Malt Mill Developments Ltd & Anor v Davis

A contractual power to cancel an arrangement, triggered by a reasonable opinion that specified functions are not properly performed, may be exercised for failure to perform any one function. The failure must be more than de minimis and sufficiently serious, judged as a matter of fact and degree; repudiatory breach is not required. A company need not prove a formal board resolution or direct knowledge by each director. The required opinion may be inferred from evidence and based on information from an apparently reliable source, if sufficient to form the view. A validly triggered power is not defeated by wider ill-will or collateral disputes. On costs, a trial judge’s discretion attracts appellate restraint, and failure to engage with sensible settlement proposals may justify indemnity costs.

The appeal concerned a service-charge arrangement affecting offices at Anchor Brewhouse. Under a side-letter, the tenant undertook responsibility for lighting, cleaning and planting a common access area in return for a service-charge rebate. The management company reserved a right to vary or cancel the arrangement if, in its reasonable opinion, the tenant was not properly performing the functions.

His Honour Judge Butter QC, sitting in the Central London County Court on 11 May 2001, upheld cancellation after finding that graffiti had not been removed despite requests. He also upheld an order for indemnity costs and the respondents’ whole costs. The appellant challenged the construction of the cancellation clause, the seriousness of the breach, the formation of the directors’ opinion, the effect of alleged ill-will, and the costs orders.

Liability

1. Construction. The side-letter required performance of three specified functions, but its cancellation provision did not require breach of all three. Failure properly to perform any one of them could suffice.
2. Threshold for cancellation. The relevant question was not whether the breach was repudiatory. Per Longmore LJ, whether a breach justified termination was a matter of fact and degree. Per Sir Martin Nourse, the non-performance had to be more than de minimis. The continuing failure to remove graffiti, despite written requests and without any plan to remedy it, was capable of satisfying that threshold. The trial judge was entitled to find that it did.
3. Reasonable opinion. A board resolution and direct personal knowledge by the directors were unnecessary. Directors could rely on information from an apparently reliable source, provided they had sufficient information to form a reasonable opinion. The existence of the opinion could be established by inference.
4. The trial judge was entitled to infer that the directors had formed the required opinion and had authorised termination, notwithstanding that they did not give evidence themselves. The appellate court would not reverse that factual assessment absent plain error.
5. The respondents’ wider dispute with the appellant and the possibility that ill-will contributed to the decision did not invalidate the cancellation. Once the contractual conditions existed, the power could be exercised even if it would not otherwise have been exercised but for the wider dispute.

Costs

6. A costs decision is discretionary. The Court of Appeal should intervene only for an error of principle or where the judge was plainly wrong. In the circumstances, the appellant’s failure to respond to sensible proposals for negotiation justified indemnity costs. The judge had not materially relied on lease clause 3.39, and his reference to CPR 44(3) did not disclose an error of principle.
7. The judge was also entitled to award the respondents their whole costs. Apportionment would have been difficult, and much of the evidence on the unsuccessful issues would have been required in any event. The appeal was dismissed unanimously, including on liability and costs.

• Court of Appeal (Civil Division) — In [2002] EWCA Civ 440, the appeal against the liability and costs orders was dismissed unanimously.
• Central London County Court — His Honour Judge Butter QC, on 11 May 2001, upheld termination of the side-letter arrangement and ordered the appellant to pay the respondents’ whole costs on an indemnity basis.