Rent review — Provisions for initiating review — Time-limit — Whether presumption that time is not of the essence applies in Scotland — Whether upon construction of the lease time of the essence — Appeal by landlord dismissed
hold the term of a shop unit under a 24-year lease from August 1 1978 — The
defenders are the landlords — The lease made provision for five-yearly rent
reviews — Provision for the appointment of an arbiter or an expert valuer — The
application for a nomination may be made not more than six months before or at
any time after the relevant rent review dates — The lease further providing
that if by the first date for the payment of rent for the relevant five-year
period the lessors had not before that date made an application for a
nomination, the lessee may at any time thereafter state by notice the amount of
such revised rent and that amount shall be the revised rent for the relevant
period unless the lessors make an application for nomination within three
months after the date of service of such notice — The relevant rent review date
was August 1 1988 — The parties had not agreed the revised rent and by a letter
dated July 29 1988 the lessors gave notice that the rent should be revised to
£29,750 pa but did not make any application for nomination before August 1 1988
— By a notice dated August 23 1988 the lessees gave notice to the lessors that
the revised rent should be £13,200 — The lessors failed to make any application
for nomination within three months after the date of that notice — The lessees
sought a declarator that the revised rent proposed by them of £13,200 was the
revised rent for the rent review period commencing August 1 1988
House the lord ordinary granted decree of declarator as contended for on behalf
of the lessees — The lessors sought review of that interlocutor on the ground
that
presumption that time is not of the essence of a rent review clause and that in
any event, on a proper construction of the rent review clause in question, if
there were such a presumption, it had been rebutted
Holdings Ltd v Burnley Borough Council can be treated as laying down
principles which are applicable equally to Scotland as to England — In Scotland
the rules which according to English law are stated as presumptions are really
to be seen as rules of construction which take their place along with various
other rules in order to ascertain the intention of the parties
the particular wording in the instant lease, the lessees had followed the
procedure in the rent review clause and were entitled to rely on what the
clause said about the effect of the expiry of the time-limit — The purpose of
the clause was to enable the lessee to fix a time-limit which will be strictly
enforced — This being an ultimatum procedure which the parties had agreed as
part of their contract — This was a clear indication that time was to be of the
essence
The following
cases are referred to in this report.
Bowes v Shand (1877) 2 App Cas 455; [1871-80] All ER Rep 174; 46
LJQB 561; 36 LT 857; 25 WR 730, HL
Gatty v Maclaine 1921 SC (HL) 1
Grahame v Magistrates of Kirkcaldy (1882) 9 R (HL) 91
HMV
Fields Properties Ltd v Bracken Self Selection
Fabrics 1991 SLT 31
Leeds
Permanent Pension Scheme Trustees Ltd v William
Timpson Ltd 1987 SCLR 571
Legal and
Commercial Properties Ltd v Lothian Regional
Council 1988 SLT 463; 1988 SCLR 201
Mecca
Leisure Ltd v Renown Investments (Holdings) Ltd
(1984) 49 P&CR 12; [1984] EGD 200; 271 EG 989, [1984] 2 EGLR 137, CA
Phipps-Faire
Ltd v Malbern Construction Ltd [1987] 1 EGLR
129; (1987) 282 EG 460
Rodger
(Builders) Ltd v Fawdry 1950 SC 483
Smith’s
(Henry) Charity Trustees v AWADA Trading &
Promotion Services Ltd (1983) 47 P&CR 607; [1984] EGD 103; 269 EG 729,
[1984] 1 EGLR 116, CA
United
Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904; [1977] 2 WLR 806; [1977] 2 All ER 62; (1977) 33
P&CR 220; [1977] EGD 195; 243 EG 43 & 127, HL, [1977] 2 EGLR 61
Yates,
Petitioner 1987 SLT 86
The pursuers
and respondents, Visionhire Ltd, held the term of a lease of a shop unit in the
Wellgate Shopping Centre, Dundee. The defenders and reclaimers, Britel Fund
Trustees Ltd, held the reversion to the lease.
Nimmo Smith QC
(instructed by Tods Murray WS) appeared for the defenders and reclaimers;
Ronald Mackay QC and J R Doherty (instructed by Bird Semple Fife Ireland WS)
represented the pursuers and respondents.
