Permission to Appeal the first instance decision of Adrian Williamson QC in Prezzo Ltd v High Point Estates Ltd has been refused by the Court of Appeal (Coulson LJ).

The decision stands as support for the crucial importance of the terms of the lease in deciding whether the principle of Berni Inns applies. Any notions of a wider 'public policy' following Fresca-Judd v Golovina are misplaced.

Stephen Gorman and Sally Stansfield acted for High Point Estates Ltd.

The Facts

High Point Estates Ltd (HPE), was the freehold owner of Salisbury Buildings in Harrogate. Pursuant to a lease, Prezzo Ltd (Prezzo) was the leasehold tenant of part of the ground floor and basement and operated an Italian restaurant.

On 18 March 2014 a fire broke out in the kitchens of Prezzo. It caused substantial damage not only to Prezzo's demise (the Premises) but also to the rest of the Salisbury Buildings (the Building).

HPE were indemnified by their insurers in respect of damage to the Building (including the Premises) and DAC Beachcroft LLP were instructed, on behalf of HPE, to pursue a subrogated recovery action against, inter alia, Prezzo.

Prezzo claimed immunity for the whole of the HPE claim, in accordance with the principles set out by the Court of Appeal in Mark Rowlands Ltd v Berni Inns Ltd. They said insurance of the Building effected by HPE enured to the benefit of Prezzo and rendered Prezzo immune from an action by HPE in respect of damage to the Building caused by Prezzo.

HPE's insurance obligation under clause 4.2 of the lease was as follows

'The Landlord covenants with the Tenant:…

To insure the Premises in accordance with its obligations as lessee contained in clause 3(14) of the Superior Lease.'

HPE agreed that so far as the damage to the Premises was concerned, the Berni Inns principle applied.

What was in dispute was whether or not the principle was confined just to the damage to the Premises, or whether it applied to the damage to the rest of the Building too.

The matter came before Adrian Williamson QC in the Technology and Construction Court in April this year.

HPE argued that the starting point of the Berni Inns principle is that the lease in question obliges the landlord to effect insurance. If a lease does not contain an obligation upon the landlord to effect insurance, then any argument that the Berni Inns principle applies is bound to fail.

HPE's position throughout was that the central issue was whether, on its true construction, the lease required HPE to insure the entire Building, as Prezzo contended, or whether the obligation was only to insure the Premises, as HPE maintained.

HPE argued the opening worlds of clause 4.2 required the landlord to insure 'the Premises'. That is therefore what the landlord was obliged to insure, not “the Building”. If it had been intended that the landlord be obliged to insure the Building, then instead of using the world 'Premises' the word 'Building' would have been used. Both words were equally available to the parties. Both were defined terms in the lease and both words appeared extensively elsewhere in the Lease.

Prezzo contended that the words 'in accordance with its obligations as lessee contained in clause 3(14) of the Superior Lease”' meant that the HPE was covenanting with the Prezzo to insure the whole Building, because that is what clause 3.14 of the Superior Lease required.

Adrian Williamson QC agreed with HPE and determined that in accordance with Arnold v Britton & Ors on a true construction of the words of the lease, HPE had only covenanted to insure the Premises and not the remainder of the Building.

The effect of the words 'in accordance with its obligations as lessee contained in clause 3(14) of the Superior Lease' was not incorporation wholesale of terms from another contract but to indicate the standard and nature of the obligation contained in the first four words of clause 4.2. Clause 3.14 of the Superior Lease contained a number of helpful indications as to the scope of the obligation. It defined:

  1. What loss and damage was to be covered.
  2. How that (or rather with whom) that insurance was to be effected.
  3. That the insurance was to be for full reinstatement value and,
  4. The question of premiums.

The words beginning, 'in accordance with', did not, have the effect of converting the obligation upon HPE to insure the Premises into an obligation to insure the Building

As a result the immunity as established in Berni Inns only covered damage to the Premises.

Prezzo sought Permission to Appeal but on 14 September 2018 this was refused by Lord Justice Coulson.

In considering the request for Permission to Appeal Lord Justice Coulson confirmed that

  • the starting point is the construction of the lease between High Point and Prezzo. The lease required High Point to insure the 'Premises' rather than the 'Building'
  • The correct approach is not to construe the lease in accordance with the principle in Berni Inns but to construe the lease in order to see whether the principle in Berni Inns applies at all.
  • any extraneous facts or considerations of justice and policy beyond the words used in the Lease are irrelevant

Comment

The case highlights the importance of reviewing and interpreting the insuring clauses in leases in fire recovery cases; a landlord's covenant to insure per se is not necessarily a complete bar to pursuing a recovery action.

Cases referred to

Mark Rowland Ltd v Berni Inns Ltd [1968] 1 QB 211

Fresca-Judd v Golovina [2016] 4 WLR 107

Barras v Hamilton [1994] S.C. 544

Arnold v Britton [2015] AC 1619

TJH and Sons Consultancy Ltd v CPP Group plc [2017] EWCA Civ 46

Julian Field of Crown Office Chambers was instructed by DAC Beachcroft LLP.

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