Title:	Stapleyside Company -v- Carraig Donn Retail Limited
Neutral Citation:	[2015] IESC 60
Supreme Court Record Number:	61/2011
High Court Record Number:	2010 1548 P
Date of Delivery:	07/09/2015
Court:	Supreme Court
Composition of Court:	Clarke J., MacMenamin J., Laffoy J.
Judgment by:	Clarke J.
Status:	Approved

THE SUPREME COURT

Between/

1. Introduction
1.1 The background to these proceedings is the difficulty faced by many tenants, at the height of the financial crisis, in paying the rent due under leases where that rent had been fixed at the height of the boom. In common with many such cases an attempt was made by the parties to these proceedings to negotiate a temporary reduction in rent. The plaintiff/appellant (“Stapleyside”) is the landlord and the defendant/respondent (“Carraig Donn”) the lessee of a shop at the Crescent Shopping Centre in Limerick held under a 25 year lease which commenced in 2001. In circumstances which will need to be explained in more detail, an arrangement was entered into between the parties which provided for a reduced rent for the year 2009, but also contained a provision concerning the possible termination or surrender of the lease in question. The principal issue which arose between the parties, and which is the focus of this appeal, concerns the proper interpretation of those arrangements and in particular the termination/surrender term included in same.

1.2 As a result of the service of a document, the precise legal status of which is in dispute, Carraig Donn claimed that the relevant lease had come to an end, but in circumstances where it was entitled to bring an application before the Circuit Court for the grant of a new lease under the provisions of the Landlord and Tenant (Amendment) Act 1980 (“the 1980 Act”). On the other hand, Stapleyside maintained initially that it was entitled to an order of specific performance requiring Carraig Donn to surrender the lease in question. However, by the time the case came to be heard before the High Court, Stapleyside had abandoned that claim and simply argued that the original lease continued in existence.

1.3 Carraig Donn succeeded in the High Court. On that basis, and without prejudice to the appeal brought by Stapleyside to this Court, the Circuit Court proceeded to fix the terms of a new lease under the provisions of the 1980 Act.

1.4 In substance, Carraig Donn asserts that the High Court ruling was correct. On that basis, it is said that the original lease was terminated, that its entitlement to a new lease under the provisions of the 1980 Act thereby arose, and that now it can properly be said to hold the relevant premises on foot of the new lease and at the rent fixed by the Circuit Court.

1.5 On the other hand, Stapleyside asserts that the High Court incorrectly concluded that the lease in question had been terminated. On that basis, it is argued that it follows that the original lease continues in effect. While it is, therefore, common case between the parties that Carraig Donn is entitled to continue to occupy the relevant premises, the lease under which that entitlement arises is the subject of dispute and, importantly, the rent payable both in respect of certain periods to date and also into the future is likewise disputed. If Carraig Donn is right, the rent payable is €230,000.00 per annum on the basis of the Circuit Court order, while if Stapleyside is correct, the rent payable is the sum of €309,500.00 payable as a result of the original lease and a review of rent which had already occurred prior to the events which gave rise to these proceedings. In substance, the issue between the parties turns principally on the proper interpretation of the arrangements entered into at the time when a reduced rent for the year 2009 was agreed. In order to understand precisely how that issue arises, it is necessary to turn to the facts.

2. The Facts
2.1 On 6th February, 2002, Carraig Donn entered into a 25-year lease (“the Lease”) with Stapleyside of the relevant retail unit at the Crescent Shopping Centre. Although the Lease is dated the 6th of February, 2002, the term of the lease is stated to commence, at p. 5 thereof, on the 7th September, 2001. Under the terms of the Lease it was agreed that an annual rent of IR£120,000.00 would be paid subject to a rent review every five years for the duration of the term. On that basis, on 7th September, 2006, a rent review was conducted with the annual rent being set at €309,500.00 thereafter.

2.2 In early 2009, Carraig Donn encountered some financial difficulties and contacted Stapleyside with a view to negotiating a reduction in rent. The parties commenced negotiations. As part of those discussions, Stapleyside sent an email to Carraig Donn on 29th April, 2009, communicating an offer of “two options” for such a reduction. While there was no formal written acceptance of either of the proffered options, it is accepted by both of the parties that a letter dated 13th May, 2009, sent by Carraig Donn to Stapleyside’s parent company (“Clancourt”) enclosing a cheque for the sums due under the second option (“Option 2”) – being €207,365.00, or 67% of the full 2009 rent – can be taken as an acceptance of Option 2. The parties therefore accept that an agreement in terms of Option 2 was entered into as a result of the sums concerned being proffered and accepted on 13th May, 2009 (the “May Agreement’).

