STARMARK ENTERPRISES LTD v CPL DISTRIBUTION LTD [2001] EWCA Civ 1252

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM MR JUSTICE NEUBERGER

[2001] EWCA Civ 1252

Case No Case No: A3/2000/2433

Venue Royal Courts of Justice, Strand, London, WC2A 2LL, Tuesday 31st July 2001

Between

STARMARK ENTERPRISES LTDAppellant

CPL DISTRIBUTION LTDRespondent

Before

Lord Justice Peter Gibson

Lord Justice Kay

Lady Justice Arden

Mr K Lewison QC and Mr T Grant (instructed by Messrs Beckman & Beckman for the Appellant)

Mr J Male QC and Mr T Morshead (instructed by Messrs Vizard Oldham for the Respondent)

Date 31 July 2001

LORD JUSTICE KAY:

This

[1]is an appeal from a decision of Neuberger J. sitting in the Chancery Division given on the 6 th June 2000. The case concerned the validity of a counter-notice given by the Defendant under a rent review clause in a lease of property near Bournemouth. The Judge concluded that the counter-notice was valid and the Claimant appeals against that decision.

[2]The issue in the case was whether the Defendant, the tenant of the premises could validly serve a counter-notice in respect of a rent review notice served by the landlord notwithstanding the fact that the time provided for such a counter-notice in the lease had elapsed and the lease contained a clause deeming the rent sought by the landlord to be the new rent if no such counter-notice was served in time.

[3]This issue has been addressed on a number of occasions and one would be forgiven for hoping that after so much judicial consideration, landlords, tenants and those who advise them would be clear as to the answer in any case. Sadly, this is far from the case and as was observed in a commentary on the decision of Neuberger J in (2000) 4 L & T Rev Issue No 5. "It is unfortunate that over 15 years after these cases were decided, the legal effect of a common provision in a rent review clause is still unknown. This is the common law at its least impressive".

[4]The cases to which reference is made are two decisions of the Court of Appeal Henry Smith's Charity Trustees v AWADA Trading & Promotion Services Limited

(1984) 47 P&CR 607

(" AWADA ") and Mecca Leisure Limited v Renown Investments (Holdings) Limited

(1984) 49 P&CR 12

(" Mecca Leisure "). These cases followed on and involved consideration of the decision of the House of Lords in United Scientific Holdings Limited v Burnley Borough Council

[1978] AC 904

(" United Scientific "). It will be necessary to examine in detail each of these three cases to see how the present undesirable state of affairs has come to pass and to decide whether this Court is in a position to seek to remedy the situation.

[5]Before turning to consider the law, it is necessary to set out briefly the facts of this case which were not the subject of dispute.

[6]By a lease dated the 21 st February 1984, the predecessors in title of the Claimant granted to the predecessors in title of the Defendant a lease of a piece of land in Boscombe, near Bournemouth, Dorset for a term of 21 years beginning on the 1 st August 1992 at an initial rent of £18,000 per annum. It is convenient to refer to the Claimant as "the landlord" and the Defendant as "the tenant".

[7]The lease contained provision for a rent review and the relevant clause provided:

"At any time during the period of six months next before the expiration of the 5 th , 9 th , 13 th and 17 th years of the term hereby granted [the landlord] may serve on the Lessees a notice in writing, (hereinafter called a "

[8]The rent reviews in 1987, 1991 and 1995 were implemented in accordance with this clause. The landlord's surveyors served a notice on the 30 th March 1999 giving notice that, with effect from the 1 st August 1999, the rent payable would be increased to £84,800 per annum.

[9]The period of one month provided in the rent review clause elapsed without any counter-notice being served. However, on the 16 th June 1999, surveyors acting for the tenants served a counter-notice stating that in their opinion "the appropriate rent for the review period commencing on the 1 st August 1999 should be £52,725 exclusive of VAT".

[10]The landlord's surveyors responded by pointing out that the counter-notice was served outside the time provided by the rent review clause. They asserted that because of sub-clause 2, the tenant was deemed to have agreed to pay the rent of £84,800 p.a. from the 1 st August 1999 until the lease expired. This contention was not accepted and the landlord started these proceedings seeking declarations that the position was as indicated by its surveyors.

[11]The arguments before Neuberger J. which were repeated before this Court were as follows. The landlord submitted that the decision of the majority in Mecca Leisure was unsupportable and the Court should not follow it preferring the approach in AWADA . Alternatively it was submitted that since the Court was construing a different contract from that in Mecca Leisure the Court was not bound by that decision. The landlord's fallback position was that in any event Mecca Leisure was distinguishable from this case.

[12]The tenant's argument is that contrary to the argument advanced by the landlord there is no conflict between the decisions of Mecca Leisure and AWADA and that Mecca Leisure is entirely consistent with the approach of the House of Lords in United Scientific . There is no proper basis for distinguishing the facts of this case from Mecca Leisure and accordingly Mecca Leisure had to be followed in the Court below and must be followed in this Court.

[13]If contrary to its argument the Court was to conclude that the two decisions of the Court of Appeal conflict with one another, the tenant submits that applying the normal rules as to precedent, the Court is bound to follow the more recent decision (i.e. Mecca Leisure ) which it is submitted is indistinguishable from the present case.

[14]Neuberger J. concluded that the decision of the Court of Appeal in Mecca Leisure is not inconsistent with that in AWADA . He made clear that if the Mecca Leisure case had been a first instance decision he might very well have been persuaded not to follow it. He found no ground to distinguish the present case from Mecca Leisure and accordingly found for the tenant.

[15]Against the background that I have set out, I turn to consider the three cases to which reference has been made and the other cases in which consideration has been given to these decisions in both this and other jurisdictions.

[16]In United Scientific , the House of Lords was concerned with two separate appeals in the first case the landlord had not served a rent review notice until after the period provided for the service of such a notice in the lease had elapsed. In the second case provision was made for the landlord to apply for the appointment of a valuer to determine the market rent, which was the final step in the provisions for a rent review. The landlord had failed to make the necessary application within the timetable provided by the rent review clause. The two appeals were heard together so that the House of Lords could rule whether time was or was not of the essence in rent review clauses.

[17]Lord Diplock answered that question in the following terms (at page 930H) : "So upon the question of principle which these two appeals were brought to settle, I would hold that in the absence of any contra-indications in the express words of the lease or in the inter-relation of the rent review clause itself and 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 of the essence of the contract".

[18]Mr Lewison QC, on behalf of the landlord, emphasises that in that passage Lord Diplock referred to " any contra-indications" (emphasis added) and that the contraindications may appear in one of the three different ways that are listed alternatively rather than cumulatively.

[19]Viscount Dilhorne, although agreeing with the conclusion in respect of each case, clearly took a different view as to the general proposition. He said at page 939G:

"… I differ from my colleagues in that I think that where a rent review has to be initiated by a lessor and is not automatic, then time is of the essence when it is provided that that notice initiating the review has to be given by a certain date."

[20]At page 940F, Lord Simon of Glaisdale agreed with Lord Diplock 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."

[21]At page 945E, Lord Simon pointed out:

"The law does not purport to bring parties into a relationship of contractual obligation which they themselves have failed to create."

