Landlord and tenant–Rent review clause in lease of Jermyn Street premises occupied by tenants for business of dealing in old master paintings and sculptures–Appeal from decision of acting High Court judge–Notice under review clause given out of time and treated as invalid before House of Lords decision in United Scientific Holdings Ltd v Burnley Borough Council–More than five years later, after House of Lords decision, landlords claimed that the notice was a valid notice–Judge, on the question being raised by the landlords by originating summons, decided that they were estopped from claiming increased rent under the notice for the intervening period–Passages in judgment not clear on the difference between estoppel ‘in pais’ or by conduct and promissory estoppel, but the tenants’ case rested on the doctrine of promissory estoppel–Ingredients of promissory estoppel explained–Held that in the present case the requisite promise was lacking, the landlords having merely bowed to the inevitable in the then state of the law without forgoing their rights; that even if there had been a promise it was not made with the knowledge or intention that it should be acted upon by the tenants by alteration of their legal position; and that the tenants had not altered their position in such a way as to make the enforcement of the landlords’ strict legal rights inequitable–Appeal by landlords allowed
This was an
appeal by James & Jacobs, estate agents, lessors under an underlease of
Heim Gallery Ltd, of the ground floor of 59 Jermyn Street, St James’s, London,
from a decision of Judge Thomas, sitting as a judge of the High Court, holding
in favour of the lessees, Heim Gallery (London) Ltd, the present respondents,
that the appellants were estopped from claiming increased rent for a period
under a review clause in the underlease. The decision of Judge Thomas was
reported at (1979) 252 EG 1017, [1979] 2 EGLR 91.
John Mills QC
and P Battersbury (instructed by Thomas Eggar & Son, of Chichester)
appeared on behalf of the appellants; Gavin Lightman QC and Patrick Talbot
(instructed by Herbert Oppenheimer, Nathan & Vandyk) represented the
respondents.
Giving
judgment, BUCKLEY LJ said: This is an appeal from a judgment of His Honour
Judge David Thomas, sitting as an additional judge of the Chancery Division,
delivered on June 29 1979. The dispute arises out of a notice served by the
plaintiffs under a rent review clause contained in a lease of business premises
in Jermyn Street granted by the plaintiffs’ predecessors in title to the
defendant company. The term of that lease was 18 years from June 9 1965, and it
contained a provision enabling the landlords to procure reviews of the rent
payable under the lease at midsummer 1972 and midsummer 1979. The initial rent,
after a short period at a peppercorn, was £5,500 per annum payable quarterly in
advance.
The rent
review provision is contained in clause 5 of the lease and is in the following
terms:
(a) That if at the expiration of the first seven
and fourteen years of the said term namely on the twenty fourth day of June one
thousand nine hundred and seventy two and the twenty fourth day of June one
thousand nine hundred and seventy nine the Lessors shall desire to increase the
rent hereby reserved on the grounds that such rent is less than the open market
rental value of the premises the Lessors shall at any time being not less than
six months before such expiration give to the Lessee notice in writing to that
effect and shall in such notice state the Lessors’ assessment of the open
market rental value (b) Unless the Lessee shall within thirty days of the
service of such notice give a counter notice in writing to the Lessors
objecting to the amount of the Lessors’ assessment of the open market rental
value then the rent payable hereunder shall be increased to the amount of the
Lessors’ assessment (c) In case the Lessee shall object to the Lessors’
assessment of the open market rental value the parties shall forthwith
endeavour to agree the calculation thereof between themselves and failing
agreement thereon the amount shall be determined by an independent surveyor to
be appointed in the event of the parties failing to agree upon one by the
President of the Royal Institution of Chartered Surveyors (d) Any increase in
rent being the difference in the said rent hereby reserved or the rent accruing
on the twenty fourth day of June One thousand nine hundred and seventy two and
the open market rental value as so required agreed or determined (as the case
may be) shall take effect immediately after the expiration of the first seven
or fourteen years of the said term namely on the twenty fourth day of June one
thousand nine hundred and seventy two and the twenty fourth day of June one
thousand nine hundred and seventy nine shall be substituted for the rent hereby
reserved (e) It is hereby agreed and declared that in calculating an open
market rental value there shall be disregarded those factors set out in Section
34(a)(b) and (c) of the Landlord & Tenant Act 1954. (f) It is hereby agreed
and declared that the rent payable hereunder shall in no circumstances be less
than the said yearly rent of FIVE THOUSAND FIVE HUNDRED POUNDS hereby reserved.
