Agricultural Holdings Act 1948 — Appeal from decision of county court judge holding that arbitrator’s award should be varied in accordance with para 25A(2) of Schedule 6 to the Act on the ground of error of law on the face of the award — The issue arose out of an agreement, recorded in two documents, between the landlord and tenant of an agricultural holding, fixing the amount of rent at the end of a three-year interval and avoiding the need to continue with a rental arbitration — The agreement included undertakings by the landlord to execute within a stated time certain works such as the provision of a damp-proof course for the farmhouse, repairs to the granary and outside painting — When the new rent agreed was not paid in response to a notice to pay rent due the landlord served on the tenant a notice to quit in pursuance of Case D in section 2(3) of the Agricultural Holdings (Notices to Quit) Act 1977 — The tenant required arbitration on the notice to quit — The arbitrator decided that the notice to quit was invalid because founded on a notice to pay rent which incorrectly stated the amount of rent due — The arbitrator’s ground, which was evident on the face of his award, was that the fulfilment of the landlord’s obligation to carry out the works mentioned in the agreement was a condition precedent to the tenant’s liability to pay the new rent; in other words that the obligations were mutually interdependent, not independent — As the works had not been carried out by the completion date the new rent had not become payable and the notice to pay rent had misstated the amount due — The landlord applied to the county court to set the award aside or vary it on the ground of error of law on its face — There was a subsidiary allegation of technical misconduct in not resolving a conflict of evidence, but in the end it proved unnecessary to deal with this point — The county court judge held that there was an error of law on the face of the award — The arbitrator had been wrong in his construction of the agreement, the tenant’s agreement to pay the increased rent being an independent obligation, not interdependent with the landlord’s obligation to carry out the works — Held by the Court of Appeal that the judge had reached the correct conclusion as a matter of the construction of the agreement, a conclusion supported by the serious practical problems to which the opposite conclusion would give rise — The arbitrator’s award was rightly varied by the judge with the result that the notice to quit was good — Appeal dismissed — Per Kerr LJ, ‘I am not at the moment convinced that failure to resolve an issue is misconduct’
The following
cases are referred to in this report.
Antaios
Compania Naviera SA v Salen Rederierna AB
[1985] AC 191; [1984] 3 WLR 592; [1984] 3 All ER 229, HL
Graves v Legg (1854) 9 Exch 709
Pioneer
Shipping v BTP Tioxide (The ‘Nema’) [1982]
AC 724; [1981] 3 WLR 292; [1981] 2 All ER 1030, HL
Yorkbrook
Investments Ltd v Batten [1985] 2 EGLR 100;
(1985) 276 EG 545, CA
This was an
appeal by David Timmis, tenant of the Preston Boats Farm in Upper Magna,
Shropshire, from a decision of Judge Peter Northcote at Shrewsbury County Court
in favour of the landlord, Robert Lingen Burton, varying an award of the
arbitrator, Raymond George Taylor. The arbitrator had determined that a notice
to quit served by the landlord was invalid because the notice to pay rent on
which it was based stated the rent due inaccurately. On the landlord’s
application to set aside or remit the award, on the grounds of error of law on
the face of the award and misconduct, the judge accepted the submission on the
former ground and varied the award by substituting a finding that the notice to
quit was good.
Martin Thomas
QC and Michael P Farmer (instructed by Scott Lister & Co, of Shrewsbury)
appeared on behalf of the appellant; Jonathan Gaunt (instructed by Sharpe
Pritchard & Co, agents for Sprott Stokes & Turnbull, of Shrewsbury)
represented the respondent landlord; the arbitrator, although named as a
respondent, was not represented and took no part in the proceedings.
Giving
judgment, KERR LJ said: This is an appeal by the tenant, Mr Timmis, from a
judgment of His Honour Judge Peter Northcote given in the Shrewsbury County
Court on March 26 1986. He had before him an application to set aside, or remit,
the award of an arbitrator made under the Agricultural Holdings Act 1948. For
present purposes the relevant provisions are paras 25(2) and 25A(2) of Schedule
6 to that Act, which are in the following terms:
25(2) Where the arbitrator has misconducted himself,
or an arbitration award has been improperly procured or there is an error of
law on the face of the award, the county court may set the award aside.
