Landlord and tenant — Rent review clause in lease — Application under section 27 of Arbitration Act 1950 to extend time within which tenants might give notice requiring rent to be determined by arbitration — Lease provided for a counternotice to be given by tenants within three months (time to be of the essence) of the landlords’ trigger notice — A counternotice was not served within the time-limit in response to the landlords’ first trigger notice and an action by the tenants (not yet heard at the date of the present application) was brought against the firm of surveyors then advising them — Fresh trigger notices were served by the landlords and once again no counternotices were served on behalf of tenants within the time-limit, apparently due to misunderstandings between its then professional advisers — Present application under 1950 Act related both to the first and second set of counternotices — Authorities on conditions of relief under section 27 of 1950 Act reviewed — Relevance of an applicant’s possible recourse against professional advisers considered — Held that, by reason of delay on the part of the tenants, relief under section 27 should not be given in respect of the first counternotice, but relief would be given in respect of the second set of counternotices — Extension of time accordingly granted for service of counternotices, subject to a condition in regard to arrears of rent
This was an
originating summons by which the plaintiffs, Chartered Trust plc, made an
application under section 27 of the Arbitration Act 1950 for an extension of
the time within which they could give a notice in pursuance of a rent review
clause in a lease. The defendant landlords were Maylands Green Estate Co Ltd.
Nigel Hague QC
(instructed by Phillips & Buck, of Cardiff) appeared on behalf of the
plaintiffs; Geoffrey Jaques (instructed by Hunt & Hunt of Romford, Essex)
represented the defendants.
Giving
judgment, VINELOTT J said: This is an application under section 27 of the
Arbitration Act 1950 to extend the period within which the tenant may give
notice requiring that the rent payable under a review clause in a lease shall
be determined by arbitration. The application is made in very unusual
circumstances. They are shortly as follows. By a lease dated January 12 1976 and
made between the defendant, Maylands Green Estate Co Ltd (defined as the
‘lessor’) of the first part, the plaintiff, Chartered Trust plc (then Julian S
Hodge & Co Ltd) (defined as the ‘tenant’) of the second part and the Hodge
Group Ltd as sureties of the third part, the lessor demised certain premises
(the ground and mezzanine floors of an office block in Romford) to the tenant
for a term of 20 years from December 25 1975 at a rent after March 25 1976 of
£14,000 per annum for the first five years (defined as ‘the first reserved
rent’) and for the 6th to the 10th years (both inclusive) (defined as ‘the
first review period’) such rent (defined as ‘the first reviewed rent’) as
should be determined in accordance with the provisions in clause 3 thereof.
There are similar provisions as regards reviews for subsequent five-year
periods.
Clause 3(1)
provides that the first reviewed rent is to be the higher of the first reserved
rent and the open market value of the demised premises for the first review
period. Clause 3(2) then prescribes the way in which the open market rental
value is to be ascertained. It is to be (paragraph (a)) ‘such sum as shall be
specified in a notice given by the lessor to the tenant at any time before the
expiry of four-and-a-half years after the commencement of the term thereby
granted’, that is before June 24 1980; or (paragraph (b)) ‘such sum as shall
within three months after notice was given be agreed
(c)):
a sum
determined before the review period in question at the election of the tenant
by counternotice in writing to the lessor not later than three months after the
lessor’s said notice, time to be of the essence hereof, by an independent
surveyor appointed for that purpose by the parties jointly in writing, or upon
their failure to agree upon such appointment within one month after the date of
said counternotice then by independent surveyor appointed for that purpose by
the President for the time being of the Royal Institution of Chartered
Surveyors and every such determination shall be made in accordance with so far
as not inconsistent herewith the provisions of the Arbitration Act 1950 or any
statutory modification or re-enactment thereof for the time being in force and
to be subject to the further provisions of the next succeeding subclause
hereof.
Then subclause
(3) provided that if a determination by an independent surveyor has not been
made and communicated before the commencement of the review period in question
then the rent payable is to be the first reserved rent until the quarter day
following the determination of the first reviewed rent when the arrears for the
period since the commencement of the review period are to be made good, though
without interest.
