Megaro v Di Popolo Hotels Ltd

This is an appeal from an order made on 21 December 2005 by HHJ Cowell sitting in the Central London County Court in proceedings brought by Mr Antonio Megaro, the owner of premises at 23 to 27, odd number, Euston Road, London NW1. The defendant to the proceedings, Di Popolo Hotels Ltd, is owner of adjoining premises, 29 to 31 Euston Road and 5 Argyle Street. The properties lie on the south side of Euston Road, between Belgrave Street to the east and Argyle Street to the west. The properties were formally in common ownership under Land Registry title, NGL 132276. By a transfer dated 5 January 1998, the property now owned by the defendant was transferred out of title NGL 132276 and was registered under its own title NGL 758382. The property remaining in title NGL 132276 is the property now owned by the claimant, Mr Megaro. For convenience I shall refer to that property as the claimant’s property and the property held under title NGL 758382 as the defendant’s property.

In 1998 the building on the claimant’s property, where it fronted Euston Road, was four storeys in height. But the ground floor extended to the rear of the property so as to form a single storey with a flat roof. On the defendant’s property there was a three-storey building with a flat roof. On part of that third floor roof there was an additional building used as a flat. Again, the ground floor of the building on the defendant’s property extended to the rear, so as to form a single storey with a flat roof.

At the time of the transfer the two buildings were served by a common fire escape. This took the form of an external iron staircase attached to the rear of the building on the defendant’s property and leading from the flat roof of the third storey of that property down to the flat roof of the ground floor extension. Access to the flat roof at the top of the staircase was gained through an external door from the flat on the defendant’s property; or from the fourth floor of the claimant’s property through a door and down a short external iron staircase. The escape from the flat roof of the ground floor extension to the ground itself was across that roof, across the roof of the ground floor extension on the claimant’s property, down a further iron staircase in a light well on the claimant’s property and from there along a passage leading through the claimant’s property to Belgrave Road to the east. The position therefore, in summary, was that the common fire escape above the level of the ground floor roof, and the escape from the fourth floor of the claimant’s property was over the defendant’s property; but the escape from the ground floor roof to Belgrave Road was over the claimant’s property.

The need to provide rights which would enable the fire escape to be used by the occupiers of the two properties after they came into separate ownership in 1998 was recognised in the transfer of 5 January 1998. The property transferred (the defendant’s property) was transferred with the benefit of rights granted in schedule 2 of that transfer, but subject to the rights reserved for the benefit of the retained property (the claimant’s property) in schedule 3 of that transfer.

The rights reserved for the benefit of the claimant’s property included, at paragraph 4 in schedule 3:

“The right in case of emergency only, to cross the roof of the Property and exit to ground level via the external staircase of 29/31 Euston Road aforesaid.”

“The Property” in that context means the defendant’s property. The owner of the claimant’s property (now the claimant) has the benefit of that right. Strictly, the right is a right to cross two roofs -- one on the third floor and one on the ground floor -- and to use two staircases -- one leading from the fourth to the third floor and one leading from the third floor to the ground floor -- but nothing turns on that.

The rights granted to the defendant’s property, included at paragraph 4 of schedule 2 to the 1998 transfer:

“The right in the case of emergency only to cross the roof of the Retained land and to exit to ground level with the external staircase of 23/27 Euston Road, PROVIDED ALWAYS that the said roof and external staircase still exist AND ALSO RESERVING to the owner of the retained land from time to time the right in any event to change the route of the said emergency exit.”

“The Retained land” in that context means the claimant’s property. The owner of the defendant’s property (now the defendant) has the benefit of that right.

It can be seen that the rights of emergency egress, although granted in similar terms, differ: in that the defendant’s right over the claimant’s property is qualified: first, by the proviso that the roof and external staircase over which the right may be exercised “still exist”; and, second, by the right reserved to the owner of the claimant’s property (in this context the owner of the servient land) “From time to time and in any event, to change the route of the said emergency exit”.

The claimant and the defendant acquired the properties which they now own from the parties to the 1998 transfer (or from their successors in title) in or about the year 2000. It seems that when they acquired those properties each had plans to redevelop. By 2004 the claimant had obtained planning consent for a change of use of the claimant’s property from offices to a hotel. The redevelopment involved the erection of a new structure above the flat roof to the rear of the upper floors of the claimant’s property and the demolition or removal of the light well. The effect of the redevelopment will be that escape from the upper floors of the claimant’s property will continue to be over the external iron staircase to the flat roof above the ground floor of the defendant’s property; but, from there, the route will go through an automated fire door into the first floor of the claimant's property and thence by way of an internal fire resistant staircase to the street. The claimant is unwilling to permit the occupiers of the defendant’s property to use the new route through his property and down the internal fire resistant staircase.

