Royal Courts of Justice
Strand, London, WC2A 2LL
Before:
THE HONOURABLE MR JUSTICE WYN WILLIAMS
Between:
LEVEL PROPERTIES LIMITED | Claimant |
- and - | |
(1) BALLS BROTHERS LIMITED (2) MALCOLM DONALD DALGLEISH | Defendants |
Mr Stephen Jourdan (instructed by Fladgate Fielder Solicitors) for the Claimant
Mr John Male QC (instructed by Denton Wilde Sapte Solictors) for the First Defendant
The Second Defendant did not appear
Hearing dates: 7th -8th December 2006
Judgment
The Honourable Mr Justice Wyn Williams:
By a Lease made the 24th December 1993 between the Claimant and Benjys Group Limited, the Claimant demised to Benjys Group Limited the premises described more fully below) at 21/26 Leadenhall Street and 52/54 Lime Street London EC3 for a term of 16 years from the 25th December 1993. On the 18th July 1996 Benjys Group Limited assigned the term then remaining under the Lease to the First Defendant.
The Lease contains a rent review clause (Clause 6). In summary the rent reserved under the Lease is reviewed at the end of each four year period of the term. Upon review the rent is the higher of the passing rent and the “open market yearly rent” at the relevant review date.
The rent fell to be reviewed for the period 25th December 2001 to 24th December 2005. The review was referred for the determination of the Second Defendant who was acting as an independent expert. The appointment of the Second Defendant was made by the then President of the Royal Institute of Chartered Surveyors and the appointment took effect on the 29th May 2002. On the 16th December 2002 the Second Defendant determined that the rent for the period in question should be £190,000 per annum.
In advance of the Second Defendant’s Determination it had become apparent that there were differences between the Claimant and the First Defendant about the interpretation of provisions within the Lease.
On the 16th September 2005, the Claimant commenced these proceedings. The full extent of the relief which it claims is set out in the Amended Particulars of Claim contained within the Trial Bundle. On the 6th June 2006 Master Teverson ordered the trial of certain preliminary issues, although his order was not sealed until 10th July 2006.
The preliminary issues came on for hearing before me in December 2006. At the hearing four issues for my determination were identified. Those four issues were formulated in the Skeleton Argument of Mr Jourdan, Counsel for the Claimant.
For reasons which are unimportant to this judgment the issue which was identified as “Issue 3” was not considered by me. The parties agreed that this issue should be adjourned for a further hearing. I heard full argument, however, upon the other issues, which had been identified by Mr Jourdan. The issues which I considered were as follows:
On an application for license to assign the Lease, can the landlord insist on the provision of a surety on assignment even if it is unreasonable to do so? (“Issue 1”)
Should a declaration be made against Balls Brothers Ltd that, on the true construction of the Lease, the “open market yearly rent” should be determined either on the basis of a single letting or, if it produces a higher figure, on the basis of two lettings, one of the ground floor and one of the basement, the “open market yearly rent” being the aggregate of the rents payable under those two lettings? (“Issue 2”)
Are the landlord and Balls Brothers Limited bound by the determination of the Second Defendant in whole or in part? (I will refer to this as “Issue 3” although it was “Issue 4” as identified by Mr. Jourdan.)
Issue 1
Clause 3 of the Lease contains covenants on the part of the tenant. Clause 3.13.3. is in the following terms:-
“[Not to] assign the whole of the demised premises without first having obtained not more than three months previously the Landlord’s written license which subject to compliance with the following requirements shall not be unreasonably withheld.
