeks after the date of the letter, when Embankment could complain about the failure to issue the certificate of operability. Such construction was, he submitted, commercially sensible and provided adequate protection to all the parties.

15. Mr Blackburn drew to our attention the need for purposive construction and submitted that we should adopt the approach of the House of Lords in Mannai Investment Co Ltd v Eaglestar Life Assurance Co Ltd[1997] AC 749, and in particular that contained in the speech of Lord Steyn at page 767. There he said this:

"(1) This is not a case of a contractual right to determine which prescribes as an indispensable condition for its effective exercise that the notice must contain specific information. After providing for the form of the notice ('in writing'), its duration ('not less than six months') and service ('on the landlord or its solicitors'), the only words in clause 7(13) relevant to the content of the notice are the words 'notice to expire on the third anniversary of the term commencement date determine this lease'. Those words do not have any customary meaning in a technical sense. No terms of art are involved. And neither side has suggested that anything should be implied into the language. That is not surprising since the tests governing the implication of terms could not conceivably be satisfied. The language of clause 7(13) must be given its ordinary meaning. A notice simply expressed to determine the lease on the third anniversary of the commencement date would therefore have been effective. The principle is that that is certain which the context renders certain: Sunrose Ltd v Gould [1962] 1 WLR 20.

(2) The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene. The approach in Reardon Smith Line Ltd v Yngvar Hansen-Tangen(trading as HE Hansen-Tangen)[1976] 1 WLR 989, which deals with the construction of commercial contracts, is by analogy of assistance in respect of unilateral notices such as those under consideration in the present case. Relying on the reasoning in Lord Wilberforce's speech in the Reardon Smith case, at pp 996D-997D, three propositions can be formulated. First, in respect of contracts and contractual notices the contextual scene is always relevant. Secondly, what is admissible as a matter of the rules of evidence under this heading is what is arguably relevant. But admissibility is not the decisive matter. The real question is what evidence of surrounding circumstances may ultimately be allowed to influence the question of interpretation. That depends on what meanings the language read against the objective contextual scene will let in. Thirdly, the inquiry is objective: the question is what reasonable persons, circumstanced as the actual parties were, would have had in mind. It follows that one cannot ignore that a reasonable recipient of the notices would have had in the forefront of his mind the terms of the leases. Given that the reasonable recipient must be credited with knowledge of the critical date and the terms of clause 7(13) the question is simply how the reasonable recipient would have understood such a notice. This proposition may in other cases require qualification. Depending on the circumstances a party may be precluded by an estoppel by convention from raising a contention contrary to a common assumption of fact or law (which could include the validity of a notice) upon which they have acted: Norwegian American Cruises A/S (formerly Norwegian American Lines A/S) v Paul Munday Ltd [1988] 2 Lloyd's Rep 343. Such an issue may involve subjective questions. That is, however, a different issue and not one relevant to this appeal. I proceed therefore to examine the matter objectively.

(3) It is important not to lose sight of the purpose of a notice under the break clause. It serves one purpose only: to inform the landlord that the tenant has decided to determine the lease in accordance with the right reserved. That purpose must be relevant to the construction and validity of the notice. Prima facie one would expect that if a notice unambiguously conveys a decision to determine a court may nowadays ignore immaterial errors which would not have misled a reasonable recipient.

...

(5) That brings me to the application of this test. The facts are simple. Crediting a reasonable recipient with knowledge of the terms of the lease and third anniversary date (13 January), I venture to suggest that it is obvious that a reasonable recipient would have appreciated that the tenant wished to determine the leases on the third anniversary date of the leases but wrongly described it as the 12th instead of the 13th. The reasonable recipient would not have been perplexed in any way by the minor error in the notices. The notices would have achieved their intended purpose."