The
plaintiffs, who by this time had become the landlords, failed to give a notice
under clause 5(a) upwards of six months before June 24 1972, but on June 5 1972
the first plaintiff, writing no doubt on behalf of the second plaintiff and
himself, addressed a letter in the following terms to Mr Pomian, a director of
the defendant company:
I confirm
that your rent review operates from June 24 this year and I gather from your
Office that you are away until July 1 and will deal with this matter. I have
recently carried out an inspection of your premises and your Ground Floor, in
my opinion, has a current rental value of £17,000 per annum exclusive. Perhaps
you can contact me on your return from your holidays so that we can finalise
the matter.
On June 19
1972 Mr Pomian replied as follows:
Returning
from my holiday, I found today your letter of June 5, with the suggestion that
our rent should be increased up to the frightening sum of £17,000 per annum,
which would be a severe blow to our business. It seems to me, however, that
there is a misunderstanding somewhere as, according to the terms of our Lease,
the next deadline for a rent review is December 24 1978.
Mr Lightman,
for the defendants, has contended that, assuming the letter of June 5 was an
effective notice under clause 5(a) of the lease, the letter of June 19 1972 can
be read and take effect as a counternotice under clause 5(b). This, in my
opinion, it clearly cannot be. The subclause requires a counternotice objecting
to the amount of the lessors’ assessment of the open market rental value of the
property. The letter contains no suggestion that the sum of £17,000 exceeded
the open market rental value of the property at that time. It merely describes
it as ‘frightening.’ The substance of
the letter was to make the point, albeit obliquely, that the notice contained
in the letter of June 5 was ineffective because it was out of time. The
plaintiffs’ solicitors, who do not seem to have appreciated the point, wrote to
the defendants on June 27 1972 in these terms:
We act for
Messrs James and Jacobs who have passed to us your letter to them of the 19th
instant. We cannot understand your comment that your rent is not due for
revision until December 24 1978. It is due for revision now, and we must ask
you to be so good as to let us hear from you either agreeing the rent put
forward by our clients or with a suggestion as to what you consider the present
day market rental to be.
The point was
put explicitly in a letter from the defendants’ solicitors to the plaintiffs’
solicitors dated July 3 1972, in which they wrote:
Our Client’s
comment is quite a simple one that a rental revision cannot now be made until
any time being not less than 6 months before June 9 1979. May we please refer
you to Clause 5(a) of the original Underlease of October 28 1965 made between
the above parties which provides that the Landlord shall at any time being not
less than 6 months before June 9 1972 give notice stating the Lessors’
assessment of the open market rental value. This the Lessors failed to do and
therefore are not in a position to revise the rent until the date referred to
above.
There the
correspondence rested. On September 21 1972 the plaintiffs demanded a quarter’s
rent at the sum of £1,375–that is, on the basis of an annual rent of £5,500.
They marked the demand ‘Without Prejudice.’
They continued to demand quarterly payments at the same rate down to and
including the quarterly payment in advance for the quarter commencing September
29 1977, but no demand other than the first was marked ‘Without Prejudice.’
At some date
towards the end of 1972 the first plaintiff and Mr Pomian had a brief and
casual conversation on an occasion when they met fortuitously at the property.
I will say more of this later.
In the year
1972 the view generally held in the legal profession in the light of the
decision of this court in July of that year in Samuel Properties
(Developments) Ltd v Hayek [1972] 1 WLR 1296, affirming a decision
of Whitford J in January of that year, [1972] 1 WLR 1064, was that time
provisions in a clause of this nature were mandatory. However, in March 1977
the House of Lords in United Scientific Holdings Ltd v Burnley
Borough Council [1978] AC 904, held otherwise, deciding that prima facie
strict adherence to the timetable laid down in such a clause is not of the
essence of the contract.
