PCE Investors Ltd. v Cancer Research UK

This judgment arises out of a hearing that took place and relates to the premises (“the Premises”) known as 4^th Floor Charles House Lower Regent Street London SW1Y 4LR.

The Premises were demised by the Defendant Cancer Research UK (“the Landlord”) to STA Holdings Ltd by an underlease (“the Underlease”) dated 9^th December 2005.

The residue of the term of years granted by the Underlease was assigned to the Claimant PCE Investors Ltd (“the Tenant”) by an assignment dated 2^nd October 2008. The Tenant was the registered proprietor of the Underlease on 13^th November 2008.

The rent reserved by the Underlease was £190,000 per annum payable by equal quarterly payments in advance on the usual quarter days in every year.

The term granted by the Underlease was for a term commencing on the Possession Date (defined as 12^th October 2005) and expiring on 27^th September 2014.

A number of issues arise. However they all revolve around a break option (“the Break Option”) granted to the Tenant under clause 11 of the Underlease.

The Break Option provides as follows:-

“The Tenant may determine this Underlease on the expiration of the fifth year of the term (“the Termination Date”) by satisfying the following conditions:

The Tenant must have served not less than 6 months prior written notice to determine on the Landlord; and

The Tenant must have paid the rents reserved and demanded by this Lease up to the Termination Date; and

The Tenant must have given to the Landlord full vacant possession of the Premises

AND provided such conditions are satisfied the Underlease shall cease and come to an end at 12 noon on the Termination Date but that termination shall not affect any claim by either party against the other for breaches of obligations under this Underlease”.

The operation of the Break Clause in the Underlease (or its non operation) has attracted three applications before me:-

The Tenant contends that it served a notice on 25^th September 2009 under clause 11 of the Underlease giving notice to determine it on the Termination Date stated in the notice to be 11^th October 2010.

Following the notice email correspondence took place between Ms Mirena Valcheva of the Tenant and Martin Elliott of Colliers International the Landlord’s managing agents.

On 24^th September 2010 Ms Valcheva sent an email to Martin Elliott. In that email she informed him that a payment had been made for the outstanding rent for the premises totalling £8,563.01. As the email said this reflects rent due from 29^th September 2010 to 12^th October 2010. The email also asked “please confirm that this is the correct basis for calculating the liability for the short period”.

The Landlord did not respond to that although it is fair to say that it was not addressed to it. The amount of rent tendered was based on a daily basis from 29^th September 2010 to the break clause date totalling £7,287.67 plus 17.5% VAT totalling £8,563.01.

Hammonds the Landlord’s solicitors wrote formally to the Tenant’s Company Secretary on 2^nd November 2010. In that letter they set out the break clause and the fact that clause 11.2 required the Tenant to pay the rent reserved and demanded by the lease up to the termination date by the termination date. They referred to the fact that the agents had sent Ms Valcheva an invoice in relation to the September quarter’s rent and service charge in the normal course of business but she had asked for a further copy which was provided on 21^st September 2010. That invoice totalling £66,711.80 of which £55,812.50 related to the September quarter’s rent and the balance related to service charges.

The letter then went on to contend that for the break clause to be operative those sums as claimed had to be paid by the Termination Date.

The letter also raised the issue of service charges and contended that the Tenant had an obligation to pay service charges and had failed so to do. Finally the letter contended that the Tenant had failed to return the keys of the premises to the Landlord or anyone acting on its behalf and therefore had accordingly failed to give vacant possession.

If any of Hammonds’ contentions is right the Tenant will have failed to terminate the lease properly and it will continue until 27^th September 2014 at an annual rent of £190,000 per annum.

There are other proceedings (No HC10C02978) in relation to the Premises. They are brought by the Landlord against the original Tenant and the Tenant. These relate to the claim concerning Service Charges. The difficulty arises because there is no express provision in the Underlease that obligates the Tenant to pay service charges. There is an obligation in the Headlease dated 29^th November 1989 (“the Headlease”) between Nextdeal Ltd (the “Head Landlord”) and the Landlord. In the Headlease the Landlord as Tenant under that lease covenanted by clause 28.2 to pay to the Head Landlord quarterly instalments of an annual service charge payment. In addition it covenanted that it would pay sums due for insurance (clause 24.1).

By clause 4.2 of the Underlease STA and thus the Tenant covenanted to observe and perform the covenants and conditions on the part of the [Landlord] contained in the Headlease as if the same were set out in full in the Underlease.

Accordingly in the other proceedings the Landlord claims that the Tenant is obliged to pay service charges. It will be recalled that a claim for those was set out in the demand referred to above. In the alternative the Landlord contends in the other proceedings that if upon the true construction of the Underlease it does not actually contain an obligation on the part of the Tenant to pay service charges as under lessee the Underlease ought to be rectified to give effect to that supposed common intention.

Those other proceedings have never been coupled with the present proceedings for reasons which did not appear clear. In my view such uncoupling is unsatisfactory because of the plain overlap in the present proceedings. I am being required by the Landlord to determine that service charges were due under the Underlease and that the Tenant having failed to pay the same has not complied with the requirements of the break clause. If on the other hand I determine there is an issue over that construction or alternatively the Underlease does not admit of that possibility then the question of rectification under the alternative proceedings arises. This is unsatisfactory in my view. I do not believe that the question of service charges should be dealt with in a piecemeal way like this. Accordingly I have decided that the question of whether or not service charges were due under the Underlease and consequently not paid should be determined solely in the alternative proceedings. For reasons that will appear later in this judgment that is not significant as regards these proceedings because I am satisfied that the Tenant upon the true construction of the Underlease was obligated to pay the full quarter’s rent that fell due on 29^th September 2010 as a condition precedent to the valid exercise of the notice to terminate the Underlease. Equally for reasons which I shall set out below I do not accept that the Tenant has raised any serious issue as to whether or not the Landlord is estopped from asserting that proposition to justify granting the Tenant permission to amend its Defence and Counterclaim in these proceedings. Thus my conclusion in these proceedings is that the Tenant has in any event failed to terminate the lease in accordance with the provisions of clause 11 by reason of the shortfall of rent that it tended.

Equally I do not think it is possible at this stage summarily to determine whether or not the Tenant has delivered vacant possession of the premises as required. There are in my view factual issues which cannot be determined for reasons which I shall further set out in this Judgment.

There are 4 issues for determination:-

These relatively short points attracted the provision of no less than 35 authorities in the joint bundle together with 3 further authorities which were handed up during the course of argument. In my view this was serious overkill. It also disguised the true length of the hearing. The case was listed before me for a day and actually went for 2 days. The estimate was thus doubled. The pre reading suggested (somewhat optimistically) that the pre reading list could be read in 2 hours. None of the pre reading extended to any of the authorities.

First I was referred to a decision of His Honour Judge Keyser QC sitting in the Chancery Division Leeds District Registry 23^rd November 2011 as a Judge of the High Court in Quirkco Investments Ltd v Aspray Transport Ltd [2011] EWHC 3060 (Ch) at paragraph 15 where the Judge set out the observations of Lewison J (as he then was) in Easyair Ltd v Opal Telecomms Ltd [2009] EWHC 339 at [15] as to the correct approach to applications for summary judgment. They are familiar to all Judges at first instance in this division and I set them out yet again:-

“(i)

The court must consider whether the [defendant] has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 1 All ER 91.

(ii)

A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8].

(iii)

In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman.

(iv)

This does not mean that the court must take at face value and without analysis everything that a [defendant] says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]

(v)

However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550.

(vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63.

(vii)

On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725”.

Interestingly one of the points is His Honour Keyser QC had to consider was whether or not there could be a claim for repayment of overpaid rent for the period after the lease had terminated (i.e. the converse to the present issue) he dealt with this at paragraphs 61-64 as follows:-

“The claim at point (3) rests on the contention that, upon the determination of the lease on 18^th December 2010 pursuant to the valid exercise of the option under the break clause, the lessee became entitled to restitution of that part of the rent paid in advance on the previous quarter day which was attributable to the few days of the quarter that post-dated the determination of the lease. That entitlement is said to arise either as a matter of the true construction of clause 2.2 of the lease or under the general law of unjust enrichment—presumably on the ground of failure of consideration.

