Landlord and tenant — Rent review — Meaning of ‘fit for immediate occupation and use’
dated October 28 1985 the plaintiff landlord demised to the defendant premises
at 80 Bishopsgate, London, for a term of 25 years from March 25 1985 at an
initial yearly rent of £1,242,000 subject to five-year rent reviews — The
demised premises were defined as excluding ‘all tenants’ and trade fittings’ —
At review the open market rent was to be determined, inter alia, on the
assumption that the premises are ‘vacant but fit for immediate occupation and
use’; there was to be disregarded tenant’s improvements — In respect of the
March 25 1991 review, a surveyor was appointed under the lease as an ‘expert’
and he made his determination on July 3 1991 — In his decision the expert, who
had the benefit of written submissions by which each party relied upon the
opinions of leading counsel given in comparable transactions, stated that (1)
there should be no increase in rental value on account of the words ‘fit for
immediate occupation and use’ and (2) the words were to indicate that no
allowance should be made against rental value to reflect a tenant’s fitting-out
period — The plaintiff issued an originating summons seeking a declaration that
the expert wrongly held that there should be no increase in rent consequent on
the assumption that he was directed to make that the premises were ‘fit for
immediate occupation and use’ — The defendant, who contended that the expert’s
decision was final and binding, applied by way of notice of motion to strike
out the relevant paragraph of the originating summons, alternatively an order
under Ord 14A of the Rules of the Supreme Court to determine as a question of
law whether the expert’s determination was a nullity
the question of the interpretation of the contentious words was one he had
necessarily to undertake along the way to determine the defined open market
rent; it was within his remit and final and binding: see Jones v Sherwood
Computer Services plc
expression ‘fit for immediate occupation and use’ meant the building was free
from defects and ready for the tenant to go in and fit it out for his business
and commence trading — Ready for occupation means when the building is
ready to be occupied for fitting-out purposes and meant that the tenant could
negotiate for a reduction of rent during the fitting-out period (although such
a reduction was not claimed by the defendant)
The following
cases are referred to in this report.
Anisminic
Ltd v Foreign Compensation Commission [1969]
2 AC 147; [1969] 2 WLR 163; [1969] 1 All ER 208, HL
Arenson v Casson Beckman Rutley & Co (on appeal from Arenson
v Arenson) [1977] AC 405; [1975] 3 WLR 815; [1975] 3 All ER 901; [1976]
1 Lloyd’s Rep 179, HL
Basingstoke
and Deane Borough Council v Host Group Ltd
[1988] 1 WLR 348; [1988] 1 All ER 824; (1987) 56 P&CR 31; [1987] 2 EGLR
147; 284 EG 1587, CA
Burgess v Purchase & Sons (Farms) Ltd [1983] Ch 216; [1983] 2
WLR 361; [1983] 2 All ER 4
Campbell v Edwards [1976] 1 WLR 403; [1976] 1 All ER 785; [1976] 1
Lloyd’s Rep 522, CA
Dean v Prince [1954] Ch 409; [1954] 2 WLR 538; [1954] 1 All ER
749, CA
Iceland
Frozen Foods plc v Starlight Investments Ltd
[1992] 1 EGLR 126; [1992] 07 EG 117
Jones v Sherwood Computer Services Ltd [1992] 1 WLR 277
Nikko
Hotels (UK) Ltd v MEPC plc [1991] 2 EGLR
103; [1991] 28 EG 86
O’Reilly v Mackman [1983] 2 AC 237; [1982] 3 WLR 1096; [1982] 3 All
ER 1124, HL
Racal
Communications Ltd, Re [1981] AC 374; [1980] 3 WLR
181; [1980] 2 All ER 634, HL
This was an
application by the defendant, Kansallis-Osake-Pankki, by way of a notice of
motion to strike out a paragraph in the originating summons issued by the
plaintiff, Pontsarn Investments Ltd, by which the plaintiff sought a
declaration that the decision of an expert, Mr Ian V Oddy FRICS, appointed to
determine a rent dispute between the parties, was a nullity. The demised
premises are located at 80 Bishopsgate, London EC2.
Michael Barnes
QC (instructed by Nabarro Nathanson) appeared or the plaintiff; and Paul Morgan
(instructed by Clifford Chance) represented the defendant.
Giving
judgment, JUDGE PAUL BAKER QC said: This is yet another case arising out
of a rent review provision in a lease. The review has proceeded to the point
where the rent has been determined by a surveyor appointed by the parties. The
landlord is dissatisfied with the determination and has issued an originating
summons seeking a declaration that it is a nullity on various grounds of which
only one is now pursued, namely that the surveyor wrongly held that there
should be no increase in the rent consequent on the assumption that he was
directed to make that the premises were ‘fit for immediate occupation and use’.
