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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Kiko UK Ltd v Jamino Ltd & Anor [2025] EWHC 720 (Comm) (20 January 2025) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2025/720.html Cite as: [2025] EWHC 720 (Comm)

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IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURT OF ENGLAND AND WALES
;LONDON CIRCUIT COMMERCIAL COURT (KBD)

		The Rolls Building 7 Rolls Buildings Fetter Lane London EC4A 1NL
		20 January 2025

WARNING: reporting restrictions may apply to the contents transcribed in this document, particularly if the case concerned a sexual offence or involved a child. Reporting restrictions prohibit the publication of the applicable information to the public or any section of the public, in writing, in a broadcast or by means of the internet, including social media. Anyone who receives a copy of this transcript is responsible in law for making sure that applicable restrictions are not breached. A person who breaches a reporting restriction is liable to a fine and/or imprisonment. For guidance on whether reporting restrictions apply, and to what information, ask at the court office or take legal advice.

JUDGE PELLING KC:

1. This is an application for summary judgment in a claim where the trial has been listed to commence on 7 April 2025 with a ELH of three days. At the outset of the hearing, I inquired of counsel whether it would be more appropriate for the application to be adjourned over to the trial. The claimant's position was that it was so plainly entitled to succeed that I should proceed with the application, not least because one issue concerning the true effect of a guarantee agreement between the parties was fundamental; and without it being resolved, the NDR exercise due to commence shortly would be unlikely to succeed. The second defendant appeared content for the application to be adjourned to trial.
2. There is an obvious risk that the trial may have to be vacated if permission to appeal from the outcome of the summary judgment application is given either by me or the Court of Appeal. However, the principal issue which arises is a short point of law or construction. It will have to be resolved at some stage and the failure to do so now is likely to materially adversely affect the prospect of a settlement, with the resultant significant saving of costs for the parties which settlement would achieve. In those circumstances, I consider the better course is to determine the summary judgment application on its merits at this stage.
3. There was also an application for permission to amend the Particulars of Claim to include a claim which relates to events since the particulars were last amended. Initially, the defendant had opposed the application since the claimant had been seeking judgment on the proposed amendment. However, at the start of the hearing, the claimant indicated it no longer intended to adopt that course. In consequence, the second defendant withdrew its objections to the application to re-amend, and I gave permission to re-re-amend in the terms sought. The amendment now has no impact on the summary judgment application.
4. I now turn to the summary judgment application. In November 2016, the claimant, Kiko, entered into a ten-year lease of premises in Oxford Street in London. On 30 September 2019, Kiko assigned its interest to the first defendant and entered into an authorised guarantee agreement ("AGA") with the lessor. At or about the same time, Kiko entered into a parent company guarantee with the second defendant, the first defendant's parent company.
5. The first defendant, which as I have said was Kiko's assignee, defaulted on its obligations to the lessor and on 22 May 2024, it entered creditor's voluntary liquidation. On 28 June 2024, the first defendant's liquidator disclaimed its interest in the lease pursuant to section 178 of the Insolvency Act 1986 ("IA"). The issue between the parties is as to the effect of that event on what is otherwise the undisputed obligation of the claimant to meet the first defendant's obligations under the lease, and therefore the second defendant's obligation to indemnify the claimant in respect of its discharge of what would otherwise have been the first defendant's obligations under the lease.
6. The second defendant's submission is that the effect of clause 6.2 of the AGA was to bar any liability Kiko might otherwise have had to the lessor under the lease from and after the disclaimer, and therefore the entitlement of Kiko to recover any sums paid to the lessor under the parent company guarantee. Kiko submits that it is wrong as a matter of law and/or construction of the AGA when read as a whole to accede to the submissions made on behalf of the second defendant.
7. There is a subsidiary dispute also the subject of the summary judgment application concerning whether the second defendant has a partial defence by reference to a rent deposit paid to the lessor by the first defendant, and also by reference to a cash payment of £40,000 which has only recently come to light, apparently made by, or on behalf of, the first defendant to the lessor. I return to those issues at the end of this judgment.
8. Returning to the section 178 point, insofar as is material, IA, s.178 provides as follows:

"Power to disclaim onerous property:

...

