J N Hipwell & Son v Szurek

Factual and Procedural Background

This appeal concerns a judgment awarding the Respondent damages of £22,750 for assessed business losses resulting from a repudiatory breach by the Appellant. The breach related to an implied or collateral obligation concerning the safety of the electrical installation at business premises leased by the Appellant to the Respondent for use as a café, meeting place, or function room ("the Premises").

The central legal question is whether the lease ("the Lease") included an obligation—either as an implied term or collateral bargain—on the Appellant to ensure electrical safety, and alternatively, whether the Respondent was entitled to rescind the Lease due to alleged misrepresentations made before signing.

The Lease included an Entire Agreement clause, stating it constituted the entire agreement between the parties, and a Non-Reliance clause, where the Respondent acknowledged not relying on any prior statements or representations by the Appellant. These are collectively referred to as the "Entire Agreement Provisions".

The Respondent operated a café targeting new or expectant parents at the Premises within a farm complex. The Lease commenced in January 2012 for a three-year term. In early 2013, electrical problems, including a small fire and sparking socket, caused the Respondent to close the business and seek damages for losses incurred.

The Respondent alleged reliance on the Appellant’s representations that the electrical wiring had been inspected, certified, and was safe. The Appellant denied the fire, contested the representations, and claimed the Respondent’s decision to cease trading was unreasonable. The Appellant also relied on the Entire Agreement clause and challenged the safety of the electrical wiring.

The Judge found that the Appellant had represented the wiring was completed and certificated, but the Lease did not reflect the parties’ true understanding. The parties shared an expectation that the Appellant was responsible for maintaining the structure and installations, including electrical wiring. A fire occurred in March 2013, followed by further electrical faults. The Appellant delayed providing inspection certificates and misrepresented the safety of the installation after inspection. The Respondent reasonably ceased trading due to safety concerns. The Judge held the Appellant in repudiatory breach and awarded damages for business losses.

The Appellant appealed on seven grounds, including procedural irregularity and error of law, principally contesting the implication of a term imposing responsibility for electrical safety and the effect of the Entire Agreement Provisions.

Legal Issues Presented

1. Whether the Lease includes an implied term or collateral obligation requiring the Appellant to ensure the electrical installation at the Premises was safe and certified.
2. Whether the Entire Agreement Provisions preclude reliance on such an implied term or collateral contract.
3. Whether the Respondent was entitled to rescind the Lease on the basis of pre-contractual misrepresentations, including allegations of fraud.
4. Whether procedural irregularities and breaches of disclosure by the Respondent affected the fairness of the proceedings.
5. Whether the Respondent failed to mitigate losses by undertaking repairs instead of closing the business.

Arguments of the Parties

Appellant's Arguments

• The Entire Agreement Provisions should be given full effect, precluding any reliance on pre-contractual representations or implied terms inconsistent with the Lease.
• The Judge erred in implying a term imposing responsibility for electrical safety, particularly given the Tenant’s installation of a commercial kitchen and the express terms of the Lease.
• The Respondent’s failure to disclose business accounts was a serious procedural irregularity affecting credibility and quantum, which the Judge failed to properly consider.
• The Respondent did not mitigate losses by undertaking repairs and should be limited to recovery of repair costs rather than business losses.
• The Judge improperly relied on an authority (Fulton Motors) not cited during proceedings, constituting procedural unfairness.

Respondent's Arguments

• The representations regarding electrical safety were fraudulent, which would negate the Entire Agreement Provisions and entitle rescission.
• The Lease was incomplete and did not reflect the parties’ true agreement, justifying implication of a term or rectification to include the Appellant’s repairing obligations.
• The Entire Agreement Provisions do not prevent implication of terms necessary to give business efficacy to the Lease.
• The Respondent’s breach of disclosure was mitigated by the Appellant’s failure to apply for specific disclosure and the eventual production of accounts.
• The Respondent’s decision to cease trading was reasonable given the safety risks and the Appellant’s denial of electrical faults.
• The Appellant waived the Entire Agreement Provisions by conduct and representations prior to the Lease, although this was contested due to the Non-Reliance clause.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by assessing whether the Lease expressly addressed the Appellant’s responsibility for electrical safety. The Lease imposed extensive repair obligations on the Tenant but contained no express clause requiring the Appellant to maintain or certify the electrical installation. This gap was identified as inconsistent with the parties’ shared understanding and other Lease terms, such as the landlord’s right of access to repair "service media," defined to include electrical wiring.

The court considered the Entire Agreement Provisions, which generally preclude reliance on collateral warranties or representations outside the written contract. However, it acknowledged that such clauses do not prevent the implication of terms necessary to give business efficacy to the contract.

Applying the principles from Marks & Spencer plc v BNP Paribas, the court emphasized that implication of a term requires necessity to ensure the contract's commercial coherence, not mere reasonableness. The court found that without an implied term requiring the Appellant to ensure the electrical installation was safe and certificated, the Lease would lack practical coherence.

The court distinguished the Fulton Motors case, finding it inapplicable due to differences in facts and the presence of a Non-Reliance clause in the Lease here. It rejected the Appellant’s argument that the Entire Agreement Provisions barred implication of the term on grounds other than fraud, noting no finding of fraud was made by the lower court and declining to make such a finding on appeal.

The court also addressed procedural grounds, finding no sufficient basis to overturn the judgment on issues relating to disclosure failures or mitigation of loss. It held that the Respondent’s decision to cease trading was reasonable given the safety concerns and the Appellant’s denial of faults.

Finally, the court rejected arguments based on waiver of the Entire Agreement Provisions and claims of rectification, as no rectification claim was advanced below.

Holding and Implications

The court DISMISSED THE APPEAL.

The court held that a term must be implied into the Lease imposing on the Appellant the obligation to ensure the electrical installation serving the Premises was safe and subject to a current Electrical Safety Certificate. This implication was necessary to give the Lease business efficacy and was not excluded by the Entire Agreement Provisions.

On this basis, the Appellant was in repudiatory breach of the Lease, entitling the Respondent to accept the breach, vacate the Premises, and recover business losses. The court found no sufficient grounds to disturb the judgment below, including procedural objections.

No new legal precedent was established beyond the application of established principles on implied terms, Entire Agreement clauses, and the parol evidence rule. The decision affirms the principle that entire agreement clauses do not preclude implication of terms necessary for contractual coherence.