No authority was cited in direct support of the defendant's contention. The reason for that, in my judgment, is that the contention is unsound.

The common law does not permit apportionment of rent in respect of time. The Apportionment Act 1870 does not affect the date on which rent is payable and does not authorise apportionment in respect of time of rent payable in advance. The general principle is that rent payable in advance is payable in full on the due date, notwithstanding that the lease subsequently determines before the expiry of its term: see, for example, Ellis v Rowbotham [1900] 1 Q.B. 740 and Canas Property Co. v K.L. Television Services [1970] 2 Q.B. 433. I do not consider that the case of termination of a lease by the lessee's exercise of a contractual option is properly to be treated differently; rights of restitution for failure of consideration do not depend on the absence of fault of the claimant: see, for example, Dies v British and International Mining and Finance Corpn. 1939] 1 K.B. 724. The landlord's entitlement to recover as rent the full amount due in advance, notwithstanding the subsequent termination of the lease before the expiry of the term, is sufficiently explained by the fact that the contractual obligation to pay the rent had accrued before termination and that the law of unjust enrichment does not operate to circumvent the scheme of obligations and entitlements contained in a valid contract.

A claim for recovery of the rent referable to the period between the termination of the lease and the end of the quarter must therefore rest on the terms of the lease itself. Clause 2.2 is set out in paragraph 9, above. Mr Stockill relies particularly on the words: "and so in proportion for any period less than a year" In my judgment the words will not bear that reliance. In Capital and City Holdings Ltd v Dean Warburg Ltd and others (1988) 58 P. & C.R. 346, it was argued that, upon the true construction of the under-lease, the under-lessee was not liable for rent in respect of any period of time after the date of termination of the under-lease by forfeiture. The words relied upon were: "yielding and paying therefor during the term … yearly (and proportionately for any part of a year) the rent which shall be payable by equal quarterly payments in advance on the quarter days the first of such payments or a proportionate part thereof to be due on the date specified in the particulars and to be in respect of the period therein mentioned …" Ralph Gibson LJ, with whom Nicholls LJ agreed, said at 351:

The term was from July 7, 1987 to June 23, 1991. The quarter days were stated to be March 25, June 24, September 29, and December 25, in each year. The tenant covenanted to pay the rent at the times and in the manner provided. [Counsel for the respondents] argued that, despite the clear obligation to pay a quarter's rent on December 25, 1987, the words "proportionately for any part of a year" and "or a proportionate part thereof" caused that liability to be reduced by the serving of the writ. I do not agree. It seems to me that the references to the proportionate part of a year were included to deal with the fact that the term commenced on July 7, and called for a proportionate payment down to the first following quarter day. The presence of those words does not, in my judgment, modify in any way the obligation imposed by the lease on the tenant to pay a full quarter's rent on December 25, 1987.

Similarly in the present case, the term of the lease was from 18^th December 2000 until 17^th December 2015 and the rent was due on the usual quarter days. I consider that the words relied on by Mr Stockill do no more than deal with the fact that the commencement and expiry of the term did not coincide with the quarter days, so that proportionate payments would be required at either end of the lease. No such proportionate payment would be required in respect of the break clause, because the validity of the exercise of the option under that clause would not be capable of ascertainment at the preceding quarter day and because the lease makes no provision for a proportionate payment or for the pro rata recovery of any moneys attributable to the period after the expiry of the notice under the break clause”.

As I shall set out below there are some authorities on the point as to whether or not there can be a claim for repayment of overpaid rent on a restitutionary or failure of consideration basis.

I was referred to the recent Supreme Court decision of Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 on a question of construction of a commercial contract. The court is required to determine what the parties meant by the language used and that involved ascertaining what a reasonable person would have understood the parties to have meant, that the relevant reasonable person for the purpose was one who had all the background knowledge which would have reasonably been available to the parties in the situation which they were at the time of the contract; where the parties had used unambiguous language the court had to apply it; but it was not necessary to conclude that unless the most natural meaning of the words produced a result so extreme as to suggest that it was unintended, the court had to give effect of the meaning; but the court had to have regard to all relevant surrounding circumstances and if there were two possible constructions the court was entitled to prefer the construction which was consistent with business common sense and to reject the other; that it was not necessary to conclude a particular construction would an absurd or irrational result before having regard to commercial purpose of the agreement.

With those general indications in my mind I now consider the various issues.

It seems to me that the most important matter from a business point of view is certainty. The tenant will want to know precisely what obligations fall on him during the lease and upon its termination. The case for the Tenant is of course that once it has given the notice its only obligated to pay the rent for the period which ran from the usual September quarter day to the Termination Date.

In my view this argument is simply not sustainable when one looks at commercial reality and the terms of the Underlease.

By clause 3 of the Underlease the Property are demised for the term subject to the yearly rent of £190,000 “payable by equal quarterly payments in advance on the usual quarter day in every year the first such payment to be made on the rent Commencement Date and to be in respect of the period from and including the Rent Commencement Date until the next following quarter day”.

Covenant 4.1 obligates the Tenant to pay the yearly rent as reserved therein.

Thus the rent is a yearly rent but the Tenant is given a concession in that it is not required to pay the year’s rent in full at the commencement of the year but has the grace of paying the rent quarterly over that year.

Under clause 11.2 the Tenant is obligated “[to]have paid rents reserved and demanded by this Underlease up to the Termination Date and by the Termination Date”.

On 29^th September 2010 whilst the Underlease was still subsisting an obligation fell to pay the next quarter of the annual rent. Obviously that extended to the period ending on 25^th December 2010 but the obligation subsisted at the time that the rent fell due on 29^th September 2010. That is an obligation that is reserved under clause 11.2 and is due on that date. On that date of course it cannot be said with certainty that the Underlease will terminate on 11^th October 2010. The Tenant might be in breach of some other provision. That can only be determined after the event and I cannot see that it is right as a matter of construction that the clear obligation on 29^th September 2010 to pay a full quarter’s rent can somehow be retrospectively reduced merely because an event after that date operates to terminate the Underlease from that future date. It is true that the obligation is to pay the rents up to the Termination Date but that does not in my view assist the Tenant. A quarter’s rent fell due on 29^th September 2010. I do not accept that those words make it unnecessary if the intention was that rents related to a period after the Termination Date needed to be paid.

Conversely it seems to me that the simple straightforward construction namely that all obligations under the lease subsist until an actual termination of it is anything other than a sensible business sense. A Tenant knows precisely what it has to do. If for example the Tenant tendered the short rent (as happened here) and for some reason the Underlease did not terminate it would become under an obligation to make up the shortfall and would on this analysis be retrospectively in breach of the obligation to pay the full quarter on 29^th September 2010. That seems to me to be the type of uncertainty which a businessman would find unsatisfactory.

Mr Jourdan QC who appeared for the Tenant took me through an interesting array of authorities in other areas of termination of leases and even claims for hire under chartering of a ship in an attempt to demonstrate that the conclusion to be drawn from those various areas was that the Underlease should be construed so that upon the Termination Date (after the September quarter date of course) when the Underlease terminated only rent up to that date was due. Further he produced an authority from Australia which suggested that if rent was paid beyond a Termination Date there was no consideration for such monies and that they would therefore be repayable.

Interesting though this was I found it of no significant relevance to help me to construe this Underlease. I do not see how different leases let alone different methods of termination or rights and obligations under charter parties can possibly provide me with any assistance in construing this Underlease.