(2) Subject as follows, the liquidator may, by the giving of the prescribed notice, disclaim any onerous property and may do so notwithstanding that he has taken possession of it, endeavoured to sell it, or otherwise exercised rights of ownership in relation to it."

(3) The following is onerous property for the purposes of this section --

(a) any unprofitable contract, and

(b) any other property of the company which is unsaleable or not readily saleable or is such that it may give rise to a liability to pay money or perform any other onerous act.

(4) A disclaimer under this section --

(a) operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the company in or in respect of the property disclaimed; but

(b) does not, except so far as is necessary for the purpose of releasing the company from any liability, affect the rights or liabilities of any other person."

9. It is not in dispute that the second defendant's liquidator was entitled to disclaim the lease, as I have described earlier. The effect of section 178(4)(b) is not in dispute either. Its effect was decided by the House of Lords in Hindcastle v Barbara Attenborough [1997] AC 70 and confirmed following the coming into effect of the Landlord and Tenant (Covenants) Act 1995 ("the 1995 Act") by the Court of Appeal in Shaw v Doleman [2009] EWCA Civ 283, [2009] BCC 730. As was pointed out in that case, the effect of the 1995 Act was to release tenants from covenants on assignment of a tenancy, but permitted such a tenant to enter into an authorised guarantee agreement with respect to the performance of covenants by the assignee. Where entered into, therefore, AGAs are a statutory mechanism by which an original covenantee is permitted to contract out of the general rule that an original tenant is released from liability on assignment.
10. The liability of the original tenant -- here Kiko -- is limited by the terms of the AGA into which the original tenant enters -- see in that regard Shaw ibid per Mummery LJ at 29. It follows that if the AGA expressly provides that the liability of the original tenant is to determine or terminate on a disclaimer, that is its effect -- see Shaw ibid per Stanley Burnton LJ at 44, and Elias LJ at 52, where the latter said:

"... if the parties in terms state that the guarantee is to terminate on disclaimer, effect must be given to that agreement."

11. As a matter of general law, a disclaimer is a statutory mechanism by which a liquidator can determine a lease as between the lessor and assignee, but as regards the original lessee under the pre-1995 law and any surety, the lease is deemed to continue and the liability of those parties are unaffected by the disclaimer -- see Hindcastle ibid per Lord Nicholls at 88 G to H. This is the law as well after as before the 1995 Act - see Shaw ibid at paragraphs 34 and 46 to 47. That being so, if an AGA provides only that the liability of a guarantor will come to an end with the determination of the liabilities in respect of the property disclaimed, the liability of the guarantor will continue as between the guarantor and the lessor because the disclaimer has only the limited effects as I described earlier -- see Shaw per Stanley Burnton LJ at 48, and Elias LJ at 60.
12. It is necessary against that background to construe the AGA in this case. It is contained in the licence to assign to which the lessor (referred to as the landlord), Kiko (referred to as the tenant) and the first defendant as assignee were parties. Clause 5 of the licence provides:

"In consideration of the licence granted at its request, the tenant as principal debtor covenants and guarantees with the landlord for so long and to the extent that the assignee is not released by law from liability under the terms of the lease in the terms set out in the schedule."

13. The schedule to the licence provided insofar as is material as follows:

"1. In this schedule (a) 'lease monies' means the rents and all other sums payable by the assignee under the lease and (b) 'term' means the term granted by the lease.

"2. The tenant in consideration of the agreement to the assignment of the lease covenants and guarantees with and to the landlord as principal debtor that;

"2.1. The assignee will pay the lease monies at the respective times and in the manner appointed for payment in the lease and will fully observe and perform the covenants, agreements and stipulations contained in the lease ...

