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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Waterfront (LC) Limited v Cine UK Limited [2022] JRC 212 (11 October 2022) URL: http://www.bailii.org/je/cases/UR/2022/2022_212.html Cite as: [2022] JRC 212 |
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Lease - landlord's application for summary judgment against the defendant.
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Before : |
Advocate Matthew John Thompson, Master of the Royal Court. |
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Between |
Waterfront (LC) Limited |
Landlord |
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And |
Cine-UK Limited |
Defendant |
Advocate J. D. Kelleher for the Landlord.
Advocate M. W. Cook for the Defendant.
CONTENTS
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Paras |
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1. |
Introduction |
1 |
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2. |
Background |
2-3 |
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3. |
Pleadings |
4-8 |
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4. |
COVID-19 Restrictions |
9-19 |
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5. |
The Landlord's Submissions |
20-49 |
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6. |
The Defendant's Submissions |
50-70 |
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7. |
Decision |
71-123 |
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8. |
Conclusion |
124-125 |
judgment
the master:
1. This judgment contains my decision in respect of the landlord's application for summary judgment against the defendant for non-payment of rent and related service charges in relation to the Cineworld cinema ("the Cinema") located at the Waterfront. The period for the monies claimed relates to when the Cinema was either closed due to the Covid 19 Pandemic or to a period when the defendant's ability to operate the Cinema was restricted due to various regulations passed by the States of Jersey or orders issued by the then Minister for Health. The Defendant has otherwise paid rent and service charges due for periods when no regulations or orders affecting the operation of the Cinema were in place. The Cinema was closed between 18th March 2020 and 21st May 2021. Any restrictions affecting the operation of the Cinema (set out in more detail below) at the latest came to an end on 26th August 2021.
2. The landlord enjoys the benefit of a long lease of land known as the Waterfront. The freehold of the Waterfront is owned by the Public of Jersey. The defendant is an operator of cinemas at various locations in the United Kingdom and operates the Cinema. The defendant is part of the UK Cineworld Group and leased the Cinema from the landlord pursuant to a sub-lease for 35 years commencing on 5th December 2002 by a contract passed before the Royal Court of Jersey on 11th April 2003.
3. The material terms of the sub-lease are as follows: -
""Basic Rent" means £472,500 (Four Hundred and Seventy Two Thousand Five Hundred Pounds) per annum subject to the provisions for revision contained in clause 7."
""Insured Risks" means fire storm tempest lightning explosion flood earthquake aircraft and other aerial devices and articles dropped therefrom (in time of peace) impact by road vehicles riot civil commotion malicious damage bursting and overflowing of water tanks apparatus and pipes terrorist activity landslip subsidence and heave and such other risks against which the Estate is required to or which may from time to time be insured under the provisions of this Lease subject to any excesses exclusions limitations or conditions as may be imposed by the insurers or underwriters with whom such insurance is place [sic] provided such are not abnormal in the UK or Jersey insurance market place at the time of any renewal."
""Permitted Use" means until the expiry of the fifth year of the Term the use as a Multiplex Cinema with uses ancillary thereto...."
""Rents" means all sums reserved as rent by this Lease."
"2. Demise
2.1 In consideration of the Rents and the Tenant's covenants reserved by and contained in this Lease the Landlord demises to the Tenant all that the Demised Premises together with (but to the exclusion of all other liberties easements rights or advantages) the rights set out in schedule 2 except and reserving to the Landlord and all other persons entitled thereto the rights set out in schedule 3 and except and reserving to the Superior Landlord the rights reserved pursuant to the Superior Lease TO HOLD the Demised Premises unto the Tenant for the Term of Thirty five (35) years from and including the Term Commencement Date yielding and paying therefor during the Term yearly and proportionately for any fraction of a year by way of rent:
(a) the Basic Rent and the Bar Rent which shall be paid by equal quarterly payments in advance on the Quarter Days in every year the first of such payments (or a proportionate part) in respect of the period commencing on the Rent Commencement Date and ending on the day preceding the quarter day next following to be made on the Rent Commencement Date;
(b) the Service Charge which shall be paid as stated in paragraphs 4, 5 and 6 of part I of schedule 4 as from the Term Commencement Date;
(c) the Insurance Rent which shall be paid as stated in clause 6.2(a) as from the Term Commencement Date; and
(d) any other sums which may become due from the Tenant to the Landlord under the provisions of this Lease."
The Tenant covenants with the Landlord during the Term as follows:
(a) To pay the Rents at the times and in the manner required by this Lease without any deduction whether by legal or equitable set-off other than any required by statute and not to exercise or seek to exercise any right or claim to withhold any Rents or any right or claim to legal or equitable set-off.
To pay to the Landlord the Service Charge and to observe and perform the obligations relating to the Service Charge as set out in Schedule 4.
(a) Not to use the Demised Premises otherwise than for the Permitted Use.
3.14 Laws
(a) At all times during the Term at the Tenant's expense to comply with all statutes statutory instruments bye-laws and regulations issued by any Insular Parochial Statutory or regulatory authority in so far as the same relate to the Demised Premises and are not the responsibility of the Landlord under this Lease."
The parties agree to the following provisos:
Nothing herein contained or implied shall be taken to be a warranty or representation as to the purpose for which the Demised Premises may lawfully be used."
The Landlord covenants with the Tenant as follows:
That the Tenant paying the Rents and performing the Tenant's covenants reserved by and contained in this Lease may lawfully and peaceably enjoy the Demised Premises throughout the Term without any lawful suit eviction or interruption by the Landlord."
The Landlord Covenants with the Tenants as follows:
(a) Save to the extent that any insurance shall be vitiated by any act neglect default or omission of the Tenant or any sub-tenant or their respective employees' agents licensees or invitees to insure or cause to be insured in an insurance office of good repute and to use reasonable endeavours to have the interest of the Tenant noted thereon:
(i) the Estate (including the Building) against loss or damage by the Insured Risks and such other risks against which the Landlord may from time to time reasonably deem appropriate to insure (except always such risks as cannot reasonably be insured by the Landlord on satisfactory terms or as the Landlord's insurers or underwriters have refused to insure) in a sum equal to the likely cost of completely rebuilding reinstating and replacing the same (taking into account estimated increases in building costs) including the cost of demolition shoring removal of debris and other expenses and a proper provision for professional fees in respect of rebuilding and reinstating;
(ii) the loss of Basic Rent and the Bar Rent from time to time (having regard to any review of the Basic Rent and the Bar Rent which may become due under this Lease) for 3 years or such longer period as the Landlord may from time to time reasonably consider to be sufficient for the purposes of planning and carrying out such reinstatement;
(iii) the public liability of the Landlord arising out of or in connection with any matter involving or relating to the Estate.
[...]
(c) When Iawful to do so to expend all monies received (other than in respect of rent and fees and public liability) by virtue of any such insurance towards reinstating so far as practicable the Building (including the Demised Premises) after the destruction thereof or any damage thereto.
The Tenant covenants with the Landlord as follows:
(b) Save as required by clause 6.2(g) not to effect any separate insurance of the Demised Premises against loss or damage by any of the Insured Risks but if the Tenant shall become entitled to the benefit of any insurance on the Demised Premises then the Tenant shall apply all monies received by virtue of such insurance in making good the loss or damage in respect of which the same shall have been received.
"(g) To insure and keep insured all the plate glass (if any) forming part of the Demised Premises against breakage or damage for a sum not less than the full reinstatement value thereof for the time being with such insurance company of repute and through some agency as shall from time to time be nominated by the Landlord and whenever reasonably required by the Landlord to produce the said policy of insurance or a copy thereof and the receipt of the current year's premium and to forthwith lay out all monies received under such insurance and such other money as may be necessary in reinstating the glass with glass of the same quality and thickness."