2.3 Option 2 is in the following terms:-

“Pay 67% of the full years 2009 rent + 100% of Q1 and Q2 service charge and insurances now

Pay Q3 and Q4 service charge quarterly in the normal way

Clancourt have an option to take surrender of the Unit 25X lease subject to 90 days notice and refund of rent paid in advance

Clancourt/Carraig Donn to negotiate new lease on alternative unit in event that Unit 25X lease surrendered

Review position again at 31/12/2009 if option not exercised”.

2.5 On 10th November, 2009, Stapleyside served Carraig Donn by post with a notice, described as a notice of termination, in the following terms:

“We, STAPLEYSIDE COMPANY, HEREBY GIVE YOU NOTICE that it is our intention to terminate on the 16th day of February 2010 the term granted by the Lease referred to in the Schedule hereunder in respect of premises located within the Crescent Shopping Centre, Dooradoyle, County Limerick.”

2.7 Conversely, Stapleyside contended that, on the basis of the May Agreement, and s.17(1)(a)(iii) of the 1980 Act, Carraig Donn has lost its right to a new tenancy.

2.8 As a result of the High Court decision, which, of course, upheld Carraig Donn’s position, an Order has now been made by the Circuit Court to grant a new lease under the 1980 Act with annual rent set at €230,000.00

2.9 I now turn to the High Court judgment.

3. The High Court Judgment
3.1 Ultimately, the view which McGovern J. took was that the notice served by Stapleyside on Carraig Donn which was, as has already been noted, described as a “Notice of a Termination” brought the Lease to an end in circumstances which were outside of the arrangements contemplated in the May Agreement. While it is clear that McGovern J. did not take the view that Stapleyside had any legal entitlement to bring the tenancy to an end in that way, it is also clear that he concluded that Carraig Donn had accepted that the notice had terminated the Lease and that the combination of the service of the notice and its acceptance by Carraig Donn brought the Lease to an end.

3.2 That being said, McGovern J. took the view (at para. 10 of his judgment) that “[t]he resolution of the dispute between the parties turns, to a significant extent, on an interpretation of the clause in the email of 29th April, 2009, [which contained Option 2 of the May Agreement] which states:

‘Clancourt have an option to take surrender of the Unit 25X Lease subject to 90 days notice and refund of rent paid in advance.’”

3.4 McGovern J. did not accept Stapleyside’s submission that by not “yielding up possession or surrendering the Lease, [Carraig Donn] has repudiated the agreement as set out in Option 2”, which, it was said, thereby entitled Stapleyside to recision. Ultimately, McGovern J. held that “having regard to the application of the contra proferentem rule and the use of the word ‘surrender’ in Option 2 when, what in fact happened was a demand for possession by the plaintiff on giving ninety days notice” there was no repudiatory breach of the May Agreement on the part of Carraig Donn.

3.5 McGovern J. was of the view that Stapleyside took a step which was outside the terms of the May Agreement because it did not “take surrender of the Unit . . .” but rather, served a notice of termination, which was accepted by Carraig Donn subject to its right to claim a new tenancy. On that basis, it was held that the Lease could no longer subsist. Accordingly, McGovern J. took the view that the claim by Carraig Donn for a new tenancy was a matter for the Circuit Court.

4. The Appeal
4.1 In arguing its appeal before this Court, Stapleyside suggested that the trial judge was incorrect in suggesting that the parties were agreed that the Lease had come to an end. In that context, it is necessary to look at the pleadings. When the case was originally commenced, Stapleyside sought specific performance in the following terms:-

“1. Specific performance of an Agreement made between the Plaintiff and the Defendant on 15 May 2009;

2. Damages, in addition to and/or in lieu of specific performance, pursuant to section 2 of the Chancery Amendment Act, 1858 or otherwise;

Further or in the alternative and without prejudice to paragraphs 1. and 2.:

3. An Order for possession of the premises described in the Schedule hereto”

4.2 However, in the case as ultimately argued before the High Court, Stapleyside departed from its original claim. By Amended Statement of Claim dated 27th October, 2010, on foot of an Order of the High Court dated 18th October, 2010, permitting such amendment, Stapleyside, in electing to purport to accept what was said to be the repudiation of the May Agreement by Carraig Donn, and abandoning its claim for specific performance, sought recision of the May Agreement including, as a consequence, the payment of the balance of all monies which were due on the foot of the Lease without deduction.

