Manchester Airport & Anor v Radisson Hotel Manchester Ltd & Anor

When a contractual cap refers to a prevailing commercial rate without identifying the relevant market, the court should identify the market or comparator that most closely accommodates the parties’ actual contractual arrangements. Construction is a unitary exercise, informed by the natural and ordinary meaning, the contract as a whole, its purpose, admissible background and commercial common sense. The court should avoid hypothetical assumptions or departures from reality unless the contract requires them. Where a lease is entered into pursuant to an antecedent agreement on materially the same terms, the admissible background is ordinarily assessed when that antecedent bargain was made. A deed of variation is not treated as a surrender and re-grant unless the changes require that result. On the facts, the relevant rates were those of the private utility networks of major UK airports receiving international passenger flights.

The claimants sought determination of a preliminary issue concerning the construction of clause 5.3.2 of an underlease of a hotel at Manchester Airport. The clause required the tenant to pay the landlord, for electricity and gas supplied under clause 6.11, no more than the prevailing commercial rates.

The dispute was whether that expression referred to rates charged by private utility networks operated by major airports, or to rates for supply from a public network to comparable commercial premises in the North West. The court also had to determine the date at which the admissible background was to be assessed and whether a later deed of variation operated as a surrender and re-grant.

1. Construction. The lease was construed in a unitary exercise, considering the natural and ordinary meaning of the words, the relevant provisions read as a whole, the purpose of the covenant, the admissible background and commercial common sense. The interpretation was checked iteratively against the contractual provisions and commercial consequences. The court could not rewrite the bargain or reject clear language merely because it appeared imprudent.
2. Date of factual matrix. Because the lease was entered into pursuant to the agreement for lease dated 30 October 1996 and contained, in all material respects, the terms of the appended draft lease, the relevant background was assessed at the date of that antecedent agreement. The contractual commitment was entirely a function of that bargain.
3. Deed of variation. The deed of variation did not operate as a surrender and re-grant. A deed of variation will have that effect only where its changes require such treatment, ordinarily including a change to the extent of the demise or the length of the term. The amendments here did not affect the covenants in issue.
4. Meaning of the covenant. The phrase “prevailing commercial rates” required identification of a market or comparator approximating the parties’ actual arrangements. The public network was inappropriate because the hotel had no public connection and the parties had contracted for supply through a private airport network. The relevant comparator was therefore the prevailing commercial rates of the private utility networks of major UK airports receiving international passenger flights, in addition to internal passenger flights.
5. Disposition. The preliminary issue was determined in those terms. The court was to hear further submissions on consequential matters.