3.13.3.1
The Tenant shall provide the Landlord with such audited accounts references and other evidence to demonstrate the identity and financial standing of the Assignee as the Landlord shall acting reasonably require
3.13.3.2
The Assignee shall enter into a direct covenant by deed with the Landlord to observe and perform all the Tenant’s covenants in this Lease during the term
3.13.3.3
In the case of an Assignee which is a body with limited liability the Landlord shall be entitled to require that the parent body or any director or other principal shareholder or other participator shall act as surety to the assignee and that the Tenant shall provide such information concerning the identity or financial standing of the proposed surety as the Landlord may require and that the proposed surety shall enter into a covenant by deed with the Landlord in the form of Clause 7 of this Lease or alternatively if unsatisfactory sureties are provided that the assignee provide security in cash or by bank bond for the performance of its covenants in such sum and on such terms as the Landlord (in its reasonable discretion) shall specify
3.13.3.4
That in the case of any assignee and/or surety who shall not be resident or have an established place of business within the jurisdiction of the English Courts the Landlord may require the intended assignee and/or the surety to enter into a deed containing (i) an unqualified covenant on the part of the assignee and the surety that this lease and rights and obligations of the Tenant and the Surety shall be governed by the Laws of England and that any legal action or proceedings with respect to this Lease against the assignee and/or the surety may be brought in the High Court of Justice or any other competent court in England and that the assignee or surety accept irrevocably and unconditionally the jurisdiction of the High Court of Justice and of any other competent court in England and (ii) an unqualified agreement on the part of the assignee and/or the surety irrevocably to designate or appoint or empower their Solicitors in England the name and address of whom shall be supplied to the Landlord prior to completion of the Deed to receive for and on behalf of the assignee and/or the surety service of all notices served in accordance with the provision of this Lease and of process in any legal action and proceedings within the Jurisdiction of the Courts of England with respect to the same PROVIDED ALWAYS that if such Solicitors shall for any reason be unable or unwilling to act for the assignee and/or the surety the assignee and or the surety shall forthwith appoint a firm of Solicitors practising in England for the same purpose and shall forthwith notify this appointment to the Landlord in writing”
Clause 3.13.3. expressly provides that the Landlord’s written license to assign the whole of the demised premises shall not be unreasonably withheld. The provision that the license shall not be unreasonably withheld, however, is said to be “subject to compliance with the following requirements.” One of the requirements which follow, of course, is an entitlement on the part of the landlord to require a surety in the case of an assignee which is a body of limited liability.
Counsel for Claimant submits that by virtue of Section 19(1) of the Landlord and Tenant Act 1927 Clause 3.13 of the Lease is subject to an unconditional proviso to the effect that the landlord’s license is not to be unreasonably withheld. That unconditional proviso applies notwithstanding any expressed provision to the contrary by virtue of the terms of section 19. He submits that Clause 3.13.3 is an attempt to limit the application of that proviso and to that extent it is of no effect. It follows, so he submits, that the Landlord cannot insist upon the provision of a surety on assignment unless it is reasonable to do so. (Footnote: 1)
The First Defendant resists this contention. It does so, essentially, upon the basis that the phrase “which subject to compliance with the following requirements” imposes upon the tenant an obligation to perform the requirements which follow and those requirements are antecedent to the question of whether or not a license to assign is to be granted. In the submission of Mr Male QC Section 19 of the 1927 Act has no application to the provision in Clause 3.13.3.3 which relates to a requirement to provide a surety.
Ultimately the resolution of this issue is dependent upon the proper interpretation of the clause in question. However, Section 19(1) of the 1927 Act has been considered in a number of cases and each party relies upon case law to support its contention. I began my search for the proper interpretation of this Clause, therefore, with Section 19(1) of the 1927 Act and cases upon it.
Section 19(1) provides that:
“In all leases whether made before or after the commencement of this Act containing a covenant condition or agreement against the assigning, under-letting, charging or parting with the possession of demised premises or any part thereof without licence or consent, such covenant condition or agreement shall, not withstanding any express provision to the contrary, be deemed to be subject –
to a proviso to the effect that such licence or consent is not to be unreasonably withheld, but this proviso does not preclude the right of the landlord to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with such licence or consent.”
In Re Smith’s Lease [1951] 1 ALL ER 346, the relevant Clause under consideration was:
“…… will not at any time assign underlet or part with possession of the said premises or any part thereof for all or any part of the tenancy hereby created …… without the previous written consent of the lessor ….. such consent ……. not to be unreasonably withheld ……. Provided always that any refusal by the lessor to consent to any particular assignment or …….. under-letting …… shall not be deemed to be an unreasonable withholding of consent by reason of only that the lessor at the time of intimating any such refusal may offer to accept from the lessee a surrender of the tenancy hereby created and in the event of any such offer being made by the lessor the lessee …… shall either ….. withdraw her application for the lessor’s consent to assign or …… underlet the said premises or shall surrender to the lessor the tenancy hereby created …….”
