Case No: HC 03C00870
Neutral Citation Number: [2003] EWHC 2966 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY  DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday, 27th November 2003
B e f o r e :

THE VICE-CHANCELLOR
(Sir Andrew Morritt)

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	(1) PAUL PAOLINO MONTALTO MONELLA
(2) GRO MONTALTO MONELLA	Claimants	
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	PIZZA EXPRESS (RESTAURANTS) LIMITED	Defendant	
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Tape Transcription of Marten Walsh Cherer Ltd.,
Midway House, 27/29 Cursitor Street, London EC4A 1LT.
Telephone No: 020 7405 5010.  Fax No: 020 7405 5026

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MISS E. WINDSOR (instructed by ASB Law) for the Claimants
MISS J. BIGNELL (instructed by Messrs. Lewis Silkin) for the Defendant

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Judgment
The Vice-Chancellor: 
1.	 In this action the claimants, Paul Paolino Montalto Monella and Gro Montalto Monella, seek an order under section 12 of the Arbitration Act 1996 extending the time within which they may apply for the appointment of an arbitrator to determine the revised rent to be paid under a rent review clause contained in a lease dated 30th October 1997.  The relevant facts may be summarised as follows. 
2.	On 31st January 1997, the Arbitration Act 1996 came into force.  Accordingly, it formed part of the background against which the lease in question was executed.  Section 12 of the Act is in the following terms:  
"(1) Where an arbitration agreement to refer future disputes to arbitration provides that a claim shall be barred, or the claimant's right extinguished, unless the claimant takes within a time fixed by the agreement some step – 
(a) to begin arbitral proceedings, or 
(b) to begin other dispute resolution procedures which must be exhausted before arbitral proceedings can be begun, the court may by order extend the time for taking that step.  
(2) Any party to the arbitration agreement may apply for such an order (upon notice to the other parties), but only after a claim has arisen and after exhausting any available arbitral process for obtaining an extension of time.  
(3) The court shall make an order only if satisfied – 
(a) that the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question, and that it would be just to extend the time, or 
(b) that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question."
3.	I need not quote or refer to subsections (4), (5) and (6). 
4.	As I have indicated, the lease in question was executed on 30th October 1997.  It was made between two individuals and the defendant, Pizza Express (restaurants) Limited.  By the lease, the former granted to the latter a term of 25 years in respect of certain premises commencing on 30th October 1997 at an annual rent of 15,000 but subject to quinquennial, upwards-only reviews.  The relevant provisions of the review are contained in clause 8. 
5.	Clause 8 opens with the words:  "The Revised Rent shall be determined as follows".  Clause 8.1 provides for the rent to be agreed "or (in the absence of agreement) determined not earlier than the relevant Review Date at the option of the Landlord either by an arbitrator or by an independent valuer (acting as an expert and not as an arbitrator) such arbitrator or valuer to be nominated in the absence of agreement by or on behalf of the President for the time being of the Royal Institute of Chartered Surveyors or his deputy on the application of the Landlord or the Tenant made not earlier than six months before the relevant Review Date and so that, in the case of such arbitration or valuation the Revised Rent to be awarded or determined by the arbitrator or valuer shall be such as he shall decide should be the yearly rent reasonably obtainable in the open market at the relevant Review Date for the Demised Premises." 
6.	Paragraph (A) sets out the assumptions on which the valuation is to be made; paragraph (B) sets out the various disregards to which the arbitrator or valuer is to pay no attention. 
7.	Clause 8.2 states:  
"IT IS HEREBY FURTHER PROVIDED in relation to the Revised Rent as follows:- 
"(A) (In the case of arbitration) the arbitration shall be conducted in accordance with the Arbitration Act 1996 or any statutory modification or re-enactment thereof for the time being in force." 
8.	Then (B) deals with valuation and the relevant provision is paragraph (E), which is in the following terms:  
"Whenever the Revised Rent in respect of a Review Period has not been agreed between the Landlord and the Tenant before the relevant Review Date and the Landlord has not made any application to the President for the time being of the Royal Institute of Chartered Surveyors as hereinbefore provided the Tenant may serve on the Landlord notice in writing containing a proposal as to the amount of such Revised Rent not being less than the rent payable immediately before the commencement of the relevant Review Period and the amount so proposed shall be deemed to have been agreed by the parties as the Revised Rent for the relevant Review Period and sub-clause (D)(i) hereof shall apply accordingly unless the Landlord shall make such application as aforesaid within one month after service of such notice by the Tenant." 
9.	On 31st July 2001, the Court of Appeal gave judgment in a case called Starmark Enterprises Ltd v. CPL Distribution Ltd [2002] 2 W.L.R. 1009.  It is sufficient for present purposes to quote from the headnote.  It states, and I quote:  
"Held, allowing the appeal, (1) that the normal presumption in rent review cases that the time was not of the essence could be displaced if the contracting parties had shown clear contraindications in their wording of the rent review clauses in the lease; that where by way of a deeming provision the contract expressed a clear intention as to the consequence of a party's failure to comply with the stipulated timetable the court would not read such a deeming provision as mere administrative direction or conclude that time was not of essence, since such a construction would amount to a rewriting of the contract by which the parties had agreed to be bound; and that, accordingly, the tenant's counter-notice had not been validly served ... 
(2) Where the ratio of an earlier decision of the Court of Appeal was directly applicable to the circumstances of a case before the Court of Appeal but that decision had been wrongly distinguished in a later decision of the Court of Appeal, in principle it was open to the Court of Appeal to apply the ratio of the earlier decision and to decline to follow the later decision". 
10.	Reference is then made to United Scientific Holdings Ltd v. Burnley Borough Council [1978] A.C. 904; Trustees of Henry Smith's Charity v. AWADA Trading and Promotion Services Ltd (1983) 47 P&CR 607; and dicta of Simon Brown  LJ in Bickenhall Engineering Co Ltd v. Grandmet Restaurants Ltd [1995] 1 EGLR 110, 116.  The headnote concludes Mecca Leisure Limited v. Renown Investments Holdings Limited (1984) 49 P&CR 12 CA not followed. 
11.	On 9th October 2001, the claimants acquired the freehold reversion to the lease.  On 18th June 2002, the claimants' agent wrote to the defendant's agent proposing a Revised Rent of 37,000 per annum.  On 24th June the defendant's agent responded that such a rent was too high.  There then ensued without prejudice correspondence or other communications and, so far as the court is concerned, the story recommences on 22nd October 2002 when the claimants' agent asked the defendant's agent to assist with the appointment of an arbitrator. 
12.	The 30th October 2002 was the first review date under the lease.  On the same day the defendant's agent gave notice to the claimants' agent, which it claimed to be in accordance with the lease, proposing that the Revised Rent should be 21,000.  Under the provisions of clause 8.2(E) the claimants had one month after service of that notice to apply for the appointment of an arbitrator. 
13.	On 2nd November 2002, a notice dated 30th October 2002 was served on the claimants. On 7th November the claimants' agents rejected the proposal for an annual rent of 21,000.  Thereafter, further without prejudice communications ensued and on 9th December 2002 the claimants' new agent completed and posted a notice in the RICS form for the appointment of an arbitrator pursuant to clause 8.2(E).  I should indicate at this stage that it is not suggested that the without prejudice negotiations either then or at the earlier stage gave rise to any arguable case under section 12(3)(b) of the Arbitration Act 1996. 
14.	The appointment of the arbitrator was duly communicated to the agents for the defendant and on 20th December their solicitors point out to the claimants that the notice had been given out of time.  On 23rd January 2003, the claimants indicated that they would make an application for an extension of time under section 12.  The defendant's solicitors asked in response on 7th February 2003 for a sight of the application in draft.  That request was not complied with but on 18th February the claimants' solicitors reiterated that an application for an extension would be made.  On 20th February the President of the RICS appointed an arbitrator in accordance with the request and on 10th March this year the claim form, which is now before me, was issued. 
15.	The contention of the claimant is clearly and adequately summarised in paragraphs 2.8 to 2.10 of the claim form.  They read as follows:  
"2.8  Prior to July 2001 time would not have been considered to be of the essence of the one month time limit containing clause 8.2(E) of the lease in the light of the Court of Appeal decision of Mecca Leisure Ltd v. Renown Investments Holdings Ltd (1984) 49 P&CR 12.  However, in July 2001, the Court of Appeal in Starmark Enterprises Ltd v. CPL Distribution Ltd [2002] 2 W.L.R. 1009, held that the earlier case was wrongly decided. 
2.9  These circumstances are such as were outside the reasonable contemplation of the parties to the lease when they agreed the relevant contractual provision and it would be just to extend time. 