In so far as it showed anything the majority of the areas showed that when rent was payable in advance all rent that fell due during a lease was payable even if the lease was terminated before the full period for that relevant rent. This is the position for example on forfeiture see Canas Property Co Ltd v KL Television Services Ltd [1970] 2QB 433 and Ellis v Rowbotham [1900] 1QB 740. I only refer to two of the cases cited by Mr Jourdan QC. I refer to the Ellis case because the Court of Appeal held there that the Apportionment Act 1870 did not apply to rent payable in advance (a further nail in the coffin with respect to Mr Jourdan QC’s arguments). The same is the position on surrender see William Hill (Football) v Willen Key & Hardware [1964] 108 SJ 482. Equally the decision of Torminster Ltd v Green [1983] 1 WLR 676 (CA) (although not referred to by either Counsel) supports the proposition that when a lease is surrendered antecedent obligations which arose before the date of surrender remained to be fulfilled. In that case it was a rent review for increased rent. That can only be on the supposition that the entirety of the rent fell due for the full period covered by the lease not withstanding an intervening surrender.

First I remind myself of the observations of Neuberger J as he then was in Lewisham Investment Partnership Ltd v Morgan [1997] 2 EGLR 150 at page 158 as follows:-

“It is, of course, well established that a judicial conclusion as to the meaning of words in the context of one document is not binding or conclusive as to the meaning of similar words in another document, even where the words being construed and the nature, and indeed the terms, of the two documents are very similar. There are numerous cases where the courts have deprecated attempts to construe a contract by reference to judicial decisions as to the meaning of similar words in another contract: see, for instance, per Lord Roskill in Pioneer Shipping v BTP Tioxide Ltd ('The Nema') [1982] AC 724, at p749G and the graphic observations of Sir George Jessel MR in Aspden v Seddon (1875) 10 Ch App 394, at pp396 to 397n–398n. In the context of rent review clauses themselves, this approach was approved by Dillon LJ himself; in Equity & Law Life Assurance Society plc v Bodfield Ltd [1987] 1 EGLR 124, at p125C, he said:

to refer to authorities on other documents merely for the purpose of ascertaining the construction of a particular document is to be deplored as a wrong approach and likely to lead to confusion and error.

Where the Court of Appeal has reached a clear and reasoned conclusion on an identical, or very similar, issue relating to a rent review clause in very similar terms, it is highly desirable for a judge at first instance to follow that reasoning, in the absence of unusually compelling reasons to the contrary. Consistency of reasoning and certainty of outcome are obviously desirable features of any civilised system of law and, if inferior tribunals are prepared to depart from the decisions and principles laid down by superior ones too readily, it is detrimental to the public interest: see the observations to this effect of May LJ in Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488, at p495A–“.

This reinforces in my view the irrelevance of the cases concerning other methods by which leases are terminated as an aid to construction of the clause in this Underlease and the even more remote relevance (if that is possible) of cases involving charter parties which are quite different animals.

I was referred by Mr Jourdan QC to Wehner v Dene Steamshipping Co [1905] 2KB 92 at pages 101-2 approved in Mihalios Xilas [1979] 1WLR 1018 at 1024 and 1036. In those cases where a ship was chartered for a period and it was agreed that the hire should be paid at periodic intervals the owner often has an obligation to withdraw the ship if the hire is not paid promptly. If such an option is exercised the charterer only has to pay for the hire for the period he had use of the ship. This it is submitted is simple business common sense. Lord Scarman said in the latter decision at page 1036 if it were otherwise “obviously there would be an injustice in a situation where an owner who withdrew his ship while retaining the hire could deny the charter the right to recover the money which it paid for use it never had”.

It is in my view important to set out the judgment where Lord Scarman said this:-

“Lord Denning MR was influenced in reaching his view by two mistaken beliefs as to the law. He believed that after withdrawal the charterers would not be entitled to recover from owners the over-payment of hire. But there is long-standing authority to the contrary: Wehner v Dene Steam Shipping Co, which, though only at first instance, has not been doubted over the years: see Scrutton on Charterparties. Counsel for the charterers did not seek to challenge the authority of that decision; nor, apparently, was any argument for or against its soundness canvassed in the Court of Appeal: see Geoffrey Lane LJ ([1979] 1 All ER 657 at 671, [1978] 1 WLR 1257 at 1289). This, therefore, was an error by Lord Denning MR. Though in itself not a decisive reason for rejecting his view that there was a waiver on 26 March, it is significant: for obviously there would be injustice in a situation where an owner, who withdrew his ship while retaining the hire, could deny the charterer the right to recover the money which he had paid for a use which he never had. If such were the law, retention of the advance hire might well be thought to amount to a waiver of the right to withdraw.

Nor do I think it possible to doubt that his judgment was also influenced by a second erroneous belief. He regarded this Baltime 1939 withdrawal clause as a forfeiture clause. But in The Laconia your Lordships' House specifically declared that this, and other similar clauses in other well-known forms of time charter, are not forfeiture clauses; and that it is wrong to attribute legal consequences associated with forfeiture to the exercise of a contractual right to withdraw a ship under time charter from the service of the charterer: see Lord Wilberforce ([1977] 1 All ER 545 at 550, [1977] AC 850 at 869).

Influenced by such errors, the view of Lord Denning MR that retention of the hire paid in advance in respect of future use of the ship is, by itself, a waiver of the right to withdraw is necessarily suspect. Indeed, if I have understood his argument correctly counsel for the charterers does not seek to support it. He did not challenge the view expressed on the point by Eveleigh LJ in his judgment where he said ([1979] 1 All ER 657 at 674, [1978] 1 WLR 1257 at 1293):

'I do not say that the retention of money is of itself an election, even though there may be no right to keep it. Even after withdrawal there may be grounds for retaining the money. There may be other matters against which the money can be put … Each case must depend on its own facts.'

In my opinion, this is the correct view, so far as it goes”.

Thus it should be noted that the claim was in respect of an overpayment made. The owners did not seek to challenge the Wehner decision which established the recoverability of payments made after retention of the ship. Nor had any contrary argument been canvassed below. The observations therefore of Lord Scarman are not as the result of argument and are obiter. Second it seems to me impossible to elevate that decision to conclude the same result could occur in the case of the Underlease and thus provide a justification for not paying the full amount that fell due on the September quarter date. Third it will be noted that the decision also was on the basis that Lord Denning MR regarded a right to withhold a ship as being akin to forfeiture. This is apparently contrary to authority set out in the Laconia [1997] AC 850. That demonstrates the dangers in my view of attempting to draw analogies from entirely different areas where there are different concepts and arguments. It is in this context and interesting to know that in the Wehner decision the head note specifically identifies that the charter party did not amount to a demise of the ship. I am not an expert on charter parties of ships. I understand there are 3 types of charters, a time charter, a voyage charter and a lease. In the latter only possession is given to the lessee. The judgment is commendably brief (Judges at first instance in those days did not necessarily have the anxious look over the shoulder which tends to affect Judges at first instance nowadays) and gives no reasons for its decision.

I cannot conceive that these decisions provide me with any assistance whatsoever in construing the Underlease.

I was referred to an Australian decision Ocelota Ltd & Ors v Water Administration Ministerial Corporation & Anr BPR 97815 at [77] – [83] a decision of Hodgson Chief Judge in Equity in the Supreme Court of New South Wales. In that case the lessee had paid rent in advance concerned a lease where rent was payable in advance. The lease was terminated without fault on the part of the lessee and the question arose as to whether or not the lessee was liable to pay the rent for a period for which fell due in advance but covered a period after the termination of the lease. The learned Judge held that there was a failure of consideration in relation to the unexpired term after termination for which rent was paid in advance. Alternatively he held that where a tenant overpaid on the same basis he was entitled to a refund of such overpayment.

The judgment on this issue is at paragraphs [77-83] as follows:-

77 Despite the view expressed by Mason & Carter, I believe I am bound by authority to hold that s144 of the Conveyancing Act has no direct application to this case. I consider I am bound by Ellis v Rowbotham, and cases following and approving it, to hold that where the lease provides for rent payable in advance, that rent is to be treated as having accrued in full and being payable in full at the date payment is required; so that there is no room for application of a provision providing for rent to be considered as accruing from day to day. However, in my opinion the general approach and policy underlying s144 can be adopted as one factor relevant to whether some kind of apportionment should be given effect to, without applying the statute itself: see Carmody v Delehunt at 669 to 670. ”

78 Furthermore, there are indications in the lease itself that rent is to be considered as applicable to periods less than a whole year. For example, if the lessor elected pursuant to clause 11.1(b) to convert the lease into a tenancy from month to month, with a monthly rent payable for each month, and if this happened shortly after $1.5 million rent had been paid in advance, it would indeed be absurd if the lessor could simply retain the whole of that $1.5 million. Similarly, clauses 12.13.2 and 12.18 contemplate that rent is applicable to periods of less than one year.