[22]At page 946A, he continued in a passage which Mr Male QC, on behalf of the tenant, argues was very much at the heart of his decision, saying of the rent review clauses then being considered:

"It was envisaged from the outset that 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."

[23]Lord Salmon, at page 948F, also spoke of the rent review clause as the "machinery" saying:

"The revision clause itself lays down the administrative procedure or machinery by which the fair rent shall be ascertained."

[24]At page 951D, Lord Salmon continued:

"In my opinion each lease constitutes, amongst other things, an agreement between the parties that, at stated intervals, the rent shall be revised so as to bring them into line with the then open market rent. The rent revision clauses specify the machinery or guidelines for ascertaining the open market rent. These provisions as to time are not, in my opinion, mandatory or inflexible; they are only directory. Nevertheless any unreasonable delay caused by the landlords and which is to the tenants' prejudice would prevent the rent being revised after the review date."

[25]Lord Fraser of Tullybelton, at page 957B, said:

"The appeals were heard together and the primary argument on both sides treated the question as one that was susceptible of a general answer, but it is proper to recall that the application of any general rule may always be excluded if the intention to do so is expressed or clearly implied. Rent review clauses take many forms, and it is not possible, even if it were desirable, to state any rule as to the effect of stipulations as to time that will apply to all such clauses."

[26]At page 959E, Lord Fraser said:

"As the substance of a review clause is, in my opinion, to provide machinery for ascertaining the market rent from time to time, at the intervals agreed in the interests of both parties, rather than to confer a benefit on the landlord, it seems to me that stipulations as to time ought not to be strictly enforced unless there is something in a particular clause to indicate that time is of the essence in that case. "

[27]At page 962F, he continued:

"For these reasons I am of the opinion that the equitable rule against treating time as of the essence of a contract is applicable to rent review clauses unless there is some special reason for excluding its application to a particular clause. The rule would of course be excluded if the review clause expressly stated that time was to be of the essence. It would also be excluded if the context clearly indicated that that was the intention of the parties…"

[28]In neither of the cases addressed by the House of Lords did the rent review clause contain a deeming provision. Thus the issue of whether such a provision would be a sufficient "contra-indication" to rebut the general presumption that time was not of the essence in construing such clauses was not directly considered. The Court of Appeal in AWADA had to address that issue in the light of the guidance given in United Scientific .

[29]In AWADA the lease contained provision for the serving of a notice and counter-notice and failing agreement as to the market rent, for the appointment of a surveyor. If no counter-notice was given within one month, then the amount in the notice was deemed to be the market rent. Conversely, if a counter-notice was given and the landlord failed to apply for the appointment of a surveyor within two months, the figure in the counter-notice was deemed to be the market rent.

[30]Sir John Donaldson MR in his judgment (at page 614) said:

"It is highly undesirable that decisions of this type of dispute shall turn upon fine distinctions and I reject the suggestion that there is a difference between a rent review scheme which, in the event of default in adhering to the timetable, avoids the whole process…and one which automatically resolves the dispute, albeit in a somewhat draconian way (the instant appeal). Both make precise and, in the case of the instant appeal, elaborate provision for exactly what shall happen if one of the parties shall fail to exercise his rights within the specified period of time. In neither case would it be possible seriously to write into the clause after each specified period of time words such as "or such longer period as shall elapse before the expiration of reasonable notice making time of the essence of the contract"

. Accordingly, in my judgment the parties must be deemed to have intended that in the case of their lease the general rule should not apply and that time should be of the essence of the contract."

[31]Griffiths LJ having indicated that he found it "a difficult and troublesome case" said at page 616:

"The general rule established by the House of Lords in United Scientific Holdings Ltd –v- Burnley Borough Council is that time is not of the essence in a rent review clause. This general rule is however displaced if the lease expressly provides that time is to be of the essence, or if it is a necessary implication to be derived from the language of the rent review clauses."

[32]Mr Lewison suggests that this is putting the requirement at a higher level than that suggested by the House of Lords. He points to Lord Diplock's reference to "any contra-indication" and Lord Fraser's reference to the need for "something" in the clause to indicate that time was of the essence.

[33]At page 617, Griffiths LJ said "Suppose in the present case clauses 3 and 4 had been elided to provide that "If the tenant objects to the new rent proposed by the landlord he must serve a notice of objection within one month." Such a clause carries the implication that if the tenant does not serve the counter-notice he accepts the landlord's new rent and it would add nothing to the meaning of the clause to add at the end of it "and if he does not do so he is deemed to accept the new rent." If such a clause including the deeming provision stood alone, I would not, I think, be prepared to hold that it was sufficient to displace the general rule that time was not of the essence of the contract."

[34]Later on page 617 Griffiths LJ added "I do not accept that the mere presence of a "deeming" provision in a rent review clause will in all cases be sufficient to make time of the essence of the contract. But when I consider the rent review provisions of this lease as a whole I have been driven, albeit reluctantly to conclude that in this case they carry the necessary implication that the parties to this lease intended that time should be of the essence of the rent review provisions."

[35]Griffiths LJ summarised his conclusions at page 618 as follows:

"And, finally, although, as I have been at pains to point out, not necessarily conclusively, the express inclusion of the deeming provisions does add some weight to the view that this schedule should be read as though time is of the essence, particularly as the deeming provisions apply to both landlord and tenant."

[36]Mr Lewison points to the apparent difference between the passage to which I have referred in paragraph 33 where Griffiths LJ said that the deeming provision would "add nothing" and the final passage where he said that inclusion of a deeming provision does "add some weight" to the view that time was intended to be of the essence.

[37]In view of the obvious difference of approach between the other members of the court, it is clearly important to look at the reasoning of Slade LJ. At page 621 he said that the relevant clauses of the lease in that case:

"set out in definition, specifically and clearly, what is to happen in default of the exercise of the rights given to the respective parties within the permitted periods of time. Thus, in particular, paragraph 4 provides that if the tenant has not served its counter-notice within the relevant one month period "the amount stated in the relevant review notice shall be deemed to be the market rent""

. And later:

"In my opinion the only meaning that can be attached to the phrase "shall be deemed to be the market rent" in the context of these two paragraphs is "shall be conclusively presumed to be the market rent."

And the phrase in each of these two paragraphs is of critical importance in the construction of the lease."

[38]At page 623 Slade LJ indicated the reasons for his conclusion saying:

"Despite its attractive presentation, I find myself wholly unable to accept [Counsel's] argument on these points in the context of the present lease. I think that the "deeming" provisions of paragraph 4 of this particular rent review clause are quite inconsistent with the survival of any right of the tenant to serve a counter-notice after the expiration of the one-month period designated in that paragraph. Likewise, I think that the deeming provisions of paragraph 7 are quite inconsistent with the survival of any right in the landlords to apply for the appointment of a surveyor after the expiration of the two-month period therein specified. While in other contexts "deeming" provisions may not necessarily connote finality, they do so in the context of this lease."

[39]At page 624, Slade LJ added:

"…one cannot invoke the principles of United Scientific Holdings Ltd –v – Burnley Borough Council for the purpose of rejecting or modifying a provision which clearly indicates the parties' intention that time is to be of the essence for the purpose of a rent review clause. There is nothing to prevent the parties from contracting on this basis if they so choose, and if they do so choose, to entitle the court to rewrite the contract which they have made."