In giving his
opinion, the LORD PRESIDENT said: The parties to this case are in
dispute about the meaning and effect of a rent review clause in a lease. The
lease relates to a shop unit in a shopping centre known as the Wellgate,
Dundee. It was entered into between the Prudential Assurance Co Ltd, Caledonian
Terminal Securities (Wellgate) Ltd and the pursuers [Visionhire Ltd] dated
March 3, August 25 and September 7 1980 and registered in the Books of Council
and Session on March 19 1985. The lessors were Prudential Assurance Co Ltd and
the lessee was Visionhire Ltd. The landlord’s interest in the lease was
assigned to the defenders in 1986.
The premises
were let to the lessee for 25 years from the date of entry, which was August 1
1978. By clause 3 of the lease the pursuers undertook to pay to the lessors
throughout the currency of the lease the respective rents set out in the second
schedule, together with a service charge as defined by the third schedule to
the lease. We are concerned in this case with the provisions of the second
schedule, which stipulated that rent was to be paid at the rate of £7,500 pa
for the period from October 1 1978 to the fifth anniversary of the date of
entry and that thereafter in respect of each quinquennium from the anniversary
of the date of entry it was to be subject to review.
The provisions
of the second schedule, so far as material, have been set out in full by the
lord ordinary. It is sufficient at this stage simply to summarise the structure
of these provisions before quoting the declaration which is in dispute in this
case. The opportunity for the rent to be reviewed is to occur in each
quinquennium following the initial period of five years. The rent for the
ensuing period of five years is to be the highest rent payable during the
immediately preceding quinquennium or such revised rent, whichever shall be
greater, as shall be agreed between the lessors and the lessee at any time or,
if there is no such agreement before the expiry of the immediately preceding
quinquennium, as may be determined by an arbiter or, at the option of the
lessors, by an expert valuer. The initiative for referring the matter to an
arbiter or to an expert valuer in terms of declaration (1) of the second
schedule lies with the lessors. Their application for a nomination may be made
to the president of the Royal Institution of Chartered Surveyors not more than
six months before or at any time after the anniversary of the date of entry in
the years in which the revised rent may become payable. It should be noted that
there is no fixed time-limit within which such an application may be made after
that date, since it is provided that the application may be made ‘at any time’.
Declaration (5) provides a mechanism for rolling up the difference between the
rent previously payable and the revised rent, which is recoverable from the
lessee without any right to claim interest on the first date for the payment of
rent after the revised rent has been ascertained. Then there is declaration
(6), which is in these terms:
if and so
often as a revised rent in respect of any quinquennium has not been agreed
between the Lessors and the Lessee before the first date hereby provided for
payment of rent for the relevant quinquennium, and the Lessors have not before
that date made any application to the President for the time being of the Royal
Institution of Chartered Surveyors as a foresaid, the Lessee may at any time
thereafter give to the Lessors notice in writing containing a proposal as to
the amount of such revised rent and the amount so proposed shall be the revised
rent for the relevant quinquennium unless the Lessors shall make such
application as aforesaid within three months after the date of the service of
such notice.
The facts
relevant to the dispute which has arisen in this case are all agreed. The rent
payable by the pursuers to the defenders fell to be reviewed on the terms set
out in the second schedule for the quinquennium commencing on August 1 1988.
The parties did not agree the revised amount of the rent before the expiry of
the preceding quinquennium. By letter dated July 29 1988 agents for the
defenders gave notice to the pursuers that the rent should be revised to
£29,750 pa, but the defenders did not make any application to the president of
the Royal Institution of Chartered Surveyors for the nomination of an arbiter
or an expert valuer before August 1 1988. It is agreed, therefore, that the
conditions which are necessary to entitle the pursuers to serve a notice in
terms of declaration (6) were fulfilled.