The short facts were that the lessee applied for the lessor’s consent to a proposed assignment and the lessor refused it, but offered to accept a surrender of the lease. In the proceedings which ensued, Roxburgh J posed the question for consideration in the following way.
“Can the parties curtail the operation of that statutory provision (Section 19(1)) by postulating in the lease that certain things shall not be deemed unreasonable?”
He went on to answer that question in the negative. He did so because he felt bound by authority to do so but also on principle since he took the view that if it was possible for parties to a lease to stipulate in the lease that certain things should not be deemed to be unreasonable they could also stipulate that nothing should be deemed to be unreasonable. He regarded that as a complete stultification of the Act.
Mr Jourdan places considerable reliance upon this decision.
Mr Male QC relies upon a line authority which begins with the decision of Hilbery J in Adler v Upper Grosvenor Street Investment Limited [1957] 1 WLR 227. In that case the lease in question contained a covenant against assignment by the tenant “without the previous consent in writing of the landlords’ such consent (subject as hereinafter provided) not to be “unreasonably withheld” to an assignment of the whole flat to a respectable responsible person.” There followed a proviso to the covenant “provided that should the tenant desire to assign or underlet the flat he shall before doing so offer in writing to the landlords to surrender the lease …… without any consideration and the landlords may accepts such offer ……” In this case the landlord refused the tenant permission to assign to a designated assignee on the grounds, inter alia, that the tenant had not offered to surrender the lease. The tenant sought a declaration that the proviso requiring him to offer the landlord the surrender of the lease when asking permission to assign was void and of no effect by virtue of Section 19(1)(a) of the 1927 Act. In his judgment Hilbury J said this:
“I think that Section 19, properly construed, only does that which, in express terms, it sets out to do: it forces into any lease, where there is a covenant against assigning or subletting without the previous consent of the landlord, a further proviso, and expressly prevents any inclusion in the lease of anything which will prevent the inclusion of that proviso. That is the real meaning of the words in the section “notwithstanding any express provision to the contrary.”
I therefore approach this matter asking myself whether the proviso in this lease prevents the operation of that proviso; that “consent is not to be unreasonably withheld”? I cannot see that it does. It appears to me properly to be read as an express provision in the lease imposing a condition precedent to the coming into operation of the covenant against assigning or letting without the previous consent of the Landlord, and in express terms the tenant agrees with the landlord that, if he wishes to assign, before so doing, and therefore before he asks for permission of the landlord, he shall offer the landlord a surrender of the term. The first thing to be observed is that there is no particular hardship in the tenant making such a bargain; it is not particularly hard on him, if he wishes to get rid of the term, that he should afford the landlord an opportunity of accepting a surrender of what remains of the term.
It is said that the effect of the proviso when operated must be one of two things, and I agree that it must; the landlord will either accept or refuse the surrender. If the landlord accepts to the surrender, it appears to me that the provision that the tenant may assign never comes into operation. It is clear and has been decided that Section 19 is not applicable and is not to be read into a Clause which is absolute against the assignment altogether. It seems to me that if, in the first place, the landlord refuses the surrender offered, the right of a tenant to offer an assignee who cannot reasonably be objected to by the landlord remains unimpaired; if on the other hand the landlord accepts the surrender, it does not and cannot amount in law to saying that the effect of the Clause in such circumstances is that it is one which is absolute against assignment.”
Following this part of his judgment Hilbery J quoted from the decision of Roxburgh J in In re Smith’s Lease. The passage quoted included the passage which I have summarised above. Hilbery J went on to distinguish In re Smith’s Lease on the basis that the proviso in the case before him did not purport to restrict the ambit of Section 19. He ended his judgment in this way:
“I see no reason myself why this particular proviso should not be construed as a covenant, as indeed it is a covenant, and if so, it is a covenant which the parties have contracted shall be a covenant by way of condition precedent, and it operates on matter which is anterior to the coming into operation of the covenant against underletting or assigning without the previous consent of the landlord. I so construe it. If it is put into operation and the landlord refuses the surrender, the tenant has not lost any of his right under the covenant against assigning or underletting without the landlord’s previous consent; if the landlord accepts the surrender, then the whole lease goes and the situation of the tenant is no worse and no different from what it would be if he had a covenant against assigning which was absolute.”