79 I do not read the lease as expressing an intention that the consideration of $1.5 million payable by the lessee at the beginning of each lease year is paid for a bundle of rights, which includes the possibility of early termination without fault of the lessee, pursuant to clause 20.2. In my opinion, the intention as disclosed by the lease is that $3-million is payable for each year's possession of the demised premises, that $1.5 million paid in advance is paid in respect of one-half of one year's occupation, that is for 182½ days or, where as in this case there is a Leap Year, 183 days, and that the consideration to be received by the lessee is severable by reference to the period of occupation; so that there was a total failure of consideration at least in relation to 83 days out of the 183 days in respect of which the $1.5 million was paid. I do not think such an interpretation of this lease is inconsistent with Ellis v. Rowbotham and the other cases referred to, which did not address questions of severability of consideration under the particular leases being dealt with and consequent failure of consideration. On that basis, Colly is entitled to recover $680,327.80 as money paid under a contract discharged without breach, in respect of which there has been a total failure of consideration. There is no defence of change of position raised.

80 If I were wrong in my finding of total failure of consideration, in my opinion a term having the same effect would be implied in this lease. The term I would imply is a term having the effect that, if in any year a first instalment of rent of $1.5 million is paid, and the lease is subsequently terminated before one-half of that year has elapsed, without fault of the lessee, then there should be refunded to the lessee a sum of money which bears the same proportion to $1.5 million as the number of days between the termination of the lease and the expiry of one-half of the year, bears to one-half of the year. Such a term is plainly reasonable and equitable. In my opinion it would be necessary give business efficacy to the contract, and so obvious that it goes without saying. It is capable of clear expression, and it does not contradict any express term of the lease. In particular, the term requiring payment without deduction is not inconsistent with a term requiring a refund in specified circumstances.

81 In my opinion, Ellis v. Rowbotham does not require a different result. Although I have held that this case is authoritative as to the interpretation of s.144, in my opinion it is not conclusive against recovery of a proportionate part of the rent in this case. It is distinguishable, at least on the ground that the termination of the lease in Ellis v. Rowbotham was for breach by the lessee. Further, the law on penalty and forfeiture has developed significantly since that case was decided; and it may well be that now a provision in a lease purporting to entitle a lessor to retain the whole of rent paid in advance for a substantial period, where the lease is terminated for breach of the lessee, is in substance a penalty, so that the lessor would be entitled only to so much as represented its actual damages for breach: see O'Dea v. Allstates Leasing System (WA) Pty. Ltd.[1983] HCA 3; (1983) 152 CLR 359.

82 It remains to consider whether Colly has any rights based upon more general grounds of unjust enrichment. There are, in the further amended cross-claim, claims for something over $2 million in respect of the preparations made for the planting of cotton on the demised premises, as improvements under the Agricultural Tenancies Act 1990; and for something over $500,000 in respect of water in storage on the properties, as being tenant's products under the Agricultural Tenancies Act. In my opinion it is not possible to assess a general claim for unjust enrichment without at the same time dealing with those claims.

83 The final matter I should mention is that a claim was put forward that there was a total failure of consideration in respect of the whole of the $1.5 million paid. That was put on the basis that the substance of what was bargained for in respect of each year of the tenancy was the right, or at least the chance, to have the benefit of a cotton harvest obtained in about May of each year. As shown by cases such as Rowland v Divall (1923) 2 KB 500 and Rover International Ltd v Cannon Film Ltd (1989) 1 WLR 912, the circumstance that a contracting party has received some benefit as a result of a contract does not preclude there being a total failure of consideration, where the party has not received any part of that which he contracted to receive. In this case, it is put that what in substance Colly contracted to receive was the opportunity to have a cotton harvest in May of each year. In my opinion, I cannot find in favour of Colly on this basis, at least in the absence of a more general consideration of unjust enrichment, which would involve consideration of the Agricultural Tenancies Act claim. I do not have any evidence as to the value to Colly of the dwellings which were included in the lease, or of the value to Colly of the benefit of the sharefarming agreement. Furthermore, if Colly gets some substantial benefit for the work which it did on the demised premises in the months leading up to the termination, through compensation under the Agricultural Tenancies Act, that too would be relevant to whether there was a total failure of consideration relating to the whole of the period for which the $1.5 million was paid. I do not think it would be appropriate now to reject outright this claim of unjust enrichment, because, in my opinion, the exclusion by agreement of the parties from the hearing of the Agricultural Tenancies Act claim simply made it impossible for that claim to be properly considered. In my opinion, it should be considered along with the Agricultural Tenancies Act claim”.

Paragraph 77 deals with section 144 of the Conveyancing Act 1919 (NSW) which I was informed was the equivalent of the Apportionment Act 1870. As the judgment shows he determined that the rent for the period after the lease had terminated without fault was not payable. The reasons are in paragraph [81]. He declined to follow Ellis on the grounds that there was a breach by the lessee and observes that the law on penalty and forfeiture has developed significantly since the case was decided and that a provision like the one under consideration was a penalty. In paragraph [79] his primary decision was that there was a failure of consideration for the future period in the lease for which rent had been paid but was after the termination without fault.

With respect to the learned Judge in my view that is not correct. It is not appropriate to separate out parts of the obligation in the Underlease and say that there is a total failure of consideration merely because the lease had been terminated in future as regards the rent that was payable in advance for that period. The Underlease contains a bundle of rights and obligations on both sides and as part of that in my view the Tenant agreed to pay rent in advance as part of the overall consideration for obtaining the Underlease from the Landlord. Merely because the provisions obligate him to pay rent in advance even after the Termination Date does not mean that there is a failure of consideration as regards that payment merely because beneficial use of the premises is not taken. One looks at the overall package in the Underlease and the Tenant obtained consideration in the form of the entirety of the Underlease. In my view therefore the premise of Hodgson CJ’s judgment is wrong and I would not accept it.

The second case I was referred to was a decision of Pumfrey J in Re A Company [2007] BPIR 1. That was a decision delivered by Mr Justice Pumfrey in the vacation when he was clearly sitting as the Interims Judge. It concerned an application to restrain the presentation of a winding up petition for unpaid rent. The issue was whether or not rent was payable for periods after the relevant lease had been terminated under a break clause. As I have said the judgment was delivered on what is clearly an interim application day (25^th August 2007) and has a certain amount of robustness. He held himself bound by a decision of Capital and City Holdings Ltd v Dean Warburg Ltd & Ors [1989] 1 EGLR 90 as set out in his judgment at paragraphs [13] – [16]. That decision concerned a forfeiture clause and on this issue the Court of Appeal followed the earlier decision in the Court of Appeal of Canas (above). The Ocelota case unsurprisingly was not cited to him. The case is persuasive authority of the proposition that where a break clause has been exercised and rent is payable in advance the full amount of the rent is payable even if it covers a period after the Termination Date. However as I have said above it is dangerous to rely on decisions which involve different principles and involve the construction of different documents. I do not find Pumfrey J’s judgment therefore of assistance or of any relevance to the question I am asked to answer based on the construction of the Underlease.

The third case referred to by Mr Jourdan QC in this part of his submissions was the Quirkco case above mentioned. As I have said the learned Judge there decided that the rent was payable for the period after the termination of the break clause on summary judgment. He rejected an argument based on unjust enrichment on the grounds of failure consideration but the Ocelota case was not cited to him. He also followed the cases on forfeiture and noted the fact that the common law did not permit apportionment not did the Apportionment Act 1870 in respect of rent payable in advance.

Once again in my view it would be inappropriate to follow that decision merely because it is a decision on a break clause where the rent is payable in advance.

I accept however that those two decisions are indicative of the approach.