The pursuers
then proceeded to take advantage of this provision by serving a notice on the
defenders by recorded delivery letter dated August 23 1988. In this letter they
proposed that the revised amount of the rent should be £13,200. It is admitted
that the defenders did not make an application to the president within three
months after the date of the service of that notice. It was not until December
29 1988 that they took this step, by which time the period of three months had
expired. In these circumstances the pursuers seek declarator that the revised
rent proposed by them of £13,200 is the revised rent for the quinquennium from
August 1 1988. The lord ordinary, having heard argument on the Procedure Roll,
held that the provisions of declaration (6) on which the pursuers’ action is
based must be regarded as mandatory and that, as a result, the pursuers are
entitled to succeed in their action. He sustained their pleas in law and granted
decree of declarator as concluded for. The defenders now seek review of that
interlocutor on the grounds that the lord ordinary misdirected himself in
holding that in Scots law there is no presumption that the timetable specified
in a rent review clause is not of the essence of the contract and that, in any
event, on a proper construction of the provisions of the second schedule, if
there is such a presumption it has been rebutted.
It has not
been suggested that declaration (6) is in any respect ambiguous or that there
is any reason other than that related to the presumption for not giving effect
to it according to its terms. Indeed, if one were to look only to the terms of
the agreement which the parties have expressed in the second schedule, there
would plainly be no escape from the conclusion that, since the defenders did
not make an application to the president within three months after the date of
the service of the notice by the pursuers, the amount proposed in that notice
is to be the revised rent for the new quinquennium. But the stipulation that
the defenders’ notice required to be served within three months in order to
avoid that result is a stipulation as to time
Much of the argument
before the lord ordinary and again in the hearing in the reclaiming motion
before us was taken up with the question whether the principles laid down by
the House of Lords in United Scientific Holdings Ltd v Burnley
Borough Council [1978] AC 904* are applicable in Scots law. It was held in
that case that there was a presumption that a timetable specified in a rent
review clause in a contract of lease was not of the essence of the contract and
that there was nothing in either of the two leases there in question to
displace that presumption. It is clear from an examination of the speeches in
that case, especially those of Lord Diplock at pp 923-924 and of Lord Fraser of
Tullybelton at p 958, that their lordships were concerned particularly with the
question whether a failure to adhere strictly to the timetable in a rent review
clause deprives the landlord of his right to have the rent reviewed. This was a
question which had arisen on a number of occasions in previous years and had
appeared to turn on fine distinctions between the wording of particular clauses
in each lease. The Court of Appeal had decided that the commercial nature of
the contract and the legal nature of the right granted to the landlord by a
rent review clause raised a presumption that time specified in such a clause
for anything that needed to be done was of the essence. They held that this
presumption must prevail unless there were strong contra-indications in the
actual wording of the lease. This decision was reversed by the House of Lords
after a detailed examination of the development of the law of England in regard
to the enforcement of stipulations in contracts as to time. This involved a
discussion of the dichotomy between the rules of equity and of common law which
plainly has nothing to do with the law of Scotland, which has never recognised
this distinction: see, for example, Grahame v Magistrates of
Kirkcaldy (1882) 9 R (HL) 91 per Lord Selborne LC at p 97. But the
opportunity was taken, in particular by Lord Fraser of Tullybelton at p 958, to
approve of a summary of law in Halsbury’s Laws of England, 4th ed, vol
9, para 481, which is in these terms:
The modern
law, in the case of contracts of all types, may be summarised as follows. Time
will not be considered to be of the essence unless: (1) the parties expressly
stipulate that conditions as to time must be strictly complied with; or (2) the
nature of the subject matter of the contract or the surrounding circumstances
show that time should be considered to be of the essence; or (3) a party who
has been subject to unreasonable delay gives notice to the party in default
making time of the essence.
*Editor’s
note: Also reported at (1977) 243 EG 43 & 127, [1977] 2 EGLR 61.
On the
question of principle which was raised in the appeals about the effect of
stipulations as to time in rent review clauses, the House of Lords held, in the
words of Lord Diplock at p 930 which are very close to those used in the
passage which Lord Fraser of Tullybelton quoted from Halsbury:
. . . upon
the question of principle which these two appeals were brought to settle, I
would hold that in the absence of any contra-indications in the express words
of the lease or in the interrelation of the rent review clause itself and other
clauses or in the surrounding circumstances the presumption is that the
time-table specified in a rent review clause for completion of the various
steps for determining the rent payable in respect of the period following the
review date is not of the essence of the contract.