On October 31
1977, solicitors on the plaintiffs’ behalf wrote to the defendants’ solicitors
asserting that in the light of the House of Lords’ decision the letter of June
5 1972 was a good notice and effective to operate the rent review clause, and
inquiring whether the defendants intended to continue to dispute its validity,
in which event proceedings were threatened.
On December 22
1977, after taking counsel’s advice, the defendants’ solicitors wrote as
follows:
. . . in view
of the fact that after your Clients’ claim to revise the rent was refuted by
them and ourselves, and of the fact that all supplemental demands for rent were
received and paid on the basis that it was accepted that the rent review could
not then take place, our Clients proceeded on the basis that no claim to revise
the rent would be made by your Clients. A sudden change now to require a rent
review would in our Clients’ view be an injustice. In particular there would be
an injustice in any claim up to the date of your letter to us of October 31
1979. However, on the basis that any claim of a rent review in respect of rent
to October 31 1977 is waived or conceded not to be payable our Clients are
prepared to pay a revised rental from October 31 1977.
They went on
to raise the question what the revised rent should be and asked that their
letter should be accepted as a counternotice under clause 5(b) of the lease,
objecting to the plaintiffs’ assessment of the open market rental value.
On January 12
1978 the plaintiffs’ solicitors replied saying that the offer contained in the
letter of December 22 1977 was unacceptable. They asserted that in June 1972
the law had been uncertain and that the plaintiffs had ‘quite legitimately
waited for it to be clarified.’
On March 2
1978 the plaintiffs issued an originating summons, asking whether the letter of
June 5 1972 was a valid notice which gave rise to a rent review pursuant to
clause 5(a) of the lease; secondly, whether the letter of December 22 1977 was
a valid counternotice under clause 5(b) of the lease; thirdly, whether as from
June 25 1972 to date the rent payable under the lease was £5,500 or £17,000 per
annum; fourthly, whether in the events which had happened the parties were then
obliged to act as set out in clause 5(c) of the lease; fifthly, a declaration
that the rental of the said premises from June 25 1972 to June 24 1979 was
£17,000 per annum; sixthly they asked for judgment at the rate of £11,500 per
annum, being the difference between £17,000 and £5,500 per annum which had been
paid, from June 25 1972 to trial; and further or other relief. That summons did
not come on for hearing until June of 1979. Meanwhile, in September 1978, the
parties reached agreement that the open market rental value of the property at
June 24 1972 had been £12,500 per annum.
The case was
presented below, and in this court, as a case of promissory estoppel. It is
perhaps unfortunate that the proceedings were commenced by originating summons
and were tried without pleadings and upon affidavit evidence, albeit with
cross-examination. It is, I think, nearly always desirable that a case the
decision of which depends upon an estoppel should be tried on pleadings with
discovery and oral evidence. However, the fact that the defendants intended to
rely on estoppel and at least the broad nature of the estoppel relied upon
appeared from the affidavits.
The learned
judge referred for a statement of the principle governing estoppel to a passage
in Spencer Bower on Estoppel (3rd ed pp 110 and 111) which in fact
relates to estoppel in pais and not to promissory estoppel, and he cited a long
passage from the judgment of Dixon J in Grundt v Greater Boulder
Proprietary Gold Mines Ltd (1937) 59 CLR 675 in the High Court of
Australia, which was directed to the principles governing estoppel in pais. It
may be for this reason that the learned judge seems not to have had in mind the
difference between the representation of fact which is necessary to found an
estoppel in pais and the promise or representation about intended future conduct
which is necessary to found a promissory estoppel, and seems not to have
sufficiently analysed the facts of the present case to determine what promise,
if any, the plaintiffs can properly be regarded as having made to the
defendants.
Estoppel in
pais and promissory estoppel are quite distinct from one another. Estoppel in
pais depends upon the party estopped having made a representation in respect of
an existing fact or alleged fact, the truth of which he is thereafter estopped
from denying. It is a doctrine which regulates the admissibility of evidence.
