Jersey Unreported Judgments

Costs.

[2022]JRC233

Royal Court

(Samedi)

31 October 2022

Before     :

Advocate Matthew John Thompson, Master of the Royal Court.

 

Advocate J. D. Kelleher for the Plaintiff.

Advocate M. W. Cook for the Defendant.

CONTENTS

		Paras
1.	Introduction	1-3
2.	Contractual/Court Interest	4-16
3.	The extent of the "droit de gage"	17-22
4.	A stay execution	23-31
5.	Costs	32-38

judgment

the master:

Introduction

1.        This judgment follows on from my substantive judgment in this matter dated 11^th October 2022 reported at Waterfront (LC) Limited v Cine-UK Limited [2022] JRC 212 when I granted summary judgment in favour of the plaintiff.

2.        This judgment firstly contains my decision in relation to: -

(i)        Whether the plaintiff is entitled to contractual interest or court interest on the unpaid services charges and the insurance premiums attributable to the defendant; and

(ii)       Whether the plaintiff's right to distrain on removals (the "droit de gage") can be exercised to recover arrears of the service charges and insurance premiums. 

3.        This judgment also contains my written reasons for granting a stay of the plaintiff's right to enforce its judgment through the "droit de gage" and for ordering the defendant to pay the plaintiff's costs on an indemnity basis, pursuant to the right of indemnity contained in the sub-lease.  I will deal with each of these matters in turn.

Contractual interest/court interest

4.        Advocate Cook's argument was that under the terms of the sub-lease the entitlement to contractual interest was set out in Clause 3.1 of the lease which provides 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:"

"(b) To pay the Basic Rent' and the Bar Rent by banker's standing order to a bank in the United Kingdom if required by the Landlord;"

(c) Without prejudice to any other rights or remedies of the Landlord if the whole or any part of the Rents shall remain unpaid 14 days after becoming due (in the case of the Basic Rent whether formally demanded or not) or if the Landlord shall refuse to accept the tender of the whole or any part of the Rents because of a breach of covenant on the part of the Tenant where to do so would prejudice the Landlord's right to cancel the Lease then to pay Interest on the sum in question from the date on which it became due until the date of actual payment such Interest to be recoverable as rent.""

The contractual rate of interest was defined in the definitions' section of the sub-lease as being 3% over the base rate of RBSI plc from time to time.

5.        Advocate Cook argued that the rents referred to in Clause 3.1 were the Basic Rent and the Bar Rent and therefore the interest provision in Clause 3.1(c) only applied to the rents and not the service charges or the insurance premiums.

6.        He further relied upon the obligation to pay service charges contained in Clause 3.3 and the obligation on the tenant to pay a fair proportion of the insurance premium in Clause 6.2 as being separate obligations to the obligation to pay rent.

7.        Advocate Kelleher relied on the terms of Clause 2.1 which granted a lease to the tenant for 35 years including the following words: -

"...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 Dale,

(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."

8.        Advocate Kelleher argued that the words "by way of rent" clearly covered the service charge and the insurance rent as described in that clause and therefore the service charge and the defendant's share of the insurance premium were also rents falling within Clause 3.1(a) and therefore contractual interest applied.

9.        In relation to this issue, the definition of rents in Clause 1.1 of the lease is said to mean "all sums reserved as rent by this Lease". (Emphasis Added) The definition section also defines "insurance rent" as "the monies payable by the Tenant under Clause 6.2(a)".

10.      There is also a definition of outgoings as follows: -

""Outgoings" means all existing and future rates (including both foncier and occupiers and any other levies as may succeed such rates) taxes charges assessments impositions and outgoings whatsoever whether or not of a capital or non-recurring nature which are now or may at any time in the future be payable charged or assessed on property or the owner or occupier of property but excluding in any case any taxation levied or payable in respect of any dealings in the Landlord's reversionary estate, any taxation payable by the Landlord by reason of the receipt of the rents reserved by this Lease and any capital or interest payable under any hypothec secured on property

11.      Clause 6.2(a) requires the defendant as tenant to pay to the landlord on demand as follows: -

"(i) a fair and proper proportion attributable to the Demised Premises (as determined by the Landlord's Surveyor) of all premiums from time to time paid by the Landlord for insuring the Estate (including the Building) against loss or damage by the Insured Risks in accordance with clause 6.1(a);

(ii)       all premiums from time to time paid by the Landlord for insuring the loss of the Basic Rent and the Bar Rent under clause 6.1(a)(ii);

(iii)      a fair and proper proportion attributable to the Demised Premises (as determined by the Landlord's Surveyor) of any excess deducted by insurers in respect of any claim relating to the Estate;

(iv)      a fair and proper proportion attributable to the Demised Premises (as determined by the Landlord's Surveyor) of the cost of any professional valuation of the Estate which may at any time be required by the Landlord in connection with the insurance of the Estate (including the Building) provided such valuation is not carried out more often than once in any period of 3 years."

