United Scientific Holdings Ltd v Burnley Borough Council; Cheapside Land Development Co Ltd and Anor v Messels Service Co
[1977] 2 All ER 62(Judgment by: Lord Simon of Glaisdale)
Between: United Scientific Holdings Ltd v Burnley Borough Council; Cheapside Land Development Co Ltd and Anor
And: Messels Service Co
Judges:
Lord Diplock
Viscount Dilhorne
Lord Simon of GlaisdaleLord Salmon
Lord Fraser of Tullybelton
Subject References:
LANDLORD AND TENANT
RENT
Review
Failure to comply with time limit
Construction of clause
Presumption that time not of the essence
Rebuttal of presumption
Contra-indications in express words of lease or in interrelation of rent review clause itself and other clauses or in surrounding circumstances
Failure to comply with time limit not precluding landlord from invoking clause unless presumption that time not of the essence rebutted
Retrospective operation
Certainty of rent
Increased rent determined under review clause payable from specified date
Increased rent not determined until after specified date
Whether increased rent payable retrospectively from specified date
Case References:
Accuba Ltd v Allied Shoe Repairs Ltd - [1975] 3 All ER 782; [1975] 1 WLR 1559; 30 P & CR 403; Digest (Cont Vol D) 581, 3952d
Bailey (C H) Ltd v Memorial Enterprises Ltd - [1974] 1 All ER 1003; [1974] 1 WLR 728; 27 P & CR 188, CA; Digest (Cont Vol D) 581, 3952e
Boone v Eyre - (1779) 1 Hy Bl 273 n; 1 Wms Saund 320 c; 2 Wm Bl 1312; 126 ER 160; 12 Digest (Reissue) 524, 3630
Cutter v Powell - (1795) 6 Term Rep 320; 101 ER 573; 12 Digest (Reissue) 146, 844
Essoldo (Bingo) Ltd's Underlease, Re, Essoldo Ltd v Elcresta Ltd - (1972) 23 P & CR 1; 31(1) Digest (Reissue) 480, 3951
Farrell v Alexander - [1976] 2 All ER 721; [1976] AC 59; [1976] 3 WLR 145, HL
Finch v Underwood - (1876) 2 Ch D 310; 45 LJCh 522; 34 LT 779, CA; 31(1) Digest (Reissue) 293, 2394
Greater London Council v Connolly - [1970] 1 All ER 870; [1970] 2 QB 100; [1970] 2 WLR 658; 134 JP 336, CA; Digest (Cont Vol C) 423, 144a
Gregson v Riddle - (1784) cited in 7 Ves at 268; 32 ER 109, LC; 40 Digest (Repl) 118, 916
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd - [1962] 1 All ER 474; [1962] 2 QB 26; [1962] 2 WLR 474, CA; 41 Digest (Repl) 363, 1553
Hughes v Metropolitan Railway Co - (1877) 2 App Cas 439; 46 LJQB 583; 36 LT 932; 42 JP 421, HL; 21 Digest (Repl) 392, 1221
Jackson v Union Marine Insurance Co Ltd - (1874) LR 10 CP 125; [1874-80] All ER Rep 317; 44 LJCP 27; 31 LT 789, Ex Ch; 12 Digest (Reissue) 484, 3435
Kenilworth Industrial Sites Ltd v E C Little & Co Ltd - [1975] 1 All ER 53; [1975] 1 WLR 143; 29 P & CR 141, CA; Digest (Cont Vol D) 580, 3952c
Knight, Re, ex parte Voisey - (1882) 21 Ch D 442; 52 LJCh 121; 47 LT 362, CA; 31(1) Digest (Reissue) 473, 3874
Lennon v Napper - (1802) 2 Sch & Lef 682; 12 Digest (Reissue) 382, 1437
Martindale v Smith - (1841) 1 QB 389; 1 Gal and Dav 1; 10 LJQB 155; 5 Jur 932; 113 ER 1181; 39 Digest (Repl) 744, 2216
Mount Charlotte Investments Ltd v Leek and Westbourne Building Society - [1976] 1 All ER 890
Parkin v Thorold - (1852) 16 Beav 59; 22 LJCh 170; 16 Jur 959; 51 ER 698; 12 Digest (Reissue) 381, 2760
Peeters v Opie - (1671) 2 Wms Saund 346; 85 ER 1144
Pordage v Cole - (1669) 1 Wms Saund 319; 1 Lev 274; 2 Keb 542; T Raym 183; 1 Sid 423; 85 ER 449; 12 Digest (Reissue) 523, 3624
Richards (C) & Son Ltd v Karenita Ltd - (1971) 221 Estates Gazette 25