An examination
of that decision leads, therefore, to two questions which must be examined in
order to see to what extent, if at all, it can be accepted as being consistent
with the principles of Scots law. The first question is whether Halsbury’s
statement of the modern law of England in its application to contracts of all
types is in accordance with the Scottish approach to the construction of
contracts generally. In addressing this question it should be noted that, in
para 482, Halsbury elaborates upon the point made in the previous
paragraph as follows:
Apart from
express agreement or notice making time of the essence, the Court will require
precise compliance with stipulations as to time wherever the circumstances of
the case indicate that this would fulfil the intention of the parties. Broadly
speaking, time will be considered of the essence in ‘mercantile’ contracts and
in other cases where the nature of the contract or of the subject matter or the
circumstances of the case require precise compliance.
The second
question is whether, whatever may be said about contracts of other types,
stipulations as to time in rent review clauses should, in the absence of
indications to the contrary, be seen as not being of the essence of the
contract.
The lord
ordinary, after a detailed examination of the speeches in that case and such
indications as are available as to the position in Scots law, was not satisfied
that there has ever been an equivalent in Scotland to the English rule as
stated in Halsbury at para 481. He expressed his conclusion on the first
question which I have mentioned above in a passage which is in these terms:
In all the
circumstances, although there are some similarities between the laws of
Scotland and England with regard to the effect of stipulations as to time, it
appears to me there are also material differences. It further appears to me
that the instances considered do not provide a basis in Scots law for a
presumption, either general or applying to a particular class of contract, that
time is not of the essence, if by presumption is meant a rule which must be
given effect in a situation in which the actual contract made by the parties,
construed naturally according to its particular terms, provides for some
different result.
Turning then
to the particular point about rent review clauses, he quoted passages from the
speech of Lord Fraser of Tullybelton at p 959, but here again he was not
persuaded that the English approach was consonant with Scots law:
With all
diffidence, however, I do not think that the considerations set out by Lord
Fraser are of such force as to make it necessary, given the different Scottish
background, to override, or give an artificial construction to, express
provisions agreed by the parties. Similarly, given the difference in
background, certainty in the application of the contract terms may be of more
importance than is allowed in the English cases.
Mr Nimmo Smith
QC, for the defenders, disclaimed any intention to characterise the English
rule in these terms. He accepted that any rule of construction, including any
presumption as to the effect of provisions as to time, must be subordinated to
the express terms of the contract. Having submitted that in this regard the
lord ordinary had overstated the effect of the English rule, which recognised
that contra-indications may be found in the express words of the contract, he
invited us to regard the history of the development which had led to the modern
rule as irrelevant to the question whether, in its modern form, that rule could
be accepted in Scotland. He pointed out that in his discussion of provisions as
to time, Gloag on Contract 2nd ed pp 615-618 cites English authorities
along with Scottish in a manner which indicates that he regarded the principles
to be found in the English cases as applicable also in Scotland. Gloag’s
statement at p 617 that ‘Stipulations as to time of payment are not treated as
material conditions of the contract except in various special cases’ was entirely
consistent with the English approach. Counsel then referred us to three recent
cases in the Outer House in which, although the contrary had not been argued,
the decision in United Scientific Holdings had been referred to without
any indication that it did not apply in Scotland. These were Yates,
Petitioner 1987 SLT 86 in which Lord Davidson, without commenting directly
on that particular case, made reference at p 91 with approval to dicta from two
of the later English cases which apply that decision to particular rent review
clauses; Leeds Permanent Pension Scheme Trustees Ltd v William
Timpson Ltd 1987 SCLR 571, in which Lord Cowie at p 573 said that it is
clearly established that in general there is a presumption that the timetable
in rent review clauses is not of the essence but that this presumption can be
rebutted in the manner mentioned in United Scientific Holdings; and Legal
and Commercial Properties Ltd v Lothian Regional Council 1988 SLT
463 where, at p 465, Lord Jauncey said that United Scientific Holdings
could be treated as laying down principles which are applicable equally to
Scotland as to England.