On 1 October 2004 the claimant’s solicitors wrote to the defendant in these terms:

“29 and 31 Euston Road and 5 Argyle Street, London WC1.

We act for Antonio Megaro, the registered proprietor for the freehold interest in 23-27 Euston Road.

Under Clause 4 of the Second Schedule to the transfer dated 5^th January 1998 of your property, your property had the right in the case of emergency to cross the roof of our clients’ property and exit at ground level with the external staircase on our clients property ‘Provided Always the said roof and external staircase still exist’.

We write to advise you, as a matter of courtesy, that the external staircase no longer exists and you may accordingly need to seek an alternative means of escape from your property.”

That letter was followed a few days later on 4 October 2004 by a letter which was in identical terms, save that it included an additional paragraph:

“Our client has let you use another route on a temporary basis. That route will no longer be available in two weeks time.”

The response to the letter of 1 October 2004 was a letter of 20 October 2004 from the defendant’s solicitors. They wrote, so far as is material:

“Under paragraph 4 of the Transfer of 5 January 1998 there is reserved the right to change the route of the emergency exit but there is no right to remove it. The proviso that you have quoted does not give any such implied right. Be that as it may and without prejudice, our clients are of the view that the nature of the respective buildings had changed to such an extent that the rights of escape, both granted and reserved, have been extinguished. Apparently your client's building has been increased in size by over 50% and the user has changed from office to hotel.

We also understand that the external staircase on our client’s property gives access only to the first floor level on your client’s property and your client has permanently obstructed it with the erection of a new building. Your client has therefore acceded to the extinguishment of his own right of way.

In the light of the above our client will be removing the staircase, on 29-31 Euston Road, which leads from your client’s roof to the roof of our client’s property.”

Strictly, the external staircase that is being referred to in that last paragraph does not lead from the roof of the claimant’s property, but from an external door on the fourth floor, but nothing turns on that. It is of significance, however, that the defendant does not suggest, in that letter, that it will be unable to find a route over its own property from the flat roof above the ground floor extension to the street.

It can be of little surprise that that exchange of correspondence led to litigation. These proceedings were commenced on or about 17 December 2004 by the issue of a claim form in the Central London County Court. The claimant sought a declaration as to the existence of his right of egress in the terms of paragraph 4 of schedule 3 to the transfer of 5 January 1998 and an injunction to restrain the defendant from denying, preventing or obstructing the exercise of that right. Shortly thereafter the claimant applied for an interim order requiring the defendant to restore the external staircase on the defendant’s property pending trial. The defendant gave an undertaking to the court to that effect on 7 January 2005.

A defence and counterclaim were served on 14 January 2005. It was admitted that a section of the external staircase on the defendant’s property had been removed, but it was denied that that removal constituted wrongful interference to the right of egress from the claimant’s property. It was said that the right enjoyed by the claimant had been extinguished or, in the alternative, had been suspended. The counterclaim referred to the letter dated 1 October 2004 which I have read. The defendant sought a declaration by counterclaim that its right of egress over the claimant's property remained extant. It sought an order that the claimant reinstate the external staircase on the claimant’s property or that in the alternative that the claimant provide an alternative means of escape from the defendant’s property in case of fire.

On 11 July 2005 the claimant obtained judgment on his claim, a declaration in the terms sought and an injunction restraining interference with the right claimed. The counterclaim was adjourned to trial. It was that counterclaim which came before Judge Cowell on 21 December 2005. The judge made the declaration sought; that is to say he declared that the right granted by paragraph 4 in schedule 2 to the transfer of 5 January 1998 was extant and he ordered that the claimant provide the defendant’s property by 31 March 2006 with an alternative means of escape in case of fire or other emergency. It is from that order that the claimant appeals to this court. He does so with permission granted by Jacob LJ on 22 March 2006.

The judge made findings of fact as to the physical state of the two properties on, and for some time before, 5 January 1998. In substance those correspond to the description which I have already set out earlier in this judgment. On the basis of those findings of fact the judge directed himself, correctly, that, in paragraph 4 of schedule 2 to the transfer, “the roof of the retained property” was the roof of the ground floor of the claimant’s property and “the exit ground level with the external staircase of 23/27 Euston Road” was a reference to the external staircase in the light well on the claimant’s property and thereon through the passage eastwards to Belgrave Street. The defendant did not need the benefit of a right of egress from the flat on the third floor of the defendant’s property over the third floor roof, down the external staircase to the first floor, or over the ground floor roof of the defendant’s property. The defendant was entitled to use that route as the owner of the defendant’s property. But, for convenience and completeness, the judge noted that those rights were reserved for the benefit of the claimant’s property in paragraph 4 of schedule 3.