The only other
provision which I need mention is clause 2(15), which contains a covenant to
use and occupy the demised premises
solely and
exclusively as and for offices in connection with the business of commercial
banking and financiers and insurance brokers and in any event in accordance
with the terms and provisions of these presents and at all times of the year
during normal business hours to use and keep the demised premises open for
business.
By a
supplemental lease dated September 13 1977 and made between the same parties,
the lessor demised a further part of the same building to the tenant for a term
commencing on June 24 1977 and ending on December 25 1995 at a rent of £3,500
per annum for the period until December 25 1980, ‘the rent thereafter to be
determined in the same way as is provided in the lease with regard to the
premises comprised therein.’ The
supplemental lease incorporated the same covenants on the part of the tenant as
are contained in the lease with minor modifications.
On June 5 1980
the lessor’s solicitors gave notice in the following terms:
As solicitors
for your landlords we hereby give you notice in accordance with the terms of
the lease that our clients have reviewed the rent to become payable on and
after December 25 1980 and they require the sum of £34,000 per annum from that
date.
Three months
from June 5 expired on September 6. No counternotice was served by the tenant
during that period. For some time the tenant paid the increased rent as
specified in the notice, taking it to relate to the premises comprised both in
the lease and the supplemental lease. On May 18 1981 the tenant commenced
proceedings against a well-known firm of surveyors, Donaldson & Sons. In
the statement of claim as originally framed, the tenant claimed that it had
instructed Donaldsons to act on its behalf in negotiating the amount of the
first reviewed rent, that Donaldsons accepted that invitation and that in
reliance on the professional expertise of Donaldsons the tenant entrusted the
sole conduct of the review to that firm. It is said that Donaldsons owed a duty
to exercise due skill and care and that it was in particular Donaldsons’ duty
to serve a counternotice within the requisite period and that in breach of that
duty Donaldsons failed to do so, whereby the tenant was deprived of its right
to have the open market rental value determined by an independent surveyor. It
is pertinent to observe that the instructions to Donaldsons were given by the
property department of the tenant direct and not through its solicitors, who
were and, still are a firm called Phillips & Buck.
Donaldsons put
in their defence on June 26 1981. They claimed, as might be expected, that
their instructions were to negotiate and no more and that it was not within the
scope of their instructions to give a counternotice. Donaldsons also raised a
new point. It is that the letter of June 5 1980 was of no effect. The ground is
not specified in the defence, but it is clear that the point taken is that the
notice did not specify whether it was given under the lease or the supplemental
lease or both of them and in the latter event did not apportion the new rent
claimed between the demised premises so that the tenant could not know what
part of the aggregate was attributable to the premises comprised in the lease
and the supplemental lease respectively, if for example it wished to assign one
but not the other of them.
In December
1981 the tenant joined the lessor as an additional defendant and amended its
statement of claim to claim against the landlord a declaration that the notice
of June 5 was bad. The claim against Donaldsons of course remains as a second
string and in addition the tenant claims interest on any rent it has overpaid
by way of damages for negligence. That is all I need say about the pleadings.
The action has not yet been heard though pleadings closed on February 4 1982.
The lessor
then responded by serving two separate notices, one in relation to the premises
comprised in the lease and one in relation to the premises comprised in the
underlease, specifying a rent of £29,250 in the one case and a rent of £4,750
in the other case. The aggregate is thus the same as in the notice of June 5
1980. Mr Hague for the tenant accepts, and I think is bound to accept in the
light of the decision of the Court of Appeal in Amherst v James
Walker Goldsmith & Silversmith Ltd [1983] Ch 305*, that if the first
notice is bad the tenant cannot rely on the landlord’s failure to serve a valid
notice before June 24 1980 as barring its right to invoke the rent review
provision by serving a proper notice. Time is not made of the essence of
paragraph (a) of clause 3(2) and there is no ground for importing any implied
term that notice must be served within a reasonable time.
*Editor’s
note: Also reported at (1983) 267 EG 163, [1983] 2 EGLR 108.
In Amherst
v James Walker Goldsmith & Silversmith Ltd, as in the instant case,
time was expressly made of the essence as regards the steps to be taken after
the lessor had served a notice of assessment but not of the lessor’s right to
trigger the rent review provision by serving notice.