12.      The conclusion I have reached is that the plaintiff has not satisfied me that it is entitled to contractual interest on the unpaid services charges and the insurance premiums.  In reaching this conclusion, I have not found the lease an easy document to construe as where the references to rent have appeared, there is ambiguity. I have therefore applied the construction most favourable to the defendant. 

13.      In relation to Clause 2.1, I consider this provision is primarily setting out that in summary the payments the Tenant has to pay for each year or on a pro rata basis for part of a year.  However, the reference to rent in Clause 2.1 does not sit easily with the terms of Clause 3.1, 3.3. and 6.2. The references in clause 3.1 to Rents appear to be references to the Basic Rent and the Bar Rent only. The obligation to pay a service charge is in Clause 3.3 i.e. in a separate provision from the obligation to pay Rents and contractual interest in Clause 3.1(c). The definition of outgoings is also inconsistent with all payments due from the defendant as being rents. 

14.      Likewise the obligation to pay a share of the insurance premiums is also in a separate clause - Clause 6.2.  Although there is a definition of insured rent, when Clause 6.2(a) is looked at, what Clause 6.2(a) provides for is an apportionment of insurance premiums and related costs.  There is no reference to rents in the operative provisions setting out how insurance premiums are apportioned.  Indeed the premium is to cover non-payment of the Basic Rent and the Bar Rent not all payments due from the defendant which also supports a more limited construction of Clause 3.1 and the right to contractual interest.  Had the plaintiff wanted to extend interest due under the sub-lease to arrears of any monies due from the defendant it could easily have done so.  

15.       I have therefore concluded that the words "by way of rent" in Clause 2.1 are not sufficient to allow me to conclude that rents include the service charges and the share of the insurance premium payable by the defendant. 

16.      The plaintiff therefore is only entitled to court interest on the arrears of service charges and the arrears of the defendant's share of the insurance premium.  Advocate Cook accepted that interest would run from the date the service charges and insurance premiums fell due for payment.  Advocate Kelleher had calculated that the interest figure on these arrears at the court rate to the date of the hearing  was £6,741.06.  Accordingly, I order that this sum is due by way of interest from the defendant to the plaintiff and that interest will continue to accrue on the unpaid service charge and insurance premiums at the court rate until payment. 

The extent of the "droit de gage"

17.      In paragraph 25 of the substantive judgment, I ruled that if the plaintiff wished to argue that the "droit de gage" extended for more than one year, then that was a matter for the Royal Court because it was a development of the customary law.

18.      Advocate Kelleher argued, while accepting that his clients were not seeking to enforce the "droit de gage", subject to any Royal Court ruling otherwise, beyond one year that the "droit de gage" did cover arrears of service charges and insurance premiums, in addition to rent.

19.      I have already found that rent does not include service charges and the insurance premiums.

20.      This conclusion is consistent with Le Gros v Vibert (1892) 215 Ex 373 page 343 reported in Le Gros where he describes the "droit de gage" of a lessor as only applying to "le montant du loyer" i.e. the amount of rent.

21.      Paragraph 349 of Le Gros also makes the observation that the right to follow movables removed by a tenant for up to 40 days again is to secure payment of rent.

22.      In addition, no authority was produced to me to show that the "droit de gage" extends beyond arrears of rent.  Matthews and Nicolle and Terrien when discussing the droit de gage both appear to refer to rent only.  Accordingly, I was not satisfied that "droit de gage", in the absence of an express contractual provision to the contrary, extends to other payments due from a tenant to a landlord.

A stay of execution

23.      Advocate Cook sought a stay pending appeal to the Royal Court of my substantive decision in respect of the plaintiff enforcing its "droit de gage".

24.      His first concern was that if the plaintiff were to seek to distrain on movables owned by the defendant located at the Cinema, the effect of such an action would prevent the defendant from being able to operate the Cinema as certain movables form an essential element to operating as a Cinema.  The removal and sale of certain essential movables of the defendant would therefore put the defendant out of business in Jersey. 

