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

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

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

      (4)      There is no justification for placing notices under a break clause in leases in a unique category. Making due allowance for contextual differences, such notices belong to the general class of unilateral notices served under contractual rights reserved, e.g. notices to quit, notices to determine licences and notices to complete: Delta Vale Properties Ltd. v. Mills [1990] 1 W.L.R. 445, 454E-G. To those examples may be added notices under charter parties, contracts of affreightment, and so forth. Even if such notices under contractual rights reserved contain errors they may be valid if they are "sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate": the Delta case, at p. 454E-G, per Slade L.J. and adopted by Stocker L.J. and Bingham L.J: see also Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442, 444. That test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice. I would gratefully adopt it.

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

      That brings me to the contrary reasoning of the Court of Appeal in this case, and the submission of counsel for the landlord. Central to both was the proposition that Hankey v. Clavering [1942] 2 K.B. 326 precluded such a conclusion. Given the importance ascribed to this decision I must embark on what Justice Cardozo once described as a gruesome autopsy. In Hankey v. Clavering there was a lease for a term of 21 years from 25 December 1934. The lease provided, inter alia, that if either party should desire to determine the lease after seven or fourteen years he could do so by giving to the other party six months' notice. The landlord gave notice to the tenant as from June 1941, which purported to terminate the lease on 21 December 1941. On 8 March 1940 the landlord's solicitors acknowledged the notice as "properly served upon us". The tenant refused to give up possession of the premises. The landlord brought an action for possession. Mr. Denning, K.C., submitted that the landlord attempted to terminate the tenancy on 21 December whereas he was only entitled to terminate it on 25 December. In these circumstance, he said, that the defect could not be cured by showing that the other party understood what was meant. Mr. Blanco White, K.C., argued that if a notice can be understood by a reasonable person it is a good notice. The judge decided in favour of the landlord on the effect of the correspondence. The matter came before a two judge Court of Appeal. It was disposed of by ex tempore judgments. Lord Greene M.R. gave the principal judgment; Lord Clauson added nothing of substance. The Court of Appeal ruled that the judge had misinterpreted the correspondence. Turning to the construction of the notice, Lord Greene M.R. said (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 documents 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 21 December 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."

Lord Greene M.R. said that his ruling was based on Cadby v. Martinez, 11 Ad. & El. 720, which he described of as "a case of the highest authority in these matters". Lord Denman C.J. said in that case (at p. 726) 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".

      It goes without saying that any judgment of Lord Greene M.R. is entitled to great respect. But one must put the case in context. First, in relying on Cadby v. Martinex Lord Greene was founding his proposition on a case which with the benefit of hindsight seems far from conclusive on the point. Lord Denman C.J.'s judgment contains no reasoning at all; it is purely conclusionary. A century and a half later it is sometimes necessary to consider the force of reasoning in decided cases. Cadby v. Martinez does not enable one to do so. In any event, Lord Denman's conclusion is in such absolute terms as to be of little value. It is not supported in this case by the judgment in the Court of Appeal or by the submissions of counsel for the landlord: it is conceded that some errors in a notice can be ignored. The real question is: What errors can be overlooked? Taking due account of what Lord Greene thought of Cadby v. Martinex in 1942, I incline to the view that the persuasive force of this precedent must be regarded as slight. Secondly, it is noteworthy that Lord Greene does not expressly pose an objective test. He dismisses the reaction of the recipient ("however much the recipient might guess"). The law has moved on. The test is entirely objective. Thirdly, Lord Greene did not expressly deal with the position where the notice contains an error which proves wholly immaterial and incapable of causing any confusion. The second and third matters detract from the force of reasoning in Hankey v. Clavering. Lord Greene was not considering the issues as they have to be faced in this case. But there is a fourth point to be taken into account. Hankey v. Clavering was decided more than half a century ago. Since then there has been a shift from strict construction of commercial instruments to what is sometimes called purposive construction of such documents. Lord Diplock deprecated the use of that phrase in regard to the construction of private contracts as opposed to the construction of statutes: Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201D. That is understandable. There are obvious differences between the processes of interpretation in regard to private contracts and public statutes. For a perceptive exploration of the differences in the context of United States law, see Robert S. Summers, "Statutes and Contracts as Founts of Formal Reasoning", in Essays for Patrick Atiyah, edited by Peter Cane and Jane Stapleton (1991) 71 et seq. It is better to speak of a shift towards commercial interpretation. About the fact of the change in approach to construction there is no doubt. One illustration will be sufficient. In Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201D, Lord Diplock in a speech concurred in by his fellow Law Lords observed that

     ". . . if a detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense".