I must set out
the history following the second set of notices in greater detail. They were
given on March 25, 1982. So the three-month period for the service of a
counternotice expired on June 25 1982. Once again no counternotice was served
within the requisite period. The explanation is given in an affidavit by a Mr
Vokes, a partner in Phillips & Buck. It is as follows. On April 1 1982,
that is very shortly after the receipt of the second notice, Mr Vokes after
consulting with the tenant’s property department instructed counsel to advise.
Counsel’s advice was received on May 18 or 19. Following the receipt of that
advice the tenant, again directly and not through its solicitors, instructed
Bairstow Eves, now BE Professional Services Ltd, a well-known local surveyors
and estate agents, to negotiate the new rents. On May 21 the tenant’s
solicitors wrote to the landlord’s solicitors, Hunt & Hunt, to inform them
that Bairstow Eves had been so instructed. A Mr Christopher Stewart of Bairstow
Eves went ahead to inspect the property, to obtain comparable valuation
evidence and to prepare his own valuation. He entered into negotiations with
the lessor’s surveyors, a firm called Hilbery Chaplin & Co. One of the
partners in that firm, a Mr O C Smith, is in fact director of the lessor. It is
not clear whether Mr Stewart started negotiations with Hilbery Chaplin before
or after June 25 1982.
As I have
said, no counternotice was served. Mr Vokes’ explanation is given in his
affidavit in a passage which I think I should cite in full.
I first
discovered this
that is that
no counternotice had been served
in a
telephone conversation with Mr Stewart on July 1 1980. I had assumed that BE
would serve counternotices if necessary while Mr Stewart assumed that my firm
had already served counternotices before BE were instructed. During the course
of that telephone conversation Mr Stewart informed me of a letter dated May 26
he had sent to my firm asking for confirmation that the necessary
counternotices had been served. I never received that letter and despite
inquiries which I caused to be made it has not been traced by my firm.
Mr Stewart in
his affidavit confirms that after receiving from Phillips & Buck copies of
the lease and supplemental lease, of the two notices of March 25 1980 and other
documents he sought confirmation that the counternotices had been served by a
letter dated May 26. Then he goes on to say that he inspected the property on
May 27 and assembled rental and other information including details of
arbitration decisions concerning other parts of the same building in which the
tenants had obtained reductions of the rent proposed by the lessor.
Despite the
failure of the tenant or its advisers to serve a counternotice negotiations
continued in an endeavour to agree the new rents. Mr Stewart met Mr O C Smith
on July 7. There was some correspondence between the surveyors between then and
September 24 1982 when the negotiations were broken off. The difference between
the surveyors apparently turned on the effect on the rental value of the user
provision in clause 2(15) of the lease, Hilbery Chaplin & Co apparently
taking the view that the premises could be valued as a banking hall and that
regard ought to be paid to retail shop values, while Mr Stewart, relying on a
decision of the Court of Appeal in Plinth Property Investments Ltd v Mott
Hay & Anderson (1978) 249 ESTATES GAZETTE 1167, claimed that the only
permitted use was as offices in connection with the business of commercial
bankers. The terms of the covenant in clause 2(15) are in fact
indistinguishable from the terms of the covenant considered by the Court of
Appeal in the Plinth Property case, save only that the covenant there
related to user as offices in connection with the tenant’s business of
consulting civil engineers. Mr Stewart assessed the rent at an aggregate sum of
£22,500 per annum. It appears from the pleadings in the other action that
Donaldsons assessed them at an aggregate of £28,000 per annum.
There followed
some without prejudice negotiations between Mr Vokes and the lessor’s
solicitors and Donaldsons’ solicitors with a view to the settlement of all the
outstanding issues. Those negotiations came to an end in early October 1982.
The application that is now before me, seeking an extension of time pursuant to
section 27 of the Arbitration Act 1950 in relation both to the first notice and
to the second set of notices, was issued on November 26 1982.
Section 27
reads as follows:
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 arbitration proceedings is taken within a time fixed by the agreement,
and a 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 provision of any enactment limiting the time for the commencement of arbitration
proceedings, extend the time for such period as it thinks proper.