It has in fact been frequently described as a rule of evidence, but in Canada
& Dominion Sugar Co Ltd v Canadian National (West Indies) Steamships
Ltd [1947] AC 46 at p 56, the Judicial Committee of the Privy Council said
that it is rather a principle of justice and of equity. Promissory estoppel, on
the other hand, does not depend on the party estopped having made a
representation relating to the state of facts at the date of the
representation; it looks to the future. It depends upon the party estopped
having made to the other party to the estoppel a promise or an assurance or
representation in the nature of a promise, that he will act or abstain from
acting in some particular way in the future. Like estoppel in pais, it creates
no new cause of action, but unlike estoppel in pais, it does not preclude the
party estopped from asserting any fact; it precludes him from acting
inconsistently with his promise. The doctrine is one which comes into play only
when the promise is not enforceable as a contract, for where there is a
contract there is no need to rely on promissory estoppel. Nevertheless, the
promise, assurance or representation must be one which the promisor intends to
be binding; that is to say, it must have the qualities of a promise. In Central
London Property Trust Ltd v High Trees House Ltd [1947] KB 130,
Denning J, as he was at that time, said: ‘They are really promises–promises
intended to be binding, intended to be acted upon and in fact acted upon.’ The promise must be one relating to a legal
relationship of some kind, existing between the promisor and the promisee.
Whether that relationship need be a contractual one seems still to be an open
question (see Spencer Bower op cit, pp 378 to 384). It must, in my
judgment, be a promise which, if fulfilled, will be, or tend to be, for the
advantage
capable of inducing the promisee to alter his position, and to alter it in a
way which would be to his disadvantage if his legal obligations to the promisor
were to remain unqualified by the promise. It is for this reason that equity
will not permit the promisor to act in a way inconsistent with the promise
unless the promisee can be restored to his original position in relation to the
promisor. The learned judge held that the plaintiffs were estopped in the
present case from claiming any arrears of increased rent in respect of the
period from June 24 1972 to October 31 1977. He awarded them arrears of the
increased rent from the latter date until June 24 1978, as from which date the
parties had themselves agreed an increased rent of £27,500 per annum by way of
an agreed anticipation of the rent review which would have otherwise occurred a
year later.
I must now
investigate how far the facts of the present case fit the requirements of the
doctrine. The relationship between the plaintiffs and the defendants was
undoubtedly contractual. The plaintiffs were the defendants’ landlords. The
plaintiffs sought to exercise a contractual right to require a rent review
which they thereby asserted to be available to them notwithstanding that their
notice was not given until only 19 days before midsummer 1972. The defendants
resisted this on the ground that the notice was too late and that in the
existing circumstances the plaintiffs no longer had any right to require a rent
review in 1972. Although the plaintiffs did not immediately or explicitly
accept the validity of the defendants’ point of law and made their rent demand
in September 1972 without prejudice, the defendants say that thereafter the
plaintiffs by their conduct indicated that they did in fact accept its
validity. In paragraph 3 of his first affidavit Mr Pomian said that it was the
defendants’ honest belief that their solicitors’ letter of July 3 1972
correctly stated the legal position, and he went on to say:
. . . and
this belief was confirmed by the fact that the plaintiffs apparently accepted
that this was correct. For no reply or challenge was thereafter made to this
letter and the plaintiffs took no steps to operate the review and demanded and
accepted the payment of the existing unreviewed rent until their letter dated
October 31 1977. The demand for the September quarter of 1972 was headed
‘without prejudice,’ but thereafter all demands and receipts were without
qualification. No indication was given that the matter of the review was
otherwise than finally and irrevocably settled.
The defendants
contend that this view is reinforced by the casual conversation to which I
referred earlier. This was not mentioned in the affidavit evidence, but came
out in the course of Mr Pomian’s oral evidence. The learned judge deals with it
in his judgment as follows:
Then, some
time in the late autumn of 1972, there was a chance meeting between Mr James
and Mr Pomian at 59 Jermyn Street. There was a brief conversation against the
background of Mr James’s failure to give notice June 5 1972 in time. Mr James
said something like, ‘one can’t always win,’ or that he treated winning and
losing in the same way. This led Mr Pomian to believe, as it would have led
anyone to believe, that the matter of rent review was closed.
