Landlord and tenant — Rent review — Whether landlord disentitled to rely on time-limits by reason of waiver, estoppel or abandonment
Time of the essence of counternotice — Whether tenants entitled to relief under
section 27 of the Arbitration Act 1950
case the defendant tenants held a term of a lease of shop premises, which
contained provisions for rent review — In accordance with those provisions the
landlords served a rent review notice on July 7 1988 specifying a yearly rent
of £19,500 — The rent review clause provided that the tenants could serve a
counternotice within three months, as to which time was of the essence — The
landlords served a second rent review notice on August 15 1989 specifying a
yearly rent of £23,000 — On February 12 1990 the defendants purported to
appoint an arbitrator — The plaintiffs contended that, in the absence of a
counternotice before October 7 1988, the rent was £19,500 and sought a
declaration accordingly — The defendants claimed that the plaintiffs had waived
their right to rely on the time constraints; alternatively, the plaintiffs’
second notice and what followed estopped the plaintiffs from relying on the
rent of £19,500; alternatively, in the events which had happened the plaintiffs
had abandoned any rights arising from the first notice
case the defendant tenants applied for relief under section 27 of the
Arbitration Act 1950 to enable the arbitration under the rent review clause to
take place — Affidavit evidence on behalf of the tenants showed that the yearly
rent should have been about £12,000 to £13,000
September 29 1988 was £19,500 — There had been no waiver: the tenants had
failed to establish a representation of sufficient clarity and unambiguity that
the plaintiffs would not rely on the time-limits — There had been no
sufficiently clear and unambiguous representation to found an estoppel — There
were no facts, acts or omissions which could give rise to a claim based on
abandonment
application under section 27 of the 1950 Act was allowed — The delay of 10
months from October 1988 to August 1989 and a further delay of six months from
January to July 1990 militated against the grant of the application — The
amount at stake is considerable because it represented some 30% of the rent
sought by the landlords and some 50% of the rent effectively offered by the
tenants — This amount is a factor which supports the tenants and is not de
minimis — The fact that the tenants’ valuer had not produced any
comparables to justify his opinion on oath is not any reason for rejecting his
evidence as to his opinion as to what the market rent was for the subject
premises in September 1988 — There would be ‘hardship’ within the meaning of
section 27 of the 1950 Act — The lack of explanation for the delay does not
preclude relief — Because the court could impose conditions there was no
conceivable prejudice to the landlords
The following
cases are referred to in this report.
Alan (WJ)
& Co Ltd v El Nasr Export & Import Co
Ltd [1972] 2 QB 189; [1972] 2 WLR 800; [1972] 2 All ER 127; [1972] 1
Lloyd’s Rep 313, CA
Amalgamated
Estates Ltd v Joystretch Manufacturing Ltd
[1981] EGD 84; (1980) 257 EG 489, [1981] 1 EGLR 96, CA
Amherst v James Walker (Goldsmith & Silversmith) Ltd [1983] Ch
305; [1983] 3 WLR 334; [1983] 2 All ER 1067; (1983) 47 P&CR 85; [1985] EGD
157; 267 EG 163, [1983] 2 EGLR 108, CA
Glofield
Properties Ltd v Morley [1988] 1 EGLR 113;
[1988] 02 EG 62
Liberian
Shipping Corporation Ltd v King (A) & Sons Ltd
[1967] 2 QB 86; [1967] 2 WLR 856; [1967] 1 All ER 934; [1967] 1 Lloyd’s Rep
303, CA
Libra
Shipping & Trading Corporation Ltd v Northern
Sales Ltd [1981] 1 Lloyd’s Rep 273, CA
Nunes v Davies Laing & Dick Ltd (1985) 51 P&CR 310;
[1986] 1 EGLR 106; 277 EG 416
Oldschool v Johns (1980) 256 EG 381, [1980] 2 EGLR 113
Pittalis v Sherefettin [1986] 1 QB 868; [1986] 2 WLR 1003; [1986] 2
All ER 227; [1986] 1 EGLR 130; (1986) 278 EG 153, CA
Rickards
v Oppenheim [1950] 1 KB 616; [1950] 1 All ER 420,
CA
These were two
applications by originating summons: the first was by the plaintiff landlords
for a declaration as to the rent payable under a lease of shop premises in
Central Parade, New Addington, Croydon, the second was by the defendant
tenants, pursuant to section 27 of the Arbitration Act 1950, to extend the time
for the commencement of arbitration proceedings concerning the proper rental
valuation. The plaintiff landlords were Peel Investments (South) Ltd; and the
defendant tenants were Bhanubhai Patel, Vijay Patel and Jayshree Patel.
Wayne Clark
(instructed by Wedlake Bell) represented the plaintiff landlords; Mark Warwick
(instructed by Magwells) represented the defendant tenants.
Giving
judgment on the first originating summons on July 2, MORRITT J said: By
this originating summons, the plaintiffs seek a declaration that the rent
payable under a lease dated October 15 1984 of certain property at 43 Central
Parade, New Addington, Croydon, is from September 29 1988 the sum of £19,500
pa. The lease was granted by the plaintiffs under their former name, Cromwell
Property Investment Co Ltd, to the defendants for a term of 28 years from
September 29 1983. The initial rent was £7,500 pa and the lease contained a
quinquennial rent review upwards only. The provisions in that regard are
contained on p 5 of the lease in the following terms:
YIELDING AND
PAYING therefor during the said term the following rents, namely:
(a) from the 29th day of September 1983 to the
29th day of September 1988 . . . the yearly rent of £7,500.
