Landlord and tenant — Rent-review clause in lease — Arbitration — Landlords’ application asking for liberty to apply for relief out of time notwithstanding Order 73, rule 5(1)(a)(b), with a view to challenging the arbitrator’s award and asking for it to be set aside or remitted — The matter had been referred to arbitration after the parties had failed to agree as to the application of the rent-review clause — It was claimed that the award was uncertain and also that it was defective in not resolving all the matters in dispute — The relevant clause in the lease defined ‘the open market rental value’ of the demised premises as being the annual rental value subject to certain special provisions contained in two paragraphs of a schedule — The award was attacked by the landlords on the ground that it was not clear whether the adjustments required by these paragraphs had been made — It was also alleged that the award did not determine all the matters in dispute because it did not state what amount had been added to the rent for a particular five-year period in pursuance of a formula mentioned in one of the two paragraphs — Held that, although the award might have been more clearly expressed, there were no grounds for assuming that the arbitrator had failed to carry out the directions of the lease, including the special adjustments required by the paragraphs in question — He had before him all the relevant documents and the submissions of the parties — As there was no justification for attacking the award, the application to extend time for claiming substantive relief was refused
This notice of
motion asking for an extension of time and for substantive relief was issued by
the landlords, Learmonth Property Investment Co Ltd, in the matter of an
arbitration between them and the tenants, Amos Hinton & Sons plc, in
respect of the rent-review clause in a lease for a term of 35 years granted in
1979 of supermarket premises and a shop area in Flowergate, Whitby.
J E F Lindsay
QC and P A Cranfield (instructed by Drivers, of York) appeared on behalf of the
landlord applicants; Leolin Price QC and David Ritchie (instructed by Stilgoes,
agents for Punch Robson Coundry & McCallum, of Middlesbrough) represented
the respondents.
Giving
judgment, WALTON J said: I have in front of me a notice of motion in the matter
of the Arbitration Acts and in the matter of an arbitration between Learmonth
Property Investment Co Ltd and Amos Hinton & Sons plc. The arbitration was
and the matter is between Learmonth Property Investment Co Ltd, who are
landlords, and Amos Hinton & Sons plc, who are tenants. The notice of
motion asks for two separate reliefs, first of all that, notwithstanding that
the time limited by Order 73, rule 5(1)(a)(b) of the Rules of the Supreme Court
has expired, they may be at liberty herein to apply for the following relief,
and the substance of the relief which is claimed is that the award made between
the parties to the above-mentioned arbitration by John R Hepper FRICS FCIArb,
the arbitrator therein, dated May 25 1984 may be set aside or alternatively may
be remitted for reconsideration by the said John Hepper on the following
grounds, namely, (a) it is impossible to ascertain from the said award
precisely what decisions the said arbitrator has reached in relation to the matters
in dispute, and (b) the said award does not resolve all the matters in dispute
between the parties.
The matter
arises in this way. There was originally, on February 5 1979, granted by the
landlords’ predecessor in title a lease to the tenant for a term of 35 years of
supermarket premises and a shop area. There are rent reviews, the first as at
September 29 1983 (and it is indeed with that rent review that we are
concerned) and at five-yearly intervals thereafter. On May 23 1979 the
reversion to that lease was assigned by the landlords’ predecessor in title to
the landlords. On November 26 1979 the landlords granted a supplemental lease
of an electricity substation over a term equal to the remainder of the term
granted by the original lease, and on December 7 1983 (that is to say, rather
unusually in one sense, because it was after the date of the first review
date), the landlords granted a supplemental lease for a term equal to the
remainder of the 35 years of the original lease unexpired to the tenants.
In order to
put their intentions beyond any possible doubt, a declaratory deed was entered
into on the same day (December 7 1983) and it is that declaratory deed with
which I am concerned. As I have said, it was made on December 7 1983 between
the landlords (called ‘the lessor’) of the one part and the tenant (called ‘the
tenant’) of the other part. It recites the three leases and further recites
that ‘the parties are desirous of setting out in this Deed by way of
clarification the combined purporting effect of the leases referred to’. I
think I need only for present purposes note that there is a plan attached to
that deed, in which the whole of the demised premises are edged in red, the
original part of the supermarket is hatched purple, a small area consisting of
a shop or shops comprised in the original lease is outlined in purple but not
hatched in purple, and the extension to the supermarket, which formed the
subject-matter of the third lease, is hatched in red.