These events
constituted, in the submission of Mr Lightman, a representation in the nature
of a promise by the plaintiffs that they would not pursue any right they might
have to require a rent review as at June 24 1972. They caused the learned judge
to reach the following conclusion: ‘The plaintiffs’ representations by words
and conduct have caused the defendant company to assume a state of affairs from
which the plaintiffs are disentitled to depart by reasserting their
rights.’ I feel unable to agree with
that conclusion. The plaintiffs having demanded a rent review as at June 24
1972, the defendants took a point of law which, as I have pointed out,
according to the view of the law then generally held, was a sound point. The
second plaintiff, in his affidavit at paragraph 6, asserts that the plaintiffs
never abandoned their claim to a rent review or conceded that it was
inadmissible. I must confess that I regard this statement with a measure of
scepticism, for the learned judge found that the first plaintiff admitted in
evidence that he knew the notice of June 5 1972 was out of time when he served
it, but that he had hoped that that would be overlooked. It seems to me that
the plaintiffs, although they formally reserved their position for a short
time, accepted that the point taken by the defendant was a valid point, or at
the least was a point which the plaintiffs would be unwise to contest in the
light of the law as then understood. That, in my view, would involve nothing in
the nature of a promise. To bow to the inevitable, or the near inevitable, is
quite different from agreeing to forgo a right. Even assuming that the
plaintiffs did always regard the point as of doubtful validity, it seems to me
that the mere fact that they did not pursue it imports no promise or
representation that they would not do so at any later time. As the authorities then
stood, it would have been very probable that no conclusive decision would have
been reached short of the House of Lords. In these circumstances a potential
plaintiff might very justifiably and reasonably choose to hold his hand in the
hope that the point might be cleared up in litigation between other litigants
before deciding whether to press his claim. The casual conversation does not
seem to me to support the defendants’ contention. It would in any case be
wrong, in my opinion, to put any substantial reliance upon so casual a
conversation, the precise terms of which the witness was unable to remember;
but it really supports the view, I think, that the plaintiffs regarded the
point of law as one which either they could not contest or they would be ill-advised
to attempt to contest. It does not, in my opinion, support any inference of any
kind of promise.
If these
conclusions are right, there could have been no promissory estoppel in the
present case because of the lack of the requisite promise. There is, however, a
further ground upon which I think the defendants’ case founders. Assuming a
promise, to establish a promissory estoppel that promise must have been made in
circumstances in which, to the promisor’s knowledge, the promise would be acted
upon by the promisee. The acts of the defendants which are relied upon in this
connection are dealt with by the learned judge in his judgment; they may be
summarised thus: In consequence of the defendants having thought that the rent
would not be substantially increased, (1) the defendants did not accumulate
reserves to meet any possible increased rent; (2) the defendants remained in
occupation of the property and made no attempt to find an assignee or to remove
to cheaper premises; (3) the defendants would not have organised at their own
expense as many as five loan exhibitions of works of art during the years from
1972 to 1977; (4) the defendants would not have made charitable donations
amounting to £8,800 between 1972 and 1978. There is, however, no evidence to suggest
that the plaintiffs had any knowledge of the defendants’ financial affairs, or
had any reason to suppose that the defendants could not pay, or make provision
for payment of, an increased market rental. Nor is there anything to suggest
that the plaintiffs had any reason to suppose that the defendants would
organise loan exhibitions, or that their ability to do so would be
significantly affected by the defendants being required to pay an increased
market rental. Nor, it would seem, had the plaintiffs any knowledge of the
defendants’ likelihood, or ability, to make charitable donations. The
defendants, in my judgment, have failed to establish that if the plaintiffs
made any such promise as the defendants allege, that promise was made in
circumstances in which to the plaintiffs’ knowledge the promise would be acted
upon in any of these ways. On this ground also I think that this is not a case
in which any promissory estoppel can arise.
