NOTES OF CASES
| DOI | http://doi.org/10.1111/j.1468-2230.1983.tb02531.x |
| Published date | 01 July 1983 |
| Date | 01 July 1983 |
NOTES
OF
CASES
PRICE
CLAUSE
IN
OPTION
TO
PURCHASE
FREEHOLD
REVERS~ON
IN
Sudbrook
Trding
Estate
Ltd
v.
Eggleton
the House of Lords by a
4
to
1
majority upset
“
a
line of authority stretching back over
150
years
in which provisions remitting
to
a
valuer or arbitrator the ascertainment
of
a
price have been construed
as
making the machinery of ascertain-
ment an essential term of the contract,” and under which failure to
appoint the valuer foundered the option. The issue had never previously
come directly to the House.
The defendants had granted four leases
of
adjacent properties,
commencing at different times, but all ending at the same time. Each
lease contained an option clause for the freehold reversion
“
at such
price not being less than [the price differed with each plot] as may be
agreed upon by two valuers one
to
be nominated by the lessor and the
other by the lessees or in default of such agreement by an umpire
appointed by the said valuers.
.
. .”
On the tenant exercising one of the
options the lessors refused to appoint
a
valuer. The lessors’ legal
justification
was
that the option was merely an agreement to agree and
therefore
a
nullity. The plaintiffs claimed specific performance.
At first instance Lawson
J.
upheld their claim, but was reversed by
an unanimous Court
of
Appeal
“
with expressed regret
”
being
constrained by an unbroken series of authorities from
1807.4
Lord
Diplock, giving the leading judgment
in
the House of Lords, agreed that
they were
so
bound.6 Templeman L.J. had enunciated the three proposi-
tions derived from these authorities
6:
“
the court will not substitute its
own machinery for that of the parties; where the provision is an essen-
tial term, such
as
the price, specific performance will not be awarded
until that machinery has been operated, where the machinery has been
‘
stultified
’
by one party, the court will not specifically enforce an
appointment.”
The House agreed that these propositions were accurate but went on
to disown them all as
“
not fit for survival in a civilised system of law.”
Lord Diplock had little difficulty in finding theoretical flaws in these
propositions. Put simply the option was not an agreement
to
agree, it
was
a
unilateral contract which under its own terms became bilateral or
synallagmatic once the option holder gave notice under it. There are
hints of an alternative
ratio
in
his judgment founded on
‘‘
business
efficacy
”
and an implied term to appoint the valuer:
“
What other
reason could there be
for
going to the trouble of inserting those elabo-
rate and carefully drafted provisions in the lease
?”
[1982]3AllE.R.
1.
Ibid.
at p.
13.
[1981]
3
All E.R.
105.
Milnes
v.
Gery
(1
807)
14
Ves.
400.
[1982]3AIIE.R. 1,4.
[1981]3AllE.R.
105,114-115.
493
494
THE
MODERN
LAW
REVIEW
[Vol.
46
Lord Fraser added two further justifications for overruling the tradi-
tional approach. First the
Milnes
v.
Cery
principle had been
“
whittled
away by exceptions,” such as part perf~rmance,~ as
in
the instant case.
Secondly, where the valuation is a subsidiary part of a wider valid
contract, and therefore not an essential term, the court
will
ensure that
it is not frustrated by one party’s breach.s In addition he noted that the
change of precedent was not likely to create any danger of disturbing
retrospectively the basis on which contracts had been entered.O
The real issue was the remedy. Should specific performance be
awarded? Lord Diplock had no hesitation in doing
so
and also substi-
tuting an inquiry into
“
a fair and reasonable price.” The reasons for
what might traditionally be considered such judicial paternalism were
that damages would be negligible,
“
a wholly inadequate and unjust
remedy,” and that the only thing that had prevented the machinery
from operating was the defendant’s flouting of the contract
“
at his
own sweet will.” Since they had thereby waived their rights under the
contract, the court could step in and appoint its own valuer. It was on
this point that Lord Russell dissented. His judgment is brief and rests
on
“
the authorities stretching through generations of distinguished
judges.” It is also remarkable for a splendid quotation from Macduff in
Shakespeare’s
Ma~berh,’~
with which first year students of contract
might well sympathise!
There is one slightly surprising omission in this case. There is abso-
lutely no discussion
of
the minimum price laid down by the parties to
operate
in
default of agreement. Such a
“
bottom line
”
provision has
always provided the certainty demanded of a contractual provision.
Presumably their Lordships chose to ignore this as it was “quite
inconsistent with what the parties showed they contemplated.”
l1
It is
also interesting that enforcement of this provision of the contract was
not considered as an alternative
to
damages
or
specific performance of
the valuation provision. Probably such a course would be seen as too
punitive an approach in a contract dispute, where, however undeserving
the defendant, the function of the court is to give effect to what the
parties clearly agreed to: a fair and reasonable valuation.
In conclusion one may note that to an observer of the price clause
problem in contemporary litigation, the decision
of
the House of Lords,
whilst clearly overruling an established line of authority, is not particu-
larly surprising. This is because there has been a discernible tendency to
give effect to such agreements whenever reasonable. Their Lordships’
decision puts their seal of approval on this tendency in lower courts.12
’
Gregory
v.
Mig/teI(lEll)
I8 Ves.
328;
Beer
v. Bowden
(1976) [I9811
1
All E.R.
1070.
Dinhain
v.
Bradford(l869)
L.R.
5
Ch.App. 648;
Rirlrardsotr
v.
Sitrith
(1870) L.R.
5
Ch.
Referring to the Practice Notice
119661
3
All
E.R.
77.
App.648;Siirit/iv.Pe:ers(1875)L.R.20Eq.
511.
~~
lo
Macberh
1V.
3.218.
l1
Beer
v.
Borvdrti 119811
1
All E.R. 1070.
Per
GoIT
L.J.
at
D.
1073.
l2
English
Indristrial
Estates Corp.
v.
Grorie
Wiinpey
ntrd
Ci.
Ltd.
[I9731
1
Lloyd’s Rep.
1
IS,
126, per
Edmund Davies
L.J.;
R.I.B.A. Standard
Form
of
Contract, Local Authori-
ties with Quantities, clause interpreted despite being a
‘‘
Farrago of obscurities
”
and
redrafting recommended. See also
Insrilarion
Equipnrenr
Ltd.
v.
John
Laittg Consrrricriotr
To continue reading
Request your trial