Samuel Properties (Developments) Ltd v Hayek - [1972] 3 All ER 473; [1972] 1 WLR 1296; 24 P & CR 233, CA; 31(1) Digest (Reissue) 481, 3952
Schuler (L) AG v Wickman Machine Tool Sales Ltd - [1973] 2 All ER 39; [1974] AC 235; [1973] 2 WLR 683, HL; Digest (Cont Vol D) 123, 3613a
Seton v Slade, Hunter v Seton - (1802) 7 Ves 265; [1775-1802] All ER Rep 163; 32 ER 108, LC; 12 Digest (Reissue) 381, 2755
Smith v Hamilton - [1950] 2 All ER 928; [1951] Ch 174; 40 Digest (Repl) 242, 2042
Stickney v Keeble - [1915] AC 386; [1914-15] All ER Rep 73; 84 LJCh 259; 112 LT 664, HL; 40 Digest (Repl) 120, 942
Stylo Shoes Ltd v Wetherall Bond Street W1 Ltd - (1974) 237 Estates Gazette 343, CA
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd, United Dominions Trust (Commercial) Ltd v Eagle Aviation Ltd - [1968] 1 All ER 104; [1968] 1 WLR 74, CA; Digest (Cont Vol C) 406, 18d
Wallis, Son and Wells v Pratt and Haynes - [1910] 2 KB 1003; 79 LJKB 1013; 103 LT 118, CA; on appeal [1911] AC 394; [1911-13] All ER Rep 989; 80 LJKB 1058; 105 LT 146, HL; 12 Digest (Reissue) 522, 3613
Walsh v Lonsdale - (1882) 21 Ch D 9; 52 LJCh 2; 46 LT 858, CA; 31(1) Digest (Reissue) 487, 4019
Watts and Attorney General for British Columbia v Watts - [1908] AC 573, PC
Weston v Collins - (1865) 5 New Rep 345; 34 LJCh 353; 12 LT 4; 29 JP 409; 11 Jur NS 190, LC; 40 Digest (Repl) 315, 2601
Judgment date: 23 March 1977
Judgment by:
Lord Simon of Glaisdale
My Lords, I have had the privilege of reading in draft the speech delivered by my noble and learned friend, Lord Diplock. I agree with his arguments culminating in the propositions that, in general, in modern English law time is prima facie not of the essence of a contract, and that there is nothing in the two leases the subject of the instant appeals which rebuts that presumption so as to make the stipulations as to time essential to the operation of their rent review clauses.
The respective outlooks of the old common law and equity on contractual stipulations as to time diverged owing to their different historical developments. Where A sought in a court of common law to enforce against B a promise which B had made to him, A had to aver and prove that he had himself performed so far as he could (and, as to the rest, was ready and willing to perform) his reciprocal obligations: see notes to Peeters v Opie ((1671) 2 Wms Saund (1971 Edn) 742, 743, 744); cf Pordage v Cole ((1669) 1 Wms Saund (1971 Edn) 548, 551, 552, 556), notes to Cutter v Powell ((1795) 2 Smith, LC 1). It followed that if A's reciprocal obligation was to be performed by a certain stipulated time, A had to aver and prove that such stipulation as to time had been observed. It was thus that it came to be held that at common law time was (as the expression went) of the 'essence' of a contract-in effect, timeous performance was a condition precedent to enforcement of reciprocal obligations. So it was that Lord Romily MR came to say in Parkin v Thorold ((1852) 16 Beav 59 at 65) 'At law, time is always of the essence of the contract. When any time is fixed for the completion of it, the contract must be completed on the day specified, or an action will lie for the breach of it.' In point of fact, during the 19th century the attitude of the common law courts as to time of performance became less rigid. Thus, in Martindale v Smith ((1841) 1 QB 389 at 395), Lord Denman CJ said:
'In a sale of chattels, time is not of the essence of the contract, unless it is made so by express agreement ...'