(b) from the first review date to 29th September
1993 . . . a yearly rent . . . of whichever shall be the higher of the said sum
of £7,500 and the open market rental value of the demised premises for the
first review period.
Paras (c) and
(d) then deal with the subsequent review periods and the lease continues with a
proviso:
PROVIDED
ALWAYS and it is hereby agreed that:
(1) For the purposes of paragraphs (b) . . .
— which is the
paragraph I have just read —
the open
market rental value of the demised premises for the first review period and
second review period and the third review period respectively means a sum in
relation to each of the said periods respectively determined as hereinafter provided
as being at the time of such determination the rental value of the demised
premises in the open market on a Lease for a term of years unexpired at the
review date with vacant possession at the commencement of the term and on the
same terms and conditions other than as to the amount of the rent (but
including the provisions for reviewing the rent) as are herein contained
without the payment of any premium and disregarding any goodwill attached to
the demised premises by reason of the carrying on thereat of the business of
the Lessee (whether by him or by a predecessor of his under this Lease in that
business) and any effect on rent of any improvement carried out by the Lessee
or a predecessor in title of his under this Lease otherwise than in pursuance
of an obligation to his immediate Landlord and
(2) The aforesaid open market rental value shall
be determined in relation to the first second and third review periods
respectively in the following manner that is to say either
(i) it shall be such sum as shall be notified in
writing by the Lessor to the Lessee not earlier than nine calendar months
before the first review date in respect of the first review period
— and there
then follow comparable provisions in respect of the second and third review periods,
and it continues:
or as shall
within three months after such notification in each case be agreed between the
Lessor and the Lessee in writing in substitution for the sum so notified or
(ii) at the election of the Lessee by notice in
writing to the Lessor not later than three months after the Lessor’s
notification in writing mentioned in sub-clause (i) above (time in this respect
to be deemed to be of the essence hereof) and in default of subsequent
agreement between the Lessor and the Lessee if the Lessee shall have so elected
it shall be determined (in accordance so far as not inconsistent herewith with
the provisions of the Arbitration Act 1950 or any statutory modification or
re-enactment thereof for the time being in force) by an independent surveyor
appointed for that purpose by the Lessor and Lessee by agreement in writing or
failing such agreement as to such appointment and within one month after the
Lessee’s said notice of election then by an independent surveyor appointed for
that purpose by the President for the time being of the Royal Institution of
Chartered Surveyors.
The next
paragraph, no (3), makes it plain that the landlords’ notification may occur
after the particular review date.
Thus, under
the terms of the lease, the first review date was September 29 1988. On July 7
1988, the landlords served notice on the defendant tenants specifying a rent of
£19,500 pa with effect from September 29 1988. As is accepted, the time for a
counternotice under the terms of the lease was October 7 1988 and by that time
no counternotice had been served by the tenants. However, the landlords in
ignorance of the first notice served a second notice on August 15 1989
specifying the rent payable from September 29 1988 at £23,000 pa and, in
response to that notice, on February 12 1990, the defendants purported to
appoint an arbitrator. It is in those circumstances that the originating
summons was issued.
In the light
of the events as I have related them so far, it was submitted by counsel for
the plaintiffs that it was incumbent on the defendants to prove by some means
that the apparent effect of the lease coupled with the absence of a
counternotice before October 7 1988 was such as to give rise to a rent which
was not £19,500. The defendants’ contention is that the subsequent events
showed that the plaintiffs had waived their right to rely on the time
constraints within which a counternotice could be served and they contend that
a counternotice was indeed served on September 8 1989. They claim in the
alternative that the plaintiffs’ second notice, served on August 15 1989, and
what followed estopped the plaintiffs from relying on a rent of £19,500 pa or
the earlier notice of July 7 1988. Third, they claim that the events indicated
that the plaintiffs had abandoned any rights arising from the first notice
served on July 7 1988.
It is in the
light of those assertions that it is necessary to consider the correspondence
and evidence in some detail. It starts with a letter which constituted the
first notice dated July 7 1988. This was given for and on behalf of the
plaintiffs by an authorised signatory and properly addressed to the defendants.
It was headed ‘Re: 43 Central Parade, New Addington’ and reads:
You will be
aware that the lease of the above premises provides for the rent payable to be
reviewed as of 29th September 1988. The new rent agreed in accordance with the
terms of the lease then becomes the rent payable for the period from that date
to 29th September 1993, when there is a further review. Then in the middle
paragraph they indicate that in their view, the current open market value
justifies a rent of £19,500 pa, and the final paragraph reads:
This letter
is therefore formal notification in accordance with clause 2.2(i) on page 7 of
the lease, and it is our intention that the figure of £19,500 per annum should
constitute the reviewed rent. No doubt you will let us have formal confirmation
of your acceptance of this figure.
The response
from the defendants came on August 15 1988 from a Mr K A Spratley [FRICS], who
was a valuer. It is headed ‘In relation to 43 Central Parade, New Addington’
and addressed to the plaintiffs. It reads:
We refer to
your letter of 7th July addressed to the defendants concerning the matter of
the rent review as at 29th September 1988. We have been appointed as valuers to
act on their behalf and would be grateful if you would address future
correspondence to us. In your letter you quote a new rent of £19,500 per annum,
which seems excessive. Perhaps you could quote new lettings or reviews to
support your demand.
The reply came
from valuers appointed by the plaintiffs, the firm I think being within the
same group of companies. It is addressed to Mr Spratley and headed ‘Without
prejudice’, though no objection was taken to its being read in evidence. It
refers to the 43 Central Parade, New Addington, rent review.
We refer to
your letter of 15th August 1988 and note the contents therein. We will shortly
be going to inspect the premises and will contact you as soon as possible after
this has taken place.
