Arbitration Act 1950, section 27–Power of court to extend time for commencing arbitration proceedings–Late application to president of RICS to appoint arbitrator–Rent review provision in underleases–Considerations to be taken into account by court in exercising discretion–Relief granted and time extended
The applicants
in the present proceedings, SI Pension Trustees Ltd, who were also plaintiffs
in proceedings which had been started in the Chancery Division, asked the court
to exercise the power given by section 27 of the Arbitration Act 1950 to extend
the time allowed under the underleases of property in Maltravers Street,
Westminster, to apply to the president of the Royal Institution of Chartered
Surveyors for the appointment of an arbitrator in pursuance of a rent review
clause in the underleases. The underlessees were the defendants, William Hudson
Ltd.
D P Friedman
(instructed by J E Kennedy & Co, of Harrow) appeared for the plaintiffs;
Gavin Lightman (instructed by Herbert Oppenheimer, Nathan & Vandyk)
represented the defendants.
Giving
judgment, FORBES J said: In this matter the plaintiffs apply under section 27
of the Arbitration Act 1950 for extension of time within which to make
application for the appointment of an arbitrator pursuant to clauses in certain
underleases. I heard argument on these matters in chambers but both counsel
have told me that there is no authority directly in point, that the matter is
of some general importance, and that it would therefore be convenient if I
adjourned judgment into open court.
The two
underleases are dated February 18 1971. The property is in Maltravers Street,
Westminster. The periods of the leases are for 10 years from June 24 1970.
There is no material difference between the terms of the two leases.
The lessors were BPC Investments Ltd and the lessees were the defendants. The
reversions expected on the underleases were assigned to the plaintiffs in June
of 1971. The properties are, in the first lease an office block, and in the
second lease car-parking space in an underground car-park. The rents reserved
are £73,000 per annum for the first lease and £2,500 per annum for the second.
These rents are payable until what is called ‘the review date,’ that is
December 25 1975. There are provisions for rent reviews thereafter.
I shall deal
only with one of the leases. As I have said, they are in identical terms. The
reddendum is in these terms:
Yielding and
paying therefore yearly during the said term and so in proportion for any less
time than a year the respective rents following that is to say (a) until the
25th day of December 1975 (hereinafter called ‘the review date’) the rent of
£73,000 and (b) from ‘the review date’ and until the expiration hereof the
greater of a yearly rent of £73,000 or such amount as may be agreed upon in
writing between the Lessor and the Lessee before the review date or in the
absence of such agreement as may be determined by an arbitrator to be nominated
by the President for the time being of the Royal Institution of Chartered
Surveyors on the application of the Lessor made before but not more than two
quarters before the review date. . . .
and there then
follows a provision setting out the criteria which the arbitrator is to use.
On June 19
1975 the plaintiffs, mindful of the approach of ‘the review date,’ wrote to the
defendants a letter in these terms: ‘Under provisions of the underlease dated
February 18 1971’–and they set out the parties–‘the rent reserved by such
underlease and payable in respect of the above mentioned property is due for
review on December 25 1975. I shall be glad therefore if you will let me know
the name and address of the person with whom our surveyor should communicate
with a view to reaching agreement on the amount of the new rent to be payable
with effect from December 25 next.’ The
defendants replied on July 2 1975: ‘We would inform you that the person dealing
with the review is the writer, C J Robeson, and your surveyor should make
contact accordingly.’ From then to
November 1975 there was correspondence between the plaintiffs and the defendants
about the review of rent and on October 28 the plaintiffs suggested a rent of
£135,000, to which the defendants replied that that was excessive but they were
looking into the matter. On November 20 1975 the defendants wrote an important
letter in these terms: ‘We write further to our letter concerning the rent
review relating to the above premises and we would inform you that we have
taken advice from our professional advisers, and in the light of their advice
we have come to the conclusion that there should be no increase in the rent
payable under our underlease as the rent reserved under this lease is an
adequate reflection’–I think it should be–‘of current market values. We have
now given full instructions on this matter to Messrs Savills, where a Peter
Oswald is dealing with the same on our behalf.’