The decision of Hilbery J in the Adler case was expressly approved by the Court of Appeal in Bocardo S.A. v S & M Hotels Ltd and another [1980] 1 WLR 17. It was also approved by the High Court of Australia in Creer and Another v P &O Lines of Australia PTY. Limited [1971] 125CLR 84. In each case, in summary the terms of the lease in question were very similar to the term in Adler. In each case the Courts accepted that such a term created a condition precedent to which Section 19 had no application.
Although the Court of Appeal in Bocardo and the High Court of Australia in Creer expressly approved Adler neither Court cast any doubt upon the correctness of Re Smith’s Lease. As Mr Jourdan points out in his Skeleton Argument, that state of affairs is explicable from the reasoning in Creer. (Footnote: 2) In Re Smith’s Lease the words in question were interpreted to mean that “they imported a condition upon which consent would be granted” whereas in Adler and the other cases the words in question were interpreted as operating “on matter which is anterior to the coming into operation of a covenant against underletting or assigning without the previous consent of the Landlord.”
That distinction was recognised in respect of quite different Clauses from those considered in Adler, Creer and Bocardo in Homebase Ltd v Allied Dunbar Assurance PLC [2002] EGEL 23 – a decision of the Court of Appeal – and Crestfort Ltd v Tesco Stores Ltd [2005] 3 EGLR 25 – a decision of Lightman J. In the latter case the construction of the following Clause was in issue: -
“Not to assign or underlet or part with or share the possession of the whole of the demised premises without the previous consent in writing of the Landlord (which consent shall not be unreasonably withheld) PROVIDED ALWAYS that:-
……..
(d) any permitted Underlease shall be granted subject to like covenants and conditions as are herein contained except as to the rent thereby reserved and the length of the term thereby granted.”
At paragraph 41 of his judgment Lightman J said:
“The first and fundamental issue is whether Tesco (the tenant) was entitled to require the Landlords to consider its application for consent to the grant of the underlease to Magspeed and not unreasonably to withhold consent. This turns on the answer to two questions. The first is whether Clause 4(28)(d) of the Lease (set out above) only requires a Landlord to consider an application to consent to underlet if the proposed underlease is subject to like covenants and conditions on the lease. The second is whether (if the answer to the first question is of the affirmative) the underlease was granted subject to such like covenants and conditions.”
He then went on:-
“42. I turn first to the question of construction of Clause 4(28)(d) of the Lease. There are two alternative views of the clause. The first alternative is that it sets out conditions which the Landlords can impose for giving consent or sets out circumstances in which the Landlords’ refusal of consent to underletting is to be deemed to be reasonable. The second alternative is that it sets outs the agreement of the parties as to what alienations are not absolutely prohibited and can be made with consent and accordingly restricts the circumstances in which a tenant can properly apply for consent to an underletting. It is well established law and common ground between the parties, that if the Clause is of the character set out in the first alternative it is void, but if the Clause is of the character set out in the second alternative it is valid: See Bocardo v S&M Hotels Ltd .
43. The issue of construction does not admit of any lengthy useful elaboration and the citation of authorities on the construction of the clauses which are not practically identical affords no assistance. In my judgment the proviso to Clause 4(28) limits the circumstances in which the absolute prohibition on underletting is qualified and the tenant has a right to request consent. The mandatory conditions stipulated in the proviso must be satisfied. This is the fair and sensible reading of the language of the Lease. Such provisos are in common use in commercial leases and are intended, and recognised to be intended, to control the terms of any underlease. Support for this approach (if supports is needed) is to be found in the decision of the Court of Appeal in Allied Dunbar Assurance v Homebase Limited [2002] EWCA Civ 666 [2002] EGLR 23. The Lease under consideration in that case was (for all relevant and practical purposes) the same as that in the present case. The tenant in that case conceded that the purpose of the effect of the proviso was to restrict the circumstances in which the tenant could properly apply for consent, but the Court of Appeal made plain its view that the concession was correctly made: see paragraph 3, 16 and 42. Again if further support for this approach were needed, the Court should be slow to give an alternative interpretation that the clause is intended merely to deem the imposition of conditions or grounds of refusal reasonable when it is clear that to do so renders the clause legally ineffective.”
