South Bank Hotel Management Company Ltd v Galliard Hotels Ltd & Ors

A professionally drafted contract referring to a freehold title by its single registered title number ordinarily transfers the whole of that title. Commercial background will not displace clear language unless it demonstrates a clear mistake or an objectively nonsensical result.

Rectification of a commercial contract requires a continuing common intention, a mistaken document, and an outward expression of accord. Deliberate concealment under Limitation Act 1980 requires intentional concealment of a fact necessary to plead the cause of action. A continuing contractual obligation does not necessarily give rise to a continuing breach: the nature of the breach depends on the contract and the act said to constitute it.

The proceedings comprised a main claim by South Bank Hotel Management Company Ltd and a rent claim by Lodgeshine Ltd. The dispute concerned a hotel development and an adjoining annex. South Bank alleged that a freehold sale contract required the entire site, including the annex, to be transferred to it, and challenged a later lease and underlease which required it to pay rent for using the annex.

The claims included breach of trust, breach of contract, directors’ duties, knowing receipt, economic torts, rectification, invalid execution and limitation issues. Lodgeshine claimed arrears of rent under the underlease. The central issues were the construction and possible rectification of the freehold sale contract, deliberate concealment, the effect of the leases, and the validity of their execution.

1. Construction of the freehold sale contract. The contract defined the Property by reference to the single registered freehold title. Its clear linguistic effect was to require transfer of the entire site, including the land on which the annex was to be built. The factual background, including planning permissions, marketing material, possible commercial use, collective investment scheme concerns and the flying-freehold issue, did not displace that meaning.
2. Corrective construction and rectification. Corrective construction requires a clear mistake on the face of the instrument and clarity as to the necessary correction. The evidence did not establish an objectively clear mistake. Rectification also failed because there was no continuing common intention, whether express or tacit, supported by an outward expression of accord.
3. Limitation. The claims subject to the ordinary limitation periods were out of time. Deliberate concealment requires intentional concealment of a fact necessary to plead the claim. The decision not to announce the annex lease scheme to investors did not conceal it from South Bank itself, and the later conduct did not involve the requisite deliberate state of mind. The requirements of sections 21(1)(a) and 21(1)(b) were also not satisfied.
4. Room Lease Claim. The annex fell within the contractual definition of Common Parts. Clause 9 imposed a continuing obligation to permit South Bank to use those parts, but the alleged breach was complete when the lease was granted. The claim was therefore time-barred.
5. Validity of execution. The leases were not signed by two authorised signatories in accordance with section 44(2) of the Companies Act 2006. However, section 44(5) deemed them duly executed in favour of the relevant purchasers, including Lodgeshine and South Bank, both acting in good faith for valuable consideration.
6. Disposition. The main claims were dismissed on limitation or other grounds. The rent claim succeeded, subject to rectification of the RPI mechanism in the underlease so that each annual increase applied only to the immediately preceding rent. The issue of interest was left for consequential determination if necessary.