Landlord and tenant — Rectification of lease — Appeal by landlord against dismissal of application for rectification in county court — Draft lease of unit in industrial park provided for a term of six years with a rent review after the third year — During negotiations it was agreed to extend the term to 12 years, but nothing was said about providing for a second rent review — In accordance with common practice a ‘travelling lease’ passed between the parties’ solicitors and various amendments were made, but no amendment was made to the rent review clause, so that the lease as executed provided for a 12-year term with one rent review after the third year — The landlord’s solicitor eventually realised the mistake and requested an amendment, but this was refused and litigation followed — The unit at the outset of occupation was a warehouse, but it had been intended that a substantial amount would be expended by the tenants in converting it to an office unit
recorder in the county court rejected the claim for rectification — His
judgment contained eight findings of fact, one of which (although not without
some ambiguity) was that the tenants’ solicitor must have been clearly aware
that the landlord was under the impression that there was more than one rent
review — The assistant recorder held, however, that the solicitor’s knowledge
could not be imputed to his principal or operate on his conscience (the tenant
company is treated throughout as interchangeable with the sole effective
director)
of Appeal the authorities were reviewed, from which it was clear that
rectification was available in circumstances other than the traditional
situation of common mistake — For cases such as the present, three conditions
had to be established — These were (1) a mistake by the party seeking relief in
executing a deed which did not give effect to that party’s ‘subjective’
intention at the time of execution; (2) no mistake by the party against whom
relief is sought, that party intending the result achieved by the deed or
merely accepting that deed by execution; (3) an awareness by the party against
whom relief is sought of the other party’s mistake at the time of executing the
deed plus an element of unconscionable behaviour, by inducing execution or by
standing by and allowing it — Despite a strong argument on behalf of the
landlord, the court held that the assistant recorder had been right to reject
the claim for rectification — The first and third conditions above mentioned
had not been satisfied — The existence of a mistake by the landlord when
executing the deed had not been shown, although an ex post facto intention
might have been formed — Also, the findings of the assistant recorder as to the
state of mind of the tenants’ solicitor did not establish unconscionable
behaviour justifying equitable relief even if it were permissible to impute it
to his principal — Appeal dismissed
The following
cases are referred to in this report.
Bates
(Thomas) & Son Ltd v Wyndham’s (Lingerie)
Ltd [1981] 1 WLR 505; [1981] 1 All ER 1077; (1980) 41 P&CR 345; [1981]
EGD 65; 257 EG 381, [1981] 1 EGLR 91, CA
Riverlate
Properties Ltd v Paul [1975] Ch 133; [1974]
3 WLR 564; [1974] 2 All ER 656, CA
Roberts
(A) & Co Ltd v Leicestershire County Council
[1961] Ch 555; [1961] 2 WLR 1000; [1961] 2 All ER 545; (1961) 59 LGR 348
Strover v Harrington [1988] 2 WLR 572; [1988] 1 All ER 769; [1988] 1
EGLR 173; [1988] 9 EG 61
This was an
appeal by Robert Gavin Kemp, the landlord of premises known as Unit 4B at
Kemp’s Quay Industrial Park, Bitterne, Southampton, from a decision of Mr
Assistant Recorder Wigmore, at Southampton County Court, dismissing the
plaintiff’s action for rectification of a lease of the premises. The defendant
tenants were Neptune Concrete Ltd, the sole effective director of which was a
Mr Stephens.
Andrew Massey
(instructed by Lovell Son & Pitfield, agents for Page Gulliford &
Gregory, of Southampton) appeared on behalf of the appellant landlord; Norman
Rudd (instructed by Park Nelson, agents for Hepherd, Winstanley & Pugh, of
Southampton) represented the respondent tenants.