The judge summarised the respective arguments in these terms, at paragraphs 13, 14 and 15 of his judgment:

“13.

The claimant’s argument is that on its true construction paragraph 4 of schedule 2 means that if the claimant removes the roof or the external staircase in the light well, then the defendant’s right comes to an end and the defendant has no right to go on any part of the claimant’s land. The claimant’s argument furthermore is that the part of the paragraph beginning with the words in capital letters ‘AND ALSO RESERVING’ and going to the end of the paragraph enables the claimant to change the route over the claimant’s roof or on the external staircase but has no wider meaning.”

“14.

The claimant’s argument is quite simply that if you look at the two different paragraph’s 4, the one in schedule 2 is a clear grant but it is somewhat precarious because it will only last for so long as the roof and the external staircase remain in the position that they were in January 1998. That is clearly a very limited, if not precarious, grant; but if one looks at the reservation, there is a clear reservation of a definite and permanent easement, as indeed all legal easements are.

“15.

The defendant’s argument is that on its true construction, paragraph 4 in schedule 2 is the grant of a legal easement over the claimant’s property, but the claimant has the right to alter the route of it, so it might be down to the ground floor by any other route the claimant might choose “from time to time and in any event”, to quote from the words of paragraph 4, and if such a route is chosen that will be the route in place of the route over the then ground floor roof of the claimant’s property and down the external staircase in the light well. The defendant’s argument is that essentially what those two paragraphs do are to grant and reserve respectively a full legal easement, but giving the claimant, in the case of schedule 2, the right to alter the route that the defendant may take over the claimant’s property.

The judge reminded himself of the well-known passage in the speech of Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 in which principles of construction are set out. He went on to explain why he had reached the conclusion that the defendant’s construction was to be preferred. He said this at paragraphs 17 and 18:

“17.

It seems to me that Mr Denehan is correct in saying that the hypothetical reasonable man, knowing of the physical layout and looking at the grant in this case, the kind of man envisaged by Lord Hoffman in his speech, would think it a nonsense that the rights granted to the defendant was a right which could simply be terminated by the removal of the roof or of the external staircase. So one starts from that point of view, that it is highly likely that that was in fact what was agreed.

“18.

Mr Lloyd’s argument, as I have already indicated, puts the matter like this: the grant is in qualified terms whereas the reservation is in unqualified terms. But I prefer Mr Denehan’s argument, and this is really the second point, that the difference between the two paragraphs is accounted for by the clear indication that the [defendant’s] should have a degree of flexibility in taking the emergency route once it reaches his land at first floor level and down to the ground floor in whatever way ‘from time to time’, to quote the words of the paragraph, and in whatever event (and I refer to the words ‘in any event’ in that paragraph) he may think fit, effectively giving the claimant that flexibility which is not in fact given by the other paragraph 4 of schedule 3 to the defendant. That is the essential difference between the two.”

The judge asked himself the question, in paragraph 19 of his judgment:

“Was it intended that the right could be altogether turned off, to use Mr Denehan’s expression, at the whim of the claimant?”

He answered that question by saying that it seemed to him that something much stronger would be needed in the language to bring the grant to an end in the way suggested by the claimant.

It can be seen from those passages that there were two points which led the judge to the conclusion which he reached. First, that reading the words of the grant in January 1998, with knowledge of the physical layout as it then was, compelled the view that it would be “a nonsense” -- to use the judge’s words -- if the right granted to the defendant’s property could be terminated by removing the flat roof over the claimant’s ground floor extension or by removing the staircase in the light well. Second, that the difference in the terms of the two paragraphs 4 -- the one in schedule 3 and the other in schedule 2 to the transfer of January 1998 -- was to be explained by an intention of the parties that the claimant’s property should have “a degree of flexibility” as to the emergency route once it reached that property at first floor level.

In my view, neither of those points can be sustained on a true analysis. It is not in dispute that the intention of the parties of the 1998 transfer is to be ascertained by interpreting the words used in the light of the circumstances as they were at the time of the transfer. As Lord Hoffman put it in Investors Compensation Scheme Ltd [1998] 1 WLR 896, 912(h), principle 1:

“Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person, having all the background knowledge which would have reasonably been available to the parties in a situation in which they were at the time of the contract.”

The court does not, through the guise of interpretation, make for the parties a bargain which they did not themselves choose to make. It is not for the court, through the guise of interpretation to substitute for the bargain which the parties did make a different bargain which in its view they would have made if they had been better advised or had had better regard for their own interests.

Lord Hoffman went on to say this at page 913, between (c) and (d) at principles 4 and 5:

“4.

The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax, see Mannai Investments Co. Ltd v Eagle Star Life Assurance Co. Ltd [1997] APP Cases 794.

“5.