If the Building or the Demised Premises or any part thereof or the means of access thereto shall be destroyed or damaged by any Insured Risk so as to render the Demised Premises unfit for occupation or use or inaccessible then save to the extent that the insurance of the Estate shall have been vitiated by any act neglect default or omission of the Tenant or any sub-tenant or their respective employees agents licensees or invitees the Basic Rent and the Bar Rent or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the Building (or the relevant part thereof) or the means of access thereto shall have been reinstated so as to render the Demised Premises fit for occupation and use and accessible or (if earlier) until the moneys received by the Landlord in respect of loss of rent insurance shall have been exhausted."
7.2.1 The Basic Rent shall be reviewed on each Rent Review Date and shall from the Relevant Review Date be a rent equal to the greatest of:
(a) the Basic Rent payable under this Lease immediately preceding each Rent Review Date and;
(b) in the case of the first Rent Review Date the sum of Five Hundred and Forty-Seven Thousand Seven Hundred and Sixty-Nine Pounds (£547,769) per annum;
(c) the Market Rent as at the Relevant Review Date ascertained as herein provided."
4. As this is an application for summary judgment it is appropriate to set out the issues between the parties by reference to the parties' pleadings.
5. The order of justice therefore pleads the landlord's claim as follows: -
"The COVID-19 Pandemic
17. In or around February and March 2020, the virus known as COVID-19 spread across the world and caused a global pandemic. In early March 2020 the Governments in the UK and Jersey advised that people should socially distance.
18. The Governments of the UK and Jersey enacted certain primary and subordinate legislation to implement restrictions to place their respective jurisdictions in "lockdown" by inter alia restricting the freedom of movement of people and the operation of businesses in order to stop the spread of COVID-19. Non-essential businesses such as cinemas were required to close for a temporary period.
19. The UK went into lockdown on 23 March 2020 and socially distancing became mandatory. Jersey went into lockdown on 30 March 2020.
20. Cineworld closed the Cinema in Jersey on 17 March 2020, and also closed its cinemas in the UK on or around the same date.
21. Cinemas were able to reopen in the UK on 4 July, but Cineworld's cinemas remained closed until 31 July 2020. Cineworld opened its cinemas in the UK for a temporary period but closed its doors again on or around the 9 October 2020. Its website stated that it would be closed for the "foreseeable future". This was prior to subsequent government directives in the UK restricting the operation of businesses.
22. The Cinema remained closed from 18 March 2020 until 21 May 2021.
23. COVID-19 restrictions were relaxed in Jersey on 12 April 2021 when theatres and cinema were allowed to reopen. On 11 May 2021, Cineworld posted on the Cinema's Facebook page that "unfortunately, due to current government restrictions in Jersey, Cineworld will not be able to re-open there at present as it is not viable for us to operate. We apologise for the inconvenience but look forward to re-opening the cinema for our valued customers when restrictions are eased, which is currently anticipated to happen from June 14.
24. It was reported in the Jersey local press on 12 May 2021, that the reason the Cinema was not reopening in Jersey was because there were restrictions on the public consuming food and drink on the premises. Subsequently, the Minister for Health and Social Services enacted the Covid-19 (Workplace restrictions) (Amendment No.12) (Jersey) Order 2021 on 17 May 2021, which came into force on 18 May 2021 (the "2021 Order"). The Order permitted food and drink to be consumed on premises which included an auditorium such as the Cinema.
25. As a result of the 2021 Order, the Cinema in Jersey reopened on 21 May 2021.
The Arrears
26. In breach of clause 3.1(a) of the Lease, Cineworld has failed to pay the Rent due on 25 March 2020, 24 June 2020, 29 September 2020, 25 December 2020, 25 March 2021, and 24 June 2021. The amount of the Rent now outstanding and payable is £884,646.
27. In breach of clause 3.3 and 6.2 of the Lease, Cineworld has also failed to pay in full the Service Charge and Insurance payments due on 25 March 2020, 24 June 2020, 29 September 2020, 25 December 2020, 25 March 2021, and 24 June 2021. The amount of Service Charge (including direct payments for repairs and maintenance) and Insurance payments outstanding is now €191,996.87. It is acknowledged that partial payments of 30% of the Service Charge due for quarters two and three of 2020 were paid on 27 May 2020 and 9 July 2020, and a further partial payment was made on 17 February 2020 for 30% of the Service Charge which was allocated against the Service Charge due in December 2020 and March 2021. Those are the only payments received from Cineworld since December 2019.
28. In the premises, Cineworld owes WF Ltd a total of €1,076,642.87 (the "Arrears")"
6. Paragraphs 30 to 33 of the order of justice refer to certain government guidance issued in respect of the effect of the COVID19 Pandemic and the effect that the resulting workplace restrictions might have on commercial leases.
7. Paragraphs 34 and 35 of the order of justice referred to Practice Direction RC20/06 issued in respect of tenancy disputes by the Royal Court. Paragraphs 34 and 35 state as follows: -
"34. The Royal Court issued Practice Direction RC20/06 in respect of "Tenancy Disputes" (the "Practice Direction") on 27 April 2020. The Practice Direction recognised that, in the context of COVID-19, the Courts in Jersey had either generally adjourned cases concerning Tenancy Disputes or had prioritised urgent civil cases instead. The Practice Direction made clear that the Royal Court in determining Tenancy Disputes would have regard to the contents of the Guidance and the extent to which parties have complied or failed to comply with it. However, the Practice Direction also made clear that "although the Court will take into account, in the way set out in this Practice Direction, the contents of the guidance and the parties' conduct when exercising such discretions as the Court may have, the parties' legal obligations to each other are not varied by the guidance".
35. The Updated Guidance acknowledged that the Courts in Jersey as at 24 September 2020 had started to hear Tenancy Disputes. It set out a number of points clarifying the Guidance, which included the evidence required to show financial hardship suffered by a landlord and/or tenant:
"The evidence required of either Party to manifest their initial claim of financial hardship should only be limited to such basic financial information as it is reasonable and appropriate for a Party to request having regard to their resources and their size as a business. Where a Party is able to demonstrate it is in receipt of Government support through one of the COVID-related support measures, it would be reasonable for financial hardship to be presumed by the Parties unless capable of being rebutted. Government wishes to remind the Parties that it is their obligation to keep the other Party advised if their financial circumstances improve. Where a Party is seeking a particular Payment Concession or Obligation Concession, such as full or partial waiver of rent, service charge or other payment obligation, it may be reasonable for a Party in accordance with the Overriding Principles to require additional financial information to assess, inter alia: (a) the sustainability of the business of the Party; (b) its future cash flow obligations; and (c) the strength of any Guarantor covenant. It is in the interests of the Party seeking the Concession that notice is given as early as possible to the other Party."
8. The defendant filed an extensive answer. The material paragraphs are as follows: -
"20. Pursuant to the:
20.1. Covid-19 (Restricted Trading) (Jersey) Order 2020 (brought into force on 2 May 2020, and subsequently the Covid-19 (Workplace Restrictions) (Jersey) Regulations 2020, which repealed the Covid-19 (Restricted Trading) (Jersey) Regulations 2020, pursuant to which the aforementioned Order was issued); and
20.2. Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 (brought into force on 26 March 2020, having repealed the Health Protection (Coronavirus, Business Closure) (England) Regulations 2020/327, which had been in force until this date since 21 March 2020),
it became illegal for Cineworld to operate its business in Jersey and the UK respectively.
21. As a result, Cineworld was mandated to cease operating in Jersey under clause 3.14 of the Lease, pursuant to which Cineworld was obliged at all times "to comply with all statutes statutory instruments bye-laws and regulations issued by any Insular Parochial Statutory or regulatory authority".
22. Accordingly, the Covid-19 restrictions gave rise to an event of supervening illegality, which has significantly changed the contractual obligations of the parties. As a result, the Defendant's obligation to pay Rent, Service Charge and Insurance was temporarily suspended, pending the conclusion of the supervening illegality, such that the obligation to pay Rent, Service Charge and Insurance on the Quarter Days set out in the [Landlord's] Order of Justice never arose.
