S41 Ickendel Ltd -v- Bewley's Café Grafton Street Ltd [2014] IESC 41 (01 July 2014)


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Supreme Court of Ireland Decisions
You are here: BAILII >> Databases >> Supreme Court of Ireland Decisions >> Ickendel Ltd -v- Bewley's Café Grafton Street Ltd [2014] IESC 41 (01 July 2014)
URL: http://www.bailii.org/ie/cases/IESC/2014/S41.html
Cite as: [2014] IESC 41

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Judgment Title: Ickendel Limited -v- Bewley's Café Grafton Street Limited

Neutral Citation: [2014] IESC 41

Supreme Court Record Number: 260/13

High Court Record Number: 2012 694 SP

Date of Delivery: 01/07/2014

Court: Supreme Court

Composition of Court: Denham C.J., Murray J., O'Donnell J., Clarke J., Laffoy J.

Judgment by: Laffoy J.

Status of Judgment: Approved




THE SUPREME COURT


[Appeal No. 2013/260]

Denham C.J.

Murray J.

O’Donnell J.

Clarke J.

Laffoy J.


IN THE MATTER OF A LEASE DATED 22nd SEPTEMBER 1987 MADE BETWEEN ROYAL INSURANCE PUBLIC LIMITED COMPANY OF THE FIRST PART BEWLEY’S CAFES LIMITED OF THE SECOND PART AND CAMPBELL CATERING LIMITED OF THE THIRD PART


AND IN THE MATTER OF AN ACTION

BETWEEN


ICKENDEL LIMITED


APPLICANT/APPELLANT


AND


BEWLEY’S CAFÉ GRAFTON STREET LIMITED


RESPONDENT

Judgment of Ms. Justice Laffoy delivered on 1st day of July, 2014


Background to appeal
1. The High Court proceedings from which this appeal is taken were initiated by way of special summons in which the appellant sought the construction by the Court of a phrase in a commercial lease dated 22nd September, 1987 (the Lease) made between Royal Insurance Public Limited Company, as landlord, of the first part, Bewley’s Cafes Limited, as tenant, of the second part, and Campbell Catering Limited, as guarantor, of the third part. When the proceedings were initiated in the High Court, the landlord’s interest had become vested in the plaintiff, which is the appellant on this appeal, and which will be referred to as “the Landlord”. The tenant interest had remained vested in the original tenant, although it had changed its corporate name. The tenant was the respondent in the High Court and is the respondent on this appeal and will be referred to as “the Tenant”. The guarantee provisions had expired by effluxion of time. Before outlining the relevant provisions of the Lease, it is appropriate to emphasise that the issue of construction which has arisen between the Landlord and the Tenant is not an issue of general application to rent review clauses. Rather it is concerned only with the proper interpretation of a specific clause in the Lease in the specific context in which it is used.

2. The Lease created a demise of the premises commonly known as Bewley’s Café situated in Grafton Street in Dublin. In fact, the demised premises were described in the Lease as “the shop known as Nos. 78 and 79 Grafton Street, and 2, 3 and 4 Johnson Court in the City of Dublin”. The premises were demised to the Tenant for the term of 35 years from 6th August, 1987.

3. The phrase in the Lease which the High Court was asked to construe is to be found in Clause 2, which contains the actual demise and the reddendum in which the rent reserved by the Lease for the full term is set out. A factor which renders the construction of the reddendum and, indeed, the other provisions of the Lease in relation to rent more complicated than is usually the case is that the Lease makes separate provision for the payment of two reserved rents, which combined constitute the yearly rent payable by the Tenant to the Landlord, so that the yearly rent has two distinct components. To put the phrase sought to be construed into perspective it is necessary to consider the key elements of the reddendum, which are in the following terms:

      “YIELDING AND PAYING therefor . . . during each of the years of the term up to [and] including . . . [31st December 1991] . . . FIRST the clear YEARLY RENT of . . . [IR£168,000] and thereafter during each of the successive periods of five years of which the first shall begin on [1st January 1992] a rent (hereinafter called “the first revised rent”) equal to the greater of (a) the rent payable hereunder during the preceding period or (b) such revised rent as may from time to time be ascertained in accordance with the provisions in that behalf contained in Clause 6 hereof (whichever shall be the greater) . . . SECONDLY during each of the years of the term up to and including . . . [31st December 1991] . . . the clear yearly rent of . . . [IR£15,000] and thereafter during each of the successive periods of five years of which the first shall begin on [1st January, 1992] a rent (hereinafter called “the second revised rent”) equal to the greater of (a) the rent payable hereunder during the preceding period, or, (b) such revised rent as may from time to time be ascertained in accordance with the provisions in that behalf contained in clause 7 hereof . . .”
In the passage omitted in the foregoing quotation before the word “SECONDLY”, the manner of payment - “by Bankers Order (if the Landlord so requires)” - and, more significantly for present purposes, the timing of payment - “in advance by equal quarterly payments on the usual Quarter Days” (namely, 25th March, 24th June, 29th September and 25th December in each year) - of the yearly rent are set out. Those requirements are reiterated in the passage immediately following the quotation in relation to the second component of the rent.

4. In general terms, the reddendum provides that there are two components in the yearly rent payable throughout the term. Further, each component varies over the term in that, as regards each component, the yearly rent payable initially from the commencement of the term up to 31st December, 1991 is stated in monetary terms and on 1st January, 1992 and at five yearly intervals thereafter each component of the rent is to be revised, giving rise to the “first revised rent” and the “second revised rent”, which together make up the rent payable in the relevant year. The phrases “first revised rent” and “second revised rent” are used in a different sense later in the Lease, resulting in a drafting conflict, which will be addressed later. It is to be observed that the ordinal numbers, first and second, and the adverbs, first and secondly, as used in the reddendum, refer to one or other of the components of the yearly rent and have no chronological significance.