The pursuers’
counsel, on the other hand, supported the lord ordinary’s approach. Their
argument was that in all cases the question was simply one of construction. The
law of Scotland took a neutral approach, without making any presumptions either
one way or the other as to whether time was of the essence of the contract. The
proper question to ask, therefore, was not whether time was of the essence but
simply to ask what does the contract mean. If the language used is clear on
this point, then the consequences of a failure to adhere to the stipulated
timetable are those which the contract itself provides. It was contrary to the
Scottish approach to ignore the terms of the contract and in effect to rewrite
it so as to mean something else. Reference was made to Gatty v Maclaine
1921 SC (HL) 1 per Lord Birkenhead LC at p 6 and Lord Shaw of
Dunfermline at p 11. There was no support in the Scottish authorities for any
general rule in the terms indicated by Halsbury. Gloag’s discussion
proceeds merely by looking at particular instances, and the approach in this
country had always been to see the question when it arose as one about the
materiality of the breach of contract. The strict approach to questions of
construction as illustrated by the Scottish approach to irritancy clauses was
inconsistent with the
party with a view to deciding whether or not a contract should be strictly
enforced.
I recognise
the force of these arguments and also of the points made by the lord ordinary
in his careful analysis of the differences between Scotland and England in
regard to stipulations as to time. But, in my opinion, the conclusion which he
reached on this matter is mistaken and I prefer Lord Jauncey’s view as
expressed in Legal and Commercial Properties Ltd at p 465 that United
Scientific Holdings can be treated as laying down principles which are
applicable equally to Scotland as to England. It seems to me to be well
established in Scotland that whenever a provision as to time is contained in a
contract the question is raised whether time is of the essence. There has over
a long period been a tendency to examine the English cases in order to find a
solution to this problem whenever it is raised. Gloag’s reference at p
615 to Bowes v Shand (1877) 2 App Cas 455, which is English
authority for the rule that in mercantile contracts time will be considered to
be of the essence, provides an example of this approach. Further examples are
to be found at p 617 where stipulations as to time of payment are discussed. I
do not think that it is necessary to examine the details of these examples. The
point seems to me simply to be this, that in Scots law, as in the law of
England, one can find cases where stipulations as to time are treated as being
of the essence of the contract and other cases where they are not. No Scottish
writer has yet sought to rationalise the position in the way in which the
general rule has been stated in Halsbury, but I do not find this
surprising nor do I find the absence of any such statement indicative of an
incompatibility with the English approach.
We were
referred to Trotter’s The Law of Contract in Scotland (1913), which was
written some 16 years before Gloag’s 2nd ed, where at p 250 the author
states that whether time is of the essence of the contract is a question of
construction which must be determined by the particular facts of the case. The
pursuers’ counsel founded upon this passage as demonstrating that the approach
in Scotland was essentially to construe the contract according to its terms. I
note that examples are given in Trotter’s discussion of this point of
cases where time was of the essence and where it was not and that, after a
reference to section 10 of the Sale of Goods Act 1893 that stipulations as to
time of payment are not to be deemed to be of the essence of a contract of
sale, he concludes by repeating that whether any stipulation as to time is of
the essence of the contract or not depends on the terms of the contract. But
there is no attempt in this discussion at any detailed analysis, and since only
a very few cases are cited in comparison to the many noted by Gloag at
pp 615-618, it does not appear that the writer was concerned to examine more
closely the various factors which might be relied upon to arrive at a decision
as to whether time is of the essence.
The only
objection of substance which has been raised to Halsbury’s formulation
of the modern rule as an acceptable statement in Scotland is that it is
inconsistent with the Scottish approach to the construction of contracts, which
is said to be to look only to what the contract provides. But I am not
persuaded that that is an accurate statement of the Scottish position in regard
to stipulations as to time. I do not find it helpful to refer by way of analogy
to the strict approach which the common law has always taken to contractual
irritancies or to notices to quit where the rule as to time-limits is that they
must be strictly observed. Stipulations as to time generally are, I think, in a
special position because of the hardship which may arise if, for example, a
party is held to be in material breach where he is just one day late in doing
something which the contract requires. It appears to have been accepted that it
is not inconsistent with the general principle that contracts should be
enforced according to their terms to ask whether the parties really intended
that provisions as to time should be enforced in this way.