Giving
judgment, PURCHAS LJ said: This is an appeal by Robert Gavin Kemp, to whom I
shall hereafter refer as ‘the landlord’, from an order of Mr Assistant Recorder
Wigmore, made on February 4 1988 in the Southampton County Court, by which the
assistant recorder dismissed a claim by the landlord for rectification of a
lease of commercial premises. The respondents, Neptune Concrete Ltd, to whom I
shall refer as ‘the tenants’, had as their sole effective director a gentleman
called Stephens. The premises were Unit 4B at Kemp’s Quay Industrial Park,
Bitterne, Southampton. The lease was dated April 30 1984; it is necessary to
refer only to a limited number of the provisions of that lease.
Clause 1,
headed ‘Demise’, provided by subclause (1) for the term, as finally adjusted,
of 12 years, to run from September 29 1983. The final provision of that
subclause read at all material times as follows:
The rent is
subject to review in accordance with the provisions of subclause 5(5)
that should be
subclause 5(8)
on September
29 1986 (which date is hereinafter referred to as ‘the Review date’).
Turning to
clause 5 subclause (8)(a), under the heading ‘Rent Review’, that reads as
follows:
The Rent as
from each Review Date specified in subclause 1(1) until the next Review Date so
specified (or in the case of the last Review Date so specified from that Review
Date until the end of the term) shall be —
and there
follow then a number of subclauses with which it is not necessary to deal in
this judgment.
I do wish,
however, to turn to two subsequent subclauses, all falling within clause 5(8).
Subclause 5(8)(b)(iv) provided for the calculation of the rent to take place in
advance of the review date; subclause (v) provided that in coming to the
calculation the goodwill attaching to the property by reason of the carrying on
there of the tenant’s business should be disregarded, and also any improvement
carried out by the tenant or a predecessor in title of the tenant, either
immediately before or after the grant of the lease, otherwise than in pursuance
of an obligation to the landlord, likewise should be disregarded.
Clause 5(8)(c)
reads as follows:
As soon as
may be after a new Rent has been agreed or determined under subparagraph (a)(i)
or (a)(ii) of this subclause the Landlord and the Tenant shall sign in
duplicate a memorandum in writing (the cost of which shall be borne by the
Tenant) recording the amount of the new rent so agreed or determined.
Those are the
only provisions of this lease to which it is necessary to refer.
The history
against which the parties came together has been described in four stages by Mr
Rudd, who appeared for the tenant. Stage one was in the autumn of 1983, when Mr
Kemp junior, the appellant, who was acting for himself and either his father or
his brother, made the first contact with Mr Stephens and came into discussion
with him about renting the premises. The tenants were occupying premises nearby
for the purposes of their business and it was desired that they should obtain
premises at the landlord’s industrial estate. One such unit was becoming
available — the precise circumstances do not matter — and, as a result of
negotiations, two letters were written, one by Mr Kemp to Mr Stephens
indicating that Mr Kemp was taking steps to make the unit available; that he
would expect a guarantee of the rent for 12 months. These particular terms,
which are important, I quote from the letter of November 9 1983:
The terms of
your new lease will be:
1. Full
repairing and insuring interest for a six year term with three year reviews —
and then there
are other provisions which I need not mention.
That was
answered two days later by a letter over the signature of Mr Stephens
confirming the agreement in these terms:
The terms to
be:
1. Full
repairing and insuring interest for a six year term with three year reviews.
Lest it be
overlooked, a plank in the argument proposed by the appellant on this appeal
depends on the use of the word ‘reviews’ in the plural in the context of those
two letters, albeit that if the term remained at six years there would only be
one such review.
Both parties
then instructed solicitors and Mr Rudd’s second stage was reached. The partner
dealing with the matter on behalf of the landlord was a Mr Yeomans of Page
Gulliford & Gregory of Southampton; the partner dealing with the matter on
behalf of the tenant was a Mr Chalkley of Hepherd Winstanley & Pugh of the
same city.
The first
letter was from Mr Chalkley to Mr Yeomans dated November 16 1983, in which Mr
Chalkley confirms that his firm acts for the proposed tenant in connection with
the proposed lease of the premises, for a term of six years on a full repairing
and insuring basis ‘with a rent review after the third year’.
