The Judicial Committee of the Privy Council Decisions

(2) Alice Joyce Fifield Appellants

v.

W & R Jack Limited Respondent

FROM

JUDICIAL COMMITTEE OF THE PRIVY COUNCIL OF THE

15th November 1999, Delivered the 29th June 2000

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Lord Browne-Wilkinson

[Delivered by Lord Hobhouse of Woodborough]

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1. On 15th November 1999 at the conclusion of the hearing their Lordships agreed humbly to advise Her Majesty that the appeal should be dismissed and that the order of the Court of Appeal appointing Iain W. Gribble of Auckland as sole arbitrator be upheld; and that they would give their reasons later. This they now do.

 

2. This is an appeal, brought by leave of the Court of Appeal of New Zealand, by Mr. and Mrs. Fifield (the appellants) from a judgment of the Court of Appeal allowing an appeal from a judgment of Barker J. in which he had, among other things, refused W & R Jack Ltd (the respondent) an extension of time within which to commence arbitration proceedings in relation to a rent review under a lease dated 4th November 1986. Section 18(6) of the Arbitration Amendment Act 1938 gives the court a power to extend the time fixed by an agreement for commencing arbitration proceedings if it is of the opinion that in the circumstances of the case undue hardship would otherwise be caused and notwithstanding that the time so fixed has expired. The Court of Appeal considered that if the time was not extended undue hardship would be caused to the respondent and exercised the power given by the Act accordingly.

 

3. Section 18(6) corresponds to section 27 of the United Kingdom Arbitration Act 1950. Of that provision Lord Denning M.R. has said:-

"‘Undue’ ... simply means excessive. It means greater hardship than the circumstances warrant. Even though a claimant has been at fault himself, it is an undue hardship on him if the consequences are out of proportion to his fault." (Liberian Shipping v. King [1967] 2 Q.B. 86 at p.98)

 

4. This reading of the section was spelt out in guidelines for the exercise of the power given by Brandon J. in The Jocelyne [1977] 2 Lloyds 121 at 129. The authorities make it clear that the remedy is discretionary and that, once the party realises that he needs an extension of time, he must not delay in making his application to the court. (The Simonburn (No. 2) [1973] 2 Lloyds 145.) Barker J. was fully justified in attaching importance to this aspect in the present case. In the courts below, the respondent sought to advance additional grounds upon which it contends that it still has the right to arbitrate the rent review. These grounds failed before the judge and were not the basis of the decision of the Court of Appeal. Before their Lordships’ Board, the respondent has sought again to support its case on the ground of waiver. Their Lordships are of the opinion that this ground was well founded and that the appeal should be dismissed on this ground rather than by granting an extension of time under section 18(6).

 

5. The relevant contract is that contained in one of two leases. The demised properties were two commercial buildings at numbers 194 and 196 Station Road, Penrose, Auckland. The respondent was the lessee and the appellants were the lessors. The term was in each case 10 years with two-yearly rent reviews. Number 194 had been recently purchased by the appellants whereas number 196 had previously been let to the respondent for a number of years. Both buildings required refurbishment and the agreement was that the appellants would do this for number 194 and the rent would then take this into account. For number 196, the respondent was to fund the refurbishment cost and to receive an appropriate credit in the assessment of the rent. The rents stated in the leases were provisional only and were to be adjusted when the refurbishment costs were known. The refurbishment work was completed in the summer of 1986 but inevitably there were some variations in the estimates and the interim rentals could not be adjusted to the correct initial rentals until a full reconciliation of costs had been completed.

 

6. The first rent review fell due on 1st October 1988 but it was not until 30th June 1989 that the appellants sent to the respondent a letter specifying the adjustments they proposed to the rents. This letter covered both the adjustment of the original provisional rents and the review of the (adjusted) rents as from 1st October 1988. These proposals were inter-related and led to negotiations between the parties. The negotiations dragged on for the next 4 years. Eventually, the respondent applied to the court for the appointment of an arbitrator but it was not until November 1995 that an application for an extension under section 18(6) was added.

 

7. Barker J. held that the dispute in respect of the rent for number 196 had been settled in January 1992. That decision was not challenged on appeal to the Court of Appeal and consequently the only lease with which the Court of Appeal and their Lordships have been concerned is that for number 194.

 

8. The relevant clauses in the lease are as follows:-

"3. THE ANNUAL rent may be reviewed by the Landlord at the times and in the manner prescribed below:

 

(a) At any time (but not earlier than two months prior to the apposite review date) the Landlord may give notice in writing to the Tenant specifying the new annual rent proposed by the Landlord which the Landlord considers to be the current market rent of the premises as at the date of review specified in the notice.