[40]Mecca Leisure again involved the court considering a deeming provision in a rent review clause. The decision of the majority (Eveleigh and May LJJ) is accurately summarised in the head note:

"The correct approach to the question whether time was of the essence was to start with the presumption that it was not and then, on a consideration of the lease itself and the surrounding circumstances, to determine whether the parties had shown an intention to make it so; that the mere presence of the "deeming" provision in clause 5(8) of the lease was not a firm indication that time was intended to be of the essence; and that, reading clause 5(8) as a whole and bearing in mind that there was a presumption to be displaced and that the parties were clearly intending to arrive at a fair rent to be determined amicably if possible, time was not of the essence of the provision for service of the tenant's counter-notice…"

[41]Eveleigh LJ looked at the decision in AWADA but commented (at page 16):

"I find no help at all from the facts of other cases where there is a deeming provision, as in the present case, but other terms in the review clause and the lease are different."

Later he said (at page 17):

"I cannot regard the mere presence of the "deeming" clause as a firm indication that time is of the essence."

[42]In a passage of which Mr Lewison is critical, he went on:

"My conclusion does not mean that a "deeming" provision is of no effect. It entitles the landlords to make time of the essence by giving notice to that effect once the 28 th day has expired. It is a useful part of the machinery in the hands of the landlords."

Mr Lewison suggests that this represents a misunderstanding of the position because the landlord can serve such a notice whether or not there is a deeming provision. In effect it is suggested that this rewrites the contract to provide not merely that a single notice is required as agreed in the lease by the parties but instead two notices.

[43]May LJ reviewed the decision in AWADA . At page 19, he quite correctly, in my judgment, inferred that Sir John Donaldson MR thought a deeming provision to be "well-nigh decisive". He pointed to the fact, which I view as equally correct, that Griffiths LJ took a quite different view and then considered the judgment of Slade LJ at page 20. He said:

"In his turn, Slade LJ expressed his view that it was the fact that the "deeming" provisions in the rent review were bilateral that was of great importance, if not decisive, in that case."

[44]Mr Lewison criticises this observation by May LJ. He suggests with some force that nowhere did Slade LJ say anything to that effect and in the passage set out at paragraph 38 above, Slade LJ said in terms that clause 4 (the equivalent deeming provision to the one in the present case) was in itself "inconsistent with the survival of" a right of the tenant to serve a counter-notice out of time.

[45]Browne-Wilkinson LJ dissented. At page 23, he set out the two competing arguments as follows:

"In my judgment, there are two possible views as to the correct answers to this question. The first view is that the decision of the House of Lords in United Scientific Holdings Ltd –v- Burnley Borough Council establishes that provisions for rent review are mere machinery for ensuring the payment of a market rent throughout a long term and that, in the absence of contra-indications in the terms of the lease or the surrounding circumstances, failure to serve a notice before the date specified in the lease does not preclude the service of such notice within a reasonable time thereafter. Then, it can be said, a provision in the machinery that, in the event of a failure to serve a notice by the specified date, a rent not necessarily being the proper market rent ("the default rent") shall be payable is not of the essence of the parties' bargain but merely part of the machinery designed to fill the gap unless and until a notice (albeit strictly out of time) is served. Therefore, the existence of a provision for a default rent is not, by itself, a contra-indication sufficient to displace the presumption that time is not of the essence. The second view is that an express provision for a default rent in the event of a failure to serve a notice within a specified time necessarily shows that time is of the essence of the service of the notice. This view could be reached by two different routes. First, it could be said that the provisions for a default rent is the clearest possible indication of the parties' intention that the service of the notice in time should be of the essence, because the parties have expressly fixed what is to happen if no proper notice is served within that time limit. Secondly (and to my mind more powerfully), it could be said that the whole doctrine of time not being of the essence cannot apply to such a case. Hitherto, the doctrine has only operated so as to allow one party to perform obligations laid down in the contract at a later date; it has never operated so as to alter the substantive terms of the contract entered into between the parties, other than the terms as to time…To hold that time was not of the essence of the tenants counter-notice would involve not simply extending the time limits within which the parties' bargain could be formed but an alteration of the parties' bargain itself."

[46]That passage reflects the competing submissions in this case, Mr Lewison suggests that the second view should prevail whilst Mr Male submits that the first view is clearly the correct one on the authorities.

[47]Foreseeing the problems that have arisen since as a result of the decision of the majority in Mecca Leisure Browne-Wilkinson LJ (at page 24) commented:

"It would, in my judgment, be most undesirable if in every case where a notice was served out of time the parties were in doubt as to the legal consequences. In commercial and property law it is, in my judgment, of the highest importance that the parties should know the legal consequences of their acts without having to go to court for them to be determined. Therefore, with regret, I cannot agree that the matter depends in each case on the exact detailed drafting of the rent review clause, the existence of a provision for a default rent being merely one of the factors to be taken into account in deciding whether time is of the essence."

[48]It is next necessary to look at some of the other cases to which we have been referred in which these matters have subsequently been considered.

[49]In Mammoth Greeting Cards Ltd-v- Agra Ltd

[1990] 2 EGLR 124

, Mummery J had to consider a rent review clause that provided that in the absence of a counter-notice within a specified period the rent "shall be conclusively fixed" at the amount in the landlord's notice. His conclusion was that this clause "evinces the concept of finality" so as to rebut the presumption that time was not of the essence. Mummery J declined to be drawn into the wider questions relating to the "deeming" provisions in a rent review clause. Accordingly, I do not derive assistance from that case.

[50]In Bickenhall Engineering Co Ltd-v Grand Met Restaurants Ltd

[1995] 1EGLR 110

, the Court of Appeal had to consider a rent review clause which contained a provision that if no counter-notice was served, the market rent specified in the lessors notice should stand as the market rent payable at and from the relevant review date and should be paid accordingly. The court stated that this provision was insufficient to rebut the presumption that time was not of the essence.

[51]At page 115 E, Neill LJ concluded:

"I can well understand the reluctance of Browne-Wilkinson LJ to attempt to draw a distinction between the relevant clause in the Mecca Leisure case and the clause in the AWADA case. If, however, one assumes, as one must, that the doctrine of time not being of the essence applies to rent review clauses, the principle that provisions for the service of the serving of notices and counter-notices within specified times constitute mere machinery for the ascertainment of the open market rent from time to time requires one to apply the presumption unless the contra-indications are clear. I do not consider that clause 4(8) is a sufficient contra-indication to rebut the presumption. In particular it is to be noted that clause 4(8) contained no specific mention that the time within which a counter-notice had to be served."