16. Mr Jonathan Acton Davis QC who appeared for Blackfriars supported the view taken by the judge. He submitted that paragraph 13.1 of the development agreement required Embankment to give eight weeks' notice of the date by which it will have complied with all of its obligations under the development agreement. That required the letter to specify the earliest date (eight weeks in the future) on which the developer could complain about a failure to issue a certificate of operability.

17. In supporting the conclusion of the judge, he relied on this part of the judge's judgment:

"24. However, I have come to the conclusion that Mr Acton Davis' other two points on this aspect of the case are sound. In my opinion, it would not have been impossible to specify a date in the future by which it was anticipated that EPH would have complied with all its relevant contractual obligations. Similarly, it would not have been impossible to specify a date that gave not less than 8 weeks' notice of that compliance to SCH. I agree with Mr Acton Davis that the wording of paragraph 13.1 is perfectly clear. It requires that the Manager be given at least 8 weeks' notice in advance of a particular date (i.e. the date upon which EPH will have complied with all its relevant contractual obligations). None of the letters relied upon by EPH in these proceedings specifies such a date and none of them gives 8 weeks' notice of such a date (or, indeed, any period of notice at all). Indeed, as Mr Blackburn very fairly acknowledged, the letter of 11th April expressly stated that there had been compliance with all the relevant contractual obligations by the date of the letter itself. On any view, the letter of 11th April was therefore not an anticipatory notice of the type required and specified by paragraph 13.1 of Schedule 2.

25. In those circumstances, as it seems to me, none of the letters in question can properly be described as constituting notice 'within the meaning of Paragraph 13.1 of Schedule 2 of the Development Agreement'. It therefore follows that EPH is not entitled to any of the declarations sought in paragraph 1 of the prayer in these proceedings and its claim to that effect must therefore, for those reasons, fail."

18. Mr Acton Davis also drew to our attention paragraph 7.1 of the second schedule to the agreement which required the developer to "give at least twenty working days' notice to the Owner..." There was, as he pointed out, no mention of "the date" in that clause. It followed, he submitted, that where the parties had specified that a date be given, as in paragraph 13.1, full effect should be given to that requirement.

19. I accept that there is a difference in wording between paragraphs 7.1 and 13.1, but I believe that Mr Acton Davis' submission, based upon that difference, is the result of meticulous analysis of the agreement, a task undertaken by lawyers, which may not result in ascertaining what the parties intended.

20. As a matter of form it is correct to construe the agreement and only when its proper meaning has been ascertained to consider whether the letters comply with the obligations contained in the agreement.

21. The manner of construction of an agreement such as the development agreement is well settled. The task of the court is to ascertain the intention of the parties taking into account the matrix.

22. In the present case the matrix is not in dispute and can be gathered from the agreement itself. The purpose of the notice provided for by paragraph 13.1 was first to trigger the procedures leading to the certificates referred to in paragraph 13.2. Second, it was to put the manager on notice of the need to get ready to operate the hotel upon completion. Third, it was to lead to the certificate of operability being issued which was an essential element of completion resulting in an obligation to pay and extinguishment of the licence of the developer to remain on the premises.

23. The obligation in paragraph 13.1 is that "The Developer will give at least 8 working weeks notice to the Manager of the date by which it will have complied with all those of its obligations" to enable the hotel to open and operate as a hotel. It is an important fact that the notice is to the Manager who was not intimately involved in the development. Thus it was important for it to know the date by which the developer, Embankment, believed it would have complied with its obligations. I therefore believe that paragraph 13.1 required the developer to give the date by which it will have complied with its obligations. That date had to be at least eight working weeks from the date of the notice. A notice stating that compliance will have taken place at least eight working weeks from a particular date would not, in my view, have been sufficient. It would not provide the required information, namely the date when the developer anticipated that it would have complied with its contractual obligations to enable the Manager to run a hotel.

24. I turn to the letters relied on by Embankment. They must be construed purposively. The aim is to ascertain objectively how a reasonable recipient would have understood those letters.