Nothing then
occurred for a period of a little under a year. Then on August 15 1989, agents
for the plaintiffs purported to give notice to the defendants in the form of a
letter headed ’43/43A Central Parade, New Addington’. It refers to the fact
that they acted for the landlords and that the lease contained a rent review
provision for the rent payable as from September 29 1988 for the period from
then until September 29 1993. It continues:
We have given
careful consideration to this imminent rent review and have consulted with a
leading firm of commercial property agents. It is the considered opinion that
the current open market rental value of the premises in accordance with the
conditions laid down in the lease was £23,000 per annum exclusive, and it is
this figure that we now propose should be substituted in the lease as the rent
payable from 29th September 1988. This letter is, therefore, formal
notification in accordance with Clause 2(i) on page 7 of the lease, and it is
our intention that the figure of £23,000 per annum should constitute the
reviewed rent. No doubt you will let us have formal confirmation of your
acceptance of this figure.
Mr Spratley,
on behalf of the defendants, replied on August 31 1989 referring to the letter
of August 15 and stating:
We have been
appointed as valuers to act on their
— that is to
say, the defendants’ —
behalf and
would be grateful if you would address future correspondence to us. This matter
is to be dealt with by Mr Spratley on his return from holidays on 4th
September.
On September 8
1989, Mr Spratley did answer to the agents for the plaintiffs and he stated:
We refer to
your letter of 15th August 1989 addressed to our client
— and then the
defendants’ names are given —
proposing a
new rent under the lease of £23,000 per annum from 29th September 1988, to
which we object on their behalf as unreasonable. Likewise, we object to the
rent of £19,500 proposed by your clients in their earlier letter of 7th July
1988. It seems that you either keep no record of your correspondence or
consider it irrelevant. Not only do you serve separate rent proposals for the
same property, but you insist on writing to our clients in spite of accepting
that we act for them. We acknowledged your client’s proposal in our letter of
15th August 1988 and yours in reply of 15th September 1988 stated that you
would contact us as soon as possible after inspecting the premises. No further
communication was received until the letter of 15th August 1989 referred to
above. This would indicate that you have no supporting evidence to both of your
proposals. We counterpropose a new rent of £12,000 per annum.
Then, on
September 18, Mr Peter Embleton, who has sworn evidence on behalf of the
plaintiffs, replied to Mr Spratley thanking him for his letter of September 8,
noting his comments and apologising for the confusion, and continued:
but confirm
in fact that when I was recently passed this particular matter, there was no
correspondence on file and I had to assume that no notice had been served. By
way of explanation I would advise that our group was earlier this year the
subject of a takeover, the upshot of which was that a considerable number of
staff are no longer with us. I however thank you for your letter and the
information and obviously negotiations with regard to the revised rent can
proceed in the normal way. I will contact you shortly when I have considered
your counter-offer and the various comparables and the details that I have.
There was then
a period during which without prejudice negotiations took place and I have not,
of course, seen the correspondence that dealt with what was being discussed at
that time. But the open correspondence resumed on November 29 1989, when the
plaintiffs, through Mr Embleton, wrote to the defendants stating:
Further to
earlier correspondence and conversations regarding the above property which you
lease from Peel Securities (NW) Limited, we confirm that the revised rent
effective from 29th September 1988 is formally set in accordance with the
notice. Notice was served in accordance with the terms of the lease, but no
official election was made for the matter to be dealt with by arbitration and
the time limits expired setting the rent at the figure quoted. Our accounts department
have been advised accordingly and an updated rent demand will be passed to you
for the balance of the outstanding rent.
On December 7,
Mr Spratley on behalf of the defendants replied to Mr Embleton, referring to
his letter proposing a rent of £12,000 pa and commenting on certain
comparables, and concluding:
In view of
our negotiations, I am surprised that you wrote to my clients on 29th November
in your now familiar bullying manner, and I have advised them to ignore the
letter pending the outcome of our negotiations. As you know, I am awaiting
counsel’s opinion on your similar cause of action concerning —
and then
reference is made to another property. Then on December 19, Mr Embleton on
behalf of the plaintiffs wrote to Mr Spratley, stating:
In accordance
with the terms of the lease, the lessee has to elect for the matter to be
determined by an independent surveyor within the three months after the
lessor’s notice and time has deemed to be of the essence. We did, of course,
receive no official counter-notice from Messrs Patel and no election was made
within the stipulated time making the rent and the notice the rent effective
from the review date. You suggested in earlier correspondence that a notice had
been served in July 1988 quoting a figure of £19,500 per annum, and if you
could provide a copy of that notice, that will be the rent which is fixed from
the review date of 29th September 1988. If this is not produced, then we
confirm that the rent will be as specified in the notice dated 15th August 1989
and the reviewed rent will effectively be £23,000 per annum.
In
consequence, on December 21 1989 Mr Spratley replied enclosing a copy of the
first notice dated July 7 1988 and asked Mr Embleton to confirm that
you are now
quoting a rent of £19,500 per annum.
On January 3
1990, Mr Embleton replied to Mr Spratley thanking him for enclosing the first
notice and continuing:
As explained
earlier, your clients . . .
— and then the
names of the defendants are given —
did not in
accordance with the terms of the lease elect for the matter to be determined by
an independent surveyor within three months of the landlord’s notice, and the
rent is therefore set at £19,500 per annum exclusive. The appropriate demand
will be passed directly to your clients in the normal way.