The tenant’s
response to this was a notice of motion now before me seeking to strike out the
relevant paragraph of the originating summons or alternatively seeking an order
under the Rules of the Supreme Court Ord 14A to determine as a question of law
whether the surveyor’s determination is a nullity.
While the
precise question is whether the determination is a nullity, I have heard much
argument on whether the determination is indeed wrong. I have been invited to
express my views on that question also, as that may be of use in the future,
though I do not propose to make any formal declaration about it.
The facts are
not in dispute. By a lease dated October 28 1985 the plaintiff as landlord
demised to the defendant as tenant for a term of 25 years from March 25 1985 a
substantial building at 80 Bishopsgate in the City of London comprising a
basement, ground floor and seven upper floors. It is used to accommodate a
restaurant and a shop in the basement and part of the ground floor and offices
in the whole of the remainder. This dispute is confined to the office portion.
The initial rent was £1,242,000 pa with review dates at five-yearly intervals,
the first being March 25 1991. It is what occurred during that review which is
the subject of the dispute.
The demised
premises are defined so as to include:
all additions
and alterations thereto and all Landlord’s fixtures and fittings now or
hereafter in or about the same but excluding all tenants’ and trade fittings.
The review
provisions are contained in the second schedule to the lease. They begin with a
definition of open market rent, which for the office portion of the premises is
defined as follows:
the yearly
rent for which the Office Portion might reasonably be expected to be let as a
whole but forming part of the Demised Premises with vacant possession for any
use within the same class of the Town and Country Planning (Use Classes) Order
1972 as the user of the Office Portion hereby permitted on the relevant Rent
Review Date in the open market by a willing lessor to a willing lessee for a
term equal to the residue of the term hereby granted (or if greater a term of
ten years with a review of rent at the fifth year thereof) on the assumptions
that at the Relevant Review Date they are:
The first one
is the critical one for this case:
1.2.2.1.
vacant but fit for immediate occupation and use and
1.2.2.2. that
no work has been carried out thereon by the Tenant or its predecessors in title
which has diminished the rental value of the Demised Premises.
There follow a
number of further assumptions which are not material to the issue I have to
decide. There follow after that three disregards and the third one is the one
that I have to read:
1.2.3.
disregarding . . .
1.2.3.3. Any
effect on rent of any Voluntary Improvement carried out by the tenant or
Permitted Underlessee at any time after the commencement of the term hereby
granted. In this sub paragraph ‘Voluntary Improvement’ means an improvement
which the Tenant had no obligation to the Landlord herein to carry out and in
respect of which the Landlord has not contributed to and has no liability to
contribute to the cost thereof.
The next
provision in this schedule which I should look at is clause 3:
If the
Landlord and the Tenant shall not have agreed the Open Market Rent by the
relevant Rent Review Date or (if earlier) within three months of the service of
the Notice by the Landlord or the Tenant referred to in Clause 2 of this
Schedule the Open Market Rent may be determined by a surveyor (hereinafter
called ‘the Appointed Surveyor’) who shall be agreed upon in writing by the
Landlord and the Tenant . . .
The parties
were able to agree on a surveyor so I need not read further as it deals with
appointments in default of agreement. By a letter dated December 20 1990 Mr Ian
V Oddy [FRICS], who is accepted by all parties as a suitably qualified surveyor
for this purpose, was asked by both parties to act as the appointed surveyor.
Now I go to
Clause 4. This again is a critical clause in the context of this case:
The Appointed
Surveyor shall be a Chartered Surveyor in practice in the City of London for at
least 5 years prior to the date of his appointment and who shall be an expert
in rental values and lettings in the City of London
— as I have
said, there is no question about his qualification in that regard —
and shall be
bound to afford to both the Landlord and the Tenant the opportunity to make
representations (whether written and/or oral) regarding the Open Market Rent
for the Demised Premises. The Appointed Surveyor shall make his determination
including his reasons of the Open Market Rent acting as an expert and not as an
Arbitrator and his determination shall be final and binding on the Landlord and
the Tenant.
The rest of
the clause deals with his fees, which are not in issue here.
Both parties
made submissions in writing to Mr Oddy which were followed by
counter-submissions on each other’s submissions. Mr Oddy made his award on July
3 1991. I must, of course, look at it, but I must also look at the submissions,
or some of them, in view of a submission by Mr Morgan, for the tenant, that the
interpretation reached by Mr Oddy on the matter in dispute was reached, first,
pursuant to the express terms of the schedule or, alternatively, pursuant to
the joint invitation of the parties by reason of their surveyor’s submissions
to Mr Oddy.