In my view the position on the construction of the Underlease is quite clear. A full quarter’s rent fell due on the September Quarter Day. That was payable in advance and on that day it could not be certain that the lease would terminate on the Termination Date. There is a commercial and sensible certainty in requiring all obligations to operate until the very date of termination but not be retrospectively changed if an early termination occurs. For the Tenant to succeed it seems to me that the obligation to pay rent on the September Quarter Day as contended for by it requires the Underlease to be rewritten to include a variation of covenant 4.1 of the tenant’s covenants to read “to pay the yearly rent as reserved herein ….. unless this Underlease is subsequently terminated after the days when rent was payable in advance.” I can see no justification for any such rewriting of the Underlease. There is no ambiguity and no difficulty in my view.

I therefore conclude that the Tenant has failed to comply with the obligations as to payments of all rent due up to the date of the Termination Date and its notice is accordingly invalid. There is no prospect of any defence to that contention put forward by the Landlord.

I have already observed that this action is entangled with the other set of proceedings in respect of the service charges. I do not think it is appropriate for the argument over the incorporation of the service charges as rent to be spread over two actions. I therefore will adjourn that issue to be heard at the same time as the other action.

Given that determination it is inappropriate in my view for me to express an opinion on either side’s argument in respect of the service charge issue.

I can deal with this aspect quite shortly.

It is quite clear that there is a factual issue over whether or not vacant possession has actually been given. The position is somewhat complicated because the premises comprised in the Underlease formed part only of premises which were controlled by the head Landlord. There are also appears to be a dispute on factual matters as set out in the statements of Steve Penney and Luke Joannou.

It is clear that the concept of “vacant possession” in relation to this Underlease and the premises out of which they are carved together with the control of the relevant premises seems to me plainly to be a question of fact which cannot be finally resolved at this stage. I would therefore be of the opinion that this issue too needs to go to trial and should be considered in the other Action.

This falls for consideration because I have determined issue 1 in favour of the Landlord namely that the Tenant ought to have tendered the full quarter’s rent when it fell due on 29^th September 2010.

In that eventuality the Tenant seeks permission to amend its Defence. For the amendment to be granted it must show a real prospect of success. The trial it could be argued is not sufficiently approximate for the difficulties of Swain-Mason v Mills & Reeve LLP [2011] 1 WLR 2735 do not arise (CP Nottinghamshire & City of Nottingham Fire Authority v Gladman Commercial Properties Ltd [2011] 1 WLR 3235.

In the context of the Mills & Reeve decision the observations of Lord Philips is a later case is instructive:-

“74.

I believe that Mr Sumption is correct. Procedural rules should be the servant not the master of the rule of law. Lord Woolf, by his Reports on Access to Justice, brought about a sea change in the attitude of the courts to such rules. This included the adoption of the “overriding objective” with which the new CPR begins. CPR 1.1 states that the overriding objective of the Rules is to enable the court to deal with cases justly, and that this involves saving expense and ensuring that cases are dealt with expeditiously.

75.

Where an application is made to amend a pleading the normal approach is to grant permission where to do so will cause no prejudice to the other party that cannot be dealt with by an appropriate order for costs. This accords with the overriding objective. Where all that a refusal of permission will achieve is additional cost and delay, the case for permitting the amendment is even stronger.”

That shows in my view that the Mills & Reeve decision is plainly wrong.

It is proposed to amend the Reply and Defence to Counterclaim in the form of the draft exhibited to the witness statement of Steve Penney dated 31^st January 2012.

The proposed amendment asserts the following:-

Accordingly the Tenant submits that the Landlord “acting honestly and responsibly” would have replied promptly to the email of 24^th September 2010 or the alternative letter of 29^th September 2010 telling the Tenant that it needed to pay a full quarter’s rent. It is asserted then that had the Landlord replied promptly the Tenant would have tendered the full amount. Accordingly it is contended that the Landlord is estopped from relying on the failure of the Tenant to pay the full quarter’s rent.

As I set out above the emails referred to were never replied to by the Landlord. Its agents (Colliers) had however sent a demand for the full quarter’s rent on 21^st September 2010. In both communications the Tenant sought confirmation that that was the correct basis for calculating the rent. It never received any such confirmation from the Landlord.

There is no material asserted against the Landlord beyond the duty to act reasonably and honestly and reply to the Tenant’s letters.

The position appears to be that the Tenant was presumably advised as a matter of law that only the apportioned rent needed to be tendered. The Landlord by contrast presumably was advised as a matter of law that the full quarter’s rent needed to be paid. I have acceded to that understanding of the law in this judgment.

The essence of the Tenant’s submission is to put the Landlord in a catch 22 situation. It comes under a duty when it has received the reduced amount to tell the Tenant that the full quarter’s rent is due. Thus the Landlord cannot win. The notice has been served and the short rent has been tendered. If it (correctly) believes that the full rent is due and argues that the rug is pulled from underneath that argument because the Landlord should have written to the Tenant to inform it that it believed the entirety of the quarter’s rent was due. Thus the Landlord either loses the argument on the construction or loses it on the failure to tell the Tenant that its understanding of the law was incorrect.

I assume that both sides had legal advice at the time. Neither has waived privilege in that regard and it appears from the exchange that took place between Mr Jourdan QC and myself that the Tenant was not going to disclose its privileged advice if any that it received at the time of the serving of the notice with the apportioned rent. That is a difficult stance to take in my view because of the plea that it believed it only had to pay the apportioned rent. It seems to me that if this matter is to proceed (and in my view as appears later in this judgment I will refuse permission to amend) the Tenant in order to prove its case is necessarily going to have to waive privilege. How else can it prove what it believed at the time?

The position of the Landlord is the same. How can the Landlord demonstrate what it thought at the time without similarly being required to waive any privilege it would wish to assert?

The analysis of the situation becomes worse when one poses a number of other possibilities. Let us suppose that the Tenant was advised that the full rent was payable. Nevertheless it tenders the short rent. It does so in the expectation that the Landlord will be estopped from claiming the full rent if it accepts the lesser rent in an unqualified way. Let us suppose that the Tenant actually pays the full quarter’s rent. Is the Landlord required not merely to say that that is the wrong amount but also to repay it? What if the Landlord had the belief that the apportioned rent only was required but the Tenant had the belief that the full quarter’s rent needed to be tendered.

This demonstrates in my view why it is impossible to argue an estoppel in this case. It is clear that a party to a lease can be estopped from asserting the true position under a Lease. There is nothing new in this proposition see e.g. the somewhat elderly case of Rodenhurst v Barnes [1936] 2 All ER 3 C.A. This principle applies to all contractual relationships and is well established. It has recently been considered in respect to break clauses see MW Trustees & Ors v Telular Corporation [2011] EWHC 104 (Ch) and Avocet Industrial Estates LLP v Merol Ltd & Anr [2011] EWHC 3422 (Ch).

Further since the hearing the Court of Appeal has also considered this area see ING Bank NV v Ros Roca SA [2012] 1 WLR 472 (see below).

In the MW Trustees decision I held that the Landlord was estopped from challenging the validity of the notice despite the fact that it was not correctly addressed.

In the course of giving judgment (paragraph 49) I said this:-

“Of course as Mr Weekes acknowledged if the Landlords had simply acknowledged receipt of the Notice and said nothing more it would have been open to them to challenge the validity of the Notice. There is no duty in my view on a Landlord served with a document to inform the server that he believes that it has not been validly served. However a Landlord receiving such a Notice must not give any indication that the notice is accepted despite its defects. In the present case but for the acceptance set out in the first part of Mr Ekanayake’s email the Landlords would subsequently be able in my view to challenge the validity of the Notice. However given his opening words it is in my view not open to them so to do for the reasons that I have said.”

On the facts the Landlord was estopped. It will be seen that Counsel for the Tenant accepted that if the Landlord merely acknowledged receipt of the notice they could have challenged it on the basis there was no duty to inform the server that he believed that it had not been validly served.

The question of silence if I can put it that way was also considered by Mr Justice Morgan in the Avocet case. He said the following:-

“110.