      In determining the meaning of the language of a commercial contract, and unilateral contractual notices, the law therefore generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language. In contradistinction to this modern approach Lord Greene's judgment in Hankey v. Clavering is rigid and formalistic. Nowadays one expects a notice to determine under a commercial lease to be interpreted not as a "technical document" but in accordance with business common sense: see Micrografix v. Woking 8 Ltd. [1995] 2 E.G.L.R. 32. After all, there is no reason whatever why such a document must be drafted by a lawyer. Qualitatively, the notices are of the same type as notices under charter parties and contracts of affreightment. Such notices, even if they entail the exercise of important options, are habitually drafted by commercial men rather than lawyers. It would be a disservice to commercial practice to classify such notices as technical documents and to require them to be interpreted as such. Nowadays one must substitute for the rigid rule in Hankey v. Clavering the standard of a commercial construction.

      It is, however, also important to note that the decision in Hankey v. Clavering caused surprise even in 1942. There was a case note on Hankey v. Clavering bearing the initials R.E.M: (1943) 59 L.Q.R. 17. The author of the note was a great authority on the field of landlord and tenant. He later became Sir Robert Megarry, Vice Chancellor of the Chancery Division. He was clearly surprised at the decision. He drew attention to Lord Greene M.R.'s decision in Price v. Mann [1942] 1 All E.R. 453. In that case the question was whether under the Landlord and Tenant (War Damage) Act 1939 a notice to avoid disclaimer given by the landlord, requiring the tenant to retain the lease on the terms set out in section 10, was invalid because section 10 was irrelevant and by mistake inserted for section 11. The Court of Appeal held that the notice was good. Lord Greene M.R. said (at p. 454):

     ". . . Reading this document as a whole, it seems to me perfectly manifest that a person who received it, and who had that familiarity with the provisions of the Act which a recipient of such a document must be presumed to have, could not possibly be under any illusion as to what it was intended to be and what its legal consequences were."

Mr. Megarry observed, at p. 18:

      "But for the line of authority governing notices to quit, it would have occasioned little surprise to some had the words used by the Master of the Rolls in the two cases been interchanged. Read literally, both notices purported to do something which they could not do, yet read as a whole, neither was at all likely to mislead the recipient. . . . The distinction may be that in Price v. Mann the reference to the precise section of the Act was unnecessary whereas in Hankey v. Clavering the insertion of the date was essential to the validity of a notice cast in the form employed. If this is not the case, perhaps all that can be said is that in Price v. Mann each member of the Court of Appeal could use the words of MacKinnon, L.J., and say to himself 'The law as it stands does permit me to give effect to common-sense and decency' (Heap v. Ind Coope & Allsopp, Ltd. [1940] K.B. 476, 484), whereas in Hankey v. Clavering the hand of stare decisis was writ large."

Lord Greene's observation in Price v. Mann is much closer to the modern standard of commercial construction than Hankey v. Clavering.

      Counsel for the tenant invited the House in his case and in his reply to say that Hankey v. Clavering was wrongly decided. I am content to say that it no longer represents the law. Like Lord Hoffmann I would hold that the correct test for the validity of a notice is that posed by Goulding J. in Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442, 444, viz. "Is the notice quite clear to a reasonable tenant reading it? Is it plain that he cannot be misled by it?"

      It is necessary to turn briefly to other arguments advanced by counsel for the landlord. He argued that the tenant's construction argument must fail because the tenant's error may have been due to a mistaken legal view. He said that it may not have been a case of a mistaken insertion of a date but the tenant may have intended to refer to the 12th. This reveals a contradiction in the landlord's argument. Counsel for the landlord accepted that the test is an objective one: How would a reasonable recipient have understood the notice? But then he invited your Lordships to speculate that the tenant's error was due to a mistake of law rather than a typing or clerical error. That argument, if accepted, would drive a juggernaut through the objective test. Speculation about the subjective intention of the tenant is irrelevant. The only question is how a reasonable recipient would have understood the notice.

