Seafood Shack Limited v Darlow [2019] EWHC 1567 (Ch)
Summary
The claimant, Seafood Shack Limited (SSL), made a claim against the defendant, Mr Darlow, that a lease should be construed or rectified to refer to SSL as the tenant. SSL also claimed damages against Mr Darlow for repossessing the subject premises unlawfully.
SSL was unsuccessful and it was held that it was not a party to the lease. These proceedings emphasise the importance of correctly identifying legal entities in documentation and the serious consequences of making a mistake.
The facts
Heads of terms for the letting of 5A High Street, Cardiff (the Premises) were agreed between Seafood Shack UK Limited (SSUKL) and Mr Darlow. Subsequently, a lease dated 7 February 2017 between SSUKL and Mr Darlow was entered into for a term of 25 years (the Lease).
In fact, there was no such entity as SSUKL. Following the grant of the Lease, the Premises were occupied by Seafood Shack (Cardiff) Limited (SSCL). It only came to the parties' attention that the Lease had been demised to a non-existent tenant six months later and steps were taken to grant a new lease to SSL, the parent company of SSCL.
Before a new lease was entered into, SSCL went into liquidation and the liquidator disclaimed the Lease.
Mr Darlow inspected the Premises and found them to be abandoned. He instructed bailiffs to change the locks and the Premises were then re-let.
The applicable law
The test to determine whether mistakes in a written document can be cured by the proper construction of that document is what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood the parties to have meant.
The test to determine whether a document can be rectified on the ground of common mistake is:
- Do the parties have a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the document to be rectified?
- Was there was an outward expression of accord?
- Did the intention continue at the time of the execution of the document sought to be rectified? and
- Did, by mistake, the document fail to reflect that common intention?
Arguments before the Court
In addition to the legal arguments referred to above, SSL argued that the Court should make the following findings of fact:
- That it was intended during lease negotiations that the tenant would be an existing company
- It was not the intention of either party that SSCL would be the tenant
- Mr Darlow knew of the existence of SSL during lease negotiations, and
- It did not matter to Mr Darlow whether the name of the tenant included the initials "UK" or not.
The decision
With regards to findings of fact, the Court held that it was intended that the tenant of the Lease be an existing company but Mr Darlow only knew of SSUKL as being the entity who could be a potential tenant up to the execution of the Lease. The presence or absence of the initials "UK" did not make any difference to Mr Darlow during negotiation and execution of the Lease.
With regards to the legal arguments, the Court held that a reasonable person would not have understood that the Lease was meant to have been entered into with either SSL or SSCL instead of SSUKL. Accordingly, the construction argument failed.
The Court also held that there was no common intention between the parties nor an outward expression of accord that SSL should have been the tenant of the Lease. Accordingly, the rectification argument failed.
It was determined that SSL was and is not a party to the Lease. When SSCL went into occupation of the Premises, it is likely that an implied tenancy at will arose but any interest was ultimately disclaimed by SSCL's liquidator. It is not overly clear why the Court did not consider whether a periodic tenancy arose instead of a tenancy at will. As a result, Mr Darlow lawfully recovered possession of the Premises.
Our comment
This decision is a useful reminder of the importance of checking the identities of parties to documents at Companies House and to keep a record of such a check. Where the entity is a company, making reference to the company number will assist with ensuring that the parties are the correct ones, particularly when a company's name has been changed.