Mr Jourdan is critical of the last sentence in the extract from the judgment of Lightman J set out in the preceding paragraph. It may be, and I stress may be, that there is force in that criticism. It does not seem to me, however, that the sentence is of significance in relation to the issue before me.
The issue before me is whether or not the clause to be interpreted sets out conditions which the Landlord can impose for giving consent or sets out circumstances in which the Landlord’s refusal to consent to assignment is to deemed to be reasonable on the one hand or, alternatively, whether it sets out the agreement of the parties as what alienations are not absolutely prohibited and can be made with consent and accordingly restricts the circumstances in which the Tenant can properly apply for consent to an assignment. As in Crestfort if the proper interpretation of the clause is that it means the first alternative it is void; if its proper interpretation is the second alternative it is valid and binding.
In my judgment Clause 3.13.3 and the sub-clauses which follow sets out the agreement of the parties as to what alienations are not absolutely prohibited and can be made with consent and accordingly restrict the circumstances in which a tenant can properly apply for consent to an assignment. As Lightman J observed such an issue of construction does not admit of any lengthy useful elaboration. Clause 3.13.3 must be read as part of the whole of Clause 13. Indeed, of course, it must be read as part of the Lease as a whole. Reading it in the context of Clause 3.13. and the Lease as a whole, it is not intended, in my judgment, to set out a condition which the Landlord can impose for the giving of consent to an assignment or set out a circumstance in which a refusal of consent is to be deemed to be reasonable. In my judgment, the Clause is aimed at an earlier stage than the giving of consent. It is laying down conditions which must be fulfilled before the Tenant can apply for consent to the Landlord.
Mr Jourdan sought to support his argument by reference to Section 19 (1)(A) of the 1927 Act. That Section came into force in 1996. It came into force, therefore, after this Lease had been made. I take it to be common ground that the Lease is to be interpreted as at the date of its creation. In my judgment statutory provisions that came into force after the date when this Lease was created have no bearing upon its proper interpretation.
It follows from the above that I would answer the question posed in Issue 1 in the affirmative.
Issue 2
This is also an issue which is to be resolved by the interpretation of the relevant clauses in the Lease. Clause 1 is an interpretation clause. Clause 1.1.3 provides the meaning to the phrase “the demised premises”. The meaning is as follows:
“ “the demised premises” – shall mean the premises and rights described in the First Schedule hereto and refers to each and every part of the demised premises together with all additions and improvements of any type and from time to time made thereto and all fixtures and fittings of every kind which shall from time to time be in or upon the demised premises (whether originally affixed or fastened to or upon the same or otherwise) except tenants and trade fixtures installed by the Tenant either before or after the date hereof all of which belong to the Tenant and do not form part of the demised premises and herein after refer to as “the Tenant’s fixtures””
In the First Schedule the demised premises are described as follows:-
“ALL THAT the premises situate and on and comprising the ground basement and part first floors of the Building as the same is more particularly described in the superior lease and shown on the plan and the expression “the demised premises” shall include-
4. All Landlords Fixtures and Fittings which may at any time be in or upon “the demised premises”
5. All additions alterations improvements within the demised premises which may be made during the term.
In Clause 1 the word building means
“the superior Landlord’s property known as 21/26 Leadenhall Street and 52/54 Lime Street in the City of London (of which the demised premises forms part).”
As I indicated earlier in this judgment Clause 6 of the Lease is the rent review clause. As I have also indicated, the Second Defendant was appointed to determine was to determine what was the “open market yearly rent” at the commencement of the relevant review period.
The phrase “open market yearly rent” is defined by Clause 6.3 of the Lease. It reads as follows:-
“In this Clause and for all the purpose thereof the expression the “the open market yearly rent” means the best yearly rent which the demised premises might reasonably be expected to be let on the basis of a letting in the open market by a willing lessor to a willing lessee without taking a fine or premium on the terms and conditions of this Lease except as to the amount of the rent but including the provisions for rent review herein contained) for a term of years equal in duration to the Original Term of this Lease assuming the term is to run from the commencement of the relevant review period but disregarding….”
There are then set out eight “disregards.”