In SI
Pension Trustees Ltd v William Hudson Ltd (1977) 35 P & C R 54
an underlease provided for the review of the rent payable from a specified
review date and that the new rent unless agreed before the review date should
be determined by an arbitrator appointed on the application of the lessor
before the review date. The lessor allowed the review date to pass without
making an application for the appointment of an arbitrator. An application was
made in the Queen’s Bench Division pursuant to section 27 for an extension of
the time within which the lessor could apply for the appointment of an
arbitrator. At the time when the application came before the Court of Appeal
the case of United Scientific Holdings Ltd v Burnley Borough Council
had been decided by the Court of Appeal, but the appeal to the House of Lords
had not been heard. The landlord had started an action in the Chancery Division
claiming that time was not of the essence of the provision for the
determination of the rent by an arbitrator or that alternatively the tenant by
entering into and continuing negotiations for a new rent had led the landlord
to believe that strict adherence to the timetable would not be insisted on and
was accordingly barred from relying on it. However, the application in the
Queen’s Bench Division proceeded on the footing that, ‘subject to any argument
in the Chancery proceedings failure to apply for the appointment before the
review date effectively prevents an arbitrator determining a revised rent and
therefore prevents the landlord from claiming one.’ On that footing Forbes J held that the effect
of the clause was to bar a claim by the landlord and that the case accordingly
fell within the terms of section 27. That decision was referred to without
disapproval by Lord Denning MR in Sioux Inc v China Salvage Co
[1980] 1 WLR 996 where he reviewed the cases decided since Liberian Shipping
Corporation ‘Pegasus’ Ltd v A King & Son Ltd [1967] 2 QB 86 on the
construction of section 27 and in particular the meaning of the words ‘undue
hardship’. It is clear from the decision of the Court of Appeal in that case
that if section 27 applies where a landlord fails to trigger a provision for an
upward review of rent to be determined by arbitration it must also apply where
a tenant fails to trigger a provision under which if a rent review is initiated
by an assessment or claim by the lessor which is disputed by the tenant the
tenant has the right to have the new rent determined by arbitration. (See in
particular the judgment of Sir David Cairns at p 1002.)
In Amalgamated
Estates Ltd v Joystretch Ltd (1980) 257 EG 489, [1981] 1 EGLR 96 it
was also assumed by the Court of Appeal that section 27 applies to a provision
in a rent review clause under which on the application of the lessor or tenant
the rent falls to be determined by arbitration. (See per Lawton LJ at p 491,
second column, and per Templeman LJ at p 493 though the actual point did not
fall to be decided in that case.) Mr
Jaques, who appeared for the lessor, does not contend, and in the light of
these authorities could not I think contend in this court, that section 27 has
no application to a provision for the appointment of an arbitrator under a rent
review clause in a lease, albeit that time is made of the essence of the right
of either party to have the determination of the rent reviewed by arbitration.
I should say that for my part I can see no difference between such a provision
in a lease and, for example, the Centrecon arbitration clause considered in Libra
Shipping and Trading Corporation Ltd v Northern Sales Ltd (‘The Aspen
Trader’) [1981] 1 Lloyd’s Rep 273 under which it is specifically provided
that ‘any claim must be in writing and claimant’s arbitrator appointed within
three months of final discharge and where this provision is not complied with
the claim must be deemed to be waived and absolutely barred’, though it is at
first sight anomalous that in a rent review clause in which time is made of the
essence and a series of steps have to be taken before there is a final
reference to arbitration the court should have power to relieve against a
failure to take the last step but not the intermediate steps timeously, and
that the court should have power to relieve against such a failure when the
last step is a reference to arbitration but not when the last step is a
reference to a surveyor acting as an expert and not as an arbitrator.
It was held by
the Court of Appeal in the Pegasus case that in section 27 the words
‘undue hardship’ mean excessive hardship, that is hardship greater than the
circumstances warrant, and that where the hardship results from the fault of
the claimant who seeks relief under section 27 the hardship is undue if it is
out of all proportion to the fault (see per Lord Denning MR at p 98). The words
‘undue hardship’ had previously been construed as meaning hardship that is
undue in the sense that it was not due to any act or neglect on the part of the
person on whom the hardship falls.