The landlord’s
surveyors in their submissions referred to a comparable where the expert had
allowed an uplift as a consequence of the assumption that the premises were
fitted out for immediate occupation and use. It appeared in that case that the
expert had had an opinion of counsel, Mr Kim Lewison, which supported the view
he took. Having referred to that case, the landlord’s surveyors presented
calculations which, they said, would produce an uplift of £10 per sq ft for
37,821 sq ft, say £380,000, as an addition to the rent. The surveyors concluded
their submissions on this point in the following terms:
7.7 As mentioned previously, as you are the
Expert in this matter, you will have to decide upon the correct basis of
valuation. If, in your opinion, there should be no uplift then I would ask you
to determine an open market rent of the Office Portion of £2,335,000.
If, however,
you consider that there should be an uplift to reflect the willing lessee being
provided premises which are fit for immediate use and occupation at no capital
cost to the lessee then I would request you to determine an open market rent of
the Office Portion of £2,715,000.
That, of
course, includes the uplift of £380,000.
So it is
clearly put to the expert in that paragraph that he has to decide the point.
The tenant’s
surveyors countered this by contending that the assumption ‘vacant but fit for
immediate occupation and use’ merely meant that one disregards any period of
time necessary to fit out the premises. If that was wrong, they say that the
work needed to fit them out was minimal. They attack the instructions to Mr
Lewison and his opinion in the case referred to by the landlord’s surveyors and
provided a further opinion of leading counsel, Mr David Neuberger QC, in
another comparable case, which differed from Mr Lewison and supported the
tenant’s submissions.
With that I
can now go to Mr Oddy’s decision on this point. The material paragraphs, the
only ones which I propose to read out, are paras 3.7 and 3.8:
3.7 Mr Neuberger
took an opposite view to that of Mr Lewison concerning the meaning and
relevance of ‘fitted out’. I entirely accept the arguments put forward by Mr
Neuberger. In this subject rent review clause the reference is not to ‘fitted’
but to ‘fit for immediate occupation and use’. The reasons given by Mr
Neuberger in respect of the wording in the Triton Court lease, satisfy me
entirely with regard to the way in which the wording in the subject rent review
clause should also be treated. Accordingly, I Determine that there shall be
no increase in the annual rental value on account of the words included in the
Rent Review Clause, ‘fit for immediate occupation and use’. [Mr Oddy’s
italics]
3.8 In my opinion the purpose of including the
words ‘fitted out and available for immediate occupation and use’ or ‘fit for
immediate occupation and use’ or such other phrases, are to indicate to the
parties and to any third party that no allowance is to be made against the
rental value to reflect a tenant’s fitting out period.
Those are the
facts and I can now turn to the question whether the expert’s decision is final
and binding and cannot be challenged.
The law on
this subject is now governed by the decision of the Court of Appeal in Jones
v Sherwood Computer Services plc [1992] 1 WLR 277, a decision which was
handed down in December 1989. This decision has set the law on a new course.
Before coming to it and having regard to some submissions made to me by Mr
Barnes QC, for the landlords, I should refer briefly to the earlier history.
In Dean
v Prince [1954] Ch 409 Denning LJ (as he then was) expressed the view
that a valuation could be impeached not only for fraud but also for mistake or
miscarriage. At p 427 of the report he says:
For instance,
if the expert added up his figures wrongly:
— I should say
this was an accounting type of case —
or took
something into account which he ought not to have taken into account, or
conversely: or interpreted the agreement wrongly: or proceeded on some
erroneous principle. In all these cases the court will interfere. Even if the
court cannot point to the actual error, nevertheless, if the figure itself is
so extravagantly large or so inadequately small that the only conclusion is
that he must have gone wrong somewhere, then the court will interfere in much
the same way as the Court of Appeal will interfere with an award of damages if
it is a wholly erroneous estimate. These cases about valuers bear some analogy
with the cases on domestic tribunals, except of course that there need not be a
hearing. On matters of opinion, the courts will not interfere; but for mistake
of jurisdiction or of principle, and for mistake of law, including
interpretation of documents, and for miscarriage of justice, the courts will
interfere: see Lee v Showmen’s Guild of Great Britain.