Clause 6.3 then continues by specifying that various assumptions are to be made at the relevant review date. One of the assumptions is that contained in 6.3.14 which reads:-
“upon the assumption if not the fact that the demised premises are available to be let as one unit or as separate ground floor and basement and part ground floor premises available to be traded from separately and independently (there being disregarded any restriction on alienation of part under the Lease) with each area having its own independent services and facilities without any loss of net lettable space within the demise.”
Before turning to the issue of interpretation I should also mention that Clause 1.1 which defines certain words and phrases within the Lease does so “where the context so requires or admits”. In contrast Clause 1.2 reads:-
“Words importing one gender shall include all other genders and words importing the singular shall include the plural and vice-versa.”
Read alone and without any reference to any other part of the Lease, Clause 6.3 might well be taken to refer to a single letting of the demised premises as a whole. It is common ground, however, that it is not permissible to look at Clause 6.3 in isolation. It is necessary to interpret it in the light of the relevant provisions of the Lease as a whole. Further, of course, it is necessary to have regard to established principles of construction or interpretation.
Clause 1 clearly draws a distinction between those words and phrases which bear a meaning “where the context so requires or admits” and words which are intended to convey both the singular and plural meaning of the word in question. There is no suggestion that such words should have both meanings only if “the context so requires or admits”. In my judgment that distinction must be deliberate given the detailed and commercial nature of the document as a whole.
If that is accepted, submits Mr Jourdan, Clause 6.3 is to be read as defining the “open market yearly rent” as
“…… the best yearly rent at which the demised premises might reasonably be expected to be let on the basis of a letting or lettings in the open market by a willing lessor or lessors to a willing lessee or lessees.”
That construction, so it is submitted, is wholly consistent with one of the main relevant background facts, namely that the demised premises were capable of being let as two units at the time this lease was created.
In my judgment, the natural interpretation of Clause 6.3 in the context of the Lease as a whole and in the context of the uncontroversial fact that the demised premises were always capable of being let as two separate units is that “the open market yearly rent” is to be determined on the basis of two lettings, one of the ground floor and one of the basement if that produces a higher figure.
In reaching that conclusion I have given considerable thought to the points made in Mr. Male QC’s Skeleton Argument-not least the point he makes that ultimately whether or not the singular includes the plural and vice versa must be looked in context if, on occasion, the ridiculous is to be avoided. He quotes examples to support that submission. I accept what he says. However in no sense is the interpretation suggested by Mr. Jourdan ridiculous. Accordingly, in my judgment, his interpretation would prevail even if the there were a consideration of the “context” in deciding whether the singular included the plural.
Is there some rule of interpretation or construction which leads to a contrary conclusion? I do not believe so. It is common ground that when interpreting a rent review clause in a commercial lease the intention of the parties is to be ascertained by reference to the natural meaning of the words used and that if the meaning of the words used is clear and unambiguous effect must be given to them because that is what the parties are taken to have agreed by their contract. In my judgment, in this case there are no ambiguities which compel the Court to resort to other rules of construction.
Both Mr Jourdan and Mr Male QC relied heavily upon what is called a “presumption of reality”. Each pray it aid in order to support their rival contentions. In his Skeleton Argument Mr Male QC sets out an extract from the judgment of Hoffman LJ (as he then was) in Co-operative Wholesale Society Limited v The National Westminster Bank Plc [1995] 1EGLR 97. The relevant passage is:-
“This approach has produced what is sometimes called a “presumption of reality” in construction of rent review clauses. In the absence of clear contrary words or necessary implication, it is assumed that the hypothetical letting required by the Clause is of the premises as they actually were, on the terms of the actual lease and in the circumstances as they actually existed. But there is no doubt that most clauses require some assumptions which are or may be contrary to reality.”
Mr Male QC rightly says that in this case the reality is that there was a single letting of both the ground and the basement floors. There were not two lettings. That, of course, is true. In my judgment, however, one does not need to rely upon concepts like “the presumption of reality” since, to repeat, the words of the relevant clause are clear in their meaning.
Accordingly I would answer the question posed in Issue 2 in the affirmative.