In Moscow
V/O Exportkhleb v Helmville Ltd (‘The Jocelyn’) [1977] 2 Lloyd’s Rep
121 Brandon J (as he then was) summarises the factors which have to be weighed
in deciding whether undue hardship would be caused by a refusal to extend the
time for the reference of a claim to arbitration in a passage which I should I
think read in full. He said at p 129:
3. In
deciding whether to extend time or not, the court should look at all the
relevant circumstances of the particular case. 4. In particular the following matters
should be considered: (a) the length of the delay; (b) the amount at stake; (c)
whether the delay was due to the fault of the claimant or to circumstances
outside his control; (d) if it was due to the fault of the claimant the degree
of that fault; (e) whether the claimant was misled by the other party; (f)
whether the other party has been prejudiced by the delay, and if so, the degree
of such prejudice.
That passage
was approved by the majority of the members of the Court of Appeal who heard
the appeal in Libra Shipping and Trading Corporation Ltd v Northern
Sales Ltd (‘The Aspen Trader’) [1981] 1 Lloyd’s Rep 273 — see per Brandon J
(as he then was) at p 279 first column and per Waller LJ at p 282.
In applying
these principles to the facts of any given case two facts must be borne in
mind. First, Brandon J made it clear that the court must look at all the
circumstances of a particular case. The list of matters particularly mentioned
is thought to be not exhaustive. Secondly, I do not think that Brandon J
intended to attribute any relative degree of importance by setting out these
factors in the order in which they are set out in his judgment. The weight to
be attached to a particular factor must depend upon the consideration of the
circumstances as a whole. For instance, a period of delay which may be of no
importance in one case may be of decisive importance in another.
It is
important to bear these last two observations in mind in relation to one aspect
of this case — the extent, if any, to which a claimant under section 27 may
have alternative claims against a solicitor or some other agent, in relation in
particular in this case
that the existence of any possible claim in negligence should be wholly
ignored. He relied in support of this submission on the decision of the House
of Lords in Birkett v James [1978] AC 297, in particular on the
speech of Lord Diplock, who said at p 324:
Where an
action is dismissed for want of prosecution the fault must lie either with the
plaintiff or with his solicitors or with both. Which of them is to blame for
the inordinate and inexcusable delay does not affect the prejudice caused to
the defendant which is a justification for the dismissal of the action nor
should it in principle affect his remedy.
I do not think
that there is any analogy between an application to strike out a claim for want
of prosecution and an application under section 27. In the former case, as Lord
Diplock stressed, the defendant relies on the prejudice to him resulting from
the plaintiff’s delay in prosecuting the claim, and the question whether the
plaintiff’s failure to prosecute the claim diligently was due to the fault of
the plaintiff or his solicitor is irrelevant.
In the case of
an application under section 27 the question whether the applicant has a remedy
against a third party is, it seems to me, clearly relevant in considering
whether a refusal to extend time will result in hardship to him. An application
under section 27 is more closely analogous to an application to bring an action
for damages for personal injury after the limitation period has expired. In
relation to a claim of that nature it is clear, in the light of the decision of
the House of Lords in Thompson v Bowen [1981] 1 WLR, 744, that in
the words of Lord Diplock at p 752:
When weighing
what degree of prejudice the plaintiff has suffered the fact that if no
direction is made under section 2 (D) he will have a claim over against his
solicitor for the full damages that he could have recovered against the
defendant if the action had proceeded must be a highly relevant consideration.
Similarly in
the unreported case of Adams & Adams v Schofield & Adams,
decided by the Court of Appeal in July 1981, the plaintiffs sought leave under
section 4 of the Inheritance (Provision for Family and Dependants) Act 1975 to
make an application after the period for making a claim had expired. Rees J
refused the application on the ground that the plaintiffs had a plain claim for
damages against their solicitor who failed to make a claim in time because he
had made a mistaken entry in his diary. The Court of Appeal allowed the appeal
on the ground that the judge had erred in attaching decisive weight to this
factor. Dunn LJ, after pointing to the difficulty in ascertaining the quantum
of damages in an action for negligence (in that the court would have to
consider which of the possible orders which the court could have made under the
1975 Act the court would probably have made) summarised his conclusions in the
following passage:
In the
circumstances of the particular case it may be that the fact that the plaintiff
has a cast iron and easily computable remedy against her solicitor may be a
factor to which some weight should be attached, but in the circumstances of
this case where we have a nineteen day delay, the estate has not been
distributed, the executors and their solicitors have always known that the
plaintiff intended to make a claim and where very serious prejudice would be
suffered by the plaintiff if she is wholly barred from making a claim under the
Act, I have no doubt whatever in my mind that the judge was plainly wrong in
principle when he attached decisive importance to the fact that she would have
a cast iron claim against her solicitor.