On November 26 there was a letter from Messrs Savills confirming that:
‘We are arranging a detailed inspection of the premises now we have received
formal instruction to advise in this matter, and will be in touch with you in
the near future.’
Thereafter I
think the history is best set out in paragraph 8 of the affidavit of S M
Dutnall, who dealt with the matter on behalf of the plaintiffs. He says this:
From November
26 1975, when Savills were first instructed by the defendants, to the period
commencing with the Christmas break I telephoned them [that is Savills] on
numerous occasions but I was not always successful in speaking to Mr Oswald. I
actually succeeded in speaking to him on three or four occasions and mainly
these conversations consisted of inquiries by me as to whether the promised
inspection had taken place and whether he had formulated his opinion of the
proposed rental value. Mr Oswald in each conversation said that he had been
precluded from giving the matter his immediate attention because of pressure of
work, but he nevertheless promised to give the matter his early attention. At
no time did I gain the impression that Savills’ instructions were to be
confined to a formal arbitration but that they had authority to proceed with
full negotiations to a final stage.
Pausing there,
it seems quite clear to me that the plaintiffs took the letters of November 20
and 26 as indicating that negotiations were to continue with the defendants
with a view to possible agreement about the new rent, but with Savills instead
of with the defendants direct. It is clear also that this was how Savills
understood their instructions. In my view it is almost inconceivable that the
defendants should have intended their letter to be taken in any other sense. At
all events, believing that the defendants did intend that letter to be read in
that sense, the plaintiffs allowed the review date to pass without applying to
the president of the Royal Institution of Chartered Surveyors for the
appointment of an arbitrator. They were more than surprised, indeed, to receive
a letter on January 9 1976 which was in these terms:
We write
further to our letter to you dated November 20 and we have checked with the
Royal Institution of Chartered Surveyors, who have informed us that you have
not made an application to them for the appointment of an arbitrator, and,
accordingly, you are no longer entitled to a review in the rent of the above
premises. Under the circumstances our instructions to Savills have been
withdrawn.
Further
correspondence ensued after that.
The attitude
adopted at this stage by the defendants can be judged from a paragraph in their
letter of January 20 in these terms:
It was
abundantly clear that there was a very substantial difference in our opinions
regarding the current rental value of the above property and the chance of us
negotiating a rental in those circumstances was remote, and that the matter
would thus go to arbitration. Because of this we thought it necessary to have
independent surveyors who could in due course present our case at arbitration.
Despite
reasoned remonstrance from the plaintiffs in subsequent correspondence, this is
the attitude which the defendants, with some brusqueness, maintained.
It will be
plain from what I have said earlier as to my view of the clear meaning of the
defendants’ letter of November 20 of 1975 that the attitude they assumed in the
correspondence subsequent to the review date was not, as I see it, justified.
It is in my opinion clear that the defendants certainly allowed, if not
actually encouraged, the plaintiffs to believe that they were expected to
engage in genuine negotiations with Savills after November 20, with a view to
agreement on a revised rent. The suggestion made by the defendants in the
letter of January 20–that their earlier letter was merely indicating that
Savills would present their case at arbitration–does not bear close
examination. If the letter of November 20 had really meant to convey this impression,
then, in my view, its equivocal nature is the result of deliberate, rather than
accidental, draftsmanship.
In this state
of affairs, the rival contentions of Mr Friedman and Mr Lightman can shortly be
indicated. Shorn of all embellishments, what they say is this: Mr Friedman says
that this is a case which falls squarely within section 27 of the Arbitration
Act 1950, which gives the court a discretion to extend time in certain
circumstances, and that that discretion should be exercised in the plaintiffs’
favour in this case. Mr Lightman says that section 27 has no application to a
case of this kind, and that, even if it had, the court’s discretion should not
be exercised.
