Arbitration Acts 1950 and 1979 — Motion for revocation of authority of arbitrator and for determination of a preliminary point of law — Review clause in lease of business premises — Provision for parties to agree on revised rent or, if they failed to agree on the rent, to agree on the appointment of an arbitrator; if they failed to agree on an arbitrator he was to be nominated by the president of the RICS — Landlords took no steps to agree the revised rent with tenants or to agree on name of arbitrator, but wrote to the tenants proposing a new rent for the final seven years under the lease and, in default of such agreement on the rent, required the president of the RICS to nominate an arbitrator — An arbitrator was appointed by the president and entered on the reference — Tenants (present applicants) objected to arbitrator’s jurisdiction on the ground that two necessary preliminary steps had not been taken — Landlords had not attempted to reach agreement on the rent or as to the arbitrator — Held that the lease did not make it a condition precedent to the appointment of an arbitrator by the president that attempts should have been made to agree the rent or to agree the appointment of an arbitrator — Motion dismissed
This was an
originating notice of motion for the revocation of an arbitrator’s authority
under section 1 of the Arbitration Act 1950 and for the determination of a
preliminary point of law under section 2 (1) of the Arbitration Act 1979. The
applicants, Wrenbridge Ltd, were the lessees of premises at 43 and 45
Woodbridge Hill, Guildford, of which the respondents, Harries (Southern
Properties) Ltd, were the lessors.
A Pitblado
(instructed by Collyer-Bristow) appeared on behalf of the applicants; B
Mauleverer (instructed by Stafford Clark & Co) represented the respondents.
Giving
judgment, LLOYD J said: There is before the court an originating notice of
motion for the revocation of the authority of an arbitrator under section 1 of
the Arbitration Act 1950 and the determination of a preliminary point of law
under section 2(1) of the Arbitration Act 1979. It is agreed that the two
points stand or fall together.
The matter
arises in this way: by two leases dated April 20 1966 and June 27 1966 the
respondents to the notice of motion, Harries (Southern Properties) Ltd, let
premises at 43 and 45 Woodbridge Hill, Guildford, for a period of 21 years. The
applicants, Wrenbridge Ltd, who carry on business as do-it-yourself merchants,
are the assignees of the lease under an assignment dated August 15 1967. There
is a provision in the leases for rent reviews every seven years. The leases
took effect on March 25 1966, so that the first rent review was due on March 25
1973 and the second (and final) rent review on March 25 1980. I shall refer to
the terms of the rent review clause in a moment, but in essence the clause
provides for the parties to agree a revised rent for the final period of seven
years by September 29 1979. Should they fail to reach agreement, then they were
to agree on the appointment of an arbitrator, by December 25 1979, to determine
the reasonable rent and should they fail to agree on the appointment of an
arbitrator then the reasonable rent was to be determined by an arbitrator to be
nominated by the president for the time being of the Royal Institution of
Chartered Surveyors.
What happened
was this: the respondents, as landlords, took no steps either to agree the
revised rent or to agree on the name of an arbitrator. They did nothing until
February 4 1980 — six weeks before the final period of seven years was due to
commence. On that day their agents, Mann & Co, wrote to the applicants
proposing a new rent for the final period of seven years and, in default of the
applicants agreeing, requiring the president of the Royal Institution of
Chartered Surveyors to appoint an arbitrator.
In due course
an arbitrator, Mr Tony William Edwards, was appointed, and he entered on the
reference. But the applicants objected that he had no jurisdiction in the
matter and they put their objection on this ground, that the respondents had
failed to comply with two essential preliminaries. First, the attempt to reach
an agreement with the applicants as to a reasonable rent and, secondly, the
reaching of an agreement as to an arbitrator. As a result, the respondents
have, according to the applicants’ argument (if I may use the colloquialism of
Megaw LJ in the case of C H Bailey Ltd v Memorial Enterprises Ltd [1974]
1 WLR 728 at p 733) ‘missed the boat’. I now read the relevant rent review
clause in full. It provides:
Provided always,
and it is hereby agreed that the yearly rent payable by the lessees during the
second and third periods of seven years of the term hereby granted, hereinafter
respectively called the second and third periods, shall be for the second
period the sum of one thousand, two hundred and seventy-five pounds aforesaid
or such sum whichever be the higher, and for
is the higher as shall be assessed as the reasonable rent for the demised
premises for the appropriate period, such assessment to be made in the manner
following, that is to say, either
(a) such assessment shall be agreed between the
parties hereunto in writing before September 29 1972, in respect of the second
period and on or before September 29 1979 in respect of the third period or
(b) in the event of the parties hereto failing to
reach such agreement as aforesaid on or before the date appointed in respect of
which time is to be deemed the essence of the contract, then the reasonable
rent for the second and third period shall be fixed or assessed by a single
arbitrator appointed for that purpose by the parties hereto, or failing
agreement as to such appointment in respect of the second period by December 25
1972, and in respect of the third period by December 25 1979, time in this
respect deemed to be of the essence of the contract, then by an arbitrator to
be appointed by the President for the time being of the Royal Institution of
Chartered Surveyors. The assessment fixed by the arbitrator shall be
communicated to the parties hereto in writing and immediately upon such
communication the rent so assessed as reasonable rent for the second period or
£1,275 whichever shall be the higher shall be the rent payable for that period
and the rent so assessed as a reasonable rent for the third period or the rent
payable during the second period whichever shall be the higher, shall be the
rent payable for the third period.