25.      I was also informed that the Cine-World Group and a number of other entities in the Cine-World Group including the defendant had entered into Chapter 11 insolvency proceedings commenced in the United States (Bankruptcy Court) for the Southern District of Texas Court.  Advocate Cook argued that the Chapter 11 proceedings were a complex process and restricted the defendant's ability to meet historical debt.  The defendant was therefore unable to repay any judgment debt.  In correspondence between Mourant Ozannes for the defendant and Advocate Kelleher for the plaintiff, Mourant Ozannes stated that if the plaintiff sought to enforce any orders made by the court in Jersey, the plaintiff might be subject to proceedings before the bankruptcy court including contempt proceedings.  No expert evidence was filed by the defendant to explain the scope and effect of Chapter 11 proceedings beyond this correspondence.

26.      Advocate Kelleher indicated that his client has no intention of distraining the movables at the Cinema at this stage and therefore suggested that a stay was not necessary.  In the alternative he suggested that the stay should be subject to the conditions of: -

(i)        Making a payment into court of the substantive amounts due;

(ii)       Progressing the appeal as expeditiously as possible; and

(iii)      Not taking any steps to alter the value or deal with the movables at the Cinema pending any appeal so that the plaintiff's rights under the "droit de gage" were not affected by the stay.

27.      In relation to the applicable legal principles in relation to granting a stay, I am familiar with these, having considered them recently in Sheyko v Consolidated Minerals Limited [2021] JRC 186 at paragraphs 51 to 72 and in Sheyko v Consolidated Minerals Limited [2022] JRC 082.  The two leading authorities are Crociani v Crociani [2017] JCA 162 and In the matter of the Saisies Judiciaries in respect of realisable property of Robert Tantular [2019] JRC 222 at paragraphs 7 and 8.  These are the principles I have applied.

28.      I concluded at the hearing that it was appropriate to order a stay but subject to conditions.  I reached this conclusion because I accept Advocate Cook's primary submission that, were the plaintiff to exercise its "droit de gage" over any movables at the Cinema, this could well render any appeal nugatory because the defendant would be unable to operate the Cinema.

29.      My order was however subject to two conditions.  Firstly, the stay would only operate if a notice of appeal was filed within 10 days and the parties use their best endeavours for the appeal to be determined as soon as reasonably practicable.  Secondly, I ordered that the defendant should not take any steps to affect the value or otherwise deal with movables at the Cinema so as to prejudice the plaintiff's "droit de gage".

30.      I did not order a payment into court because there was nothing preventing the plaintiff taking steps to enforce its judgment debt other than the "droit de gage".  What arrangements might be reached between the plaintiff and the defendant in relation to the payment of the judgment debt were therefore for negotiation between the parties.  In addition, if sums were paid by the defendant to the plaintiff in respect of the judgment debt, but my decision is subsequently overturned on any appeal, then the plaintiff is clearly in a position to repay any sums recovered to the defendant.

31.      In relation to the United States Chapter 11 proceedings, it is right to record that there are no proceedings before the Jersey Court seeking a stay of claims by creditors of the defendant.  Nor has there been any request for assistance either from the Cineworld Group or the United States Courts asking the Royal Court not to allow enforcement by creditors pending determination of the Chapter 11 proceedings. I also observe that there are no administration proceedings in England in respect of the immediate parent of the defendant where there is a well-trodden path for the English Courts asking assistance from the Royal Court to prevent creditors seizing assets while a United Kingdom administration takes place.  I make these observations without intending any disrespect to the US Courts, but the mere existence of the US proceedings as a matter of Jersey Law do not have any effect in this jurisdiction and so would not be a basis to grant a stay.

Costs

32.      Finally, I awarded the plaintiff its costs on the indemnity basis because of the provisions of Clause 3.17 of the lease which provide as follows: -

""To indemnify the Landlord against all losses costs expenses damages claims proceedings demand and liabilities incurred or sustained by the Landlord as a consequence (whether directly or indirectly) of any breach non-observance or non- performance of any of the Tenant's covenants herein or of any act neglect or default of the Tenant its sub-tenants or their respective employees' agents' licensees or invitees.""