25. The letter of 4th January 2002 gives notice that the certificate of practical completion will be issued within the next few days. As I pointed out, it was issued on 30th January. The letter then formally requests the Manager to instigate the procedures requisite for achieving the certificate of operability. I cannot construe that letter as giving a notice as required by paragraph 13.1. It is a request to start on the 13.2 tasks. Further there is no date given by the Developer of when he is to be taken as having complied with his obligations. In any case if it purported to be a paragraph 13.1 notice, it was not notice of something to take place eight weeks away.

26. The letter of 11th April 2002 appears to have been written with the intention of providing a paragraph 13.1 notice and I am prepared to accept that a reasonable recipient would have so read it. However the first sentence is a notice that Embankment have complied with its obligations. If so, a paragraph 13.1 notice could be given. That was, it seems, intended to be given by the second sentence. But the letter is silent as to what is the date, at least eight weeks away, by which Embankment will have complied with its obligations. The only possible date is eight weeks from 11th April, but that is only a possibility. That is not sufficient for an important notice.

27. In the Mannai case Lord Steyn at page 769 concluded that:

"The reasonable recipient would not have been perplexed in any way by the minor error in the notices. The notices would have achieved their intended purpose."

That could not be said of the letter of 11th April 2002. The reasonable recipient would have been perplexed by the omission of a date. Such an omission was not a minor error as the date was important to the Manager to enable him to prepare to run a hotel.

28. In my view the letter of 11th April 2002 was not a notice as required by paragraph 13.1. It follows that I would dismiss this appeal.

29. LORD JUSTICE RIX: I agree.

30. In brief, the letter of 4th January 2002 did not contain a notice under clause 13.1 at all. It was merely a request, albeit purporting to be a formal request, to the Manager to institute the procedures set out in the development agreement requisite for achieving the certificate of operability. In any event, even if it had been a notice, there was no mention of a period of weeks or a date by which Embankment will have complied with its contractual obligations. I do not say that if a period had been specified which was not less than eight weeks, it would have been additionally necessary to specify a date, although I am inclined to think that it was. But the letter contained a reference neither to a period of weeks nor to a date. In these circumstances, Embankment has to say that a notice silent as to period or date is implicitly an eight-week notice. But that in my judgment is not a legitimate implication. Notice can be given under clause 13.1 of more than eight weeks, and Embankment has to estimate in good faith the time necessary for compliance with all its obligations. A notice silent as to period or date does not reflect that good faith obligation to specify a period necessary for compliance with Embankment's obligations.

31. As for the letter of 11th April 2002, the only notice given there, albeit said to be pursuant to clause 13.1, is:

"of compliance with all of its obligations under the Development Agreement."

Is that a notice of past or prospective compliance? Prima facie, in its context it might seem to be that of past compliance and so it was regarded by the judge. However, if such a notice is in truth a notice pursuant to clause 13.1, it is also possible to view it as a notice of future compliance. The matter is uncertain, and an uncertain notice is a dubious basis for a contractual notice.

32. In any event, the letter of 11th April 2002 itself fails to specify either a period or a date. Moreover, if this notice is to be regarded as a notice of past compliance with all Embankment's obligations, then its real function is to put off to some future (unspecified) date the issue of all the certificates necessary for a certificate of operability under clauses 13.2 to 13.4 or perhaps the issue of the certificate of operability itself. That in effect is to redraft the effect of a clause 13.1 notice, but it is in any event not what the letter says.

33. Reference was made to Mannai. But the facts there were wholly different, since in that case there was only one possible day for a valid and meaningful notice. It was therefore possible to conclude that a reasonable recipient must have understood the date of 12th January to relate to 13th January.

34. This case, however, is quite different because there is no certain date under the contractual provisions in respect of which a valid notice can be understood to be given.

35. I too would dismiss this appeal.

ORDER: Appeal dismissed; appellant to pay the respondents' costs assessed in the sum of £35,139; permission to appeal to the House of Lords refused.

(Order not part of approved judgment)