2.10  There is no available arbitral process by which the claimants might obtain the extension of time sought." 
16.	In support of that claim, the argument for the claimants advanced by their counsel may be summarised as follows.  The law as to time being of the essence in a case of a rent review clause was laid down by the House of Lords in United Scientific Holdings Ltd v. Burnley Borough Council [1978] A.C. 904.  I take that law from the passage in the headnote, which adequately summarises the speeches of their Lordships in the following terms:  "in the absence of any contraindications in the express words of the lease or in the interrelation of the rent review clause itself to other clauses, or in the surrounding circumstances, the presumption is that the timetable 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 the essence of the contract." . 
17.	Counsel for the claimants submits that the principle was applied by the Court of Appeal to a provision similar to clause 2.8(E) in Mecca Leisure Ltd v. Renown Investments (Holdings) Ltd [1984] 2 EGLR 137, in holding that time was not of the essence of that provision.  That conclusion was followed and applied in other cases with review clauses having similar provisions, notably Taylor Woodrow Property Company Limited v. Lonrho Textiles Limited [1985] 2 EGLR 120; Phipps-Faire Ltd v. Malbern Construction Ltd [1987] 1 EGLR 129; Power Securities Manchester Limited v. Prudential Assurance Company Limited, [1987] 1 EGLR 121; and Bickenhall Engineering Company Limited v. Grandmet Restaurants Limited [1995] 1 EGLR 110. 
18.	Counsel submits that the consequence of Starmark Enterprises Ltd v. CPL Distribution Ltd [2002] 2 W.L.R. 1009 is that the decision of the Court of Appeal in Mecca no longer represents the law.  This change in the law as perceived by the profession is, she submits, a circumstance which was outside the reasonable contemplation of the parties when the lease was executed in October 1997.  She submits that it would be just to grant the extension sought because the defendant well knew that a rent of 21,000 per annum would be unacceptable and that arbitration was being proposed; that the time by which the notice for the request of the appointment of an arbitrator was out of time was very short and that the consequential prejudice to the claimant if no extension is allowed, when compared to prejudice to the defendant if it is, is excessive. 
19.	This is disputed by counsel for the defendants.  She submits that the approach to be adopted is that set out by Waller  LJ in Harbour and General Works Ltd v. Environment Agency [2000] 1 W.L.R. 950, at various passages on 959 and 960.  The passage at page 959 is in the following terms:  
"Accordingly, the approach to the construction of section 12 has, in my judgment, to start from the assumption that when the parties agreed the time bar, they must be taken to have contemplated that if there were any omission to comply with its provisions in not unusual circumstances arising in the ordinary course of business, the claim would be time-barred unless the conduct of the other party made it unjust that it should.  In this connection, it would appear quite impossible to characterise a negligent omission to comply with the time bar, however little delay were involved, as, without more, outside their mutual contemplation.  Narrowly overlooking a time bar due to an administrative oversight is far from being so uncommon as to be treated as beyond the parties' reasonable contemplation." 
20.	At page 960 appears this passage:  
"'The circumstances in question must in each case include those which caused or at least significantly contributed to the claimant's failure to comply with the time bar'."  
Both those passages were contained in the judgment of the judge below, Colman J, and Waller  LJ at page 960 B said:  "I agree with the above approach.  I do not think it differs from the approach of Clarke  J in Fox & Widley v. Guram [1998] 1 EGLR 91, Geoffrey Brice QC sitting as a deputy judge of the High Court in the Commercial Court in Cathiship S.A. V. Allansons Ltd [1998] 3 All ER 714, or Mance J in Grimaldi Compagnia di Navigazione v. Sekihyo Lines Ltd [1999] 1 W.L.R. 708.  Nor do I myself think that it differs very much from the approach of Judge Raymond Jack QC sitting as a judge of the High Court in the Commercial Court in Vosnoc Ltd v. Transglobal Projects Ltd [1998] 1 W.L.R. 1001, albeit the judge obviously had some doubts about the actual decision."
21.	Waller  LJ added later, on page 960:  
"The actual mistake on further refinement can be said to be a failure to read the provisions which have been agreed.  If one were to pose the question whether it would be contemplated by the parties that they would not even read the provision that they had agreed when contemplating operating the provision, the sensible answer would seem to be that one could not even reasonably contemplate that."