The
declaratory deed proceeds in this manner:
4. The terms
created by the leases shall all end on the 28th day of September 2013.
5. (a) The
yearly rental for the demised premises for the period expiring on the 28th day
of September 1983 is £53,500.00 payable by equal quarterly payments in advance
on the usual quarter days in every year without any deduction whatsoever except
as authorised [in the usual form].
(b) The yearly
rental for the demised premises for the remainder of the term is to be
ascertained [as being] either the yearly rental payable immediately prior to
the relevant review date (as defined in the Second Schedule hereto) or the open
market rental value of the demised premises in accordance with the Second
Schedule hereto (whichever is the higher).
Then there is
provision made for a totally separate rent, with which we are not concerned in
any way, namely an insurance rental. But,
yearly rental for the demised premises for the remainder of the term is to be ascertained
as being either ‘the yearly rental payable immediately prior to the relevant
review date’ as defined, or ‘the open market rental value of the demised
premises in accordance with the Second Schedule hereto (whichever is the
higher)’.
It is quite
clear to my mind that that clause is reserving a single rent. It is not
reserving a multiplicity of rents; it is reserving one single rent, which is
defined as the ‘open market rental value in accordance with the Second Schedule
hereto’.
One must now
go to the Second Schedule. The schedule (I think this must be readily conceded)
is not a model of clear drafting. But, having said that, it appears to me that
the effect of the Second Schedule is perfectly apparent and I must read a great
deal of it. It commences:
(1) Subject
to paragraphs (7) and (8) hereof and except in the case of the rent review to
take place on 29th September 2008 the expression ‘open market rental value’
means the annual rental value of the demised premises in the open market which
might reasonably be demanded by a willing landlord on a lease for a term of
years certain equivalent in length to the residue unexpired at the review date
of the term of years hereby granted with vacant possession at the commencement
of the term but upon the supposition (if not a fact) that the Tenant has
complied with all the obligations as to repair and decoration herein imposed on
the Tenant (but without prejudice to any rights or remedies of the Lessor in
regard thereto) and there being disregarded (i) (if applicable) those matters
set out in paragraphs (a) (b) and (c) of Section 34 of the Landlord and Tenant
Act 1954 (ii) the works carried out by the Tenant in pursuance of Clause 2(a)
of an Agreement dated the twenty-fourth day of October One thousand nine hundred
and seventy seven made between County Properties (Scarborough) Limited (1) and
the Tenant (then known as Amos Hinton and Sons Limited) (2) and (iii) (so far
as may be permitted by law) all restrictions whatsoever relating to rent or to
security of tenure contained in any statute or orders rules or regulations
thereunder and any directions thereby given relating to any method of
determination of rent such lease being on the same terms and conditions (other
than as to amount of rent and length of term) as this present demise without
the payment of any fine or premium.
Then there is
a special provision relating to the rent review to take place on September 29
2008, and that throws no light upon the general construction of the schedule
and I do not read it. Paragraph (3) of the schedule continues:
(3) The
expression ‘review date’ means the 29th day of September in each of the years
1983, 1988, 1993, 1998, 2003 and 2008 as the context requires . . .
(4) The open
market rental value shall be determined in manner following that is to say . .
.
Then there are
the usual ways of determining it by specifying it in a notice in writing, and
so on, but if the parties cannot agree, then the matter is to be referred to
the arbitration of an independent surveyor appointed for that purpose on the
application of either party alone by the president for the time being of the
Royal Institution of Chartered Surveyors.
(5) In the
event of the determination of such independent surveyor not having been
published prior to the review date for any reason whatever then in respect of
the period of time (hereinafter called ‘the said interval’) beginning with the
review date and ending on the quarter day immediately following the date on
which such determination shall have been published the Tenant shall pay to the
Lessor in manner hereinbefore provided rent at the yearly rate payable
immediately before the review date PROVIDED that at the expiration of the said
interval there shall be due as a debt payable by the Tenant to the Lessor on
demand a sum of money equal to the amount whereby the yearly rent determined by
such independent surveyor shall exceed the yearly rent at the yearly rate
aforesaid but duly apportioned on a daily basis in respect of the said
interval.