The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require the judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Readyarena AB [1985] App Cases 191, 201:

‘If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense’.”

In the present case the only extrinsic facts which were placed before the judge and from which he could draw assistance in the task of interpreting what the parties meant by the words which they used in paragraph 4 of schedule 2 to the 1998 transfer were these: (i) the roof of the retained property: ‘was the flat roof over the rear ground floor extension to the claimant’s property.’; (ii) the ‘external staircase of 23/27 Euston Road’ was the iron staircase in the light well on the claimant’s property; (iii) that, as at January 1998, the route over that flat roof and that staircase provided egress, not only from the defendant’s property, but also from the upper floors of the claimant’s property; (iv) that if that roof and that staircase at sometime thereafter did not exist, the claimant would himself need to make some other arrangements for emergency egress from the upper floors of the claimant’s property; (v) that those other arrangements might or might not -- but lawfully could -- involve continued use of other external staircases on the defendant’s property and use of the flat roofs above the third and ground floors on the defendant’s property; and (vi) that, if those other arrangements did involve such continued use of rights of egress over the defendant’s property, then (if the roof and staircase on the claimant’s property had ceased to exist) the claimant would have to find some other way of crossing his own property to reach the street.

The evidence before the judge did not touch on the practicality of making other arrangements for emergency egress from either the claimant’s property or from the defendant’s property; and, in particular, did not touch on the question of whether it would be practical to make such arrangements for emergency egress by means of internal staircases or external staircases in another position. It is frankly and properly accepted on behalf of the defendant’s that it cannot be said that practical arrangements could not have been made which did not involve the use of the fire escape as it had existed in January 1998; nor could it be said that a building without use of that fire escape was incapable of use. So, when the judge described it as a nonsense that the right granted to the defendant’s was a right which could simply be terminated by the removal of the roof or of the external staircase, he seems to have overlooked the fact that there was no evidence before him which could support the view that removal of that roof and external staircase without an alternative route over the claimant’s property would make the defendant’s property unusable. Further, he seems to have overlooked that the removal of the roof and the external staircase on the claimant’s property would be likely to happen only in the context of a re-development of the claimant’s property; because, unless there were a re-development of the claimant’s property, the claimant would himself need to use that route in order to secure emergency egress from the upper floors of the claimant’s property. For so long as the flat roof and the staircase were there for that purpose, they could be used by the defendant’s property for the purpose contemplated by paragraph 4 in schedule 2 to the grant.

Far from being “a nonsense”, the arrangement which the vendor and purchaser entered into in 1998 reflected the obvious possibility that the claimant’s property might be redeveloped in the future; and that, if it were redeveloped in the future, then other arrangements might well have to be made. That may not have been commercially very attractive to the purchaser of the defendant’s property in January 1998; but it may have been the best bargain that he could get. The fact that a party gets less than he may have hoped for in a bargain does not mean that the bargain produces “a nonsense”; it means only that it produces a less advantageous result that the party might have hoped to obtain. It is a curious feature of the bargain in this case that the terms in which the respective rights are granted does prevent (or at least impede) the development of the defendant’s property without a corresponding effect on the claimant’s property. But this transaction was a sale off by an existing owner; and that may well have been the best bargain that he was prepared to allow to his purchaser.

For those reasons, as it seems to me, the first of the judge’s points cannot be sustained. The second point -- in which he explains the qualifications to paragraph 4 of schedule 2 on the grounds that they provide a needed flexibility for the claimant’s property -- seems to me to overlook that the words of the proviso: “Provided also that the said roof and external staircase still exist”. The result that attracted the judge can be reached without paying any regard to those words. It can be reached simply giving effect to the second qualification:

“And also reserving to the owner of the Retained land from time to time, the right in any event to change the route of the said emergency exit.”

The judge nowhere explains what purpose he thought the words “Provided always that the said roof and external staircase still exist” were intended to serve. As it seems to me the purpose is plain. The right of emergency egress is granted only for so long as the roof over the ground floor of the claimant’s property and the external staircase in the light well do exist. When those features no longer exist, the right comes to an end. For such time as the right does exist, there is the further qualification -- necessary, having regard to the general law -- that the claimant can vary the right that does exist. But there is nothing in the proviso, as it seems to me, which imposes an obligation on the claimant, or the owner of the claimant’s property, to provide a substitute right in circumstances where the original right has ceased to exist in accordance with the terms of the provision. That was not the bargain made; although it clearly could have been and would have been more and would have been more advantageous for the defendant if it had been.

For those reasons I would allow this appeal. It seems to me that the judge erred in the two points which led him to the conclusion which he reached. That the proper interpretation of paragraph 4 in schedule 2 is to give all the words the full meaning, having regard always to the circumstances which did exist in 1998.

I agree.

I also agree.