K/S Victoria Street (A Danish Partnership) v House of Fraser (Stores Management) Ltd & Ors

By this application the defendants seek permission to re-amend their defence and to add a counterclaim, raising for the first time pleas of rectification and estoppel by convention. The application was made on 7 October 2011 and was initially made returnable in the applications court on 17 October with an absurdly optimistic time estimate of 45 minutes. On that day it came before Mann J, who adjourned it to be heard as an application by order with a more realistic (but still inadequate) time estimate of half a day. I heard the application on 26 October and in view of the considerable difficulty and complexity of some of the issues reserved my judgment.

The claimant (“Victoria”) is a Danish limited partnership, which on 26 January 2006 entered into an agreement with the defendants (“the Agreement”) for the purchase and immediate lease back of the freehold of Beatties Department Store in Wolverhampton. The purchase price was £46 million, and the lease back (“the Lease”) was for a term of 35 years at an annual rent of £2.25 million, subject to 5-yearly upward-only rent reviews.

At the time of those transactions the parent company of the House of Fraser Group was House of Fraser Plc, which later in 2006 ceased to be a public limited company and became House of Fraser Limited (“HoF”). HoF is still the parent company of the group. It is the third defendant. The company which actually operated the Wolverhampton store was a subsidiary of HoF called James Beattie Limited (“Beatties”). However, the freehold of the store was not vested in Beatties, but had been sold (for technical reasons, upon which nothing turns, to do with the calculation of the levy payable to the Pension Protection Fund) to another subsidiary of HoF called House of Fraser (Stores Management) Limited (“Management”), which is the first defendant. Management was a shell company, which did not trade and had no other significant assets.

Since title to the store was vested in Management, the Agreement provided for Management to be the vendor. Victoria was also content for Management to be the initial tenant under the Lease, but naturally wished the near-worthless covenant of Management to be reinforced with the full financial backing of the group. To this end, it was agreed that, within three months, the Lease would be assigned to another company within the group with a covenant strength equal or superior to that of Beatties, failing which it would be assigned to a specified subsidiary called House of Fraser (Stores) Limited (“Stores”), which had a healthy balance sheet. It was also agreed that HoF, as the parent company of the group, would act as surety both for the obligations of Management under the Lease and for the obligations of the assignee.

These arrangements were reflected in clauses 3.2 and 3.5 of the Agreement, which provided as follows:

“3.2

[HoF] agrees to act as Surety to the Store Lease …

3.5

[Management] agrees to assign the Lease to an assignee (being a Group Company of [HoF] being of equal or greater covenant strength to [Beatties] and if a company is not chosen by 20 April 2006 then the assignee shall be Stores and Stores agrees to take that assignment) by no later than 26 April 2006 and [HoF] agrees to enter into a deed of guarantee of that assignee’s liabilities as surety in the form set out in Schedule 3 of the Lease.”

The Agreement was duly completed, and in accordance with its terms the Lease was granted by Victoria to Management, with HoF acting as Management’s guarantor. Both Stores and HoF were parties to the Agreement.

It is obvious that the commercial purpose of clause 3.5 of the Agreement was to ensure that, within three months of the commencement of the Lease, Victoria would have as its tenant a group company of equal or superior financial strength to Beatties (with Stores as the default choice), and that Victoria would also have the benefit of HoF’s guarantees, both before and after the initial assignment. In fact, the assignment never happened, and the Lease continued to be vested in Management. The rent continued to be paid, however, so Victoria had no immediate cause for concern. But matters changed with the advent of the global financial crisis, and the takeover of the House of Fraser group by an Icelandic consortium.

In late 2009 and early 2010 the group was in such financial difficulties that it threatened to reduce the rent payable under the Lease to £1 million per annum, and to rearrange the group’s assets so that the companies responsible for payment were shell companies. This prompted Victoria, with the advice of new solicitors, to look more closely at the provisions of the Agreement and the Lease, and in May 2010 Victoria began the present action, seeking specific performance of the agreement in clause 3.5 to assign the Lease to Stores.

The defendants pleaded seven grounds of defence. The first two grounds (that the assignment clause was void or unenforceable as a mere agreement to agree, and that it was void for non-compliance with section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989) were finally determined in Victoria’s favour by Mr John Randall QC (sitting as a Deputy Judge of the High Court), after the hearing of cross-applications for summary judgment ,on 1 November 2010. Three further grounds raised issues of laches, waiver and delay. Mr Randall QC rejected Victoria’s application for summary judgment on these issues, and gave directions for them to be tried. That trial is currently listed for hearing in a five day window between 4 and 9 December 2011, with a time estimate of one to two days.

