Scottish Widows Plc v Stewart

Where the business damaged by a contractual breach is operated by a different company from the lessee, common ownership does not allow the lessee or its assignee to recover that company's loss. The damaged company's cause of action, its assignment to the lessee and the scope of any onward assignment must be established. An instruction to regularise corporate arrangements does not itself prove an assignment. For a guarantee ending when premises are re-let, re-let ordinarily means the grant of a tenancy, not a licence. Whether an arrangement creates a tenancy turns on exclusive possession. Contractual labels are not conclusive, but the stated intention of commercial parties is relevant.

Scottish Widows appealed against a judgment of His Honour Judge Eccles QC, sitting as Deputy High Court Judge, which awarded Stewart damages as assignee of Chandler Stewart Limited. The damages represented loss of profits from a high-performance motor-car repair business after speed bumps were installed on the estate roadway.

The central appeal issue was whether the business, and the relevant cause of action, had been transferred back to the original lessee after it had been operated by another group company. Stewart also sought to raise new points on appeal. A surviving cross-appeal concerned whether temporary commercial occupation of the premises amounted to a re-letting under the lease guarantee.

Disposition. The appeal was allowed. The cross-appeal on the re-letting issue was dismissed.

1. The Court of Appeal refused to permit the ultra vires and legal black-hole arguments to be raised for the first time on appeal. They had not been pleaded or argued below. The ultra vires case involved allegations concerning the conduct of Mr Dyer and might have required further evidence or joinder. The black-hole argument required investigation of whether the liquidator of the operating company had a claim. Allowing either point would have caused procedural unfairness and potential prejudice. The question whether one company may recover another company's loss is also fact-sensitive.
2. At the time of the alleged breach, the repair business was being carried on by the second company, while the original lessee was dormant. A claimant deriving title from the lessee had therefore to establish that the second company had a cause of action, that it had assigned that cause of action to the lessee, and that the onward assignment included it. The second company was not entitled to sue for breach of lease covenants because it was never the lessee. Any claim in nuisance or negligence would have required separate pleading. The possible application of Hunter v Canary Wharf [1997] AC 655 was not determinative.
3. The instruction to accountants to put the corporate structure right was an instruction to negotiate with the Revenue authorities and restore the position where possible. It was not evidence of an agreement between the two companies to assign the second company's cause of action. Subsequent name changes, trading arrangements and liquidation statements did not establish an equitable assignment or an express contract to assign. Corporate history could not be rewritten so as to make the original lessee claimant for another company's loss without the alleged wrongdoer's consent.
4. Under the guarantee clause, re-let meant the grant of a tenancy, not merely a licence. The temporary agreement with Midnight Design created a licence. The relevant test was whether it conferred exclusive possession, namely the right to exclude the landlord as well as all others. The labels used by the parties and the reference to a licence fee were not conclusive. The commercial context and the parties' unequivocal stated intention were relevant, and there was no right to exclude Scottish Widows.

Lord Justice Waller gave the leading reasons. Lord Justice Lloyd agreed with them and Lord Justice Jacob agreed with both judgments.

• Court of Appeal (Civil Division): In Scottish Widows Plc v Stewart [2006] EWCA Civ 999, the appeal was allowed. The surviving cross-appeal on the re-letting issue was dismissed.
• Queen's Bench Division: His Honour Judge Eccles QC, sitting as Deputy High Court Judge, handed down judgment on 22 June 2005 and awarded Stewart damages as assignee of the original lessee's claim.