5. The phrase in the passage from Clause 2 quoted above which the Landlord sought to have the High Court construe is the phrase “the rent payable hereunder during the preceding period”, which appears twice in the quotation, first in relation to “the first revised rent” and, secondly, in relation to the “second revised rent” following (a). That will be referred to later as the (a) factor, as distinct from the (b) factor following (b) at both locations in the quotation, of the “equal to the greater of” formula in the quotation. The purpose of the phrase is obviously the same in relation to each component and it clearly has the same meaning in relation to each.

6. The construction of the phrase in issue which the Landlord advocated in the High Court as its proper construction is reflected in the relief sought by the Landlord on the special summons. The Landlord sought -

        (i) a declaration that on proper interpretation of the Lease the phrases “the rent payable hereunder during the preceding period” as appearing in Clause 2 thereof relate to the rent payable during the five year period immediately preceding the review under consideration, and

        (ii) a declaration that on the proper interpretation of the Lease the phrases “the rent payable hereunder during the preceding period” as appearing in Clause 2 thereof do not for the purposes of a rent review on 1st January, 2012 mean the initial rents payable under the Lease in respect of the period 6th August, 1987 to 31st December, 1991.

In other words, the Landlord was seeking that the Court declare that its contention that, on the review of the rent for the five years of the term commencing on 1st January, 2012, the rent payable is to be equal to the greater of:
        (a) the rent payable for the period from 1st January, 2007 to 31st December, 2011, or

        (b) the revised rent for the five years from 1st January, 2012 ascertained in accordance with the relevant provisions identified in the reddendum,

is correct, and, further, that the Court should reject the construction advanced by the Tenant before the proceedings were initiated, namely, that the rent payable from 1st January, 2012 was equal to the greater of:
        (a) the rent payable initially under the Lease for the period from the commencement of the term up to and including 31st December, 1991, or

        (b) the revised rent payable from 1st January, 2012 ascertained in accordance with the relevant provisions identified in the reddendum.

7. Following delivery of judgment in the High Court on 25th March, 2013 ([2013] IEHC 293) by Charleton J., by order of the High Court made on 12th April, 2013, the reliefs sought by the Landlord were refused. In other words, the Court refused to make a declaration giving effect to the Landlord’s contended for construction and refused to make a declaration that the construction advanced by the Tenant was not the correct construction. The Landlord has appealed against that decision.

8. The significance of the decision of the High Court is reflected in the following facts:

        (a) as is disclosed on the face of the Lease, the yearly rent payable by the Tenant for the period from the commencement of the term up to and including 31st December, 1991, was €232,410 (the Euro equivalent of the original rent of IR£183,000);

        (b) the yearly rent payable by the Tenant for the period from 1st January, 2007 to 31st December, 2011 following a review conducted in accordance with the provisions of the Lease was €1,463,964, which fact was proved by the affidavit evidence before the High Court; and

        (c) both parties have disclosed to this Court on the appeal that, following the order of the High Court, an arbitration was conducted to ascertain the rent payable on the most recent review date, 1st January, 2012, in accordance with the provisions of the Lease and the award made by the arbitrator resulted in a revised yearly rent in the amount of €728,187.50, which, as counsel for the Tenant pointed out, represents a reduction of 50.3% on the rent payable in respect of the preceding five years of the term.

Accordingly, if the Landlord’s construction is correct, then the yearly rent payable from 1st January, 2012 will be €1,463,964, whereas, if the Tenant’s construction is correct, it will be €728,187.50.

Judgment of the High Court

9. There is consensus that the relevant principles of law outlined in the judgment of the High Court are the principles applicable in the exercise of the Court’s function in construing the Lease. The trial judge stated (at para. 2.0):

      “There is no dispute as to the proper approach to how a lease should be construed. The law can therefore be set out briefly. Meaning is to be gleaned from the plain words of an agreement; where there is no doubt as to the meaning of a clause, then it should be given that meaning; what a section of a document means is to be seen in the context of the entire agreement set against the background of the factual matrix that generated it; where there is no ambiguity then it is unnecessary to consider the need to confer business efficacy on the agreement; but where the words used may reasonably bear more than one meaning then consideration as to how the agreement is to sensibly operate may allow one construction over another.”
As authority for the foregoing propositions, the trial judge cited a number of authorities, for example, the decision of the Supreme Court in Analog Devices BV v. Zurich Insurance Company [2005] 1 IR 274 and the decision of the High Court (Barron J.) in Erin Executors and Trustee Co Ltd v. Farmer [1987] IEHC 18, which is authority for the proposition that a rent review clause in a lease is not to be construed any way differently from any other commercial document or clause in such a document.

10. Counsel for the Landlord attached some significance to the fact that the trial judge also expressed agreement with, recognising that he was bound by, the decision of the Supreme Court in Marlan Homes Limited v. Walsh [2012] IESC 23. In fact, in his judgment the trial judge quoted, inter alia, paragraphs 48 to 52 of the judgment delivered by McKechnie J. in the Supreme Court in that case. In paragraphs 51 and 52, McKechnie J. stated as follows:

      “51. It is important however to note that where the parties have committed their responsibilities to written form, in a particular manner, it must be assumed that they have intended to give effect to their obligations in that way. Such must be recognised as their right, both commercially and under contract law. Accordingly it is important that, when faced with a construction issue, a court should focus its mind on the language adopted by the parties being that which they have chosen to best reflect their intentions. It is not for the court, either by means of giving business or commercial efficacy or otherwise, to import into such arrangement a meaning, that might also be available from an understanding of the more general context in which the document came to exist, but is one not deducible by the use of the interpretive rules as mentioned.

      52. The boundary between what is permissible and not in this context is captured by the following quotation from Charter Reinsurance Co. Ltd. v. Fagan [1997] AC 313 where at p. 388 Lord Mustill stated:-


        ‘There comes a point at which the court should remind itself that the task is to discover what the parties meant from what they have said, and that to force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made. This is an illegitimate role for a court. Particularly in the field of commerce, where the parties need to know what they must do and what they can insist on not doing, it is essential for them to be confident that they can rely on the court to enforce their contract according to its terms.’