It is
necessary to look at section 27. It is a short section:
Where the
terms of an agreement to refer future disputes to arbitration provide that any
claims to which the agreement applies shall be barred unless notice to appoint
an arbitrator is given or an arbitrator is appointed or some other step to
commence
dispute arises to which the agreement applies, the High Court, if it is of
opinion that in the circumstances of the case undue hardship would otherwise be
caused, and notwithstanding that the time so fixed has expired, may, on such
terms, if any, as the justice of the case may require, but without prejudice to
the provisions of any enactment limiting the time for the commencement of
arbitration proceedings, extend the time for such period as it thinks proper.
The main
contention between the parties is thus that Mr Friedman says that section
applies to this case. Mr Lightman says ‘No,’ that there is a distinction
between time limits laid down for the bringing into operation of rights and
limitation periods, and section 27 applies to limitation periods and not to
such other time limits. These time limits, he says, in rent review clauses are
conditions precedent and it is not right to regard them as barring claims. For
these propositions Mr Lightman seeks to rely on Samuel Properties (Developments)
Ltd v Hayek [1972] 1 WLR 1296, United Scientific Holdings Ltd
v Burnley Borough Council [1976] Ch 128 [reversed by House of Lords on
March 23 1977] and Nea Agrex SA v Baltic Shipping Company Ltd
[1976] 1 QB 933. It is true that in the Samuel Properties case Russell
LJ, as he then was, referred to the rent review clause in that case as an
option, and there have been cases in which a distinction has been made between
rent review clauses which were options and those which were obligations. But
this distinction was seen by all the members of the Court of Appeal in the United
Scientific Holdings case to be an artificial one. If this distinction were
a matter of importance, I would take the view that the rent review clause with
which I am concerned is not an option subject to time limits; it is machinery
whereby both sides may either negotiate a revised rent, or, if that proves
impossible, may present their respective evidence and arguments to an
arbitrator in order that a revised rent may be determined.
Mr Lightman
urges that the review clauses should be construed strictly against the
landlord, because, he says, they are inserted for his benefit. True it is that
it is to the advantage of the landlord to obtain an upward revision and to the
advantage of the tenant to resist this, but once the landlord has set the
machinery in motion (as this landlord did by his letter of June 19) that
machinery exists for the benefit of both. I cannot see that such a situation
gives rise to a necessity to construe this clause as if it excluded section 27
of the Arbitration Act. It may be necessary at this point to emphasise what it
seems to me I am not called upon to decide. There is a world of
difference between deciding whether or not section 27 of the Arbitration Act
can be invoked in these proceedings and whether or not time is of the essence
of the contract embodied in the rent review clause. The latter point falls
properly to be argued in the proceedings in the Chancery Division which the plaintiffs
have already started. No doubt, if it be there held that time is of the essence
of the contract, that division will be urged to grant relief to the plaintiffs
on the ground that, by reason of the unconscionable conduct of the defendants,
the plaintiffs had been led to believe that strict adherence to the terms of
the contract would not be insisted upon. But the criteria by which it must be
decided whether section 27 applies are not the criteria by which to judge
whether time is of the essence of the contract. The cases on which Mr Lightman
relies are dealing with this latter question and not with section 27 at all.
Indeed I understand both counsel to say that there is no authority directly in
point as to whether section 27 applies to rent review clauses of this kind.