23. In the alternative, the Lease has an implied term that if the normal business use of the Cinema by Cineworld under the Lease becomes illegal, then the obligation to pay Rent, Service Charge and Insurance otherwise due would be suspended and cease to be payable for as long as such use resulted in an illegality. Accordingly, for the period during which it was illegal for Cineworld to operate the Cinema, Cineworld's obligation to pay Rent, Service Charge and Insurance otherwise due under the Lease was suspended and ceased to be payable until Cineworld was legally able to operate the Cinema again.
Use of the Cinema
24. Prior to 2 May 2020, whilst it was not illegal for the Cinema to operate in Jersey, it was impossible for it to do so given the lockdown restrictions already in place, mandating islanders to stay at home, other than in exceptional circumstances. Therefore, as a result of the Covid-19 restrictions in place in Jersey and the UK, Cineworld was required to close all of its cinemas in the UK and Jersey on 18 March 2020. As a result of the restrictions, and in particular the cap on the number of people allowed in the Cinema at any given time, which at times was limited to just 40 people, on the further occasions during which it was not illegal for Cineworld to operate the Cinema, it was a practical impossibility and was entirely commercially unviable to do so. A direct consequence of this was that, from this date until the cinemas reopened in the UK and Jersey, Cineworld was prevented from generating any revenue from the Cinema or any of its other premises across the UK where cinemas had operated prior to 18 March 2020. Even once the Cinema reopened on 21 May 2021, Cineworld's ability to operate as usual continued to be impeded by Covid-19 restrictions until and including 25 August 2021 (the period from 18 March 2020 to 25 August 2021, during which Cineworld was subject to Covid-19 restrictions, will hereinafter be referred to as the Restrictions Period).
25. Having been unable to generate revenue, Cineworld was placed into a position of restricted ability to pay the Rent, Service Charge and Insurance that would otherwise be payable under the Lease. Cineworld made its financial position clear to the [Landlord] throughout 2020 and 2021 and further detail is provided in this regard at paragraphs 58 to 60 below. Within two days of closing the cinemas, Cineworld contacted WF Ltd's agent, D2 Real Estate (D2RE), to notify it of the closures and initiate discussions in relation to payment of Rent. It was not possible for Cineworld to notify D2RE any sooner than this due to the huge administrative burden involved in closing all cinemas across the UK and Jersey at once.
26. In light of the abovementioned exceptional and unforeseen circumstances, Cineworld was unable to perform certain of its obligations under the Lease, including to pay Rent, Service Charge and Insurance. This was particularly so in circumstances where Cineworld's use of the Cinema was significantly limited by the terms of the Lease, for instance, by clauses 3.12 and 3.13, in addition to the Covid-19 restrictions that limited most business activities in any event. Accordingly, even if an alternative use of the Cinema had been viable as an alternative business model for Cineworld to generate an alternative revenue stream during the Restrictions Period, the terms of the Lease significantly limited Cineworld in using the Cinema for another purpose.
27. As a result, the agreement in regard to Cineworld's obligations to pay Rent, Service Charge and Insurance under the Lease was temporarily frustrated for the period during which Cineworld was unable to perform these obligations. Owing to this, no Rent, Service Charge or Insurance is payable by Cineworld during the Restrictions Period, or at least from 18 March 2020 until 18 May 2021.
28. In the alternative, the Lease has an implied term that if there is a substantial and wholly unforeseen interference with the Defendant's ability to use the Cinema for a purpose permitted under the terms of the Lease, then the obligation to pay Rent, Service Charge and Insurance otherwise due would be suspended and cease to be payable for as long as such interference continued. Accordingly, such obligations were suspended during the Restrictions Period, or at least from 18 March 2020 until 18 May 2021.
Market value of the Cinema during the pandemic
29. During the Restrictions Period, the market rental value of the Cinema would have fallen to zero, or in the alternative a sum significantly lower than the value of the Rent under the Lease, owing to the fact that the purpose to which the premises lends itself was impossible to fulfil and so, had WF Ltd had vacant possession of the Cinema during that time, it would have been unable, or highly unlikely to be able, to enter into a tenancy agreement of any real value with another party. Accordingly, the Rent under the Lease became extortionate during the Restrictions Period because the ability to generate any value from the use of the Cinema was entirely prevented and/or severely impeded. In such circumstances, equity requires that the Rent during that period should be nil, or at the very least significantly reduced to reflect the fact that the Cinema was of little to no use during this period.
Insurance
30. Under clause 6.3 of the Lease, in the event that the Cinema "or any part thereof or the means of access thereto shall be destroyed or damaged by any Insured Risk so as to render the Demised Premises unfit for occupation or use or inaccessible", the Rent "or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the Building (or the relevant part thereof) or the means of access thereto shall have been reinstated so as to render the Demised Premises fit for occupation and use and accessible or (if earlier) until the moneys received by the Landlord in respect of loss of rent insurance shall have been exhausted".
36. Accordingly, WF Ltd failed to properly insure the Cinema against the risk of a coronavirus pandemic and the loss of Rent arising from the same. This constitutes a breach of the Lease by the [Landlord] and it cannot seek to recover from the Defendant what would have been recoverable under an insurance policy in the event that the [Landlord] had properly obtained insurance in accordance with its duties under the Lease. This is particularly so in circumstances where the Defendant was prohibited by clause 6.2(b) from obtaining its own insurance in this regard.
Adherence to Government Guidance
37. In the alternative, in the event that Cineworld is liable to pay any Rent, Service Charge or Insurance for the Restrictions Period, which is denied for the reasons set out above, WF Ltd should have granted Cineworld a complete or partial waiver of the sums due for the reasons that follow.
38. The Guidance was issued by the Government early on in the pandemic and, even at that stage, it included in its recommendations that landlords should consider agreeing to a partial or complete waiver of sums due under their leases. Throughout the pandemic this Guidance was supplemented, as set out immediately below, and the option of a partial or complete waiver of sums due was Increasingly referenced therein. This is understandable, given that at the outset of the pandemic, it was not anticipated that restrictions would be in place for as long as they ultimately were and the impact of such restrictions on the affected businesses and the wider economy was also unknown at the time that the Guidance was issued.
39. Subsequently, on 7 September 2020, a 'Ministerial Update to Government Policy as Landlord for its Business Tenants during COVID-19 Period' (Ministerial Update) also identified a partial or complete waiver of sums due as an option that the Government, as landlord to business tenants, was willing to consider and had made available to certain tenants. The Ministerial Update stated that the "amount of any rental waiver offered or accepted by Government will be determined by reference to a Business Tenant's current trading position and its ability to afford the rent in the next rental period." It also stated that "where Business Tenants have been worst affected by the COVID-19 trading restrictions, Government has offered partial or complete rent waiver for that initial 3-month period." Clearly, Cineworld will have been one of the worst affected businesses by the Covid-19 trading restrictions, it being unable to operate its business as usual for just under a year and a half. Accordingly, Cineworld should have been offered a complete or, at the very least, a partial waiver of Rent.
40. The Updated Guidance went further and stated that "Government would also like the parties to consider adopting some of the other Payment Concessions, such as rent waiver or reduction", which it said would "help more businesses survive the effects of COVID-19 and, more critically, will allow the economy to recover more quickly." This is a particularly pertinent point in light of the fact that Cineworld operates the only cinema in Jersey.
41. The Updated Guidance also warned that "Government's key concern is that landlords and tenants of commercial property should not consider rental deferral as being the preferred option. This option has greater risk for both parties in the longer-term. It impedes the landlord's cash flow and increases the debt of the tenant [ ... ] While the profitability of businesses continues to be impacted by the effects of COVID-19, a deferral potentially carries more insolvency risk."
