House of Lords - Mannai Investment Co. Ltd v. Eagle Star Assurance

House of Lords

Session 1997-98
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Judgments

Judgments - Mannai Investment Co. Ltd v. Eagle Star Assurance

HOUSE OF LORDS

  Lord Goff of Chieveley   Lord Jauncey of Tullichettle   Lord Steyn   Lord Hoffmann   Lord Clyde

OPINIONS OF THE LORDS OF APPEAL FOR JUDGEMENT IN THE CAUSE

MANNAI INVESTMENT COMPANY LIMITED
(APPELLANTS)

v.

EAGLE STAR LIFE ASSURANCE COMPANY LIMITED
(RESPONDENTS)

ON 21st May 1997

LORD GOFF OF CHIEVELEY

My Lords,

      This appeal is concerned with the question whether a notice given by a tenant pursuant to a break clause in a lease was an effective notice. In fact, there were two leases with identical break clauses, and two identical notices were given. For convenience, however, I will assume that there was only one.

      The premises were in Jermyn Street in London. The lease was dated 11 March 1992, and was for a term of 10 years from 13 January 1992. The respondent company was the landlord, and the appellant company was the tenant. The relevant clause was clause 7(13), which provided as follows:

  "The Tenant may by serving not less than six months notice in writing on the Landlord or its Solicitors such notice to expire on the third anniversary of the term commencement date determine this Lease and upon expiry of such notice this Lease shall cease and determine and have no further effect. . . ."

So the clause gave the tenant a single opportunity to bring the lease to an end. It so happened that the market for rents in this area had fallen, and the tenant decided to take advantage of this opportunity. It served the following notice on the landlord:

"Pursuant to Clause 7(13) of the Lease we as Tenant hereby give notice to you to determine the lease on 12 January 1995. . ."

Unfortunately, however, the tenant made a mistake. The third anniversary of the term commencement date was not 12 January 1995 but 13 January 1995. The landlord has claimed that in the result the notice was ineffective. The Court of Appeal, reversing the decision of Judge Rich Q.C. (sitting as an additional judge of the Chancery Division), upheld the landlord's contention. It is from that decision that the tenant now appeals to your Lordships' House.

      I should record at once that the judge held that the tenant was entitled to succeed on the basis that, because 12 and 13 January were contiguous dates, there was a moment of time at which they coincided; and from this it followed that a notice expressed to determine the lease on 12 January was effective to do so on 13 January as required by the clause. In so holding, he invoked the authority of Sidebotham v. Holland [1895] 1 Q.B. 378. But, as Nourse L.J. pointed out in the Court of Appeal in the present case [1995] 1 W.L.R. 1508, 1514-1515, that case provided no authority for the judge's conclusion. It was concerned with a notice to quit and deliver up possession by midnight. It related therefore to a notice to quit at a point of time which was held to be common to both dates, and not, as in the present case, a notice to take effect on a certain date. Here, a notice taking effect on a different, though contiguous date, could not be rendered effective on the basis of Sidebotham v. Holland. With that reasoning, I find myself in complete agreement. It follows that the central question in the appeal before your Lordships' House is whether the Court of Appeal was right to hold that the notice was in any event not an effective notice under the clause. To that question I now turn.

      At first sight it seems unreasonable that the notice should not have been effective. It was obvious that the tenant was trying to give an effective notice under the clause, and that it had mistakenly assumed that the anniversary of the term commencement date was not 13 January but 12 January 1995. As Hobhouse L.J. pointed out (see [1995] 1 W.L.R. 1508, 1516F), the tenant had mistakenly read the clause as if it said "to expire at the end of the third year of the term," when it did not do so. It is tempting therefore to assist the tenant who has made a mistake of this kind, when it must have been obvious to the landlord that the tenant intended to give an effective notice under the clause. But the difficulty in the way of adopting this approach is that, on the authorities, it is inconsistent with the agreement of the parties as expressed in the clause.