I see Gloag’s
recognition at p 617 that stipulations as to time of payment are not treated as
material conditions of a contract except in very special cases as illustrating
this point. If the approach is essentially to look only to what the contract
actually says and then to enforce it according to its terms, I would have
expected an equally strict view to be taken in regard to materiality. The point
which emerges from Gloag’s discussion is that, while stipulations as to
time which are expressed in terms which show that strict compliance is required
will be enforced accordingly, there is room also for a consideration of the
nature of the contract and the circumstances in order to decide whether a
stipulation is material and, as such, is of the essence of the contract. That
seems to me to be sufficiently close to Halsbury’s position for it to be
a position which Scots law can accept also as a statement of the modern law. So
far as the lord ordinary’s position is concerned as indicated in the two
passages which I have quoted above, I agree with Mr Nimmo Smith that the lord
ordinary appears to have overstated the effect of the English rule since, as
the passage which I have quoted from para 482 indicates, the court will require
precise compliance with stipulations as to time wherever the circumstances of
the case indicate that this would fulfil the intention of the parties. It seems
to me, therefore, that there is no essential difference between the positions
adopted in the two countries and that the rules which according to English law
are stated as presumptions are really to be seen as rules of construction which
take their place along with various other rules in order to ascertain what the
intention of the parties truly was in order that the contract which they have
made should be enforced.
Turning to the
particular instance of rent review clauses in commercial long leases, I see no
good reason why Scots law should take up a different position from that which
has been adopted in England for the reasons which were explained by Lord Fraser
of Tullybelton in United Scientific Holdings at p 958:
Rent review
clauses have only become common in comparatively recent years, certainly since
the last war, and their main purpose is to protect the revenues of landlords
from the effects of inflation. From the landlord’s point of view a rent review
clause is an important, almost indispensable, term of the contract if he is to
agree to a lease for a long period, during which inflation may well continue.
The clause is also in a less direct way of benefit to the tenant, because,
without it, he would not normally be able to get the security of tenure which
is afforded by a long lease, except perhaps by paying a rent which in the early
years of the lease would be far above the current market level. The rent review
clause has thus become a convenient device to facilitate the granting of long
leases in an inflationary age, and its main purpose is the same whatever the
exact machinery specified in a particular clause.
With that
introduction he formulated the approach to the construction of these clauses in
these terms at p 959:
As the
substance of a review clause is, in my opinion, to provide machinery for
ascertaining the market rent from time to time, at the intervals agreed in the
interests of both parties, rather than to confer a benefit on the landlord, it
seems to me that stipulations as to time ought not to be strictly enforced
unless there is something in a particular clause to indicate that time is of
the essence in that case.
I find myself
entirely in sympathy with the lord ordinary’s concern not to be drawn too
easily into an acceptance of what was said in that case, and he was right not
to follow the cases in the Outer House where the point was not fully argued
without a more careful consideration of the implications of this approach. But
it appears to me that it would not be doing violence to the Scottish approach
to the construction of contracts to accept Lord Fraser’s dictum as a rule of
construction which we can adopt. The concluding words of the passage which I
have quoted show that careful attention must be paid to the wording of the
provision which has to be construed. The function of the rule is to fill the
gap where there is an absence of provision or a lack of clarity on the point,
not to override express provisions in the contract which show either expressly
or by necessary implication that the parties intended that the time-limit was
to be strictly applied.
It is also
worth noting that rent review clauses which have become commonplace in leases
of this kind in Scotland have tended to follow English styles both as to their
general structure and the detail of their wording. These styles are themselves
influenced by the development of the case law in England especially since United
Scientific Holdings established the principles which were to be applied. There
can, of course, be no compromise of the well-established principles of Scots
law such as those relating to the use of irritancies. As I said in HMV
Fields Properties Ltd v Bracken Self Selection Fabrics 1991 SLT 31
at p 35, there are significant differences between the law of England and the
law of Scotland relating to irritancies. Any investor in commercial property in
this country must accept that these differences will continue to exist. But
rent review clauses seem to me to present a quite different problem, which is
simply one relating to the use of language and the meaning to be attached to
the wording of each clause. It seems to me that, as in the case of mercantile
contracts generally, there are sound practical considerations for adopting a common
approach to the construction of these clauses and for taking notice of the case
law in England where it may assist towards understanding the effect of what has
been provided as the machinery for the rent review.