25A(2) In any case where it appears to the county
court that there is an error of law on the face of the award the court may,
instead of exercising its power of remission under the foregoing sub-paragraph,
vary the award by substituting for so much of it as is affected by the error
such award as the court considers that it would have been proper for the
arbitrator to make in the circumstances; and the award shall thereupon have
effect as so varied.
For present
purposes the main issue is whether or not this award contained an error of law
on its face and whether the judge was accordingly entitled to vary it as he
did.
I should say
in passing that the Arbitration Act 1979 has of course not affected that
jurisdiction, although it is now no longer open for the High Court to set aside
an award for an error of law on its face. But this statutory arbitration procedure,
with an appeal to the county court, is unaffected by that.
The matter
arises out of a tenancy agreement made between the plaintiff, Mr Burton, and
the defendant, Mr Timmis, dated January 16 1964 relating to a property known as
Preston Boats Farm in Upper Magna, Shropshire. The extent of the farm
originally let was some 45 1/2 acres, but there have been additions and it is
now about 56 acres.
The rent
originally agreed was £364 10s per annum, payable half-yearly in arrear on the
March and September quarter days; it was increased to £940 with effect from
March 25 1975; and it was again increased, with effect from March 25 1978, to
£1,250. The matter with which we are concerned arises out of a proposed
increase in 1981, which the tenant required to be referred to arbitration. In
June 1981 an arbitrator was appointed for the purpose of determining the
appropriate increase, if any.
However,
before the arbitration took place, the increase and certain other terms were
agreed at a meeting between Mr Timmis, Mr Morgan and a Mr Witt (Mr Witt being
the agent of the landlord) at
documents, to which I shall turn in a moment, but so far as the rent was
concerned it was agreed that it should be increased to £2,800 per annum. Mr
Thomas QC, who has said everything possible on behalf of the tenant, has drawn
attention to the fact that this was a very substantial increase indeed.
I should have
mentioned — though it hardly requires mention — that under the terms of the
lease the landlord had power to re-enter in default of payment of rent.
The agreement
reached at the meeting was incorporated into a letter of April 9 which enclosed
a memorandum. The fact that the terms of the oral agreement were incorporated
into this letter, together with the memorandum, was found by the arbitrator in
his award arising from the subsequent dispute, to which I shall come in a
moment; I first read the letter. This is from Mr Witt to Mr Timmis, headed
‘Preston Boats Farm’, and it reads as follows:
I refer to
previous meetings and in particular the meeting held on April 6 when we reached
agreement in respect of the new rent to be paid at Preston Boats Farm from
March 25 1981.
This new rent
is to be subject to the agreed terms as follows:
1 The Landlord will install a new damp proof
course to the farmhouse.
2 The Landlord will carry out all necessary
repairs to the first floor of the granary. This to be the renewal, where
necessary, of damaged floor boards and the treatment of timber work with wood
preservatives.
3 The Landlord will carry out the
replacement, where necessary, of the ridge tiles to the granary roof.
4 The Landlord will carry out the external
painting of the farmhouse and buildings and will recover 50% of the cost from
the Tenant.
All these
items to be carried out prior to September 1 1981.
5 The Landlord will grant permission for the
Tenant to sheet the gable end of the Dutch barn subject to agreed Tenant right
terms and formal written approval.
6 The Landlord will grant the Tenant
permission to take down the sandstone wall running at right angles to the road
and to re-erect this beside the road to form a new entrance to the farmyard.
This permission is subject to formal approval of the proposals and plans and
the Tenant carrying out the work at his own expense with no compensation at the
end of the tenancy.