43. However, in the case of the Lease, as set out at paragraph 4 above, WF Ltd is owned by the Government, with its sole shareholder being JDC. As a result, WF Ltd is essentially the Government as landlord to a business tenant, in relation to which the Ministerial Update was intended to address. Accordingly, a greater expectation and requirement existed that WF Ltd would consider and act in accordance with the Guidance, Ministerial Update and Updated Guidance than if it had been a private landlord wholly unconnected to the Government. This is particularly the case given it was the Government which made the operation of the Cinema unlawful (and later commercially unviable) and thereby clearly and directly adversely impacted Cineworld's ability to generate the revenue to meet the obligations which would otherwise arise under the Lease. WF Ltd's failure to offer anything other than a deferral of Rent throughout the duration of the Restrictions Period and its subsequent issuance of proceedings are actions against the clear purpose and terms of the Guidance, Ministerial Update and Updated Guidance.
44. WF Ltd has failed to explain why it has adopted a stance contrary to its shareholder's own recommendations.
45. In addition, it is manifestly unfair for the Government, on the one hand, to prevent Cineworld from operating its business (and, therefore, from generating any revenue), whilst, on the other hand, seeking from it payment in full of Rent for the premises from which they would ordinarily operate but owing to the Government's restrictions have been prevented from doing so. Where a party causes itself to suffer losses in this way, equity requires that such a party must not be allowed to claim recovery of those losses from another innocent party. In other words, WF Ltd, as a Government entity, cannot require Cineworld to make payment of sums that Cineworld has been unable to pay due to the Government's own doing.
46. This is particularly the case, where the [Landlord], in breach of the Lease, failed to obtain proper insurance for the losses it caused (see paragraphs 30 to 36 above).
47. Further, it is manifestly unfair for Cineworld to be prejudiced by virtue of the fact that WF Ltd is a subsidiary of JDC, rather than the latter being Cineworld's landlord directly.
48. For the reasons set out under each of the subheadings above, the Rent did not fall due on the Quarter Days set out in the [Landlord]'s Order of Justice. In the alternative, any Rent that did fall due on those dates was at a significantly reduced rate, such rate to be determined by the Court in due course."
9. The reason for the dispute concerns whether or not the defendant is obliged to pay rent during the period the Cinema was closed as a result of the COVID-19 Pandemic and restrictions were imposed by the States of Jersey or the Minister for Health, and alternatively the defendant's ability to operate its business was restricted again by Covid related regulations or orders.
10. The legislation relevant to the present dispute is as follows: -
(i) On 22nd April 2020, the States of Jersey passed the COVID-19 (Restricted Trading) (Jersey) Regulations 2020. This was a piece of legislation which delegated broad powers to the Minister for Health and Social Services ("the Minister") to order the closure or partial closure of certain business premises. Article 3 (1) of the Regulations provided: -
11. The above regulations were themselves passed under the COVID-19 (Enabling Provisions) (Jersey) Law 2020.
12. On 1st May 2020, the Minister issued the COVID-19 (Restricted Trading) (Jersey) Order 2020. This order required the closure of entertainment facilities which included cinemas (see paragraphs 3(1) and 3(2)). The order came into force on 2nd May 2020 and initially remained in force until 11th May 2020. This date was subsequently extended to 24th May 2020 by Article 2 of the COVID-19 (Restricted Trading) (Amendment)(Jersey) Order 2020.
13. The Restricted Trading Regulations were replaced by the COVID-19 (Workplace Restrictions) (Jersey) Regulations 2020 which were passed by the States of Jersey on 19th May 2020 and came into force on 20th May 2020 ("the Workplace Restrictions Regulations"). As a consequence, any Orders made by the Minister under the Restricted Trading Regulations lapsed.
14. Article 2(1) of the Workplace Restrictions Regulations provided as follows: -
15. On 20th May 2020, the Minister issued the COVID-19 (Workplace Restrictions) (Jersey) Order 2020 which required "entertainment facilities" to be closed (see Article 2(1)(d)). Article 2(2) clarified that entertainment facilities included cinemas. The Workplace Restrictions Order was initially said to cease to have effect on 3rd June 2020 but was subsequently extended to 12th June 2020 and was then amended which appeared to remove references to entertainment facilities. The Cinema did not however open. This was said by the defendant to be due to the practical implications of complying with government guidance concerning "controlled gatherings" and how the limit of 40 people was to be applied to the Cinema. The defendant's position was that continuance of the coronavirus restrictions meant that it was not viable for the Cinema to reopen
16. Cinemas were closed again on 24th December 2020 pursuant to Article 3 of the Covid-19 (Workplace Restrictions) (Amendment No. 7) (Jersey) Order 2020 and were only permitted to reopen from 12th April 2021 onwards when the reference to entertainment facilities was removed by Article 3 of the COVID-19 (Workplace Restrictions and Gathering Control) (Amendment no 5) (Jersey) Order 2021.
17. Masks had to be worn in Cinemas from 12th April 2021 to 14th June 2021 and again from 31st July 2021 to 26th August 2021. It is not necessary to set out the detailed provisions imposing this requirement.
18. In addition, food and drink could not be served for consumption at cinemas until 18th May 2021.
19. There were also requirements to carry out contact tracing as well as limits on how many people could use the Cinema at various times until the Cinema was free to operate without any restrictions from 26th August 2021. Again, for the purposes of this judgment it is not necessary to set out the detailed provisions imposing these requirements.
20. Advocate Kelleher for the landlord made the following written and oral submissions.
21. In the landlord's initial written skeleton argument, I was invited to consider the landlord's application against the backdrop of a number of decided cases in England and Wales where landlords have successfully claimed for arrears of rent during periods where the defendant's business was required by law to close because of the COVID-19 Pandemic. Advocate Kelleher argued that these cases were useful guidance as to how Jersey should approach the landlord's claim. In particular, he referred to the decisions in Commerzreal Investmentgesellschaft mbh v TFS Stores Limited [2021] EWHC 863 (Ch); Bank of New York Mellon (International) Ltd v Cine-UK Ltd [2021] EWHC 103; and London Trocadero (2015) LLP v Picturehouse Cinemas Ltd & Ors [2021] EWHC 2591 (Ch). He further argued there were no reported decisions where a court had found in favour of a tenant facing claims for arrears of rent where a tenant was relying on a COVID-19 Pandemic related defence.
22. In his skeleton argument he identified five issues raised by the defendant's answer at paragraph 22 as follows: -
"22.1. Issue (1): Supervening illegality and Temporary Suspension of Obligation.
22.2. Issue (2): the Operation of the Insurance and Rent Cesser Provisions.
22.3. Issue (3): Implied terms generally as to suspension of rent.
22.4. Issue (4): 'Equity" requires the Court to intervene.
22.5. Issue (5): Adherence to Government Guidance."
23. In respect of supervening illegality and temporary suspension of obligations, this included the effect of any legislation passed by the States or issued by the Minister, the doctrine of frustration, whether the defendant should be released from any obligations said to be impossible, whether a contract could be temporarily frustrated, whether there had been a total failure of consideration and/or force majeure.
24. Following the initial exchange of skeletons received from the parties, as the dispute is ultimately a contractual one, I asked to be addressed on what Pothier had to say about force majeure including suspension of an obligation and what this might mean in addition to the English law position. I also asked to be addressed on what the current position under French Law might be and supplemental skeletons were filed as a result. Two texts by Pothier were cited, being the Traité des Obligations and the Traité du Contrat de Louage.
25. In relation to the lease, Advocate Kelleher argued this was a standard form commercial lease between two commercial parties which had been negotiated at arm's length. This included Clause 3.1(a) which obliged the defendants to pay the rent without any deduction and included an agreement "not to exercise or seek to exercise any right or claim to withhold any Rents or any right or claim to legal or equitable set-off."