      I would respectfully agree with this passage.”
11. The Landlord’s position is that the trial judge departed from the well-established tenet of contractual interpretation, namely, that the existence of an ambiguity should not be lightly inferred or perceived by the Court. In fact, the nub of the Landlord’s case on the appeal was that the trial judge slipped into error in finding that there was a supposed ambiguity in the Lease and in moving on from so finding to finding in favour of the construction advanced by the Tenant over that advanced by the Landlord.

12. Having quoted Clause 2 of the Lease, and also having quoted from or referred to other clauses, namely, Clause 6, Clause 7 and part of Clause 3, the content of which will be outlined later, the trial judge went on to consider the meaning of the phrase in issue, focusing on the meaning of “preceding”. He stated in paragraph 4.0 that there is no need to look at dictionaries to construe what the word “preceding” means, that it means what ordinary speech takes it to mean - “that which goes before and often it means what goes immediately before”. He then continued:

      “Where ‘preceding’ is to be unambiguously used to mean an event that was proximately before, a qualification should be put on the use of the word to ensure that there is no misunderstanding. That is not what has happened here. Were the lease, in fixing the rent review, to contemplate that the point of comparison for each rent review were not the preceding rent fixed, the word ‘original rent’ could have been used in order to fix that meaning. That did not happen either. Many leases contain an express clause making it clear that on review of rent, the sum payable is never to drop. Various forms of wording are used in that regard but what characterises each such approach is the lack of ambiguity in a choice of wording that literally locks a tenant into an upward spiral on each rent review. Such a clause, one that in effect copper fastens a meaning, because the parties actually thought about what might happen if deflation were a real possibility, does not appear in this lease. Consequently, it emerges that there is a case to be made for the interpretation of either side.”
13. Counsel for the Landlord complained that the trial judge did not, as it was submitted he should have done, consider the dictionary definitions of the adjective “preceding” which were proffered in the High Court, which included the definition in The Oxford English Dictionary 2nd Ed. (1989), Vol. XII (OED), which was partly quoted in the Landlord’s written submissions, with emphasis added. The part of the definition as quoted, including the emphasis added by the Landlord, is as follows:
      “That precedes

        (a) in order or arrangement: Coming or placed before something else; esp. coming immediately before; given, stated, or mentioned just before; foregoing.

        (b) in time: Existing, occurring or going on before something else; previous, prior, past, anterior, former, antecedent; esp. occurring just before, immediately anterior, ‘last’ . . .”.

Counsel for the Landlord submitted that consideration of the dictionary definitions would have assisted the High Court in avoiding the notion that “preceding” cannot successfully function as a standalone term.

14. An argument made in the High Court in support of the Landlord’s interpretation of the phrase in issue which is addressed in the judgment centers on Clause 6.4 of the Lease. The trial judge was not persuaded by the Landlord’s argument and reached the following conclusions (at para. 4.1):

      “In providing that ‘a rent . . .’, is to be paid on a rent review, that sum is specified as being required to be ‘equal to the greater of (A) the rent payable under during the preceding period or (B) such revised rent as may from time to time be ascertained in accordance with the provisions in that behalf contained in clause 6 hereof (whichever shall be the greater)’, what is made clear is that the rent when revised can never drop below the rent payable for ‘the preceding period’. That period is, in fact, the first rent reserved by the lease. Further, it is made abundantly clear that on revision the setting of the rent to be paid is, in accordance with clause 6.2, ‘the full open market yearly rent for the [a]nterior building let as a whole without fine or premium ... on the basis of a letting with vacant possession thereof to a willing lessee for a term equal to that granted by the within written Lease and subject to the provisions therein set forth’, with the exclusion expressly of the rent that was initially fixed and, further, any reference to what rent is then currently being paid. It is also markedly part of subsequent reviews that these refer back, under clause 7.1 to ‘the first revised rent’. This allows for complete freedom as to rent with the exception that a base line is fixed by the initial rent that cannot be a term of the new lease and which cannot under the terms of the lease be undermined through a lesser sum for rent being fixed.”
It was submitted on behalf of the Landlord that there is nothing about the phrase “the preceding period” that restricts its application to the period from 6th August, 1987 to 31st December, 1991, as was found by the trial judge in the second sentence in that passage. On the contrary, it was submitted that the word “preceding” as a straightforward matter of language or expression necessarily directs the analysis to the particular rent period immediately before that for which the rent has to be ascertained. In general, for the reasons which will be outlined later, I am satisfied that the Landlord’s submission is correct. Apart from that, as will be outlined later, the conclusions of the trial judge in that passage are based on a misconception of the meaning and effect of Clause 6 and Clause 7 and their interaction with the reddendum.

15. In the immediately succeeding passage of his judgment, the trial judge addressed what he considered was a more fundamental proposition, namely that “a market rent is what is prescribed as the outcome of the rent reviews”. On the basis of that proposition he rejected the construction advanced on behalf of the Landlord, stating that he could not see it “as sustainable in the context of the lease fixing a market rent on each revision”. He continued:

      “By requiring a market rent on revision of the rent payable, a tension is set up between that clause and any other clause which is argued to require that the market is not to be allowed to prevail. Such a conflict may operate to make contending provisions less than clear as to the overall effect. By choosing a market rent as the end result of any revision, however, a definite and well defined legal result is declared as the agreement of the landlord and the tenant. The parties bargained so as to agree never to allow the rent on revision to fall below the initially agreed rent and I cannot see that they bargained thereafter for anything other than a fair open market rent. That can rise and that can fall.”
The conclusion that the parties chose a “market rent” as the end result of any review is based on a misunderstanding of the application of Clause 6 of the Lease, the provisions of which will be considered in detail later, and, in particular, of the relevance of the determination which the arbitrator has to make under Clause 6.2.