Those were the
six terms, and the letter concluded as follows:
Enclosed with
this letter are two copies of the Memorandum showing the agreed new rent based
on £50 per acre of 56.049 acres, ie £2,800. I would be obliged if you could
kindly sign both copies and attach one to your own Agreement and return the
other to this office by Tuesday April 14 so that the Arbitrator can be informed
that his services will no longer be required prior to the time limit for
submission of Statements of Case being reached.
The enclosed
memorandum was in the following terms and was subsequently signed by both
parties and dated April 12 1981:
In
consideration of the Landlord of the within-mentioned holding undertaking not
to refer to arbitration under section 8 of the Agricultural Holdings Act 1948,
the question of the rent to be payable on the holding in respect of any period
prior to the 25th day of March 1984 the tenant of the said holding agrees
that:–
1 The rent payable in respect of the said
holding (including all existing increases in respect of improvements or
otherwise) shall as from the 25th day of March 1981 be £2,800 (Two Thousand Eight
Hundred Pounds) . . . which shall be payable in the same way as the rent of the
said holding hereunder.
2 The Proviso for re-entry contained in the
within-written agreement shall be exercisable in respect of non-payment of the
said increased rent or any part thereof.
3 In consideration of the premises all the
terms and conditions of the within-written Agreement varied as aforesaid shall
remain in full force and effect.
The next event
was a further meeting at the farm on August 18 1981 — that is to say, fairly
shortly before the date of September 1 referred to in the letter — between Mr
Timmis and Mr Witt. Mr Witt made a memorandum, or attendance note, of that
meeting, which the arbitrator had before him, but Mr Timmis never saw it at the
time. According to that memorandum, Mr Timmis agreed that some of the work
specified in the letter of April 9 should not be done, and there were various
other matters discussed which were relevant to whether or not parts of the work
would be done, and if so when and in what manner.
The next
quarter day arrived and the estate rent audit was on October 8 1981. The rent
not having been paid, a notice to pay within two months was served on the
tenant on November 2 1981, requiring him to pay £1,429.08, being £1,400 as the
half-yearly rent agreed in the letter which I have read and the balance
relating to grazing rights.
The tenant did
not pay upon that notice, but on December 17 1981 the tenant’s solicitors sent
a cheque for £654.07 post-dated to December 31, which was subsequently
dishonoured. Consequently the landlord gave notice to quit under Case D of
section 2(3) of the Agricultural Holdings (Notices to Quit) Act 1977 on January
8 1982. That notice was due to expire on March 25 1983, in accordance with the
Agricultural Holdings Act. On January 27 1982 the tenant, as he was entitled,
thereupon required arbitration on the notice to quit. The instalments of rent
at the new rent of £2,800 per annum were then duly paid on March 25 and
September 29 1982 while the notice period was running.
On November 5
1982 an arbitrator was appointed. He had before him statements of case lodged
by the landlord and tenant in the usual way. The hearing took place on January
5 1983 and the arbitrator made his award on January 25 1983. The main issue is
whether or not that award contains an error of law on its face, as the county
court judge concluded, and I therefore turn to the award.
It was made by
Mr Raymond George Taylor, who recites the facts. He recites that it was not
disputed that the notice to pay the rent and the notice to quit were in proper
form and were effectively served. He rightly concluded that the tenant’s
explanation as to why the cheque for part of the amount demanded was
dishonoured was irrelevant, and he correctly identified the issue for the
purposes of the validity of the notice to quit, which was whether or not the
rent specified in the notice to pay served on November 2 1981 was correctly
stated. That in itself depended upon whether or not the landlord’s obligation
to carry out the repairs specified in paras 1 to 4 of the letter of April 9 by
September 1 1981 was or was not a condition precedent to the tenant’s liability
to pay the new rent.
I must read
certain passages from the award, and comment on them. The arbitrator said that
he found that the letter expressed a binding contractual commitment on behalf
of the landlord to do certain work, namely the work referred to, prior to
December 1 1981. That is undoubtedly correct. Then he said this:
The question
which then arises is whether the Landlord’s obligation to carry out the said
works and the Tenant’s obligation to pay the new rent was discrete and
disjunctive or whether the liability for payment of rent is made conditional
upon the Landlord carrying out those works prior to September 1 1981.