But this went further than the development of the law justified, or the peculiar facts of that case necessitated. The true development of the common law as to the sale of chattels did not go beyond its codification in s 10(1) of the Sale of Goods Act 1893:
'Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract.'
(And even that provision must be read in the light of s 28 of the Act, whereby payment and delivery are concurrent conditions.) So it remains true that, as stated in Halsbury's Laws of England: [F4]
'At common law stipulations as to time in a contract were as a general rule, and particularly in the case of contracts for the sale of land, considered to be of the essence of the contract, even if they were not expressed to be so, and were construed as conditions precedent ... '
The attitude of equity, on the other hand, was deeply influenced by its handling of mortgages and sales of land. Up to the end of 1925 the normal method by which a mortgage of the fee simple was created was for A, the mortgagor, to convey the legal fee simple to B, the mortgagee, together with a covenant to repay the loan (the obtaining of which was the object of the transaction) in, say, six months time, with a proviso that, if the loan were repaid at such date, B would re-convey the legal estate. In the eyes of the common law B was the owner of the legal estate from the date of the conveyance; and, failing repayment within six months, became the absolute and indefeasible owner. But it was a maxim of the Court of Chancery that 'Equity looks to the intent rather than to the form'. If A failed to repay B's loan by the stipulated date, the Court of Chancery would examine the transaction to see if it was really only what it purported to be-a sale of property with a collateral option to re-purchase-or was in reality a pledge of property to secure a loan. And, on ascertaining that it was the latter, the Court of Chancery would compel B to re-convey the land to A on his repaying the money within a reasonable time (though late) with interest to the date of repayment. The stipulation as to time was in consequence not regarded as an essential term.
So again with equity's handling of sales of land. A contracted to convey Blackacre to B, various dates leading to and including completion being stipulated. It was another maxim of the Court of Chancery that 'Equity regards that as done which ought to be done'. The conveyance ought to be completed in accordance with the contract. So the equitable estate in Blackacre passed from A to B on the making of the contract, notwithstanding that the passing of the now bare legal estate from A to B had to await completion of the conveyance. The Court of Chancery then applied the other maxim about looking to the intent rather than the form.
The beneficial estate had already passed with the making of the contract. It followed that the stipulated time for completion of the conveyance was formal only. The Court of Chancery would therefore decree specific performance of the conveyance notwithstanding that various steps leading to completion had not been observed timeously, provided that B had been guilty of no such delay as to make it unreasonable for him to call on A to complete out of time or that it would otherwise be unfair to A. Once again, the upshot was that stipulations as to time of performance turned out to be unessential in the eyes of equity.
The self-conscious differentiation in approach of the common law and equity appears from a much cited judgment of Lord Redesdale LC in Lennon v Napper ((1802) 2 Sch & Lef 682 at 684, 685):
'Courts of equity have therefore enforced contracts specifically, where no action for damages could be maintained; for at law, the party plaintiff must have strictly performed his part, and the inconvenience of insisting upon that in all cases, was sufficient to require the interference of courts of equity. They dispense with that which would make compliance with what the law requires oppressive: and in various cases of such contracts, they are in the constant habit of relieving the man who has acted fairly, though negligently. Thus in the case of an estate sold by auction, there is a condition to forfeit the deposit, if the purchase be not completed within a certain time; yet the court is in the constant habit of relieving against the lapse of time: and so in the case of mortgages, and, in many instances, relief is given against mere lapse of time, where lapse of time is not essential to the substance of the contract.'