Ormrod LJ
said:
When it comes
to considering what is the weight to be given to the existence of a claim for
damages against solicitors in these cases it seems to me that the right
approach is to consider the justice of the case as between the parties first of
all, and take into account all matters set out very helpfully by the
Vice-Chancellor in Re Salmon. It is only if, having done that
computation, one finds that the plaintiff on the one hand has suffered severe
prejudice and the defendant on the other hand has suffered severe prejudice or
would if the limitation period is extended, that the claim for damages against
the plaintiff’s solicitor becomes relevant. In other words if, as in this case,
all the indications are on the plaintiff’s side and all point to extending
time, and prejudice on the defendant’s side is what I would call purely formal,
in the sense they have lost the benefit of such protection as section 4 gives
them, then the claim for damages against solicitors is of little weight.
With these
considerations in mind I turn to the question whether the time for giving
notice requiring the appointment of an arbitrator should be extended in
relation to the lessor’s first notice. Mr Hague submitted that there would be
no relevant hardship to the lessor in allowing a counternotice to be served. Of
course the lessor will not be entitled to rely upon the failure of the tenant
to serve a counternotice within due time as barring his right to have the rent
determined by arbitration. But that is not a hardship to the lessor to be
weighed against the tenant in considering whether to grant relief under section
27. The arbitration provisions in the lease must be read subject to section 27.
The lessor accordingly did not acquire any vested right to the higher rent
fixed in his notice when the period for serving the counternotice expired. The
delay has not otherwise prejudiced the lessor. In particular the delay will not
give rise to any difficulty in the conduct of the arbitration. Valuers were
instructed before the period for serving the counternotice expired, and it can
be assumed that all relevant information as to comparable rents and the like
was obtained. The main issue to be determined in the arbitration will be one of
law, namely the effect on the rental value of clause 2(15) of the lease.
Mr Hague
submitted that the loss to the tenant, if it is compelled to pay rent at the
higher figure, will be out of proportion to any fault on its part. He submitted
in the light of the issues raised in the claim against the tenant’s surveyor in
the pleadings that, even assuming that the first notice was valid, the action
is by no means certain to succeed, and if it does the payment of a lump sum discounted
over the period during which the higher rent is payable will not put the tenant
in the position which in fairness it ought to be put, namely of paying a fair
rent ascertained by arbitration. These are powerful arguments and if the
application had been made promptly the tenant would, I think, have been
entitled to relief. The difficulty which confronts the tenant is that it
elected to pursue its remedy against its surveyor. In those proceedings the
lessor has now been joined as defendant. The facts that the tenant has
instituted proceedings against its surveyor and that in those proceedings the
lessor has been joined so as to be bound by a decision as to the validity of
the first notice would not in themselves I think be an automatic bar to an application
for relief under section 27. There is no reason in principle why a tenant
should not in these circumstances commence proceedings for damages for
negligence so as to keep the claim alive. Equally there is no reason why a
tenant in these circumstances should not in the same or separate proceedings
challenge the validity of the notice (in SI Pensions Ltd v William
Hudson Ltd there were concurrent proceedings in the Chancery Division
raising the question whether time was of the essence of the rent review clause
and whether if it was the tenant was estopped from relying on the landlord’s
failure to serve the notice in due time). But the conduct of the tenant in
commencing these proceedings must be looked at in the light of the very
considerable period that has passed since it became plain that the lessor would
rely on the failure of the tenant to serve a counternotice in due time. The
proceedings against Donaldsons were commenced some 18 months and the pleadings
in the action were closed some six months before the originating summons which
is now before me was taken out. In the light of the delay and of the
prosecution of the other proceedings the tenant must I think be taken to have
waived its right to seek relief under section 27. I should add for completeness
that the submission that the claim for damages in the action against
Donaldsons, if the action succeeds, will not put the tenant in the position
which it ought to occupy carries little weight on the facts of this case. By
the time that the proceedings against Donaldsons are heard and damages are
assessed the first review period will be near its end if it has not expired.