      Counsel also argued that as a matter of legal logic a process of interpretation can never permit one to substitute 13 January for 12 January. Why should that be so? If a contract contains a termination date linked to an intended three year period, which is variously expressed in the contract as 12 January and 13 January, why should the court not as a matter of interpretation be able to select the date which best matches the contractual intent? The same reasoning must apply to unilateral documents such as contractual notices. It is surely permissible in all cases satisfying the test that no reasonable recipient of the notice could be misled. Counsel's argument is based on too formalistic a formulation of the question to be decided. The question is not whether 12 January can mean 13 January: it self-evidently cannot. The real question is a different one: Does the notice construed against its contextual setting unambiguously inform a reasonable recipient how and when the notice is to operate under the right reserved? As Lord Hoffmann has observed we no longer confuse the meaning of words with the question of what meaning in a particular setting the use of words was intended to convey.

      That brings me to counsel's argument that, if the notices are treated as valid, there will be great deal of confusion and unnecessary litigation. Experience teaches that 'floodgates' arguments need to be examined with an initial scepticism. In this case the predictions of counsel are unrealistic. Those arguments must be judged on the basis that the test posed above is accepted. That test can only be satisfied where the reasonable recipient could be left in no doubt whatever. It is in accord with business common sense that in cases where that simple and straightforward test is satisfied the notices should be treated as valid.

      That brings me to my conclusion. I do not accept the extreme argument of counsel for the tenant that whenever a notice to determine refers to a break clause, and whatever the other circumstances of the case, the notice must be valid. That goes too far. One can easily conceive of much weaker cases where the test posed above could not be satisfied. But in the present case it would have been obvious to a reasonable recipient that the notices contained a minor misdescription and that the notices conveyed that the tenant sought to determine the leases on "on third anniversary of the term commencement", i.e. 13 January. I end this judgment with the words with which in 1903 Sir Leslie Stephen concluded a famous series of lectures: "I hope I have not said anything original".

      It follows that I would allow the appeal.


My Lords,

      The appellant was tenant under two 10-year leases of offices in Jermyn Street, each of which contained in clause 7(13) a right to terminate at the end of the third year in the following terms:

     "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 the expiry of such notice this Lease shall cease and determine and have no further effect. . ."

      After the grant of the leases the market rents of offices in the West End fell sharply. On 24 June 1994 the tenant served on the landlord two notices, each of which read as follows: "Pursuant to Clause 7(13) of the Lease we as Tenant hereby give notice to you to determine the lease on 12 January 1995." It is agreed that the third anniversary of the commencement date was actually 13 January 1995. The question is whether notwithstanding this mistake the notices were effective to terminate the leases.

      This might seem a straightforward question, particularly when it is remembered that such notices, operating, as they do, unilaterally to alter the rights of the parties, must comply strictly with the terms of the lease. The Court of Appeal held that the notice was ineffective on the simple ground that "12 January" could not mean "13 January." In so doing, they followed (as in my view they were bound to do) the decision of the Court of Appeal in Hankey v. Clavering [1942] 2 K.B. 326 which in turn had followed the decision of the Court of Queen's Bench in Cadby v. Martinez (1840) 11 Ad. & El. 720. In that case, the notice said Midsummer instead of Lady Day. It seemed obvious to Lord Denman C.J. that there was no way in which it could be construed to refer to Lady Day and he merely observed, at p. 726, that "in [no case] has a proviso or covenant in a deed been held to be satisfied by a notice inconsistent with the terms of it."

      And yet, my Lords, the case is by no means straightforward. The clause does not require the tenant to use any particular form of words. He must use words which unambiguously convey a particular meaning, namely an intention to terminate the lease on 13 January. In Hankey v.Clavering [1942] 2 K.B. 326, where the notice to quit said "21 December" instead of "25 December", Lord Greene M.R. said, at pp. 328, 330, ". . . the whole thing was obviously a slip" on the part of the landlord but that the notice was invalid "however much the recipient might guess, or however certain he might be" that it was a mere slip. So even if the recipient was certain that the landlord actually wanted to terminate his tenancy on the right date, which was 25 December, so that the necessary intention was unambiguously communicated, the notice was bad. One is bound to be left with a feeling that something has gone wrong here. Common sense cannot produce such a result; it must be the result of some rule of law. If so, what is that rule and is it correct?