 

(b) If by notice in writing to the Landlord within twenty eight (28) days after receipt of the Landlord’s notice the Tenant disputes that the proposed new rent is the current market rent and requires the new rent to be determined by arbitration then the new rent shall be determined by arbitration BUT such new annual rent shall not be less than the annual rent payable by the Tenant during the period of twelve (12) months immediately prior to the review date specified in the Landlords notice.

 

(c) If the Tenant fails to give such notice then the Tenant shall be deemed to have accepted the new annual rent specified in the Landlord’s notice.

 

(d) The new annual rent so determined or accepted shall be the annual rent from and inclusive of the review date.

 

(e) Pending acceptance or determination of the reviewed rent the Tenant shall pay the rent specified in the Landlord’s notice. Upon acceptance or determination of the reviewed rent then if the case shall require an adjustment shall be made by either the Landlord or the Tenant as appropriate.

 

(f) At the option of either party the rent review shall be recorded in a Deed the cost of which shall be borne by the Tenant.

 

(g) All costs of the determination of the new annual rental by arbitration shall unless the new rent so determined is equal to or greater than the proposed annual rental specified in the Landlords notice (in which event all costs of the determination shall be borne by the Tenant) be borne equally by the Landlord and the Tenant but each party shall bear his own legal and witnesses expenses.

 

4(a) ANY DISPUTE or difference which may arise between the parties hereto in any way touching or concerning this Lease or the subject matter thereof shall be referred to arbitration.

 

(b) Every reference to arbitration (unless otherwise specified) shall be deemed to be a reference to the arbitration of a single arbitrator if one can be agreed upon but otherwise to that of two arbitrators (one to be appointed by each party) or to their umpire (appointed by them prior to arbitration) in case of a disagreement and in any case in accordance with the provisions of the Arbitration Act 1908 or any statutory modification or re-enactment thereof for the time being in force. No reference to arbitration shall be deemed to suspend rental or other payments due under this lease and all payments otherwise shall be made pending the result of such arbitration."

 

9. The effect of these provisions is straightforward and contemplates a number of sequential steps. The first is the service of a notice by the lessor specifying the increase he proposes. The second is the service of a counternotice by the lessee if he disputes the proposed new rent: this counternotice must also require that the new rent be determined by arbitration and be given within 28 days of the lessor's notice failing which the new rent is that proposed by the lessor. Following the service of the counternotice, an arbitrator must be appointed under the arbitration clause either by the parties or the court and the arbitrator determines what the new rent shall be. Meanwhile, pending the acceptance or determination of the new rent, the lessee must pay the rent proposed by the lessor with any necessary adjustments to be made after the acceptance or determination.

 

10. Two important features of this scheme must be stressed. First, the time provision governing the time within which the lessee may serve a counternotice is of the essence. (Mobil Oil New Zealand Ltd. v. Mandeno [1995] 3 N.Z.L.R. 114). A late notice is non-contractual and ineffective. But, like any other time provision, the requirement may be waived by the party for whose benefit it has been inserted, here the lessor. (Rickards v. Oppenheim [1950] 1 K.B. 616). Secondly, once the time has expired, the proposed rent becomes the contractual rent. Thereafter, there is nothing to arbitrate or to negotiate about. (Clause 3 (c) and (d).)

 

11. The relevant facts are not in dispute and the correspondence has been placed before their Lordships. At the material times the lessors employed a Mr. Dempsey and the lessee a Mr. Fergie. It was these two persons who were primarily involved on behalf of the respective parties in 1989. They had had discussions in 1987 and these were resumed in 1989. There were a number of outstanding points beside the rental question. The letter of 30th June 1989 was signed by Mr. Fifield and sent to Mr. Fergie. It was not received until 5th July. Therefore the 28 day period expired on 2nd August. The letter, like the discussions before it, covered other matters as well and enclosed a statement of account between the parties relating to both properties. The lessors’ figures were based on a valuation obtained in April of that year.

 

12. The lessees instructed valuers in July and this disclosed measurement and other differences which needed to be discussed between them. Mr. Fergie was authorised to make an offer to Mr. Fifield for an agreed new rent with arbitration as the alternative. This offer was passed on orally and Mr. Fifield responded by letter on 6th September having discussed the matter further with Mr. Dempsey who had consulted their valuers. He wrote: "However, rather than getting into arbitration, I would propose that we meet on mid ground and round the rental off at $69,000 pa". He also sent amended invoices to settle the accounts covering other items besides the proposed new rent. On 14th September Mr. Fifield followed it up with a request for a decision on his counter offer so as to finalise the matter; he was going abroad the following week.

 

13. The following day Mr. Delbridge, the lessee's manager in its head office at Wellington, replied to Mr. Fifield:-

 

 

 

"Dear Jack,

 

Sorry but we are not prepared to accept your modified rental figures and we now withdraw our offer made through Bill Fergie.