The remaining two grounds are of particular relevance to the present application, but before turning to them I will set out the tenant’s obligations in clause 3.15 of the Lease, which is headed “Alienation”:

“(A)

Not to assign, charge, underlet, hold upon trust for another or part with or share possession or occupation of the whole or any part of the Premises except as provided in this sub-clause.

(B)

Not to assign the Premises nor to underlet the whole or any part to a person entitled to claim diplomatic or Sovereign immunity.

(C)

Not to assign the whole of the Premises unless either:

(i)

the Tenant demonstrates that the Net Profits of the assignee in each of the three Accounting Periods ending immediately before the date of the assignment exceed in each of those Accounting Periods the figure equal to three times the principal yearly rent; or

(ii)

on or before completion of the assignment the Tenant enters into an authorised guarantee agreement with the Landlord in accordance with section 16 of the Landlord and Tenant (Covenants) Act 1995 in such form as the Landlord may lawfully require and any surety of the Tenant guarantees in such form as the Landlord reasonably requires the Tenant's obligations under such authorised guarantee agreement.

(D)

Not to assign the whole of the Premises without first:

(i)

obtaining the consent of the Landlord (such consent not to be unreasonably withheld);

(ii)

procuring that such sureties as the Landlord reasonably requires covenant by deed directly with the Landlord as principal debtors or covenantors in such form as the Landlord reasonably requires to pay to the Landlord all losses, costs and expenses arising out of or incidental to any failure by such assignee to comply with its obligations to the Landlord from time to time …. .

(E)

Not to assign the whole of the Premises to a Group Company of the Tenant unless the Group Company is of the same or better financial standing than the Tenant or has offered a guarantor or guarantors which when considered with the Group Company are of the same or better financial standing than the Tenant and [HoF] taken together.

(F)

Notwithstanding the provisions of this clause where the Tenant is [Management] or any other Group Company of [HoF] consent shall not be required to an assignment of the whole to another Group Company of [HoF] provided [HoF] acts as surety to the assignee Group Company.”

The third ground of defence was that the obligation undertaken by HoF in clause 3.5 of the Agreement to guarantee the liabilities of the assignee was void by reason of section 25 of the Landlord and Tenant (Covenants) Act 1995, with the consequence that the remainder of clause 3.5 was also unenforceable. Mr Randall QC held in the defendants’ favour that the agreement for HoF to guarantee the assignee was void, but rejected the argument that the agreement to assign the Lease to Stores was thereby invalidated. Victoria appealed against the former part of that decision, but on 27 July 2011 it was upheld by the Court of Appeal: see [2011] EWCA Civ 904 at [14] to [29].

The final ground of defence was futility. Put shortly, the defendants argued that it would be pointless to order specific performance of the agreement to assign the Lease to Stores, because Stores would then be entitled under clause 3.15(F) of the Lease to assign it straight back to Management, and the original guarantee by HoF would remain in place (or, if necessary, HoF would give a fresh guarantee). This argument raised the question of the relationship, as a matter of construction, between paragraph (F) of clause 3.15 and (in particular) paragraphs (C) and (E). The defendants’ case was that paragraph (F) was freestanding, as shown in particular by its opening words (“Notwithstanding the provisions of this clause …”), with the result that the financial comfort provisions in (C) and (E) had no application to an assignment within the House of Fraser group. Victoria argued that clause 3.15(F) merely meant that consent was not required for an assignment within the House of Fraser group, but that the financial comfort provisions still applied.

Mr Randall QC held that this defence must also go to trial. However, during the short interval between conclusion of the argument on the cross-applications for summary judgment on 27 October 2010 and the delivery of Mr Randall’s reserved judgment on 1 November, there was an unexpected development. The defendants gave notice, through their solicitors, that they were proposing in any event to carry out the assignment of the Lease from Management to Stores, but would then immediately re-assign it from Stores back to Management. While Victoria was positively seeking the first part of that proposed transaction, the second part, if implemented, would deprive Victoria of the entire value of the exercise. In these circumstances, Victoria sought, and was granted, an interim injunction restraining the defendants from carrying out any re-assignment of the Lease to Management pending a determination of the effect of the alienation provisions in the Lease. Mr Randall QC also gave directions for “[t]he issues as to the true construction of clause 3.15 of the [Lease]” to be determined as a preliminary issue before a judge.