[52]At page 116 J, Simon Brown LJ said:

"There are, as it seems to me, three ends to which it may be argued that the United Scientific presumption could be put: 1. In the absence of any express terms specifying what is to happen in default of the exercise of the rights given to the respective parties within the permitted periods of time (i.e. in the absence of a deeming provision), the presumption applies: time is not of the essence unless and until it is made so, and in the result a time stipulation cannot be strictly enforced against whoever fails to observe it. (I decline to use the language of default; there is no obligation to observe such a time limit, merely a prospective loss of the benefits of compliance.) 2. In the event of dispute whether or not there is such an express deeming provision, the presumption applies as a rule of construction to assist the resolution of that dispute. 3. Even if there is such an express deeming provision the presumption can nevertheless still apply to defeat both it and the strict enforcement of the separate time stipulation. In my judgment, the presumption applies in situations 1 and 2, but not in 3. Situation 1 was that arising in United Scientific itself. Situation 2 I believe to be the present case and, as indicated, I would apply the presumption first to construe clause 4(8) as not amounting to a deeming provision, and then of course to clause 4(4) as in situation 1. If, however, contrary to my view on question 1, clause 4(8) is to be construed as a deeming provision, then I would not think it permissible to override it (as well as the prima facie effect of clause 4(4) itself) by application of the presumption. That indeed would involve, as Browne-Wilkinson LJ pointed out in Mecca , "not simply extending the time limits within which the parties' bargain could be performed but an alteration of the parties bargain itself"

. And that the effect of applying the presumption in situation 3 seems to me to go beyond what United Scientific permits: so far from the court being entitled to rewrite the parties' contract, it is bound to find the presumption displaced by express words of the lease which are inconsistent with it and thus "contra-indications" to it. Accordingly, I, for my part, would hold that a deeming provision is indeed "a decisive, or virtually decisive, contra-indication displacing the presumption that time was not of the essence". I find myself, in short, with the majority (although not, I think, with Griffiths LJ) in AWADA and with the minority in Mecca ."

[53]Mecca Leisure has been considered in courts in Scotland, Australia and New Zealand. In each case the court has chosen not follow that authority.

[54]In Australia the matter was considered in GR Mailman and Associates Pty Limited –v- Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80. Samuels JA said (at page 93G):

"I must confess that if I were not guided by authority, I would, by the application of the general principles of the law of contract, have little difficulty in construing the notice requirements… as being of the essence."

[55]Meagher JA said (at page 100D):

"Certainly English dicta suggests that such "deeming provisions" are not conclusive, but as a matter of logic I cannot see how this can be so. Once a contract expressly spells out the consequences of non-compliance with a time-limit I cannot see how it can be argued that the time-limit is non essential."

[56]In New Zealand the matter was considered by Barker J in Mobile Oil New Zealand Ltd –v- Mandeno

[1995] NZLR 114

. There the Judge preferred the unanimous decision of the Court of Appeal of New South Wales in Mailman and the dissenting judgment of Browne-Wilkinson LJ in Mecca Leisure . He said:

"I am driven to the same conclusion as the Judges in those cases by holding that the parties intended that time should be of the essence, particularly when dealing with the response of a lessee to whom the contract did not give the same leniency in the matter of notice as to the lessor."

[57]In Scotland in Visionhire Ltd –v-Britel Fund Trustees Ltd

[1992] 1EGLR 128

, the inner house the Court of Session, Lord Hope (then the Lord President) having accepted United Scientific represented the law in Scotland rejected the majority view in Mecca Leisure on the ground that it give insufficient weight to what the parties themselves had agreed and departed significantly from the principles which were laid down by the House of Lords.

[58]Having reviewed at length the various authorities, it is necessary to form a view as to the correct approach to a deeming provision in a rent review clause in the light of those authorities.

[59]I find most helpful the analysis of the situation contained in the judgment of Simon Brown LJ in Bickenhall (See paragraph 52 above). Of the three uses to which he suggests it is arguable that the United Scientific presumption can be put, this clearly falls within the third category, i.e. one where there is an express deeming provision and the argument has to be that "the presumption can nevertheless still apply to defeat both it and strict enforcement of the separate time stipulation".

[60]I would agree with Simon Brown LJ's conclusion that to permit this use of the presumption goes beyond what United Scientific allows. Whilst in a lease with no deeming provision attached to the rent review clause (as was the case in each of the appeals in United Scientific ) the provisions as to time can properly be described as laying down "the administrative procedure or machinery", the same approach cannot be taken to that part of a clause which contains an express deeming provision. To read such a provision as mere administrative procedure is to rewrite the contract by which the parties agreed to be bound. That, as observed by Slade LJ in AWADA, is something that the court cannot do. Nowhere in United Scientific is there anything that would permit the court to rewrite a contract.

[61]I have no doubt that that was the approach of the majority in AWADA . Sir John Donaldson MR and Slade LJ each concluded that the presence of a deeming provision in the rent review clause was sufficient to rebut what otherwise would be the presumption that time was not of the essence. It has been suggested, not least by May LJ in Mecca Leisure , that it was the bilateral nature of the deeming provision in AWADA that founded the court's approach, and particularly that of Slade LJ. However, it seems quite clear to me that Slade LJ considered that each deeming provision viewed separately was "quite inconsistent with the survival of any right of the tenant to serve a counter-notice out of time". (See the passage referred to in paragraph 37 above.)

[62]In Mecca Leisure , Eveleigh LJ simply dismissed the decision in AWADA as being of "no help at all" since it was decided on the wording of the particular lease which was different from that in the case he was considering. That, with respect, is to overlook the clear point of principle with which the court was concerned in AWADA , namely whether when the parties have clearly specified in the contract what shall happen if a step is not taken, the court can override that provision. The decision of May LJ not to follow AWADA in Mecca Leisure was, I believe, based on a fundamental misunderstanding of the judgment of Slade LJ in AWADA.

[63]For these reasons I am satisfied that the approach of Browne-Wilkinson LJ in Mecca Leisure was the only proper approach that could be adopted in that case. To do as the majority did was to read something into United Scientific that was not there and to create a wholly artificial distinction between AWADA and Mecca Leisure which has led to many of the on going problems.

[64]I would, therefore, with due respect to the court in Mecca Leisure , conclude that the case was wrongly decided. In reaching such a conclusion I am comforted that that view is entirely consistent with the conclusion of Browne-Wilkinson LJ in Mecca Leisure , with the observation of Simon Brown LJ in Bickenhall and with the approach of each of the courts in the Scottish, Australian and New Zealand cases to which reference has been made.

[65]Having reached the clear conclusion that Mecca Leisure was wrongly decided it follows that the court is not bound to follow that decision and that the court is bound by the earlier decision in AWADA applying the principles emerging from both United Scientific and AWADA . I am of the view that the deeming provision in this rent review clause clearly sets out what the parties to the contract intended should be the position once the required period had elapsed with no counter-notice having been served and that accordingly the presumption as to time not being of the essence had no part to play in this case.

[66]For these reasons I would allow this appeal and grant the declarations in the terms sought by the Claimant.

LADY JUSTICE ARDEN:

[67]I have had the benefits of reading the judgments of Peter Gibson LJ and Kay LJ in draft and I agree with both of them. I gratefully adopt Kay LJ's description of the facts in this case. I desire to give my further reasons for not following the Mecca Leisure Limited v Renown Investment (Holdings) Limited

(1984) 49 P&CR 12

case in deference to that decision. I am indebted to Kay LJ for the citation of the authorities in his judgment which makes it possible for me to set out my reasons shortly. I am also indebted to Counsel for the detailed analysis of the case law in their submissions, and also to the judge, who has great experience in this field, for his careful and thorough judgment which so helpfully explains the issues.