4.3 On that basis, it was argued by Stapleyside that the position which it ultimately urged on the High Court was one entirely consistent with the situation argued for on appeal, being that, in all the circumstances of the case, the Lease continued to subsist. In substance, the argument made was that the proper interpretation of the relevant sentence from the May Agreement was that Stapleyside could give notice calling on Carraig Donn to surrender the Lease and could, as they in fact initially sought to do, bring proceedings to require Carraig Donn to surrender the Lease in the event that Carraig Donn did not comply with the requirement to surrender. On that basis, it was said that, Carraig Donn not having in fact surrendered the Lease and Stapleyside not having proceeded with its application for specific performance, the Lease continued in existence.

4.4 It was said that the notice of termination could not be effective to terminate the Lease because there was no legal entitlement on the part of Stapleyside, as landlord, to terminate the Lease in that manner. On that basis, it was said either that the notice in question was ineffective completely or was only effective to require Carraig Donn to surrender the Lease. It was said that it followed that, for the Lease to come to an end, a further step would have been required, being an actual surrender by Carraig Donn. As that step had not been taken by Carraig Donn, and had not been directed by the Court because of the abandonment by Stapleyside of its claim for specific performance, it was said that the service of the relevant notice had not in fact terminated the Lease at all.

4.5 Counsel for Carraig Donn, on the other hand, argued that the proper interpretation of the May Agreement was that it amounted in substance to the equivalent of an agreement which provided for a break clause in the Lease. As a consequence it was said that Stapleyside was entitled, in return for having agreed to accept the payment of a reduced rent, to serve a notice of termination. On that basis, it was argued that the effect of the service of the relevant notice was to terminate the Lease with effect from the 16th February, 2010. On that argument, it was said that the Lease has now been terminated and that a new lease has properly been granted by the Circuit Court under the provisions of the 1980 Act.

4.6 As is clear from that analysis, the central issue in dispute between the parties is as to the proper interpretation of the May Agreement. I will shortly turn to a discussion of that issue, but before so doing it is necessary to touch briefly on the potential impact of the 1980 Act on that question.

5. The 1980 Act
5.1 Two provisions of the 1980 Act are relevant.

5.2 Section 17(1)(a)(iii) of the 1980 Act provides that:-

“A tenant shall not be entitled to a new tenancy under this Part if - (iii) a tenant has terminated the tenancy by notice of surrender or otherwise.”

“So much of any contract, whether made before or after the commencement of this Act, as provides that any provision of this Act shall not apply in relation to a person or that the application of any such provision shall be varied, modified or restricted in any way in relation to a person shall be void.”

5.5 In those circumstances, there was some debate at the hearing before this Court as to whether a term in a lease between a landlord and a tenant, which provided that the landlord be entitled to require the tenant to surrender, might fall foul of section 85.

5.6 Counsel for Stapleyside accepted that there might be a strong argument that the inclusion of a simple and straightforward clause in a lease which allowed the landlord to serve a notice on the lessee requiring the lessee to surrender might well be void under section 85. However, counsel argued that the facts of this case were significantly different in that, it was said, the arrangement entered into in this case was that Carraig Donn, in return for obtaining a significant benefit to which it was not otherwise entitled (being the acceptance of a significantly reduced rent for one year) thus saving it a sum in excess of €100,000, agreed to surrender the Lease if called on to do so in accordance with the terms of the May Agreement.

5.7 However, those, and possibly other, Landlord and Tenant Act issues may well not arise depending on the view which is taken as to the proper interpretation of the May Agreement in the first place. If, properly interpreted, that agreement required an actual surrender by Carraig Donn (whether completely voluntarily or as a result of an order for specific performance of a court of competent jurisdiction) then the Lease clearly could not have terminated, and no question of the application of either s.17 or s.85 would arise.

5.8 If, on the other hand, the May Agreement is to be interpreted, as counsel for Carraig Donn suggested, as entitling Stapleyside to serve a notice which would have the effect of terminating the Lease, then, for somewhat different reasons, neither s.17 nor s.85 may have had any effect, for there would be no surrender and thus no arguable exclusion by contract of the right to a new tenancy.

5.9 It follows that the first and key question which the Court was required to address was as to which interpretation of the May Agreement was correct. I turn to that question.