The trial of the preliminary issue took place before Mann J on 1 and 2 December 2010. On 17 December 2010 he delivered a reserved judgment, in which he held that Victoria’s construction of clause 3.15(F) was correct. This is reflected in paragraph 1 of his order dated 17 December:

“It is declared that on a true interpretation the effect of clause 3.15(F) of [the Lease] is that if a House of Fraser group company proposes to assign the lease to another House of Fraser group company with [HoF] acting as surety of the assignee’s obligations thereunder, consent for such assignment is not required, but the other restrictions in cl. 3.15, in so far as they would otherwise be applicable, continue to apply.”

It is also important to note that Mann J granted a final injunction against Management and Stores, in paragraph 2 of his order, as follows:

“[Management and Stores] by themselves their servants and agents or otherwise are hereby restrained as follows: if there should be effected an assignment from [Management] to [Stores] of the tenant’s interest in the [Lease], [Stores] shall not re-assign the said lease to [Management] unless either [Management] is then of the same or better financial standing than [Stores] or [Stores] has offered a guarantor or guarantors which when considered with [HoF] are of the same or better financial standing than [Stores] and any surety then existing under the lease taken together.”

The defendants appealed to the Court of Appeal, and arrangements were made for the appeal to be heard at the same time as Victoria’s appeal from the decision of Mr Randall QC that the final limb of clause 3.5 of the Agreement was void. The appeals were heard by Lord Neuberger MR, sitting with Thomas and Etherton LJJ, on 14 June 2011, and judgment was handed down on 27 July 2011. As I have already said, the Court of Appeal upheld the decision of Mr Randall QC in relation to clause 3.5 of the Agreement. The Court also upheld the decision of Mann J on the interpretation of clause 3.15(F) of the Lease: see the judgment of the Court at [55] to [69].

The core of the Court’s reasoning is to be found in paragraphs [62] to [66], as follows:

“62.

We agree with the Judge and Mr Seitler that para (F) necessarily excludes the requirements of paras (D) and (C)(ii) since those covenants are directly and exclusively concerned with the landlord's consent to an assignment. The critical issue is whether the requirements of para (F) stand alone or are cumulative with those in paras (C)(i) and (E).

63.

Both paras (E) and (F) are dealing with transfers within a group of companies. While it is true that para (E), like para (F), addresses the issue of guarantors in different terms, there is nothing inherently impossible about reading its requirements as cumulative with those in para (F). Furthermore, to do so would still leave para (F) conferring an advantage on the HoF Group when compared with assignments within other groups of companies. As Mr Speaight pointed out in his admirably succinct oral submissions, the effect of para (F) is to preclude the landlord objecting to an assignment within the HoF Group on matters not addressed in para (C) or para (E), such as the fact that the assignee is a foreign subsidiary or there are outstanding breaches of covenant, such as disrepair.

64.

So far as the language of clause 3.15(F) is concerned, two points are worth making. First, we do not accept that the opening words of clause 3.15(F) naturally mean that all the preceding paragraphs of the clause must be disregarded. While they could have that meaning, what they more naturally imply is that, in so far as any express provision of para (F) is inconsistent with what is in a previous paragraph, the terms of para (F) prevail. Further, if the opening words of para (F) had the meaning contended for by Mr Seitler, it is hard to see why the paragraph goes on to refer to the absence of any need for consent. Secondly, while the concept of "consent" mentioned in the paragraph could refer, as Mr Seitler contends, to everything in the preceding paragraphs, it seems to us that the word is at least as apt to be naturally read as referring to the consents mentioned to in paras (D)(i) and (C)(i).

65.

