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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Friends Life Ltd v Siemens Hearing Instruments Ltd  EWCA Civ 382 (03 April 2014)
Cite as:  EWCA Civ 382
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ON APPEAL FROM THE HIGH COURT, CHANCERY DIVISION
Mr Strauss QC (sitting as a Deputy High Court Judge)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LEWISON
SIR TIMOTHY LLOYD
| FRIENDS LIFE LIMITED
|- and -
SIEMENS HEARING INSTRUMENTS LIMITED
MR TIMOTHY FANCOURT QC & MR TOM WEEKES (instructed by Penningtons Manches) for the Respondent
Hearing date : 26 March 2014
Crown Copyright ©
Lord Justice Lewison:
"If the tenant tries to exercise the break, the chances are that he does so because the market has changed. He is paying more than the rental value of the leased property and wants cheaper accommodation elsewhere. The consequence of failure will be expensive. But the change in economic conditions will be precisely the reason why the landlord will fiercely resist the tenant's attempt to break the lease. He will pick over the tenant's notice exercising the break looking for any possible error; and he will examine minutely whether the tenant has fulfilled any conditions on which the validity of the break notice depends. Does it specify the right date? Was it served by the right person? Was it given to the right person? Was it given in accordance with any stipulated timetable? Did the tenant comply sufficiently with his obligations under the lease? Has the tenant given vacant possession? If any one of these questions elicits even a plausible negative answer the stage is set for a full scale battle."
"19.1 In this clause the Termination Date means 23 August 2013.
19.2 Subject to the pre-conditions in clause 19.3 being satisfied on the Termination Date, and subject to clause 19.4 the Tenant may determine the Term on the Termination Date by giving the Landlord not more than 12 month's and not less than six month's written notice, which notice must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954. The term will then determine on the Termination Date, but without prejudice to any rights of either party against the other for any antecedent breach of its obligations under this Lease.
19.3 The pre-conditions are that:
19.3.1 vacant possession of the whole of the Premises is given to the Landlord; and
19.3.2 all Rent and other sums due under this Lease up to the Termination Date have been paid in full; and
19.3.3 the Tenant has paid to the Landlord on or prior to the Termination Date (in addition to the Rent and other sums due under this Lease) a sum equal to one-half of the annual Rent payable by the Tenant under this Lease as at the date of service of the Tenant's notice pursuant to clause 19.2
19.4 The Landlord may waive any of the pre-conditions set out in clause 19.3 at any time before the Termination Date by written notice to the Tenant.
19.5 The Tenant will cancel any registration it has made in connection with this clause within 5 Working Days of the Termination Date.
19.6 Time will be of the essence for the purposes of this clause…"
"Site 1, Vector 2, Manor Royal, Crawley (the "Premises")
We act for Siemens Hearing Instruments Limited (Company No.00203774) (the "Tenant") whose registered office is Alexandria House, Newton Road, Manor Royal, Crawley, West Sussex, RH10 9TT.
We write regarding the lease of the Premises between Sun Life Assurance Plc and A&M Hearing Limited, dated 17 January 1999 (the "Lease").
We, Manches LLP, Solicitors and Agents for the Tenant, of 9400 Garsington Road, Oxford Business Park, Oxford, OX4 2HN, HEREBY GIVE YOU NOTICE, for and on behalf of the Tenant, that the Tenant intends to terminate the Lease 23 August 2013 in accordance with clause 19 of the Lease so that the Lease will determine on that date.
We have served this notice on you at your registered office in accordance with clause 17 of the Lease.
.... We should be grateful if you would acknowledge receipt by signing and returning the enclosed duplicate of this letter in the enclosed pre-paid envelope."
Why did clause 19.2 take the form that it did?
"The last foregoing subsection shall not prevent the coming to an end of a tenancy by notice to quit given by the tenant, by surrender or forfeiture, or by the forfeiture of a superior tenancy, unless -
(a) in the case of a notice to quit, the notice was given before the tenant had been in occupation in right of the tenancy for one month; or
(b) in the case of an instrument or surrender, the instrument was executed before, or was executed in pursuance of an agreement made before, the tenant had been in occupation in right of the tenancy for one month."
""notice to quit" means a notice to terminate a tenancy (whether a periodical tenancy or a tenancy for a term of years certain) given in accordance with the provisions (whether express or implied) of that tenancy"
"… the date of termination specified in a notice under this section shall not be earlier than the date on which apart from this Part of this Act the tenancy could have been brought to an end by notice to quit given by the landlord on the date of the giving of the notice under this section."