Although I am not able to find a positive statement which could give rise to an estoppel by representation, the tenant submitted that the present case was one of those cases where the landlord had a duty to speak and to tell the tenant that it owed Default Interest. It was said that the landlord's failure to inform the tenant of this amounted to a representation that the tenant did not owe Default Interest. I think that I can summarise the essentials of that submission as follows:  

(1)

the tenant believed on the 11th August 2009 and on 16th March 2010 that it did not owe the landlord any sums under the lease;  

(2)

that general belief must have included a belief that the tenant did not owe Default Interest;  

(3)

the landlord knew of the tenant's belief because the tenant had expressed that belief in its letters of 11th August 2009 and 16th March 2010;  

(4)

the landlord did not correct the tenant's belief as expressed in those letters;   

(5)

in particular, the landlord did not demand Default Interest; and  

(6)

if the landlord had demanded Default Interest, then the tenant would have paid the sum demanded to avoid any argument over the operation of the break clause.

111.

The tenant then relied upon passages in Spencer Bower on Estoppel by Representation, 4th ed., at pages 46 – 53. In summary, the textbook states that in some circumstances silence or inaction can constitute a representation for the purpose of an estoppel. This is where there is a legal duty to make a disclosure or take steps, the omission of which is relied upon as creating the estoppel. The textbook then discussed the decision of Bingham J in The Lutetian [1982] 2 Lloyd's Rep 140. At page 50, various examples are given of implied representations said to be made by a failure to correct a manifested belief as to a certain matter. One such matter was where the mistaken party believed that he had complied with a contractual term. It was submitted that the passages in the text book and in The Lutetian covered this case. The tenant believed that it had complied with clause 45.4.4, it had manifested that belief to the landlord and the landlord had remained silent, not correcting what was now said to be a mistaken belief.

112.

In The Lutetian, the facts in brief summary were that the charterers of a ship believed that they had paid the sum of money which they were due to pay by a certain deadline. The owners of the ship knew that that was the belief of the charterers but the owners also knew that the charterers had underpaid and that that fact gave the owners the right to withdraw the ship. The owners did not correct the charterers' mistaken belief. Bingham J cited a passage from the previous edition of Spencer Bower. He then referred to Freeman v Cooke (1848) 2 Ex 654 at 663 where Baron Parke referred to a duty to disclose a fact being cast upon a person “by usage of trade or otherwise”. Bingham J then referred to the speech of Lord Wilberforce in Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 at 903 in which he said was:  

“… persuasive authority for the proposition that the duty necessary to found an estoppel by silence or acquiescence arises where a reasonable man would expect the person against whom the estoppel is raised, acting honestly and responsibly to bring the true facts to the attention of the other party known by him to be under a mistake as to their respective rights and obligations.”

Bingham J then considered the facts and said at page 158:  

“The relationship of owner and charterer is not one of the utmost good faith. One must be careful not to impute unrealistically onerous obligations to those who may choose to conduct their relations in a tough and uncompromising way. There is nonetheless a duty not to conduct oneself in such a way as to mislead. I have no doubt that the owners knew that the charterers believed that they had paid the right amount. It was their duty, acting honestly and responsibly, to disclose their own view as to the charterers. They did not do so and indeed thwarted the charterers' attempts to discover their views. Their omission to disclose their own calculation led the charterers to think, until a very late stage, that no objection was taken to the calculation. It would in my view be unjust in the circumstances if the owners could rely on the incorrectness of a deduction which they had every opportunity to point out at an earlier stage and which their failure to point out caused the charterers to overlook.”

113.

I am able to find that many of the ingredients which were found to exist in The Lutetian also exist in the present case. The tenant believed it had paid all sums due. The landlord knew of that belief because the tenant had told the landlord of that belief. If the landlord had said to the tenant that the tenant owed Default Interest, then I would find on the balance of probability that the tenant would have paid Default Interest to avoid an argument as to its ability to determine the lease. I am satisfied that the tenant was very concerned to ensure that it had succeeded in determining the lease. Even though the letter of 16th March 2010 put forward an argument that the rent in the fifth year was £44,100 and not £67,500, the tenant did not take the risk involved in paying a sum equivalent to 6 months at the lower rate and it paid at the higher rate. Further, if the landlord had told the tenant on the 16th or 17th March 2010 that it had to pay Default Interest in order to comply with clause 45.4.4, I find that the tenant could have reacted to that information quickly and transferred the money by bank transfer on the same day or even, in view of my earlier findings about the ability to pay sums due under the lease by cheque, delivered a cheque by hand to the landlord.

114.

I have so far omitted one ingredient which existed in The Lutetian and which now needs to be considered in this case. Did the landlord know at any point before the end of 17th March 2010 that the tenant's belief was wrong because the tenant owed Default Interest to the landlord? If I were able to hold that the landlord did know that matter, then I would hold in the same way as was held in The Lutetian that the landlord cannot take advantage of the tenant's mistake which at the time the landlord knew that the tenant was making. Whether one calls it an estoppel by representation through silence or an estoppel by acquiescence may not matter. In such a case, I would hold that the landlord is estopped from taking advantage of the tenant's mistake”.

On the findings he concluded that the Landlord did not know that the Tenant’s statement was mistaken. He equally held that on the material he did not hold that the tenant had the suspicion that that was the position see paragraph 124 – 125.

It will be seen from paragraph 110 that the Tenant’s amendment proposed in the present case is strikingly similar. There appears to be no argument over the evidence and what could and could not be produced.

As can be seen there are authorities which suggest that a party can be estopped by silence in certain circumstances. That has long been the case. Almost every student in this area remembers the well known decision of R v Barnard [1837] 7 C & P 784.

That case shows the wide potential for the courts to find acts can be a misrepresentation Mr Barnard did not say anything. However appearing in the bookshop wearing an undergraduate’s cap and gown spoke sufficiently of itself to amount to a representation which was untrue. Silence can speak eloquently on an appropriate occasion.

The proposed amendment’s key allegation in my view is the proposed paragraph 1(d) which contends a reasonable man would expect the Landlord to have replied promptly to the email of 24^th September 2010. Or the letter of 30^th September 2010 telling the Tenant it needed to pay a full quarter’s rent. The Landlord’s Agent had already served a demand for the full quarter’s rent on 21^st September 2010. It therefore clearly indicated that it expected the full amount of rent to be paid on the September quarter. It already knew by the time of that demand that the Tenant was attempting to break the lease because it had received the break notice on 25^th September 2009. It follows therefore that the Landlord clearly expected the full quarter’s rent to be paid despite the break notice.

The Tenant by the email of 24^th September 2010 advised the Landlord of the reduced payment and asked for confirmation “please confirm that this is the correct basis for calculating the liability for the short period”. The letter of 30^th September 2010 asked for the same confirmation.

By that date the Tenant plainly knew in my view that the Landlord was expecting the rent to be paid in full despite the break notice. The demand speaks for itself. Why is it necessary for the Landlord to repeat it? The purpose of the two letters of course is to have the Landlord “embrace” the short payment. If the Landlord accepted the short payment and had given the confirmation then of course it would have been estopped from claiming the full amount and from denying that the Underlease had terminated. If the Landlord had replied saying it did not agree that the reduced rent was the correct basis it would have merely confirmed what was already self evident by its earlier demand.

This to my mind is why on the facts such as they are pleaded (even if the law is as said by the Tenant) the amendment should be refused because it has no prospect of success.

It was up to the Tenant in my view to make the running. Absent a confirmation that the Landlord agreed with it, it should have taken stock before the break date. The only indication it had had from the Landlord was a demand for the full amount. It was therefore perfectly open to the Tenant to tender the full amount and seek to reclaim it by the subsequent proceedings. It chose to rest on the reduced payment. It therefore took the risk that the short payment would not be in compliance with the terms of the break clause as I have determined.

I cannot see that the Landlord contributed to that risk in a misleading way nor can I see that the Tenant could have believed the Landlord thought anything less than the full amount of rent was due for reasons I have already given.

There are other matters in the proposed amendments which are plainly inadequate.