Then on
January 10, Mr Spratley wrote to Mr Embleton, stating:
As the
landlords served notice of a new rent of £19,500 on 7th July 1988 and another
of £23,000 per annum on 15th August 1989, followed by a without prejudice
proposal of £17,000 per annum on 31st October 1989, we were unsure of the true
intention. We made a proposal of £12,000 per annum on 29th September 1989 and
repeated this on 7th December 1989 rejecting your figure of £17,000 per annum.
In view of the uncertainty of the landlords’ notification under Clause 2(i) of
the lease, we consider it appropriate to make late election for the appointment
of an independent surveyor. Please let us know whether you agree to this
election, or if you prefer, a reference to the President of the Royal Institution
of Chartered Surveyors.
Mr Embleton and
the plaintiffs did not so agree and on February 12 1990 Mr Spratley wrote to Mr
Embleton indicating that he was on that day applying to the President of the
Royal Institution of Chartered Surveyors for the appointment of an arbitrator.
An arbitrator was duly appointed and the plaintiffs then took the point that
there was no difference for him to arbitrate because there had been no
counternotice from the tenant. Accordingly, on May 11 1990 the arbitrator agreed
to do nothing pending the hearing of this originating summons and the
originating summons was issued on May 27 1990.
As I have
indicated, the defendants’ submissions are three-fold: first, waiver, second
estoppel and third, abandonment. I propose to deal with them in that order. So
far as waiver is concerned, it is submitted that the letter from the
plaintiffs’ valuer dated September 15 1988 constituted a representation that
the time-limit for a counternotice would not be insisted upon and that the
defendants did indeed serve a good counternotice by their letter of September 8
1989. I was referred to a number of authorities as to what constituted waiver. The
first is the well-known case of Rickards v Oppenheim [1950] 1 KB
616. In that case, a car had not been delivered on time, but the defendant,
instead of cancelling his order then and there, pressed for delivery. He
subsequently reimposed a time-limit, which was not adhered to, and that was the
central part of the decision. But at p 622, Denning LJ (as he then was) dealt
with the question of waiver. He referred to the facts of that case as giving
rise to the point and then, at p 623, he dealt with what constitutes waiver in
these words:
If the
defendant, as he did, led the plaintiffs to believe that he would not insist on
the stipulation as to time, and that, if they carried out the work, he would
accept it, and they did it, he could not afterwards set up the stipulation as
to the time against them. Whether it be called waiver or forbearance on his
part, or an agreed variation or substituted performance, does not matter. It is
a kind of estoppel. By his conduct he envinced an intention to affect their
legal relations. He made, in effect, a promise not to insist on his strict
legal rights. That promise was intended to be acted on, and was in fact acted
on. He cannot afterwards go back on it.
To similar
effect is the second authority to which I was referred, W J Alan & Co
Ltd v El Nasr Export & Import Co Ltd [1972] 2 QB 189. That case
concerned the question of whether a letter of credit conformed to the contract
of sale and, if it did not, whether the seller by operating the letter of
credit in his favour had waived his right to insist on a letter of credit which
did conform.
The question
of waiver was dealt with by Lord Denning at p 213, where he said:
If one party,
by his conduct, leads another to believe that the strict rights arising under
the contract will not be insisted upon, intending that the other should act on
that belief, and he does act on it, then the first party will not afterwards be
allowed to insist on the strict legal rights when it would be inequitable for
him to do so . . . There may be no consideration moving from him who benefits
by the waiver. There may be no detriment to him by acting on it. There may be
nothing in writing. Nevertheless, the one who waives his strict rights cannot
afterwards insist on them. His strict rights are at any rate suspended so long
as the waiver lasts. He may on occasion be able to revert to his strict legal
rights for the future by giving reasonable notice in that behalf, or otherwise
making it plain by his conduct that he will thereafter insist upon them . . . But
there are cases where no withdrawal is possible. It may be too late to
withdraw: or it cannot be done without injustice to the other party. In that
event he is bound by his waiver. He will not be allowed to revert to his strict
legal rights. He can only enforce them subject to the waiver he has made.
For the
plaintiffs, the landlords, my attention was drawn to various passages in Halsbury’s
Laws of England, 4th ed, vol 9, dealing with questions of waiver and with
questions of promissory estoppel. At para 574, it is stated:
Waiver may be
express or implied from conduct, but in either case it must amount to an
unambiguous representation arising as the result of a positive and intentional
act done by the party granting the concession with knowledge of all the material
circumstances. Furthermore, it seems that for a waiver to operate effectively
the party to whom the concession is granted must act in reliance of the
concession.
It was pointed
out by the plaintiffs that at the time the letter was written — namely
September 15 1988 — the time-limit within which a counternotice had to be
served had still some six weeks to run, and my attention was drawn to the way
in which Mr Patel for the defendants had described what had happened in
reliance on it. At p 3 of his affidavit, sworn on September 26 1990, he states:
The
plaintiff’s agents in their letter of 15th September 1988 expressed and
referred to an inspection of the premises and said, ‘We will contact you as
soon as possible after this has taken place.’
The plaintiff therefore represented that it was to engage in discussion.
In consequence, neither the defendants nor their advisers took any step to
further protect their position, if indeed any such step was necessary.
I observe that
there is no evidence from Mr Spratley to indicate what view he took or what
action he may have taken in consequence on it.