16. In paragraph 4.2 of his judgment the trial judge made it clear that he considered that there is ambiguity in the Lease because of the absence of a clause which would take it “outside the ambit of ambiguity”. He continued:

      “It is apparent that the rent reserved was never to fall below that agreed on the signing of the lease. By making that provision, a base line for return of rent to the landlord was set. Were the parties to have agreed an ever increasing rent upon review, many clauses in various plain wordings were available to give effect to such a purpose. Any such clause is absent. Crucial to my decision is that an open market rent of the premises is what is contemplated by the clear wording of the lease on each rent review. That is the central clause in the lease that is relevant to a rent review as that is what the rent review must achieve.”
It was submitted on behalf of the Landlord that the reasoning in the last two sentences of that quotation is entirely flawed. Counsel for the Landlord also took issue with the next passage in the judgment in which it was suggested that the Landlord argued “towards ever increasing sums in rent every five years whilst deflation has decreased the appropriate return”. Counsel for the Landlord made it clear that it has never been the Landlord’s position that the rent should increase every five years. Rather its position is that, on a review, if it is found that the market rent would be higher than the existing rent, then (and only then) should there be an increase. However, on the basis of his understanding of the Landlord’s position as set out in paragraph 4.2, the trial judge characterised the Landlord’s position as seeking “to substitute an unreal figure for the rent of these premises in place of what the lease provides expressly for; which is ‘the full open market yearly rent . . .’”.

17. Following on from the foregoing observations, in paragraph 4.2, the trial judge continued:

      “That being so, the rent review clause can only reasonably be construed so as to allow for a fall in rent on each review; . . .; but that the rent can never fall below the rent preceding the first rent review, namely the rent reserved in 1987.”
What is stated in that passage I understand to be the trial judge’s resolution of the ambiguity which he considered was in the Lease, by accepting the construction advanced by the Tenant.

18. An alternative resolution of the perceived ambiguity was then suggested by the trial judge when he stated (at para. 4.4):

      “Alternatively, the ambiguity in the clause requires a commercial construction. It is not in accordance with business sense that a rent appropriate to five years previously should govern a hospitality market markedly changed for the worse. Had rents increased those increases would represent the open market rent and it is also the case that where rents fall an open market review of what a willing lessee would pay demonstrates that the rent is less.”
Counsel for the Landlord submitted that in a number of respects that proposition does not set forth any sound basis for the decision reached by the trial judge. It was suggested that the approach was at variance with the approach adumbrated in the passages from the judgment of McKechnie J. in Marlan Homes v. Walsh quoted earlier. Further, it was submitted that there was no evidential basis for categorising upwards only rent review clauses as not being “in accordance with business sense”. Finally, it was suggested that the trial judge appeared to have been influenced by current economic conditions existing twenty five years after the terms of the Lease were agreed, which, it was submitted, is an entirely impermissible approach to the interpretation of a contractual document, citing the decision of the Supreme Court in Lillington Ltd. v. Doyles Stores (Glenageary) Ltd. (the Supreme Court, Unreported, 3rd April, 1995), in which it was held that an instrument, such as the commercial lease, is to be construed so as to give effect to the intention of the parties and that the relevant time to ascertain the intention of the parties is at the date of the instrument.

19. On the appeal, it was acknowledged on behalf of the Tenant that economic hardship and current conditions cannot aid the construction of the Lease. Further, counsel for the Tenant recognised, properly in my view, that, if there is no ambiguity in the Lease, no question arises of a commercial construction. However, the Tenant’s position was that the trial judge was correct in concluding that there is an ambiguity in the Lease. The Tenant’s argument that such ambiguity exists is that, absent the word “immediately” before the phrase “preceding period” in the reddendum, that phrase is open to more than one meaning. Therefore, the Tenant’s position was that the trial judge was justified in giving the relevant provisions of the Lease a commercially sensible construction.

20. In order to determine whether there is an ambiguity in the Lease, it is necessary to consider the clauses of the Lease which were addressed by the parties in their submissions in some detail.

The relevant provisions of the Lease
21. While the phrase which the Court has been asked to construe is to be found in the reddendum, that phrase must be construed in the context of the Lease as a whole. Moreover, the other provisions of the Lease to which the parties have referred, which mainly govern the machinery for revision of the rent, must be read in the context of the reddendum, which lays down what the rent is to be over the full term and which, accordingly, is the source of the necessity for the rent review provisions.

The reddendum
22. In interpreting the terms of the reddendum, as quoted earlier, on their own, the expression “the preceding period” falls to be construed by reference to the purpose of the reddendum, which is to stipulate what is to be the amount of the yearly rent payable by the Tenant in respect of the entire duration of the Lease, including “each of the successive periods of five years” from 1st January, 1992. The reddendum envisages that the rent will be revised on 1st January, 1992 and that it will be revised on another five occasions at five yearly intervals thereafter. Both linguistically and grammatically, in interpreting the meaning of “the preceding period” in that context, in my view, the crucial factor is that it is used in the context of the determination of the rent for “each of the successive periods of five years” after 31st December, 1991, so that it is to be interpreted by reference to not just one review period but by reference to “each of” the six successive review periods of five years. Accordingly, on a plain reading of the terms of the reddendum on their own, the expression “the preceding period” when used in relation to “each of” the successive periods of five years after 31st December, 1991 must mean the period which will terminate on the day before the commencement of the relevant review period of five years. The dictionary meanings of “preceding”, including the definition in the OED partly quoted earlier, readily accommodate that construction.

23. However, it is necessary to consider whether that construction is consistent with the proper meaning of the other provisions of the Lease invoked by the parties.

Clause 6
24. The provisions governing the ascertainment of the revised rent in relation to the first component of the yearly rent, which component is referred to in the reddendum as “the first revised rent”, are contained in Clause 6 of the Lease. While there are some unusual features of Clause 6, in my view, they are not material to the proper construction of the expression “the preceding period”, where it appears in the Lease. The terms of the Lease which are material to the issue the Court has to decide are, in the main, couched in conventional terms, by which I mean terms typically found in rent review provisions in a lease.