26. He therefore argued that the breadth of this Clause excluded any argument the defendant was now relying upon by reference to Pothier. Even if therefore the doctrine of temporary suspension was part of Jersey Law based on the writings of Pothier (which Advocate Kelleher did not accept), Clause 3.1(a) was effectively broad enough to exclude reliance on any such principle. He contended there was no difference between a claim to withhold rent and a temporary suspension meaning rent was not payable in the first place.
27. In relation to Pothier, the basic principle for contracts was contained in the Traité des Obligations Volume 1. In the Traité des Obligations the starting position for all contracts was that parties had to fulfil their contractual obligations (paragraph 146).
28. At paragraph 149 of the Traité des Obligations a defaulting party was only excused from paying damages if it failed to perform its contractual obligations in the event of force majeure or a cas fortuit. These terms Advocate Kelleher accepted were used interchangeably. What was meant by a force majeure was not however defined.
29. Under the Traité des Obligations, a force majeure however did not prevent an obligation to pay money. This was clear from the discussion at paragraph 658.
30. Whether or not a party was required to pay damages was also affected by how far under their contractual bargain there had been an acceptance of risk by one party compared to the other (see Volume 2 of the Traité des Obligations Part 3 Chapter 6 paragraph 668).
31. In relation to the commercial lease, as this dealt with what would happen if the Cinema were destroyed, the parties had therefore considered a possible cas fortuit and allocated a risk accordingly i.e. the landlord had to obtain insurance cover and had to rebuild with the obligation to pay rent being suspended for up to 3 years if such damage occurred. However, having allocated this risk under the lease, the consequence of this agreement meant that all other risks, whether foreseen or not sat, with the defendant. The parties could have drafted the lease differently and, in particular, could have specified that the obligation to pay rent would not arise in various other circumstances but had chosen not to do so.
32. As to the effect of force majeure and whether it could lead to suspension of the obligation to pay rent, the Traité des Obligations did not assist in any material way. Rather it appeared to suggest that the remedy was that of resolution which was the approach taken in the Hotel de France (Jersey) Limited v The Chartered Institute of Bankers (1995_256) (21 December 1995).
33. In relation to the Traité du Contrat de Louage six principles were set out. The key principle was principle six which provides as follows: -
34. The landlord's position was that it had only covenanted with the defendant that the latter as tenant could have quiet enjoyment of the Cinema pursuant to Clause 5.1 of the lease. The landlord was not in breach of that provision as the closure or restrictions imposed on the defendant's ability to operate the Cinema was due to legislation passed by the States or issued by the Minister. There was no positive term or warranty agreed by the landlord as landlord that the defendant could enjoy use of the Cinema as a cinema. The only other relevant restriction was found in Clause 5.3 which placed an obligation on the landlord not to allow any other part of the Waterfront to be used as a cinema so long as the defendant was using the Cinema for that purpose.
35. The landlord's claim was therefore a straightforward question of construction which did not require a hearing before the Royal Court. The English cases of Commerzreal, Bank of New York Mellon, and London Trocadero referred to above were all examples of the court on a summary judgment application construing leases and the relevant principles of law. The present case was no different.
36. In relation to Pothier, Advocate Kelleher argued that the Traité du Contrat de Louage principles should not be followed in any event. This was because Pothier in this Traité did not analyse why force majeure should apply to the payment of rent, when force majeure in the Traite des Obligations did not apply to a payment of money. French Law had also followed the more general principle that an obligation to pay money could not be subject to force majeure. More recent modifications to the French Civil Code had gone down the hardship route. Before this change, the Code Civil had applied the principles contained in the Traite des Obligations not the principle relied on by the defendant in the Traité du Contrat de Louage. It was therefore difficult to see why the position should be different for leases compared to an obligation to pay money under any other contract.
37. Advocate Kelleher accepted that other parts of the Traité du Contrat de Louage had been recognised as part of Jersey Law, but the present principle had never been applied by the Royal Court. He argued therefore that it was not part of Jersey Law. To find otherwise would open the floodgates to arguments about suspension of rent during the COVID pandemic. This led Advocate Kelleher to refer me to the remarks of Sir Michael Birt in Hong Kong Foods Limited v Robin Hood Curry Limited [2017] JRC 050 at paragraph 141 as follows: -
38. No other commentators or articles mentioned or discussed the application of the sixth principle found in the Traité du Contrat de Louage. In addition, during the German occupation of Jersey 1940-1945, The Adjustment of Rent (Jersey) Law 1940 would not have been necessary if the sixth principle had formed part of the Law of Jersey. A landlord and tenant who could not agree to adjust the rent in the exceptional circumstances of that occupation could have simply gone to the Royal Court to determine what rent was payable.
39. In relation to the other arguments raised by the defendant, Clause 3.14(a) of the lease placed the obligation on the defendant to comply with any statutes or other legislation issued, whether by the States of Jersey or a Minister. Clause 3.14 therefore transferred the risk that the Cinema could not open due to legislation onto the defendant.
40. In relation to the obligation to insure, this was only against loss or damage to the Cinema. This was clear from both Clause 6.1(a) and the definition of Insured Risks. Whether the landlord chose to extend the insurance to any other risks, any other risk still only had to be in relation to the cost of rebuilding or reinstating the Cinema. There was no obligation on the landlord to obtain insurance in relation to the effects of the COVID Pandemic or of a third party event preventing the defendant operating the business as a Cinema. That was a matter for the defendant.
41. Nor did the lease prevent the defendant obtaining its own business insurance. Clause 6.2(b) of the lease prevented the defendant from obtaining insurance in respect of the insured risks but not any other risks the defendant might face. In any event, as was clear from paragraph 33 of the affidavit of Kevin Frost dated 18th March 2022 filed on behalf of the defendant, the defendant itself had accepted that prior to the Pandemic it would have been possible to obtain insurance for loss of rent arising out of business interruption. While Mr Frost's position was in support of the defendant's argument that the landlord should have obtained such insurance, Advocate Kelleher relied on the relevant paragraph to contend that it was open to the defendant to have taken out such insurance and therefore the possibility of a closure of the Cinema due to a Pandemic was foreseeable.
42. The doctrine of frustration did not apply as a matter of English Law because there could be no temporary suspension (see paragraph 211 of Bank of New York Mellon). Advocate Kelleher referred to the English position because in Mobil Sales & Supply Corporation V. Transoil (Jersey) Limited [1981] J.J. 143 the court appeared to consider whether the doctrine of frustration was applicable in Jersey by reference to English Law principles (see page 160).
43. Insofar as the defendant relied on a total failure of consideration, consideration was not part of Jersey Law. In any event there was no such failure. The landlord had only to provide quiet enjoyment and was not in breach of that obligation. Nor was there any warranty from the landlord that the leased premises could be used as a cinema.
44. In relation to the arguments for implied terms suspending the payment of rent as the Cinema could not lawfully be occupied, or for a term to have the same effect as a temporary frustration, or based on the argument that the landlord should have insured against risk of a pandemic, the relevant threshold to imply a term currently set out in Grove and Briscoe v Baker [2005] JLR 348 was not met.
45. In relation to the latest review of the principles to be applied to imply terms as articulated by the Supreme Court in Marks & Spencer Plc v BNP Paribas Securities Services [2016] AC 742 for a term to be implied either required the term to be implied as a matter of business efficacy or because the implied term asserted was so obvious that it went without saying. The landlord's position however on any implied term was that the lease worked perfectly well without the implied terms sought by the defendant; the lease attributed various risks to the parties including that the Cinema could not be used as a result of an unforeseeable event unless the rent cesser clause operated which it did not because there was no damage. The test was one of necessity not reasonableness. The landlord's position was that, if any issue now relied upon had been raised when the lease was being negotiated, it was far from obvious what conclusion might have been reached. The arguments based on implied terms had been pursued in England and did not succeed - (see Bank of New York Mellon, and London Trocadero). Advocate Kelleher contended for the same conclusion in the present case.
