England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LAMBETH COUNTY COURT
HIS HONOUR JUDGE COTRAN

		Royal Courts of Justice Strand, London, WC2A 2LL
		16 November 2005

Lord Justice Pill:

1. This is an appeal against a decision of His Honour Judge Cotran given at the Lambeth County Court on 20 January 2005. The judge dismissed a claim by Wilderbrook Limited, the appellants ("the landlords") for a declaration that a new rent of £40,000 a year from 28 September 2003 had been agreed between them and Mr Abdul Oluwu, the respondent (" the tenant"). The lease is of commercial premises at 5 Central Buildings, Rye Lane, Peckham, SE15 and was dated 21 July 1999.

2. The lease provided for rent review periods, the first commencing on 29 September 2003. The procedure for rent review is set out in the Third Schedule to the lease, headed Rent Review. It provides:

   "At any time not earlier than six months before each successive Review Date the Landlord may serve on the Tenant a notice in writing (hereinafter called "the Rent Notice") providing for the increase in rent payable as from the relevant Review Date to an amount specified in the Rent Notice (hereinafter called "the New Rent") and thereupon the following provisions shall have effect:-

   1. The Tenant within one month after the receipt of the Rent Notice may serve on the Landlord a counter-notice calling upon the Landlord to negotiate with the Tenant the amount of the rent to be paid as from the Review Date

   2. If the Tenant shall not serve a counter-notice within the period specified he shall be deemed to have agreed to pay the rent specified in the Rent Notice.

   3. If the Tenant shall serve on the Landlord a counter-notice calling upon the Landlord to negotiate with him then the parties shall forthwith consult together to reach agreement on the rent payable but failing agreement within one month after service of the counter-notice (or such longer period as the parties may mutually agree) the question of the amount of rent payable shall be referred to an independent surveyor (hereinafter called the "Surveyor") appointed by agreement between the parties or appointed by the President of the Royal Institution of Chartered Surveyors on the application of the Landlord.

   4. Notice in writing of his appointment by the said President shall be given by the Surveyor to the Landlord and the Tenant inviting each to submit within four weeks a valuation accompanied by written representations.

   5. The Surveyor shall act as expert and not as arbitrator and shall consider any valuation and representations submitted to him within the said period but shall not be in any way limited or fettered thereby and shall determine the New Rent in accordance with his own professional judgment."

3. Paragraphs 6 to 12 provide how the new rent is to be determined (paragraph 6), the time within which the surveyor shall give notice in writing of his decision, which was within two months of his appointment or within such extended period as the landlord may agree (paragraph 7), that the new rent shall in no case be less than the rent payable immediately prior to the review date (paragraph 8), and that the landlord may apply to the President of the Royal Institution for a substitute surveyor to be appointed in default (paragraph 9). Ancillary matters are dealt within paragraphs 10 to 12.

4. It is to paragraph 13 that most attention has been directed. It provides:

   "As respects all periods of time referred to in this Schedule time shall be deemed to be of the essence of the contract PROVIDED ALWAYS that the Landlord or the Tenant may notwithstanding anything in this Schedule require the appointment of the Surveyor or any substitute Surveyor to determine the question of new rent payable at any time after the commencement of each relevant period of years and any delay by the Landlord of the Tenant in this respect shall not deprive the Landlord or Tenant of their respective right to have a New Rent determined by the Surveyor as set out herein."

5. On 15 April 2003, a rent review notice was sent to the tenant, on behalf of the landlord, by recorded delivery. It was delivered to the premises subject to the lease on the following day. The tenant's surveyor responded on 22 May 2003 confirming receipt of the notice and indicating that the writer would be writing in due course to establish the rent proposed by his client. On 29 May, the landlord's agent wrote stating that a counter-notice had not been served within one month of the receipt of the rent review notice and that the tenant was deemed to have agreed to pay the rent specified in the notice, which was £40,000 a year. That sum showed a dramatic increase from the stipulated rent of £16,000 a year from 29 September 2001 until 28 September 2003.