33.      In relation to this application Advocate Cook quite properly drew my attention to the Royal Court's decision in Tygres Investments Ltd v Jersey Homes Loans Ltd [2016] JCA 173 which explored what approach the court should take where a contractual right to indemnity costs exists and how far that affected the court's discretion to award costs.  Paragraphs 19, 20, 21, 22, 23, 24, 25, 26 and 27 are the material paragraphs as follows:-

"19. The third issue is the most significant one and is the part of the case upon which Advocate Harvey-Hills particularly relies. The Court of Appeal reiterated that the court had a discretion as to the award of costs. The question was as to the relationship between the court's discretion and any contractual right to indemnity costs. In the course of its judgment, the Court of Appeal (at 192 - 194) quoted a number of observations of first instance judges on this topic and it may be helpful to repeat some of them. In Bank of Baroda v Panesar [1987] Ch 335, Walton J said at 355:-

"it seems to me that it is not possible for a person in the position of the bank to exclude the discretion of the court, but one nevertheless starts from the position that the contractual position between the parties is that the costs will be paid on an indemnity basis. I cannot think that the words 'all costs' mean anything other than that. So one starts from the position that that is the contractual position but not, as I venture to think, binding on the court."

20. In ANZ Banking Group (New Zealand) Limited y Gibson [1981] 2 NZLR 513. Holland J said at 531;-

"The court is given a discretion as to the costs to award. I am satisfied that the fact that the parties have by contract agreed to pay costs on a solicitor/client basis is a factor to be taken into account by me in the exercise of my discretion."

21. In his judgment at first instance in Gomba itself, Vinelott J said:-

"If the parties have agreed the basis of taxation, it would, I think, be an improper exercise of the court's discretion to direct the taxation on some other basis, unless satisfied that there had been some conduct on the part of the mortgagee disentitling him to costs or to costs on the agreed basis."

22. Finally, the Court of Appeal in Gomba referred to the previous decision of the Court of Appeal in Seavision Investment SA v Evennett [1992] 2 Lloyd's Rep 26 in which the court expressed the opinion that a contractual right of one party to an action to have the costs of the action paid by another party could not override the discretion as to costs given to the court but that where an order for payment of the costs was sought, the discretion should ordinarily be exercised so as to reflect the contractual right. This opinion accorded with that of Vinelott J cited above.

23. The Court of Appeal in Gomba summarised the position at 194 as follows:-

"In our opinion the following principles emerge from the cases and dicta to which I have referred.

(i)        An order for the payment of costs of proceedings by one party to another party is always a discretionary order: section 51 of the Act of 1981.

(ii)       Where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that contractual right.

(iii)      ...

(iv)      ...

(v)       A mortgagee is not, in our judgment, to be deprived of a contractual or equitable right to add costs to the security merely by reason of an order for payment of costs made without reference to the mortgagee's contractual or equitable rights and without any adjudication as to whether or not the mortgagee should be deprived of those costs."

24. The Court of Appeal then applied those principles to the facts of the case and having confirmed that the defendants had a contractual right to retain out of the mortgage funds their costs etc. on an indemnity basis but that the plaintiffs were entitled to object to any items on the ground that they had been reasonably incurred or were of an unreasonable amount, the Court went on to say:-

"(5). In respect of any orders for payment of standard basis costs by the plaintiffs to the defendants that have already been made it is, as we understand it, common ground that the court was not thereby purporting to deprive the defendants of any costs which they were contractually entitled to add to their security. Accordingly, in our judgment, the defendants remain entitled on the taking of the account to their costs on an indemnity basis. ... "

25. Finally the Court made a declaration to reflect its decision and the relevant part reads:-

"That on the taking of the said accounts and inquiry, costs of and incidental to the proceedings on an indemnity basis are not to be disallowed on the ground that an order has already been made for costs of and incidental to those proceedings to be taxed on a standard basis unless it should appear that in making the said order the court intended thereby to deprive the defendants of the right to add those costs or some part thereof to the mortgage security."

26. Advocate Harvey-Hills submitted that these principles were equally applicable in Jersey. He emphasised the desirability of the Court following the guidance given in Gomba and ordering the costs of the successful party on the indemnity basis, if such were the contractual right of that party. Otherwise, having received costs on the standard basis, the successful party would be entitled to institute a separate action to enforce its contractual right for indemnity costs. The Court would then be faced with further proceedings in respect of the difference between standard costs and indemnity costs and would presumably, in order to resolve those proceedings, order further taxation under Rule 12/3(1)(b) so as to quantify the outstanding amount representing the difference between standard costs and indemnity costs. This would be a far less efficient method of proceeding than if the Court were to exercise its discretion to make an order for costs on a basis consistent with the contractual right in the first place. That no doubt, he submitted, was why the Court of Appeal in Gomba decided as it did, namely that where there was a contractual right to costs, the discretion of the court should ordinarily be exercised so as to reflect that contractual right.