46. In relation to the argument that equity required the court to intervene, the landlord's position was that no proper basis had been identified upon which the court could interfere with the contractual arrangement reached between the parties.
47. The argument that to require payment of rent was extortionate because the market value of the rent was nil was also inconsistent with the terms of the lease which provided for a minimum rent to be payable i.e. the rent payable only went up and not down.
48. In relation to the defendant's reliance on Government guidance applicable to situations where Government was the landlord, the landlord's position was this was guidance only and it did not apply to the landlord which was a separate company. It was not possible to look through the separate legal personality of the landlord simply because it was owned by the States of Jersey. The effect of the guidance however was also that it was not to vary, suspend or alter the contractual obligations of landlords and tenants.
49. The only other issue raised by the landlord was a declaration about the droit de gage. By the time of oral argument, it was not an issue that the droit de gage applied to movables in the Cinema and applied to at least one year's arrears of rent.
50. Advocate Cook for the defendant made the following submissions: -
51. Firstly, he reminded me of the applicable summary judgment principles summarised by the Court of Appeal in HRCKY Limited v Hard Rock Limited [2019] JCA 123 at paragraphs 59 and 60. He also reminded me of the quote from the 2017 White Book referred to at paragraph 164 of Holmes v Lingard & Ors [2017] JRC 113 that "the standard of proof required of the respondent is not high" to defeat a summary judgment application. He further emphasised that a summary judgment hearing should last hours, not days.
52. In relation to difficult issues of law, he contended that these should be decided at a trial and not on the basis of assumed or hypothetical facts (See Barrett v Enfield LBC [2001] 2 AC 550 (2)). The question he argued, that should be referred to the Royal Court, was what Jersey law is in relation to issues of force majeure. By reference to the article Frustration and Hardship in Commercial Contracts: A Comparative Law Perspective by Fairgrieve and Langlois Jersey and Guernsey Law Review 2020, the scope of the doctrine of force majeure and its applicability in the 21st Century justified a Royal Court hearing. Advocate Cook was therefore critical of the landlord's approach of applying UK law when Pothier provided a clear answer to the present application. Pothier in particular recognised by reference to the sixth principle in his Traité du Contrat de Louage that there could be a temporary suspension of the payment of rent where the lease was affected by a cas fortuit/force majeure.
53. In particular, Advocate Cook relied on the commentary at paragraphs 145, 146 and 148 of Pothier's Traité du Contrat de Louage.
54. Paragraph 148 provides as follows: -
55. Where a tenant had initially been granted possession, a subsequent force majeure could also lead to the obligation to pay rent being suspended. This was clear from paragraph 149 which provides as follows: -
56. The central commentary was then found at paragraphs 152 as follows: -
57. Advocate Cook accepted that the discussion at paragraph 152 was not easy to apply but contended this was why the case was one that required a trial in the Royal Court.
58. He argued that there was no material difference between Pothier's example of the loss of a business of an inn caused by the action of the authorities and the lockdown measures taken by the States Assembly and the Minister. The measures taken in Jersey prevented the defendant from operating the Cinema, and so the requirements of force majeure were met. The obligation to close could not have been resisted; nor could the effect of the Pandemic. The threshold in Pothier of the alteration and circumstances leading to a loss of business was met because the effect of the pandemic was clearly "tres considérables".
59. Advocate Cook accepted, as he had to, that it was possible for a landlord and tenant to contract out of the risks of force majeure, so long as this has been expressly agreed. (See paragraph 178 of Part 3 Chapter 1 of the traité du contrat de louage) as follows: -
60. The rationale for this is explained by Pothier as follows: -
61. Advocate Cook argued that the obligation in Clause 3.1.(a) of the sub-lease was too generic and not sufficient to exclude the principle recognised by Pothier. He argued there was not enough clarity in the clause. He argued that the language of any agreement to exclude any reliance on Pothier would have to make it clear that a tenant was obliged to pay even if premises were closed due to legislative change imposed because of an act of force majeure.
62. Clause 3.14 of the lease which required the defendant to comply with all statutory and other legislation requirements did not prevent the defendant from relying on the principle recognised by Pothier's Traité du Contrat de Louage in respect of unforeseen legislation at least following on from an act of force majeure.
63. In relation to why his client had made offers if the obligation to pay rent was suspended according to Pothier, Advocate Cook recognised the court had the power to say that something might be due but that was still a determination that required a Royal Court trial.
64. A trial was also required to determine whether the restrictions which limited the ability of the defendant to operate in practice was sufficient for there to be a temporary suspension of rent.
65. The fact that the principles in Pothier's Traité du Contrat de Louage had not been cited in any case before the Royal Court did not mean they did not form part of the law of Jersey. Given that other parts of the Traité du Contrat de Louage had been cited before the Royal Court, it was not appropriate to say that these particular principles had fallen out of usage. In relation to the 1940 Law relied on by Advocate Kelleher, this piece of legislation did not mean that the Traité du Contrat de Louage was not part of Jersey's customary law. The 1940 Law was a particular scheme to deal with the issues at hand at that time.
66. In relation to the UK cases, there was now a scheme in force in the UK to deal with tenants' obligation to pay rent during periods affected by the pandemic which focused on the inability of a tenant to pay. Such cases were now referred to arbitration rather than being determined by the courts. The cases therefore no longer reflected the approach being taken in England. At present there was no equivalent legislative scheme in Jersey which is why reliance on the sixth principle in Pothier was important.
67. In relation to the Jersey Practice Direction referred to above, this was relevant to the court having a discretion. In exercising its discretion, the court could take into account the conduct of the parties in negotiation in determining what rent was payable. In that regard the Bank of New York Mellon was distinguishable because the same Practice Direction did not exist in England.
68. In relation to the implication of a term, the fundamental term to be implied was that rent was not payable when the defendant could not use the Cinema. This term could be implied even though there was no express warranty from the landlord that the Cinema could be used as such. This was effectively giving effect to a temporary suspension as recognised by Pothier on the basis of an implication of a contractual term.
69. In relation to the failure to obtain insurance cover Advocate Cook relied on his skeleton argument which contended that the landlord was solely responsible for arranging that adequate insurance was in place to protect against any loss including any inability to pay rent.
70. In relation to the reliance on equité, again this was relevant to the Royal Court's exercise of its discretion including having regard to the Government of Jersey's guidance, which the landlord had not adhered to even though it was owned by the Public of Jersey through the Government of Jersey.
71. The starting point for my decision is the applicable legal principles on a summary judgment application which Advocate Cook helpfully reminded me of. I am however very familiar with these principles having applied them in a number of decisions. Nevertheless, given the importance of this decision to the parties, I set out the applicable principles as summarised at paragraphs 59 and 60 of the Hard Rock decision as follows: -
72. I also agree with Advocate Cook that in relation to points of law the court should only give summary judgment on a legal issue if it is satisfied that the point of law is unarguable.
73. It is also accepted on a summary judgment application that the court may be satisfied on a short point of construction that a defendant's assertions are misconceived or plainly unsustainable (See Hard Rock case again and CoreFocus Consulting Limited v Cronk [2013] JRC 194).
74. The other relevant principle under Rule 7 of the Royal Court Rules 2004, as amended, is that a summary judgment application under Rule 7/1(1)(b) may be refused if there is some other compelling reason why the case or issue should be disposed of at a trial. What was by meant by other compelling reason was considered by Commissioner Hunt in C.I. Trustees and Executors Limited and Killmister v Sinels Advocates and Carey Olsen [2017] (2) JLR 1 where he stated as follows: -
75. These are the principles that I have applied.
76. In relation to how I have applied these principles I propose to determine them by reference to the issues identified at paragraph 22 of Advocate Kelleher's written submissions for the landlord, set out at paragraphs 22 and 23 above.