[68]We are here concerned with the interpretation of provisions for rent review in a lease dated 21 February 1984 between(1) British Railway Board and

(2) WFC Nominees Ltd. The proviso to the covenant to pay rent contains the following provisions:

"… at any time during the period of six months next before the expiration of the fifth, ninth, thirteenth and seventeenth years of the term hereby granted the Board may serve on the Lessees a notice in writing, (hereinafter called a "

Rent Notice"), providing for the increase of the rent payable hereunder as from the expiration of the relevant year of the term as aforesaid to an amount specified in the Rent Notice and thereupon the following provisions shall have effect: (1). The Lessees within one month after receipt of the Rent Notice may serve on the Board a counter-notice calling the Board to negotiate with the Lessees the amount of the rent to be paid hereunder as from the expiration of the said year. (2). If the Lessees shall fail to serve the counter-notice within the period aforesaid they shall be deemed to have agreed to pay the increased rent specified in the Rent Notice. (3). If the Lessees shall serve on the Board a counter-notice calling upon the Board to negotiate with them as aforesaid, then the parties hereto shall forthwith consult together and use their best endeavours to reach agreement as to the amount of rent to be paid hereunder for the expiration of the said year but failing agreement within one month after the service of such counter-notice (or within such extended period as the parties hereto such mutually agree) the question whether and if so what increase ought to be made in the rent payable hereunder as from the expiration of the said year shall be referred to the single arbitrator who (failing agreement between the parties hereto) shall be nominated on the joint application of the parties hereto or if either of them shall neglect forthwith to concur in such application then on sole application of the other of them by the President for the time being of the Royal Institution of Chartered Surveyors which said arbitrator shall have power to award to the Board interest on the whole or any part of such increase in the rent hereunder payable for the whole of any part of such period as may elapse between the expiration of the relevant year of the term from which such increase in the rent is payable if in the opinion of the arbitrator the conduct of the Lessees or any delay on their part or any other circumstances so warrant. (4) The Arbitrator shall determine the question so referred to him by as ascertaining the rent at which the demised premises might reasonably be expected to be let in the open market as between a willing lessor and willing lessee as at the date of the Rent Notice (or if the Rent Notice shall not have been served before the expiration of the relevant year of the term as aforesaid then as at the last day of such relevant year) having regard to the terms of this Lease other than those relating to rent but disregarding:- any effect on rent of the fact that the Lessees have been in occupation of the demised premises any goodwill which shall have become attached to the demised premises since the commencement of the term hereby granted by reason of the carrying on thereat of the business of the Lessees and any effect on rent of any improvement carried out by the Lessees otherwise than in pursuance of an obligation to the Board. And if the rent so ascertained exceeds the rent payable hereunder the difference shall be the increase in the rent payable hereunder. (5) The Lessees hereby covenant with the Board that if the rent shall be increased by agreement (actual or deemed) or arbitration in pursuance of this clause the Lessees will as from the expiration of the relevant year pay the increased rent at the times and in the manner aforesaid and the rent as so increased shall remain payable until the same shall be further increased pursuant to the provision of this clause or until the expiration of the term hereby granted whichever shall first occur".

[69]There are a number of features of the provisions which I have just set out which should be noted:- (1) The parties have set out a timetable within which steps must be taken if the rent is to be increased. The process is initiated by the landlord serving a Rent Notice within the last six months of the fifth, ninth, thirteenth and seventeenth year of the term. The Lessees have one month after receipt of that rent notice to serve a counter-notice. The parties must then consult together and use their best endeavours to reach agreement as to the amount of the rent, but if they cannot reach agreement within one month after service of the counter-notice or such longer period as they agree the question of the increase in rent must be referred to arbitration. (2). The timetable is one which affects both the landlord and the tenant. The tenant must serve his counter-notice within one month of receipt of the rent notice. The landlord must have served his Rent Notice within the relevant six month period. (3). In proviso (3) there is an express provision for the extension of time by agreement. (4) The procedure requires rent to be fixed as at the date of the Rent Notice. (5) The arbitrator is given power to award interest as compensation to the landlord if there is a delay in fixing the new rent. (6) In the final provision there is a reference to rent being either "actual or deemed".

[70]I bear in mind that the result of proviso (2) can be draconian if the timetable is a strict one. The tenant who fails to serve a counter-notice in time would be bound to accept that which the landlord has stated is to be the increase in rent payable under the lease as from the expiration of the relevant year of the term. It is relevant, however, to note that the lease is made between two commercial parties. If the tenant had been a consumer and the provisions for review of rent had not been individually negotiated (and no other enactment applied), it would be open to the tenant to argue that, by virtue of the Unfair Terms in Consumer Contract Regulations 1999 (SI 1999 No. 2083), the provisions of proviso (2) are not binding on him.

[71]The crucial provision in the present case is proviso (2). That proviso may loosely be referred to as a "deeming" provision. The word "deem" as used in legal drafting denotes a device for introducing a fiction. The word "deem" in this type of context signals that the draftsman is about to introduce a fiction as if proviso (2) had read "if the lessees shall fail to serve a counter-notice within the period aforesaid they shall be deemed to have agreed that black is white". The concept of agreement in this situation is an artificial one. There are special features of the deeming provision in this case. The fiction does not arise unless the lessees fail to serve the counter-notice within the period prescribed by proviso(1) (c.f. the corresponding provision in the Bickenhall case referred to below). Moreover there is no provision which says what is to happen if the lessees serve a counter-notice late. If there had been such a provision and it provided for rent to be agreed or referred to arbitration in those circumstances plainly the deeming provision would not have been a mandatory clause excluding the possibility of an extension of time in the event of the failure to serve a counter-notice in time. However, in the present case, free of authority, the natural meaning of proviso

(2) is that a new rent becomes payable if the lessees fail to serve a counter-notice, and that the lessors thenceforth have a substantive right to enforce payment of that sum.

[72]Like Neill LJ in Bickenhall Engineering Co Ltd v Grandmet Restaurants

[1995] 1 EGLR 110

and Slade LJ in Trustees of Henry Smith's Charity v A.W.A.D.A. Trading and Promotion Services Ltd (1984) 47 PC&R 607, in my judgment it is necessary to identify the basic principle which applies when the Court is asked to determine whether time limits in a rent review clause are final. The basic principle is stated as follows by Lord Diplock in the United Scientific Holdings Ltd v Burnley Borough Council

[1978] AC 904

, 930:

"I would hold that in the absence of any contra-indications in the express words of the lease for the interrelation of the rent review clause itself and 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 of the essence of the contract."

The other members of the House came to the same conclusion: see per Viscount Dilhorne at page 940 (though this is subject to the qualification at 939G set out by Kay L.J.), per Lord Simon of Glaisdale at the same page, per Lord Salmon at page 951 and per Lord Fraser at 962.

[73]If the relevant provision is a deeming provision, the question arises what approach the Court should adopt to any "contra-indications" in a lease which might be read as suggesting the finality of time limits set for steps to be taken in a rent review clause.

[74]I agree with Slade LJ in the A.W.A.D.A. case that the best course would be for parties to state whether or not time was to be of the essence. However, this may well be a counsel of perfection. I also agree with Slade LJ for the reasons already given that there can be different types of deeming provisions. It may be the case that on the true construction of the deeming provision the "deemed" state is not to be accepted conclusively but to be rebuttable in certain circumstances.