22.	Later still he added:  
"The subsection is concerned with party autonomy.  Its aim seems to me to be to allow the court to consider an extension in relation to circumstances where the parties would not reasonably have contemplated them as being ones where the time bar would apply, or to put it the other way round, the section is concerned not to allow the court to interfere with a contractual bargain unless the circumstances are such that if they had been drawn to the attention of the parties when they agreed the provision, the parties would at the very least have contemplated that the time bar might not apply  -- it then being for the court finally to rule as to whether justice required an extension of time to be given." 
23.	Based on those passages, counsel for the defendant submits that the circumstance in question must be one which at least contributed to the claimants' failure to comply with the time bar.  She argues that a change in the law is not a circumstance outside the reasonable contemplation of the parties and does not itself contribute to a failure to comply with the time bar.  She suggests that, had the parties contemplated this change in the law, they would not have done anything different for all that has happened is that the provisions of clause 8.2(E) have been applied in accordance with their terms.  She also challenges the proposition that the change in the law was in any sense unforeseen.  She submits that there was at the time the lease was executed on 30th October 1997 at least one decision of the Court of Appeal which conflicted with Mecca.  That was Trustees of Henry Smith's Charity v. AWADA [1984] 1 EGLR 116, and there were other indications that the majority decision in Mecca was questioned, including doubts expressed by Mr.  Hytner QC, sitting as a deputy judge of the Queens Bench Division in Taylor Woodrow and the refusal of the Court of Session in Scotland to follow that the Mecca decision in Visionhire v. Britell Fund Trustees Ltd [1992] 1 EGLR 128.  For a variety of reasons she submits that it would now be unjust to extend the time even if the other condition were satisfied.  Finally, for good measure, she submits that the relief should in any event be refused because of the claimants' delay in making the application that is now before me. 
24.	I have been referred by counsel for the claimant to a large number of cases on the construction and effect of rent review clauses and whether time is or is not of the essence.  In my judgment, it is clear that the decision of the Court of Appeal in Mecca was never accepted without reservation.  Not only was it a majority decision, with Browne-Wilkinson LJ in the minority, but doubts had been expressed in Taylor Woodrow by the deputy judge, in Bickenhall by at least Simon Brown  LJ and the Court of Session had refused to follow it in Visionhire.  True it is that it took until the decision of the Court of Appeal in Starmark to get it overruled, but the doubts had always existed. 
25.	The point is, I think, sufficiently illustrated by reference to three standard textbooks in use in October 1997.  Thus in Woodfall, Landlord and Tenant, February 1995, volume 1 section 8.011, the authors, which included Mr. Lewison QC, as he then was, set out under the heading "Time of the Essence, Contraindications of the Clause", various considerations to be derived from the reported cases, including Mecca; Taylor Woodrow; Phipps-Faire; Visionhire and others.  The conclusion at the end of that heading is, and I quote:  
"It is not possible to extract fully coherent principles from the cases on this topic.  The nearest it is possible to get is that where the parties have not only required a step to be taken within a specified time, but have also provided the consequences in case of default, this provides an indication of greater or lesser strength that time is to be of the essence, but it is not necessarily decisive.  Whether it is so or not must depend on all the circumstances of the case, including the context and wording of the provision, the degree of emphasis, the purpose and effect of the default clause and any other relevant consideration.  In the end, the matter is one of impression to be derived from the consideration of the rent review clause as a whole together with any other relevant considerations, avoiding fine  distinctions, but giving effect to every provision in the lease." 
26.	The second textbook to which I was referred in this connection is the Handbook on Rent Review, edited by Mr. Bernstein and Mr. Reynolds, the Service Edition for October 1989 as updated by an August 1997 supplement, at page 305, the editors, having referred to the Henry Smith's Charity case and the Mecca Lesiure case observed, and I quote:  
"Whatever the merits of these competing views, it seems that the decision of the majority in the Mecca Lesiure case is a binding precedent as to what was the true ratio of the Henry Smith case.  Both cases were considered in detail by judges at first instance in Green Haven Securities v. Taylor Woodrow properties.  A possible distinction between the two was suggested in the latter.  Namely that in Henry Smith there were deeming provisions applying to both landlord and tenant, whereas in Mecca Lesiure, the deeming provision applied only to the tenant.  The soundness of this distinction is doubtful.” 
27.	In the supplement as at August 1997, the editors referred for an analysis of these decisions from a Scots law viewpoint to Visionhire Ltd v. Britell Fund Trustees. 