Mr Talbot has
submitted that apart from the doctrine of promissory estoppel, the conduct of
the plaintiffs was such that they should be regarded as having abandoned any
claim to an increased rent from June 24 1972. He relied in this respect upon
dicta of Lord Denning MR, Goff J and Lord
v Memorial Enterprises Ltd [1974] 1 WLR 728; Accuba Ltd v Allied
Shoe Repairs Ltd [1975] 1 WLR 1559; and United Scientific Holdings Ltd
v Burnley Borough Council [1978] AC 904. If a party who unreasonably
delays in asserting some right can on that ground, distinct from promissory
estoppel, be held to have abandoned that right so as to be barred from
asserting it, this is not in my judgment such a case. For reasons which I think
I have already sufficiently indicated, the plaintiffs’ delay in the present
case was not, in my view, unreasonable. The letter of June 5 1972, although it
did not comply with the time requirements of clause 5(a) of the lease strictly,
was written before the rent review date–that is, June 24 1972–was reached;
there was no unreasonable delay there. The plaintiffs’ subsequent failure to
press their claim to an increased rent until October 1977 was not, in my view,
unreasonable in the light of the then state of the law. Accordingly I reject
that submission.
In my judgment
the plaintiffs are entitled to all arrears of an increased rent at the rate of
£12,500 per annum as from June 24 1972 until June 24 1978. We are not concerned
with any later period.
The learned
judge awarded interest under the Law Reform (Miscellaneous Provisions) Act 1934
at 10 per cent per annum from March 26 1978 down to judgment. This was in the
nature of a compromise figure, reached by the learned judge in the exercise of
his discretion, taking into account the fact that some part of the arrears
awarded by the judge accrued only after March of 1978. In this court Mr Mills
has asked for interest under the Act, and it seems to me that he is entitled to
some interest. He does not ask for interest in respect of any period before
October 31 1977. On the basis that interest should not be awarded for any
period before the defendants had a reasonable time in which to consider whether
or not to comply with the claim put forward in the letter of October 31 1977, I
think it would be right for this court to award interest on the arrears due at
December 25 1977 from that date, and on all subsequent arrears from the
respective dates when the instalments of rent became due. The rate of interest
should, in my view, be that selected by the learned judge, namely, 10 per cent
per annum.
For these
reasons I would allow this appeal and substitute for the order of the learned
judge an order on the lines that I have indicated.
Agreeing SHAW
LJ said: As I agree entirely with what has been said by my Lord in the course
of his judgment, it is really unnecessary for me to add anything whatsoever. If
I do briefly add a note it is because we are differing from the learned judge
below. His decision rested upon inferences which he regarded as founded by the
primary facts, in regard to which there was virtually no dispute. The material
passage in his judgment reads: ‘. . . all the ingredients necessary to found a
promissory estoppel are present in this case. The plaintiffs’ representations
by words and conduct have caused the defendant company to assume a state of
affairs from which the plaintiffs are disentitled to depart by reasserting
their rights. Detriment or prejudice to the defendant company is bound to flow
from the change of position when the rights are reasserted.’ He went on to say that he held that the
plaintiffs were accordingly estopped from claiming a review before they
effectively reasserted their rights at a later date.
With all
respect to the learned judge, and to the submissions made by counsel for the respondents,
I cannot for myself see even the most frail foundation for holding that any
material representation or promise whatsoever was made by the appellants at any
time. They did no more than accept the tenants’ assertion that the notice dated
June 5 1972 would then have been out of time. The landlords were doing no more,
in adopting the course they did, than recognise that in the light of the
prevailing view of the law they had forfeited, or apparently forfeited, their
right to call for a review, by their failure to comply with the strict terms of
clause 5(a) of the lease. Not even the forensic persuasiveness of Mr Lightman,
and of his learned junior, would serve to distil out of that situation a shadow
of promise not to claim a review of the rent reserved by the lease, if ever
such review became competent and available in due process of law.
Furthermore,
even if such a promise was to be implied, I cannot for myself see how or when
the tenants were led into any course of conduct which disadvantaged them. After
June 1972 they managed their affairs in the confident assumption that the
information they had been given by their own legal advisers was right, as
indeed at the time it apparently was.