      I propose to begin by examining the way we interpret utterances in everyday life. It is a matter of constant experience that people can convey their meaning unambiguously although they have used the wrong words. We start with an assumption that people will use words and grammar in a conventional way but quite often it becomes obvious that, for one reason or another, they are not doing so and we adjust our interpretation of what they are saying accordingly. We do so in order to make sense of their utterance: so that the different parts of the sentence fit together in a coherent way and also to enable the sentence to fit the background of facts which plays an indispensable part in the way we interpret what anyone is saying. No one, for example, has any difficulty in understanding Mrs. Malaprop. When she says "She is as obstinate as an allegory on the banks of the Nile", we reject the conventional or literal meaning of allegory as making nonsense of the sentence and substitute "alligator" by using our background knowledge of the things likely to be found on the banks of the Nile and choosing one which sounds rather like "allegory".

      Mrs. Malaprop's problem was an imperfect understanding of the conventional meanings of English words. But the reason for the mistake does not really matter. We use the same process of adjustment when people have made mistakes about names or descriptions or days or times because they have forgotten or become mixed up. If one meets an acquaintance and he says "And how is Mary?" it may be obvious that he is referring to one's wife, even if she is in fact called Jane. One may even, to avoid embarrassment, answer "Very well, thank you" without drawing attention to his mistake. The message has been unambiguously received and understood.

      If one applies that kind of interpretation to the notice in this case, there will also be no ambiguity. The reasonable recipient will see that in purporting to terminate pursuant to clause 7(13) but naming 12 January 1995 as the day upon which he will do so, the tenant has made a mistake. He will reject as too improbable the possibility that the tenant meant that unless he could terminate on 12 January, he did not want to terminate at all. He will therefore understand the notice to mean that the tenant wants to terminate on the date on which, in accordance with clause 7(13), he may do so, i.e. 13 January.

      Why, then, do cases like Hankey v. Clavering [1942] 2 K.B. 326 arrive at a different answer? I want first to deal with two explanations which seem to me obviously inadequate. First, it is sometimes said that the examples which I have given from ordinary life are concerned with what the speaker meant to say. He may subjectively have intended to say something different from what he actually said and it may be possible, by the kind of reasoning which I have described, to divine what his subjective intentions were. But the law is not concerned with subjective intentions. All that matters is the objective meaning of the words which he has used.

      It is of course true that the law is not concerned with the speaker's subjective intentions. But the notion that the law's concern is therefore with the "meaning of his words" conceals an important ambiguity. The ambiguity lies in a failure to distinguish between the meanings of words and the question of what would be understood as the meaning of a person who uses words. The meaning of words, as they would appear in a dictionary, and the effect of their syntactical arrangement, as it would appear in a grammar, is part of the material which we use to understand a speaker's utterance. But it is only a part; another part is our knowledge of the background against which the utterance was made. It is that background which enables us, not only to choose the intended meaning when a word has more than one dictionary meaning but also, in the ways I have explained, to understand a speaker's meaning, often without ambiguity, when he has used the wrong words.

      When, therefore, lawyers say that they are concerned, not with subjective meaning but with the meaning of the language which the speaker has used, what they mean is that they are concerned with what he would objectively have been understood to mean. This involves examining not only the words and the grammar but the background as well. So, for example, in Doe d.Cox v. Roe (1803) 4 Esp. 185 the landlord of a public house in Limehouse gave notice to quit "the premises which you hold of me. . . commonly called . . . the Waterman's Arms." The evidence showed that the tenant held no premises called the Waterman's Arms; indeed, there were no such premises in the parish of Limehouse. But the tenant did hold premises of the landlord called the Bricklayer's Arms. By reference to the background, the notice was construed as referring to the Bricklayer's Arms. The meaning was objectively clear to a reasonable recipient, even though the landlord had used the wrong name. We therefore will in due course have to answer the question: if, as long ago as 1803, the background could be used to show that a person who speaks of the Waterman's Arms means the Bricklayer's Arms, why can it not show that a person who speaks of 12 January means 13 January?

      The immediate point, however, is that the fact that the law does not have regard to subjective meaning is no explanation of the way Hankey v. Clavering [1942] 2 K.B. 326 was decided. There was no need to resort to subjective meaning: the notice would objectively have been understood to mean that the landlord wanted to terminate the tenancy on the day on which he was entitled to do so.