At that time
it was thought that valuers could not be sued in negligence in relation to
their valuation. That was changed by the decision of the House of Lords in Arenson
v Casson Beckman Rutley & Co [1977] AC 405. This development led
Lord Denning MR (as he had then become) to revise his views. In Campbell
v Edwards [1976] 1 WLR 403 at p 407E he said:
In former
times (when it was thought that the valuer was not liable for negligence) the
courts used to look for some way of upsetting a valuation which was shown to be
wholly erroneous. They used to say that it could be upset, not only for fraud
or collusion, but also on the ground of mistake: see for instance what I said
in Dean v Prince [1954] Ch 409, 427. But those cases have to be reconsidered
now. I did reconsider them in the Arenson case in this court: [1973] Ch
346, 363. I stand by what I there said. It is simply the law of contract. If
two persons agree that the price of property should be fixed by a valuer on
whom they agree, and he gives that valuation honestly and in good faith, they
are bound by it. Even if he has made a mistake they are still bound by it. The
reason is because they have agreed to be bound by it. If there were fraud or
collusion, of course, it would be very different. Fraud or collusion unravels
everything.
It may be
that if a valuer gives a speaking valuation — if he gives his reasons or his
calculations — and you can show on the face of them that they are wrong it
might be upset. But this is not such a case. Chestertons simply gave the
figure. Having given it honestly, it is binding on the parties. It is no good
for either party to say that it is incorrect.
Later at p
408B he said:
The position
of a valuer is very different from that of an arbitrator. If a valuer is
negligent in making a valuation, he may be sued by the party — vendor or
purchaser — who is injured by his wrong valuation.
The issue of a
speaking valuation came up in Burgess v Purchase & Sons (Farms)
Ltd [1983] Ch 216, a decision of Nourse J (as he then was). It was pressed
on him that the Court of Appeal would, in its then state of the authorities,
make no distinction between a speaking and an unspeaking valuation. In response
to that Nourse J said at p 223G:
It seems to
me that I could not tread that path without trespassing upon the rarest ethers
of speculation. The function of a judge of first instance is to apply the law
as it stands. He is not to speculate on what some higher court may one day
declare it to be. If the law is declared by earlier decisions at first instance
he ought to follow them unless he is satisfied that they are wrong. In this
case the law is declared by three earlier decisions at first instance. I am
certainly not satisfied that they are wrong. I must therefore follow and apply
them.
He stated the
law then to be in the following terms on p 225B:
A
non-speaking valuation made of the right property by the right man and in good
faith cannot be impugned, although it may still be possible, in the case of an
uncompleted transaction, for equitable relief — as opposed to damages — to be
refused to the party who wishes to sustain the valuation. On the other hand,
there are at least three decisions at first instance to the effect that a
speaking valuation which demonstrates that it has been made on a fundamentally
erroneous basis can be impugned. In such a case the completion of the
transaction does not necessarily defeat the party who wishes to impugn the
valuation.
That was how
the law stood when the lease in this case was entered into and may explain in
part why the valuer was required to give reasons. And so we come to Jones
v Sherwood Computer Services. The defendant company had agreed to
purchase the plaintiff’s shares in a public limited company for a consideration
fixed by reference to the amount of the sales of the products of some
subsidiaries of the plc. The amount of the sales was to be reviewed by the
accountants representing the plaintiff and the defendant and, if they were
unable to agree, as happened, the matter was to be referred to independent
accountants to determine and report the amount of the sales. The accountants
were to act as experts and not as arbitrators and their determination was to be
‘conclusive and final and binding for all purposes’. The disagreement which
necessitated a reference to the independent accountants was as to the inclusion
of two categories of transactions as sales for the purposes of the calculation.
The Court of Appeal (which consisted of a two-judge court, Dillon and Balcombe
LJJ) decided as follows, and I read from the headnote:
Held, allowing the appeal, that, where parties had agreed to be bound by
the report of an expert, the report, whether or not it contained reasons for
the conclusion in it, could not be challenged in the courts on the ground that
mistakes had been made in its preparation unless it could be shown that the
expert had departed from the instructions given to him in a material respect;
and that, since the third firm of accountants had done precisely what they had
been asked to do and there was no question of bad faith, their determination
was not subject to challenge by the plaintiffs . . .
The first
point I would note is that whether the queried transactions were sales involved
a question of construction of the share-purchase agreement between the
plaintiff and the defendant. On this question Dillon LJ said at p 287E:
Any number of
issues could arise under the various sub-paragraphs of paragraph 2 of appendix
1 as to the application of the wording of those sub-paragraphs to particular
facts. All these issues are capable of being described as issues of law or
mixed fact and law, in that they all involve issues as to the true meaning or
application of wording in paragraph 2. I cannot read the categorical wording of
paragraph 7 as meaning that the determination of the accountants or of the
expert shall be conclusive, final and binding for all purposes ‘unless it
involves a determination of an issue of law or mixed fact and law in which case
it shall only be binding if the court agrees with it’.