The next
letter is dated November 21 1983, from Mr Yeomans to Mr Chalkley, thanking the
latter for his letter and enclosing drafts of the contract and lease for the
latter’s approval. That draft contained, in clause 1(1), the phrase ‘six years
from 29th September 1983’, but otherwise clause 5(8)(a) is in the same form and
clause 5(8)(b)(v), omitting the words ‘either immediately before or after the
grant of this lease’, is otherwise the same.
Towards the
end of November, but before the first event of the following stage, to which I
am about to come, the tenant was allowed into possession of the premises. Stage
three starts with another meeting between Mr Kemp and Mr Stephens, again at the
end of November. At that meeting it was agreed to extend the term from six to
12 years. The only other relevant aspect of that meeting is that it is common
ground that nothing was said about any alteration to the provisions in the
existing draft lease dealing with the review of rent.
In stage four
the matter was again referred to solicitors. Mr Chalkley wrote to Mr Yeomans a
letter dated December 21 1983. He refers to other details which are not
relevant, and then, in the last paragraph, he says:
In the
meantime we understand that your client has now agreed to extend the term to
twelve years.
On December 30
there is a letter from Mr Chalkley to Mr Yeomans, under cover of which it is
clear that the draft lease was returned with amendments. It had in fact, at an
earlier stage, been returned with some amendments which are not relevant, but
at this stage it became known as the ‘travelling lease’ and the amendments made
by Mr Chalkley on behalf of the tenants, dated December 29 1983, are, as we
have been informed, endorsed on that lease in red. The red amendments are the
two amendments to which I have already referred in this judgment.
In his letter
of December 30 1983 Mr Chalkley raises a number of questions. The only relevant
one is to be found in para 4 of his letter, which reads:
Our clients
(have) specifically asked us to ensure that the improvements that they are
currently carrying out at the property are disregarded on rent reviews. It is
for this reason that we have amended clause 5(8)(b)(v) on page 24 and we would
propose that the improvements that our client is to carry out at the property
should be specified in the Schedule to the Lease for the avoidance of doubt.
As must already
be clear, there was no amendment to the rent review provision in clause 1(1),
which remained in the form in which it had been proposed by Mr Yeomans on
behalf of the landlord.
Before leaving
this letter, it is convenient to mention that the condition of the unit at the
outset of the occupation by the tenants was that of a warehouse. That commanded
a rent in the region of £1.50 per sq ft. It was part of the understanding and
agreement that substantial work would be done by the tenants in converting the
unit from a warehouse unit to an office unit. A substantial figure has been
given for the cost of that work. It is not important to give the detail; it is
over £10,000 — some £12,000. As an office the rent that it would
region of £4.50 to £5 per sq ft. Thus it can be seen that there was a detriment
to the tenants in a capital sum to be expended at the beginning of the term,
but on the other side a continuing advantage so long as the rent remained
calculated on the basis of a warehouse standard. There were, therefore, these
conflicting interests. The tenants have to amortise their capital outlay, but
on the other hand the landlords had to protect their investment by ensuring
that a businesslike return was received in the form of rent. Those are issues
to which I must return shortly when I deal with the submissions that have been
made by Mr Massey and Mr Rudd for the appellant and respondents respectively. I
pause only at this stage because it is convenient in the context of that letter
and it explains the reference to clause 5(8)(b)(v) in that letter. There were
subsequent passages, to and fro, of the travelling lease. The particular events
occurring on those passages, with one exception, are not relevant. The lease
was amended by Mr Yeomans on January 3 1984; on January 4 1984 it was returned,
having been reamended by Mr Chalkley and there were final reamendments on the
part of the landlords on January 30 1984. It is to be observed that during all
those occasions upon which this lease came under consideration there was never
any suggestion of an alteration of clause 1(1), in which reference was made to
the rent review provision.
I refer now to
one or two letters which were written after the final amendment of the lease.
