Company Developments (Finance) Ltd v Coffee Club Restaurants Ltd & Ors

A court may supply words omitted by drafting error in a commercial contract where it is clear both that an omission occurred and what substantive provision is required. It need not identify one inevitable set of words. The contract must be construed as a whole, particularly the clause for which the missing definition operates. Clear words are given their ordinary meaning despite an anomalous or haphazard result. Strict construction of a guarantee does not justify rewriting clear terms. Negotiating communications are inadmissible on construction, although they may be relevant to rectification.

The claimant landlord obtained judgment against the second and third defendants for sums due under their guarantees of a 15-year restaurant lease granted to the first defendant. The lease contained a drafting error in the definition of the guarantors’ Liability Period. The defendants appealed the judgment of HHJ Simon Brown QC dated 26 November 2010, arguing that the omission made them not liable or, alternatively, that their liability was limited to £15,500 because the tenant had paid £194,500 towards sums due.

The central issues were whether the court could supply the omitted definition by construction and whether the £210,000 provision in the guarantee operated as a cap or as a termination point.

1. The appeal was dismissed unanimously. The guarantors remained liable for the full amount awarded by the judge: £158,682.09, together with interest and costs.
2. It was clear that the definition of Liability Period contained an inadvertent omission. The court had to be clear both that words had been omitted and as to the substantive provision required. It was unnecessary to identify one precise form of words. The court relied on The Starsin [2003] UKHL 12; [2004] 1 AC 715 and Re Whitrick (deceased) [1957] 1 WLR 884.
3. Reading clause 1.28 with the lease as a whole, and particularly clause 6, the omitted provision was that the Liability Period for the original guarantors lasted while the original tenant was bound by the tenant covenants. Under the Landlord and Tenant (Covenants) Act 1995, that would ordinarily continue until an assignment, subject to any authorised guarantee agreement. No assignment had occurred, so the court did not decide whether the period would extend further in that situation.
4. The £210,000 provision in clause 6.1.1 was a termination point for the guarantee obligations. It was not a calculation limiting liability to the difference between £210,000 and rent already paid by the tenant. Its operation could be unusual or haphazard, but the words were clear and had been deliberately chosen. They therefore had to be given their ordinary meaning. Strict construction in favour of guarantors did not require a different result.
5. Negotiating communications were inadmissible on construction, though potentially relevant to rectification. The commercial lease precedent relied on by the claimant was disregarded because there was no evidence that its provenance was known to both parties. The clauses themselves nevertheless provided a sufficient basis for the construction adopted.

1. Court of Appeal (Civil Division): in [2011] EWCA Civ 766, dismissed the guarantors’ appeal.
2. Chancery Division, Birmingham District Registry: HHJ Simon Brown QC gave judgment on 26 November 2010 for the claimant against the second and third defendants for £158,682.09, interest and costs.