(6) All
stipulations as to time . . . shall be of the essence of the contract . . .
We are not
concerned with that.
Now we come to
the two paragraphs which give rise to the trouble here, and which, it will be
remembered, the Second Schedule opened as being subject to:
(7) In
respect only of the review date which falls on 29th day of September 1983 if
that proportion of the rent determined under the foregoing provisions which is
attributable on a comparative floor area basis to that part of the demised
premises hatched green on the said plans 1, 2 and 3 . . .
Pausing there,
that part of the premises hatched green is the extension comprised in the last
of the three leases.
. . . amounts
to less than £26,000 then for the five-year period of the term commencing on
the 29th day of September 1983 (and only for that five-year period of the said
term) there shall be payable by way of additional rent a sum equal to the
difference between the said proportion and £26,000 notwithstanding the
determination of the total rent as hereinbefore provided.
So that
addition which is provided by that clause comes to an end on September 29 1988
because it is applicable ‘for the five-year period of the term commencing on
September 29 1983 (and only for that five-year period of the said term)’.
Lastly, paragraph (8):
(8)
Notwithstanding anything hereinbefore contained the rent to be paid in respect
of such part of the demised premises edged purple on the said plans 1 and 2
the shop area
in respect of
each review period shall be either the yearly rent of One thousand five hundred
pounds . . . or (if greater) such sum as shall bear in relation to the sum
ascertained under the foregoing paragraphs of this schedule for that part of
the demised premises described hatched purple on the said plans 1 and 2 the
same relation as One thousand five hundred pounds . . . bears to Twenty six
thousand pounds.
At first
reading, that is rather complicated, but what it comes to is that the rent
payable for the shop area is to be 15/260ths of the sum ascertained as being
applicable otherwise to the original part of the demised premises, that is to
say the original supermarket.
The matter
was, in fact, referred to arbitration because the parties could not agree and
it is perhaps unfortunate (but I do not think it matters in the final outcome)
that I do not have the precise terms of the submission to the arbitrator
because, of course, one can never criticise an arbitrator for doing something
that he was, in fact, never asked to do (ie that was outside the terms of the
submissions that were made to him). However, it was agreed (and perhaps this is
unfortunate) that the matter should be dealt with simply by way of written
submission, and two written submissions were accordingly made. I think the
first in order of time is that of the tenants. I do not know whether it
actually reached the arbitrator before the landlords’ submissions, which were a
day later, but I do not think anything turns upon that. That [the tenants’]
submission concluded:
Valuation
By comparison
with the various other units in the vicinity, referred to in our Schedule, we
feel a reasonable rental would be represented by the sum of £3 per square foot
on gross internal floor area. Our valuation is as follows:
|
15,080 |
£45,240 |
||
|
|
|||
|
The rear extension amounts |
£12,500 |
||
|
£57,740 |
|||
|
say |
£57,750 |
||
It is our submission, therefore, that in accordance with the Lease
terms, the open-market rental value as at the review date on September 29 1983
is fairly represented by the sum of £57,750 . . . per annum, exclusive of
rates.
Since they
have carried out the exercise which is directed to be performed by para (7) of
the Second Schedule, it is quite clear that they had para (7) well in mind and
that they accordingly in substance brought it fairly and squarely to the
attention of the arbitrator. It may be asked why, clearly having para (7) in
mind, they did not also have para (8) in mind. I think the answer to that is
supplied by the mathematics. I have not worked it out, but the lower the
valuation that you make of the open market rent, the less likely it is that
para (8) would produce any effect whatsoever, and I think they left it out
because, so far as their valuation was concerned, it would not have had any
effect on it at all.
Per contra the landlords’ valuation is much higher. They set it out as follows:
|
Supermarket |
7,526 sq ft @ £7.00 |
£52,682.00 |
|
Extension |
4,443 sq ft @ £7.00 |
£31,101.00 |
|
Shop unit |
345 sq ft To be determined |
|
|
First floor |
3,395 sq ft @ £2.00 |
£6,790.00 |
|
£90,573.00 |
On that basis it seems to me for precisely the converse of the
mathematical reasons in what may be thought to be a low valuation by the
tenants’ valuers, they did not find it necessary in any way to deal with the
addition for the extension, because it will be seen on the face of it that they
attributed to the extension £31,101.00, which is in excess of the minimum of
£26,000 which is set out as the figure in the relevant subclause.
