Cadogan & & Anor v ESCADA AG & Ors

A rent review clause must be construed as a whole and in accordance with business common-sense. Where competing constructions are genuinely available, the court may prefer the one that best gives effect to the agreement’s commercial purpose. Business common-sense does not, however, permit the court to rewrite clear contractual language or substitute an arrangement that appears fairer or more realistic. Rectification requires convincing proof of a continuing common intention, evidenced by an outward expression of agreement, which the written instrument mistakenly fails to record.

The claim concerned the interpretation of rent review provisions in a lease of retail premises at Sloane Street, London. The claimants, the owners of the Cadogan Estate, sought a declaration that the premises should be valued as a single retail unit with the existing staircases removed and a new staircase installed. Alternatively, they sought rectification of the lease.

The defendants contended that the clause required the premises to be valued in their existing physical configuration, subject to the express assumption concerning a new staircase and the stated disregard of the tenant’s works. The central issues were whether the wording should be adjusted to reflect the alleged commercial purpose of the transaction and whether the lease failed, through common mistake, to record an earlier agreement.

1. Construction. The rent review clause was to be construed as a whole and against the background of the lease. The court had regard to the principle in Antaios Companaria Naviera SA v Salen Rederierna AB [1985] AC 191, but explained that it applies where two viable constructions exist. It does not authorise the court to rewrite contractual language to produce a more commercially sensible result.
2. The clause was inelegant but clear. It did not require or permit the valuer to assume that the premises had become one entity or that the pre-existing staircases had been removed. The references to the premises as a shop, the authorised use and the surrounding circumstances did not displace the express wording. The application for a declaration was refused.
3. Rectification. Rectification requires convincing proof that the parties had a continuing common intention, evidenced by an outward expression of agreement, which the document mistakenly failed to reflect. There was no draft of the alleged agreed clause and no convincing evidence of a common continuing understanding that the premises would be valued as one unit with the old staircases removed.
4. The negotiations involved amendments and counter-amendments which culminated in a compromise accepted by the parties. The evidence did not establish a common mistake; indeed, the relevant solicitors’ evidence indicated that there had been no such mistake. The claim for rectification therefore failed.
5. There was judgment for the defendants. The court invited corrections, a draft order and submissions on costs.

First-instance decision. The judgment does not state any prior appellate decision.