"(1) A tenant's request for a new tenancy may be made where the tenancy under which he holds for the time being (hereinafter referred to as "the current tenancy") is a tenancy granted for a term of years certain exceeding one year, whether or not continued by section twenty-four of this Act, or granted for a term of years certain and thereafter from year to year.
(2) A tenant's request for a new tenancy shall be for a tenancy beginning with such date, not more than twelve nor less than six months after the making of the request, as may be specified therein:
Provided that the said date shall not be earlier than the date on which apart from this Act the current tenancy would come to an end by effluxion of time or could be brought to an end by notice to quit given by the tenant.
(3) A tenant's request for a new tenancy shall not have effect unless it is made by notice in the prescribed form given to the landlord and sets out the tenant's proposals as to the property to be comprised in the new tenancy (being either the whole or part of the property comprised in the current tenancy), as to the rent to be payable under the new tenancy and as to the other terms of the new tenancy.
(4) A tenant's request for a new tenancy shall not be made if the landlord has already given notice under the last foregoing section to terminate the current tenancy, or if the tenant has already given notice to quit or notice under the next following section; and no such notice shall be given by the landlord or the tenant after the making by the tenant of a request for a new tenancy.
(5) Where the tenant makes a request or a new tenancy in accordance with the foregoing provisions of this section, the current tenancy shall, subject to the provisions of subsection (2) of section thirty-six of this Act and the provisions of Part IV of this Act as to the interim continuation of tenancies, terminate immediately before the date specified in the request for the beginning of the new tenancy."
"To bring to an end a tenancy which by its terms is terminable on notice to quit given by the landlord to the tenant there is no need for the landlord under the Act to serve notice in accordance with those terms. The terms contained in the lease or tenancy agreement relating to its termination are relevant for two purposes only: First and always, to determine what date may be specified in the prescribed notice as the date on which the tenancy may come to an end and, secondly and sometimes, to determine at what date the notice must be given in order that it may be effective. Where the tenancy is for a term of years certain, the date to be specified in the prescribed notice on which it is to come to an end must not be earlier than the date on which, but for the Act, it would come to an end by effluxion of time - see section 25 (4) - and, in the case of notice by the tenant, it must be not [other] than that date. In the case of a tenancy terminable by notice to quit, the date specified in the prescribed notice must be not earlier than that on which the tenancy could, apart from the Act, be brought to an end by notice given by the landlord - see section 25 (3) (a) - and it may by paragraph (b) of the subsection have to be served earlier than it otherwise would."
The judge's reasoning
"The flexible approach indicated by the above is apparent in many cases on statutory or contractual requirements, where the statute or the contract says nothing about the consequences of non-compliance. The traditional distinction is between requirements which are mandatory and those which are merely directory, or permissive, but recent case law demonstrates that there are also some requirements which might be described as hybrids. In such cases, the consequence of the non-compliance may depend on its extent: has there been adequate compliance? Or it may depend on its effect: has it made a difference to the other party?"
"From these authorities, it seems to me that the position relating to non-compliant notices is as follows:-
(a) The principles apply equally to statutory and contractual notices.
(b) Where the statute or the contract term provides that a non-compliant notice will be invalid or ineffective, that is of course the end of the matter: see for example section 26(3) of the 1954 Act.
(c) Where it does not, the court must assess the statutory or contractual intention by the usual objective criteria, including the background and purpose of the provision, and the effect if any of non-compliance.
(d) Where the notice is provided for by a statute or by a professionally drafted contract, and the draftsman has not provided, either way, for the consequence of non-compliance, one may reasonably assume that this is deliberate, and that it has been left to the court to decide; while it may go too far to say that there is a presumption, it is natural to conclude that it was intended that the notice should, at least in some circumstances, but not necessarily in all, survive non-compliance.
(e) The use of "must", "shall" etc. is not decisive, as Millett LJ indicated in Petch v Gurney. I do not think Lord Denning MR was going any further in Yates than to say that the provisions of that lease which were so worded were mandatory. The court will look to the substance, not the form.
(f) What is often decisive in practice is the effect of the non-compliance: see in particular the dictum of Lord Steyn in Soneji cited at para. 28 above. Was the omitted information material which it was essential for the other party to have? Has the non-compliance prejudiced the other party? For this reason, notice provisions may be what I have called hybrids, sometimes "mandatory", sometimes not, depending on the nature and extent of the error, and its effect.