I mention only
one other point, namely, that raised by the absence of the words ‘without
prejudice’ from all the rent demands after that which related to the September
quarter in 1972. This, it was argued on behalf of the tenants, fortified the
inference that the tenants were promising not to revive any claim for any increased
rent in relation to the whole of the first seven-year period of the lease; or,
if that was not the case, that they had chosen to abandon any such claim. This
argument savours to me more of desperation than logic and I reject it.
Accordingly, I
would allow the appeal; as to the question of interest, I agree that it should
be allowed for the period, and at the rate prescribed by my Lord in the course
of his judgment.
Also agreeing,
OLIVER LJ said: With regard to Mr Talbot’s ingenious submission that the
plaintiffs’ omission to commence proceedings to enforce the rent review until
1978 resulted in some way in an abandonment or forfeiture of the right to claim
review, this does not appear to me, for the reasons given by my Lord, to be
tenable.
As regards
what was really the primary submission, and the one on which the learned judge
founded his judgment, namely, that this was a case of promissory estoppel, the
principles applicable to such estoppel were not in dispute. The substantial
contest has been as to their application to the particular facts of this case.
In order to found a promissory estoppel, there has first to be found some clear
and unequivocal representation, either by words or conduct, that the party
claimed to be estopped will not rely upon his strict contractual rights.
Secondly, the representation must be made with the intention, or at least the
knowledge, that it is to be acted upon by the other party by altering his legal
position; and thirdly, he must so alter his legal position in reliance upon the
representation in such a way that it would be inequitable, or unfair, to permit
the party claimed to be estopped from departing from the representation.
I find myself
unable to agree with the learned judge that all the conditions of a promissory
estoppel were satisfied in the instant case. Indeed, I go further and say that,
speaking for myself, I am not satisfied that any of them were. In the first
place, I can find no clear and unequivocal representation, such as is required.
In their letter of June 27 1972 the landlords, by their solicitors, made it
quite plain that they were intending to rely upon their right to a rent review.
The tenants’ response to that letter took the point that the notice under
clause 5(a) of the underlease was out of time, a point which then appeared to
both parties to be unassailable. Nevertheless, the landlords sought to protect
their position by appending the words ‘Without prejudice’ to the next demand
for rent. They were, of course, in a hopelessly weak position to challenge the
tenants’ contention, as the law was then thought to be, and it is not in the
least surprising that the tenants felt secure in acting upon what they had been
advised was the strict legal position.
That emerges
very clearly in the evidence of Mr Pomian on the first day, and I read from the
transcript. He said in answer to a question: ‘If I may say so, first of all we
believed all along that we were paying a rent of £5,500 and there was no
question of having to pay anything else.’
Then he was asked by the learned judge: ‘When you say you believed all
along, when did that belief start? or
when did you first
‘The belief was there when we had this correspondence with our landlords in
1972 and the matter was settled then. There was no question of any further
problem, any possibility of any further increase.’ Then the judge pressed the matter, saying:
‘You held the belief then from . . .’ and the answer was: ‘We consulted our
solicitors, who advised us that that was the end of the matter. This was also
the belief of our auditors and we had no reason to expect that we would be
faced with a higher rent until the next rent review in seven years’ time.’
I am, however,
entirely unable to see that the landlords’ failure to argue further the
tenants’ contention could be said to amount to a representation of anything,
let alone to a promise; and indeed the sending out of a ‘Without prejudice’
rent demand would seem as clear an indication as could be given that they
wanted, and intended, to keep the position open so far as they were able to do
so. The fact of the matter is that the tenants had been advised, and thought,
that they had a good technical point which enabled them to occupy the premises
for the next seven years at a fraction of their real value and they intended
to, and they did, make full use of it. What is said, however, is that the
casual conversation between Mr James and Mr Pomian on the stairs in the autumn
of 1972, and the subsequent omission of the words ‘Without prejudice’ from the
rent demands, amounted to some representation that the landlords were content
not to enforce their rights. Of course, the fact is that nobody thought that
they had any rights to enforce.