Second, the
relevance of speaking awards. In Jones v Sherwood Computer Services
the accountants had not given reasons. On this point Dillon LJ had this to say,
and I turn back to p 284F:
. . . it is
convenient to say a little at this juncture about the distinction between
speaking and non-speaking valuations or certificates, which to my mind is not a
relevant distinction. Even speaking valuations may say much or little; they may
be voluble or taciturn if not wholly dumb. The real question is whether it is
possible to say from all the evidence which is properly before the court, and
not only from the valuation or certificate itself, what the valuer or certifier
has
it will be for a party to mount a challenge to the certificate.
The general
principle was thus stated by Dillon LJ at the top of p 287:
On principle,
the first step must be to see what the parties have agreed to remit to the
expert, this being, as Lord Denning MR said in Campbell v Edwards
[1976] 1 WLR 403, 407g, a matter of contract. The next step must be to see what
the nature of the mistake was, if there is evidence to show that. If the
mistake made was that the expert departed from his instructions in a material
respect — eg, if he valued the wrong number of shares, or valued shares in the
wrong company, or if, as in Jones (M) v Jones (RR) [1971] 1 WLR
840, the expert had valued machinery himself whereas his instructions were to
employ an expert valuer of his choice to do that — either party would be able
to say that the certificate was not binding because the expert had not done
what he was appointed to do.
He concluded
his judgment by commenting on the Burgess case at p 289E:
It follows
from the foregoing that I respectfully differ from much that was said by Nourse
J in Burgess v Purchase & Sons (Farms) Ltd [1983] Ch 216.
This stems primarily from a difference in our respective assessments of the
decisions in Campbell v Edwards [1976] 1 WLR 403 and Baber
v Kenwood Manufacturing Co Ltd [1978] 1 Lloyd’s Rep 175, which I regard
as binding on us, as the starting point of the reassessment of the law in this
field after the decisions of the House of Lords which I have mentioned, but
which he, I apprehend, regarded as heretical and illogical departures from the
established doctrine enunciated in Dean v Prince [1954] Ch 409 —
in effect, Lord Denning’s first thoughts in Dean v Prince ought
to be preferred to his second thoughts in Arenson v Arenson
[1973] Ch 346 and Campbell v Edwards [1976] 1 WLR 403. However it
is unnecessary to encumber this over-long judgment with further analysis of Burgess
v Purchase & Sons (Farms) Ltd [1983] Ch 216 which on any view is not
binding on this court.
Balcombe LJ,
in a short concurring judgment, picks up that point at the beginning of his
judgment at p 289H:
The principle
applicable to a case of this type is that stated by Lord Denning MR in Campbell
v Edwards [1976] 1 WLR 403, 407. [His Lordship set out the passage cited
by Dillon LJ, ante, p 284c, and continued:]
That principle was expressly approved by this court in Baber v Kenwood
Manufacturing Co Ltd [1978] 1 Lloyd’s Rep 175. In my judgment that
principle cannot be affected by the chance whether the valuation is or is not a
‘speaking’ valuation. I agree with Dillon LJ that that is not a relevant
distinction and it follows that I also respectfully disagree with the judgment
of Nourse J in Burgess v Purchase & Sons (Farms) Ltd [1983]
Ch 216.
That is the
governing decision now and it fell to Knox J in Nikko Hotels (UK) Ltd v MEPC
plc [1991] 28 EG 86, [1991] 2 EGLR 103* to apply this decision to a case
concerning a rent review provision. The subject premises were an hotel and the
rent was to be regulated according to charges made for accommodation in the
hotel. The mechanism involved an elaborate formula linked to changes in the
room rate which gave rise to questions of interpretation which the expert had
to decide. Knox J expressed the effect of the decision in Jones v Sherwood
Computer Services in this way at p 99 of the report:
This decision
of the Court of Appeal in Jones v Sherwood Computer Services is,
of course, binding on me, as counsel on both sides before me accepted. In my
judgment, it provides for a contractual analysis of the task set for the expert
to perform and it gives full effect to the parties’ agreement regarding with
what it was that the expert should be entrusted.
The result,
in my judgment, is that if parties agree to refer to the final and conclusive
judgment of an expert an issue which either consists of a question of
construction or necessarily involves the solution of a question of
construction, the expert’s decision will be final and conclusive and,
therefore, not open to review or treatment by the courts as a nullity on the
ground that the expert’s decision on construction was erroneous in law, unless
it can be shown that the expert has not performed the task assigned to him. If
he has answered the right question in the wrong way, his decision will be binding.
If he has answered the wrong question, his decision will be a nullity.
*Editor’s
note: Also reported at [1991] 2 EGLR 103.
I respectfully
and gratefully adopt that and turn to the case before me.