6. Discussion
6.1 It seems to me that the key question is the proper characterisation of the notice served by Stapleyside on Carraig Donn in the context of the May Agreement as properly construed. It must be recalled that the relevant sentence from the May Agreement provided that Clancourt (which it was accepted could be taken as a reference to Stapleyside) would “have an option to take surrender”. It seems to me to be clear, therefore, that what the agreement contemplated was that Clancourt/Stapleyside could serve a 90 day notice on Carraig Donn which would have the effect of requiring Carraig Donn to surrender the Lease. Whether such an agreement might fall foul of s.85 of the 1980 Act is not an issue which it is necessary to address just at this stage. Looked at as a matter of contract, and having regard to the terms of the agreement placed in their context, it seems to me that the meaning can only be as I have just suggested.

6.2 If I might digress, it is of some importance to emphasise that those engaged in commerce are often critical of what they might see as barriers placed in the way of doing sensible business by lawyers who are concerned with attempting to put arrangements agreed into a legally acceptable form. It must be accepted that there may be times when this can have the effect of slowing down the conduct of business. However, as this and many other cases amply demonstrate, the problem with arrangements not being adequately converted into a legally recognisable form is that significant problems can be encountered if things go wrong. In such circumstances, a court is required to do the best it can with the language used by the parties (the text) to be construed in the light of all of the circumstances in which the agreement was entered into (the context). But it is important to acknowledge that both text and context are relevant in the proper interpretation of commercial documents.

6.3 Those principles of interpretation (the “text in context” method) apply to no lesser extent in the field of property documentation. To ignore context is to ignore the well accepted fact that words used in agreements would be seen by any reasonable person having knowledge of the surrounding circumstances as being potentially affected as to their meaning by the context in which the agreement was entered into in the first place. But equally, the text must be given all appropriate weight, for it is in the terms of that text that the parties have settled on their arrangement.

6.4 In this case, the parties, for better or worse, used the term “surrender”. As the trial judge pointed out, a surrender is an act of a tenant or lessee in giving up their interest to the landlord. A landlord cannot, by a unilateral act, cause a surrender of a lease. However, the May Agreement contemplates that the landlord in this case can serve a 90 day notice which will give the landlord the option to “take a surrender”. The only workable meaning of the language used is that the intention of the parties was that the landlord (by serving the relevant notice) placed on the lessee an obligation to surrender at the end of 90 days.

6.5 In my view, therefore, the proper construction of the May Agreement is that Stapleyside was entitled to serve a notice which placed a legal obligation on Carraig Donn to surrender the Lease at the expiry of the 90 days.

6.6 In the context of that interpretation, how then should one characterise the notice served by Stapleyside? Two possibilities arise. First, it might be said that the notice is ineffective to achieve the end contemplated by the May Agreement because it purports to terminate the Lease rather than to call on Carraig Donn to surrender the Lease. Second, it is possible to say that, in the context of the May Agreement, the notice should be interpreted as invoking the entitlement of Stapleyside to require Carraig Donn to surrender. However, in my view, it is not necessary to choose between those two possible characterisations, for in either event the notice could not have brought the Lease to an end. It may be the case that the notice was entirely ineffective, in the terms of the May Agreement, because it purported to terminate when the only entitlement was to call on Carraig Donn to surrender. Alternatively, the notice may only have had the effect of creating a legal obligation on Carraig Donn, by virtue of the terms of the May Agreement, to surrender. Given that Carraig Donn did not, in fact, surrender and was not required by court order to surrender, the Lease would not, in that scenario, have come to an end either.

6.7 It only remains to consider whether, as the trial judge clearly felt, the notice, having been accepted by Carraig Donn, could give rise to a termination of the Lease altogether outside of the scope of the May Agreement. I am not persuaded that the notice could be said to have had that legal effect even if accepted by Carraig Donn. Stapleyside had no right to terminate the Lease by the simple service of a notice. Such a right did not exist under the terms of the Lease itself. Such a right did not arise under the May Agreement as properly construed. The service of such a notice could not, therefore, be legally effective to bring the Lease to an end. If it had any potential legal consequence it was only to require Carraig Donn to surrender. As Carraig Donn did not surrender and as Stapleyside abandoned any claim for specific performance of the May Agreement, thus abandoning any claim for an order which would have required Carraig Donn, in conformity with the May Agreement, to surrender, it seems to me to follow that under none of the relevant scenarios can it be said that the Lease has come to an end.

7. Conclusions
7.1 On that basis, I am satisfied that the Lease remains in existence. It follows that Carraig Donn holds the property in question under the Lease at the reviewed rent of €309,500.00 fixed in accordance with the rent review to which I have referred. It likewise follows that, the Lease not having terminated at all, there could have been no question of a valid application to the Circuit Court for a new lease under the terms of the 1980 Act.

7.2 In the light of those findings, I would propose that the Court hear counsel further as to the orders which should be made on this appeal and, indeed, on the question of costs.