6. Before the judge, the tenant accepted that the notice had been delivered to the premises on 16 April but argued that it had not been received by the tenant or his agent until later and that the counter-notice of 22 May was served within one month after the receipt of the rent notice. If that argument was not accepted, the tenant further argued that paragraph 13 of the Third Schedule ensured that time was not of the essence with respect to the counter-notice and that the tenant could require the appointment of a surveyor under paragraph 3 of the Schedule. No evidence was called before the judge, it being conceded, for the purpose of the application, that the rent review notice had not been seen by the tenant or anyone with authority to receive documents on his behalf until the second or third week of May 2003.

7. The judge found for the landlord on the first of those issues but for the tenant on the second. He declined to make the declaration requested. The landlord appeals against the second finding and the tenant submits that the judge should have dismissed the application on the first ground, as well as the second. The judge granted both parties permission to appeal.

   Paragraph 13

8. I consider first the effect of paragraph 13 of the Third Schedule. The judge referred to the "very strong words" in the proviso in paragraph 13 and concluded:

   "It seems to me that the purpose of Para 2, looking at the schedule as a whole, is to get on with it and I do not accept that if there is a valid counter-notice (as is accepted now), which is seven days late and seven days late for good reasons, the intention is to shut out the provision as to the determination of the rent by negotiation or by an independent surveyor, which as Mr Francis submits, would frustrate the whole object of this exercise.

   It seems to me that para 13 does apply in this case and the lateness of the counter-notice is not something which brings in the deeming provision of Para 2 of the Schedule. Para 13 applies to it, as it applies to the other sections where there might be delay."

9. In seeking to uphold that decision, Mr Francis, for the tenant, submits that in construing the proviso, it is necessary to have regard to the entire scheme of the Rent Review in the Third Schedule. The proviso is expressed to be for the benefit of the tenant as well as the landlord. Unless it can operate to defeat the strictness of paragraph 2, it gives the tenant no benefit. Had it been intended to operate only in relation to the one month period in paragraph 3, it would have begun with words such as "Notwithstanding anything in paragraph 3 above…" Instead, the expression used is "Notwithstanding anything in this schedule…", which defeats the provision purporting to make time of the essence with respect to the counter-notice. In the event of ambiguity or uncertainty, the paragraph should be construed against the landlord, whose document it was, it is submitted.

10. For the landlord, Mr Blaker, while accepting paragraph 13 of the Third Schedule is "inelegant", submits that the only sensible interpretation that can be given to it is that time is to be of the essence and that the proviso is intended to deal only with time limits in relation to the surveyor and in particular the limit of one month after service of the counter-notice within which the question of the amount payable is to be referred to an independent surveyor. That shall not be enforced strictly.

11. The proviso cannot, he submits, be taken at face value because the very broad effect that would involve ("at any time…") cannot have been intended by the parties. It deals specifically, it is submitted, with the time limit upon the appointment of a surveyor or substitute surveyor. The proviso does not relax the requirement in paragraph 2 to serve a counter-notice within one month after receipt of the rent review notice.

    The authorities

12. In United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, Lord Diplock stated:

    "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."

13. In Bickenhall Engineering Co.Ltd v Grand Met Restaurants Ltd [1995] 1 EGLR 110, Neill LJ stated that it was possible to extract from the speeches in United Scientific guidance as to the construction of a rent review clause. It included:

    "(1) …

    (2) There is a rebuttable presumption that the time-table specified in the clause for completion of the various steps for determining the rent payable is not of the essence of the contract.

    (3) The presumption may be rebutted by:

    (a) any contra-indications in the express words of the lease;

    (b) any contra-indications in the inter-relation of the rent review clause and other clauses in the lease; or

    (c) the surrounding circumstances."

    That too was a case where the lessee had a limited period within which to serve a written counter-notice (Clause 4(8))in reply to a lessor's notice specifying a rent. The relevant clause provided:

    "If no such counter-notice is served the market rent specified in the lessor's notice shall stand as the market rent payable at and from the relevant review date and shall be paid accordingly".

    The court held that the clause was not a sufficient contra-indication to rebut the presumption.

    Neill LJ stated, at page 115:

    "It seems to me that, in the light of the guidance given by the House of Lords to the effect that prima facie provisions as to time in a rent review clause are not of the essence, the contra-indications must be clear and explicit"

    In making that statement, Neill LJ stated that he had found helpful statements as to a flexible approach to interpretation (for example in Mecca Leisure Ltd v Renown Investments (Holdings) Ltd [1984] 49 P&CR 12) subsequently disapproved, but his statement remains, in my respectful view, sound and soundly based on United Scientific.