(g) Although provisions relating to the exercise of an option are usually mandatory, any such rule is the court's servant, not its master, and is not inflexible. I agree with Mr. Fancourt's submission that, whilst non-fulfilment in any respect of the conditions for the exercise of an option (in this case the pre-conditions to be fulfilled by 23rd August next), will be fatal, the same may not be true as to the form of an advance notice of the exercise of the option, which in this case was explicitly required to be timely, but not explicitly required to be in due form, to be effective."
"(a) Clause 19 is part of a well drafted lease, and it does not so provide.
(b) By contrast, by clause 19.6 time is of the essence for the whole clause, including for the service of the notice, and the terms of clause 19.2 and 19.3 make it clear that the lease will not terminate without fulfilment of the pre-conditions for the exercise of the option: only the consequence of a non-compliant form of notice is not specified.
(c) The failure to use the required wording made no difference at all. All that mattered was that there was no simultaneous request for a new tenancy in the form prescribed by section 26(3). Once notice to quit had been served, section 26(4) precluded any later such request.
(d) I therefore do not think that the incantation of the magic words was an indispensable condition; it was not something which gave the defendant necessary or even relevant information.
(e) Although everything else in the option process, in particular the timeliness of the notice and the fulfilment of the preconditions, is almost certainly mandatory (I will not formally decide this in case an issue arises later) it would not be a sensible construction of clause 19 to hold that the use of the required words is mandatory in the circumstances. So to hold would be to adhere slavishly to a supposed rule of construction that makes everything about the process of exercising an option mandatory. As Mr Fancourt submitted, one cannot realistically attribute to the parties an intention to make the tenant's exercise of an important right dependent on compliance with a meaningless formula."
"The first is that there is no room for any inquiry as to whether any act done by the promisee in purported performance of a unilateral contract amounts to a breach of warranty or a breach of condition on his part, for he is under no obligation to do or to refrain from doing any act at all. The second is that as respects the promisor, the initial inquiry is whether the event, which under the unilateral contract gives rise to obligations on the part of the promisor, has occurred. To that inquiry the answer can only be a simple "Yes" or "No." The event must be identified by its description in the unilateral contract; but if what has occurred does not comply with that description, there is an end of the matter. It is not for the court to ascribe any different consequences to non-compliance with one part of the description of the event than to any other part if the parties by their contract have not done so. See the cases about options: Weston v Collins; Hare v Nicoll.
For the inquiry here is: "What have the parties agreed to do?" — not "What are the consequences of their having failed to do what they have agreed to do?" as it was in the Hongkong Fir case. Such an inquiry cannot arise under a unilateral contract unless and until the event giving rise to the promisor's obligations has occurred."
"In point of legal analysis, the grant of an option in such cases, is an irrevocable offer (being supported by consideration so that it cannot be revoked). In order to be turned into a binding contract, the offer must be accepted in exact compliance with its terms. The acceptance must correspond with the offer."
"Exact compliance with the terms of the offer in an "if contract" had been required in courts of equity as well as in courts of common law…. A rationale of the distinction which was drawn between the two kinds of contracts in courts of equity is that equity was concerned with the performance of contracts into which parties had already entered. It did not force any person to enter into a contract with another."
i) If the lease contains a covenant to repair and the property is in disrepair, even if the disrepair is "trifling": Finch v Underwood (1876) 2 Ch D 310;
ii) If the lease contains a covenant to decorate in the last year of the term and no decoration has been carried out in that year even though the decoration had been carried out a few months earlier: Bairstow Eves (Securities) Ltd v Ripley (1993) 65 P & CR 220.
"If the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease."
"This is not a case of a contractual right to determine which prescribes as an indispensable condition for its effective exercise that the notice must contain specific information. After providing for the form of the notice ("in writing"), its duration ("not less than six months") and service ("on the landlord or its solicitors"), the only words in clause 7(13) relevant to the content of the notice are the words "notice to expire on the third anniversary of the term commencement date determine this lease". Those words do not have any customary meaning in a technical sense. No terms of art are involved. And neither side has suggested that anything should be implied into the language."
"The clause does not require the tenant to use any particular form of words. He must use words which unambiguously convey a particular meaning, namely an intention to terminate the lease on 13 January."