Critically, we agree with the Judge that the commercial context in which the Lease was granted eliminates any doubt on the point. The Agreement and the Lease are composite parts of a single commercial transaction, namely the sale and leaseback of the Premises. The annual rent of £2.25 million (subject to 5 yearly rent reviews) was a critical commercial aspect of the transaction under which Victoria paid the purchase price of £46 million. The financial ability of the tenant to pay that rent would obviously be a matter of the central concern to Victoria, as would the financial standing of the tenant's guarantor. That concern is reflected in clause 3.5. Management was known to be a company with a worthless covenant at that time, whereas Stores and HoF Ltd were financially strong. HoF wanted Management to be the first tenant in order to assist HoF's tax position. Victoria agreed, but only on the basis that clause 3.5 was included in the Agreement. It would make commercial nonsense of that vital part of the deal if, following the assignment from Management to Stores, the purpose of clause 3.5 could be rendered futile by an immediate re-assignment of the Lease back to Management without Victoria's consent. The commercial objective underlying clause 3.5 would be achieved if paras (E) and (F) were read cumulatively; but it would be frustrated if they were not.

66.

Mr Seitler submitted that there is a conflict between clause 3.5 and clause 3.15(F), and that conflict must be resolved in favour of para (F) since, once the sale was completed and the Lease was granted, the Agreement was spent. We cannot accept that contention. In the first place, the argument assumes a conflict, and the anterior question is whether there is a conflict. In any event, clause 3.5 was intended to operate precisely because and while the Lease is on foot. Accordingly, the provisions of both the Lease and clause 3.5 are to be interpreted in a way that gives effect to the commercial intention of the parties underlying both of them, if it is possible to do so consistently with their language.”

I draw attention to two points in particular in the Court of Appeal’s reasoning. First, the Court accepted that the opening words of 3.15(F) could have the meaning contended for by the defendants: see the third sentence of [64]. Secondly, in resolving any doubt on the point, the Court, in agreement with Mann J, relied on the commercial context of the composite transaction effected by the sale and lease back of the store. As part of that commercial context, the financial standing of both the tenant and the tenant’s guarantor were of central concern to Victoria, as reflected in clause 3.5 of the Agreement. The Court held that it would “make commercial nonsense” of clause 3.5 if, following an assignment from Management to Stores, clause 3.5 could be stultified by an immediate re-assignment of the Lease to Management without Victoria’s consent. Accordingly, paragraphs (E) and (F) of clause 3.15 of the Lease must be read cumulatively.

The defendants made no application to the Court of Appeal for permission to appeal to the Supreme Court, and the time for making any such application to the Supreme Court has now expired. It follows that the question of construction has now been finally determined in Victoria’s favour. It also follows that the final injunction granted by Mann J remains in full force and effect.

Having failed with its arguments on construction, Victoria now wishes to achieve the same result by arguing:

An augmented draft of the proposed re-amended defence was handed to the court during the hearing. The main purpose of the augmented draft was to provide fuller particulars of the matters relied on by the defendants in support of the alleged convention or common intention. I will not reproduce the particulars in full, but the main points may be summarised as follows:

The draft pleading then continues:

“No-one acting for the defendants is able to recall whether Mr Bannister specifically agreed to the White Memorandum. Until disclosure of the Claimant’s files relating to the transaction the Defendants’ case is that it is to be inferred from the aforementioned matters that Mr Bannister must have done so, probably during the run through on 23 January. He must then have reported and endorsed the Defendants’ unwillingness to agree to the reduction of (E) and (F) to Mr Eastham on either 23 or 24 January 2006, thereby prompting Mr Eastham’s agreement with the drafting.”

It is then pleaded in the alternative that in his conversations with Mr White between 20 and 26 January 2006 (when the Lease was completed) Mr Bannister raised no issues as to the proper construction of clause 3.15(F), and indicated that he was ready to complete the Lease as it was then drafted.

Finally, reliance is placed on two subsequent conversations which appear to have taken place between Ms Tack and Mr Bannister, in January 2007 and November 2010 respectively, when Mr Bannister said it was his understanding that clause 3.15(F) would permit the Lease to be assigned from Management to Stores and back again, provided only that a guarantee of Management’s liabilities under the Lease was given by HoF.

On the strength of all this material, it is pleaded in paragraph 23 of the draft that, if the court were to order Management to assign the Lease to Stores, clause 3.15(F) (as rectified) would entitle Stores immediately to reassign the Lease to Management. Alternatively, it is said that Victoria is estopped from asserting that the Lease is to be so construed.

The proposed counterclaim seeks a declaration that Victoria is estopped, and rectification of clause 3.15(F) so that it reads as follows:

“None of the preceding provisions of this clause shall apply where the Tenant is [Management] or any other Group Company of [HoF] so that the Tenant may freely [make] an assignment of the whole to another Group Company of [HoF] provided [HoF] acts as surety to the assignee Group Company.”