That, if I may
say so with respect, is a perfectly correct way of stating the issue which
arises upon the documents to which the arbitrator refers — that is to say, the
letter of April 9 and the memorandum of April 12 1981.
The arbitrator
then reviews the respective contentions of the parties; he deals first with
their conflicting evidence as to what was agreed between Mr Timmis and Mr Witt
at the meeting on August 18 1981, of which Mr Witt made an attendance note. The
arbitrator records that there was a conflict of evidence as to what was said on
that occasion; he then went on as follows:
As the
evidence in relation to the meeting on August 18 1981 is in conflict and the
terms of any alleged agreement reached on that date are not recorded in writing
I am bound to rely on the contractual documents before me in the form of the
letter of April 9 1981 and the subsequent memorandum of April 12 1981.
He goes on as
follows:
At this stage
I comment that I have considerable sympathy for the position of the Landlord
and his agent. At the meeting on April 6 1981 the Tenant had asked that the
damp proofing work should be carried out after the bed and breakfast holiday
trade had ceased and yet before September 1 1981 thereby imposing on the
Landlord a narrow and rather uncertain time band in which that portion of the
agreed works should be carried out. At the meeting on August 18 1981 the
Tenant’s proposals must have caused confusion in the mind of the Landlord and
his agent. Notwithstanding this I am bound to have regard to the fact that it
was open to the Landlord to record any variation of the agreement as to the
works in writing for acceptance by the Tenant and in the absence of such
acceptance to proceed with the works in accordance with the terms agreed before
September 1 1981.
Then he says
that he reads the two documents of April 9 and 12 together, and he concludes
this passage by saying this:
In deciding
upon the accuracy of the Notice to Pay and thereby the validity of the Notice
to Quit I am therefore faced solely with the construction of the contractual
documents in the form of the said letter and the said memorandum.
Pausing at
that point, as I read that award the arbitrator is saying that because there
was a conflict in the evidence before him as to what was said or agreed, if
anything, on August 18 1981, and because the matter was not reduced to writing,
it was not open to him to have any regard to what had occurred at that meeting
or, as I understand it, to
back solely on the true construction of the documents, to which he then turns.
If it were necessary to decide this point, I think I would conclude that that
was an error of law on the part of the arbitrator, since he appears to have
taken the view that, there being nothing in writing and there being a conflict
of evidence as to what was said or possibly agreed orally, he could have no
regard to the events of August 18 1981. I think that must clearly be wrong.
However, we have not heard Mr Gaunt on behalf of the landlord, and I therefore
prefer to express no final opinion about it. I only mention it because the
judge appears to have taken the view that the arbitrator’s failure to deal with
this conflict of evidence constituted misconduct, for which I think he would
have remitted the matter to the arbitrator as requested by the landlord. I am
not at the moment convinced that failure to resolve an issue is misconduct.
However, it is unnecessary to express any final view on that matter either. The
reason is that the arbitrator then addressed himself to the true construction
of the two documents and that the case can be decided on that issue alone,
without any need for a decision on these other points.
Before I come
to that, I should make it clear that Mr Thomas repeatedly pointed out that
these two documents are not in the form of a deed or a formal agreement in
writing but came into existence following the conclusion of an oral agreement,
or following negotiations in which agreement was reached, and which were then,
in the ordinary course, reduced to writing. He therefore submits that the issue
for the arbitrator, and the issue decided by the arbitrator, and therefore the
issue of law before the county court and now on appeal to this court, is not
concerned with the true construction of these documents, but that the
arbitrator found as a fact that the parties had made an oral agreement which
accords with his final conclusion, namely — as mentioned below — that the
landlord was obliged to carry out the repairs in accordance with paras 1 to 4
by September 1 1981 as a condition precedent to the new rent coming into force.