In paragraph 1 (a) it is asserted the Tenant “believed” that the reduced rent only was payable. I have no evidence to support such a plea. For that to be capable of being put forward as a meaningful claim to support an application to amend there must be something more than a mere assertion. Mr Penney’s evidence in support of the application (his second witness statement of 31^st January 2012) merely asserts that it was his belief and the belief of the Tenant that the reduced rent only was required. He does not in any way explain how the Tenant came to that belief. In particular the full rent demand is not addressed nor is there any evidence put forward to explain the thought processes which lead him to assert he had that belief. In particular I am not told whether legal advice was obtained. In this context I do not see how the belief can properly be explained if the Tenant had advice without that advice being revealed. Otherwise Mr Penney would be giving untrue evidence if he asserts a belief without explaining what advice he had and how that advice led him to the belief and how the Landlord’s actions also led him to the same belief. It is inevitable in my view that the Tenant must waive privilege in respect of any advice that they have.

In any event Mr Penney has failed to deal with the plain fact that the Landlord served a demand for the full rent.

There are equally further problems in paragraph 1 (b). It asserts that the Landlord knew that belief. The Landlord knows nothing of the kind. It is true it received the emails and letters but those emails and letters do not necessarily reflect what the Tenant believed. For all I know the Tenant might have been told that the full rent was payable but if the lesser rent was tendered in the form of the letter and email that the Landlord might be estopped from challenging the claim for the full quarter’s rent whilst equally being estopped from denying the Underlease had terminated. Equally there is no material put forward in support of the proposed amendment to suggest how it can be asserted that the Landlord thought that the break would only be effective if a full quarter’s rent was paid. It is equally possible that the Landlord might have been advised that the reduced rent was payable and it might be possible to extract a higher rent by serving a full invoice and doing nothing to encourage the Tenant in its belief that the reduced rent was payable.

These are the kind of tactical manoeuvres that are regularly indulged in around break clauses and their exercise. There is nothing to justify the bold assertion on an evidential basis that the Landlord had a belief as asserted in paragraph 1 (c) of the proposed amendment.

The position is not one of fact in reality. The position is one of a question of law about which there are clearly competing views. That has been well demonstrated by the two day hearing that took place before me. The respective “belief” of either party is nothing more than a matter of opinion (if they be relevant) of a question of law based on legal advice. This is not in my view a situation where it can be said that the Landlord if acting reasonably would have informed the Tenant that it was mistaken in its belief. That puts the Landlord in my view in an impossible situation. If the law is as the Tenant contends then the Tenant can challenge the claim for the full rent. However on the way in which the Tenant puts it before me if he loses that point he can assert that the Landlord ought to have told him he was going to lose the point. Thus the Landlord is put in an impossible position. It is not in my view for the Landlord to have to deal with it in that way.

I conclude therefore that I should refuse permission to amend the reply because there is no evidence which shows the arguments have any prospect of success to support the proposed amendment. In addition for the reasons that I have set out above I do not accept the amendment as proposed if there is a duty as alleged by the Tenant to correct its error provides a sufficient particularised or evidential basis to suggest that there is an argument on this which has any real prospect of success. The main reason for that in my view is the full rent demand coupled with the silence of the Landlord which could only lead to the conclusion that the Landlord believed that the full rent was due. It is true that the position was not explained in writing until 2^nd November 2010 but it can be clearly understood from the rent demand together with the silence that the Landlord did not accept that anything other than the full rent was due.

Is the law as contended for by the Tenant? Technically this does not arise because on the material point before me even if the law is contended by the Tenant is the correct statement of the law I do not believe the proposed amendment has any prospect of success for the reasons I have set out.

The origin of the duty is set out in the authorities I have referred to above themselves set out in Morgan J’s judgment in Avocet. I of course said there was no duty on the part of a Landlord served with a document to inform the server that he believed that he had not been validly served. On the facts of that case however I did hold that the Landlord was estopped.

I was referred to further decisions. First was Spiro v Lintern [1973] 1 WLR 1002 at page 1010 as follows:-

“Where a man is under a duty—that is, a legal duty—to disclose some fact to another and he does not do so, the other is entitled to assume the non-existence of the fact. In such circumstances the conduct of the first man amounts to a representation by conduct to the second that the fact does not exist. In Bell v. Marsh [1903] 1 Ch. 528, 541, Sir Richard Q Henn Collins M.R. put the point in this way:

" He [the plaintiff] is entitled to say that the representation was made, not merely by language used, but by conduct, and conduct may include negligence. A man may act so negligently that he must be deemed to have made a representation, which in fact he did not make, but because he has acted negligently he is deemed to have made it.

If A, having some right or title adverse to B, sees B in ignorance of that right or title acting in a manner inconsistent with it, which would be to B's disadvantage if the right or title were asserted against him thereafter, A is under a duty to B to disclose the existence of his right or title:. If he stands by and allows B to continue in his course of action, A v/ill not, if the other conditions of estoppel are satisfied, be allowed to assert his right or title against B: see Halsbury's Laws of England, 3rd ed., vol. 14 (1956), paras. 1178-1180. On similar grounds, in our judgment, if A sees B acting in the mistaken .belief that A is under some binding obligation to him and in a manner consistent only with the existence of such an obligation, which would be to B's disadvantage if A were thereafter to deny the obligation, A is under a duty to B to disclose the non-existence of the supposed obligation. It is'interesting to notice that in West v. Dillicar [1920] N.Z.L.R. 139; [1921] N.Z.L.R. 617, where the facts were in many B respects similar to the facts in this case, the Supreme Court and the Court of Appeal in New Zealand took this view; although we do not rely on that case for our conclusion, since it was not cited in argument. This was, in our opinion, the position in the present case from the time when the fact that Hamels belonged to Mr. Lintem and not to Mrs. Lintern became common knowledge. Q As soon as Mr. Spiro and his advisers became aware that Mr. Lintern was the sole owner of Hamels the primary question, and indeed, in our opinion, the only question, in doubt about the binding effect of the contract signed by E. J. Brooks & Son was whether Mrs. Lintern had her husband's authority to instruct that firm as she did. The answer to this question was not within the knowledge, or means of knowledge, of Mr. Spiro or his advisers, and Mr. Lintern, if he had thought about it, must have known D this. In our judgment, Mr. Lintern was under a duty to Mr. Spiro to disclose the fact that his wife had acted without his authority. His failure to do so amounted to a representation by conduct that she had that authority”.

However the extract of the judgment with respect begs the question as when there is a duty to disclose to some other fact and it seems to me that judgment is doing no more than reiterating the concept of estoppel by conduct. It does not identify when a person comes under a duty to disclose matters.

I was also referred to Thomas Bates Ltd v Wyndham Ltd [1981] 1 WLR 505 but I do not think that provides me with any assistance in respect of deciding there is a positive duty to disclose to the other party that he has made a mistake.

After the hearing this area was considered by the Court of Appeal in ING Bank NV v Ros Roca SA [2012] 1 WLR 472. The key part of the judgment for these purposes is that of Rix LJ at page 497 as follows:-

“90.

As for ING's obligations as a business partner in the light of circumstances as they arose, what happened has been set out in Carnwath LJ's judgment above. ING made its own internal calculations as to its fee, and concluded that €7.335 million would be payable under the contract, calculated by applying EBITDA 2006 to Deyà's investment offer, thus producing an entry multiple of 13.3. An alternative calculation applying the current forecast for EBITDA 2007 and producing an entry multiple of 10.3 was also set out. The rest was the mechanical operation of the contract's formula, which produced the money figures payable on either basis. Thereupon ING  considered at the highest level, that of Mr Muro-Lara, who was ING 's managing director, whether ING  should revisit the discrepancy between the estimate of transaction costs which had passed between the parties and the calculation of ING 's contractual fee. It was decided that the figure should not be revisited, given, as Mr Muro-Lara put it in his witness statement, the "potential disruption" that might be caused. When he was asked about this in his cross-examination, he accepted that he had in mind the possibility of a dispute with or an attempt at renegotiation on the part of Ros Roca , i.e. the "situations" mentioned by Ros Roca 's Mr Gomà in his witness statement (see [43] above).

91.