25. Clause 6.1 provides:

      “The first revised rent in respect of any of the periods referable thereto may be agreed at any time between the Lessor (sic) and the Lessee (sic) or (in the absence of agreement) shall be 1.40 times the full open market yearly rent for the anterior building (hereinafter called “the anterior rent”) to be determined not earlier than the date of commencement of such period (“the Review Date”) by an Arbitrator . . .”
The “anterior building” is defined in Clause 1 of the Lease as meaning the portion of the demised premises shown edged red on the plan annexed to the Lease, which is the building fronting on to Grafton Street, as distinct from the posterior building on Johnson Court. Unusually, the function of the arbitrator, the manner of whose appointment is provided for in conventional terms in Clause 6.1, is to determine the “full open market yearly rent” element of the “anterior rent” in accordance with the provisions of Clause 6.2, which determination relates only to part of the demised premises and produces only part of the anterior rent.

26. As regards the appointment of the arbitrator, however, counsel for the Tenant attached some significance to the fact that, in accordance with the terms of Clause 6.1, either the Landlord or the Tenant may initiate the process whereby the arbitrator is appointed. It is true that in the latest update on Woodfall on Landlord and Tenant (Sweet & Maxwell), namely, Release 94 published in December, 2013, one of the factors relevant in determining whether a rent review clause is “upwards only” is identified (at para. 8.007) as “whether it is only the landlord or either party who can initiate the review process”. In this case, in my view, it is not necessarily “surprising”, as suggested by the Tenant, even in circumstances where, on the basis of the Landlord’s construction of the Lease, the rent could never decrease, that the Tenant has an equal entitlement with the Landlord to initiate the appointment of an arbitrator. Arbitration, as provided for in Clause 6.1, is available to the parties “in the absence of agreement” between them. In the absence of agreement, it may well be in the Tenant’s interest to have the revised rent determined without delay for a variety of reasons.

27. Clause 6.2 is also conventional in terms. It provides that the arbitrator is to determine what in his opinion represents at the “Review Date” -

      “the full open market yearly rent for the anterior building let as a whole without a fine or premium . . .”
It provides that the arbitrator has to make such determination on a certain notional basis and on the basis of certain assumptions and having regard to certain matters, on the one hand, while, on the other hand, disregarding certain matters. It is specifically provided in Clause 6.2.1 that he shall determine the rent of the anterior building let as a whole without a fine or premium -
      “on the basis of a letting with vacant possession thereof by a willing lessor to a willing lessee for a term equal to that granted by the within-written Lease and subject to the provisions therein set forth (other than as to the amount of initial rent thereby reserved). . .”
What that clearly means is that the arbitrator must regard the Lease and all its provisions, with one exception, as the template for the notional letting of the anterior building on the basis of which the full open market yearly rent is to be ascertained. The exception is the amount of the initial rent which appears in the reddendum. That the arbitrator, in ascertaining the full open market yearly rent for the anterior building as of the relevant “Review Date”, which may be many years, even approximately thirty years, after the initial rent was agreed, should not have regard to the initial rent accords with commonsense. The reference to “other than as to the amount of the initial rent” in Clause 6.2.1 merely requires the arbitrator to make his determination on the basis of a willing lessor granting and a willing lessee taking a lease in precisely the same terms as the Lease, save that the yearly amount of the initial rent is excised, which, in any event, it is the arbitrator’s role to replace. The other assumptions on which the arbitrator has to act and the matters to which he has to have regard (for example, the rents payable on comparable lettings) are set out in conventional terms. The matters he has to disregard, for example, the goodwill attached to the anterior building by reason of the business carried on in it, are also set out in conventional terms. Moreover, it is made clear that his function is to ascertain the full open market yearly rent for the anterior building disregarding the application of the multiplier of 1.40. Accordingly, a “market rent” assessed by the arbitrator is not “the end result of any revision”, as suggested by the trial judge in his judgment at para. 4.1.

28. The consequences of the fixing of the yearly rent in accordance with Clause 6.1 by the combination of the arbitrator’s award and its uplifting by the multiplier of 1.40 on the Tenant’s liability to pay rent are also considered in Clause 6. Clause 6.4, which addresses the situation after a “Review Date”, both before and after the fixing of the revised yearly rent, provides as follows:

      “If the first revised rent in respect of any period (“the Current Period”) shall not have been ascertained on or before the Review Date referable thereto rent shall continue to be payable up to the gale day next succeeding the ascertainment of the first revised rent at the rate payable during the preceding period AND on such gale day the Lessee shall pay to the Lessor the appropriate instalment of the first revised rent together with any shortfall between (i) rent actually paid for any part of the Current Period and (ii) rent at the rate of the first revised rent attributable to the interval between the Review Date and such gale day . . ..”
There are a number of factors to be noted about that provision which, in my view, inform the proper interpretation of the phrase which the Court has to construe.

29. Reading Clause 6.4 in conjunction with Clause 6.1, as quoted earlier, unless the Landlord and the Tenant agree, it seems that it is impossible that the revised rent will have been ascertained by the relevant “Review Date”. In such event, the obligation of the Tenant is to continue to pay rent “at the rate payable during the preceding period” for the period to the gale or usual Quarter Day following such ascertainment. It is expressly stipulated at the end of Clause 6.4 that, for the purpose of that provision, the first revised rent, in the case of an arbitration, “shall be deemed to have been ascertained on the date of . . . notification to the Lessee of the award of the Arbitrator”. As to how that provision operates in practice, it is convenient to consider the factual position as regards the most recent “Review Date”, 1st January, 2012. This Court was informed that the award of the arbitrator referred to earlier in relation to the review for the five year period commencing on 1st January, 2012 is dated 18th July, 2013. Assuming that the Tenant was notified of the award on that day or shortly afterwards, in accordance with Clause 6.4 the obligation of the Tenant was to continue to pay rent from 1st January, 2012 “at the rate payable during the preceding period” until 29th September, 2013, being the usual Quarter or gale day next following such notification. On a plain reading of Clause 6.4, the reference to the “preceding period” can only mean the period which terminated on the day before the “Review Date”, because only such interpretation can give rise to the continuity which Clause 6.4 is designed to ensure. For example, there would be no continuity if, as of 1st January, 2012, the proper construction of “the preceding period” in Clause 6.4 was that it was the period from the commencement of the term of the Lease to 31st December, 1991. As regards the rent payable from 1st January, 2012 until the ascertainment of the revised rent following the arbitral process which was engaged in, in order to achieve continuity in the amount of the rent payable by the Tenant to the Landlord, the phrase “the preceding period” in Clause 6.4 must mean the period of five years which ended on 31st December, 2011. The presence of the word “immediately” or some cognate word before “preceding period” in Clause 6.4, in my view, is not necessary to support that conclusion.