It seems to me
on the question of waiver that the case for the defendants fails to establish a
representation of sufficient clarity and unambiguity that the plaintiffs would
not rely on the time-limits imposed by the lease. The letter of September 15
1988 was in answer to a request for the comparables upon which they relied and
merely stated that the plaintiffs’ agent would be shortly going to inspect the
premises and would contact the defendants’ valuer as soon as possible after
that date. As is pointed out in Amalgamated Estates Ltd v Joystretch
Manufacturing Ltd (1980) 257 EG 489 and 491, it is entirely proper for a
landlord not to point out to a tenant what he needs to do to protect his
position. The onus, as was indicated in Oldschool v Johns (1980)
256 EG 381, [1980] 2 EGLR 113, is on the tenant to ensure that a counternotice
is duly given. It seems to me that there is nothing in the letter of September
15 1988 in the context in which it was written to indicate that the plaintiffs
were not going to rely on the time-limit of October 7 1988, by which date a
counternotice had to be served. The fact that they were prepared to negotiate
in the meantime did not, as it seems to me, give rise to any assurance, let
alone one which is clear and unambiguous, to the effect that if the
negotiations did not succeed, they would not rely on the time-limit expressed
in the lease. It seems to me, therefore, that the case based on waiver fails on
that ground alone.
I should,
however, deal with the second point, which was submitted by the defendants,
that the letter of September 18 1988 effectively opened the door and extended
the time until the letter of September 8 1989, which it was alleged was a
sufficient counternotice for the purposes of the lease. I will assume,
therefore, contrary to my decision on the first point, that the door was so
opened, and the question then is whether the letter of September 8 1989 did
constitute a sufficient counternotice for the purposes of the lease. I was
referred to two cases in relation to the question of what a proper
counternotice must contain. The first was Nunes v Davies Laing &
Dick Ltd [1986] 1 EGLR 106. The principle as there stated by the Vice-Chancellor
at p 107 just below letter K was:
In my
judgment, the test is that applied by the Court of Appeal in the Amalgamated
Estates case, namely that the counternotice should be in terms which are
sufficiently clear to bring home to the ordinary landlord that the tenant is
purporting to exercise his right under para (c)
— that was the
provision requiring arbitration —
and that is
the test which I propose to apply.
Then in Glofield
Properties Ltd v Morley [1988] 1 EGLR 113, the same point was made
by Hutchison J at p 115L, where he states:
What I
conceive my legitimate task to be is to approach the question with the
principles enunciated by Lord Justice Templeman LJ, which I have said I will
treat as guiding me, in mind and ask myself the simple question: does the
letter in the present case clearly convey to the landlord that it is an
election to proceed in accordance with clause 5 (ii)(c)?
Again, that
was the provision which enabled the tenant to elect for arbitration. As
Hutchison J observed in that case, there is not much benefit to be derived from
comparing the terms of one letter with another, but it seems that all those
letters which have constituted a sufficient counternotice in respect of
comparable provisions to those contained in this lease refer either to
arbitration or to the fact that the letter is a counternotice, or to the fact
that there is some degree of formality surrounding it to draw the attention of
the reasonable landlord to the fact that the tenant was exercising some right
vested in him to elect for a course of action which in the circumstances could
only be that of arbitration. It seems to me that the letter in this case does
no such thing. There is no reference to arbitration; there is no reference to
the letter being a notice. If it were to be a notice it would be out of time,
unless there were some allegation in it that the time within which the
counternotice could be given had been extended. All it does, as I see it, is to
propose a different figure of rent to that which was proposed by the landlords
and does not, as I see it, comply with the test of what would be required for a
counternotice — namely sufficiently clear to the ordinary landlords that the
tenants are exercising their right under the lease to require an arbitration.
Accordingly, in my judgment, the waiver claim fails on the second ground as
well as the first.
I turn, then,
to the second contention of the tenants, which was that based on estoppel. It
is said that the letter of August 15 1989 constituted a clear and unequivocal
representation that the landlords would not rely on the first notice served on
July 7 1988. It is said that the subsequent events by means of the suggested
counternotice, the negotiations which took place and the subsequent appointment
of an arbitrator were acts done by the defendant tenants in reliance upon the
representation which would now make it inequitable for the plaintiffs to be
allowed to rely on the first notice.
The principles
dealing with representations giving rise to promissory estoppels having to be
clear and ambiguous are the same on this head of the law as they are for
waiver. It would be perfectly possible to construe the letter of August 15 1989
as being a representation that the landlord was not relying on the earlier
notice. That is a possible interpretation, but it does not seem to me that it
is necessarily the only one. When one turns to the reply from Mr Spratley of
September 8 1989, it is plain from that that Mr Spratley did not read the
second notice as amounting to a representation that the landlords were
abandoning or forgoing any rights they had under the first, because having
referred to the second notice, he then continues in his letter:
Likewise, we
object to the rent of £19,500 proposed by your clients in their earlier letter
of 7th July 1988.
It seems to
me, therefore, that the response of Mr Spratley demonstrates that the second
notice was not sufficiently clear and unambiguous to amount to the requisite
representation, or, alternatively, if it was, that he did not rely on it in
that sense. Accordingly, what followed was not in any sense a reliance on the
second notice as constituting a representation that the plaintiffs would not
rely on the first notice, because that was not the way that Mr Spratley read it
and that is not the way the subsequent events turned out.
In any event,
when it comes to consider the suggested reliance subsequent to September 8, it
is not at all clear that it can be said to have been reliance on the
representation that the defendants have to establish. The first reliance —
indeed, the only reliance referred to by the defendants in their evidence — is
stated by Mr Patel in para 5.5 of his affidavit, where he says:
In reliance
upon the letter of 18th September 1989 without prejudice negotiations did
indeed take place between the parties. Although I am advised by my solicitors
that the details of these cannot be revealed, only when these negotiations
broke down did the plaintiff seek to claim as from 29th November 1989 that the
defendants were now prevented from resisting a rent of £19,500 per annum.