The application is opposed by Victoria, on grounds which Mr Anthony Speaight QC (appearing, as he has throughout, for Victoria) places under four broad headings, namely:

I will now consider these grounds of opposition in turn.

Res judicata

It is convenient to take first the defence of estoppel by convention. Mr Speaight QC submits that the construction of clause 3.15(F) which Victoria is now said to be estopped from asserting is in substance materially identical to the question of construction which Mr Randall QC ordered to be tried as a preliminary issue, and which has now been finally determined by the Court of Appeal in Victoria’s favour. It would accordingly be of no avail to the defendants to establish the estoppel, assuming they were otherwise able to do so, because there will never again be any occasion when Victoria will need to assert that contention. It has already been definitively decided in Victoria’s favour, and the construction of the paragraph, in its present form, is res judicata between the parties.

In my judgment this submission is correct. On behalf of the defendants, Mr Seitler QC and Mr Nicholas Taggart had nothing to say on this point in their lengthy written submissions, and in oral argument Mr Seitler QC merely submitted that the pleaded estoppel was another way of describing the legal effect of the facts relied upon in support of rectification. In principle, that may well be so. Indeed, it is a frequent occurrence for a party claiming rectification to plead, in the alternative, that the same facts give rise to an estoppel by convention between the parties. But this does not meet Mr Speaight’s simple point that the question of construction, which Victoria is said to be estopped from asserting, has already been decided in Victoria’s favour.

In the case of the rectification defence and counterclaim (“the rectification claim”), however, the position is not so simple. Mr Seitler submitted, and I agree, that the only relevant “res” which has so far been decided is the question of construction. The defendants are admittedly no longer able to challenge that decision, but the rectification claim does not seek to do so. It relies, instead, on the existence of an alleged common or unilateral mistake, and the alleged failure of the Lease, in the written form in which it was executed, to reflect the common intention of the parties (or, in the case of unilateral mistake, the intention of the defendants) at that date. In my judgment there can be no question of the rectification claim being barred by either a cause of action estoppel or by an issue estoppel, because the cause of action is quite different, and the only relevance of the construction issue is that it provides the starting point for the rectification claim. Plainly, if the defendants had succeeded on the construction issue, the Lease in its present form would then have had the meaning for which they contended, and there would therefore be nothing to rectify.

Mr Speaight did not, I think, seriously dispute any of this, but he nevertheless argued that the final injunction granted by Mann J (and upheld by the Court of Appeal) is a complete bar to the rectification claim, because the relief sought would be inconsistent with the injunction. Mr Seitler’s answer to this was to say that, if the rectification claim succeeded, it would then be apparent that the foundation for the injunction had gone, so the court could be expected to revoke the injunction in exercise of the power conferred on it by CPR Rule 3.1(7), which provides that:

“A power of the court under these Rules to make an order includes a power to vary or revoke the order.”

There is a good deal of authority, not all of it easy to reconcile, on the scope of Rule 3.1(7) and the circumstances in which it may properly be exercised. In particular, it is far from clear whether, and if so to what extent, the power may be used to vary or revoke a final order. On this point I was referred to the recent decision of the Court of Appeal in Roult v North West Strategic Health Authority [2009] EWCA Civ 444, [2010] 1 WLR 487, especially at [15] where Hughes LJ, with whom Lady Justice Smith and Carnwath LJ agreed, said that:

“The interests of justice, and of litigants generally, require that a final order remains such unless proper grounds for appeal exist.”

On the other hand, this does not appear to be an immutable rule: see the discussion of the authorities by Briggs J in Kojima v HSBC Bank Plc [2011] EWHC 611 (Ch), [2011] 3 All ER 359, at [20] to [30], the notes in the second cumulative supplement to the 2011 edition of the White Book at paragraph 3.1.9.2, and my own observations on the subject in Woodford Land Ltd v Persimmon Homes Ltd (No. 2) [2011] EWHC 1823 (Ch) at [10] to [16].