Those were the
submissions which were made to the arbitrator, the landlords’ surveyors equally
having rounded the figure (this time down) to £90,000.
On May 25 1984
the arbitrator delivered his award. He was not asked to give any reasons or to
do any other than solve the problem, whatever it was that was presented to him,
and he first of all recited the leases and he also recited the declaratory
deed. It is obvious that, so far as recitals can do it, he has made it quite
clear that clauses (7) and (8) were clauses which he had in front of him. In
fact the actual content of his award is very short. He said he had been
offered, and accepted, the appointment. He notes the representations made. He
notes the comparisons offered to him. He does not expressly say that he has
taken into account the discrepancies in the areas given by the two valuers, but
that, one must assume, he must have done because that is quite clear, on the
face of the respective submissions. The award and determination was as follows:
That the open
market rental value as defined within the Declaratory Deed dated December 7
1983 shall be £64,000 (Sixty-four Thousand Pounds) per annum for the period of
five years from September 29 1983.
He then deals
with the costs.
That award was
made and published to the parties on May 25 1984. In accordance with the rules
of the court, referred to in the notice of motion, the landlords had a period
of three weeks within which to move the present motion. In fact, they took
considerably longer than that because at the time they had not got lawyers
acting for them, and it was only when they went to their lawyers that they
discovered that they had only this period of three weeks. It is perhaps worthy
of comment that even then the notice was not issued within a period of three
weeks from consulting their lawyers.
However that
may be, I leave on one side for the moment the question whether I ought to
extend the time as asked, and deal with the substance of the matter, because it
is clearly recognised by all the authorities that, although there are other
considerations which must be taken into account, particularly prejudice to the
tenant, one essential matter to be taken into account when deciding or not to
extend the time is the strength of the case made out by the person moving the
motion. The application here is intended to be made under section 22 of the
Arbitration Act 1950, which says:
In all cases
of reference to arbitration the High Court or a judge thereof may from time to
time remit the matters referred, or any of them, to the reconsideration of the
arbitrator or umpire.
Although there
is strictly no limit to cases in which the court can exercise that
jurisdiction, it is now well established that the jurisdiction will not be
exercised except for very good cause. One of the cases of ‘very good cause’ is
if, in fact, on its face the award is uncertain. It is along those lines that
Mr Lindsay has addressed me. Mr Lindsay says that the award is uncertain
because it does not indicate on its face whether, by the open market rental
value as defined within the declaratory deed, the arbitrator means that it is
the open market rental value which is payable by way of rent pursuant to clause
5 of the deed which (if I may read it again) says that the yearly rental shall
be either ‘the yearly rental payable immediately prior to the relevant review date
. . . or the open market rental value of the demised premises in accordance
with the Second Schedule hereto (whichever is the higher)’. Mr Lindsay says it
is impossible to tell from the award whether the learned arbitrator meant the
open market rental value as referred to in clause 5(b), or whether he really
meant the open market rental value which has to be determined pursuant to the
Second Schedule and then adjusted under paras (7) and (8). He also says that
the award does not really determine all matters in issue between the parties
because, having regard to the fact that para (7) of the Second Schedule applies
to the five-year period of the term commencing on September 29 1983, and only
for that five-year period, at the end of that period, if there is an uplift
under that clause, the uplift ceases to be payable. So that in order to know
where they are, the parties must know what the amount of that uplift is, if
any.
Dealing first
with that last point, superficially it is a very attractive point, and when Mr
Lindsay first put it to me I was more than half persuaded that there was
something in it. However, Mr Price, for the tenants, has satisfied me that
there is nothing in it at all. The reason why there is nothing in it at all, is
this, that, from and after September 29 1988, the tenant will not be paying a
rent determined in any way whatsoever by the provisions of para (7), but will
be paying the open market rental value as from that date: so that there is no
necessity for anybody to know the precise amount by which, if the future rent
were to be determined in a totally different manner, it might be desirable to
know. Indeed, as Mr Price pointed out, what happens from September 29 1988 is
fully covered by para (5), which says shortly that, if by that review date the
new open market rental value has not been determined, then the tenant goes on
paying rent at the yearly rate payable immediately before the review date, and
then, of course, the adjustment is picked up when the open market rental value
is determined at the end of the period which is therein called ‘the interval’.