Issue 1- Supervening illegality and Temporary Suspension of Obligation
77. In relation to this issue, it is clear from the English authorities quoted to me in particular the Bank of New York Mellon case that the arguments raised by the defendant have been raised in England in relation to leases where there is no material difference between the terms of those leases and the terms of the sub-lease in relation to the Cinema. Accordingly, the defendant's arguments would not prevail in England.
78. In that regard I add for the sake of completeness that, subsequent to oral argument but prior to the handing down of this judgment, the Court of Appeal of England and Wales issued its judgment in the Bank of New York Mellon and London Trocadero cases which appeals were both dismissed. The judgment of the Court of Appeal focused on two grounds in respect of both appeals namely whether the imposition of government restrictions imposed as a consequence of the Pandemic caused "a failure of basis" relieving the defendant from the obligation to pay rent for those periods and secondly the implied term argument that the defendant should be relieved of the obligation to pay rent where the defendant could not use the premises leased as a cinema. In addition, in relation to the Bank of New York Mellon appeal there was an argument about the effect of the rent cesser clause in that lease. I refer to this judgment later in this decision.
79. As a starting point, it is right to observe that the defendant did not argue that there had been a total frustration of the lease. This is not surprising because the lease was granted for 35 years in 2002 and the period of time when the Cinema was closed by reference to the pandemic was some 14 months.
80. The doctrine of frustration of English law was explained at paragraph 195 of the Bank of New York Mellon judgment at first instance as follows: -
81. This judgment then cited at paragraph 198 a passage from the judgment of Lord Hailsham in National Carriers V Panalpina [1981] AC 675 on the effect of frustration as follows: -
82. Paragraph 207 of the Bank of New York Mellon judgment cited Canary Wharf v European Medicines Agency [2019] L&TR 14 as follows: -
83. This led to the conclusion at paragraph 209 that there could not be frustration of the lease in that case as a matter of English law. I have set out the above conclusions because the judge then went on to consider why there had not been a temporary frustration leading to the following conclusion at paragraph 211: -
84. Under English law therefore the defendant's argument there had been a temporary frustration would not succeed. It is noteworthy that the temporary frustration argument was not pursued before the Court of Appeal.
85. However, the position in Jersey is not necessarily the same in relation to contract leases because of the sixth principle of Pothier's traité du contrat de louage set out at paragraph 34 above.
86. This principle has not been referred to or considered by the Royal Court but, as Advocate Cook set out in his skeleton at paragraph 24, there are numerous other authorities where the court has cited with approval extracts from Pothier's traité du contrat de louage. It is not therefore fanciful or improbable that the sixth principle referred to and relied upon by the defendant may form part of the law of Jersey.
87. Whether it in fact does so or whether the more general approach taken in the traité des obligations referred to by Advocate Kelleher should apply is not an argument appropriate to determine on a summary judgment application. This is clearly a developing area of law and how Jersey law might choose to apply that principle in the 21st Century having regard to the words of Sir Michael Birt in the Hong Kong Foods Limited case set out at paragraph 38 above is not a matter for me to determine on this application. The question of when the principle might apply and how Pothier's example of an inn no longer being able to be used because of a decision taken by local authorities is applicable in the 21st Century to a complex commercial lease is not for determination under Rule 7. Likewise, even when the Cinema could be open in the latter part of 2020 and from April 2021, whether the effect of any orders or regulations in force from time to time amounts to a temporary suspension is also a matter that would require a trial to be determined.
88. However, that is not the end of the argument because, assuming in the defendant's favour that the principles it seeks to rely on do form part of Jersey law, Advocate Kelleher's position is that the terms of the lease in particular Clauses 3.1(a) and 3.14 mean that the defendant cannot rely on the sixth principle in Pothier because the defendant has as a matter of contract law agreed to pay rent and "not to exercise or seek to exercise any right or claim to withhold rents" (Clause 3.1(a)) and has assumed the risk that it has to comply with all statutes or other regulations (Clause 3.14). I will deal with each of these arguments in turn.
89. In relation to the effect of Clause 3.1(a), this is a straightforward clause and one therefore which can be construed under a summary judgment application applying Corefocus. The construction question I have to determine is whether this provision is sufficient to exclude any reliance on the sixth principle of Pothier that the defendant seeks to invoke.
90. Pothier himself recognises, as set out at paragraph 178 quoted at paragraph 60 above that it is possible to expressly agree that rent is payable whatever might happen to a tenant (using the example of a lease of a farm). If there is such a clause, the tenant then bears the risk of any unforeseen accidents.
91. Pothier also recognises, consistent with Jersey decisions on construction of agreements, that any such clause has to be strictly construed. In such clauses, any agreement that rent is payable whatever occurs in the future also has to be an express provision and cannot be implied or inferred.
92. In construing Clause 3.1(a) it is right to look at the context namely that the lease is an arm's length commercial lease negotiated between the landlord on the one hand which, inter alia, is responsible for development of the Waterfront and is therefore a sophisticated commercial entity and the defendant on the other which operates a number of Cinemas in the UK and is also a sophisticated commercial entity.
93. In my judgment, the reliance by the defendant on the sixth principle of Pothier is the defendant seeking to exercise a right to withhold rent on the basis that the rent is not payable because of the COVID Pandemic as an unforeseen event and so falls within Clause 3.1(a). The wording in Clause 3.1(a) could not be broader; what the tenant has agreed to, and this is where the sophistication of the defendant is important, in a complex commercial lease is that that the defendant will not assert any right or claim to withhold rent. Adding words after "claim" such as (including in cases of force majeure) are clarificatory only and do not mean that the language used in the lease was not broad enough to exclude the claim to withhold rent that the defendant now wishes to adopt. The terms of Clause 3.1(a) could have been qualified to say "save in cases of force majeure" but did not do so. The defendant has therefore agreed not to bring any claims to withhold rent; yet the present answer and the reliance on Pothier's sixth principle seeks to do exactly that and so is caught by Clause 3.1(a).
94. While therefore the arguments about the application of the sixth principle of Pothier in the traité du contrat de louage are of interest and may be applicable to other leases, in this case the argument does not arise because the defendant has already agreed contractually by reference to Clause 3.1(a) not to bring any claim to withhold rent. The defendant cannot now resile from the contractual bargain reached.
95. In addition, by Clause 3.14, the defendant has agreed to comply with all "statutes, statutory instruments, by-laws and regulations issued by any Insular Parochial Statutory or regulatory authority".
96. In reaching a view on the meaning of Clause 3.14, it is also important to bear in mind that Clause 4.8 headed "No Warranty" means that there is no assurance or promise from the landlord that the premises leased can lawfully be used as a cinema. This means that the risk that the premises cannot be so used falls upon the defendant. All the landlord has promised is "quiet enjoyment". The imposition of restrictions by the States of Jersey or the Minister is not a breach of the quiet enjoyment covenant. This is why the defendant has to bear the risk of any legislation preventing it from using the Cinema, whether because a total closure is ordered or whether any regulations made it commercially unviable for the defendant to open the Cinema.
97. The defendant's position is also effectively the same argument that was considered by the English Court of Appeal in the Bank of New York Mellon case where the tenant argued that there had been some form of failure of basis. This led to the following conclusions at paragraph 149 and 150 of that judgment: -
98. The Court of Appeal also reached the following conclusion: -
99. In the present case the landlord has therefore persuaded me that there is no difference between the conclusions in England at first instance and confirmed by the Court of Appeal and the present case. In view of the clear terms of the lease, the defendant in the present case has agreed to pay rent without any qualification (other than in respect of the Rent Suspension clause referred to later in this judgment) and has agreed to comply with any legislation again without qualification. In the absence of any express warranty from the landlord that the premises may be used as a cinema, the defendant cannot rely on Pothier to escape the contractual agreements it has adhered to. The lease of the Cinema is a code as to when rent is payable.