28.	Finally, in the 5th Edition of Drafting Business Leases, edited by Mr. Lewison QC, at page 99, the author having referred to all the cases to which I have previously referred, summarised the position in these terms:  
"Where the parties have not only required a step to be taken within a specified time but have expressly provided for the consequences in case of default, this provides an indication of greater or less strength that time is to be of the essence, but it is not necessarily decisive.  Whether it is so or not depends on all the circumstances of the case, including the context of wording of the provisions, the degree of emphasis, the purpose and effect of the default clause and any other relevant considerations.  In the end, the matter is one of impression (see Power Securities Manchester Ltd v. Prudential Assurance Company Ltd [1987] 1 EGLR 121).  As a result of these cases, it is clear that relatively small differences in the drafting of the rent review clause may have great practical consequences.  In all cases it is suggested that the parties must consider whether or not to have strict time limits and ensure that that intention is clearly expressed." 
29.	It was suggested by counsel for the claimant that what the parties had agreed in clause 8 of the lease was not a time bar within section 12(1) because at the time the lease was executed, time would not have been of its essence.  I do not accept that proposition.  Clause 8.2(E) was still a time bar, whether time was of its essence or not because it imposed a time limit, the only issue being how long it was and what, if any, other steps, such as giving a notice that the time is to be of the essence is required. 
30.	I have no doubt, and I so hold, that section 12(3) is applicable to clause 8 of this lease to determine whether an extension may be granted.  Accordingly, two conditions must be satisfied; namely, first of all, the circumstances are such as to be outside the reasonable contemplation of the parties when they agreed clause 8.2(E); and, secondly, that it is just to extend the time as sought.  I will deal with those two conditions in turn. 
31.	The first condition must be applied in accordance with the propositions laid down or approved by Waller  LJ, with whom Tuckey  LJ agreed, in Harbour and General Works Ltd v. Environment Agency [2000] 1 W.L.R. 950.  Those propositions may be summarised as follows (and I give the reference to the quotation on which my summary is based after each proposition). 
32.	First, the court must assume that the parties had in contemplation at the time the lease was executed omissions to comply with its terms in not unusual circumstances arising in the ordinary course of business (see page 959, G-H). 
33.	Second, the relevant circumstances must include those which cause or contribute to the claimants' failure to comply with the time bar (see page 960 A-B). 
34.	Third, the purpose of the section is to preclude the intervention of the court in concluded contracts unless the circumstances are such that if they had been drawn to the attention of the parties when the lease was made, they would at least have contemplated that the time bar might not apply (see page 960 F-H). 
35.	Accordingly, it is necessary to identify the relevant circumstance.  For the claimant it was contended that it was, and I quote from my note:  
"The parties would not when the lease was executed have contemplated that time would have been of the essence of clause 8.2(E) so that a notice given by the landlord ten days after the month had expired would be effective to refer the issue to arbitration."  
The defendant, by contrast, contends that the relevant condition is, and I quote:  
"The claimant would give such notice under clause 8.2(E) as at the time of the relevant review date was required properly to refer the issue to arbitration."  
36.	The formulation of the relevant circumstance by the claimant does not admit of any change in the law but not only is change foreseeable, in this instance it was certainly not unlikely.  Further, the change in the law did not contribute to the claimants' failure to effect a reference; it was fully publicised a year before the review date and was well known to solicitors and surveyors operating in the world of commercial property.  In truth, put in causation terms, the change in the law gave rise to the occasion for the failure to give notice in time but it did not cause it.  The cause lay with the solicitors or agents for the claimant not giving it in the time permitted for the purpose.  That such solicitors or agents might not give notice in time, for whatever reason, is a fact of commercial life and would have been readily contemplated in October 1997. 
37.	In those circumstances, I consider that the first condition is not satisfied.  It follows that I have no jurisdiction to extend the time, even if I thought it just to do so.  It is not, I think, helpful to consider the latter question as well because it is essential to bear in mind that the avowed purpose of section 12 of the Arbitration Act 1996, as explained by Waller  LJ in Harbour and General, in a passage I have already quoted from his judgment, is to restrict the circumstances in which the court can interfere in the contractual bargain made by the parties.  To consider the justice of an extension in circumstances in which the court is not entitled to extend the time would be misleading because, ex hypothesi, Parliament considers that it is not just to do so in those circumstances.  So the length of the extension required and the extent of the prejudice sustained by one party or another is irrelevant. 
38.	In these circumstances, it is not necessary either to deal with the submission of counsel for the defendant that even if the other conditions for an extension were fulfilled, it should nevertheless be refused because the application to the court was made too late. 
39.	For all these reasons, I dismiss this claim.