Issue 3
Clause 6.2.1 of the Lease provides that the parties “shall attempt to agree” the open market yearly rent. Clause 6.2.2 provides:-
“if the open market yearly rent shall for any reason not be agreed as aforesaid then, (whether or not any negotiations to reach such an agreement have been or are being conducted) the assessment of the amount of the open market yearly rent for the relevant Review Period shall be determined (at the option of the Landlord) either by an arbitrator or by an independent valuer (acting as an expert and not as an arbitrator) who has had substantial experience of valuing restaurants in the City of London such arbitrator or valuer to be nominated in the absence of an agreement by the Landlord and Tenant by the President for the time being of the Royal Institute of Chartered Surveyor…….”
The Claimant opted for an independent valuer and, as I have said, the Second Defendant was appointed by the President of the Royal Institute of Chartered Surveyors. The letter of appointment appointed the Second Defendant “to determine a revised rent in accordance with the provisions of the lease…….”
As was anticipated, the parties appointed chartered surveyors who made written submissions to the Second Defendant. There can be no doubt that the Chartered Surveyors made submissions upon the proper interpretation of the Lease. The Second Defendant produced his written Determination on the 16th December 2002. As I think was common ground, ultimately, but in any event, I find it is possible to discern from it that the Second Defendant formed a view upon Issues 1 and 2 in this judgment and gave effect to that view in his Determination. As is obvious, in order to determine the rent in accordance with the provisions of the Lease the Second Defendant had to take account of various “disregards” and have regard to various “assumptions”. It was inevitable, in my judgment, that he had to form a view upon the interpretation of various clauses of the Lease in order reach a conclusion about the “open market yearly rent.”
In determining the issue of whether or not the Claimant and First Defendant are bound by the Determination of the Second Defendant, considerable support is to be derived from the decision of the Court of Appeal in National Grid Company PLC v The M25 Group Limited [1999] EGLR 65. In that case, under the terms of a rent review clause, a valuer was appointed as an expert to determine the rent on review. In determining whether any and if so what rent increase was to be made, the rent review clause directed the valuer to observe certain directions and disregards. As I understand it, before the valuer determined the rent the tenant issued an originating summons seeking the determination of a number of questions relating to the interpretation of the lease. The Defendant landlord applied to strike out the proceedings and that application was granted by Pumfrey J on the basis that the parties were bound by his determination. The Court of Appeal allowed the tenant’s appeal against that decision holding that the parties were not bound by the determination of the expert since the clause under consideration did not confer upon him sole and exclusive power to interpret the lease. Mummery LJ gave the substantive judgment of the Court. Under the heading “Conclusion” he said this:-
“I will allow this appeal for these reasons:
It is common ground that the question of whether the rent review provisions in the lease exclude the jurisdiction of the Court to construe the lease turns on the constructions of the provisions in the particular lease. On questions of construction, little assistance can be gained from authority…….
It is clear from the provisions of Clause 1(3) and (4) that a single valuer appointed by the President of the RICS has the exclusive power to determine the question referred to him. But what is that question? It is the valuation question identified in Clause 1(3) of the Lease, namely:
the question of whether any or if so what increase is to be made in the rent payable……
It is for the single valuer and not for the Court to determine that question. If Clause 1 had stopped at sub-clause 3 I would agree that the Court would have no jurisdiction to entertain proceedings for decision of the Court on the valuation question referred to the valuer.
In this Lease, however, the parties agreed that in determining the question referred to him, the valuer should observe certain agreed contractual directions. The directions contained in Clause 1(4) are of three kinds: first, that he shall ascertain the rent on an open market basis for the remainder of the term as between a willing lessor and willing lessee as at the date of the rent notice; second, he is to have regard to the terms of the lease other than to those relating to rent; and third, he is to disregard the three particular factors listed in (a) (b) (c), ……….The valuer must ascertain the rent in accordance with these contractual criteria. He can only lawfully do what he was appointed to do under the lease. If he does something that he was not appointed to do, he is acting outside his terms of reference. He does not have a completely freehand in deciding the question of what increase are to be made in the rent payable. Whether he is acting within the perimeter of his contractual power depends on ascertaining the correct limits of the power conferred on him by the lease. Those limits are ascertained by a process of construction of the lease. The terms of the lease do not confer on the valuer, either expressly or by implication, the sole and exclusive power to construe the lease.