I cannot for
one moment accept this submission. This was a perfectly normal situation of
terms being negotiated and agreed orally and then being reduced to writing, as
the arbitrator himself finds; and the letter and memorandum in fact contained
the terms which he finds were the terms agreed. Accordingly, in order to
determine the effect of the terms which were agreed, one must construe the
letter and memorandum and, as the arbitrator rightly said, one must construe
them together. Whether a document is correctly construed or not is, of course,
an issue of law, as has been said in many cases, including recently, as I
recollect, by Lord Diplock in delivering the opinion of the House of Lords in ‘The
Nema‘ [Pioneer Shipping v BTP Tioxide [1982] AC 724]. So what
it comes to is that on this issue one has to consider whether or not the
arbitrator’s construction of these documents was correct, and that is a
question of law.
The arbitrator
reviewed the contentions of the parties on this issue. He pointed out, and
obviously had considerable sympathy with, the landlord’s submission, which is
self-evident, that if the agreement bore the meaning for which the tenant
contended, all sorts of difficulties would arise. For one thing, it would not
be known until September 1 1981, the terminal date for doing the repairs, what
the new rent was; whether there had been a new rent as from March 25 1981; or
whether the increased rent was in force. Second, it would mean that if the
increased rent was not in force, then on one view the prior rent would continue
until the works had been completed and the necessary steps taken again, under
the tenancy agreement and the 1948 Act, to bring about a further rent revision.
There is also the difficulty that it would perhaps be unclear, if this were a
condition precedent, whether the landlord’s failure to carry out the repairs by
September 1 had the effect that the new rent would never come into force or
whether it had the effect that it would not come into force unless and until
the repairs were done.
The arbitrator
refers to some of these points and recognises that they produce problems. But
as I read his award, he does not appear to decide that the landlord’s
construction is incorrect; as I see it, he appears to consider whether it was
open to the parties to make an agreement which had the effect for which the
tenant contended. I say that because, having dealt with these matters, he said
this:
The final
question is whether it is good law in the light of the authorities and
principles quoted to me to find that the parties were free to contract that the
payment of rent by the Tenant and the performance by the Landlord of the
Landlord’s obligations were inextricably linked such that, the Landlord having
failed to carry out the works, the correct rate of rent to specify in the
Notice to Pay was the rent at the rate previously obtaining prior to March 25
1981 and not the new rent agreed to run as from that date.
It is to be
noted that he asked himself the question whether or not the parties were free
to contract in the terms for which the tenant contended and that, as it seems
to me, only admits of one answer, that they obviously were free so to contract.
But the real question is whether they did so on the true construction of the
documents.
However,
having posed the question in that way, the arbitrator went on as follows:
On behalf of
the Landlord it is argued that the situation is on all fours with the
authorities cited by the Landlord. On behalf of the Tenant it is argued that
the facts are sui generis and that this is uncharted territory. I agree
with the Tenant’s arguments. The letter of April 9 1981 itself propounded by
the Landlord’s agent is so clear, and express in its terms, that I must
interpret that letter such that the new rent was not payable unless the works
were completed by September 1 1981.
Accordingly, he
held, and awarded, that the notice to quit was invalid because the notice to
pay set out incorrectly the rent which was then due.
The landlord
then appealed to the county court, as I have already mentioned, and requested
that the award be set aside or varied for error of law on its face, apart from
the application for remission on the ground of misconduct which I have already
mentioned.
In a brief
judgment the judge rejected the tenant’s construction and concluded that there
was an error of law on the face of the award. He referred to two cases: the
first was the decision of this court in Yorkbrook Investments Ltd v Batten
(1985) 276 EG 545*; and the well-known statement of principle in Graves
v Legg (1854) 9 Exch 709. Both these cases (and of course many others)
were concerned with the question whether mutual covenants were independent or
interdependent, in the sense that the performance of the promise, or promises,
on one side was a condition precedent to the obligations undertaken in
consideration of those promises by the other side. As is well known, the answer
to that question is that it depends on the terms of the agreement, on any
statutory background if there is any such background, on the surrounding
circumstances and, finally, on the consequences which would follow from one
construction or the other. All that amounts to is that the agreement has to be
construed in order to give effect to the intention of the parties, and the
intention of the parties is to be deduced from matters such as those to which I
have referred.