What is
remitted to the determination of the expert is the determination of the open
market rent as defined in clause 1.2 of the second schedule. The definition
involves the making of certain assumptions and disregarding certain effects.
The task may involve interpreting the language used, for example the
reconciliation between the direction to assume in fixing the rent that the
premises are fit for immediate occupation and use, and the direction to
disregard any effect on that same rent of improvements carried out by the
tenant after the commencement of the term but before the review date.
Mr Oddy indeed
saw as one of the matters referred to him the application of the assumption
that the premises were to be regarded as fit for immediate occupation and use.
He noted the different interpretations of the landlord and tenant, backed up by
the opinions of counsel in comparable cases, and reached his determination
accepting the arguments of the tenant. This resulted in no increase of the rent
to take account of any notional fitting out at the expense of the landlord, or
at all events not at the expense of the tenant, or any decrease of rent to take
account of any rent-free period to allow for the time which the tenant might
take to fit out the premises at his expense.
The resolution
of this question of interpretation is, in my judgment, one which the expert
necessarily had to undertake along the way to determine the open market rent as
defined in the second schedule. Accordingly, as I see it, the question was within
the remit of the expert and the answer of Mr Oddy is final and binding and not
subject to review.
I would add
that I would not have accepted the alternative submission of Mr Morgan. I do
not think that one can spell out of the submissions of the experts to Mr Oddy
an agreement to submit an issue for his decision. They were merely guiding
themselves by the rent review clause in the lease.
I must,
however, go on to the careful and penetrating argument of Mr Barnes. He began
by considering whether the expert had come to a correct view of the requirement
that he has to assume that the premises are fit for immediate use and
occupation. He submitted that it meant that one had to assume that at the
review date the premises had been fitted out in readiness for the immediate
occupation of a hypothetical tenant for the purposes of his business. This
meant that such a tenant had two advantages: (a) no period of time when the
tenant cannot use the premises while the fitting out was being done and (b) not
have the financial burden of paying a capital sum for the fitting out.
The expert
declined in principle to allow anything for the second advantage. In so doing,
so it is submitted, he failed to carry out his instructions. He was instructed
to value the premises fitted out and deliberately valued them as not fitted
out. Accordingly, picking up the respective formulations in Jones v Sherwood
Computer Services and Nikko Hotels it is said that he (a) departed
from his instructions and (b) asked himself the wrong question.
I am unable to
accept this submission. It depends, as I see it, upon the expression ‘fit for
immediate occupation and use’ bearing the meaning attributed to it by Mr Barnes
as being beyond any question or argument. As I shall show later, other meanings
are fairly arguable. Accordingly, the true construction of this expression was
a matter with which the expert was required to grapple. The fact that he may
have placed upon it a particular construction and sought to justify it with
reasoning which is flawed — or even incomprehensible (Mr Barnes went that far)
— would simply mean that he had answered the right question wrongly. I would go
further. Even if the construction of Mr Barnes were self-evidently right, I
would not consider that the expert departed from his instructions in a material
respect. The examples given by Dillion LJ are cases of departure from express
instructions. In this case the express instructions are to determine the open
market rent as defined and to give reasons. If he had totally ignored a
material element, there might be a question, but the expert had made an attempt
to deal with the element as part of his instructions. At worst, he had come to
a wrong conclusion. The fact that he may be patently wrong does not mean that
he has not done what he was appointed to do nor that he has asked himself the
wrong question. To take any other view would lead to the sort of refined
arguments such as have been deployed here and go a long way to emasculate the
requirement that the decision of the expert, as a matter of contract between
the parties, be final and binding. Thus, the advantages of cost, speed and
finality would be seriously diminished.
Mr Barnes went
on boldly to argue that in any event, if the expert’s determination is wrong in
law, it necessarily means that he has exceeded his jurisdiction so that the
purported jurisdiction or exercise of it is a nullity. In support of this I was
taken through a series of decisions at the highest level commencing with Anisminic
Ltd v Foreign Compensation Commission [1969] 2 AC 147, proceeding
through Re Racal Communications Ltd [1981] AC 374 to O’Reilly v Mackman
[1983] 2 AC 237, which define the modern doctrine of control by the High Court
over inferior courts and tribunals. To see what that doctrine is I cannot do
better than cite from the speech of
After citing section 4(4) of the Foreign Compensation Act 1950, which provided:
The
determination by the commission of any application made to them under this Act
shall not be called in question in any court of law,
his speech
went on at p 278:
It was this
provision that provided the occasion for the landmark decision of this House in
Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147,
and particularly the leading speech of Lord Reid, which has liberated English
public law from the fetters that the courts had theretofore imposed upon
themselves so far as determinations of inferior courts and statutory tribunals
were concerned, by drawing esoteric distinctions between errors of law
committed by such tribunals that went to their jurisdiction, and errors of law
committed by them within their jurisdiction. The breakthrough that the Anisminic
case made was the recognition by the majority of this House that if a tribunal
whose jurisdiction was limited by statute or subordinate legislation mistook
the law applicable to the facts as it had found them, it must have asked itself
the wrong question, ie, one into which it was not empowered to inquire and so
had no jurisdiction to determine. Its purported ‘determination’, not being a
‘determination’ within the meaning of the empowering legislation, was
accordingly a nullity.