As counsel for
the plaintiffs points out, the very essence of without-prejudice negotiations
is that it is without prejudice to all rights on either side — including the
right, at least arguably, of the plaintiff landlords to rely on the first
notice. The other action of the defendants said to have been in reliance upon
the representation alleged was the appointment of the arbitrator, but that, as
it seems to me, comes much too late, because the steps taken to appoint the
arbitrator commenced on February 10 1990 when by January 3 1990 at the latest
the plaintiff landlords had made it plain that they relied on the first notice
and sought to claim the rent of £19,500 pa. Accordingly, in my judgment, the defendants’
case based on estoppel is no more successful than their case based on waiver.
The third
point was abandonment. Counsel for the defendants did not seek to mount any
argument based on this head, because as he frankly, and in my judgment rightly,
conceded, he could see no additional facts, acts or omissions which could give
rise to a claim based on abandonment which would not otherwise support the
claim for waiver or estoppel. I think he was right, not least because it would
seem that any case based on abandonment would be inconsistent with the decision
of the Court of Appeal in Amherst v James Walker (Goldsmith &
Silversmith) Ltd [1983] Ch 305.
In conclusion,
therefore, on the facts and the arguments raised on this originating summons, I
have reached the conclusion that the declaration that I should make is that
sought by the originating summons. There is, however, a second originating
summons, whereby the defendant tenants seek an order under section 27 of the
Arbitration Act 1950 extending the time within which the arbitration can take
place, and it would therefore be premature at this stage without having yet
heard argument on that originating summons to make the declaration sought by
the plaintiffs on the first one.
Turning to the
second originating summons on the following day, July 3, MORRITT J said:
This is an application by the plaintiffs against the defendants to the second
originating summons before me. The plaintiffs are the tenants under a lease
granted by the defendants in 1984 of certain property at New Addington near
Croydon. The first originating summons concerns the question whether the rent
payable under the lease from the first review date, namely September 29 1988,
was that specified in the landlords’ notice served on July 7 1988, namely
£19,500, or whether as contended by the tenants the landlords had waived their
right to rely on the timetable laid down by the rent review clause or,
alternatively, were estopped from relying on their notice dated July 7 1988.
In the
judgment I gave yesterday in respect of that originating summons I set out in
considerable detail the correspondence between the parties from July 1988 down
to February 1990. The conclusion that I reached was that the landlords had not
waived their entitlement to rely on the timetable contained in the rent review
clause and that they were not estopped from relying on the notice they served
on July 7 1988. The consequence was, subject to the application now before me,
that the rent payable by the tenants under the lease would be £19,500 with
effect from September 29 1988.
The
originating summons now before me seeks relief under section 27 of the
Arbitration Act 1950 so as to enable the arbitration provided for by the rent
review clause to take place notwithstanding that the tenants did not serve the
counternotice required by that provision within the time allowed by it.
Section 27 of
the Arbitration Act 1950 provides:
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 the 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 provisions of any enactment limiting the time for the
commencement of arbitration proceedings, extend the time for such period as it
thinks proper.
The history of
the proceedings so far as relevant to this application can be stated more
shortly. The landlords served their notice on July 7 1988 specifying a rent
payable from September 29 1988 in the sum of £19,500. The rent review clause
provided that the tenants could serve a counternotice within three months, as
to which time was of the essence, specifying an alternative rent or,
alternatively, requiring an arbitration. That time-limit therefore expired on
October 7 1988, no notice having been served by the tenants.
On August 15
1989 the landlords served a second notice apparently in ignorance of the
service of the first, specifying as the rent payable from September 29 1988 the
sum of £23,000 pa. There was then certain correspondence between the tenants,
the landlords and their agents which, it is accepted by the landlords’ agent,
would have given rise to some confusion in the mind of a tenant as to which of
the two notices the landlords were in fact relying on. There was also without
prejudice discussion between September 1989 and November 1989, but by January 3
1990 at the latest it was apparent to the tenants that the landlords were
relying on the first notice, that is to say, that which specified the rent as
£19,500.
On January 10
1990 the tenants’ agent sought to make a late election for an arbitration and
asked the landlords to consent. The landlords declined to do so and on February
12 1990 the tenants’ agent indicated that he was applying for the appointment
of an arbitrator to which the landlords replied refusing consent to an
arbitration.
The arbitrator
was indeed appointed on February 26 1990 but agreed on May 11 1990 to do
nothing further until the first of the two originating summonses was heard. The
first originating summons was issued on May 27 1990 but the second was not
issued until July 24 1990.
The tenants’
application is supported by an affidavit of Mr V Patel. He indicates that the
lease in question was preceded by an earlier lease for which he and other
members of his family paid £50,000 by way of premium. The property is now used
as a chemist shop in which he and his son (who is not one of the tenants) are
primarily interested and for which they also have the expense of appointing a
qualified chemist. He deposes to the fact that the lease is one of the assets
owned by a company called Aumex Ltd, which in the accounts to the year ended
1989 made a profit after tax of £43,000, having taken account of the rent as
sought by the landlord of £19,500 and £20,000 taken by Mr Patel and his son in
respect of dividends and remuneration.
With regard to
the property, he suggests that it is in a bad area and owing to a number of
unauthorised break-ins is hard to insure. He states that the rent in his
opinion should have been about £13,000 rather than £19,500 and he points to the
rents payable for adjoining properties at 38 and 44 Central Parade, New
Addington, Croydon.
The
application is also supported by the affidavit of a Mr Kenneth Reid [FSVA IRRV
FIAS], a qualified valuer, who states that in his opinion the open market rent
as at the review date was the sum of £12,000 odd.