100. I should add in that regard that the suggestion that the market rent of the Cinema fell to zero while the Cinema could not open or because, according to the defendant, it was effectively prevented from operating the Cinema was a hopeless argument in light of the clear provisions of the lease at clause 7.2.1 set out above. The terms of the lease clearly set out that any rent review was upwards only. If the market rent was less than the rent payable at the date of any review, then there would simply be no increase. Nothing in Pothier alters the clear terms the parties had agreed.
101. In light of these conclusions, I now turn to consider the remaining issues raised by the defendant.
Issue 2 - Operation of the Insurance and Rent Cesser Provisions
102. This issue was also dealt with in the Bank of New York Mellon case at first instance where the court reached the following conclusions at paragraph 127 as follows: -
103. The judge also stated the following at paragraph 130 as follows: -
104. In the Court of Appeal, the court's conclusions are found at paragraphs 126, 127 and 128 as follows: -
105. In relation to whether the landlord should have insured against the Pandemic forcing closure of a Cinema, the Court of Appeal also stated at paragraph 132: -
106. I have set out these provisions in detail because I see no reason to reach a different conclusion in relation to the arguments advanced by the defendant in this jurisdiction. The obligation on the landlord is contained in Clause 6.1 and is to insure against Insured Risks and such other risks the landlord may from time to time reasonably deem appropriate in the sum "equal to the likely cost of completely rebuilding reinstating and replacing the same..."
107. The definition of Insured Risks set out above clearly also relates to risks which will cause physical damage to or destruction of the Cinema. This means that, even if the landlord had chosen to insure against other risks, which I conclude is the landlord's choice, (as long as that choice is deemed to be reasonably appropriate), those other risks can still only relate to the likely cost of completely rebuilding, reinstating and replacing the Cinema. If therefore the landlord had chosen to insure against other risks that did not relate to the likely cost of rebuilding, reinstating or replacement, the defendant would not be obliged to pay for such insurance. The defendant is only obliged to pay for insurance of the Insured Risks and other risks relating to rebuilding/replacing or reinstating the Cinema.
108. This conclusion is entirely consistent with the rent suspension provision in Clause 6.3 which operates where the Cinema has been "destroyed or damaged by any Insured Risk".
109. I also agree with Advocate Kelleher that there was nothing in the lease which prevented the tenant from obtaining its own business interruption insurance as was recognised in the first instance and the Court of Appeal in the Bank of New York Mellon decision. The only insurance the defendant cannot take out is in respect of matters that the landlord is required to insure. That is to prevent the risk of double insurance and is entirely understandable because if there are two policies covering the same risk then there would be an argument about which insurer would have to meet the cost of any particular risk that came to occur and in what proportions. Any business interruption policy would not however be a breach of the lease as the landlord was not required to obtain such cover with the result that the defendant was free to do so.
110. While therefore I agree with Mr Kevin Frost by reference to paragraph 33 of his affidavit that the landlord could have taken out insurance against the risks of a Pandemic, that insurance would be for the landlord's own benefit and not an insurance that could be charged to the defendant as a tenant. Advocate Kelleher's point therefore that the defendant as tenant could have taken out its own insurance provision is compelling and in my judgment is unarguable.
111. In respect of the arguments that the landlord should have obtained insurance, in summary, this is a straightforward question of construction having regard to the terms of the lease. My construction of the terms of this lease is the same as that reached in England in relation to provisions which are fundamentally no different. The arguments under this heading therefore fail. The landlord did not fail to properly insure the Cinema and did not breach the terms of the lease.
Issue 3 - Implied terms generally as to suspension of rent
112. In relation to the applicable principles as to when the terms are implied, Jersey law has generally adopted English case law regarding the implication of terms (See Grove and Briscoe v Baker supra applying the English case of Liverpool City Council v Irwin [1977] AC 239).
113. An updated review of the principles to be applied has been articulated by the Supreme Court in Marks and Spencer Plc v BNP Paribas Securities Services Trust Co. (Jersey) Ltd & Ors [2016] AC 742. The head note at paragraph 1 to the Marks and Spencer judgment states as follows: -
114. The Supreme Court at paragraph 18 and 21 stated the following: -
115. I regard these observations as a helpful refinement of the law of Jersey as to when terms should be implied and have followed them in reaching this decision because they are not inconsistent with the Jersey cases on implication of terms.
116. These principles were applied in the Bank of New York Mellon case at first instance at paragraphs 140 to 149 as follows: -
117. The Court of Appeal's conclusions in the Bank of New York Mellon v Cine-UK Limited & Ors [2022] EWCA Civ 1021 are set out at paragraphs 130 to 140 as follows: -
118. The Court of Appeal also stated the following at paragraphs 142 and 143: -
119. There is no reason to reach a different conclusion from this analysis in this jurisdiction. In my judgment, the implied terms contended for by the defendant do not satisfy either the business efficacy test or the obviousness test. As the Court of Appeal in England noted in Bank of New York Mellon the current lease in that case worked perfectly well without the implied terms. The same observation applies to the lease in this dispute. The current lease allocates the risk that the Cinema cannot be used for its intended purpose so that the defendant is obliged to continue to pay rent where the cesser of rent provisions do not apply as I have found even though the Cinema cannot be used as such. I wish to add that Clause 4.8 and a lack of an express warranty about the use to which the premise might be put, is also inconsistent with implying the terms sought by the defendant.
120. The terms contended are also not obvious. The matter can be tested this way. If when the lease was being negotiated, the defendant had contended that Clause 3.1.(a) did not apply to force majeure, what the landlord's response might have been is as far from clear. The landlord may have said rent is payable come what may or the landlord may have agreed certain modifications to the commercial terms to address the risk. What the outcome might have been is far from clear because there is clearly more than one possible contractual solution to the risk of a pandemic and whether or not rent is payable. Had the issue been raised there would have been further contractual negotiation but what might have then been agreed is not obvious.
Issue 4 - 'Equity" requires the Court to intervene
121. In relation to equity, while the court as is well known possesses an equitable jurisdiction, this is not sufficient to permit courts to rewrite contractual bargains. The Royal Court has made it clear on numerous occasions the importance of keeping parties to their contractual bargain and that such a bargain has the force of law (applying the well known maxim la convention fait la loi des parties). A notion of fairness or reasonableness does not permit the Royal Court to vary or modify the contractual bargain the parties have reached. In addition the landlord's claim is a straightforward one for non-payment of rent. No equitable remedies are sought, simply a judgment for the amount of rent payable under the lease. There is therefore no remedy for equity to operate on.
Issue 5 - Adherence to Government Guidance
122. This issue can be dealt with fairly briefly. As Advocate Kelleher contended, the government guidance does not vary, suspend or alter the contractual obligations of landlords and tenants. In addition, the government as landlord guidance does not apply because the landlord is a separate legal entity from the States of Jersey. It is not appropriate to look through the legal personality of the landlord and to treat it as an organ of the States of Jersey.
123. In relation to the Practice Direction RC20/06 relied on by the defendant, this Practice Direction does not purport to vary the parties' legal obligations. Where I accept the Practice Direction might have been relevant is that, if I had found that a trial was required on temporary suspension in reliance on the sixth principle of Pothier, the exercise of the Royal Court's discretion as to what might have been payable may have taken into account matters referred to in the Practice Direction.
124. For the reasons set out in this judgment the landlord's application for summary judgment is granted. When this judgment is handed down in addition to what costs orders should be made as a result of this decision, I wish to be addressed on what other orders should be made.
125. In relation to enforcement of the judgment granted by this decision, the defendant accepts that the droit de gage extends to movables situated at the Cinema but is limited to one year's rent. If however the landlord wishes to argue that the droit de gage should apply to the service charge, insurance for the period when the Cinema did not operate or for a greater period of one year, that is a development of the customary law and would require argument before the Royal Court.