Similarly, if it be decided that this court has jurisdiction to extend time
under section 27, I am not thereafter concerned with any question of whether
the defendants’ conduct can be said to be unconscionable. That, again, is a
matter for Chancery proceedings. This court would, in those circumstances, be
solely concerned with the question whether time should be extended because ‘in
the circumstances of the case undue hardship would otherwise be caused.’ I therefore reject Mr Lightman’s argument
based on options and conditions precedent. The right approach, it seems to me,
is to consider, first, whether, on a true construction of the clause, it can be
said to bar any claims to which the agreement applies if notice is not given by
the time allowed. If the answer is that this clause does have that effect, then
the clause must be read as being subject to the court’s power to extend that
time. For the answer to that point I turn first to the judgment of Lord Denning
in the Nea Agrex case [1976] 1 QB 933, and the passage to which I refer
is in the Master of the Rolls’ judgment at p 946. He says this:
I know that
section 27 only applies ‘where the terms of an agreement to refer future
disputes to arbitration provides.’ etc. but I do not think this should be
confined to express terms. It should include also implied terms. When a
charterparty incorporates a clause paramount, which in turn incorporates
article III, rule 6, there is to be implied (into the agreement to refer future
disputes to arbitration) a provision that any claims shall be barred unless
arbitration is commenced within one year. On such an implication being made,
the way is clear for the introduction of section 27. If the court is of opinion
that undue hardship would be caused by insisting on the one year limitation the
court can extend the time on the principle stated in the Pegasus case.
The effect of
that passage, it seems to me, is that it is unnecessary for the arbitration
clause to say in precise terms that claims are barred unless notice is given in
time. If that is the true effect of the clause, that is enough. Here the one
point of agreement between both sides is that, subject to any argument in the
Chancery proceedings, failure to apply for the appointment before the review date
effectively prevents an arbitrator determining the revised rent and therefore
prevents the landlord from claiming one. I have no doubt that the effect of
this clause is to bar the landlord’s claims and that, therefore, it is a clause
to which section 27 applies. In The International Tank and Pipe SAK v Kuwait
Aviation Fuelling Co KSC [1975] QB 224 Lord Denning MR, at p 233, said: ‘I
look upon section 27 as being, in effect, an additional statutory term written
into the arbitration clause.’ I am
therefore justified in reading this clause as if the time limit contained in it
was subject to the court’s power to extend time ‘if it is of the opinion that
in the circumstances of the case undue hardship would otherwise be caused.’
When
considering whether undue hardship would otherwise be caused, I derive
considerable assistance from the decision of the Court of Appeal in Liberian
Shipping Corporation ‘Pegasus’ v A King & Sons Ltd [1967] 2 QB
86, and there are passages in the judgments in that case to which I should
refer. The first is that of Lord Denning MR at p 98 E:
It does
appear that in the past the courts have been inclined to use this argument: The
words used in the statute are ‘undue hardship.’
A ‘hardship’ by itself is something severe which is hard to endure. It
is always a ‘hardship’ to be barred by a time limit. If a man does not read the
contract and is a day or two late, it is a ‘hardship,’ but it is not an ‘undue
hardship’: because it is his own fault. I cannot accept this narrow
interpretation of the statute. These time-limit clauses used to operate most
unjustly. Claimants used to find their claims barred, when, by some oversight,
they were only a day or two late. In order to avoid that injustice, the
legislature intervened so as to enable the courts to extend the time whenever
‘in the circumstances of the case undue hardship would otherwise be
caused.’ ‘Undue’ there simply means
excessive. It means greater hardship than the circumstances warrant. Even though
a claimant has been at fault himself, it is an undue hardship on him if the
consequences are out of proportion to his fault. Applying this test, it seems
to me that if a claimant makes a mistake which is excusable, and is in
consequence a few days out of time, then if there is no prejudice to the other
side, it would be altogether too harsh to deprive him of all chance for ever of
coming and making his claim. All the more so if the mistake is contributed to
or shared by the other side. That indeed is this very case. I am quite
prepared to accept that the charterers, when they went to the meeting of June
27 did not intend to mislead the owners. They were both under a
misapprehension. Neither of them realised that the time had already expired.