4. Do any of the decided cases prevent this particular lease from having this effect? In my judgment they do not. Counsel for M25 Group relied most strongly on the decision of this Court in Norwich Union Life Insurance Society v P & O Properties Holdings Limited [1993] 1 EGLR 164 and on the summary of the principles governing the status of decisions of a person occupying the role of an expert usefully summarised in the judgment of Lightman J in British Ship Buildings v The SEL Capital Consortium PLC [1997] 1Lloyds Rep 106 page 109.”
Mummery LJ then quoted extensively from the Norwich Union case and ended by saying:-
“In my judgment that case is readily distinguished above from the present by reason of the presence in this lease of clause 1(4) which sets limits on the expert’s power to determine an increase in rent. No such limits were set on the power of the expert in the Norwich Union Case.
6. On this point I agree with the analysis in the dissenting judgment of Hoffman LJ in Director General of Telecommunications v The Mercury Communications Limited [transcript 22 nd July 1994], which was upheld in the House of Lords in [1996] 1WLR 48. At page 32 of the Court of Appeal transcript Hoffman LJ said:
“So in questions in which the parties have entrusted the power of decision to a valuer or other decision-maker, the Courts will not interfere either before or after the decision. This is because the Court’s views about the right answer to the question are irrelevant. On the other hand, the Court will intervene if the decision maker has gone outside the limits of his decision-making authority.
One must be careful about what is meant by “the decision-making authority”. By“decision making authority” I mean the power to make the wrong decision, in the sense of a decision different to that which the Court would have made. Where the decision maker is asked to decide in accordance with certain principles, he must obviously inform himself of those principles and this may mean having, in a trivial sense, to “decide” what they mean. It does not follow that the question of what the principles mean is matter within his decision making authority in the sense that the parties have agreed to be bound by his view. Even if the language used by the parties is ambiguous, it must (unless void for uncertainty) have a meaning).
Accordingly if the decision maker has acted upon what in the Court’s view was the wrong meaning, he’s gone outside his decision-making authority.
In the House of Lords, Lord Slynn took the same approach: see [1996] 1WLR 48 at pp 58c-59b.”
In my judgment, for all practical purposes the rent review clause for my consideration is indistinguishable in concept from the clause under consideration in National Grid. Put shortly in this case the independent expert is to have regard to closely defined contractual criteria in arriving at the determination of the “open market yearly rent.” In those circumstances it is difficult to see how or why this clause could or should be interpreted in any different manner to the clause in National Grid. This clause did not confer upon the Second Defendant sole and exclusive power to interpret the Lease.
In my judgment, therefore, the Claimant and First Defendant are not bound by the decision of the Second Defendant if it is established that the Second Defendant took an erroneous view of provisions within the lease which was germane to his ultimate determination of the rent. They did not agree to be bound by his determination even if he fell into error.
In the light of the recent guidance from the Court of Appeal to which I have referred it does not seem to me to be fruitful to consider earlier cases on this issue.
Mr Male QC raised an alternative basis for contending that the Claimant and Defendant were bound by the determination of the Second Defendant even if he had erroneously interpreted the Lease. He submitted that an agreement to that effect was to be implied since the parties’ conduct following the appointment of the Second Defendant was consistent only with such an agreement.
The conduct relied upon is summarized in paragraph 75 of his Skeleton Argument. It consists of the parties’ submissions to the directions of the Second Defendant; their own written submissions which dealt with their contentions upon the interpretation of aspects of the lease and their willingness, apparently, to permit the Second Defendant to interpret the Lease and, if necessary, take legal advice about any legal disputes.
It is, no doubt, correct that the parties’ conduct was as described above. However, in my judgment, such conduct falls very far short of establishing that the parties had agreed not just that the Second Defendant would resolve questions of interpretation as a necessary step towards determining what the rent should be but also that they would be bound by that determination whatever interpretation of the Lease was arrived at and however erroneous it was.
In my judgment, the answer to the question raised in the Third Issue is that the Claimant and First Defendant are not bound by that part of the Determination of the Second Defendant which is based upon an erroneous interpretation of a provision of the Lease. For the avoidance of doubt that means, in the context of this case, that the parties are bound by the Determination where it is based upon matters other than an erroneous interpretation of a provision of the Lease. I did not understand Mr. Jourdan to argue differently but if I am wrong about that, and subject to any contrary submission by Mr Male QC when I hand down this judgment, I will permit further short submissions on this point when I hear the submissions upon the one remaining issue.