Pavilion Property Trustees Ltd & Anor v Permira Advisers LLP & Anor

The court should be cautious before granting declarations by consent where there is no dispute, particularly where the declaration concerns the operation of legislation. The court must be satisfied that the declaration is correct and should consider possible rival arguments. A guarantee should, where reasonably possible, be construed so that it remains valid and effective. Where a guarantee purports to cover obligations which legislation renders void, severance may be available, but only through the conventional blue-pencil test. The court cannot rewrite defined terms or redraft the parties’ bargain.

The claimants sought declarations concerning a guarantee given by the second defendant in connection with the assignment of a lease. The defendants admitted the claim, and the claimants applied for interim declarations by consent.

The guarantee referred both to the existing assignee and to a defined “Next Assignee”. The claimants contended that the provisions concerning the Next Assignee were void under the Landlord and Tenant (Covenants) Act 1995, but could be severed by deleting the word “Next” from clause 14(b) and (c). The central issues were whether declaratory relief should be granted and, if so, what construction and severance of the guarantee were legally available.

1. The application for the declarations sought by the claimants was dismissed. Nevertheless, with the parties’ consent, the court dealt with the claim and made declarations in a different form.

2. Declarations by consent require caution where there is no dispute between the parties. That caution is increased where the declaration concerns the operation of a statute. The court must be persuaded that the proposed declaration is correct and should ordinarily be assisted by submissions addressing possible rival arguments. This was a rare case in which declarations were nevertheless appropriate because the claimants reasonably required certainty as to the legal effect of the guarantee.

3. On its proper construction, clauses 3 to 13 guaranteed the obligations of the Assignee only. The repeated use of the defined term “Assignee” should be given its ordinary meaning. The recital and clause 14 could suggest a wider guarantee covering a Next Assignee, but the guarantee should, where possible, be construed as valid and effective. The guarantee therefore did not extend to the obligations of the Next Assignee.

4. Alternatively, if the guarantee purported to cover the Next Assignee, the Landlord and Tenant (Covenants) Act 1995 contemplated severance of the ineffective provisions. Removing clause 14 as a whole could sever the good from the bad. Deleting “Next” from clause 14(b) and (c), however, failed the blue-pencil test. It would alter defined terms referring to different entities and would amount to redrafting rather than severance.

5. The appropriate declarations were that the guarantee was valid and effective in relation to the obligations of the Assignee only; references to the Assignee in clauses 3 to 13 were literal; those references did not include the Next Assignee; and clause 14 had no effect.

This was a first-instance claim in the High Court concerning declaratory relief and the construction of a guarantee. The judgment does not state any prior appellate decision in the same litigation.