      An early authority in this line is Cadby v. Martinez (1840) 11 Ad. & EI. 720. In that case a tenant was entitled under a clause in his lease to determine it by notice expiring on Michaelmas day 1837. The tenant mistakenly gave notice to quit and deliver up the premises on 24 June 1837. The notice was expressed to be "agreeably to the covenants of the lease." It was held that notice was not effective to determine the lease. Lord Denman C.J. said, at p. 726:

  "We have heard the case argued, and are of opinion that the covenant to pay rent during the whole term cannot be got rid of by any notice to quit which is not in accordance with the proviso introduced into the lease for the purpose.

  "The cases that seemed to point the other way merely shew that, where there is no covenant, a notice describing the premises, so as to be perfectly understood between the parties, will be sufficient: but in none has a proviso or covenant in a deed been held to be satisfied by a notice inconsistent with the terms of it."

      The reasoning in this brief judgment is clear and compelling. You start with the position that, under the lease, the tenant has covenanted to pay rent for the full term; but under a proviso in the lease the tenant may, by notice, rid himself of the obligation under that covenant. However, to be effective for that purpose, the notice must conform to the terms of the proviso. If on its true construction the notice does not do so, it will not be effective for its purpose, because the parties have agreed that only a notice conforming to the terms of the proviso will be effective. The fact that the landlord realises that the tenant intended to take advantage of his rights under the proviso, but has only failed through some mistake to give the required notice, is irrelevant. The simple fact is that the tenant has failed to use the right key which alone is capable of turning the lock.

      Nowadays, the leading case is Hankey v. Clavering [1942] 2 K.B. 326. The lease in question was for a term of 21 years from 25 December 1934. The break clause conferred on either party the right to determine the lease at the expiration of the first seven years, by six calendar months' notice. The landlord gave notice to the tenant's solicitors in the following terms:

  "As I may have to be away for some time in the near future, I will be obliged if you would accept the six months' notice to terminate your client's lease which I am allowed to give on June 21, 1941. This would mean that he would have to give up the cottage on December 21, 1941."

      This was obviously a mistake on the part of the landlord, because the six months' notice should have expired on 25, not 21, December. At first instance, Asquith J. held that the notice could be saved on the basis that it had been accepted as a good notice by the tenant's solicitors; but that solution was rejected by the Court of Appeal on the facts. The Court of Appeal, which consisted of two distinguished and very experienced Chancery lawyers, Lord Greene M.R. and Lord Clauson, held that the notice was ineffective. They regarded the point as so clear that they gave judgment ex tempore. Indeed, Lord Clauson concluded his brief judgment as follows, at p. 331:

  "I should have thought that, as a matter of construction, an argument other than that which leads to the result the Master of the Rolls has announced was quite untenable."

      Lord Greene M.R. introduced his judgment with the following passage, at p. 328:

"This appeal raises a short point in connection with a break clause in a lease wherein the plaintiff was the lessor and the defendant was the lessee. By his letter of January 15, 1940, the plaintiff, on the face of it, was purporting to determine the lease by notice on December 21, 1941. The whole thing was obviously a slip on his part, and there is a natural temptation to put a strained construction on language in aid of people who have been unfortunate enough to make slips. That, however, is a temptation which must be resisted, because documents are not to be strained and principles of construction are not to be outraged in order to do what may appear to be fair in an individual case."

      He expressed his reasoning and conclusion as follows, at pp. 329-330:

"Notices of this kind are documents of a technical nature, technical because they are not consensual documents, but, if they are in proper form, they have of their own force without any assent by the recipient the effect of bringing the demise to an end. They must on their face and on a fair and reasonable construction do what the lease provides that they are to do. It is perfectly true that in construing such a document, as in construing all documents, the court in a case of ambiguity will lean in favour of reading the document in such a way as to give it validity, but I dissent entirely from the proposition that, where a document is clear and specific, but inaccurate on some matter, such as that of date, it is possible to ignore the inaccuracy and substitute the correct date or other particular because it appears that the error was inserted by a slip. By the clear wording of this notice the plaintiff purported to bring the lease to an end on December 21, 1941. In so doing he was attempting to do something which he had no power to do, and, however much the recipient might guess, or however certain he might be, that it was a mere slip, that would not cure the defect because the document was never capable on its face of producing the necessary legal consequence."