On February 22 1984 Mr Yeomans wrote to Mr Stephens, still dealing with
outstanding matters in the drafting of the lease — clearly the lease had not
been executed at this stage — and in para 4 of that letter he makes reference
to one matter which may be relevant:
Our client
insists that the costs of all rent review memoranda are borne by his tenants
and paragraph (c) of subclause 5(8) must remain please as drafted — I have
already cited the terms of that subclause.
There was
therefore an argument with regard to the cost of the memoranda recording the
result of the review. Mr Massey relies upon the word ‘memoranda’, in the
plural, in support of his contentions that although, on a six-year period,
there was clearly only one rent review, it was a review on a three-yearly
basis, and that therefore when the period was extended to 12 years there would
be more than one rent review: thus, submits Mr Massey, the use of the word
‘memoranda’ by Mr Yeomans in his letter of February 22 1984. On the other hand,
I feel constrained to comment that para 4 refers to the system of operation of
their business by the landlords and it is not necessary that the memoranda are
all related to this particular tenant.
On February 29
1984 Mr Chalkley replied to the point in para 4 of the letter of February 22 in
these terms:
Our client
sees no reason why he should be responsible for the cost of endorsing the
memoranda on the Rent Reviews. In our experience it is common that this cost
should be borne equally between the parties and we see no reason why this lease
should be different.
Mr Massey
relies on that as an indication that Mr Chalkley was himself considering more
than one rent review, and if the terminology there is to be strictly relied
upon, there is force in his submission.
Finally, on
March 5 Mr Yeomans replied to the effect that a compromise had been agreed. The
compromise was that the terms of para (c) of subclause 5(8) was to remain
unamended, as indeed it did, but there was a collateral letter provided, giving
a position of special consideration to the tenants in this particular case. I
refer to those letters because of the reliance placed upon them by Mr Massey
that before this lease was executed both parties had in contemplation 12 years
with three-yearly reviews. Notwithstanding that protracted correspondence,
however, neither party refers to clause 1(1) in any way at all.
Mr Yeomans did
not notice the mistake — for mistake he subsequently realised it was — in
permitting his client to execute the deed, until some time in 1987, as appears
from a letter written by him on March 13 of that year. It is not necessary for
me to rehearse the substance of that letter; it merely invites the tenants to
amend the lease.
In a letter
exactly a month later, Mr Chalkley roundly rejected the contention that there
was a mutual mistake in the lease, but nevertheless he offered a compromise
solution which it is not necessary to rehearse because it was equally promptly
rejected by Mr Yeomans. So the matter came to court.
The
particulars of claim are dated October 2 1987. It is necessary to refer only to
para 7 of that pleading, which reads as follows:
The Plaintiff
avers that Clause 1(1) did not accurately embody the intention of the parties
in that the same was not amended in the travelling draft lease following the
agreement to extend the term of the lease from 6 years to 12 years as set out
in paragraph 4 hereof. Such intention was that there would be rent reviews
every 3 years and that the subclause was numbered 5(8) and not 5(5).
I have already
referred to that error.
Alternatively
the plaintiff avers that the said Stephens well knew that the Plaintiff’s
Solicitors had erred to the Defendant’s benefit or contrary to the Plaintiff’s
interests with regard to the provision for Rent Reviews in failing to amend the
said clause.
Mr Rudd has
drawn the attention of the court to the fact that in that pleading that
averment is: ‘that the said Stephens well knew’, and no mention is made of Mr
Chalkley.
The defence,
if I may be forgiven for dealing with it shortly, really put the matter in
issue.
The judgment
of the assistant recorder discloses eight findings of fact which are germane to
this appeal. For convenience I set them out: The first is that at the first
stage ‘the defendant’s solicitors regarded the lease as having a single rent
review’.
At some stage,
after a conversation between Mr Kemp and Mr Stephens, when Mr Stephens had
asked for an extension of the term from six to 12 years, it was agreed.