With regard to
the conversation, I find myself unable to attribute to that anything more than
a rueful acknowledgement by Mr James that, as was generally then thought to be
the case, the law as it then stood was against the validity of his notice. I
cannot see how it represented anything more than this. The learned judge
expressed the view that it would have led anyone to believe that the matter was
then closed. That might be so in the sense that it might be thought to
indicate, as was almost certainly the case, that the landlords received the
same advice as the tenants and could not therefore profitably pursue the matter
further. But it seems to me quite impossible to infer from this that they were
evincing any intention to abandon any rights that they might have as a result
of the notice if the advice turned out, as it did in the event, to be
incorrect.
With regard to
the omission from the rent demands after September 1972 of the words ‘Without
prejudice,’ I am bound to say that I do not see how there can be founded on
this accidental circumstance–it was due, according to the evidence, to a
failure in the plaintiffs’ office to follow Mr James’s instructions–any
representation or promise that the plaintiffs would not, if the law permitted
them to do so, proceed with the rent review. There is nothing in the evidence
which suggests that the omission of these words had any effect upon the
corporate mind of the tenants. Accordingly no such clear or unequivocal
representation as is required for a promissory estoppel appears to me to be
deducible in the circumstances of this case.
Equally,
speaking for myself, I find difficulty in seeing how it can be successfully
contended that any representation that can be deduced was made by the
plaintiffs with the intention that it should be acted upon by the defendants
altering their position on the strength of it. If one has to look at reasonable
suppositions, all that would have occurred to the plaintiffs, as it seems to
me, is that the defendants were taking advantage of the plaintiffs’ slip to
occupy the premises for the next seven years at a rent of one half of the
proper value on a proper commercial basis, and would therefore be to that
extent much better off. The defendants’ contention was that if they had known
that there was a danger that the notice was valid, there are certain steps
which they would have taken and certain things which they would not have done.
To that extent I suppose it can be said that if there was a clear promise or
representation of the type claimed, made with the requisite intention, they
acted upon it by taking a course which they might otherwise not have taken.
But, speaking for myself, my difficulty is in relating the course which the
tenants took to anything other than their confidence–no doubt, a confidence
shared by the plaintiffs at the material time–that the advice which they had
received from their solicitors and accountants was sound. Furthermore, as
Buckley LJ has pointed out, there was no suggestion that the plaintiffs knew,
or could reasonably have known, anything about the manner in which the
defendants chose to conduct their business.
Finally on
this part of the case, it seems to me that the defendants failed to satisfy the
final requirement, that the party claiming the estoppel must have altered his
position in such a way as to render it unfair or inequitable that the strict
rights of the party should now be enforced between them. I am bound to say that
in the instant case I see nothing inequitable in ordering the defendants, in
accordance with their contract, to pay a proper commercial rent for the
premises of which they have had the benefit under the underlease. It is said
that, as traders, they ordered their affairs on the basis that only the
original rent was going to be paid; that is to say they remained where they were,
and they expended their corporate funds in ways which, had they thought that
their liability to pay an increased rent had arisen, they might, as prudent
businessmen, not have done. But that is really to say no more than that they
chose to rely upon the advice which they had received from their accountants
and solicitors, and I find myself wholly unpersuaded that even regular and
express assertion by the landlords that their rights were reserved would or
could have made the slightest difference in the light of the authorities as
they then stood.
In any event,
what is inequitable or unfair has to be tested, surely, in the light of the
position of both parties. If the tenants had not taken what in the end turned
out to be a bad point, the rent review would have proceeded, and the landlords
would have received their increased rent (and, I may say, received it at a time
when it had a substantially higher purchasing power than it has today). I
cannot, for my part, see why equity requires that the landlords, because of
what turned out to be an unjustifiable contention wrongly put forward by the
tenants, should now be precluded from recovering a proper recompense for the
premises which the tenants have enjoyed, and I accordingly agree that the
appeal should be allowed. I concur in the order proposed with regard to the
payment of interest.
The appeal
was allowed with costs in the Court of Appeal and below, the figures to be
agreed by counsel. Leave to appeal to the House of Lords was refused.