      The essential point made by Lord Greene M.R. therefore was that notices of this kind are documents of a technical nature because they are not consensual documents; but, if they are in proper form, i.e. if they comply with the specification in the clause, they have of their own force the effect of bringing the demise to an end. It is necessary, therefore, to turn to the lease to ascertain what is required. Here the landlord had to give six months' notice of his desire to determine the demise at the expiration of the first seven years, which in fact expired on 25 December 1941. This he failed to do; and accordingly the notice was not effective. The facts that he had obviously meant to give an effective notice at the end of the first seven years, that he had simply made a mistake about the date, and that this may have been obvious to the other party, made no difference. The simple position was that the notice he gave did not conform to the agreed specification in the clause which gave the right to determine the lease, and so was not effective for that purpose.

      It is, in my opinion, correct in principle that a notice under such a clause will only be effective if it conforms to the specification in the clause. The specification in the clause is contained in a document which has been agreed between the parties, and so prescribes the requirements with which the notice must comply if it is to achieve the desired effect. In the case before your Lordships, the notice must (1) be not less than six months notice, (2) be in writing, (3) be served on the landlord or its solicitors, (4) expire on the third anniversary of the term commencement date. It is plain that fulfilment of all four of these requirements is essential. It is with the fourth requirement that we are here concerned; and it is well established that this required that the notice should be so expressed as to expire on the relevant date. The position was made clear by another distinguished lawyer, Atkin L.J., in P. Phipps and Co. (Northampton and Towcester Breweries) Ltd. v. Rogers [1925] 1 K.B. 14, 27. He there cited Lord Coleridge C.J. as saying in Gardner v. Ingram (1889) 61 L.T. 729, 730, that: "Although no particular form need be followed, there must be plain, unambiguous words claiming to determine the existing tenancy at a certain time." Atkin L.J. continued: "The date of determination must be the right date."

      The principle is therefore clear. The agreement between the parties provides what notice has to be given to be effective to achieve the relevant result. The question in each case is: does the notice which was given, properly construed, comply with the agreed specification? If it does, it is effective for its purpose. If it does not, it is not so effective; and the mere fact that the person serving the notice plainly intended, and was trying, to give an effective notice under the clause, and that the recipient of the notice realised that he was doing so, makes no difference. This is because the notice, properly construed, did not comply with the agreement between the parties. The key does not fit the lock, and so the door will not open.

      I have been careful to use the expression "properly construed." This is because, although at first sight the notice given may not appear to comply with the agreed specification in the clause, nevertheless on examination it may transpire that, properly construed, it does in fact do so. This may occur where there is a latent ambiguity in the notice. A striking example is to be found in Doe d. Cox v. Roe (1803) 4 Esp. 185 (which was cited in argument in Cadby v. Martinez). There the landlord of a public house in Limehouse gave notice to quit "the premises which you hold of me . . . commonly called or known by the name of The Waterman's Arms." On the evidence, the only property let by the landlord to the tenant was a public house called The Bricklayer's Arms; moreover there was no public house in Limehouse called The Waterman's Arms. The notice was held effective in respect of the tenancy of The Bricklayer's Arms, the case being treated as one of latent ambiguity. Another example occurs when a date is specified in the notice which, as is plain from the face of the notice, was obviously stated in error for the true date which the giver of the notice must have intended to specify. This will usually occur nowadays through a simple typing error. In such a case, the date so given can properly be construed as a reference to the true date. An example of the application of this principle is to be found in Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442. In that case, which was (like the present) concerned with a break clause in a lease, the relevant date upon which a notice given by either party under the clause might take effect was a date in September 1975, but a notice given by the landlord in September 1974 specified a date in September 1973. It was plain from the face of the notice that a date in 1973, which had already passed, could not conceivably have been intended by him. It must have been a clerical error, and could properly be read as intended to refer to 1975. In these circumstances Goulding J., applying ordinary principles of construction, held the notice to be an effective notice to determine the lease on 27 September 1975. He said, at p. 446:

  "In an option clause the requirement is that a party must strictly comply with the condition for its exercise. If the condition includes the giving of a particular notice, it seems to me that the logical first approach is to interpret the notice, looking at the words and applying legal principles to their construction, and then ask whether it complies with the strict requirements as to the exercise of the option. If that is right, I think that a benevolent approach could be applied in this case, as in Doe d. Duke of Bedford v. Kightley (1796) 7 Durn & E. 63], because reasonably read by a reasonable tenant the mistake is obvious on the face of it, and there is no doubt what the mistake was. Therefore one interprets the notice as asserting an intention to determine in 1975. It is true that if whoever made the mistake had typed 1976 instead of 1973, the error would probably have been incurable because although the tenant might suspect there was a slip, it might be that the landlord did intend 1976, not knowing or understanding his rights under the lease. In such a case the tenant would be entitled to disregard the notice but because a past date was given in the notice it is insensible and therefore an authority such as the Duke of Bedford's case is in point." [Emphasis added.]

The decision of Goulding J. in that case was therefore made in accordance with the principles I have stated. I should however mention that, in the report of the case in [1976] 1 W.L.R. 442, 443G, it is stated that, although the date upon which a notice given by either party under the clause might take effect was 27 September 1975, the notice given by the landlord specified the date as 17 September 1973. Your lordships were however informed that comparison of this report with other reports of the case reveals that the date of determination specified in the landlord's notice was, in fact, 27 September, not 17 September, so that the only error in the landlord's notice consisted of specifying 1973 instead of 1975. I am satisfied that this must have been the case. If not, Goulding J. would certainly have addressed the question of the effect of the error as to the day of the month; and, if he had done so, he would, consistently with the reasoning in his judgment, have held that on that ground the notice was ineffective.

      It is however well settled that, under a clause such as the present which does not require that the date of expiry should be specified as such in the notice but merely that the notice should be expressed to expire on the relevant date, it is enough that the notice should be so expressed to expire in accordance with the terms of the clause. This was made clear by Lord Coleridge C.J. in Gardner v. Ingram, 61 L.T. 729, 730, in the passage I have already quoted. So if the tenant in the present case had given a notice expressed to determine the lease on the third anniversary of the commencement date, that would have been a sufficient compliance with the specification in the clause. Furthermore it is also well settled that, if the person giving the notice specifies the actual date but out of caution also specifies, in the alternative, the end of the period at which the notice is required under the clause to take effect, the alternative so given will be effective to save the notice if the actual date so given should prove to have been mistaken. For obvious reasons, therefore, it is a commonplace for notices to quit to take this form, which avoids the trap into which the tenant fell in the present case. The position was stated clearly by A.L. Smith L.J. in Sidebotham v. Holland [1895] 1 Q.B. 378, 389, a case to which I have already referred, when he said:

"I would point out that the plaintiff has only himself to blame for the difficulties he is in in this case. Had he added the words which are very ordinarily inserted in a notice to quit, 'or at the expiration of the year of your tenancy, which shall expire next after the end of one half-year from the service of this notice,' and which are inserted to avoid such a point as that now taken, all would have been in order; but the words are not there. If the notice to quit in this case had been for May 20 or 21 or any later day I should have had no doubt but that it was a bad notice; and I own that the inclination of my opinion is that the present notice is bad because it does not expire upon the last day of some year of the tenancy; but, as Lord Halsbury and Lindley L.J. are of opinion that, inasmuch as this was a full six months' notice given to quit upon the anniversary of the day upon which the tenancy commenced, it is good, though the tenancy expired at midnight the day before, I yield to what they say, and will not differ from them, and hold that this unmeritorious technicality must prevail; and I content myself with expressing what I have said."