2 Mr Yeomans gave evidence, and I accept it
entirely. Had he realised, he would have amended the travelling draft to
provide for three-yearly reviews. Mr Kemp senior and Mr Kemp junior confirmed
that they would not have entered into the lease without there being
three-yearly reviews.
3 However, it was not disputed that in
conversation between Mr Stephens and Mr Kemp junior to which I have referred
there was no mention of rent reviews.
4 Mr Stephens said that as far as he was
concerned, it was not a mistake. He said: ‘if you don’t discuss something it is
taken as read’. I am quite satisfied that he meant that if there were no rent
reviews mentioned, none were agreed. Lawyers probably take a different view of
that. Lawyers would have taken the view that if nothing was said, three-yearly
reviews would have been included.
5 Mr Yeomans did not notice, and I have no
reason to suppose that Mr Chalkley noticed —
that is, the
omission, if it be an omission, to amend the rent review provision.
6 I am satisfied that at all times everybody on
the plaintiff’s side clearly thought that the lease would show three-yearly
reviews.
7 I am satisfied that Mr Stephens personally
was not aware of any mistake. I accept that he left the matter to his
solicitor.
8 His solicitor (Mr Chalkley) I think, must
have been clearly aware that the plaintiffs were under the impression that
there was more than one rent review. If Chalkley had been aware that there was
only one rent review he could have said something about it.
Those, as I see
it, are the material findings of fact in the judgment.
The assistant
recorder applied the authority of Thomas Bates & Son Ltd v Wyndham’s
(Lingerie) Ltd [1981] 1 WLR 505 and came to the conclusion that knowledge
by Chalkley was not sufficient to establish that Stephens took an unfair
advantage; I read the part of his judgment to that effect:
Am I to put
together Mr Stephens’ knowledge, and what I take to be Mr Chalkley’s
knowledge? As a general principle an
agent’s knowledge is to be imputed to his principal. As has to be the knowledge
which gives rise to unfair conduct. Can I say that Mr Chalkley’s knowledge
acted on Mr Stephens’ conscience?
I have come
to the conclusion that knowledge of the agent cannot be imputed to the
principal that far. Stephens cannot be said to be blameworthy. I therefore,
come to the conclusion, rather reluctantly, that this claim fails. I cannot
force such an agreement on Mr Stephens.
Mr Massey now
appeals to this court on two main bases. First, he submits that the assistant
recorder was wrong on his finding of fact in failing to hold that the
defendants were estopped from resisting an application for rectification
because Mr Stephens did not know of Mr Yeoman’s mistake when submitting the
draft lease, although Mr Chalkley did. Second, he submits that the assistant
recorder should, on the evidence, have been driven to the conclusion that Mr
Stephens knew that Mr Kemp intended that there should be three-yearly rent
reviews. Mr Massey relied strongly on the fact that Mr Chalkley had not been
called and, I hope I detect correctly, was inviting this court to take an
adverse view of that failure of Mr Chalkley to give evidence. Mr Massey referred
to the occasions when Mr Chalkley’s letters referred to his taking instructions
from Mr Stephens and also to the reference to the plurality of rent reviews in
the letters, the majority of which I hope I have already mentioned in this
judgment.
Mr Rudd’s main
contention was that there was no precedent agreement between the parties to
vary the rent review provision;
to which I shall shortly come, I think Mr Rudd, with his engaging frankness,
accepted that he could see difficulties in that first submission.
Mr Rudd had
also filed a respondent’s notice. The main point argued on that notice was that
there was no evidence to support the assistant recorder’s finding as to Mr
Chalkley’s knowledge. But short of the main contention Mr Rudd did submit that,
under the authorities, the necessary criteria which emerged from those
authorities were not satisfied and that the assistant recorder was correct in
his conclusion.
It is
necessary now to refer very shortly to those authorities. The first one is A
Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555,
a case decided by the late Pennycuick J; I refer only to one passage, on p 570.