I do not propose to go into this vexed topic in any greater detail, because it is in my view clearly arguable that the court would have jurisdiction to revoke the final injunction granted by Mann J if the rectification claim were to succeed. Even if the power in Rule 3.1.(7) is one which may be exercised only in truly exceptional circumstances, there would in my view be a strong case for saying that such circumstances existed where the legal basis for the injunction had been shown to be untenable following rectification (with retrospective effect) of the Lease. Accordingly, I am not satisfied that the existence of the injunction presents an insuperable obstacle to the prosecution of the rectification claim.

I should add that Mr Speaight also referred me under this heading to the decision of the House of Lords in McGrory v Alderdale Estate Company [1918] AC 503, where it was held that upon an inquiry as to title under a decree for specific performance of an open contract to purchase land, it was too late for the vendor to adduce evidence to show that the purchaser knew of certain defects in title before he entered into the contract. The ground of the decision was that such evidence could be adduced only at the trial of the action, and it was too late to introduce a new case of waiver in the course of inquiries which followed consequentially from the rights of the parties established at trial: see in particular the speeches of Lord Finlay LC at 508 and Viscount Haldane at 511. In my view the facts of that case are too far removed from the present one to afford any helpful guidance, even by way of analogy. I was also referred to statements of principle on the operation of the doctrine of issue estoppel in the decision of the Court of Appeal in Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630 and by the House of Lords in Arnold v Nat West Bank Plc [1991] 2 AC 93. I did not, however, find these authorities of assistance, because the defendants are not in my judgment seeking to go behind the only relevant issue which has been decided in Victoria’s favour, namely the issue of construction of clause 3.15.

No real prospect of success

It is well established that the court will not grant permission for amendments which, if made, would have no real prospect of success. The test is the same as on an application for summary judgment under CPR Part 24.

The necessary ingredients of a successful claim for rectification were stated by Peter Gibson LJ in Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560, [2002] 2 EGLR 71, at [33], as follows:

“The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention.”

This passage was approved by Lord Hoffmann (with whom the rest of their Lordships agreed on this point) in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, at [48]. It was also established in the Chartbrook case that the intention of the parties is to be ascertained for this purpose on the same objective basis that the courts apply to the construction of contracts or other written instruments: see Chartbrook at [14] and [57] to [67], per Lord Hoffmann, and the comment of Baroness Hale of Richmond at [100]:

“It makes little sense if the test for construing their prior consensus is different from the objective test for construing their eventual contract.”

It should be noted, however, that, even though the relevant test is objective in nature, evidence about the subjective state of mind of one of the parties, which has not “crossed the line” by being communicated to the other party, may nevertheless still be admissible, although the evidential value accorded to it will vary from case to case: see Chartbrook at [64] to [65].

I have already summarised the case on rectification which the defendants wish to be permitted to plead. It relies, above all, on the White Memorandum, which is said to evince the clear intention that paragraph (F) of clause 3.15 of the Lease should be decoupled from paragraph (E), and should permit assignment without consent to another company in the House of Fraser group supported only by the guarantee of HoF. It is averred that Mr Bannister (for Victoria) raised no objections to this, and was willing to execute the Lease six days later in its present form, once the agreement of the Norwich Union to Mr White’s changes had been obtained.

It is clear, however, that the facts pleaded by the defendants are not the whole story. On 23 January 2006, three days after the White Memorandum, the Norwich Union raised the question of assignment of the Lease with Mr Bannister, who then emailed Mr White in the following terms:

“On the assignment point, I understand that this is needed, as [Management] is a shell co.

Taking the words from the heads of terms (emails) back on 22 December:

1.

The Seller agrees to assign the Lease to an assignee (being a Group Company of the Surety being of equal or greater covenant strength to [Beatties]) by no later than 26 April 2006 and the Surety agrees to enter into a deed of guarantee of that assignee’s liabilities as surety in the form set out in Schedule 3 of the Lease.

2.

The parties agree to settle the documentation for the above assignment and guarantee as soon as practicable.

Please confirm that this is agreed.”

At this point, therefore, Mr Bannister was seeking the defendants’ agreement to requirements which were subsequently embodied in clause 3.5 of the Agreement, with the dual protection afforded by an assignment to a group company with a covenant strength at least as strong as that of Beatties together with HoF’s guarantee.