[75]The United Scientific case does not address the approach to be adopted in relation to potential contra-indications in a rent review clause: the rent review clauses in that case did not contain any kind of deeming provision, and the House was not concerned with the situation where some change in the parties' substantive rights is expressed to occur on the failure to comply with a time limit. In the A.W.A.D.A case, the question of whether the deeming provision was in the circumstances of that case a sufficient contra-indication was treated by the Court as a question of construction to be resolved in the usual way. In the Mecca case, the majority took a different path. Relying on certain doubts expressed by Griffiths LJ in the A.W.A.D.A . case, the majority relied on a new concept, namely the concept that the parties to a rent review clause should be taken to intend to arrive at a fair rent to be determined amicably if possible (see per Eveleigh LJ at page 17 and per May LJ at page 22). As I have already observed, a provision like proviso (2) can be draconian in its effect. But the effect of introducing the concept of a common aim to produce a fair rent is to introduce a pre-disposition against provisions making time of the essence in a rent review clause. Moreover this new approach played a crucial part in the conclusion of the majority of the Court in Mecca that the deeming provision in that case did not have the effect that failure to serve a notice before the date specified in the lease precluded service of a notice within a reasonable time thereafter. In so concluding the Court diverged from the approach in A.W.A.D.A. In my judgment the principle which fell to be applied in the Mecca case was the same as that which had fallen to be considered in the A.W.A.D.A. case. Accordingly, the two decisions of this Court cannot be reconciled. It is not possible to distinguish them on the basis that the clauses were different and that in the A.W.A.D.A. case there were complex provisions setting out the effect of failure to serve a notice whether it was one which had to be served by the landlord or one which had to be served by the tenant. The fact that in the Mecca case the deeming provisions only arose as against the tenant in the event of the tenant's failure to serve a notice does not in my judgment constitute a valid line of distinction. The two decisions diverge from a common point of principle.

[76]In my judgment, the approach taken by the majority in the Mecca case was not justified by the decision of the House of Lords in United Scientific Holdings Ltd v Burnley , above. What that case established was that the fact that a timetable is stipulated in a rent review clause does not of itself make time of the essence even though such a clause appears in a commercial lease. It does not introduce a further principle of construction that time limits in rent review clauses should be construed against the party seeking to rely on the time-limit. In my judgment it would be contrary to principle to introduce some special principle of construction in these circumstances for the following reasons. The first reason is historical. If the effect of the contract was to make time of the essence, a Court of Equity did not interfere: see for example Stickney v Keeble

[1915] AC 386

at 415 – 416 per Lord Parker of Waddington. Second, United Scientific does not as I see it authorise the court to interfere with the substantive rights of the parties. Accordingly if the time limits in a rent review clause go further than set out an orderly procedure for rent review and trigger changes in the substantive rights of the parties, the concept of non-essentiality of time cannot be invoked because to do so would alter those substantive rights: Browne-Wilkinson LJ makes this very observation in his dissenting judgment in the Mecca case and regards it as his preferred reason for upholding the finality of the time limits in a deeming provision. Thirdly the court has no discretion to relieve parties of their contract in these circumstances: they are bound by their contract and the principle of sanctity of contract must be observed.

[77]Accordingly in the present case the question is whether on the true interpretation of the relevant provisions of this lease, and mindful always of the fact that the mere insertion of a timetable is not enough to make time of the essence, the parties to this lease clearly indicated that the time limit for service of the tenant's counter-notice is a final limit. In my judgment that question has to be answered, yes. Proviso (2) is a deeming provision and the natural meaning of the word "deem" in my judgment is to introduce a conclusive state of affairs. There has to be some indication that the deemed state of affairs is not to survive in particular circumstances to exclude that normal meaning. There is no provision here to exclude the normal meaning of the word "deem". Furthermore it is clear from the final proviso that the parties contemplated the rent might be deemed to be agreed. As I see it the objective of the parties in these provisions of the lease is to ensure that a rent increase is fixed in one of the three ways: by agreement, arbitration or by the new rent being deemed to be payable under proviso (2). In other words by setting out time limits they have done more than merely mention a timetable for the purpose of ensuring an orderly review of rent. They have used the timetable in proviso (2) as a means of securing the determination of an increased rent.

[78]I note from various articles in The Estates Gazette that it has been a matter of professional concern how the Mecca decision could be read consistently with the A.W.A.D.A. decision. I agree with Sir John Donaldson MR in the A.W.A.D.A . case and with Browne-Wilkinson LJ in the Mecca case that it is not desirable in rent review clauses that the applicable principles should be subject to fine distinctions as regards finality. In my judgment where there is a deeming provision of the type in this case and nothing more, the time for service of the counter-notice should normally be taken to be a final one.

[79]In conclusion I agree that the appeal in this case should be allowed. PETER GIBSON L.J.:

[80]Prior to the decision of the House of Lords in United Scientific Holdings Ltd. v Burnley Borough Council

[1978] AC 904

rent review provisions were classified either as "mandatory" or "option clauses" requiring the strict application of time limits or as "directory" or "machinery clauses" or "obligations clauses" which allowed time limits to be relaxed. Lord Diplock at p. 923 commented that the answers given by the courts seemed to turn upon fine distinctions. Similarly Lord Fraser (at p. 959), approving a remark made by Buckley L.J. in the Burnley case in the court below (

[1976] Ch. 128

at p. 138), said "This dichotomy created a danger of distinctions being drawn on narrow and somewhat artificial grounds." As I read the speeches in United Scientific , the intention of the House of Lords in determining that there was a presumption that time was to be treated as not being of the essence in rent review clauses was to do away with the "unfortunate" dichotomy (see p. 963 per Lord Fraser) by providing a clear rule, though one subject to an exception. That could be provided by "any contra-indications in the express words of the lease or in the interrelation of the rent review clause itself and other clauses or in the surrounding circumstances" (p. 930 per Lord Diplock) or by "something in a particular clause to indicate that time is of the essence in that case" (p. 959 per Lord Fraser) or by an express statement that time is of the essence or "if the context clearly indicated that that was the intention of the parties" (p. 962 per Lord Fraser).

[81]The last-mentioned comment of Lord Fraser serves as a reminder that in construing a rent review clause, as when construing any other clause of a contract, the exercise in which the court is engaged is the ascertainment of the intention of the parties, viewed objectively, with the aid of the presumption. There is nothing to prevent parties agreeing that time should be of the essence, thereby defeating the presumption, provided that that agreement is clearly indicated in the lease.