30. Another factor is that a consequence of the fixing of the revised rent following the arbitrator’s award specifically addressed in Clause 6.4 involves the recognition that, when the revised rent has been ascertained, it may be that there will have been a shortfall in the payments made by the Tenant since the Review Date, which obviously contemplates the revised rent being higher than the rent payable during the preceding period. As counsel for the Landlord pointed out, the possibility of overpayment by the Tenant from the Review Date to the fixing of the revised rent is not envisaged. Clause 6.4 simply does not address the situation in which the revised rent ascertained following the arbitrator’s award in accordance with Clause 6 is less than the rent payable during the preceding period, as one would expect, if, in accordance with the parties’ intentions as expressed in the terms of the Lease, that might happen. While it is true, as the Tenant contended, that Clause 6.4 is an administrative mechanism based upon an assumption, the fact that it addresses a shortfall but not an overpayment, although not conclusive, supports the construction advanced by the Landlord. In fact, a factor which is pointed to in Release 94 of Woodfall on Landlord and Tenant (at para. 8.007) as relevant in determining whether a rent review clause is “upwards only” is the use of expressions like “increase” and “further increased”.

31. Moreover, the use of the phrase “the Current Period” in Clause 6.4, contrary to what is contended by the Tenant, in my view, is neutral as to the intention of the parties as to the meaning of “the preceding period”.

32. Finally in relation to Clause 6.4, I am satisfied that it is of assistance in ascertaining the intentions of the parties to the Lease, as reflected in the reddendum, as to the liability of the Tenant for payment of rent after 31st December, 1991 in accordance with the terms of the reddendum. The reference to the rent payable during “the preceding period” must have the same meaning in the reddendum as it has in Clause 6.4. If that was not the case, the consequential inconsistency between the reddendum and Clause 6.4, which would ensue if, for example, as was submitted on behalf of the Tenant, “the preceding period” in the reddendum means the period from the commencement of the Lease to 31st December, 1991, would result in the provisions in Clause 6.4 in relation to payment of rent after a Review Date, which are clearly intended to have practical effect, being of no practical effect.

33. It is perhaps worth observing that, aside from the unusual features of Clause 6 in the context of the Lease as a whole, for example, the determination of the market rent for the anterior building separate from the remainder of the demised premises, and the uplifting of the rent determined by the arbitrator by the application of the 1.40 multiplier, I consider that it is reasonable to infer that the conventional provisions in Clause 6 are to a large extent based on a form of standard rent review clause which had been devised by a professional body, possibly the Society of Chartered Surveyors or the Irish Auctioneers and Valuers Institute and probably in conjunction with the Law Society of Ireland, and which was available as a precedent when the Lease was created in 1987. That would explain the reference to “Lessor” and “Lessee” in Clause 6, rather than to “Landlord” and “Tenant” which is found elsewhere in the Lease. Similarly, it would explain why the expression “gale day” is found in Clause 6, rather than “usual Quarter” day.

Clause 7
34. Clause 7.1, which governs the ascertainment of the revised rent in relation to the second component of the rent, provides as follows:

      “The second revised rent in respect of any of the periods referable thereto (“the Relevant Period”) shall be the rent payable in respect of the preceding period increased in the same proportion as the increase in the first revised rent for the same relevant period and shall be deemed to have been ascertained on the date upon which the first revised rent shall have been ascertained.”
As is the case in Clause 6, only an increase over, not a decrease in, “the rent payable in respect of the preceding period” is envisaged by the words used in Clause 7. The determination of the revised rent in accordance with Clause 7 is purely a mathematical exercise, but it has to await the determination of the revised rent in accordance with Clause 6. To give a meaningful effect to Clause 7, the expression “the preceding period” in that Clause must have the same meaning as that expression has in Clause 6.

35. Clause 7.2 caters for the probable time gap between the “Review Date” and the ascertainment of the first revised rent in that it provides that the provisions of, inter alia, Clause 6.4 “shall apply to the second revised rent mutatis mutandis”. In short, Clause 6 and Clause 7 must be interpreted in a manner consistently with each other and with the reddendum.

Clause 3
36. The only other clause in the Lease which it was suggested has a bearing on the construction of the phrase “the rent payable hereunder during the preceding period” in Clause 2 is Clause 3, which sets out the Tenant’s covenants. In particular, counsel for the Tenant pointed to covenants which restrict alienation by the Tenant and drew attention to the following provisions:

        (a) Clause 3.24.2 in which the Tenant covenants -
            “Not to underlet or agree to underlet the demised premises at a fine or premium nor except at the rack rental market value (as defined in Clause 6.2 hereof) of the entire thereof nor to permit the reduction of rent paid or payable by any underlessee”;
        (b) Clause 3.24.3 in which the Tenant covenants -
            “Not at any time to permit any person to occupy the demised premises at any time at a rent which at the date when such occupation shall commence is less than the rack rental market value as aforesaid”; and

            (c) Clause 3.24.4(D), which imposes a condition in relation to a permitted underlease of the demised premises as a whole and provides that:


              “in any permitted mediate or immediate underlease the rent shall be payable no more than one quarter in advance and shall be subject to review in an upward direction only at such times and in such manner as to coincide with the rent reviews provided for under this Lease;”.
Counsel for the Tenant submitted that the foregoing discloses ambiguity and divergence in the terms specified for permitted underletting of the property in that, on the one hand, it is expressly provided that such rent shall not be less than “the rack rent market value” as defined in with Clause 6.2, being, it was submitted, a market rent, whereas Clause 3.24.4(D) states that such rent shall be subject to an “upward direction only” requirement. In the context of their obvious purposes, I do not see any ambiguity or divergence in or between those provisions.