The
application is opposed by the landlords and their opposition is supported by an
affidavit of their expert, Mr Peter Embleton, also a qualified valuer. He does
not agree that Central Parade is a run-down area and he has produced a list of
tenants, many of whom could be described as household names. He states that he
is unaware of problems in respect of unauthorised break-ins and he deals with
the two comparables suggested by Mr Patel, though not by Mr Reid. In each case
he was aware of the rent reviews in respect of nos 38 and 44 and he points to
the fact that the properties are significantly different in being a great deal
smaller.
He comments on
the accounts of Aumex Ltd for 1989, that quite aside from the rent the
administration expenses have increased by some £36,000 odd and the directors’
remuneration had likewise increased by some £15,000 when compared with the
accounts for the year ended in 1988. He suggests that Mr Reid’s valuation is
wrong because he has taken into account partitioning erected by the tenants
which has given rise to the consequence that the back of the premises is used
for storage which would command a lower rent than shop premises used for retail
sales to customers. He says, because of the terms of the lease, that the
consequence of the partitioning and the consequential lower per square foot
rent for the rear of the premises is not justified. He indicates that in his
view the tenants would undoubtedly have a claim against their agent for not
serving the counternotice in time and, finally, he points to the delay which
has undoubtedly occurred in the making of this application after the position
was made clear, which he says was November 29 1989 until the issue of the
originating summons on July 24 1990.
There is no
doubt that the provisions of section 27 of the Arbitration Act 1950 apply to
the circumstances of this case. That was conclusively established by the
decision of the Court of Appeal in Pittalis v Sherefettin [1986]
1 QB 868*. In the judgment of Neill LJ at p 890 he refers with approval to an
extract from the judgment of Brandon LJ in Libra Shipping & Trading
Corporation Ltd v Northern Sales Ltd [1981] 1 Lloyd’s Rep 273 at p
279 where he said:
‘(1) The words ‘undue hardship’ in section 27
should not be construed too narrowly. (2) ‘Undue hardship’ means excessive
hardship and where the hardship is due to the fault of the Claimant, it means
hardship the consequences of which are out of proportion to such fault. (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 such 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 that prejudice.’
*Editor’s
note: Also reported at [1986] 1 EGLR 130.
I have also
been referred to passages in Mustill and Boyd on Commercial Arbitration (2nd
ed) pp 210 to 215. At p 211 the editors state:
The section
requires the Court to form the opinion that ‘undue hardship’ will be caused if
an extension is withheld. ‘Hardship’ is easy enough to comprehend: it might be
said to exist whenever a claimant loses a valid claim through failure to comply
with a short time limit.
At p 212 the
editors deal with the meaning of the word ‘undue’ and quote from the judgment
of Lord Denning MR in Liberian Shipping Corporation Ltd v King (A)
& Sons Ltd [1967] 1 Lloyd’s Rep 303 that:
. . . ‘undue’
. . . simply means excessive. That is greater hardship than the circumstances
warrant. Even though a Claimant has been at fault himself, it is an undue
hardship on him if the consequences are out of proportion to his fault.
The editors
then set out 10 factors to be considered and at p 214 state:
And the Court
will, of course, not grant an extension unless the Claimant is able, by
affidavit evidence, to give an explanation for the delay.
Further down
the same page:
The fact that
the remedy is discretionary has one important consequence, namely that the
Court will expect a claimant who wishes to apply for an extension of time, to
bring his application before the Court with the minimum of delay.
Counsel for
the plaintiffs has taken me through the evidence under the various headings
indicated by the quotation from the judgment of Brandon LJ. Dealing first with
the length of the delay, he claims that it was effectively a delay from January
3 1990 until the appointment of the arbitrator on February 26 1990, which so
described is relatively small. For the landlords it was submitted that the
delay for the later period was January 3 1990 down to the issue of the
originating summons on July 24 1990, a period of some six months, which was
described as relatively large. In addition, there was, of course, the delay
from October 7 1988, when the counternotice should have been served in answer
to the first notice served by the landlords, down to August 15 1989 when, as Mr
Embleton accepts, the service of the second notice by the landlords would at
the least cause some confusion in the mind of the tenants.
It seems to
me, therefore, that there was a delay of 10 months from October 1988 to August
1989 and a further delay of six months from January 1990 to July 24 1990. That
delay obviously militates against the grant of the application.
The second
point to which I have been referred is the amount at stake. The evidence for
the tenants suggests that the proper rent was £12,000 pa, not the £19,500
suggested by the landlords; the difference they take as being some £6,000 pa
over the five years of the first review period. But they point in addition to
the fact that it is possible that the effect of that rent being too high (if it
is) would spread into the second and possibly third review periods because the
rent review clause is upwards only. If, therefore, £19,500 remained the rent
payable for the first review period but at the commencement of the second
review period in 1993 was more than the then market rent, the effect of not
having served a counternotice in time in 1988 would extend over the subsequent
five-year period as well.
The amount at
stake on any view is considerable because it represents some 30% of the rent
sought by the landlords and some 50% of the rent effectively offered by the
tenants. It seems to me, therefore, that so far as the amount at stake is
concerned this is a factor which supports the tenants. It cannot be said that
the amount at stake in the arbitration is de minimis given the
proportions that it involves over the parties’ respective suggestions as to the
proper open market rent.
It was
suggested by the landlords that there was no fairly arguable case before the
arbitrator. It was said, first, that Mr Reid had not produced any comparables
to justify his opinion. That is perfectly true; he has stated it as his opinion
on oath without having produced comparables, which no doubt he would have to do
before an arbitrator. But that is not, in my judgment, any reason for rejecting
the evidence he has given as to his opinion as to what the market rent was for
these premises in September 1988.