I note the
reference there to ‘asked itself the wrong question’. Mr Barnes sought to say
that, as experts shared many of the characteristics of inferior tribunals, this
doctrine should apply to their determinations, albeit they operated in the
field of private law. I am quite unable to accept this submission for a number
of reasons.
First,
tribunals have been imposed from outside by Parliament or some other authority
to adjudicate on disputes between executive authorities and citizens or
sometimes between citizens and citizens. Some control over them is necessary.
Sir William Wade, in his well-known textbook, Administrative Law, 6th
ed, p 297, said:
If
administrative tribunals and authorities could trespass uncontrollably outside
their proper field, there would no longer be order in the legal system. Order
can be preserved only if jurisdictional demarcation disputes can always be
carried to the regular courts of law and so be brought within a unified
hierarchy of authority.
The position of
an expert is quite different. The expert’s jurisdiction (so-called) is settled
as a matter of contract between the parties. It is not imposed from without.
Second, if it
is thought that some question of law requires resolution, either party can seek
a declaration from the court.
Third, if the
expert is negligent, a party suffering loss as a result of the determination
may have a remedy against him.
Fourth, Mr
Barnes submitted that I was not precluded by the decision in Jones v Sherwood
Computer Services from accepting that concept of jurisdiction in public law
to be applicable to decisions of experts such as we have here. I do not agree.
As I have shown, in the past analogies from jurisdictions over tribunals have
been used in controlling experts and we have looked at Dean v Prince
and Burgess v Purchase & Sons. Such methods of control have
been expressly repudiated by the Court of Appeal in Jones v Sherwood
Computer Services.
Finally, I
turn to the question of what is the true meaning of the expression ‘vacant but
fit for immediate occupation and use’ as used in the second schedule to the
lease. I have already referred to Mr Barnes’ submission on behalf of the
landlord. The expert is required to assume that the premises are fitted out
ready for occupation by a hypothetical tenant. The building is not in a shell state
but fitted out so that the tenant can just walk in and start business. It does
not matter who paid for it. This has the consequence that there is to be no
remission of rent to allow for fitting out to be done. But there is to be an
uplift of rent because the hypothetical tenant does not have the financial
burden of paying a capital sum to get in. The expert confined the expression
requiring him to make no allowance for a fitting-out period. He was persuaded
by arguments not to increase the rent on account of the state of the fitting
out in readiness for immediate occupation, as I have explained.
Mr Morgan, for
the tenant, pointed out the anomaly of charging the tenant £10 per sq ft for
something which the landlord had not provided at the rent review date. He also
points out that the expression was ‘fit for immediate use’ not ‘fitted out’.
From this he deduced that the expression meant that the building was free from
defects and ready for the tenant to go in, fit it out for his business and
commence trading. A building is fit for occupation when it is ready to be
occupied for fitting-out purposes. Ready for occupation does not mean ready for
the tenant to go in and start trading immediately. If this were correct, it
would mean that the tenant could negotiate for a reduction of rent over the
fitting-out period, but Mr Morgan emphasised that he was not seeking to put
forward any such claim in the present case. He accepted the expert’s finding.
Of these views
I prefer that proposed by the tenant for the following reasons. First, it is
consistent with the purpose of the rent review clauses, whereas the landlord’s
construction is not. I refer to Basingstoke and Deane Borough Council v Host
Group Ltd [1988] 1 WLR 348* at p 353D, where Nicholls LJ, giving the judgment
of the Court of Appeal, said:
The question
raised on this appeal is one of construction of a rent review clause in a
lease. In answering that question it is axiomatic that what the court is
seeking to identify and declare is the intention of the parties to the lease
expressed in that clause. Thus, like all points of construction, the meaning of
this rent review clause depends on the particular language used interpreted
having regard to the context provided by the whole document and the matrix of
the material surrounding circumstances. We recognise, therefore, that the
particular language will always be of paramount importance. None the less it is
proper and only sensible, when construing a rent review clause, to have in mind
what normally is the commercial purpose of such a clause.