This brings me
to the particular wording which is in issue in this
must be held to be mandatory. He makes it clear that his conclusion on this
point would have been the same even if, contrary to his view on the issue of
principle, he had to decide whether the terms of the lease displaced the
presumption that time is not of the essence. The precise purpose of declaration
(6) seemed to him to be to enable the tenant to bring the question of the rent
to an issue, and, in his view, the specific provision for what was to happen in
the event of the landlord’s failure to apply for the appointment of an arbiter
or expert showed that the observance of the time-limit was regarded as
essential. Mr Nimmo Smith submitted that the lord ordinary misdirected himself
as to the proper construction of the declaration. He invited us to follow the
views expressed by Eveleigh and May LJJ in Mecca Leisure Ltd v Renown
Investments (Holdings) Ltd (1984) 49 P&CR 12* and the decision of
Warner J in Phipps-Faire Ltd v Malbern Construction Ltd (1987)
282 EG 460+, where the clause in issue was almost identical to the declaration
in the present case. His contention was that it was up to the lessee, if he
desired to make time of the essence, to use the ultimatum procedure to bring
this about. He could do this by serving a notice on the lessors which
stipulated a reasonable time-limit within which the lessors must apply for the
appointment or be held to have lost the right to have the rent reviewed by an arbiter
or expert. Counsel for the pursuers, on the other hand, referred to dicta in a
number of other cases in England, including Henry Smith’s Charity Trustees
v AWADA Trading & Promotion Services Ltd (1983) 47 P&CR 607§ ,
in support of the view that this was contrary to a fair reading of the
declaration and its effect. It was not appropriate, they said, for the
ultimatum procedure to be used in this case because its function was to provide
a remedy for the innocent party to a contract who was faced with a breach. That
was the situation which Lord Sorn in Rodger (Builders) Ltd v Fawdry
1950 SC 483 had in mind at p 492 when he described the procedure and said that
failure to pay within the reasonable time-limit would be treated as breach of
an essential condition entitling the seller to rescind. The position in this
case was that the lessors were not in breach of any obligation and the lessee
was not entitled to demand performance from them of something which they were
not bound to do. In any event, declaration (6) provided its own ultimatum
procedure, and since the pursuers had followed that procedure by giving notice
in writing to the defenders as lessors they were entitled to rely on what the
declaration said about the effect of the expiry of the time-limit and were not
required to do anything else to bring this into effect.
*Editor’s
note: Also reported at (1984) 271 EG 989, [1984] 2 EGLR 137.
† Editor’s
note: Also reported at (1987) 1 EGLR 129.
§ Editor’s
note: Also reported at (1983) 269 EG 729, [1984] 1 EGLR 116.
I am in full
agreement with the lord ordinary on this branch of the argument, both as to the
result and as to the reasoning which he applied. Approaching the matter first
without reference to the authorities, the purpose of declaration (6) seems to
me to be to enable the lessee to fix a time-limit which will be strictly
enforced.
Declaration
(1) enables the lessors to apply for a nomination by the president ‘at any
time’ after the anniversary date in the years in which the revised amount of
the rent becomes payable. There is no time-limit set by this declaration within
which the application must be made if it is to receive effect. The lessors can
set a limit to this uncertainty by making their application at any time, but
the lessee has no means within the framework of this declaration of achieving
this result. That is the context for declaration (6) which enables the lessee,
in a situation where the necessary steps to achieve a rent review have not been
taken before the first date for the payment of rent for the quinquennium, at
any time thereafter to give to the lessors a notice with the consequences which
the declaration describes. I agree with the lord ordinary that this is itself a
kind of ultimatum procedure which the parties have agreed as part of their
contract and that there is no room here for imposing a requirement on the
lessee to embark on a further ultimatum procedure, since the parties have
already set out in the declaration what the consequences are to be if the
period of three months is allowed to elapse. I find here a clear indication
that time was to be of the essence, with a result that the stipulation that the
amount proposed in the lessee’s notice was to be the revised rent unless the
lessors’ application was made within three months was intended to be strictly
enforced.