"3. It is hereby agreed that the tenant's liability shall not be discharged, lessened or in any way affected by ... any disclaimer of the lease or by any other act or thing whereby but for this clause, the tenant's liability, may have been discharged, lessened or otherwise affected ...

"6. Notwithstanding the foregoing provisions ...

"6.2. Shall not be subject to any liability, restriction or other requirement of whatever nature in relation to any time after the assignee is by law released from the covenant or other terms of the lease ..."

14. The second defendant submits that clause 2 is determinative and its effect is to exclude Kiko from liability from any rent falling due after disclaimer. In my judgment, that is wrong. I reach that conclusion for the following reasons: firstly, if that construction was correct, it would create an obvious contradiction between clause 3 on the one hand, which provides that Kiko's liability will not be discharged by any disclaimer of the lease, and what the defendant contends to be the effect of clause 6.2. No reason for drafting the AGA in this way was identified in the course of the hearing by the defendant, and none is apparent on the face of the document, or from the commercial context in which it was made.
15. Secondly, the terms in which clause 3 is expressed shows very clearly that where the parties intended to refer to a disclaimer of the release, they did so. Precisely similar considerations applied to clause 4, which I have not set out but which refer expressly and in terms to disclaimers. Clause 6.2 very clearly does not refer to any liability arising following disclaimer, much less does it do so in the very clear words which would be required if the statutory fiction created by IA, s.178(4) is to be overcome -- see in that regard Shaw ibid per Elias LJ at 55 and 60. Very clear words are required because of the commercial improbability of an AGA ceasing to apply at the very point when the lessor would be most likely to benefit from a guarantee of the assignee's contractual liabilities -- see Hindcastle ibid at 93 to 94 where Lord Nicholls observed that:

" ... in the present context, it is essential to have in mind that the fundamental purpose of an ordinary guarantee of another's debt is that the risk of the principal debtor's insolvency should fall on the guarantor and not the creditor. If the debtor is unable to pay debt when it becomes due, his bankruptcy does not release the guarantor ... the very object of giving and taking a guarantee would be defeated if the position was otherwise ..."

This factor renders it improbable that a reasonable person with all the background knowledge of the parties at the time they entered into the AGA could have intended clause 6.2 to have the effect for which the defendant contends. Given this consideration, I accept Kiko's submission that the AGA was not intended by the parties to operate so that Kiko's liability in its capacity as guarantor would be discharged by disclaimer -- see clause 3 -- with clause 6.2 being intended to apply only where in law the assignee was released, for example by further assignment or a surrender. This is consistent with clause 5 of the licence which provides that the guarantee was required to last:

"... for so long as and to the extent that the assignee is not released by law under the liability of the terms of the lease ..."

16. As I have explained, disclaimer does not have that effect. In these circumstances, I can conclude that Kiko is entitled to summary judgment by reference to that point.
17. I now turn to the second defendant's submission that it has a real, as opposed to a fanciful, chance that at trial it will be found that sums totalling £195,071.22 claimed by Kiko from the second defendant are sums that it was not liable to the lessor for because the lessor has received those sums from the first defendant either by direct payment of £44,000 by the first defendant to the lessor on 11 April 2023; or because the lessor recovered £155,071.22 by deduction from the rent deposit paid by the first defendant to the lessor.
18. Before turning to the facts, it is necessary to start with the principles which apply to a summary judgment application. They were authoritatively summarised by Lewison J, as he then was, in Easyair Ltd v Opal Telecom Ltd [2009] EWHC Civ 339 (Ch) at paragraph 15 and been consistently approved by the Court of Appeal and followed at first instance ever since. The points which are relevant for this part of the application are those identified in subparagraphs 1, 5 and 6, being in summary:

a. there must be a real as opposed to a fanciful chance of success before summary judgment is refused. Claims based on surmise are likely to fail this requirement unless the principles identified by Lewison J in subparagraphs 5 and 6 of his summary apply; and

b. in arriving at a conclusion on a summary judgment application, the court should take account

i. not only of the evidence available on the application, but evidence that can reasonably be expected to be available at trial; and/or

ii. of any reasonable grounds there may be for believing that a fuller investigation of facts could alter the evidence available to the trial judge, so that the outcome that would follow from the evidence available on the hearing of the summary judgment application would be different from and contrary to that which would be arrived at at trial.

