The Saatchi Gallery – Why It Was Refused Relief From Forfeiture

 

Cadogan Leisure Investments Limited (“Cadogan”) brought forfeiture proceedings against lessee Danovo Limited (“Danovo”), the company operating the Saatchi Gallery at County Hall. That action came to trial in October 2005 before Sir Donald Rattee, sitting as a High Court Judge. The outcome of the trial is well-known; the Judge found that Danovo was in breach, but he declined to grant relief. This article looks at the issues in the forfeiture proceedings, and the factors taken into account by the Judge in refusing to grant Danovo relief.

The issue in the forfeiture proceedings was whether by honouring an offer in Time Out magazine giving two tickets for the price of one, Danovo was in breach of clause 4.13 of its lease. This clause provided that save in the case of specified categories of individuals (OAPs, students or children, or groups of more than 12 visitors) Danovo had to charge an entrance fee of not less than £7.50 per person. By offering two tickets for the price of one, a practice which is absolutely standard in the leisure and entertainment sector, Danovo was effectively charging less than the prescribed minimum entrance fee.

Danovo’s case was that the clause set a minimum standard adult tariff, but that the clause did not prevent promotions of this nature, which were designed to increase visitor numbers and thus revenue and benefit both landlord and tenant. Danovo made no secret of the fact that it had made promotional deals of this kind with publishers of guides and media sponsors ever since it had opened in April 2003, and continued to do so right up until trial.

The Judge found that Danovo had acted in breach of clause 4.13 however, and that Cadogan was entitled to forfeit the lease. Danovo applied for relief against forfeiture.

The power of the Court to grant relief from forfeiture comes from Section 146(2) of the Law of Property Act 1925 and the discretion is unfettered. In a witness statement served on behalf of the Claimant in June 2005, Mr Jit Chauhan, Director and Company Secretary of Cadogan had indicated that Cadogan was content for relief to be granted against Danovo on appropriate terms. Cadogan’s position changed in the run up to trial, for reasons, it was said, resulting from conduct on the part of the Defendant.

The day before the trial started, a further statement from Mr Chauhan had been served, dealing with four matters that had arisen since the time of making his first statement in June 2005. As a result, it was said, Cadogan had reconsidered its position, and it intended to ask that Danovo be refused relief, or that if relief was to be granted, it should be on much stricter conditions than mere compliance with the terms of the lease. To summarise the four matters relied upon by Cadogan, they were as follows:

  1. On 14 July 2005 Danovo gave notice to Cadogan that even if relief was given, it intended to move the Saatchi Gallery to a new location, but to keep the demised premises and operate them as a photographic gallery.
  2. In September 2005 Cadogan’s solicitors were informed that Mr Charles Saatchi would not be giving evidence at the trial.
  3. Danovo issued a press release in September 2005 confirming that the Saatchi Gallery intended to relocate to new premises at the former Duke of York’s Headquarters off the King’s Road, Chelsea, in 2007.
  4. Danovo rejected an open offer of settlement made on 20 September 2005.

Mr Chauhan claimed that as result of these developments, Cadogan found itself in a state of limbo, it did not know where it stood in relation to Danovo, and there did not seem to be any good reason left to accept, on a voluntary basis, the grant of relief from forfeiture. Mr Chauhan asked Danovo to give a full explanation as to its position and its future intentions.

Mr Nigel Hurst, Director of the Saatchi Gallery, provided a further witness statement giving a full explanation of the position. He explained that he anticipated the Saatchi Gallery would, subject to receipt of satisfactory planning permission and listed building consent, be able to relocate to new premises in Chelsea by the end of 2007. Danovo then intended to operate a smaller scale museum of contemporary art or photography at County Hall. In the meantime the Saatchi Gallery, which employed around 80 staff, intended to operate right up until the point where it could be re-located to the new premises.

Danovo submitted by way of closing that it would be a very hard case in which to refuse relief, with harsh consequences to Danovo and no apparent benefit for Cadogan. Key points of the Defendant’s closing submissions were as follows:

  • The breach had not been deliberate. Danovo had not understood the effect of clause 4.13 as being to prohibit promotional ticket offers.
  • No attempt had been made to conceal from Cadogan the fact that Danovo had run such promotions from the outset, and continued to do so right up to trial, and indeed they had been heavily advertised.
  • The breach was not damaging for Cadogan; Danovo was trying to increase visitor numbers to the Saatchi Gallery.
  • Danovo had invested about £1.2 m in fitting out the gallery and improving the common parts of County Hall.
  • Even if there was a breach of clause 4.13, the gallery had “outperformed” other covenants, by staying open longer than the covenanted hours and many days longer than the covenanted days, and had done everything it could to make the gallery a success.
  • The effect of refusing relief would be to force an established art gallery and visitor attraction to close for up to 2 years whilst planning permission is obtained for the new premises, and the fitting out process is undergone.
  • About 80 people employed by the gallery would lose their jobs.
  • The educational art programme run by the gallery would have to be discontinued.

In refusing to grant relief from forfeiture the Judge found that Danovo had been in continuing breach in deliberate disregard of Cadogan’s rights, and he relied heavily on the conduct of Danovo; the fact that it had continued to run promotions in breach, and that back in September 2003 it had made what the Judge considered to be serious allegations of misconduct on the part of Cadogan and connected parties (which had not been withdrawn). The course of the proceedings to trial had been very acrimonious, the relationship between the parties having rapidly deteriorated during the Summer of 2003. The Judge commented that their relationship had gone from being “not the easiest” to “appalling”. Furthermore, Danovo’s pleaded case had initially raised issues of breach of the landlord’s covenants for quiet enjoyment, and made allegations of harrassment against Cadogan and the other claimants in a related trespass action, although those allegations had all been dropped before trial.

The Judge also made express reference to the September 2005 press release. At the time of the trial, the lease still had almost 18 months to run, but Mr Charles Saatchi had been quoted in the press release as saying that a long term tenancy at County Hall was untenable. The Judge relied upon that to find that a continuation of the primary objects of the lease were unachievable.

In dealing with the issue of relief the Judge did not expressly refer to the failure of Mr Saatchi to give evidence, but he did refer to this elsewhere in his judgment when commenting on the Defendant’s conduct generally. The Judge did not make any reference at all to the failure of settlement discussions, which was one of the four reasons cited by Cadogan for changing their mind about wanting the Saatchi Gallery to stay. He expressed regret at the unfortunate consequences that the refusal of relief would bring, but found that in the circumstances of this case, relief was inappropriate.

The outcome of an application for relief will always depend on the circumstances of the particular case in question. What can be learnt from this case perhaps is that a fundamental breakdown in the relationship between landlord and tenant early on in a long term tenancy can weigh heavily against the granting of relief.

* Sarah Rees is a partner in the Dispute Resolution department at Tarlo Lyons and acted for Danovo Limited in these proceedings. She can be contacted at sarah.rees@tarlolyons.com or by telephone on 020 7814 6926.