Airing the Dirty Laundry? Ramsbury Properties Ltd v Ocean View Construction Ltd

Ramsbury Properties Ltd v Ocean View Construction Ltd (St Christopher and Nevis) UKPC 40

This appeal, heard by the Judicial Committee of the Privy  Council, turned on two central points: (i) the proper interpretation of a provision in the lease that the landlord was providing ‘sleeping accommodation only’; pursuant to that clause, was the landlord within its rights to insist that the tenant’s workers were prohibited from eating on the premises and drying their laundry?; and (ii) in making that prohibition, was there a repudiatory breach by the landlord entitling the tenant to terminate the lease?

The Factual Background

The claimant/appellant was Ramsbury Properties Ltd (a company incorporated in St Christopher and Nevis) (‘the Landlord’). The defendant and respondent was Ocean View Construction Ltd a company incorporated in Nevis) (‘the Tenant’).

In 2009 the Tenant approached the Landlord with a view to leasing accommodation for 250 of its foreign workers during their seven-month anticipated stint carrying out repairs to the Four Seasons Hotel on Nevis, which had been damaged by Hurricane Omar in 2008.

A lease was signed in June 2009 in respect of a building owned by the Landlord, which was approximately 15 minutes’ walk away from the Four Seasons Hotel site. The monthly rent was USD$56,000.

The workers went into occupation in late June 2009. However, the Tenant informed the Landlord by letter that it would be terminating the lease and vacating the premises for breach by the Landlord of its covenant of quiet enjoyment, with particular reference to the workers being forbidden from consuming their food on the premises, there being no provision for drying clothing, and the air conditioning being inadequate. The Landlord replied stating that if the Tenant proceeded with termination, it would issue proceedings claiming damages in the sum of USD$280,000 for the outstanding rent for the remainder of the seven-month period. The Tenant vacated the premises  in July 2009 and quickly found alternative accommodation for its workers at a lower rent.

The Landlord commenced legal proceedings against the Tenant claiming specific performance and damages for breach of contract. The Tenant responded with a defence and counterclaim, seeking a refund of the USD$56,000 it had paid the landlord.

The Lease

The lease provided, inter alia, in the recital that ‘The Lessee is desirous of leasing the building situated on the property…for the purpose of providing sleeping accommodation only for 250 workers for a period of seven (7) months.’

Further: ‘…there shall be 250 workers arriving for sleeping accommodations only starting from 20 June 2009.’

 The Landlord was unsuccessful in High Court of Justice of St Christopher and Nevis, and the Eastern Caribbean Court of Appeal (St Christopher and Nevis). It appealed to the Judicial Committee of the Privy Council.

The first point of law: the proper interpretation of ‘sleeping accommodation only’

In the Board’s view, applying the established objective and contextual modern approach to contractual interpretation – including leases – the words ‘sleeping accommodation only’ did not mean that the workers were forbidden from consuming their meals or doing their laundry. Quite the opposite: ‘sleeping accommodation only’ included being permitted to carry out the basics of life, such as eating, doing laundry, washing oneself and using a toilet.

The Board found that if one were to use the implied term analysis, allowing workers to eat their meals and do their laundry satisfied the tests of business efficacy. What the parties objectively meant by ‘sleeping accommodation only’ was that the Landlord was not going to itself provide meals or cooking facilities.

Repudiatory Breach of the lease?

It was therefore clear that the Landlord was committing a breach of the lease agreement – whether as a breach of the express covenant of quiet enjoyment or as a breach of terms implied by fact – by prohibiting workers from eating their meals and doing their laundry on the premises. Such a terms were innominate term, requiring consideration of whether they were sufficiently serious to entitle the Tenant to terminate (i.e. whether there was repudiatory breach). The seminal authority of Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 provides that one must examine the seriousness of the consequences of the breach of those terms for the innocent party.

The test for the required degree of seriousness has been expressed in marginally different ways by judges, but the most commonly applied test – that set out by Upjohn LJ in Hongkong Fir Shipping – spoke of whether the breach went ‘to the root of the contract’.

The burden of proving that a breach is repudiatory rests upon the party alleging the same; and the time for assessing whether the breach was repudiatory or not is at the time of termination, taking into account what then happened and what was likely to happen: Ampurius Nu Homes Holdings Ltd v Telford Homes (Creekside) Ltd [2013] EWCA Civ 577; [2013] 4 All ER 377 at [64].

Does the law on repudiatory breach apply to a lease?

After significant analysis of leading authorities and practitioner texts, the Board accepted that there could be repudiatory breach of a lease entitling the innocent party (here, the Tenant) to terminate the lease. There was no good reason, it held, why that should not be possible.

Nevertheless, in determining whether there has been a repudiatory breach of a lease, it is of importance that one is concerned with a lease that confers a proprietary interest in the land. The right to exclusive possession, the Board noted, especially where the lease is long term, means that it may be rare for there to be a repudiatory breach of a lease entitling the tenant to terminate. In any event, the tenant is likely to have a right to give notice under the lease so that it is often unnecessary to terminate for breach.

Was there a repudiatory breach on the facts of this case?

The Board highlighted that the purpose of the lease agreement from the Tenant’s perspective (which was known to the Landlord) was to accommodate foreign workers to enable the Tenant to complete the works to the hotel that it was contractually bound to perform. The consequence of the Landlord’s breach was that it faced a situation where a substantial proportion of the foreign workers threatened to leave site and return home – leaving the Tenant to face an action for damages and possibly other loss, such as loss of reputation.

As such, the actual and prospective breaches by the Landlord went to the root of the contract, depriving the Tenant of substantially the whole benefit of it. The Landlord’s position was, on the facts, clearly settled against eating and the doing of laundry on the premises. The Tenant was reasonably entitled to understand that, if it failed to comply with the Landlord’s instructions, the Landlord would promptly take steps to exercise its rights of forfeiture and re-entry. The Tenant could either comply with the prohibition, or resist the Landlord’s demands and risk exposure to the Landlord’s self-help measures, such as lock changes, or being subjected to time-consuming and expensive litigation.

The Decision

The Board therefore considered that, even taking account of the proprietary interest conferred by the lease – the Tenant’s right to exclusive possession – the circumstances of the breach were so exceptional as to amount to a repudiatory breach which the Tenant was entitled to accept as terminating the lease.

That said, the Board was careful to point out that:

• This was only a short term lease of seven months;
• Above all, it was the effect of the (continuing) breach of the relevant implied terms that made the facts of the case so exceptional, including giving rise to the threat by nearly ¼ of the foreign workers to return home;
• It was not suggested that whenever a landlord incorrectly informs a tenant that the tenant is not, and will not be permitted, to do something on leased land, that will be a breach of the covenant of quiet enjoyment, or that in such a situation the tenant can terminate the lease for repudiatory breach;
• The facts of the case were therefore exceptional.

Whilst this the facts of this case were somewhat unusual, it serves as a reminder that the principles of the general law of contact in relation to termination for breach are of application to situations involving leases, notwithstanding the proprietary interests conferred thereunder. However, Ramsbury Properties is not authority for the proposition that in every case a landlord’s prohibition on tenant activity will be a breach of leasehold covenants or entitle a tenant to terminate for repudiatory breach.

Article by Michael Maris