The landlords
criticised the comparables produced by Mr Patel personally on the grounds put
forward by Mr Embleton. Those criticisms seem to be justified, but as they are
not comparables relied upon by Mr Reid it does not seem to me to take the
matter any further.
I take the
view, therefore, that the amount at stake is such that to lose the right or the
opportunity to have the matter arbitrated would be ‘hardship’ within the
meaning of the section.
Counsel for
the tenants also took me through the company’s accounts to indicate that the
company could hardly afford to pay the increased rent which the landlords said
is payable in accordance with their notice. I find it hard to accept that when
the section refers to ‘undue hardship’ it is referring to the means in these
circumstances of the tenants. It seems to me that the law must be applicable
alike to the rich as to the poor and that hardship in that context is that
referred to by Mustill and Boyd in the passage to which I referred,
namely the loss of the opportunity to have the claim arbitrated, that claim, if
it be substantiated, being something that is more than de minimis.
Accordingly, I place no reliance either way on the wealth or otherwise of the
company to which this lease belongs.
The third and
fourth elements are whose fault was the delay and whether the tenants have any
remedy against any third party to compensate them for the consequence of not
getting the leave that is sought. The fault for the delay for the two periods I
have mentioned, namely October 1988 to August 1989 and January to July 1990, is
entirely that of the tenants. There is no suggestion that in respect of those
periods the landlords had any responsibility whatever. It is a matter for note
that the tenants have not sought to explain the delay and to that extent the
passage in Mustill and Boyd suggests that no relief should be granted on
this application. I do not myself see why it should preclude relief rather than
give rise to the inference that there is no justification for the delay and
that that factor should be taken into account in deciding whether to exercise
such discretion as the court has.
So far as a
remedy against third parties is concerned, if it be the case that there is no
justification for the delay, it may very well be, to put it no higher, that in
respect of the earlier period the tenants have a claim against Mr K A Spratley
[the Patels’ surveyor] and in respect of the later period they have a claim
against their solicitors. It is not suggested that the possibility of such
claims is not a factor to be taken into account. But it must also be recognised
that the claim against third parties has not been established, it would take
time and expense to do so and it is not by any means certain to succeed or, if
it does, to succeed in the full amount which would be required to compensate
the tenants.
I come, then,
to the question of the prejudice to the landlords if leave is granted. The
evidence indicates that the landlords own 40 of the 60 properties in Central
Parade, New Addington. The landlords are professional in the sense that they
carry on business in investment properties. It is reasonable to assume, and,
indeed, the contrary is not contended, that all necessary evidence by way of
comparables and so forth is already in the possession of the landlords in their
capacity as the owners of 40 of the 60 neighbouring properties. If without more
I merely extended the time under the rent review clause pursuant to section 27
the landlords would, without more, be out of pocket to the extent of interest
on the rent that should have been paid.
The tenants
through their counsel accepted that it would be right, if I were to grant
relief, that I should impose a term that 2% above base rate by way of interest
should be paid on the sums subsequently found to be due (if they were found to
be due on the arbitration) over the basic rent that has been paid in the
interim period. It was also accepted in answer to a question from me that the
difference between the rent currently payable and paid and the rent as sought
by the landlords, namely some £12,500 for the period from September 29 1988 to
date, could perfectly well be put into an account in the joint names of the
parties’ respective solicitors to abide the outcome of the arbitration. That
would itself generate the interest required to some extent and it would provide
security for the landlords against the fact that if they were successful at the
arbitration they should not be prejudiced by not having had the ability to
obtain by other means security for the rent that was due to them.
For the
landlords, principal reliance was placed by their counsel on the delay which,
as I have already indicated, is lengthy and has not been explained. I should
infer, as he suggested, that there was no good reason for it. He has also
commented on the amount at stake and the rental evidence. In particular, he
pointed to the fact that Mr Reid’s report was not supported by comparables and
that the comparables provided by Mr Patel were not comparables at all. He
referred to the fact that there was no fault attached to the landlords and
there were the claims against Mr Spratley and the tenants’ solicitor. But he
accepted in the light of the concession made by counsel for the tenants that
there would be no prejudice to his clients if the application were granted.
I take the
view that the tenants have established hardship. It seems to me that the
quantum of the rent (£6,000 pa) expressed as a proportion of what the landlords
claim and the tenants offer is, on any view, substantial, that the possibility
of either side being right is evens, so that the loss to the tenants of the opportunity
of having that issue properly determined on evidence by the arbitrator would
amount to hardship.
If it were the
case that the court was unable to impose conditions upon the tenants or that
the conditions had not been accepted as suggested by the tenants, I would take
the view that the circumstances of the case, namely the delay and the lack of
explanation for the delay, would have precluded the tenants from obtaining the
relief they sought. But given the facts that the landlords’ position can be fully
protected by the requirement for the excess rent to be placed in a joint
interest-bearing account in the names of the parties’ respective solicitors,
that the landlords’ evidence in respect of valuation comparables as at
September 1988 has not been impaired by the delay, and that it would be open to
the arbitrator to award costs in the light of the conclusion that he reaches,
it seems to me, there being no conceivable prejudice to the landlords, then the
hardship to the tenants if I grant no extension would indeed be undue.
Accordingly,
because I am entitled to impose those conditions, I reach the conclusion that
the tenants have established undue hardship and I should grant an extension
under section 27 as sought imposing the conditions I have mentioned. If I had
not been able to impose those conditions, I would come to the conclusion that
the hardship was entirely the defendants’ own fault and that the landlords
should not be prejudiced by the late application that is now made. However, as
I have indicated, the ability to impose the conditions and thereby to exclude
any prejudice to the landlords, in my judgment makes all the difference.
Application
allowed.