[82]Before I look at the post- United Scientific authorities, let me consider whether there are such indications in the lease in this case. The rent review clause contains an elaborate series of provisions which make clear what has to happen, and when it must happen, to arrive at an altered rent. The landlord has six months before the expiration of each of the specified periods of the term of the lease in which to serve a rent notice. The tenant has one month from the receipt of that notice to serve a counter-notice and in para. (2) of the proviso to the reddendum the consequence of a failure by the tenant to serve a counter-notice within the one-month period is specified: the tenant "shall be deemed to have agreed to pay the increased rent specified in the Rent Notice". There is of course in that event no actual agreement on the increased rent, and so the parties agree that the tenant is to be treated as having agreed that increased rent. Where the consequences of not serving a timely counter-notice are so plainly spelt out by the deeming provision it is difficult to see how there could be any doubt that the parties intended that the time limits had to be observed. The alternative that time is not of the essence until made so by a notice to that effect fits ill with the express scheme. It would involve the landlord having to serve a notice, in effect asking the tenant if it wanted to serve a counter-notice (even though that was the prime object of serving the original rent notice in the first place) and the suspension of the operation of para.(2) until a reasonable time thereafter had expired. But that is to rewrite the terms of the lease under the guise of construction. The equitable doctrine relating to time not being treated as of the essence of a contract never permitted that, going only to whether equity would permit a party to insist on a non-essential term as a bar to the other party's rights.

[83]There are two other indications in the rent review clause which support the view that time was intended by the parties to be of the essence. The first is that in para.(3) of the proviso, which relates to what is to happen if the counter-notice is served, express provision is made for an extension (if agreed by the parties) of time for the period of one month after service of the counter-notice during which the parties are to consult and endeavour to reach agreement. Such express provision serves to point to the period of one month in para.(2) as not being intended to be capable of extension. The second is that by para.(5) of the proviso, the tenant covenants with the landlord that if the rent is increased "by agreement (actual or deemed)" it will pay the increased rent. Again that emphasises that the consequence spelt out in para.(2) whereby the tenant is deemed to have agreed to pay the rent specified in the rent notice is given effect in the form of a covenant to pay that rent.

[84]Mr. Male Q.C. for the tenant pointed to the fact that the landlord could specify in the notice a rent which was other than a genuine estimate of the market rent which, if the dispute went to arbitration, would be the rent to be determined by the arbitrator, and he said that the rent review provision, if construed as the landlord would construe it, created a trap for the unwary. Further he said that the decision of Neuberger J. was consistent with the purpose of a rent review clause to enable the landlord to claim the open market rental, whereas the contrary view elevated mere machinery into something more fundamental. But these matters do not in my judgment carry much weight in determining whether the parties chose to intend time to be of the essence despite the presumption to the contrary.

[85]Mr. Male accepted that the natural reaction of a lawyer to the construction of the lease which the judge's decision entailed was "This can't be right." I would not limit that natural reaction to lawyers: any ordinary reader of the lease would, I think, be equally surprised. Giving the words used in the rent review clause their ordinary and natural meaning I would reach the clear conclusion that the parties intended that the time limit specified in para.(1) should be strictly observed because of the consequences of failing to do so spelt out in para.(2).

[86]Do the authorities since United Scientific compel a different conclusion? The first two, Lewis v Barnett

[1982] 2 EGLR 127

and Trustees of Henry Smith's Charity v ALWADA

(1984) 47 P & CR 607

, both decisions of this court, plainly do not.

[87]In the former case (relating to a rent review clause in a form different from that in the present case) contraindications to the presumption that time shall not be of the essence were found in the words as to what was to happen if the landlord neglected to make an application which he was required to make within a specified time.

[88]In AWADA this court found contraindications in a lease in a different form. This included a rent review clause containing an elaborate series of provisions, which enabled the landlord during a specified period to serve a review notice, the tenant within a specified period measured from the date of service of the review notice to serve a counter-notice and then (in cl. 4) the consequences of the tenant not serving the counter-notice within that period are spelt out:

"the amount stated in the relevant review notice shall be deemed to be the market rent."

By a further provision (cl. 7) in effect similar to that in Lewis v Barnett, if a counter-notice was served but the landlord did not do what he was required to do, viz. apply for the appointment of a surveyor within a specified period, the amount stated in the counter-notice was to be deemed to be the market rent. As Sir John Donaldson M.R. said at p. 614, the parties not only set out a timetable but in terms provided what is to happen in the absence of strict compliance with that timetable. He commented on cl. 4 and cl. 7 (at p. 615):

"In neither case would it be possible seriously to write into the clause after each specified period of time words such as "or such longer period as shall elapse before the expiration of reasonable notice making time of the essence of the contract."

I pause to observe that similarly one could not write into para. (2) of the rent review clause in the lease with which we are concerned any such words. The Master of the Rolls accordingly held that the parties must be deemed to have intended that the presumption should not apply.

[89]Slade L.J. gave a judgment to the same effect. He too concentrated on the deeming provisions in cl. 4 and cl. 7, saying at p. 621 that the only meaning which could be attached to the phrase "shall be deemed to be the market rent" was "shall be conclusively presumed to be the market rent". At p. 623 he similarly considered in turn each of cl. 4 and cl. 7 and said of cl. 4 that the deeming provisions were quite inconsistent with the survival of any right of the tenant to serve a counter-notice after the expiration of the specified period and of cl. 7 that the deeming provisions were quite inconsistent with the survival of any right in the landlord to apply for the appointment of a surveyor after the expiration of the specified period. At p. 624 Slade L.J. referred to the "carefully defined rights exercisable within carefully defined time limits and in which the consequences of any failure to exercise such rights within those time limits are no less carefully defined", a comment equally applicable to the present case. He continued:

"The inter-relation of the various paragraphs of the rent review clause is, in my opinion, quite inconsistent with any necessity for the tenant to serve on the landlord a "time of the essence" notice …. before he can rely on the provisions of paragraph 7 according to their terms. This paragraph, when read with the other paragraphs [of the rent review clause], is, in my opinion, too explicit a "contraindication" within the relevant principles to allow the ordinary presumption against time being of the essence to operate in the landlord's favour; it serves clearly to rebut the presumption."

As I read Slade L.J.'s judgment, his reasoning is entirely consistent with that of the Master of the Rolls.

[90]Griffiths L.J., while concurring in the result, reached the same conclusion by a different route. It is clear that he was much less impressed by the force of the deeming provisions in cl. 4 and cl. 7, though he was of the view that, whilst not necessarily conclusive, the express inclusion of the deeming provisions added "some weight" to the view that the rent review clause should be read as though time was of the essence, particularly as the deeming provisions applied to both landlord and tenant (p. 618). He relied on other provisions of the rent review clause, such as a provision enabling the tenant to call for a review notice and a provision for the interim payment of the landlord's rent figure in the review notice, as pointing to the conclusion that the parties intended time to be of the essence. Neither Sir John Donaldson nor Slade L.J. relied specifically on those other provisions for their conclusions and the former regarded it as "highly undesirable that decisions of this type of dispute should turn upon fine distinctions" (p. 614).

[91]However, in Mecca Leisure Ltd. v Renown Investments (Holdings) Ltd.

(1984) 49 P & CR 12

, despite Browne-Wilkinson L.J.'s dissent on the basis that AWADA should not be distinguished and that the right answer should not depend on comparatively small differences in drafting (see p. 24), the majority in this court were prepared to distinguish AWADA . The rent review clause was in a form very similar to that in the present case, the only material difference being that it appears not to have contained a provision corresponding to para. (5) (the covenant to pay the rent increased by actual or deemed agreement). Eveleigh L.J. dismissed AWADA by saying (at p. 16):

"I find no help at all from the facts of other cases where there is a deeming provision, as in the present case, but other terms in the review clause and the lease are different."