      That what I have said sets out the long established law on this subject appears clearly from the judgments of Lindley L.J. (with whom Lord Halsbury agreed) and A.L. Smith L.J. in that case. This was the established law which was applied by the Court of Appeal in Hankey v. Clavering [1942] 2 K.B. 326, and by the Court of Appeal in the present case. I wish to stress however that these principles have been evolved in the case of clauses in leases, such as notices under a break clause, options to purchase, and notices to quit, in which provision is regularly made as to the conditions to be fulfilled in respect of the relevant notice and, in particular, that the notice must be expressed so as to take effect on a certain date.

      Before your Lordships Mr. Cherryman Q.C. for the tenant, faced with the relevant authorities, sought in the present case to distinguish Hankey v. Clavering, which was the authority held by the Court of Appeal to be decisive against his client. He submitted that the date of determination specified by the tenant in its notice was not an essential part of the notice and must give way to the tenant's obvious intention, having regard to the express invocation by the tenant of clause 7(13), that the notice should have the effect of expiring on the third anniversary. But in my opinion that submission is contrary to the judgment of Lord Greene M.R. in Hankey v. Clavering itself. He treated it as necessary that the person giving the notice should claim to determine the tenancy at a certain time, and (as Atkin L.J. said in Phipps [1925] 1 K.B. 14, 27) that must be the right time. The fact that the tenant in the present case expressly identified the clause in question as opposed to implicitly referring to it (as in Hankey v. Clavering) cannot, as I see it, make any difference. If that were so, it would be enough for the person giving the notice simply to invoke the clause without specifying any time at which the notice should take effect. That would, however, be contrary to the construction which has for a long time been placed upon clauses of this kind.

      Mr. Cherryman next relied upon a test stated by Goulding J. in Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442, 444G, to be generally applicable, viz.: "Is the notice quite clear to a reasonable tenant reading it? Is it plain that he cannot be misled by it?" These words have been fastened upon to suggest that a broader test should be applied than is recognised in the authorities, and have been cited in textbooks as having that effect. Indeed, in Micrografix v. Woking 8 Ltd. [1995] 2 E.G.L.R. 32 Jacob J. referred to Goulding J. as having "distinguished the celebrated, much distinguished, case of Hankey v. Clavering [1942] 2 K.B. 326" and stated, at p. 33, that "Carradine . . . is the modern approach. . ." I have to say, however, that this interpretation reveals a complete misunderstanding of Goulding J.'s judgment in Carradine which, read as a whole, demonstrates that he had no intention of departing from the law as established in the previous authorities, including Hankey v. Clavering, by which he was bound. In his judgment, Goulding J. quoted at length from the judgment of Lord Greene M.R. in that case, and said correctly, at p. 446:

"In an option clause the requirement is that a party must strictly comply with the conditions for its exercise. If the condition includes the giving of a particular notice, it seems to me that the logical first approach is to interpret the notice, looking at the words and applying legal principles to their construction, and then ask whether it complies with the strict requirements as to exercise of the option."

      Applying those principles, he was able to distinguish Hankey v. Clavering on the basis that, if the notice was reasonably read by a reasonable tenant, the mistake (viz., specifying 1973) was obvious on the face of it and there was no doubt what that mistake was, i.e. that the date 1973 must have been typed instead of 1975 which the landlord had intended to specify. It is in this sense that the test stated by Goulding J. earlier in his judgment must be understood, as was made plain when he went on to say that if, instead of the earlier date of 1973, the later date of 1976 had been typed for 1975, such a mistake would probably have been incurable, because "although the tenant might suspect there was a slip, it might be that the landlord did intend 1976, not knowing or understanding his rights under the lease" (p. 446E). Having regard to the reasoning of Goulding J. in his judgment, the suggestion that the test earlier stated by him constituted a departure by him from the well-established authorities by which he was bound is, frankly, untenable. Moreover, it is also plain from his judgment that, in considering the question whether the notice, on its true construction, complied with the clause in the lease, he was entitled to have regard to the terms of the lease; indeed, it is difficult to see how he could otherwise have considered that question. In this respect, the decision is well summarised in the headnote to the report.