But it is pretty plain that the conduct of the charterers put the owners off
their guard. The owners would not contemplate that they would be barred while
negotiations were still going on. As soon as they realised that the
negotiations were not going to be fruitful, they at once took the necessary
steps. They were only nine days late. In these circumstances it seems to me it
would be undue hardship to hold that the owners are barred absolutely. The case
has a resemblance to Hughes v Metropolitan Railway Co (1877)
where there were negotiations for a settlement and it was held that, pending
those negotiations, the strict rights of the parties did not apply.
I should also,
I think, refer to passages from the judgment of Salmon LJ (as he then was)
starting at p 107 D:
I have no
doubt at all that if two ordinary businessmen entering into this contract had
been asked if it would cause undue hardship to refuse to extend the time should
circumstances such as the present occur, they would both unhesitatingly have
answered ‘yes.’ I am not prepared to
hold that the court’s powers under the section should be very rarely exercised.
Still less that they should be exercised freely. The question as to whether or
not those powers should be exercised must turn exclusively on the particular
facts of each case in which the question arises. In considering this question
the court must take all the relevant circumstances of the case into account,
the degree of blameworthiness of the claimants in failing to appoint an
arbitrator within the time, the amount at stake, the length of the delay,
whether the claimants have been misled, whether through some circumstances
beyond their control it was impossible for them to appoint an arbitrator in
time. In the last two circumstances I have mentioned, which do not arise here,
it is obvious that normally the power would be exercised [and I mentally
underline that sentence: Forbes J] but those are not the only circumstances and
they are not to my mind necessary circumstances for the exercise of the power
to extend time. I do not intend to catalogue the circumstances to be taken into
account, but one very important circumstance is whether there is any
possibility of the other side having been prejudiced by the delay. Of course,
if there is such a possibility, it might be said that it is no undue hardship
upon the claimants to refuse an extension of time because, if the hardship is
lifted from their shoulders, some hardship will fall on the shoulders of the
respondents and, after all, the delay is the claimants’ fault. But there is no
such possibility in this case. This is a simple case of a few days’ delay,
caused by an excusable piece of inadvertence which has done the respondents no
conceivable harm and which, unless we exercise the powers which in my view we
undoubtedly have, will deprive these claimants of what may turn out to be a
valid claim for £33,000 and lift the liability off the shoulders of the
respondents. I have no doubt but that this would cause the claimants undue
hardship.
It should be
noted that the fact that the exercise of the court’s discretion would, or
might, mean that the other party would no longer be relieved of the liability
which insistence on the time limit would lift from his shoulders is not a
matter which appears to have troubled either Lord Denning or Lord Salmon. Similarly,
I do not think here that I should be influenced by the fact that a decision to
extend time may possibly result in hardship to the defendants in the sense that
they may find themselves liable to pay an increased rent, a liability from
which insistence on the time provision would relieve them. In any event it is
the defendants’ contention that arbitration would result in no rent increase.
If one looks at the second paragraph of the affidavit of Mr Robeson, sworn on
behalf of the defendants, where he is challenging paragraph 15 of the
plaintiffs’ affidavit–it is headed ‘Paragraph 14’ but that is clearly a
mistake–he says this: ‘I challenge that an assessment of the rent would result
in a figure in excess of the unreviewed rent and that is the contention which
the defendants have at all times maintained. They have never to my knowledge
suggested a rental of £8 per sq ft. The figure of 12,000-odd sq ft is a gross
error and not net usable space and is therefore not the appropriate figure for
the purposes of a rent review. The office area, including reception area, is
only so many square feet and so on.’ He
sets out the reasons for his contention that, if arbitration proceedings did go
on, they would result in no increase in the rent payable, using the criteria set
out in the rent review clause. So that even if one were to take into account
the fact that there might, in a sense, be hardship on the defendants, in that
they might have to pay an increased rent, it is clearly the view of the
defendants that they would be successful in any arbitration proceedings and
would not in fact have to pay such an increased rent. This is a matter, it
seems to me, of some importance when one is considering the whole question of
undue hardship in this case.
