Sudbrook Trading Estate Ltd v Eggleton

The appellants ("the Lessors") are lessees of four adjacent industrial premises in Gloucester under four separate leases entered into in 1949, 1955, 1966 and 1968 respectively for various terms of years all of which expired on the same date, viz., 24th December 1997. Each lease contained a clause in identical terms, save as to the minimum purchase price, which purported to confer upon the Lessees an option to purchase the freehold reversion to the premises from the Lessors of whom the respondents, who are trustees, are the successors in title. These option clauses were in the following terms which are taken from the 1955 lease and the words upon which the instant appeal will turn are underlined.

" AND IT IS HEREBY AGREED AND DECLARED:�

9.That if the Lessees shall desire to purchase the reversion in fee simple in the premises hereby demised and having paid all rent then due and duly performed and observed the convenants and conditions on their part herein contained shall at any time not later than six months before the expiration of the said term but after the expiration of the first twenty one years thereof and during the life of the survivor of the Lessors children Susan Margaret Keck Valerie Josephine Keck Rosemary Veronica Keck and Jeremy Hamilton Halls Keck give to the Lessor notice in writing to that effect the Lessees shall be the purchasers of such reversion as from the date of such notice at such price not being less than twelve thousand pounds 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 subject to the conditions following namely:�

(a) The purchase money shall be paid and the purchase completed on such one of the quarterly days appointed for payment of rent as shall happen next after the expiration of six calendar months from the date of such notice

(b) The Lessees shall pay all rent up to the day appointed for completion of the purchase including the rent due on that day

(c) The title shall commence with a Trust Deed made the ninth day of August One thousand eight hundred and ninety eight between Matthews and Company Limited of one part and Albert Estcourt William Henry Isaac Pryer and John Albert Matthews of the other part

(d) The sale shall in other respects be subject to the Law Society's Conditions of Sale (according to the edition current at the date of such notice) so far as the same are applicable to a private sale."

What, one may ask, could be clearer, fairer or more sensible than that?

After expiry of the first twenty-one years of the term the Lessees gave to the Lessors notice in writing of their desire to purchase the reversion in fee simple to the 1955, 1966 and 1967 leases and nominated their own Valuer. They requested the Lessors to nominate their Valuer; but this the Lessors refused to do. Hence these proceedings.

By their Statement of Claim, dated 19th February 1980, the Lessees claimed against the Lessors the following relief:

"1. Declarations that upon the true construction of:�

• (i) the 1949 Lease

• (ii) the 1955 Lease

• (iii) the 1966 Lease

• (iv) the 1968 Lease

the said clauses therein respectively contained confer on the Plaintiff valid options to purchase the reversions in fee simple in the premises thereby respectively demised

2. Declarations that upon such construction as aforesaid and in the events which have happened the options contained in:�

• (i) the 1955 Lease

• (ii) the 1966 Lease

• (iii) the 1968 Lease

have been validly and effectually exercised

3. Declarations that the contracts constituted by the exercise of the options contained in:�

• (i) the 1955 Lease

• (ii) the 1966 Lease

• (iii) the 1968 Lease

ought to be specifically performed and carried into execution in accordance with the conditions contained in the respective clauses of such leases

4. That directions may be given as to the nomination of a Valuer or Valuers by or on behalf of the Defendants

5. All such further directions and inquiries as may be requisite

6. Damages in addition to specific performance

7. Further or other relief

8. Costs"

Lawson J., before whom the action was heard in Bristol in November 1980, where he sat as an additional judge of the Chancery Division, made the first two declarations sought but declined at that stage to grant any of the other relief claimed. His attitude may be summarised as being "wait and see", and he gave liberty to apply.

What did happen, though not without some waiting, was that the Lessors sought and obtained leave to appeal out of time to the Court of Appeal against this judgment. The Court of Appeal in a unanimous judgment delivered by Templeman L.J. allowed the appeal, holding, with expressed regret, that they were bound by an unbroken series of authorities, starting as long ago as Milnes v. Gery (1807) 14 Ves. Jr. 400, to allow the appeal. For my part, I think they were so bound. Templeman L.J.'s judgment refers to and incorporates an adequate and lucid statement of the facts and rationes decidendi of all the relevant authorities. My noble and learned friend, Lord Fraser of Tullybelton, in his speech, with which I would express my entire agreement, also cites the most important of them. I do not propose to refer to them individually myself since I accept that the principles that they establish are accurately summarised by Templeman L.J. in the following passage of his judgment (the "essential term" referred to being, in the instant case, the purchase price of the reversion in fee simple to the lease):

"First, in ascertaining the essential terms of a contract, the court will not substitute machinery of its own for machinery provided by the parties, however defective that machinery may prove to be.

Secondly, where machinery is agreed for the ascertainment of an essential term, then until the agreed machinery has operated successfully, the court will not decree specific performance, since there is not yet any contract to perform.

Thirdly, where the operation of the machinery is stultified by the refusal of one of the parties to appoint a valuer or an arbitrator, the court will not, by way of partial specific performance, compel him to make an appointment.

All three of these principles stem from one central proposition, that where the agreement on the face of it is incomplete until something else has been done, whether by further agreement between the parties or by the decision of an arbitrator or valuer, the court is powerless, because there is no complete agreement to enforce".

The authorities binding on the Court of Appeal in which these principles are established do not include any decisions of this House. Even before the change of practice of this House, announced in 1966, they would not have been binding upon your Lordships. It is open to the House to consider whether in the nineteen eighties it remains consistent with a just and rational system of law to continue to apply those principles to an option to purchase land granted in terms similar to those used in the option clauses that are the subject-matter of this appeal, so as to enable the grantor, by the simple expedient of refusing to appoint a valuer, to deprive the grantee of any legal right to obtain title to the land. If a majority of your Lordships are convinced, as I am, that to do so would be to administer not justice but injustice then, despite the antiquity and consistency of the previous authorities, it will be the duty of this House to overrule them.

The option clause in each lease was obviously intended by both parties to the lease to have legal effect; that is to say, to create legally enforceable rights and obligations. What other reason could there be for going to the trouble of inserting those elaborate and carefully drafted provisions in the lease?

The option clause cannot be classified as a mere "agreement to make an agreement". There are not any terms left to be agreed between the parties. In modern terminology, it is to be classified as a unilateral or "if" contract. Although it creates from the outset a right on the part of the Lessees, which they will be entitled, but not bound, to exercise against the Lessors at a future date, it does not give rise to any legal obligations on the part of either party unless and until the Lessees give notice in writing to the Lessors, within the stipulated period, of their desire to purchase the freehold reversion to the lease. The giving of such notice, however, converts the "if" contract into a synallagmatic or bilateral contract, which creates mutual legal rights and obligations on the part of both Lessors and Lessees.

The first obligation upon each of them, once the contract has become synallagmatic, is to appoint their respective valuers to fix what is the fair and reasonable price for the reversion. That this is a primary obligation under the contract follows from the use of the words " to be nominated", but it would, in my view, also be a necessary implication to give business efficacy to the option clause. The requirement that the price to be so fixed is one that will be fair and reasonable as between Lessors and Lessees, appears to me to be a necessary implication from the description "Valuers" applied to the persons by whom the price is to be fixed by agreement between them, if possible, and from the description "Umpire" applied to the person by whom the price is to be fixed if the Valuers cannot agree. The term "Valuer" (with a capital "V" at any rate), is used nowadays to denote a member of a recognised profession comprised of persons possessed of skill...