That case dealt with rectification. The principle that emerges, however, is not
dependent upon the facts. I read from p 570:
The second
ground rests upon the principle that a party is entitled to rectification of a
contract upon proof that he believed a particular term to be included in the
contract, and that the other party concluded the contract with the omission or
a variation of that term in the knowledge that the first party believed the
term to be included.
Then
Pennycuick J refers to the submissions of counsel, and he goes on to quote from
the leading textbook, Snell on Equity 25th ed (1960), p 569 as follows:
The principle
is stated in Snell on Equity . . . as follows: ‘by what appears to be a species
of equitable estoppel, if one party to a transaction knows that the instrument
contains a mistake in his favour but does nothing to correct it, he (and those
claiming under him) will be precluded from resisting rectification on the
ground that the mistake is unilateral and not common’.
The next
authority is Riverlate Properties Ltd v Paul [1975] Ch 133. That
was a decision of this court, whose judgment was delivered by Russell LJ. I
wish to refer only to one short passage in that judgment which refers to the
judgment of Pennycuick J in the case of A Roberts & Co Ltd v Leicestershire
County Council (supra) at p 140:
For these
reasons, it appears to us that there is no justification, assuming a mistake on
the side of the lessor, for rectification either on the ground of a common
mistake, or on the ground of knowledge on the lessee’s side at the time of execution
of the contract or the lease that the lessor in putting forward the lease in
its particular form was making a mistake. It may be that the original
conception of reformation of an instrument by rectification was based solely
upon common mistake: but certainly in these days rectification may be based
upon such knowledge on the part of the lessee: see, for example, A Roberts
& Co Ltd v Leicestershire County Council . . . Whether there was
in any particular case knowledge of the intention and mistake of the other
party must be a question of fact to be decided upon the evidence. Basically it
appears to us that it must be such as to involve the lessee in a degree of
sharp practice.
The last
report to which I wish to refer is that of Thomas Bates & Son Ltd v Wyndham’s
(Lingerie) Ltd, upon which the assistant recorder based his judgment in a
reference already cited. This case dealt with rent review clauses, but with the
particular omission in a new lease of a provision for reference to arbitration
or determination of the rent in the event of failure of the parties to agree.
The leading judgment was given by Buckley LJ and I wish to refer, at p 515, to
a passage from that judgment, after Buckley LJ had referred to the two cases to
which I have just referred. He says this:
In that case
that is, the Riverlate
Properties case
the lessee
against whom the lessor sought to rectify a lease was held to have had no such
knowledge as would have brought the doctrine into play. The reference to ‘sharp
practice’ may thus be said to have been an obiter dictum. Undoubtedly I think
that in any such case the conduct of the defendant must be such as to make it
inequitable that he should be allowed to object to the rectification of the
document. If this necessarily implies some measure of ‘sharp practice’, so be
it, but for my part I think that the doctrine is one which depends more upon
the equity of the position. The graver the character of the conduct involved no
doubt the heavier the burden of proof may be; but, in my view, the conduct must
be such as to affect the conscience of the party who has suppressed the fact
that he has recognised the presence of a mistake.
Applying these
authorities to the circumstances with which this appeal is concerned, it is
clear that, depending upon the facts of the individual case, rectification or
other appropriate equitable relief can be obtained without the traditional
ingredients of a claim for rectification being established; that is, a common
intention of the parties precedent to the execution of the deed, which is not
translated into the executed instrument. I cannot therefore accept Mr Rudd’s
first submission.
However,
before such relief can be obtained in the context of this appeal, three
criteria must in my judgment be established. First, there must be a mistake by
the party seeking relief in executing the deed which does not translate that
party’s subjective intention at the time of the execution of the deed. I
distinguish this from an intention which the party would have formed if either
he or she had been properly advised, or had even applied their minds to the
problem. In those circumstances it is clear that, from the passages I have
already cited, the moment of time at which the subjective intention of the
party seeking relief must be determined is at, or immediately before, executing
the deed. Thus, no ex post facto intention can be admitted in such
circumstances.