I turn
therefore to the second notices. The question whether the time for serving
counternotices in answer to the second set of notices should be extended is, of
course, hypothetical in that the lessor will not have to rely on the second set
of notices unless the tenant succeeds in establishing that the first notice was
invalid. But it is I think right that the point should be decided now. Mr
Jaques submitted that the tenant similarly has a plain claim against Bairstow
Eves or its solicitors and will not suffer undue hardship if relief is refused.
That I think considerably overstates the position. As regards Bairstow Eves,
their liability will clearly turn on the terms of their instructions. They were
instructed at a late stage and instructions were given orally. It is apparent
from the terms of the letter of May 26 as summarised in Mr Vokes’ affidavit
(though I should observe in passing that the letter itself is not exhibited)
that Mr Stewart did not appreciate that Bairstow Eves were instructed to take
any steps necessary to keep alive the tenant’s right to have the rent
determined by arbitration. Mr Jaques’ main submission was
was prima facie their responsibility to see that any necessary counternotice
was served in good time. But again the facts of its case so far as they appear
from the affidavit evidence are very unusual. On both occasions when surveyors
were instructed they were instructed by the tenant without the intervention of
their solicitors. Phillips & Buck were instructed to seek advice from
counsel following service of the second set of notices, but I do not know what
the terms of their instructions were and I cannot on the evidence before me
safely assume that the tenant did look to its solicitors to take any steps
necessary to protect the right to arbitration by serving counternotices in good
time. It is noteworthy that on the earlier occasions where proceedings were
commenced against Donaldsons claiming that they were under a duty to the tenant
to ensure that all necessary steps were taken to keep alive the tenant’s right
to have the rent determined by arbitration no claim was made against Phillips
& Buck and it is not suggested in Donaldsons’ defence that the
responsibility was theirs. On the evidence before me I cannot rule out the
possibility that Phillips & Buck if sued would be able to establish that
the tenant’s property department took responsibility for ensuring that all the
necessary steps were taken. Mr Jaques submitted that that is an unlikely
outcome. I do not think that the court is in a position to speculate as to the
likelihood or otherwise that a claim against one or other of the surveyors or
the solicitors would succeed. By contrast, in Adams and in Thompson
v Bowen it was apparent from the explanation for the delay given by the
solicitors that there was negligence on their part. The explanation amounted to
a virtual admission of negligence.
The other
factors that must be weighed are first, any prejudice to the lessor if the
period for serving a counternotice is extended, and also the delay from June 26
1980 to November 26 in making this application. Subject to one matter which I
will turn to later I do not think that the lessor has established that it will
suffer any hardship if the period for serving a counternotice is extended. The
lessor will be deprived of a lucky windfall resulting from confusion as to the
person responsible for serving counternotices and of which it has had
possession for a comparatively brief period. Mr Jaques submitted that the delay
in making this application was excessive having regard to the very short period
fixed by the rent review clause for the service of a counternotice and bearing
in mind that the tenant had been given a second opportunity of serving notice
in good time. However the delay after June 26 is more apparent than real. It is
clear and it is not disputed that negotiations continued between the surveyors
until September and between solicitors until October. When the fact that a
counternotice had not been served became apparent in July the tenant in my
judgment did not act unreasonably in deferring the issue of this application
while negotiations were proceeding. When the negotiations came to an end it
acted promptly.
Under the
terms of the lease no interest is payable on arrears of rent. The prejudice to
the lessor in being kept out of any higher rent between the time when
arbitration takes place and the time when it might have been expected to have
taken place if a counternotice had been served in good time will not be fully
made good by the payment of arrears at the rate ultimately fixed. In these
circumstances relief should I think only be granted on terms that interest will
be payable on any arrears of rent payable when the arbitration is concluded
during that period. I will leave it to counsel to formulate the precise terms
of that condition.