19. The second defendant submits that I should conclude that the more than fanciful threshold has been passed in relation to the issues I am now considering. Its case in relation to the £155,000-odd element starts with the formal notice to the first defendant from the lessor's solicitors, Messrs Hogan Lovells, dated 6 December 2021, by which the lessor gave notice to the first defendant that the sum of £155,071.22 had been withdrawn from the rent deposit then held by the lessor. Attached to the notice was a schedule identifying the payments due in respect of which it was being asserted that there was an entitlement to deduct from the rent deposit. It was for rent and service charge due in the period between 30 September 2019 and 24 March 2021. The only element for rent was £157,500 said to be due for the period 25 December 2020 to 24 March 2021. The second defendant maintains that these sums were included in the sums demanded in a notice dated 2 December 2021 under section 17 of the 1995 Act by the lessor to the claimant. The schedule to that notice included a claim for rent due for the period between 25 December 2020 and 25 March 2021 in the sum of £157,500. The simple point made by the second defendant is that if a deduction was made from the rent deposit, as apparently was the case looking at the notice of 9 December 2021, the same sum was not recoverable from Kiko by the lessor, and therefore the second defendant is not liable to Kiko in respect of that sum, even if it was paid by Kiko.
20. Kiko's response is that (a) the sum the subject of the summary judgment application is for a different period; namely for periods falling due on and after 21 July 2022. An account of deductions from the rent deposit provided by the lessor's solicitors, Hogan Lovells, demonstrates that in fact only two deductions were ever made from the rent deposit; one on 19 October 2020, and the other on 29 November 2021. The first could not by definition have applied to rent falling due on a period ending on 25 March 2021.
21. The drawdown on 29 November 2021 appears to be that referred to in Hogan Lovells' notice to the first defendant as 6 December 2021, which refers to a withdrawal from the deposit on 30 November 2021. The schedule attached shows that to be rent for 2021 Q1; that is the period ending 24 March 2021. Aside from these drawdowns, there is no evidence of any other drawdowns from the rent deposit and, furthermore, Hogan Lovells on behalf of the lessor has repaid to the first defendant the balance of the rent deposit, calculated on the basis that save only for £12,000, which it is not suggested by either party is material, the whole of the remaining sum paid by way of rent deposit has been repaid to the first defendant.
22. Thus the suggestion that there is a realistically arguable case of double recovery is based on the section 17 notice sent to Kiko that was apparently pre-dated 2 September 2021, which apparently included a claim for rent in the period ending 25 March 2021 - that is for a period within six months from the date of the notice. As paragraph 2 of the notice made clear, if the notice is given for a period for sums falling due in excess of six months from the date of the notice, it is not valid, and the same cannot be recovered from Kiko. Thus the position appears to be that on the one hand there is a suggestion that the notice was never validly given effect to, whereas on the other there is a suggestion made on the part of the second defendant that upon proper investigation, it may prove that there is double accounting. The point made by the second defendant, which is not answered by the claimant, is that Lovells have promised a full account setting out all sums that have been received in relation to rent due, but that document has not so far been forthcoming.
23. In relation to the £40,000 issue, Kiko submits that issue has been raised late and not by way of evidence. It is said not to demonstrate any double accounting. I am not able to accept that there is not a realistically arguable point to be made by reference to this payment. There is no mention of it in Hogan's accounting information in its email of 9 January 2025, even though that apparently relates to direct payments in a period which includes the whole of 2023. A payment of £40,000 was received on or about 12 April 2023. That will need to be accounted for.
24. Taking a step back, therefore, the position is this: whilst as a matter of law the claimant is entitled to succeed by reference to the true construction of the AGA for the reasons I have identified earlier in this judgment, the issues concerning who has paid what and when are not sufficiently clear to permit summary judgment to be entered for the sums the subject of the application.
25. In those circumstances, those are issues which should go to trial, together with the other issues which will be the subject of trial, although as I say, these are accounting issues which may well be capable of resolution as part of the NDR process with the legal principle referred to earlier resolved by this judgment.