Second, there
has been no mistake by the party against whom relief is being sought, but who
intends the result achieved by the deed, or has merely accepted that deed by
execution.
Third, there
must be established awareness on the part of the party against whom relief is
being sought of the other party’s mistake at the time of executing the deed;
and further, that in so standing back and allowing the other party to execute
the deed, the conduct of the party against whom relief is sought was
unconscionable behaviour on his part in inducing the party who is seeking
rectification to execute the deed, or in standing by and allowing him so to
execute it. In my judgment, equity will intervene only if all these three
criteria are satisfied.
Mr Rudd
submitted that the assistant recorder’s findings fell short of these criteria
in a number of respects: first, there was no finding that Mr Kemp or Mr Yeomans
had at any time considered the question of adjusting the rent review provisions
which had been proffered in the original draft lease: therefore there was no
mistake in the drafting of the lease; there may have been an error in negotiation
which they realised had occurred ex post facto.
Second, that
the assistant recorder’s findings about Mr Chalkley’s state of mind at the
material time were ambiguous; Mr Rudd relied upon the two findings already set
out in this judgment at nos 5 and 8.
Third, the
finding that Mr Stephens knew of, and relied upon, the longer term with one
review only after three years, and intended to use this as a means to amortise
the capital expenditure was, within the context of unconscionable conduct,
justifiable and would negative any suggestion that he had behaved in such a way
as to attract equitable relief against him.
Mr Massey, on
the other hand, relied strongly on finding no 8 and submitted that the
knowledge which the assistant recorder appears to have determined as being that
of Mr Chalkley should itself be held against Mr Stephens. Mr Massey referred us
to Article 102 in the 15th edition of Bowstead on Agency. This deals
with the proposition that notice in the form of formal notice to an agent is
effective as against a principal if the receipt of that notice is within the
scope of his actual or apparent authority; and second, that:
When any fact
or circumstance, material to any transaction, business or matters in respect of
which an agent is employed, comes to his knowledge in the course of such
employment and is of such a nature that it is his duty to communicate it to his
principal, the principal is deemed to have notice thereof as from the time when
he would have received such notice if the agent had performed his duty . . .
Thus, Mr Massey
submitted that in the conduct of his affairs Mr Stephens had delegated these
matters to Mr Chalkley and was thereby affected with any knowledge that Mr
Chalkley gained of a mistake at the time of the execution of the deed, which
would render it inequitable that the landlord should be held to the terms of
the lease.
Mr Massey
referred to the case of Strover v Harrington [1988] 1 All ER 769.
That was a judgment of Sir Nicolas Browne-Wilkinson V-C in a case involving an
action of a different nature, but which did involve a notice of a state of
affairs being communicated to an agent and being held against the principal.
The passage which deals with the general principle appears at p 779J, and reads
as follows:
In my
judgment, similar principles apply in a case such as the present. In this, as
in all other normal conveyancing transactions, after there has been a subject
to contract agreement the parties hand the matter over to their solicitors who
become the normal channel for communication between vendor and purchaser in all
matters relating to that transaction. In so doing, in my judgment, the parties
impliedly give actual authority to those solicitors to receive on their behalf
all relevant information from the other party relating to that transaction. The
solicitors are under an obligation to communicate that relevant information to
their own clients. At the very least, the solicitors
Upon that
authority Mr Massey submits that the assistant recorder was wrong in the
passage in his judgment to which I have already referred in deciding that Mr
Stephens was not affected by any knowledge that Mr Chalkley may have had.