At p. 17 he referred briefly to remarks by Griffiths L.J. and Slade L.J. in AWADA but made no reference to Sir John Donaldson's judgment. He said:

"I cannot regard the mere presence of the "deeming" clause as a firm indication that time is of the essence. I read the clause as a whole and bear in mind that there is a presumption to be displaced and that the parties are clearly intending to arrive at a fair rent to be determined amicably if possible. It seems to me that to hold otherwise would make the clause a trap and the chosen machinery dangerous. In my opinion, time is not of the essence in this case. My conclusion does not mean that a "deeming" provision is of no effect. It entitles the landlords to make time of the essence by giving notice to that effect once the twenty-eighth day has expired. We were referred to Raineri v. Miles [1981] AC 1050. The fact that a purchaser may sue for damages resulting from delay in completion by the vendor even though time for completion is not of the essence has no relevance to the present case. In that case, there was no issue as to whether or not there was an agreed and binding obligation to complete. We, on the other hand, are concerned to determine whether there is a binding obligation to pay a rent as stated in the landlords' notice. Moreover, the deeming provision forms part of the machinery devised to produce a fair rent and must be viewed in that context. It is not to be seen as an independent clause creating a binding obligation on the happening of a particular event."

[92]Thus Eveleigh L.J. does not refer in any way to the reasoning which led Sir John Donaldson and Slade L.J. to conclude that the deeming provision in AWADA showed that time was of the essence, and for the reasons already given I cannot see how that reasoning is not equally applicable to a lease in the form of that in Mecca and that in the present case. Further, in referring to the clause being a trap, he ignores the remarks made by Sir John Donaldson in AWADA at p. 615:

"It may well be thought unwise to have a strict timetable review clause, which in the event of default, may have the effect that an unreal rent put forward for negotiating purposes becomes the contractual rent. This I would accept, but it is for the parties to make their contract."

As for Eveleigh L.J.'s opinion that the deeming provision is useful because it entitled the landlord to make time of the essence by giving notice to that effect once the specified period has expired, if time was not of the essence the landlord could have made time of the essence by serving an appropriate notice whether or not the deeming provision was present. Thus the deeming provision serves no useful purpose, if Eveleigh L.J. is right. As for his reference to Raineri v Miles , it is not clear that Eveleigh L.J. correctly appreciated the relevance of that decision, which established that contractual obligations are left unaffected by the fact that time is not made of the essence.

[93]May L.J. correctly apprehended (at p. 21) that Raineri v Miles did "provide substantial ground for an argument that, where there is not already a stipulation as to time in a rent review clause but also a deeming provision …. the presumption that time is not of the essence is sufficiently rebutted and cannot prevent the deeming provision from taking effect according to its terms." He also recognised that the Master of the Rolls in AWADA thought the deeming provisions "well-nigh decisive". But May L.J. said of Slade L.J. that he had "expressed his view that it was the fact that the "deeming" provisions in the rent review clause was bilateral that was of great importance, if not decisive, in that case." I am afraid that that is simply incorrect, Slade L.J. saying no such thing, and in the passage next cited by May L.J. from Slade L.J.'s judgment at p. 623, to which I have referred in para. 89 above, he makes it plain that he regarded the terms of each of cl. 4 and of cl. 7 as quite inconsistent with time not being of the essence. May L.J. also does not explain why the reasoning of Sir John Donaldson and Slade L.J. as to the effect of spelling out the consequences of default in a deeming provision did not apply to the rent review provisions in Mecca .

[94]I am left therefore with a profound sense of unease as to the way the majority in Mecca distinguished AWADA , both because the majority were drawing the fine distinctions which Lord Fraser in United Scientific and Sir John Donaldson in AWADA thought should not be drawn and because the ratio decidendi of the majority in AWADA was so clearly that, as Browne-Wilkinson L.J. put it in Mecca at p. 25, "the provisions for a default rent were a decisive, or virtually decisive, contraindication displacing the presumption that time was not of the essence."

[95]Kay L.J. has reviewed the subsequent cases, English, Scottish and Commonwealth, and noted the various expressions of view which doubt the correctness of the majority decision in Mecca . I would only add to that the trenchant comments in Hill & Redman's Law of Landlord and Tenant:

"[4144] .. The principle [taken from AWADA ] is that any form of expression which clearly evinces the concept of finality attached to the end of the period or periods prescribed will suffice to rebut the presumption that time is not of the essence. …. [4146] What appeared as a fairly clear and readily applicable principle was thrown into confusion by a subsequent majority decision of the Court of Appeal in which it was held that time was not of the essence in relation to the service by a tenant of a counter-notice even though it was provided that in the absence of such a notice within the time limit specified he was deemed to have agreed to pay the rent specified in the landlord's notice. Not surprisingly, subsequent decisions have shown no clear pattern. It ought to be possible to find a clear principle which states whether or not deeming provisions of the nature under discussion amount to an express provision that time is of the essence. Unfortunately, no such principle has emerged although an ordinary understanding of language suggests that generally such deeming provisions should render time of the essence."

[96]I have anxiously considered what is this court's duty in the circumstances. Mr. Lewison Q.C. for the landlord rightly did not press submissions that this court, construing the lease before us, is not bound by the decision of another Court of Appeal construing a different contract in Mecca or that Mecca is distinguishable in that it did not have a provision the equivalent of para. (5). Clarity and consistency in the law and the desirability of avoiding fine distinctions would not be served by acceding to such submissions, as Mr. Lewison properly acknowledged. Mr. Lewison submitted that the decision of the majority in Mecca is unsupportable and that this court is not bound by it. Mr. Male submitted that this court is bound by Mecca and that there are weighty practical reasons why we should follow Mecca , many rent reviews under this common form of rent review clause having been concluded on the basis laid down in Mecca . I see the force of that, although its impact is reduced by the criticisms to which I have referred and are widely known.

[97]Where the ratio of an earlier decision of this court is directly applicable to the circumstances of a case before this court but that decision has been wrongly distinguished in a later decision of this court, in principle it must be open to this court to apply the ratio of the earlier decision and to decline to follow the later decision. In my judgment the majority of this court in Mecca wrongly distinguished AWADA . The ratio decidendi in AWADA as identified by Browne-Wilkinson L.J. in Mecca should in my judgment have been applied in Mecca and is decisive of this case. To give proper effect to the parties' intentions, the applicable principle which in my view governs this and other like cases is that where the parties have clearly stipulated the consequences of no proper notice being served within the specified period, that is a contraindication rebutting the presumption that time is not of the essence. For these as well as the reasons given by Kay L.J. I too would allow this appeal, set aside the judge's order and grant declarations:(1) that on the true construction of the lease, the counter-notice purportedly served on 16 June 1999 is void and of no effect, and

(2) that the rent payable by the tenant to the landlord under the lease from 1 August 1999 until the expiry of the lease is deemed to have been agreed by the tenant to be £84,800 per annum.

ORDER

Appeal allowed, the judge's order set aside and the declarations set out in the last paragraph of the Judgment will be granted. We order the repayment of the amount paid, plus interest from 16 th August; costs here and below; detailed assessment; and interim payment of £15,000. Application for leave to appeal to the House of Lords refused. (Order does not form part of approved Judgment)

Cited in 14 later judgments

and 5 more of the most senior