On 25 January Ms Julie Day of Slaughter and May emailed on behalf of Mr White a revised draft of the Agreement which contained sub-clauses 3.5 and 3.6 in terms which reflected Mr Bannister’s email of 23 January. There was nothing to indicate that this was in any way controversial. Later the same day, Mr Bannister sent a further email to Mr White proposing one further change to the Agreement, on the footing that his “first attempt was a bit short of legal bite!” The change consisted of the addition to clause 3.5 of the words “and if a company is not chosen by 20 April 2006 then the assignee shall be Stores and Stores agrees to take that assignment”. Again, there is nothing to indicate that this was in any way controversial, and on the following day the Agreement and the Lease were executed.

It follows from this, submitted Mr Speaight QC, that the sequence of communications between 20 and 26 January 2006 negatives any suggestion of a common intention that clause 3.15(F) should govern the position in isolation, or that the covenant of HoF alone was considered by Victoria to be sufficient. On the contrary, clause 3.5 of the Agreement manifested an intention that the covenant of HoF was not to be sufficient. The evident purpose of clause 3.5 was that Victoria wanted the security of the covenant of two substantial companies in the House of Fraser group.

I find this submission compelling, and in my view Mr Seitler QC had no real answer to it. The express introduction of clause 3.5 into the Agreement, after the date of the White Memorandum, and Mr White’s apparent acceptance of it without demur, show on an objective basis that the common intention pleaded by the defendants cannot have continued until the Lease was executed, with the consequence that the necessary common mistake at the date of execution cannot be established. Nor is there a shred of evidence to support the alternative proposition that the defendants were labouring under a unilateral mistake, of which Victoria in some way took unfair advantage. Accordingly, it seems to me that the proposed amended case on rectification would have no reasonable prospects of success, so permission to advance it should be refused. The same would also go for the alternative claim of estoppel, if (contrary to what I have already held) it were not anyway barred on grounds of res judicata.

Mr Seitler sought to get round these difficulties by arguing that it might still be possible, depending on how the evidence came out at trial, to establish that there was the necessary continuing common intention in relation to clause 3.15(F), and that rectification should not be refused merely because it would give rise to an inconsistency between clause 3.15(F) and clause 3.5 of the Agreement. In support of this submission he referred me to observations by the Court of Appeal in Daventry District Council v Daventy & District Housing Ltd [2011] EWCA Civ 1153, where it was held (among other matters) that rectification should not necessarily be refused merely because it would give rise to an inconsistency with another provision in the contract: see in particular the judgment of Lord Neuberger MR at [216] to [218]. As a general proposition, I do not doubt that this is correct. In the context of the present case, however, it does not seem to me to meet the point that clause 3.5 was expressly introduced, and apparently agreed, after the date of the White Memorandum. Furthermore, the Court of Appeal has already held (in the present case) that the evident commercial purpose evinced by clause 3.5 should resolve any ambiguity in the wording of clause 3.15(F). Even if clause 3.15(F) were to be rectified in the way for which the defendants contend, the court would still have to resolve the apparent conflict between it and clause 3.5, and I cannot see any grounds for supposing that primacy should not again be accorded to clause 3.5.

Inadequately particularised

This ground is no longer pursued, because Mr Speaight accepts that the augmented draft pleading produced by the defendants during the hearing does provide adequate particulars of the proposed amendments.

Delay and abuse of process

Since I have already held that permission to make the amendments should be refused, I will deal with this ground briefly. If I were satisfied that the pleas of rectification and estoppel had a reasonable prospect of success, and in the case of the latter that it was not barred by the doctrine of res judicata, I would not have refused permission to amend on the grounds of either delay or abuse of process. Given the procedural background which I have summarised above, it was not in my judgment unreasonable for the defendants to concentrate in the first instance on the defences originally pleaded, and to agree that the question of construction should be tried as a preliminary issue. Had the defendants succeeded on the question of construction, it would have been unnecessary to expend time and resources on investigating the estoppel and rectification arguments that they now wish to advance. Furthermore, as a matter of case management the court will often direct an issue of construction to be tried before a related rectification claim, because evidence of the course of negotiations and the subjective intentions of the parties will be irrelevant to the former, although relevant to the latter. Mr Seitler frankly conceded that the arguments which the defendants now wish to advance occurred to them only after their defeat in the Court of Appeal in July of this year, but even if that were not the case, I do not think that there would be any abuse of process or unfairness to Victoria in allowing those arguments to be advanced now, if it were otherwise open to them to do so, and if the arguments stood any reasonable chance of success.

For the reasons which I have given, permission to amend will be refused.