14. Simon Brown LJ stated, at page 116:

    "I would accordingly conclude … that clause 4(8) on its proper construction is not a deeming provision and, that being so, would unhesitatingly allow the lessee's appeal; to my mind there are certainly no other contra-indications capable of displacing the United Scientific presumption."

15. Considering the issue generally, Simon Brown LJ added:

    "There are, as it seems to me, three ends to which it may be argued that the United Scientific presumption can be put:

    1. In the absence of any express terms specifying what is to happen in default of the exercise of the rights given to the respective parties within the permitted periods of time (ie in the absence of a deeming provision), the presumption applies; time is not of the essence unless and until it is made so, and in the result a time stipulation cannot be strictly enforced against whoever fails to observer it. (I decline to use the language of default; there is no obligation to observe such a time limit, merely a prospective loss of the benefits of compliance.)

    2. In the event of dispute whether or not there is such an express deeming provision, the presumption applies as a rule of construction to assist the resolution of that dispute.

    3. Even if there is such an express deeming provision the presumption can nevertheless still apply to defeat both it and the strict enforcement of the separate time stipulation.

    In my judgment, the presumption applies in situations 1 and 2, but not in 3."

    Simon Brown LJ added that he would hold that a deeming provision is indeed a "decisive, or virtually decisive, contra-indication displacing the presumption that time was not of the essence". I respectfully agree that certainty is a very important factor in this area of law.

16. Extensive reference was made to Bickenhall in Starmark Enterprises Ltd v CPL Distribution Ltd [2001] EWCA Civ 1252 and the case was mentioned, though not referred to, at the hearing of this appeal. In Starmark, this court held that the normal presumption in rent review cases that time was not of the essence was displaced by a clause which provided:

    "If the lessees shall fail to serve a counter-notice within the period aforesaid they shall be deemed to have agreed to pay the increased rent specified in the rent notice."

    Kay LJ stated, at paragraph 65:

    "I am of the view that the deeming provision in this rent review clause clearly sets out what the parties to the contract intended should be the position once the required period had elapsed with no counter-notice having been served and that accordingly the presumption as to time not being of the essence had no part to play in this case."

17. Arden LJ stated, at paragraph 77:

    "[The clause] is a deeming provision and the natural meaning of the word "deem" in my judgment is to introduce a conclusive state of affairs. There has to be some indication that the deemed state of affairs is not to survive in particular circumstances to exclude that normal meaning. There is no provision here to exclude the normal meaning of the word "deem".

    At paragraph 78, Arden LJ added that "where there is a deeming provision in this type of case and nothing more, the time for service of the counter-notice should normally be taken to be the final one".

18. The court did not follow the majority decision of this court in Mecca, where a more flexible approach to the issue had been approved by the majority.

    Conclusion

19. On that basis, paragraph 2 of the Third Schedule and a paragraph 13 without the proviso attached would have provided the landlords with an unanswerable argument in the present case. The issue is whether the presumption applies in the actual situation, which includes the presence of the proviso. In Bickenhall, Neill LJ stated that if the presumption that provisions as to time in a rent review clause are not of the essence is to be rebutted, the contra-indications must be "clear and explicit". Simon Brown LJ stated that the presumption applies as a rule of construction when deciding whether there is an express deeming provision. In Starmark, Arden LJ put it the other way round but recognised that it is possible to have an indication that the deemed state of affairs is not to survive in particular circumstances.

20. I approach the proviso in paragraph 13 against that background. The meaning of the proviso in paragraph 13 is obscure and, one hopes, it is not likely to appear again in this context in a lease. Mr Blaker accepts that its wording cannot be taken at face value. He proposes that it should be applied so as to prevent the presumption being defeated with respect to paragraph 3 and other paragraphs but to exclude the presumption with respect to paragraph 2 of the Schedule. While he gains some support from the fact that paragraph 3, and other paragraphs, are not expressed as deeming provisions, whereas paragraph 2 is, the significance of that is limited by the further fact that the first sentence of paragraph 13 provides that time shall be deemed to be of the essence "as respects all periods of time referred to in this Schedule". On the face of it, that includes paragraph 3, making that equally a deeming provision.