Mr Pitblado’s
submission on behalf of the applicants is as follows. He says that the clause
which I have just read lays down machinery for the assessment of the new rent
and that that machinery must be strictly complied with. It provides that the
parties shall agree the rent by September 29 1979 (and I emphasise the
word ‘shall’) and further provides expressly that time in that respect is to be
of the essence of the contract. He puts the submission in this way: he says
that the intention of the clause, reading it as a whole, must have been that
the parties had to go through both hoops before applying to the president of
the Royal Institution of Chartered Surveyors for the appointment of an
arbitrator. In practice, as he pointed out, it would be the landlord who would
lead the way through the hoops because the rent review clause contains an
upward-only provision. But what the landlords have done here is to bypass both
the preliminary hoops and that, he says, they cannot do.
The point of
construction is a very short one. It seems to me that it is determined by the
decision of Pennycuick V-C in Re Essoldo (Bingo) Ltd’s Underlease; Essoldo
Ltd v Elcresta Ltd (1971) 23 P&CR 1. In that case the provision
for the rent review was contained in the following words:
. . . to hold
the same . . . for a term of seven years yielding and paying therefor unto the
landlord yearly during the said term hereby granted and so in proportion for
any less time than a year (i) during the first three years of the said term the
yearly rent is £6,000 and (ii) during the remainder of the said term whichever
shall be the greater of the following alternative rents namely either a yearly
rent of £6,000 or a yearly rent of such amount as the respective surveyors of
the landlord and the tenant shall before the last quarter day of the third year
of the said term agree upon in writing as being the then current market rental
value.
As in the
present case, there was in that case no attempt by the parties to reach
agreement as to the reasonable rent. It was contended on behalf of the tenants
in that case, as it has been here, that the landlords thereafter were too late.
Pennycuick V-C rejected that argument. He said at p 4:
I think it is
clear that the contention raised on behalf of the tenant was not well founded.
The provision for determination by a surveyor appointed by the president of the
institution is simply expressed to operate in default of agreement between the
parties’ surveyors before the specified date, and I do not see any reason to
qualify the plain meaning of those words.
Mr Balcombe,
for the tenant, conceded that this construction involves writing in after the
words ‘in default of said agreement as aforesaid’ the words ‘after an attempt
has been made to make it’. I do not see any justification for writing in these
or comparable words.
It will be
noticed that the clause in the Essoldo case, like the clause in the
present case, refers to such rent as the surveyors on behalf of the two parties
shall agree before the last quarter day of the third year of the said
term, and again I emphasise the word ‘shall’.
Mr Pitblado,
however, seeks to distinguish the present case from the Essoldo case in
two respects. In the first place he draws attention to the fact that in the Essoldo
case the words were ‘in default of agreement’ whereas in the present case
the words are ‘failing to reach such agreement’. He submits that the words
‘default of agreement’ mean, or at any rate can mean, simply ‘in the absence of
an agreement’, whereas the words ‘failing to reach such agreement’ import some
attempt to reach an agreement. Secondly, he relies heavily on the express
provision in the present case for time to be of the essence of the contract.
As to the
first of those grounds of distinction I agree that the language in the two
clauses is not identical. But it seems to me that if there is some step which
is to be taken in the course of operating a rent review clause and if the
parties wish to make the taking of that step a condition precedent, then they
must do so in clear terms, or by necessary implication. Here, in my judgment,
the words are not sufficiently clear to require the parties to attempt to reach
agreement on either of the two preliminary matters as a condition precedent to
their right to go for the appointment of an arbitrator under the third limb of the
clause.
As to the
second of the two grounds of distinction, it is difficult to know what the
draftsman of this clause had in mind by making time of the essence. The
time-limit in this clause is quite unlike the time-limit is a time for completing
the negotiations between the considered by the House of Lords in the case
of United Scientific Holdings Ltd v Burnley Borough Council [1978]
AC 904. The time-limit is a time for Completing the negotiations between
the parties. That leaves open the question when the negotiations were to be
commenced. In order to answer that question it would be necessary to imply some
term into the clause such as, for instance, that the negotiations were to be
commenced a reasonable time before the date in question. But that seems to be
to carry with it very great difficulties and I am quite unwilling to imply any
such term into this clause. The only meaning which Mr Mauleverer could suggest
for that being of the essence in this clause was that after the date in
question had passed the tenant was no longer to have the right to continue
negotiations with the landlord. That, as I think he accepted, was a very poor
meaning to give to the words; but it is perhaps a better meaning than none. At
any rate, whatever may have been in the draftsman’s mind, I do not accept that
the presence of those words is sufficient to distinguish this case from the Essoldo
case, which I would respectfully follow.
Finally, Mr
Pitblado argued that to accept the landlords’ construction of the clause here
would be in effect to make a large part of clause 2 otiose. But I do not accept
that argument either. What the clause does is to provide three alternative ways
for the rent to be assessed. They are, to my mind, true alternatives and the
fact that one has been adopted in the present case does not make the other two
otiose. For those reasons I answer the preliminary question of law unfavourably
to the applicants and it follows that the other matter which I have to
determine, namely, the removal of the arbitrator, must also be determined in
the same way.
The notice of
motion was dismissed with costs.
