Megaro v Di Popolo Hotels Ltd

In construing a transfer creating rights of emergency egress, the court must give effect to the words used in their factual and commercial context. Interpretation identifies the meaning conveyed to a reasonable person with the background knowledge reasonably available when the transfer was made. It does not permit the court to substitute a more advantageous bargain because the agreed result appears commercially unattractive or inconvenient. Where a right is expressly conditional on specified physical features continuing to exist, the right ends when those features cease to exist. A separate power to change the route while the right remains operative does not require the servient owner to provide a substitute route after the original right has ended.

The claimant owned premises adjoining property owned by the defendant. A 1998 transfer created reciprocal emergency-escape rights over parts of the two properties. The defendant’s right over the claimant’s property was expressed to operate only while the relevant roof and external staircase continued to exist, and the transfer also reserved to the claimant a right to change the route.

Following redevelopment, the claimant removed the relevant staircase and altered the escape arrangements. The defendant counterclaimed for a declaration that its right remained extant and for an order requiring an alternative means of escape. On 21 December 2005, the Central London County Court declared the right extant and ordered the claimant to provide an alternative route. The central issue was the proper construction and effect of paragraph 4 of schedule 2 to the transfer.

1. Appeal allowed. The Court of Appeal, in the judgment of Lord Justice Chadwick, with Lord Justice Dyson and Lord Justice Thomas agreeing, held that the judge had misconstrued paragraph 4 of schedule 2 to the 1998 transfer.
2. The parties’ intention was to be ascertained by construing the words used in the light of the circumstances existing when the transfer was made. The court could not replace the parties’ bargain with one that appeared more sensible or commercially advantageous. The fact that a bargain produced a less favourable result for one party did not make it nonsensical.
3. The proviso that the relevant roof and external staircase must still exist was operative. The defendant’s right of emergency egress over the claimant’s property was granted only for so long as those features existed. Their removal therefore brought the right to an end.
4. The additional reservation of a right to change the route operated while the granted right continued. It did not impose an obligation on the claimant to provide a substitute right after the original right had ceased under the proviso. The judge’s assumption that removal would make the defendant’s property unusable was unsupported by the evidence; practical alternative arrangements might have been possible, but that did not alter the agreed construction.
5. The order declaring the right extant and requiring an alternative means of escape was set aside by allowing the appeal.

• Court of Appeal (Civil Division): Allowed the claimant’s appeal from the order made on 21 December 2005 by HHJ Cowell in the Central London County Court.
• Central London County Court: Declared that the defendant’s right of emergency egress remained extant and ordered the claimant to provide an alternative means of escape by 31 March 2006.