That purpose
has been referred to in several recent cases, and is not in doubt. Sir Nicolas
Browne-Wilkinson V-C expressed it in these terms in British Gas Corporation
v Universities Superannuation Scheme Ltd [1986] 1 WLR 398, 401:
‘There is
really no dispute that the general purpose of a provision for rent review is to
enable the landlord to obtain from time to time the market rental which the
premises would command if let on the same terms on the open market at the
review dates. The purpose is to reflect the changes in the value of money and
real increases in the value of the property during a long term.’
The landlord’s
construction would give the landlord more than compensation for changes in the
value of money.
*Editor’s
note: Also reported at [1987] 2 EGLR 147.
Second, the
tenant’s construction fits in better with the remainder of the review clause. I
note these points:
(a) The expert is required to assume that the premises
are let with vacant possession for any use within the same class of the use
classes order as a permitted user. This fits uneasily with the notion that he
is required to assume that the premises have been fitted out for a specific
office user.
(b) The expert, on the one hand, is required to
assume that no work has been carried out by the tenant which has diminished the
rental value and, on the other, to disregard the effect on rent, presumably
upwards, for voluntary improvement. Strictly, these admonitions would not be
required if one is required to assume that the premises were fitted out ready
for the immediate profitable occupation of a hypothetical tenant, for that
means that, in any event, one would ignore the fitting out done by the actual
occupying tenant.
I was referred
to a number of other cases on construction of similar, but not identical,
review clauses. None of them precisely cover this case — cases on construction
seldom do — and I do not propose to examine them further, save to say that the
most recent, a decision of the Court of Appeal handed down on December 16 1991
but so far unreported, seems fatal to the landlord’s approach here. The case is
Iceland Frozen Foods plc v Starlight Investments Ltd† *. There
there was to be an assumption that the premises are ready for immediate
occupation and use. The landlords were arguing that the most profitable use was
to subdivide the premises into seven separate units instead of the existing two
and that is what the hypothetical tenant would bid for. As to that, Dillon LJ
said at p 6 of the transcript§ :
As I see it,
however, the first stage in this is that the assessment of the new rent is to
be on the basis of the rental value of the landlord’s premises in their actual
condition for the time being. That is in accordance with a statement of the law
by Fox J in Trust House Forte Albany Hotels Ltd v Daejan Investments
Ltd (1980) 256 EG 915, [1980] 2 EGLR 123. At p 916 Fox J said:
‘. . .As to
the protection of the landlord against inflation, I accept that such is the
purpose of the clause, but what is it that is being protected against
inflation? In the absence of clear
language to the contrary, I would assume that it is the rental value of the
landlord’s premises in their actual condition for the time being.
. . . You
protect the landlord against inflation by reassessing every seven years the
rent of the actual premises which he owns and not of other premises. I do not
see why the landlord should get the benefit of assumed alterations which the
landlord has not made.’
That passage
was approved by this court in Orchid Lodge (UK) Ltd v Extel Computing
Ltd [1991] 32 EG 57, [1991] 2 EGLR 116. It was cited by Judge O’Donoghue in
the court below in the present case, together with a statement by Hoffmann J in
Norwich Union Life Insurance Society v Trustee Savings Banks Central
Board [1986] 1 EGLR 136 at p 137 where he referred to the ‘presumption that
the hypothesis upon which the rent should be fixed upon a review should bear as
close a resemblance to reality as possible’.
*Editor’s
note: Also reported at [1987] 2 EGLR 147.
† Editor’s
note: Also reported at [1987] 2 EGLR 147.
§ Editor’s
note: Reported at p 126 ante.
Commenting on
the proposed works of conversion, the Lord Justice said:
. . . if the
execution of these works will produce a higher rental value for the premises or
an improved return from trading in the premises which will warrant paying a
higher rent for the pleasure of converting the premises, the works of
conversion will rank as tenant’s improvements which are to be disregarded under
the express terms of the rent review clause. Mr Dowding [counsel for the
landlord] says: ‘But these are merely hypothetical alterations by a
hypothetical tenant under a hypothetical lease. Under the rent review clause
you are only required to disregard actual improvements carried out by the real
tenant.’ But it seems to me to make nonsense
of the rent review clause as drawn and of the aim that the rent on review
should be fixed so as to bear as close a resemblance to reality as possible, if
it is not possible to charge rent for actual improvements but is possible to
charge the actual tenant with rent for hypothetical improvements which have
never been carried out.
I regard that
as fatal to the submissions here of the landlord but, as I have also said, the
precise meaning of the review clause is not before me. What is before me is
whether the expert’s decision is binding. As to that, I am inclined to make the
declaration sought under para 2 of the notice of motion rather than strike out
parts of the originating summons, but I will hear counsel.