21. Once the proviso is given effect to override any deeming provision, I am not able to apply it selectively. Its meaning is insufficiently clear to apply it in that way. I bear in mind that the proviso purports to confer a right on the tenant as well as the landlord, to the absence of that express reference to paragraph 3 which could have been included in it, and to the strength of the expression "notwithstanding anything in this Schedule". My mind has fluctuated in the course of argument but I construe the proviso as applying to the entire process of a stipulated rent review which may lead to the determination of the rent by a surveyor. It includes that part of the process involving the counter-notice as well as the part which follows its service.

22. The presumption that time is not of the essence in rent review clauses is well established. It provides the starting point for the analysis of such clauses. It may be rebutted by a clear stipulation in the lease (Kay LJ in Starmark, see also Peter Gibson LJ at page 1033D). To rebut it, however, the "contra-indications", to adopt Lord Diplock's word in Cheapside, must in my view be clear and explicit. The proviso in paragraph 13 is plainly intended to limit the deeming provisions in the Schedule, which would otherwise be clear contra-indications. The effect of its presence and wording is to deprive the contra-indications relied on of the clarity required to rebut the presumption, which accordingly operates.

23. I would dismiss the appeal.

    The respondent's notice

24. The second issue turns upon the meaning of the word "receipt" in paragraph 1 of the Third Schedule to the lease. I also agree with the judge's conclusion on that issue and propose to deal with it briefly.

25. It is accepted that the rent review notice was sent through the post by recorded delivery and was received and signed for at the demised premises on 16 April. On behalf of the landlords, Mr Blaker submits that that was the date of receipt.

26. It is submitted on behalf of the tenant, by Mr Francis, that the word receipt is used in paragraph 1 in contra-distinction to the word "service" used elsewhere in the Schedule. The rent review notice was "received" only when it came into the hands of the tenant or his authorised agent, which was in the second or third week of May 2003 so that the counter-notice was served within the one month contemplated in paragraph 2. The concept of receipt is different from service, it is submitted. Statute makes provision for how and when service is effected. The word receipt was used advisedly to create a different situation.

27. I agree with Mr Blaker's submission. Clearer and specific words would have been required if it had been intended that the service on the tenant, contemplated by the opening words of the Schedule, was not effected until the tenant himself, or his authorised agent, saw the document. In this context, certainty is important and if the relevant date is to be a moveable one to the extent claimed by the tenant, that requirement would not be satisfied.

28. Clause 8 of the lease incorporates statutory provisions as to service and the word receipt may have been used to ensure that an actual date rather than a deemed date was the relevant one but receipt in this context means receipt at the demised premises. In my judgment, the rent review notice was received, within the meaning of paragraph 1 of the Schedule, on 16 April.

    Lord Justice Carnwath :

29. I agree that the appeal should be dismissed for the reasons given by Pill LJ. Like him I have not found the rent review provisions of the Third Schedule easy to construe. On the one hand the "deeming" provision in paragraph 2, taken with the provision that all periods of time are to be "of the essence" (para. 13) would normally be regarded as a clear possible indication that the ordinary presumption was to be displaced. Indeed, in a lease drafted against the background of Bickenhall Engineering Co. Ltd v Grandmet Restaurants Ltd [1994], to which Pill LJ has referred, it is difficult to understand a draftsman using that wording with any other intention.

30. On the other hand the proviso is an equally clear and unambiguous indication that "notwithstanding anything in this schedule" the parties are able to refer the question of new rent for determination by a surveyor at any time after the commencement of each relevant period. Faced with this head-on collision between two conflicting provisions, I cannot see any principled basis on which we can simply rewrite the proviso in the way suggested by the appellant. In the light of the authorities to which Pill LJ has referred, I think we must fall back on the "presumption", and hold that it has not been effectively displaced.

31. I also agree with the judge's ruling on the second issue, again for the reasons given by Pill LJ. I would only add that the point seems to me to be effectively settled by the decision of this court in Sun Alliance & London Assurance Co Ltd v Hayman [1975] 1WLR 177. In the words of Lord Salmon…

    "Statues and contracts often contain a provision notice may be served upon a person by leaving it at his last known place of abode or by sending it to him there through the post. The effect of such a provision is that if notice is served by any of the prescribed methods of service, it is, by law, treated as having been given and received." (p 185 v)

32. I respectfully agree with that succinct statement of the law.