So strongly was the attitude of the Court of Chancery conditioned by such transactions that Lord Thurlow could hold that in equity time could not be of the essence of a contract even though expressly declared to be so: Gregson v Riddle ((1784) cited in 7 Ves at 268), cited in Seton v Slade ((1802) 7 Ves 265 at 268, 269), where Lord Eldon LC was still prepared to leave the point open (7 Ves 265 at 275), though including to the view that express words could make time of the essence (7 Ves 265 at 270). Lord Eldon's view was to prevail. Just as the courts of common law resiled from the extreme position which was the logical conclusion of Serjeant Williams' doctrine (with its effect that time was always of the essence of a contract), so the Court of Chancery abandoned Lord Thurlow's contrary extreme.
The passage that I cited above from Lord Romilly MR in Parkin v Thorold ((1852) 16 Beav 59 at 65), after referring to Lord Thurlow's view as 'exploded', concludes:
'... time is held to be of the essence of the contract in equity, only in cases of direct stipulation, or of necessary implication'.
So by 1873 the two systems had evolved into a situation whereby in the courts of common law stipulations as to time were prima facie regarded as of the essence of a contract, while in the Court of Chancery stipulations as to time were prima facie regarded as not essential. Thus, though the gap had narrowed, what Lord Eldon LC had said in the Court of Chancery in Seton v Slade ((1802) 7 Ves 265 at 273) was still true: 'To say, time is regarded in this Court, as at law, is quite impossible.' No doubt further evolution would have taken place in each system, and they would probably have further converged. But before any such further development could take place, both systems had to be brought together (also with those applied in Doctors' Commons) in a single code to be administered in one Supreme Court of Judicature. This involved determining which system should prevail in those respects where they were at variance. Those that were in legislative contemplation were resolved in s 25(1) to (10) of the Supreme Court of Judicature Act 1873. But it was envisaged (correctly as it proved) that there might be other respects not within the immediate contemplation of Parliament where the rules of common law and equity diverged. So sub-s (11) provided:
'Generally in all matters not herein-before particularly mentioned, in which there is any conflict or variance between the Rules of Equity and the Rules of the Common Law with reference to the same matter, the Rules of Equity shall prevail.'
One of the contemplated differences between the rules of common law and equity was with regard to contractual stipulations as to time. That difference was resolved in favour of equity by s 25(7), replaced by s 41 of the consolidating Law of Property Act 1925, which is the provision that falls for construction in the instant appeals (Farrell v Alexander):
'Stipulations in a contract, as to time or otherwise, which according to rules of equity are not deemed to be or to have become of the essence of the contract, are also construed and have effect at law in accordance with the same rules.'
This can only be interpreted by bearing in mind that the object of s 25 of the Judicature Act 1873 was to reconcile the differences between common law and equity so that the two systems (together with the admiralty, testamentary and matrimonial) could form a single coherent code. This merely reinforces the plain and ordinary sense of the words. I cannot read s 41 of the Law of Property Act 1925 as meaning other than that, whenever contractual stipulations as to time fall for consideration in any court, they shall not be construed as essential, except where equity would before 1875 have so construed them, ie only when the strict observance of the stipulated time for performance was a matter of express agreement or of necessary implication.
In my view the modern law in the case of contracts of all types is correctly summarised in Halsbury's Laws of England: [F5]
'Time will not be considered to be of the essence unless:
- (1)
- the parties expressly stipulate that conditions as to time must be strictly complied with; or
- (2)
- the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence ... '
I agree with the analysis made by my noble and learned friend, Lord Diplock of Stickney v Keeble; and that, correctly understood, there is nothing in that case which imposes any historically-founded complication or modification on the law as stated in Halsburye. Its true basis is that the law will not help a party to gain an advantage from a contract which he has himself put it out of his own power to perform, unless his own expression of intention not to perform was in consequence of a fundamental breach by the other part (See [1915] AC 386 at 416, [1914-15] All ER Rep 73 at 81). It was to the attempt to outflank this basic rule by arguing that under s 25(7) of the 1873 Act it was only necessary to consider the situation at the institution of the suit that the remarks of Lord Parker of Waddington ( [1915] AC 386 at 417, [1914-15] All ER Rep 73 at 81) were directed.
