Claim for rectification of rent review clause – Tenant claiming that words qualifying improvements to be disregarded inserted by mistake – Tenant further claiming that arbitration award vitiated by landlord’s fraudulent misrepresentation of what had been agreed prior to grant of lease – Tenant’s claims upheld
The claimants were the trustees of the Swansea Yacht and Sub Aqua Club. In April 1985 the club received an undertaking from the defendant council that, in return for the club withdrawing its opposition to the Tawe Barrage Bill, the council would, as successors to the British Transport Docks Board, provide the club with 200 moorings under the terms of a long lease. The club had previously enjoyed similar, but more limited, rights under a licence agreement with the board.
During subsequent negotiations, it was agreed, in principle, that the club would pay for the supply and construction of a greater number of moorings to an estimated cost of £360,000, and that, since these would become part of the demised property and eventually revert to the council, the rent payable, both initially and on review, would be agreed or assessed without regard to the value of the work so paid for.
In December 1991 various matters were discussed at a meeting (the 1991 meeting) which was attended by two members of the club, its solicitor, a partner in Beor Wilson & Lloyd (BWL), and two council officers, one of whom (H) was a legal executive in correspondence with BWL upon conveyancing mattters. H subsequently prepared and filed a typewritten note (the 1991 note), recording, inter alia, that works carried out under the agreement for lease would be excluded for the purposes of rent review.
In or about January 1992, BWL received from H a draft copy of the proposed agreement. The rent review provisions so submitted included an express disregard of any increase in value attributable to improvements carried out by the tenant. However, unlike the corresponding clause in an earlier draft, words in red ink (the added words) purported to exclude from the disregard the pontoons that the club was obliged to construct. The effect of the added words was overlooked by BWL, and they were eventually incorporated into the agreement and then into the lease (dated January 1993). The pontoons were installed at a cost of £367,000.
In September 1997, when the club was paying a rent of £26,000 pa, the council gave notice that they required a rent review as at 24 June 1997. By a letter of the same date, the council sought a revised annual rent of £200,000. They later confirmed, orally, their intention to approach rent review upon the basis that the pontoons formed no part of the disregard.
Realising that it could face a negligence claim, BWL ceased to act for the club, which was thereafter advised by another solicitor, M. In November 1997 H sent to M a copy of the 1992 draft, as a purported confirmation that the pontoons were not to be disregarded. On the following day, H, responding to a request from M that she should check her notes of the 1991 meeting, informed him that they did not mention the rent review alteration. In March 1998 the club consented to the fixing of a new rent by arbitration, having been advised that that was the only way to dispute the amount of rent now claimed. In the same month, the club started proceedings against BWL, which were eventually settled. In September 1998 an arbitrator assessed the new rent at £59,600 pa.
In December 1998 the club, acting at the cost, and under the control, of the Solicitors’ Indemnity Fund, commenced the present proceedings, in the course of which the 1991 note became available to the club’s advisers. The club claimed: (i) rectification of the lease, upon the ground of mutual mistake; and (ii) an order that the arbitration award should be set aside (with damages to be assessed), upon the ground that the club had been induced to arbitrate by a fraudulent misrepresentation made by H in November 1997.
Held: Both claims were allowed.
1. As confirmed by the 1991 note, nothing had occurred at the 1991 meeting to disturb the continuing intention of the parties that the value of the pontoons would be disregarded for rent review purposes. Further, the presence of the added words was attributable to a mistake on the part of the council, as H had inserted them in the erroneous belief (ascertained at the hearing) that their sole purpose was to confirm that the pontoons would form part of the demised property.
2. By purporting, in November 1997, to recite the contents of her 1991 note, H had chosen not to mention that it had been confirmed that the pontoons would be excluded for the purpose of rent review. That was fraud, it being immaterial that her motive was to avoid something that, in her view, was an unnecessary complication.
3. Given that the club would not have gone to arbitration but for the fraud, it was unnecessary to decide whether the rectification order alone was sufficient to invalidate the arbitration award. There was, accordingly, no need to analyse the somewhat isolated decision in Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68.
Paul Morgan QC and Janet Bignell (instructed by Beachcroft Wansbroughs, of Bristol) appeared for the claimants; Jonathan Brock QC and Alexander Hill-Smith (instructed by the solicitor to the City and County of Swansea) appeared for the defendants.
Alan Cooklin, barrister
