Holding & Barnes Plc v Hill House Hammond Ltd

Contractual language is construed objectively, in its documentary and factual context, to identify the meaning a reasonable person would attribute to it. That process may correct an obvious clerical error without an action for rectification where the error on the face of the instrument is clear and the necessary correction is equally clear.

A literal construction should not be preferred where it deprives a substantial part of a commercial repairing covenant of effect and conflicts with the parties’ objectively apparent scheme. Where a whole-building lease has mistakenly adopted wording appropriate only to a lease of part of a building, the court may omit the erroneous words so that the covenant operates coherently.

The landlord claimed rent under a 21-year lease of a whole building. The tenant counterclaimed for breach of the landlord’s repairing covenant and sought an injunction. The preliminary issue was the construction of clause 4.3, which required the landlord to repair the foundations and roof and also referred to the structure and exterior of the building, subject to bracketed words.

Neuberger J rejected the landlord’s literal construction and the tenant’s primary construction. He adopted the tenant’s alternative construction. The landlord appealed and the tenant cross-appealed, contending that the bracketed words should be treated as erroneous. The central issue was the true construction of clause 4.3 in the context of six related leases executed as part of the same transaction.

1. Appeal dismissed; cross-appeal allowed. The Court set aside the declaration based on the third interpretation and substituted the tenant’s primary construction of clause 4.3.
2. Per Clarke LJ, with Sir Martin Nourse and Peter Gibson LJ agreeing in substance, construction required an objective assessment of what a reasonable person, aware of the relevant factual matrix, would understand the parties to have meant. The six associated leases formed part of that matrix. A literal reading was untenable because it would render the substantive obligation concerning the structure and exterior ineffective.
3. The Barking lease was a lease of a whole building, yet clause 4.3 had used the form appropriate to leases of parts of buildings. The undefined reference to “the Building” and the bracketed exclusion showed an obvious drafting error. The court could correct that error as a matter of construction. Applying the conditions stated in East v Pantiles Plant Hire Ltd [1982] 2 EGLR 111, the error was clear and the required correction was clear.
4. The appropriate correction was to delete the bracketed words, rather than to impose an unstated qualification upon them. That construction accorded with the corresponding covenant in the other lease of a whole building and gave effect to the objectively apparent common scheme.
5. Clause 4.3 was therefore to be read as requiring the landlord to keep the foundations, roof, structure and exterior of the property in good and tenantable repair and condition. The tenant remained responsible for internal repair, save insofar as the work concerned the building’s structure.

• Court of Appeal (Civil Division) [2001] EWCA Civ 1334 : dismissed the landlord’s appeal and allowed the tenant’s cross-appeal. The declaration made below was quashed and replaced with the tenant’s primary construction.
• Chancery Division (Neuberger J): determined a preliminary issue concerning the landlord’s repairing covenant. He rejected the parties’ primary constructions and adopted the tenant’s alternative construction.