I would, however, venture to add the following comments.
(1) It is often useful to trace the history of a legal doctrine, indeed, I have myself, in deference to the learned arguments with which your Lordships have been favoured, tried to do so in the instant appeals. Such an historical exploration will frequently lead back into a time when common law and equity were separate systems administered in separate courts. But since 1875 there has been one fused system administered in one Supreme Court of Judicature and in one subordinate system of county courts. In 1690 a Parliamentary bill was introduced to give courts of common law power to issue writs of prohibition to prevent encroachment by the Court of Chancery on their own jurisdiction, and also to prevent any court of equity from entertaining a suit for which a proper remedy lay at common law (Potter, An Historical Introduction to English Law and its Institutions). [F6] This attempt failing, the courts of common law and the Court of Chancery settled down to co-exist, rivalry decreasing and complications becoming gradually ironed out.
In a number of respects the evolution of the one system was influenced by the other. This convergence and dovetailing was, I think, the first reason for tardiness in recognising how revolutionary was the change made by the Judicature Act 1873 and how truly it brought about a 'fusion' of common law and equity. A second reason was no doubt that the Supreme Court of Judicature continued for administrative convenience to sit in separate common law and Chancery Divisions. A third reason might have been that lawyers, trained in systems which look to precedent and thus foster conservatism, tended to minimise the change which had been made. But, after a century, Professor Ashburner's [F7] vivid metaphor of two streams flowing into one channel must have a different conclusion. It may take time before the waters of two confluent streams are thoroughly intermixed; but a period has to come when the process is complete. However, lest we might be beguiled by metaphor, an actual instance ought to be cited. The doctrine of equitable estoppel can be traced back to or near its equitable source in Hughes v Metropolitan Railway Co. But since 1946 [F8] the doctrine has permeated the whole of our law, not least that part of it which would formerly have fallen within the purview of courts of common law.
(2) Discussion of stipulations as to time has generally turned on the historic distinction between time being or not being of the 'essence' of a contract; and that distinction, which is reflected in s 41 of the Law of Property Act 1925, is all that is required to dispose of these appeals. But the fused law has continued to evolve since 1875; and it has developed a more sophisticated approach to contractual terms: see Wallis, Son and Wells v Pratt and Haynes ([1910] 2 KB 1003 at 1012); Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, especially the judgment of Diplock LJ; L Schuler AG v Wickman Machine Tool Sales Ltd ([1973] 2 All ER 38 at 55-57, [1974] AC 235 at 264, 265).
The law may well come to enquire whether a contractual stipulation as to time is
- (a)
- so fundamental to the efficacy of the contract that any breach discharges the other party from his contractual obligations ('essence'), or
- (b)
- such that a serious breach discharges the other party, a less serious breach giving a right to damages (if any) (or interest), or
- (c)
- such that no breach does more than give a right to damages (if any) (or interest) ('non-essential').
If this sort of analysis falls to be made, I see no reason why any type of contract should, because of its nature, be excluded.
(3) The law does not purport to bring parties into a relationship of contractual obligation which they themselves have failed to create. This is the true ground of decision in those cases where a stipulation as to time is contained in an option. An option is type of unilateral contract.
When as is usual, it is supported by consideration it constitutes an irrevocable offer which turns into a bilateral contract by an acceptance in strict compliance with its terms: see Lord Denning MR in United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd ([1968] 1 All ER 104 at 107, [1968] 1 WLR 74 at 81). It is apt to be misleading to say that time is of the essence of an option, since that may give the impression of a bilateral contractual term. The legal reality is that this type of unilateral contract never matures into a bilateral contract at all unless the option is exercised in time.