In my judgment, however, there was in these circumstances a duty on ING to raise with Ros Roca the question of ING's fee and the related question of the estimate of transaction costs. Such costs were directly related both to the number of shares to be issued to Deyà by reason of its investment, i.e. were directly related to the operation of the transaction on which ING was advising (even if an under-estimate of transaction costs was less dangerous than an over-estimate), but were also relevant to the business sense of the transaction as a whole. Would it make sense for Ros Roca to enter into a transaction when ING 's fee alone would amount to some 13 per cent of the investment capital to be raised? No doubt Ros Roca was primarily and ultimately responsible for looking out for its own interests, but ING was also responsible under its contract with Ros Roca to advise its client on the transaction, its conduct and negotiation, in general (see section 1 passim). Mr Phillips accepted in argument that in such circumstances ING's position, subject only to the niceties of the law of estoppel, was unconscionable (Day 2 of the appeal, 180).

92.

What then does the law say about such a situation? Outside the insurance context, there is no obligation in general to bring difficulties and defects to the attention of a contract partner or prospective contract partner. Caveat emptor reflects a basic facet of English commercial law (the growth of consumer law has been moving in a different direction). Nor is there any general notion, as there is in the civil law, of a duty of good faith in commercial affairs, however much individual concepts of English common law, such as that of the reasonable man, and of waiver and estoppel itself, may be said to reflect such a notion. In such circumstances, silence is golden, for where there is no obligation to speak, silence gives no hostages to fortune. If, however, the contractor speaks, then he may have to live up to what he says; so also where what is unsaid is sufficiently closely connected with what he has said to render what has been left unsaid misleading. In general, however, there is no duty of disclosure. As Chitty on Contracts, 30^th ed, 2008, Vol I, at para 6-014 puts it:

"For the same reason it is not possible to set up an estoppel on the basis of an omission to disclose unless a duty to disclose can be established in the particular circumstances of the case. Tacit acquiescence in another's self-deception does not itself amount to misrepresentation, provided that it has not previously been caused by a positive misrepresentation."

Nevertheless, particular circumstances can make a difference, and it is possible to formulate a general principle as to why that should be so. Thus in Moorgate Mercantile Co Ltd v . Twitchings [1977] AC 890 at 903 Lord Wilberforce, in a dissenting speech but which in this respect has borne fruit, spoke of the possibility that, in a particular situation which affected two parties, a reasonable man would expect the other party, "acting honestly and responsibly" either to make something known or face the consequences of not doing so. In Republic of India v India Steamship Co (No 2) (The "Indian Endurance") [1998] AC 878 at 914 Lord Steyn approved Lord Wilberforce's observation as "helpful as indicating the general principle underlying estoppel by acquiescence". As Bingham J had put it some years earlier in Tradax Export SA v . Dorada Compania Naviera SA (The"Lutetian") [1982] 2 Lloyd's Rep 140 at 157, after citing Spencer Bower and Turner, Estoppel by Representation, 3^rd ed at 49:

"More recently, Lord Wilberforce in Moorgate…provided persuasive authority for the proposition that the duty necessary to found an estoppel by silence or acquiescence arises where a reasonable man would expect the person against whom the estoppel is raised, acting honestly and responsibly, to bring the true facts to the attention of the other party known by him to be under a mistake as to their respective rights and obligations. (Lord Wilberforce dissented on the outcome, and expressed the principle in proprietary terms appropriate to that case, but neither of these things in my judgment diminishes the significance of what he said.)"

94.

Bingham J there applied the principle to a dispute about withdrawal under a time charter, in other words it affected parties to an existing contract. The charterers had tendered payment of hire in an amount which they believed to be correct, as the owners knew. The penalty of failure to pay punctual hire was that owners had the power to withdraw the vessel. By keeping silent about their own calculations of hire, the owners thwarted the charterers' attempt to live up to their contract. The owners were held to be estopped from exercising their right to withdraw (see issue (7) at 156). Bingham J concluded:

"The relationship of owner and charterer is not one of the utmost good faith. One must be careful not to impute unrealistically onerous obligations to those who may choose to conduct their relations in a tough and uncompromising way. There is nonetheless a duty not to conduct oneself in such a way as to mislead. I have no doubt that the owners knew that the charterers believed they had paid the right amount. It was their duty, acting honestly and responsibly, to disclose their own view to the charterers. They did not do so and indeed thwarted the charterers' attempts to discover their views. Their omission to disclose their own calculation led the charterers to think, until a very late stage, that no objection was taken to their calculation. It would in my view be unjust in the circumstances if the owners could rely on the incorrectness of a deduction which they had every opportunity to point out at an earlier stage and which their failure to point out caused the charterers to overlook. I answer this question in favour of the charterers."

95.

In my judgment, the facts of our case are relevantly analogous, but ours is an a fortiori case. The relationship between an advising bank  and its client is closer, and more professional, than that between an owner and a charterer of a vessel. Although such an owner and his charterer co-operate on what is hoped to be the success of their maritime adventure, that is commerce in the raw. In our case, the bank  is advising its client on its potential transaction, and is earning its fee for doing so and for a successful outcome. Moreover, the contract required the parties to co-ordinate their estimates of the transaction costs, and that is what ING  outwardly purported to do, while internally intending to charge a fee which was totally inconsistent with its outward show of agreement with its client. It was not honest and responsible for ING , but unconscionable as Mr Phillips had in effect to accept, to fail to disclose to Ros Roca , in the run-up to the closing of its transaction, that Ros Roca  and ING  differed on the calculation of ING 's fee. Just as the owner in The Lutetian was estopped from denying the accuracy of the charterer's calculation of hire for the purpose of its monthly payment and thus for the purpose of preventing the owner's right to withdraw, because it had represented by its silence that the charterer's calculation was correct, so in my judgment ING  is estopped from saying that its calculation based on EBITDA 2006 is the correct calculation. In both cases, one party has represented by his silence (in truth on the facts of this case by more than silence) that the other party's understanding of the situation is correct. ING sought its own advantage in keeping quiet, when it knew that speaking out would lead to a dispute and to a renegotiation. Ultimately, the dispute could not be avoided, and has occurred, but ING considered that its position would be strengthened if the dispute only took place after the event.

96.

One question that arises is, of course, whether, assuming that Ros Roca has relied on it's representation, it would be acceptable to allow ING to withdraw from the position which its silence and seeming acquiescence has created.”

I gratefully adopt what Rix LJ says in paragraph 92. The general proposition is that in the common law (as opposed to the civil law) there is not generally a notion of good faith and as he says silence is golden for where there is no obligation to speak silence gives no hostages to fortune. I put aside Sir Thomas More’s observations on the question of silence elsewhere. The cases Rix LJ refers to and which I have referred to above to my mind properly analysed are on the facts the particular person became under an obligation to point out an error by the other party and by failing to do so he was estopped from taking advantage of it. I do not see that those cases separately or together can be elevated to a general proposition that where one party perceives the other side is making a mistake they have a duty to correct it. That was my view in the MW Trustees case and I believe that is the correct summary of the law.

Given that on the facts before me the Tenant cannot take advantage of the Landlord’s failure to inform it that its assumption of this lesser rent only was due was a mistake. In any event when one looks at the circumstances summarised above if there was a duty I am satisfied that the Landlord sufficiently discharged that duty by demanding the full rent and not resiling from it. I do not believe the Tenant can draw any comfort from the silence and elevate that to a duty to tell it its assumption is wrong. As I have said earlier this does not seem to me to be the appropriate subject matter for an estoppel in any event because it is a legal question which was and probably remains a matter for debate.

For that reason in any event I refuse the Tenant permission to amend because I find there is no basis for finding on such facts as put before me there was a duty on the part of the Landlord to tell the Tenant that the Landlord believed the full rent was due and consequently he believed that the Tenant was mistaken in its belief.

I have dealt with all of the points as set out above. I will hear submissions as to the consequences of my determination and how this action should proceed bearing in mind the existence of the other proceedings. It is essential in my view that if there is anything left in the present proceedings the proceedings must be conjoined with the other proceedings.