So it is not necessary for the parties to know what the amount of the uplift
under para (7) is, assuming there has been any such uplift. So that flies out
of the window and the only question is, am I to assume that when he said ‘open
market rental value as defined within the Declaratory Deed’, the learned
arbitrator got it wrong and was assuming to produce a figure which was not the
open market rental value as defined within the declaratory deed, because the
Second Schedule opens quite clearly with the words, ‘Subject to paragraphs (7)
and (8) hereof and except in the case of the rent review to take place on
September 29 2008 the expression ‘open market rental value’ means the annual rental
value of the demised premises . . .’, and so on, which is then adjusted under
paras (7) and (8). The first step which the arbitrator (or anybody else) would
take under the Second Schedule would be to determine not in one leap the open
market rental value, but the annual rental value of the demised premises. Then,
having determined that annual rental value, one then adjusts for the
specialities of paras (7) and (8). It seems to me that, although that might
have been more clearly expressed, nobody reading the Second Schedule as a whole
could come to any other determination.
Am I, then, to
assume that the learned arbitrator got it wrong and that he did not at the end,
as he says he has done, produce the open market rental value as defined within
the declaratory deed, that is to say (if one might expand it) being the annual
rental value of the demised premises in the open market, subject to the
alterations in paras (7) and (8)?
I regret that
I cannot possibly come to any such conclusion. The onus, I think, is heavily
upon Mr Lindsay to show that there is something here which, at the very least,
raises a doubt, and I regret to say that I can find nothing which does raise a
doubt.
Mr Price
submitted to me that, having regard to the provisions of the Arbitration Act
1979, the attitude of the courts towards the awards of arbitrators had
undergone a subtle change and that they were now to be upheld at all costs. I
do not take that view myself. I think that the attitude of the courts towards
the award of an arbitrator is precisely the same as the attitude of the court
towards any body, person or court which it is in the power of that court to
correct, namely that one gives decent consideration to the award, decision,
whatever it may be, not being bent on picking holes in it but reading it fairly
as a whole in all the surrounding circumstances to see whether there is at the
end of the day anything more than the most fanciful of doubts.
In the present
case, what do we have? The arbitrator had in front of him all the relevant
deeds. He knew of the existence of paras (7) and (8). He had them brought
forcibly to his notice via the submissions of the landlords and of the tenants.
Under those circumstances it seems to me that it is quite idle for anybody to
suggest that he somehow did not perform the task which it was incumbent upon
him to perform.
If I may quote
one of two passages referred to in the judgment of Edmund Davies LJ (as he then
was) in Middlemiss & Gould v Hartlepool Corporation [1972] 1
WLR 1643 at p 1648:
[Lord Eldon
LC said in Wood v Griffith (1818) 1 Swan 43 at p 52] It is
extremely clear that every award must be certain and final, but it has,
particularly in more modern times, been considered the duty of the court, in
construing an award, to find that it is certain and final; and instead of
leaning to a construction, which in effect would destroy nine-tenths of the
awards made, if possible to put one consistent sense on all the terms.
It seems to me,
reading this fairly without having to lean at all from the usual upright stance
of the court, one comes to the conclusion — and the only conclusion which it is
reasonable to come to — that the arbitrator got it right, that he knew what he
was doing and did precisely and exactly that which was submitted to him, namely
to find the open market rental value in accordance with the provisions of the
declaratory deed, more particularly clause 5, and arrived at what he was asked
to arrive at, namely the rental which was actually payable as from September 29
1983. Any other construction of his award involves, in my view, putting the
most strained construction upon it and assuming that he deliberately set out to
make mischief between the parties. Neither of those submissions is in any way
warranted.
It seems to me
that, at the end of the day, there is no conceivable ground for attacking the
arbitrator’s award and under those circumstances I refuse to extend the time
for making this application.
