Break clauses and notices to quit: validity determined by reference to principles of contractual interpretation

In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd ([1997] A.C. 749, HL) two leases contained break clauses giving T the right to terminate the lease by a notice to expire on 13 January 1995. By mistake, the notice to quit referred to 12 January 1995. The question was whether the notice was valid or not. By a majority, the House of Lords held that it was.

The majority emphasised that notices exercising break right belong to the same class of legal document as notices to quit. The modern approach is to interpret a notice in the same way as any other contractual document would be interpreted. An older, stricter approach that saw these documents as being a class apart and as demanding strict compliance for validity (Hankey v Clavering) was disapproved.

Lord Steyn made the following points:

1. This was not a case in which the relevant break clause made the inclusion of certain content in the notice a condition of validity;

2. In general:

‘The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. and in considering this question the notices must be construed taking into account the relevant objective contextual scene.’ (768)

3. The fact that a notice exercising a break right has only one purpose is relevant to the interpretation of the notice:

‘Prima facie one would expect that if a notice unambiguously conveys a decision to determine a court may nowadays ignore immaterial errors which would not have misled a reasonable recipient.’ (768)

4. Break clauses and notices to quit ‘belong to the general class of unilateral notices served under contractual rights reserved.’ (768) Even if they contain an error they may be valid if they are sufficiently clear and unambiguous to leave a reasonable recipient in no doubt as to how and when they are intended to operate.

In this case, a reasonable recipient would have appreciated that the tenant wished to determine the lease on 13 January.

‘The question is not whether 12 January can mean 13 January: it self-evidently cannot. The real question is a different one: does the notice construed against its contextual setting unambiguously inform a reasonable recipient how and when the notice is to operate under the right reserved? As Lord Hoffmann has observed we no longer confuse the meaning of words with the question of what meaning in a particular setting the use of words was intended to convey.’ (772)

Lord Steyn cautioned against drawing the wrong conclusion:

‘I do not accept the extreme argument of counsel for the tenant that whenever a notice to determine refers to a break clause, and whatever the other circumstances of the case, the notice must be valid. That goes too far. One can easily conceive of much weaker cases where the test posed above could not be satisfied.’ (773)

Lord Hoffman, too, emphasised that the normal principles of contractual interpretation had to be applied and that according to these the notice in the present case was clearly valid.

Lord Clyde said:

‘The standard of reference is that of the reasonable man exercising his common sense in the context and in the circumstances of the particular case. It is not an absolute clarity or an absolute absence of any possible ambiguity which is desiderated. To demand a perfect precision in matters which are not within the formal requirements of the relevant power would in my view impose an unduly high standard in the framing of notices such as those in issue here. While careless drafting is certainly to be discouraged the evident intention of a notice should not in matters of this kind be rejected in preference for a technical precision.’ (782)

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: