Landlord and tenant — Construction of rent review clause — Problems arising from ‘equivocal’ letter, headed ‘without prejudice’, from landlords’ agents to tenant — Whether ‘without prejudice’ heading prevented letter from being considered at all — Whether, if it could be considered, it constituted a ‘trigger’ notice for the purpose of the rent review clause — Whether, if it was a ‘trigger’ notice, it was effective despite failure to comply with a time-limit in the review clause — Whether, if it was ineffective, a properly framed and timed ‘trigger’ notice subsequently served was effective to initiate the review — Held (1) as no dispute or negotiation was in progress when the ‘without prejudice’ letter was served, its contents were not protected from disclosure — (2) The letter in question was equivocal and did not constitute a ‘trigger’ notice under the review clause — (3) Even if it had been written in unequivocal terms, it would still have been ineffective because it failed to comply with a time-limit, which was of the essence, in the relevant portion of the clause — (4) The subsequent notice, which complied with the time-limit and was properly framed, was effective to bring the review into operation, although the increase of rent resulting from it would necessarily begin from a later date
This was an
originating summons by which the plaintiffs, Norwich Union Life Insurance
Society, sought the court’s determination of questions arising from a lease of
which the plaintiffs were the lessors and the defendants, Tony Waller Ltd, were
the lessees by assignment.
Derek Wood QC
and Paul Morgan (instructed by Andrew J Hawker, Norwich Union Insurance Group)
appeared on behalf of the plaintiffs; Robert C Pryor QC and Edward A Cole
(instructed by Brignall, White & Orchard, of Knebworth, Herts) represented
the defendants.
Giving
judgment, HARMAN J said: By an originating summons issued on September 12 1983
the Norwich Union Life Insurance Society seek against the defendant, Tony
Waller Ltd, determination of two questions. The first is whether the plaintiffs
have given to the defendant a valid notice in writing under a lease, and, if
so, when was it given and on what date is it effective, and the second question
is whether time is of the essence of the provisions of clause 2(c) of that
lease.
The lease was
granted on July 29 1969 between the Norwich Union Life Insurance Society as
lessors and a Mr Solomons as lessee with some sureties. It was for a term of 21
years from September 29 1968 at a rent of £1,600 per annum exclusive. The
defendant, Tony Waller Ltd, is the assignee of the term, although the process
of assignment has, quite rightly, not been explained to me nor is it put in
evidence before the court.
The matter
turns upon a rent review clause in this lease. The lease, as I have said, was
for a term of 21 years, and the reddendum was ‘YIELDING AND PAYING unto the
Landlord yearly during the said term’, etc, ‘a yearly rent during the first
fourteen years of the term of £1,600’, called ‘the initial market rent’, ‘and
during the remaining years the initial market rent or such increased rent as
may be payable in accordance with the provisions of Clause 2 hereof’. There are
then gale dates and so on fixed and other details set out.
The landlords,
for whom Mr Wood has appeared, argues that the matter really turns into three
questions or issues: (a) what, said Mr Wood, is the legal effect of documents
sent by the landlord to the tenants?
(b) Are the provisions of the lease such that
time is of the essence of any rent review procedure?
(c) If a proper notice was served and time was of
the essence, are the landlords in the events which have happened entitled to
serve a further rent review notice?
The terms of
clause 2 of the lease (it was common ground between Mr Wood and Mr Pryor, who
appeared for the tenant) are taken from a well-known precedent book and are
very closely in accord with that precedent. The evidence in the matter is of
the slightest. The actual affidavits have hardly been referred to at all. The
matter turns, really, entirely upon the lease itself (which is an exhibit), a
short bundle of correspondence (AH 2) and a few further letters produced by the
defendant. Effectively the matter is purely one of construction.
The rent
review clause 2 is broken down into four subclauses (a) to (d). It would be
tedious to read them out. Their tenor will be obvious to anybody who has the
facts of the case before him. But in essence the important averments in the
lease can be extracted as follows:
The Landlord
shall be entitled by notice in writing given to the Tenant at any time after
the commencement of the fourteenth year of the term hereby granted to call for
review of the initial market rent payable and if the then current market rent
(as hereinafter defined) at the end of such fourteenth year or at the date of
the Landlord’s notice (if later) is greater than the initial market rent then
as from the end of such fourteenth year or as from the quarter day next
following the giving of such notice whichever shall be the later the initial
market rent shall be increased to the then current market rent,
with a
so-called proviso effectively saying upwards only.
(b) defines the current market rent at the date
of review, otherwise its terms have not been and did not need to be considered
in any detail. The relevance of ‘at the date of review’ is only that it is
plainly contemplated by this structure that the landlord’s notice
the quarter-day following the landlord’s notice, and this form is not therefore
one which involves substantial retrospection or back-dating in its procedure.
Subclause (c)
of clause 2 provides the machinery for working out the review:
Such revision
it is called
as aforesaid
shall be made by the landlord and the tenant in collaboration, but, if no
agreement shall have been reached between the parties within three months after
the date of the landlord’s notice calling for such review, the question
and I skip
over several lines
shall, if the
landlord shall so require, by notice in writing given to the tenant within
three months thereafter but not otherwise be referred to the decision of a
surveyor
in brief, as an
expert appointed by the RICS.
(d) is the machinery for endorsing a memorandum
of the reviewed rent on the lease.
The matter was
handed to well-known West End agents, Messrs Edward Erdman, who proceeded to
write a letter in November 1981, saying that they had been instructed in
respect of the forthcoming rent review which was due on September 29 1982 and
asking for inspection of the premises. The first paragraph is somewhat
misleading, since no rent review was due on September 29 1982 at the time the
letter was written, since there was no rent review machinery triggered by any
trigger notice.
That letter
was followed, some eight months or so later, by a letter of August 4 1982. Like
the first, this is somewhat inapt. I will refer to the whole of it, since a
great deal of argument has turned upon it. It gives the young lady in Messrs
Edward Erdman’s reference at the top, and dates it ‘August 4 1982’, and marks
it ‘PRIVATE & CONFIDENTIAL RECORDED DELIVERY’, and addresses it to ‘T
Waller Esq, Messrs Tony Waller Shoes’ — not, it is to be noted, to the tenant by
its proper title at all — gives the address, and then puts the words
Without
Prejudice.
Dear Sir, 19
Fawkon Walk, Hoddesdon.
We have been
instructed by your landlords, the Norwich Union Insurance Group to negotiate
with you in connection with the rent review contained in your lease which
becomes operative as at September 29 1982.
It is our
clients proposal to increase the rental to £11,500 per annum exclusive as from
this date.
We trust that
this increase is acceptable to you and would be obliged if when replying you
would enclose the name and address of the solicitors who will be acting on your
behalf.
Yours
faithfully.
What is anyone
to make of that document? It is headed
‘Without prejudice’, and any lawyer meeting a letter like that at once starts
back and says ‘I cannot look at this’, because it is claimed to be privileged.
I have been urged to look at it, although privilege is claimed for it, in order
to determine whether the label ‘Without prejudice’ can appropriately be
attached to it. If it is appropriately attached to it, then the letter is
inadmissible and cannot be referred to in any matters proceeding between these
two parties.
I was referred
to Halsbury’s Laws, vol 17, which is of no assistance at all, and to a
series of cases, Walker v Wilsher (1889) 23 QBD 335, Re River
Steamer Co (1871) 6 Ch App 822 and Re Weston and Thomas’s Contract
[1907] Ch 244. None of these seems to me to really bear upon the question,
which, as I rather pressed Mr Wood to agree and eventually he did agree, was:
is there here a position where ‘Without prejudice’ can properly be used as
invoking the privilege which goes with the phrase? It seems to me that the decision which gives
one the most help on the matter is a decision cited by Mr Pryor, Re Daintrey
[1893] 2 QB 116, which was a bankruptcy case and a decision of the Queen’s
Bench Division in bankruptcy which in those days took bankruptcy appeals. It
shows the judgment of the court given by Vaughan Williams J (as he then was) on
a document headed ‘Without prejudice’, and there is set out, on p 119 of the
judgment, what in the opinion of that court the rule was:
In our
opinion the rule which excludes documents marked ‘without prejudice’ has no
application unless some person is in dispute or negotiation with another, and
terms are offered for the settlement of the dispute or negotiation, and . . .
the judge must necessarily be entitled to look at the document in order to
determine whether the conditions, under which alone the rule applies, exist.
The rule is, as
Mr Wood, in my view, absolutely correctly submitted, a rule of public policy
based upon the proposition that it is better to settle than to fight — I
paraphrase Mr Wood, but I think that is not unfair as a way of putting what he
was submitting. It is, in my judgment, an accurate description of the purpose
of the rule, and it also, in my judgment, illuminates the occasions on which
the rule arises, and they are entirely in accordance with Vaughan Williams J’s
formulation. The rule has no application unless some person is in dispute or
negotiation with another. Here, the letter of August 4 1982 was written, not
quite out of the blue, because there had been that rather inept inspection
letter written eight months earlier, but written at a time when there was, so
far as anything before me goes, no view, position, attitude or anything else
emanating from or evidenced by the tenant. The matter at that stage was, in my
view, entirely an opening shot, and an opening shot in a situation where no war
had been declared and no dispute had arisen. Indeed ‘shot’ may be an inapt word
to apply to it. As it seems to me, this letter was not written in the course of
negotiation, which must imply that each side has expressed a view and that a modus
vivendi between them is being proposed, nor had a dispute been constituted,
whether by litigation, arbitration or mere verbal or oral threats over the back
fence of two neighbouring properties. It seems to me beyond any question that
this rubric ‘Without prejudice’ can only be effectively used where one has an
extant disagreement — dispute, issue, call it what you will — or extant
negotiations with both sides having set up their own position in them. As it
seems to me, this letter, being the initiating letter, could not appropriately
be so headed, and I therefore hold against Mr Wood’s first argument. In my view
it is not governed by the rubric attached to it ‘Without prejudice’, which
words remain part of it and are material as part of its writing for the purpose
of understanding what it really says but which do not have the effect of
validly claiming privilege.
The letter is,
as I have already observed, inapt. It refers to ‘a rent review contained in
your lease which becomes operative’, as if the rent review was already
triggered by something in the lease. That is of course a complete
misunderstanding by the young woman who wrote it. There was a need, under this
well-known precedent, to fire a trigger notice. The question which is raised by
Mr Pryor is whether this is not in fact itself a trigger notice. It is quite
clear that the tenant took some steps in response to it, because the next
letter in the bundle is of August 23 by surveyors acting for the tenant,
rejecting the figure of £11,500. In my judgment, the figure is not the only
important part of the letter and one cannot, as was suggested by Mr Pryor at
one point, regard the letter as severable into parts and to regard the first
part of it as an attempt to invoke clause 2(a) and the second part of it as an
attempt to settle the dispute raised by that invocation to which the term
‘Without prejudice’ could properly be applied. It seems to me quite impossible
to separate this letter out into parts. Its whole constitution is of one
continuous thought, and, whether it be a trigger notice or whether it be no
such thing, it is not severable into separate bits.
In my view,
the document contains no reference whatever to clause 2(a), contains no
reference to the procedures which would normally be followed under a trigger
notice referring to the definition of ‘current market rent’ in the lease and
going on to deal with the way in which it should be dealt with under clause
2(c). It does not ask for the names of surveyors to be appointed by the tenant,
as is envisaged by the third line of clause 2(c), and indeed the letter is
really that written by a muddle-headed person not truly appreciating what they
were doing at all.
I have been
much impressed by Mr Pryor’s argument that this document was in truth
equivocal. It is common ground between the parties that no specific form has to
be adopted in order to constitute a trigger notice. Mr Wood’s submission was
that it should be a clear and unequivocal notice giving plain intimation to
anyone receiving it of what it was. Certainly, that is, in my view, the
desirable state of all such notices. But it being common ground that no special
form of words is necessary — no magic formula is involved — the question is:
trying to read it as a whole, looking at its confused terminology, its
meaningless heading ‘Without prejudice’ and its general ineptitude, is this a
document which a tenant looking at it would think was a trigger notice? If so, Mr Pryor would say, the fact that the
landlord has chosen to use inept agents who write equivocal notices does not
entitle a landlord to disown his own notices and say they are not what they
might reasonably be thought to have been. For that purpose, both Mr Pryor and
Mr Wood referred to the decision
(1983) 268 ESTATES GAZETTE 362, where Lawton LJ summed up his judgment on a
notice headed ‘Subject to contract’ with the proposition that
Since there
is an argument both ways about this matter
that is to
say, the meaning of the notice
and as, in my
judgment, it is an argument which is reasonable on both sides, it seems to me
that it cannot be said that the tenants on receiving this letter would
necessarily and reasonably have inferred it was an effective trigger notice for
the purpose of the lease. There is doubt about its meaning, and as there is
doubt it seems to me the letter was ineffective for the purpose of the rent
review clause in the lease.
Mr Pryor urges
that that is not an applicable set of words to apply to this garbled document
of August 4, because, he says, if it is equivocal (as it undoubtedly is) and it
could reasonably have been thought to have been a trigger notice, if the tenant
so receiving it acted upon it, the landlord cannot go back, as it were, and
deny his own document. In my view, that, attractive as it is, is wrong. In my
view, in the end one has to construe the letter, and this letter is far more
equivocal and obscure than that contained in the notice referred to in Shirlcar
Properties. Further, it seems to me that the principle of the decision in Shirlcar
Properties is that, although there are no magic words or magic formulae to
be required before a rent review clause is invoked, yet the document does have
to be clear and plain to the recipient. This document, in my view, would not
have been plain to any recipient. I have stared at it now for a day and a half
and I still do not know what it means. I find it bemusingly confused in its
whole construction and attitudes. In my view, the only proper conclusion one
can come to upon this document is that, although it is admissible and I am
against Mr Wood on his ‘Without prejudice’ argument of privilege, yet I
conclude that, upon reading the whole, it is wholly ineffective to act as a
trigger notice.
If I were
wrong on that, it would be necessary to go on to consider what happened under
it. If the notice were an effective notice because, equivocal as it is, it is
yet enough to entitle the tenant to accept it as being a trigger notice, it is
plain beyond any question that the machinery envisaged by clause 2(c) of the
lease was not complied with. Clause 2(c), is, as I have said, in the well-known
precedent form, and it required, after the trigger notice, a notice of
reference to the expert. It is required by a formula, which I have already read
and I shall repeat, that the question ‘shall, if the landlord shall so require,
by notice in writing given to the tenant within three months thereafter but not
otherwise be referred to the decision of a surveyor’. As it seems to me, the
words ‘within three months thereafter but not otherwise’ are only consistent
with that time-limit being strictly and precisely adhered to. It is not, to my
mind, so much a question of the ordinary rules about time being of the essence
in so many contracts affecting the sale of or dealing with land, but of the
particular construction of this special clause in its own true reading.
Mr Wood argued
gallantly that the words ‘but not otherwise’ cover not only the time phrase but
also the requirement that the notice shall be in writing and shall be given to
the tenant. He said that those varying matters were all comprehended in the
words ‘but not otherwise’. So, I agree, they are. But equally so each of them
separately, to my mind, is. And I would have no hesitation or doubt in
concluding that the force of those emphatic, unequivocal and clear words
‘within three months thereafter but not otherwise’ amount to an express
stipulation between the parties that that time-limit must be complied with.
In fact, that
conclusion which I would reach upon the construction of the document accords
precisely and exactly with the conclusion reached by the Vice-Chancellor upon
the self-same clause from the self-same precedent in a case called Drebbond
Ltd v Horsham District Council (1978) 37 P & CR 237.* The Vice-Chancellor held that time, as he put
it, was made of the essence by this phrase in this very self-same clause. In
such circumstances it would be my duty to follow the Vice-Chancellor unless
convinced beyond any peradventure that his decision must be wrong. Far from so
feeling, I would independently of that decision have reached precisely the same
conclusion myself and I am comforted and gratified to find that really supports
the conclusion which I reached independently.
*Editor’s
note: Also reported at (1978) 246 EG 1013, [1978] 1 EGLR 96.
The Drebbond
decision has been before the Court of Appeal in a case called Touche Ross
& Co v Secretary of State for the Environment (1982) 265 EG 982,
[1983] 1 EGLR 123, where the matter was mentioned by Dillon LJ in his judgment
allowing the appeal on that case, but the lord justice is very careful to make
no observations at all about the correctness or otherwise of the Drebbond
case. He distinguishes it from the formula which was before the court in the Touche
Ross & Co case and he says that he finds nothing in Drebbond
which compels him to the conclusion that the different words made the
time-limit in that case obligatory and of the essence of the contract. He says
that there is no magical formula and, given such, it is possible that small
differences of language may lead in some cases to opposite conclusions. Upon that
basis, it seems to me plain beyond a peradventure that the Court of Appeal,
having considered the very matter and having expressly and specifically not
made any reflections upon the Drebbond decision, the Drebbond
decision stands and is unaffected by the decision in Touche Ross upon differing
words.
Thus, in my
view, this clause 2(c) which lays down machinery is a clause requiring specific
compliance with its time-limits and, those time-limits not being complied with,
had I been of the view that the letter of August 4 was a valid trigger notice I
would hold that it had now come to no effect by reason of the failure to comply
with the limits of clause 2(c).
However, I
have, as I have said, come to the conclusion that the letter of August 4 is a
thing writ in water and of no effect at all. Upon that basis there is therefore
no difficulty whatever in the landlord now invoking clause 2(a) and saying that
‘I am entitled by notice in writing at any time after the commencement of the
14th year to call for a review. I now call for a review’. Fortunately, at last
the matter was handed to the lawyers and a sensible letter with a proper
trigger notice was drafted by them and sent on June 20 1983, which will
obviously operate from Midsummer Day 1983. It is a relief to come to a document
that is decently drafted in this case. The result is that there is now a
review, which will operate from that midsummer quarter-day last year and the
rent will be reviewed as at that date and will be payable as from that date.
The landlord by its failure, as I hold, to serve a proper notice, and, further
and in any event by its failure to take the expert-invoking steps after serving
such notice as it did, will have lost some three quarters of increased rent,
being the rents due at Michaelmas 1982, Christmas 1982 and Easter 1983. That
seems to me an entirely satisfactory and appropriate commercial result to
reach, and it in a sense reinforces my view that clause 2(c) in this precedent
does lay down strict time-limits which must be complied with, because, as it
seems to me, the whole matter, given the reference in 2(a) to notice in writing
at any time but which notice will only operate from the quarter-day following
if later than the end of the 14th year, it is a reasonable commercial pattern
for that result to follow. The tenant is not penalised by the landlord’s delay.
The landlord suffers for his own delay, if indeed ‘suffering’ is the right
word, because of course the rent when reviewed may be reviewed to a higher
level because rent levels may have changed between Michaelmas 1982 and
midsummer 1983, but that seems to me all perfectly natural and entirely
contemplated by the form of clause 2 and its four subclauses of this lease.
Had I been of
the view that the letter of August 4 was a valid notice, would that entitle the
tenant to say: ‘You have served a notice. You failed to proceed diligently
under 2(c). You are out of time. That is an end of it’? In my view, it would not. This may be an obiter
conclusion upon my part, but, as it seems to me, this whole rent review clause,
from beginning to end, is contemplating a review of the initial market rent
which is not a complete act until the current market rent has been defined by
the surveyor to whom it is referred, if indeed it is not agreed earlier. It was
postulated in argument, what would happen if a landlord served an undoubtedly
valid trigger notice, served an undoubtedly in time notice of reference, a
surveyor was appointed and proceeded to embark as an expert on his assessment
of the rent, and then, through some ordinary vicissitude of life (which is all
too present before all of us), was killed or died? The tenant’s argument, as it seems to me,
that the landlord having given a valid notice and having embarked upon the
review cannot further give another notice, would lead to a result of a most
bizarre and uncommercial kind which I cannot believe would be required by
anything except the clearest possible words. But in my judgment, upon the words
of this clause, no such result follows. The landlord, as I say, in my view is
entitled to require his review at any time, and, if he has not got his review
after the end of the 14th year, he is entitled to require it as from the next
following quarter-day after service of a trigger notice. It seems
Mr Pryor observed, that the landlord is not to blame if the unhappy accident
occurs that the expert to whom the matter is referred is killed in a car smash.
That is true. None the less it is a risk which must exist in the world — no
special provisions are made for it — and it seems to me that that does in truth
bring the process which had been initiated to a grinding halt incomplete and
that the right thing to do and the commercially sensible thing to do is to go
back and start again with a new trigger notice and, if necessary, a new
reference. As far as I can see, no great hardship is caused other than that
(what is undoubtedly true) the landlord will lose the increased gales of rent
due to this accident. But accidents do cause loss and it in no way causes a
substantial frustration of the commercial contract or a substantial prejudice
to either party. In my view, the matter is quite simple to operate in that way,
and the reference which I was given to Pollock v Brook-Shepherd
(1982) 266 ESTATES GAZETTE 214, where a notice of reference was required under
the so-called Leasehold Reform Act 1967, which notice was held could be given
once only, is a reference to a set of statutory provisions so remote from any
contemplation of this sort which arises in rent review cases that it is of no
guide to me at all. The words are plainly quite different and the whole context
of the matter, and the approach of the courts to expropriatory statutes, is so
substantially different that I find no guidance in the Pollock case.
I therefore
answer the questions raised by the originating summons as follows. I answer the
first part of question 1 Yes, and that was given on June 20 1983, and the
effective date for any increase in the rent payable under it is midsummer day
1983. As to question 2, whether time is of the essence in clause 2(c), I hold
that the answer is Yes. I do not believe that there is any further answer
needed to question 2.
No order was
made as to costs.