37. The objective of clauses 3.24.2 and 3.24.3 is to restrict the creation of an underlease or a licence of the demised premises other than in accordance with the terms specified. The commencement of a permitted underlease or licence may occur at any time during the term of the Lease and at any time during any particular successive period of five years identified in the Lease for revision of the rent. It is stipulated in those provisions that at the time of such commencement the rent reserved must be at a certain level. While difficulties may be encountered in construing the provisions which identify that level (for example, there is no “rack rental market value” defined in Clause 6.2 in those terms) those difficulties do not have a bearing on the construction issue which the Court has to resolve. In the context of that issue, it can be assumed that the reference to “the rack rental market value (as defined in Clause 6.2 hereof)” means “the full open market yearly rent” of the entire of the demised premises ascertained in accordance with the provisions of Clause 6.2. Even though that assumption could be disputed if an issue as to the proper construction of those provisions arose, it does demonstrate how the permitted level of the initial rent of the permitted underlease or licence is to be ascertained.

38. Clause 3.24.4(D), on the other hand, is concerned with the terms of the permitted underlease, that is to say, the text of the document, not with fixing the amount of the rent payable at its commencement. It expressly stipulates that the underlease is to contain terms which provide that the rent is subject to review in an upward direction only in a manner which coincides with the rent review provisions in the Lease. If anything, that latter provision supports the construction of Clause 2 which I consider to be its correct construction. If, as is required in Clause 3.24.4(D), the provisions of the Lease are replicated in the underlease, the reddendum coupled with the rent review provisions, on the clear expressed intention of the parties, will have the effect of permitting review “in an upward direction only”. There is no inconsistency between Clause 2 of the Lease on its proper construction and Clause 3.24.4(D), when properly construed.

Conclusions on construction of rent provisions in Lease as a whole
39. I am satisfied that there is no ambiguity in or between the various provisions of the Lease which have been outlined, when, to adopt the words of McKechnie J. in Marlan Homes Limited v. Walsh, the Court focuses its mind “on the language adopted by the parties being that which they have chosen to best reflect their intentions”.

40. Starting with the reddendum, I am satisfied that the construction which has been suggested earlier based on the interpretation of the terms of the reddendum on their own is also the correct construction on consideration of the reddendum in the context of the Lease as a whole. Recalling the provisions of the reddendum, the yearly rent initially payable for the period from the commencement of the term, 6th August, 1987, to 31st December, 1991 is, as one would expect, specified in monetary terms. What is addressed next is “each of the successive periods of five years” of the term. Those are the periods of five years commencing on 1st January, 1992, 1st January, 1997, 1st January, 2002, 1st January, 2007, 1st January, 2012 and 1st January, 2017. What follows is a formula which applies to “each of the successive periods of five years”. For “each of” those periods, the Tenant is to pay a rent, clearly meaning a yearly rent, which is “equal to the greater of” -

        (a) the rent payable during “the preceding period” or

        (b) the revised rent ascertained in accordance with Clause 6.

At the risk of unnecessary repetition, and emphasising that what is being fixed by the application of that formula is the rent for “each of the successive periods of five years”, the expression “the preceding period” must mean the period preceding the relevant period of five years which is subject to review. I consider that no other interpretation is open and that, in particular, when read in the context in which they are used in the reddendum, as well as in Clause 6 and in Clause 7, the words “the preceding period” cannot be construed as referring to the period prior to the first Review Date, that is to say, the period from 6th August, 1987 to 31st December, 1991.

41. Looking at that interpretation in the context of the “Review Date” in issue here, 1st January, 2012, certainly the period from 6th August, 1987 to 31st December, 1991 is a preceding period in the sense that it occurred before the period commencing on 1st January, 2012. However, in the context of the revision of the rent on 1st January, 2012 for the next five years, being one of the successive periods of five years referred to in the reddendum, “the preceding period” is the period of five years which commenced on 1st January, 2007 and ended on 31st December, 2011. To suggest that, in construing the Lease to determine the revised rent for what is the fifth consecutive period of five years, one should interpret the phrase “the rent payable . . . during the preceding period” as meaning the rent payable in the period from the commencement of the term to the 31st December, 1991 does not make sense and cannot reflect the intention of the parties almost twenty five years earlier in entering into a commercial lease for a term spanning a period of thirty five years. Such suggestion is not correct on a plain reading of the reddendum on its own, nor is it correct when the reddendum is read in the context of the Lease as a whole. In reality, to suggest that construction is inviting the Court to is to re-write the Lease, which both sides acknowledge the Court is not entitled to do.

42. The core submission of the Tenant that, for the expression “the preceding period” in the reddendum to mean the period immediately prior to the commencement of the relevant review period of five years, the word “immediately” or some cognate term would have to be specified in that expression in the (a) factor of the formula in the reddendum for ascertaining the “first revised rent” and the “second revised rent”, in my view, is not correct. Again at the risk of unnecessary repetition, it must be emphasised that, even without the insertion of the word “immediately” or a cognate qualifying word, the only sensible construction of the expression “the preceding period” in the context in which one is considering it is that it means the period which immediately preceded the relevant “Review Date”. As in the case of the use of the expression “preceding period” in Clause 6.4, the absence of the word “immediately”, in my view, does not, having regard to the context, mean that it cannot be construed as the immediately preceding period, although, of course, the presence of the word “immediately” would probably have obviated the Court’s involvement in the construction of the Lease.