With respect
to Mr Massey’s able argument, I cannot accept that submission. It is necessary,
first, to see what the state of affairs was at the material time. Dealing with
the third criterion, can it be said that Mr Chalkley knew that Mr Yeomans had
made a mistake on each occasion when he returned the travelling draft without
correcting the rent review provision and that he, Mr Yeomans, had the
subjective intention sufficient to satisfy the first criterion? For my part, in view of the findings,
numbered 2, 4 and 5 already set out, I am far from being satisfied that the
assistant recorder was finding that at the time of the execution of the deed Mr
Chalkley was standing back knowingly and deliberately allowing this repeated
error on the part of Mr Yeomans. Even if that were the case — and I am not satisfied
that it was — then the question must be asked: Was he under a duty to translate
his opinion to Mr Stephens? Even if he
were under such a duty, it must be remembered that on the findings of the
assistant recorder Mr Stephens’ attitude was a deliberate one; he was looking
to one rent review and the evidence that he gave to the assistant recorder was
accepted by him and, provided that that was a genuine reaction on his part, for
my part I would be far from thinking that there were any grounds upon which there
should be intervention by equity, or on equitable principles, provided the
conduct of Mr Stephens himself was genuine and not unconscionable. On the
findings of the assistant recorder himself, these, as Mr Rudd has submitted,
fall well short of the position whereby it can be said that the behaviour of Mr
Stephens, even if he were imputed with the knowledge of Mr Chalkley, would have
been unconscionable, bearing in mind his own approach.
Mr Massey
mounted a strong argument on what might be described as commercial grounds. He
referred to the fact that if the reduced rent were permitted to continue, the
net benefit to the tenant would be immense. With respect to that argument, I am
not impressed by it, in view of the fact that there was at an early stage, namely
at the end of the first three years, provision for a rent review, by which time
all the capital works that were relevant would have been done, and the
expenditure and amortisation of that capital expense could be taken into
account against a firm period of nine years in the future, without a rent
review. In order to mount an argument on what might be described as a
commercial basis in the context of rectification, for my part I would need
extremely strong evidence to establish that no honest or reasonable businessman
would contemplate that kind of bargain. In this case again, in my judgment, the
facts fall well short of that.
In those
circumstances I have come to the conclusion that the first criterion for
rectification, namely that there was in fact a mistake made by the party
seeking relief when executing the deed, has not been satisfied. It may be that
an ex post facto intention might well have been formed, or might well
have come to pass, had there been proper advice tendered to the landlord. But
on the evidence in this case, accepted on both sides, there was simply no
discussion as to that. I bear in mind Mr Massey’s attractive submission that
there was, as it were, in the background to all the negotiations the concept of
‘a three-yearly review’. I am not impressed by that approach. Here was a lease
proffered by the landlord; it was repeatedly reviewed and reconsidered in the
context of the very clauses, namely 5(8)(a)(b) and (c), which would be drawing
the attention of the parties to rent and rent review; yet no suggestion was
made of adjusting clause 1(1). So for my part I would find that the first
criterion is not satisfied by the appellant in this case and neither, for that
matter, is the third criterion, whether or not Mr Chalkley had such a state of
mind at the material time as might appear from a reading of finding no 8 in the
context of finding no 5. I would not be happy to rely on those findings as
justifying the third criterion necessary for equitable relief in these
circumstances.
It is
therefore not necessary to consider Mr Rudd’s submissions in support of his
cross-notice. The only reference in the evidence to the question of rent review
appears in the cross-examination of Mr Yeomans, who said that had he been in
the position of the other side he would have put the question in a letter.
There is also evidence, if the assistant recorder had been so minded, from the
terminology of the letters to which I have referred, making reference to ‘rent
reviews’ in the plural.
For my part, I
would not be content to construct an argument on a detailed analysis of the
words used in the context of exchange of letters in those circumstances. I do
not accept Mr Massey’s submission that the reference to ‘rent reviews’ in the
plural in the letters after the execution of the deed was in any way
misleading; at its highest it would be inadvertence and in any event as a means
of determining the intentions of the parties at the time of the execution of
the deed, I do not think that any weight can be placed upon a critical and fine
analysis of the wording of those letters.
For all those
reasons, I would dismiss this appeal.
SIR DENIS
BUCKLEY agreed and did not add anything.
The appeal
was dismissed with costs.
