Court Of Appeal Upholds Summary Judgment For Rent Accrued During Covid Closures Of Commercial Premises, Rejecting Arguments Based On Implied Terms And "failure Of Basis"

• Published date: 01 September 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Contracts and Commercial Law, Trials & Appeals & Compensation, Landlord & Tenant - Leases
• Law Firm: Herbert Smith Freehills
• Author: Martin Hevey, Steven Chua, Maura McIntosh, Matthew Bonye and Shanna Davison

The Court of Appeal has dismissed appeals against the grant of summary judgment to commercial landlords for payment of accrued rent in two cases where the relevant premises (in each case operated as cinemas) had to be closed for extended periods due to COVID restrictions: Bank of New York Mellon (International) Ltd v Cine-UK Ltd; London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others [2022] EWCA Civ 1021.

The decision serves as a reminder of the high threshold for implying contractual terms, namely where it is necessary to give business efficacy or so obvious as to go without saying. As the court commented, the scope for implication is particularly limited where the contracts in question are detailed documents prepared by lawyers.

It also illustrates that a claim based on unjust enrichment (such as here for total failure of consideration, or 'failure of basis') will not be available where this is inconsistent with the express terms of the contract.

The court rejected an argument that, as the restrictive legislation introduced to address the COVID pandemic was 'unprecedented', it was appropriate for the court to consider applying the law in a fresh light. Even if the legislation were unprecedented (which the court said was debateable) that was no reason to disregard or disapply fundamental principles of the law of contract or to extend the law of unjust enrichment beyond its proper bounds.

In light of its conclusion, the court found it unnecessary to decide the issues of whether, if the basis for the obligation to pay rent was the ability to lawfully use the premises as cinemas: (i) that basis did fail totally; and (ii) the obligation to pay rent could be apportioned so that there was a total failure of basis during the periods when the premises could not lawfully be used as cinemas. These questions had been decided obiter in favour of the defendants at first instance, but as they did not arise the Court of Appeal preferred to express no view. The court noted particularly the issue of apportionment was a 'potentially complex one which is better decided in a case where it is critical to the determination of the issues on appeal and not merely obiter'.

Background

The background to the two underlying cases in these conjoined appeals is set out in our previous blog posts here and here.

In broad summary, in both cases the claimants were the landlords under leases for cinema premises and the defendants were tenants or guarantors under those leases. The...