But, as Diplock LJ pointed out in the United Dominions Trust case ([1968] 1 All ER 104 at 110, [1968] 1 WLR 74 at 84), it is quite possible to have this sort of unilateral obligation in an otherwise bilateral contract. An option in a lease to terminate or to renew the tenancy or to purchase the reversion will be such a term. In each such case the parties, on the exercise of the option, are brought into a new legal relationship. It was argued on behalf of the tenants in the instant appeals that the rent review clauses were also such unilateral terms. I cannot agree. The operation of the rent review clauses does not at all change the relationship of the parties, which remains that of landlord and tenant throughout the currency of the lease whether or not the machinery of the rent review clauses is operated.
It was envisaged from the outset that the rent would be reviewed during the currency of the leases: the clauses merely provided machinery for determination of the new rent, which in more stable conditions might have been stipulated in advance. Moreover, the clauses went to the very basis of the consideration moving from the landlords; in a period of inflation the latter would not have granted leases for such long terms without inclusion of rent review clauses-and certainly the initial rent would in each case have been much higher without those clauses. To put it the other way round, the rent review clauses were integral parts of the consideration moving from the tenants, whereby they acquired a long term of years at an initial rent lower than it would otherwise have been. Rent review clauses cannot be considered as severable terms of unilateral obligation. However, where a rent review clause is associated with a true option (a 'break' clause, for example), it is a strong indication that time is intended to be of the essence of the rent review clause-if not absolutely, at least to the extent that the tenant will reasonably expect to know what new rent he will have to pay before the time comes for him to elect whether to terminate or renew the tenancy (cf Samuel Properties (Developments) Ltd v Hayek). That situation stands in significant contrast with those in the instant appeals.
(4) Time is often spoken of as being 'made of the essence of the contract by notice'-a concept which is reflected in the words 'or have become' in s 41 of the Law of Property Act 1925. Nevertheless, the phrase is misleading. In equity, and now in the fused system, performance had or has, in the absence of time being made of the essence, to be within a reasonable time. What is reasonable time is a question of fact to be determined in the light of all the circumstances. After the lapse of a reasonable time the promisee could and can give notice fixing a time for performance. This must itself be reasonable, notwithstanding that ex hypothesi a reasonable time for performance has already elapsed in the view of the promisee. The notice operates as evidence that the promisee considers that a reasonable time for performance has elapsed by the date of the notice and as evidence of the date by which the promisee now considers it reasonable for the contractual obligation to be performed.
The promisor is put on notice of these matters. It is only in this sense that time is made of the essence of a contract in which it was previously non-essential. The promisee is really saying, 'Unless you perform by such-and-such a date, I shall treat your failure as a repudiation of the contract'. The court may still find that the notice stipulating a date for performance was given prematurely, and/or that the date fixed for performance was unreasonably soon in all the circumstances. The fact that the parties have been in negotiation will be a weighty factor in the court's determination. For the foregoing, see Smith v Hamilton. To say that 'time can be made of the essence of a contract by notice', except in the limited sense indicated above, would be to permit one party to the contract unilaterally by notice to introduce a new term into it.
(5) I agree with the analysis of the reported cases on rent review clauses made by my noble and learned friend, Lord Diplock, and with his conclusions on them.
I turn therefore to the second main issue in these appeals, namely how far a rent review clause activated out of the stipulated time can operate retrospectively. In my view, rent today means the contractual money payment made by a tenant to his landlord in consideration for the use of the latter's land. I respectfully agree with the decision of the Court of Appeal in C H Bailey Ltd v Memorial Enterprises Ltd. Left to myself I would doubt the value of a subsisting distinction between 'contractual rent' and 'distrainable rent', and still more that 'rent' can bear these different meanings, with different legal consequences, in one and the same document. But I recognise that the judgment of Cotton LJ in Walsh v Lonsdale ((1882) 21 Ch D 9 at 16, 17) (albeit tentative and interlocutory) is authority in favour of the contrary view. It is not necessary to decide the point for the purpose of the instant appeals. I therefor concur in the orders proposed by my noble and learned friend, Lord Diplock.