27. I see the force of Advocate Harvey-Hills' submissions, However, I am conscious that, as the applicants are not legally represented, I have not had the benefit of adversarial legal argument on this point which, so far as I am aware, has not been raised previously before the Royal Court or the Court of Appeal and maybe of widespread application. In saying this, I make no criticism of Mr Mayger; this is a fairly technical area of law and procedure with which a litigant in person cannot be expected to be familiar. The upshot however is that I am reluctant to go further than is necessary to decide the present case and any views expressed should be regarded as provisional and subject to amendment if necessary."

34.      This led to the conclusions of the Royal Court at paragraph 28 and 29 as follows: -

"28. Subject to that proviso, I would summarise my views as follows:-

(i) Where there is a contractual right on a party to be indemnified in respect of costs, that extends to all costs other than those which have been unreasonably incurred or which are unreasonable in amount. It does not however include costs unreasonably incurred or unreasonable in amount. As was stated in Gomba, the effect of such a contractual right is equivalent to a right to taxation on the indemnity basis.

(ii) The Royal Court is given a discretion as to the award of costs pursuant to the Civil Proceedings (Jersey) Law 1956, Article 2 of which provides:-

"(1) Subject to the provisions of this Part and to rules of court made under the Royal Court (Jersey) Law 1948, the costs of and incidental to all proceedings in the Royal Court shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid."

The Court of Appeal has a similar discretion under Article 16 of the Court of Appeal (Jersey) Law 1961.

(iii) The Court may, in exercise of its discretion, deprive a party of its contractual right to costs in respect of litigation in whole or in part. A simple example would be where that party fails in the litigation and is ordered to pay the costs of the other side. In those circumstances, it cannot possibly be said that, despite the order of the Court and despite having lost, the party is still entitled to enforce its contractual right.

(iv) But in the absence of a specific decision by the Court that, for good reason, the successful party should be deprived of its contractual indemnity, the fact that the Court makes an order for taxation on the standard basis does not remove the contractual right to indemnity costs.

29. That leaves outstanding the question of whether in this jurisdiction the Court should adopt the guidance given in Gomba and normally make an order for costs at a level which reflects the contractual position between the parties. As already stated, I can see the force of the argument put forward by Advocate Harvey-Hills in this respect; but I am reluctant to make a ruling which may have widespread implications for a number of cases when I have not had the benefit of full argument by legal representatives on behalf of all the parties and where I do not consider it is essential to reach a conclusion on this aspect in order to decide this case."

35.      The court then set out the reasons for its decision at paragraph 30.

36.      In relation to the present case, both parties are legally represented and the indemnity in Clause 3.17 clearly covers the present application.  I have therefore had the benefit of legal argument on the point and Advocate Cook was not able to draw to my attention any authorities beyond the position set out in Tygres.

37.      In relation to the facts of this case the plaintiff is clearly the successful party.  It won on all of the five issues as set out in the substantive judgment.  In relation to those issues, had this been a question of an exercise of discretion without the indemnity, then the plaintiff would not have recovered its costs in respect of the first issue on anything other than the standard basis because this was a hard-fought case with arguments on both sides.  In respect of the other issues, indemnity costs would have been appropriate in any event because either the defendant adopted arguments which had previously been run in England and which had clearly failed, or because the arguments were bound to fail.  I have made these observations because in light of the approach I would have taken when exercising a discretion, there is no reason in this case to deprive the plaintiff of the benefit of its contractual indemnity.

38.      In conclusion, for the reasons set out in this judgment: -

(i)        The plaintiff is only entitled to court interest on arrears of service charges/insurance premiums;

(ii)       The "droit de gage" does not extend to arrears of service charges/insurance premiums;

(iii)      The right to enforce the "droit de gage" is stayed subject to the conditions set out in this judgment; and

(iv)      The plaintiff is entitled to their costs of and occasioned by their application including the costs of the costs hearing on the indemnity basis. 

Authorities

Waterfront (LC) Limited v Cine-UK Limited [2022] JRC 212

Le Gros v Vibert (1892) 215 Ex 373.

Sheyko v Consolidated Minerals Limited [2021] JRC 186

Sheyko v Consolidated Minerals Limited [2022] JRC 082.

Crociani v Crociani [2017] JCA 162.

In the matter of the Saisies Judiciaries in respect of realisable property of Robert Tantular [2019] JRC 222.

Tygres Investments Ltd v Jersey Homes Loans Ltd [2016] JCA 173.