I do not agree
with the submission for the pursuers that the ultimatum procedure is confined
to those cases where a party is in breach of contract and the innocent party
wishes to enforce a remedy against him in respect of their breach. The
procedure is available generally in all those cases where there is a provision
in the contract about time which is not of the essence but which one of the
parties to the contract wishes to be made of the essence for the purposes of
the contract. But that additional step is unnecessary in the present case in
view of the terms in which declaration (6) is expressed.
This view is
in conflict with what Warner J decided in Phipps-Faire Ltd on a
construction of a rent provision which, as the lord ordinary points out, was
indistinguishable from the present case. He described his approach to the
matter in these terms:
The
authorities seem to me to show that the presumption that time is not of the
essence of a provision in a rent review clause is strong and that it will not
be rebutted by any contra indication in the express terms of the lease unless
it is a compelling one.
He did not
find the contra-indications compelling and took the view that an extension of
the period of three months by serving a notice specifying a reasonable period
would not substantially impair the protection intended to be afforded to the
lessee. He was attracted by Eveleigh LJ’s description of clauses of this type
in Mecca Leisure Ltd as ‘a trap’ in a passage in his opinion at p 17:
I read the
clause as a whole and bear in mind that there is a presumption to be displaced
that the parties are clearly intending to arrive at a fair rent to be
determined amicably if possible. It seems to me that to hold otherwise would
make the clause a trap and the chosen machinery dangerous. In my opinion, time
is not of the essence in this case.
But the
approach to construction which is indicated by these dicta seems to give
insufficient weight to what the parties themselves have agreed. It seems to set
a standard for the rebuttal of the presumption which departs significantly from
the principles which were laid down in the United Scientific Holdings
case. The only question, in Lord Fraser’s words, is whether there is something
in the wording of the particular clause which indicates that time is of the
essence. As Lord Donaldson of Lymington MR said in Henry Smith’s Charity
Trustees at p 615, it is for the parties to make their own contract. It was
held in that case, in regard to a clause which is not very different from that
in issue here, that its provisions were inconsistent with the necessity for the
tenants to serve a time of the essence notice and that they clearly indicated
that the ordinary presumption against time being of the essence did not apply.
As Lord Donaldson put it at p 614: ‘the parties have not only set out a
timetable, but have in terms provided what is to happen in the absence of
strict compliance with their timetable.’
The same point was made by Slade LJ at p 621 when he said that the
parties had set out ‘in definition, specifically and clearly, what is to happen
in default of the exercise of the rights given to the respective parties within
the permitted periods of time’. At p 623 he said that the provisions in
question were quite inconsistent with the survival of any right in the
landlords to apply for the appointment of a surveyor after the expiration of
the period which was specified. To hold otherwise would, as Browne-Wilkinson LJ
said in his dissenting opinion in Mecca Leisure Ltd at p 24, ‘involve
not simply extending the time-limits within which the parties’ bargain could be
performed but an alteration of the parties’ bargain itself’. In Yates,
Petitioner at p 91, Lord Davidson described that opinion, which accords
with the decision in Henry Smith’s Charity Trustees, as convincing and I
agree both with him and with the lord ordinary in the present case in endorsing
this approach.
For these
reasons I consider that the pursuers are entitled to decree of declarator as
concluded for. I would refuse this reclaiming motion and affirm the
interlocutor of the lord ordinary.
Agreeing, LORD
ALLANBRIDGE said: I have read the opinion of your lordship in the chair and
am in full agreement with it both as regards its conclusions and the reasons
for such conclusions.
In particular
I agree that the principles laid down by the House of Lords in the United
Scientific Holdings case are applicable in Scots law. This is consistent
with the view expressed in Gloag on Contract 2nd ed, at p 617, to the
effect that stipulations as to time of payment are not to be treated as
material conditions of the contract except in various special cases.
I consider
that the present case is such a special case. It is made quite clear in the
contract that if the lessee is in a position to operate the procedure in
declaration (6) then he can fix a time-limit which will be strictly enforced.
He is in fact imposing a kind of ultimatum procedure which the parties have
agreed as part of their contract.
procedure as was suggested by counsel for the lessors.
In these
circumstances I agree that this reclaiming motion should be refused.
LORD
MAYFIELD agreed, and did not add anything.
