Miscela Ltd & Ors v Coffee Republic Retail Ltd

A commercial contract must be construed as a whole, in its factual and commercial context, to ascertain what a reasonable person would understand it to mean. Commercial common sense may assist where the language is genuinely ambiguous, but cannot justify rewriting clear words merely because the result appears harsh. A party cannot grant rights which it does not possess. Where a franchise agreement granted operational or intellectual-property rights and separately required the franchisor to procure an underlease, it did not grant an unfettered right to occupy the premises. An implied term must reflect what the contract, read as a whole against the relevant background, would reasonably be understood to mean. It must be necessary in that sense and cannot impose liability for the independent acts of a separate contracting party.

Miscela purchased a Coffee Republic business and entered into an underlease with Coffee Republic UK Ltd and a franchise agreement with Coffee Republic Franchising Ltd. The underlease contained a break clause which enabled the landlord to terminate it on one month’s notice. After the relevant companies entered administration, the premises became unavailable and Miscela vacated.

Master Eyre entered summary judgment for Coffee Republic Retail Ltd and dismissed Miscela’s application. Miscela appealed, contending that clause 2.2 of the franchise agreement gave it a right to occupy the premises, or alternatively that protective terms should be implied. The central issues were the proper construction of clause 2.2 and whether the proposed implied terms formed part of the agreement.

1. Appeal dismissed. The judgment of Master Eyre was affirmed.
2. The court applied the approach in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896: the agreement had to be read as a whole, against the relevant background, from the perspective of a reasonable person. Commercial common sense could assist in resolving genuine ambiguity, but could not justify rewriting clear contractual language. The apparent unfairness of the outcome was insufficient to alter the construction.
3. Clause 2.2 granted rights which CRFL itself could grant. On the contractual materials, those rights were the intellectual-property and franchising rights identified in the recitals. CRFL had no proprietary interest in the premises and could not grant property rights. The right to occupy was instead dealt with by the separate underlease granted by CRUK.
4. Even assuming clause 2.2 conferred some right of occupation, it was expressly subject to clause 4.4. That clause contemplated that the premises might become unavailable and provided for relocation subject to stated conditions. It was therefore inconsistent with an unfettered right to occupy the particular premises. CRFL was no more responsible for CRUK’s exercise of the break clause than for an external event such as fire.
5. The proposed implied terms failed under the approach in Attorney General of Belize v Belize Telecom Limited [2009] 1 WLR 1988. Read as a whole against the relevant background, the franchise agreement could not reasonably be understood to contain them. They were unnecessary, duplicated existing obligations, cut across the express terms, and sought to make CRFL liable for CRUK’s independent conduct. The separate corporate identities of CRUK and CRFL could not be disregarded without any case for piercing the corporate veil.

• High Court (Queen’s Bench Division): Master Eyre entered summary judgment for the defendant on paragraphs 4–15 of the Particulars of Claim and dismissed Miscela’s application for summary judgment.
• High Court (Queen’s Bench Division): On appeal, Coulson J dismissed Miscela’s appeal and affirmed Master Eyre’s judgment.