 

We wish to have this matter settled by arbitration as we do not believe we have reached a ‘current market rent’.

 

Regards,

 

Don Delbridge"

 

14. Mr. Fifield replied by letter on 18th September explaining his view of the circumstances which had led to the agreement to refurbish the two buildings and the subsequent cash flow implications for the lessors. He particularly asked that the arrears be cleared before he went abroad. He did not suggest that the lessee was in any way precluded from continuing to negotiate the new rents nor that they were precluded from invoking the arbitration clause.

 

15. Mr. Delbridge's response was in a letter of the following day explaining why he did not accept the claim that there had been a substantial increase in "current market rents" and saying that he did not believe that either valuer had applied the correct legal test "hence our wish to go to arbitration". He concluded: "Meantime we are sending you a cheque today as required under clause 3e on the basis that subsequent adjustments be made between landlord and tenant when the rental is finalised".

 

16. On the 21st September Mr. Fifield acknowledged receipt of the cheque and requested the adjustment of the lessee's automatic payment instructions. This was the basis on which matters proceeded thereafter. The lessee took further valuation and legal advice. The negotiations continued with offers and counteroffers being made. For number 196, as stated earlier, agreement was reached in January 1992. The parties were unable to agree upon the new rent for number 194. The respondent started these proceedings.

17. In the Court of Appeal the case of the respondent appears to have been put on the basis of arguments of estoppel and election. The court was of the opinion that the application under section 18(6) of the Arbitration Amendment Act 1938 should succeed and therefore did not feel the need to enter into the issues those arguments raised. (p.57 Vol. I of the record).

 

18. As previously stated, the time limit laid down by clause 3(b) expired on 2nd August 1989. On that date the proposed rents became the new rents unless the lessors should decide to waive the time limit (or extend it) for serving the clause 3(b) counternotice. Mr. Delbridge's letter of 15th September was such a counternotice. It expressly said that the lessee was not prepared to accept the proposed new rents and said that it wished to have the matter settled by arbitration. The relevant question is whether the lessor waived the right to treat this counternotice as a nullity.

 

19. In their Lordships' opinion, the conduct of the appellants was only consistent with their having agreed not to rely upon the lessee's non-compliance with the strict time requirement of clause 3(b). Analytically, the waiver can have been a waiver before 15th September of the right to treat the rent as having been conclusively accepted by the lessee under clause 3(c) or a waiver after 15th September of the right to treat the counternotice as out of time and a nullity. Evidentially, the conduct of the lessor both before and after 15th September is relevant to the question. In the present case, the relationship between the parties was extremely good and there was no change in the attitude of the lessors towards the lessee during the material period.

 

20. When the 2nd August passed without any clause 3(b) notice from the lessee, the lessors chose not to stand on their rights under clause 3(c). They chose instead to discuss with the lessee the whole question of adjustment of the accounts between them, including the agreement of the new rents. They knew from shortly after the 23rd August that, failing a compromise agreement, the lessee wished to proceed to arbitration. Their response on 6th September was "rather than getting into arbitration" to continue to try and reach a compromise and to get the settlement of the accounts, a wish followed up on the 14th. The clause 3(b) letter of the 15th was not responded to with any rejection of its validity but with arguments on the merits and a request for the payment of the arrears. The lessee then complied with this request saying that the payment was made under clause 3(e) and confirming the wish to arbitrate and the lessors accepted the payment and asked for the amendment of the automatic payments necessary to complete the implementation of clause 3(e). In the correspondence which subsequently passed between the parties the respondent repeatedly referred to the need to resort to arbitration if resolution of the differences could not be reached. It was not until May 1994 when the appellants through their solicitors contended that both rentals had been agreed to in 1992 that matters started to come to a head.

 

21. As their Lordships have said, the conduct of the appellants is only consistent with their having both before and after 15th September waived their right to rely upon strict compliance with the time provision in clause 3(b) and the deemed acceptance in clause 3(c). It was not thereafter open to the appellants to treat the proposed rents as having been deemed to be agreed nor to resist the enforcement of the arbitration clause.

 

22. The arguments of the appellants forcefully criticising the application of section 18(6) by Court of Appeal therefore fall away as does the argument, accepted by Barker J., that later events in 1992 to 1995 did not suffice to create any estoppel or involve any election on the part of the appellants. To the more simple point that the critical communication of the respondent was that of 15th September 1989 and the need to consider the necessary implication of the appellants' conduct which preceded and followed that communication, the appellants had no answer.

 

23. Their Lordships will therefore humbly advise Her Majesty that the appeal should be dismissed with costs.