Mr Lightman
also suggests that there would be no hardship to the plaintiffs here, because
they might have a claim in negligence against either their surveyors or their
solicitors. It seems plain from the affidavit of Mr Dutnall that he, and he
alone, was concerned with the negotiations, and also (I might add) with the
failure to apply for an appointment in time. Whether there would be a claim
against the solicitors therefore looks to me a matter for mere speculation. I
am in no better position with regard to any liability of Mr Dutnall or of his
employers. Mr Dutnall describes himself as a chartered surveyor employed by
Smiths Industries Ltd to manage the investment properties of the plaintiffs to
these proceedings. I am left to speculate as to the position between Smiths
Industries–his employers–and the plaintiffs. The existence of the initials ‘SI’
in the plaintiffs’ title might lead one to assume that the plaintiffs are a
subsidiary company of Smiths Industries formed to hold the landed properties on
which the pension fund of the parent company in part relies, but that is no
more than a guess. And whether, if it proved to be right, the plaintiffs would
have a claim in negligence against its parent company is a field in which I
decline to forage. Nor have I any evidence to say one way or the other whether,
if Mr Dutnall was negligent, he has the means to discharge any judgment on his
own. I am left therefore with the plaintiffs’ claim that they might succeed in
persuading an arbitrator that the proper rent was at least £110,000 per annum
in place of the present £75,000. To be deprived of the opportunity of making
this claim seems to me to amount to undue hardship when I take into account the
contemporary correspondence, the effect of which I have already referred to. I
am left in no doubt that the plaintiffs were misled here into overlooking the
strict time limit imposed in the clause, a matter which Salmon LJ thought would
‘obviously’–the word is his–result in an extension of time; that the amount at
stake is considerable, and that the plaintiffs are trustees of a pension fund,
but, nevertheless, are sensitive to the needs of their tenants (see paragraph
10 of Mr Dutnall’s affidavit) and, looking at these matters in the light of the
guidance given in the Pegasus case, it seems to me proper to come to the
conclusion that there would be undue hardship if I did not make the order asked
for.
There remains
only one consideration, namely the length of time which elapsed before this
application was made. The skeleton calendar is of this order: on December 25
1975 the period expired; on January 9 1976 the defendants indicated that they
were relying on the expiry of the period to defeat any claim for a revised
rent. This application was not made until May 7 1976. Mr Lightman says this is
a delay of a character to put the plaintiffs out of court. But such a calendar
is misleading. In fact there was correspondence between the parties up to
February 10 1976, received on February 12, which amounted to an attempt by the
plaintiffs to get the defendants to change their minds–not unreasonable, in my
view, in the circumstances. Thereafter, on March 12 1976 the plaintiffs’
solicitors did apply to the president of the Royal Institution of Chartered
Surveyors to appoint an arbitrator, but the defendants’ solicitors had
forestalled them.
On the same day as that application the plaintiffs’ solicitors issued an
originating summons in the Chancery Division followed by interlocutory proceedings
in that division. While it is true there was some delay in taking out this
originating summons in this division, there was obviously considerable activity
and the defendants could have been under no misapprehension about the
determination of the plaintiffs to have the question of their right to a review
of the rent litigated. In the circumstances, I do not think there was undue
delay which should disentitle the plaintiffs to the relief sought.
I think the
proper order–and I am open to argument about this–is that the time should be
extended to March 15 1976, thus making the application to the president of
March 12 one which falls within the time prescribed.
I ought to
add, I think, that counsel have been good enough to refer me, after I had
reserved judgment, to the case of C H Bailey Ltd v Memorial
Enterprises Ltd [1974] 1 WLR 728, and that I have in fact read it, but I
came to the conclusion that it did not add anything, in effect, to the view I
had formed on the application of section 27.
The plaintiffs
were granted an order that the time for applying for the appointment of an
arbitrator should be treated as extended to March 15 1976. The costs of the
present application to be costs in the arbitration.