(After further submissions)

26. The issue I now have to determine concerns the costs of and occasioned by the summary judgment application I resolved a moment ago.
27. The submission made on behalf of the claimant is that it should at least recover its costs of and occasioned by the application, since the only point the defendant succeeded on is what the claimant describes dismissively as an accounting point. It is an accounting point, however, which is quite important since the full state of the account could only be ascertained once comprehensive information has been obtained from the lessor's solicitors in circumstances where I  was told there was disclosure had not taken place nor had witness statements that had been prepared. In those circumstances, the alternative is to reserve the costs of the application to the trial judge; as I have already explained, the trial is due to take place in two and a half months time. The defendant accepts that would be an appropriate way to proceed.
28. By proceeding in that way, all rights of all the parties are reserved, and in particular it will be open on the one hand to the defendant to rely upon Calderbank letters if it can and, more particularly, it would be open to the claimant to maintain that upon analysis, the accounting point which led me to refuse summary judgment in relation to the disputed monetary elements until after a final and comprehensive account has been received from the lessor was misplaced and of no benefit to anybody. Those are all issues which can sensibly be considered by the trial judge. There is to be a NDR exercise; the NDR exercise is one where obviously costs which have been incurred will have to be taken into account in arriving at a settlement. In those circumstances, I propose to reserve the costs over to the trial judge.

(After further submissions)

29. The issues I now have to determine in relation to the application for permission to amend is firstly to give directions concerning the filing of an amended defence; and secondly to deal with the costs consequences of the proposed amendment.
30. The proposed amendment was not opposed. The NDR window opens, as I understand it, in a week's time and is a relatively short window in which NDR is to take place. It strikes me as obvious that before the NDR process starts, all parties should be properly informed as to what the second defendant's position is in relation to the new claim which is being advanced by the claimant.
31. In those circumstances the appropriate course is to direct that service of the draft re-re-amended pleading should stand as service of it as permitted, because permission has been given to serve it in the form of the draft, and direct the second defendant to file its defence by no later than 4.00 pm ten days from today. That falls a little bit into the NDR window, but it strikes me that seven days would be too short in the circumstances of the case.
32. The second question which arises concerns whether I should make what is sometimes regarded as the usual order following an amendment; that is to say that the costs of and occasioned by the amendment be paid by the claimant. So far as that is concerned, the claimant suggests the costs should be reserved, together with the other costs so reserved which I have directed and dealt with earlier today.
33. So far as that is concerned, I am firmly of the view that the costs should be reserved as the claimant suggests, essentially because the amendment is not one that raises a new claim that would have been available to the claimant at the time of the last amendment of its pleading, but rather is a claim which has arisen by reference to facts which have only become available since the last amendment exercise.
34. Such a claim could theoretically, I suppose, have been commenced by the commencement of a new claim but that would have generated a significant additional cost to no useful purpose. By the same token, there is no question of any limitation issue arising in relation to the new claim. Therefore, plainly it is appropriate that this current claim should be amended to incorporate it; but equally and by the same token, it would not be appropriate simply to direct that the costs of and occasioned by the amendment be borne by the claimant when the amendment is not the result of any default on the part of the claimant.
35. In those circumstances, I direct those costs be reserved to the trial judge as well.
This transcript has been approved by the Judge