*Editor’s
note: See also [1985] 2 EGLR 100.
In Graves
v Legg Park B said:
In the
numerous cases on the subject, in which it has been laid down that the general
rule is, to construe covenants and agreements to be dependent or independent
according to the intent and meaning of the parties to be collected from the
instrument, and of course to the circumstances legally admissible in evidence
with reference to which it is to be construed, one particular rule well
acknowledged is, that where a covenant or agreement goes to part of the
consideration on both sides, and may be compensated in damages, it is an
independent covenant or contract, and an action might be brought for the breach
of it without averring performance in the declaration, under the old system of
pleading.
The judge took
the view that that principle was applicable to the true construction and effect
of the letter and memorandum. He concluded, without spelling out his reasons,
that on the authorities to which I have referred the tenant’s agreement to pay
the increased rent as from March 1981 was independent from, and not
interdependent with, the landlord’s carrying out the repairs by December 1
1981. He clearly took the view that any failure to carry out the repairs by
that date was something which could be compensated for in damages. In addition,
I have already drawn attention to all the problems which arise if this is to be
construed as a condition precedent, and I do not agree with the arbitrator, who
said that it would be easy to establish whether or not the landlord had
performed his obligations thereunder, since any minor complaint could be
disregarded as de minimis. One can easily foresee very great
difficulties which would arise — and I have already mentioned some of them — if
this agreement to carry out the repairs by September 1 is to be treated as a
condition precedent to rent due from the previous March. As I have indicated, I
am by no means sure that the arbitrator took a different view about the true
construction of the agreement. But I can only read his language as suggesting
that he may have addressed his mind to a different question, namely whether or
not there was any reason
tenant contended; otherwise I cannot understand, for instance, his reference to
this being a sui generis case and uncharted territory. To my mind it is
a fairly simple illustration of an arbitrator, or the court, having to decide
on which side of the line, within the principle set out in Graves v Legg,
and in other cases, the true construction of these two documents falls. While
not abandoning for one moment that the judge’s construction was in fact wrong,
Mr Thomas did not — I think rightly — submit any reasons why the tenant’s
construction is to be preferred as a matter of commercial and common sense. His
main submission, as I have mentioned, was that the arbitrator’s conclusion is
to be treated as a finding of fact of what the parties agreed orally, and I
have already explained why I cannot accept that.
Second, Mr
Thomas submitted that the arbitrator’s construction was a possible construction
of the words ‘subject to’. I agree that it was a possible construction in the
sense that it would not be perverse if an arbitrator so concluded. It may be —
but again it is unnecessary to decide — that if the 1979 Act had applied to
this award it would have qualified for a right of appeal within the principles
of ‘The Nema‘ and ‘The Antaios‘ [Antaios Compania Naviera SA
v Salen Rederierna AB [1985] AC 191] cases; or that the proper
conclusion would have been that the award was not so clearly wrong that the
court should intervene. That, I must emphasise, is not the issue in the present
case. The issue in the present case is whether or not the award contained an
error of law on its face. I am quite satisfied that it did, whatever may have
been in the mind of the arbitrator on the question of construction, and that
the learned judge’s construction that the landlord’s undertaking was not a
condition precedent to the new rent coming into force was correct.
Accordingly, I
would dismiss this appeal. The arbitrator’s award was rightly varied by the
judge with the result that the notice to quit was good.
Agreeing,
SWINTON THOMAS J said: In my judgment the true construction of the letter of
April 9 1981 and of the memorandum of April 12 1981 is clear, as has been set
out in the judgment which has just been delivered by Kerr LJ. Accordingly, I
agree that this appeal should be dismissed.
The appeal
was dismissed with costs, the order for costs not to be enforced without the
leave of the court; legal aid taxation of tenant’s costs ordered.
