In Co-Operative Group Food Ltd. v. A&A Shah Properties Ltd.  EWHC 941 (Ch);  PLSCS 72, Mann J had the opportunity to delve into some of the murk left in the waters of Landlord and Tenant (Covenants) Act 1995 after the landmark decision in K/S Victoria Street v. House of Fraser (Stores Management) Ltd.  Ch 497 (CA).
Following a transfer of engagements under the Industrial and Provident Societies Act 1965, the Co-Op found itself as the guarantor of a lease which had been granted to Somerfield Stores Ltd. by A&A Shah Properties Ltd. On an assignment of the lease from Somerfield to 99p Stores Ltd,. Somerfield had given A&A Shah an Authorised Guarantee Agreement, or “AGA”, and the Co-Op had given some covenants in the Licence to Assign.
When both Somerfield and 99p went bust, A&A Shah sued Co-Op on the basis that its covenants in the Licence constituted a “SAGA”: that is a sub-guarantee of Somerfield’s AGA. Co-Op contended that the covenants were not a SAGA, which it accepted would be lawful, but constituted either a joint guarantee or a repeat guarantee, either of which would be rendered void by section 25(1) of the Act.
Thus, one particular issue before Mann J was something that had troubled the first instance judge in K/S Victoria Street, EWHC 3006 (Ch), Mr. John Randall QC. In paragraph , the Deputy Judge observed that it was odd that the Covenants Act could permit a guarantor to enter into a SAGA, but could not “do something to the same substantial effect, different only in form, namely to grant a guarantee in the form of a direct covenant”. Lord Neuberger, giving the judgment of the Court of Appeal said, at , that the Court thought there was “much force” in that observation.
The Co-Op argued before Mann J that both the K/S Victoria judgments departed from the wrong starting point, because the difference between a sub-guarantee and a direct guarantee is a matter of substance, not just form, so there was a discernible policy reason for the draftsman drawing that distinction, which left a SAGA valid, but a joint guarantee void.
Mann J kindly complemented Counsel for Co-Op, at  on the “learned discourse on how the Act operated”, which analysed the issues with a “considerable level of detail”. Indeed, Leading Counsel for A&A Shah conceded that the Co-Op’s analysis was correct. However, Mann J did not find it necessary to resolve the question which had so troubled Mr. Randall QC and Lord Neuberger, as he held that the Licence, on its proper construction, was a SAGA, not a joint guarantee. Accordingly, the landlord succeeded.
The judgment is reported on the EGi website as a Case Summary, as well as a news item.
Nic Taggart acted for the Co-Op having achieved slightly better results in K/S Victoria Street.