43. The effect of the provision that, in each of the successive periods of five years, the Tenant will be liable for a rent equal to the greater of the rent set out in the (a) factor or in the (b) factor of the formula in the reddendum, given the construction which I consider to be the correct construction of the expression “the preceding period”, means that the Lease provides for what has become known as an “upwards only” rent review. As regards the first component of the rent, it is only if, after the application of Clause 6, the revised rent at the commencement of the relevant review period is greater than the rent payable during the preceding period, that the revised rent becomes applicable. If it does not, the rent payable for the preceding period continues. The revision of the second component of the rent in accordance with Clause 7 gives rise to a similar effect. While the words “(whichever shall be the greater”), which are included in the reddendum in relation to the first revised rent, do not appear in relation to the second revised rent, in my view, that is immaterial because, in reality, those words are superfluous. What gives rise to the “upwards only” review effect is the requirement that the rent for “each of” the successive periods of five years be equal to the greater of the (a) factor or the (b) factor as stipulated in the formula in the reddendum in relation to both components of the rent.

44. That outcome is what the parties bargained for in plain language. They did not bargain for a rent revision arrangement based on a “market rent” that can rise and fall in respect of different review periods. The “market rent” concept does come into play in the ascertainment of the (b) factor in relation to the first component of the rent - the ascertainment of the revised rent in accordance with Clause 6. However, if the result produced on the application of Clause 6 following arbitration, including the uplifting by the 1.40 multiplier, is less than the rent payable during the preceding period, the rent payable during the preceding period continues to be payable by the Tenant, so that the implementation of the assessment in accordance with the mechanism provided for in Clause 6, of which the “market rent” concept is the primary, although not the sole, ingredient does not take effect. As already noted, the market rent assessment is not the end result. It is not even the end result in ascertaining the anterior rent under Clause 6, in that the rent ascertained by the arbitrator is increased by the application of the 1.40 multiplier to arrive at the anterior rent. The end result is to be found in the application of the reddendum provisions in Clause 2 and the determination whether the (a) factor or the (b) factor of the formula is the greater. That has the “upwards only” review effect, notwithstanding that it is not expressed in those terms.

45. In general, the provisions of Clause 6 of the Lease are consistent with the terms of the reddendum as properly construed. However, it is pertinent to observe that there is some drafting conflict between Clause 2 and Clause 6, in that in Clause 2 the expression “the first revised rent” is used to describe a rent equal to the greater of (a) the rent payable during the preceding period, or, (b) the revised rent ascertained in accordance with Clause 6, whereas, at the commencement of Clause 6.1, the expression “the first revised rent” is used to describe the (b) factor, that is to say, the agreed or the uplifted arbitral process ascertained rent for the five year period commencing on the relevant “Review Date”. That conflict does not materially affect what is the proper construction of the provisions of the reddendum in relation to the revision of the rent for a number of reasons. First, the intention of the contracting parties to the Lease is clear in the reddendum. As counsel for the Tenant recognised, if there is an inconsistency between the reddendum and a later clause in a lease, the reddendum prevails, citing a passage from Wylie, Landlord and Tenant (2nd Ed.) Bloomsbury Professional, Dublin 1998 at p. 225. Secondly, notwithstanding the drafting conflict, which I attribute to an obvious drafting mistake in Clause 6.1, there is no conflict or ambiguity as to the meaning of “the preceding period” as between the reddendum and Clause 6. It is reasonable to infer that the drafting conflict is a consequence of the unusual feature of the Lease, that the rent comprises two components, and that Clause 6 relates to the first and Clause 7 to the second, and that, in using the term “first revised rent” at the commencement of Clause 6, the draftsman was endeavouring to focus on the fact that Clause 6 relates to the first component. However, the crucial point is that it is in the reddendum in Clause 2 that it is stipulated what the rent payable for each of the successive periods of five years of the term after 31st December, 1991 is to be. It is unambiguously stated there that it is to be equal to the greater of the rent payable during the preceding period or the revised rent ascertained in accordance with Clause 6. Nothing in Clause 6, nor in Clause 7 in which there is a similar drafting mistake, displaces that.

46. In the light of the finding that the expression “the preceding period” has the same meaning in Clause 7 as it has in Clause 6 for the reasons outlined earlier, there is no inconsistency between Clause 7 and the reddendum as properly construed.

47. As regards the trial judge’s alternative resolution of the perceived ambiguity in the Lease by resorting to a commercial construction, having found that there is no ambiguity in the provisions of the Lease in relation to the meaning of “the preceding period”, and, given that it was recognised by counsel for the Tenant that, in the absence of ambiguity, no question arises as to the application of a commercial construction to the Lease, it is not necessary to comment on the observations of the trial judge in para. 4.4 of the judgment or the criticisms by counsel for the Landlord of those observations.

Outcome of the appeal
48. Aside from the unusual rent provisions in the Lease highlighted earlier, which I am satisfied do not have a bearing on the construction issue the Court has to determine, the Court here is concerned with construing rent review provisions in a commercial lease which, broadly speaking, are articulated in conventional terms. The conclusion I have reached is that the expression “the previous period” at both locations in the reddendum was intended by the parties to the Lease to mean the period which terminated on the day before the relevant “Review Date”. Consequently, the construction of that expression advocated by the Landlord is correct. Its application to the revision of the rent for the five years from 1st January, 2012, having regard to the consequences of the application of Clause 6 and Clause 7 as outlined earlier (at para. 8), means that the yearly rent payable for the period from 1st January, 2007 to 31st December, 2011, that is to say, €1,463,964.00, continues to be payable by the Tenant in respect of the five years from 1st January, 2012.

49. Having regard to that outcome, I consider that the appeal should be allowed, that the order of the High Court should be vacated and that declarations in the forms sought by the Landlord should be made.

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