"… because such notices have unilateral operation, the conditions under which they may be served must be strictly complied with. I have already said that this principle is accepted on both sides. But, as an explanation of the method of construction used in Hankey v Clavering, it begs the question. If the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease. But the condition in clause 7(13) related solely to the meaning which the notice had to communicate to the landlord. If compliance had to be judged by applying the ordinary techniques for interpreting communications, there was strict compliance. The notice clearly and unambiguously communicated the required message. To say that compliance must be strict does not explain why some other technique of interpretation is being used or what it is."
"The substance of the power is expressed by the words "The Tenant may . . . determine this Lease". The method of its exercise is specified by the intervening words. The tenant must give six months' notice; the notice must be in writing; the notice must be served on the landlord or its solicitors. The sub-clause also states that the notice is to expire on the third anniversary of the term commencement date. The significance of that statement is that the period of six months is to terminate on that date. This regulates the time for the giving of the notice. The third anniversary marks the end of the period prior to which a notice under clause 7(13) must be given. But it is not required that the notice should include mention of the date of the intended determination of the lease. That date is prescribed by clause 7(13) where it states that the lease shall determine on expiry of the notice.
Where a notice of termination complies precisely and unambiguously with the provision which empowers the sending of the notice then its validity should be unquestioned. Where the terms of the notice do not altogether accord with the provisions of the contract that may or may not render the notice unenforceable. The problem then may come to be one of finding a fair and reasonable construction of the notice. But there can be cases where the validity of the notice cannot be saved by any construction and will have to be regarded as bad."
"You start with the position that, under the lease, the tenant has covenanted to pay rent for the full term; but under a proviso in the lease the tenant may, by notice, rid himself of the obligation under that covenant. However, to be effective for that purpose, the notice must conform to the terms of the proviso. If on its true construction the notice does not do so, it will not be effective for its purpose, because the parties have agreed that only a notice conforming to the terms of the proviso will be effective. The fact that the landlord realises that the tenant intended to take advantage of his rights under the proviso, but has only failed through some mistake to give the required notice, is irrelevant. The simple fact is that the tenant has failed to use the right key which alone is capable of turning the lock."
"Notices terminating a tenancy are technical documents because they are effective without the consent of the receiver. It is therefore essential that they conform to the statutory or contractual provisions under which they are given."
"The option hereby granted shall be exercisable by notice in writing given by or on behalf of Yates to Pulleyns or to Pulleyns' solicitors at any time between April 6 1973 and May 6 1973 such notice to be sent by registered or recorded delivery post to the registered office of Pulleyns or the offices of their said solicitors."
"The option is an offer: an irrevocable offer. When a person makes an offer, he does sometimes prescribe the method by which it is to be accepted. If he prescribes it in terms which are mandatory or obligatory, the acceptance is only good if it complies with the stated requirements. Thus in the present case the notice of acceptance must be in writing, and must be given to Pulleyns or to Pulleyns' solicitors, and must be given between April 6 1973 and May 6 1973. But the question is whether the words "such notice to be sent by registered or recorded delivery post" are mandatory or directory. That test is used by lawyers in the construction of statutory instruments, but it can also be used in the construction of other documents. The distinction is this: a mandatory provision must be fulfilled exactly according to the letter, whereas a directory provision is satisfied if it is in substance according to the general intent."
"Where, however, the offeror has prescribed a particular method of acceptance, but not in terms insisting that only acceptance in that mode shall be binding, I am of opinion that acceptance communicated to the offeror by any other mode which is no less advantageous to him will conclude the contract."
"If the offeror uses terms insisting that only acceptance in a particular mode is binding, it is mandatory. If he does not insist, and it is sufficient if he adopts a mode which is no less advantageous, it is directory."
"The tenant may by not less than nine months written notice served upon the Landlord expiring on the 24th June 1995 (time being of the essence) determine this demise on the 24th June 1995 upon condition that the Tenant shall thereupon (or on the earlier vacation of the property) pay to the Landlord (in addition to all other payments which may be due and payable to the Landlord under the terms hereof upon the expiration or sooner determination of this Lease or otherwise) a sum equal to six months rent at the rate payable hereunder in respect of the period of six months immediately preceding the expiration of the said period of ten years."
"At any time during the last year of the Option Period (meaning the period of 10 years referred to in clause 1.1.9) the intending Purchaser may by notice in writing served upon the intending Vendor require such period to be extended by 5 years and upon service of such notice and payment to the intending Vendor of the additional sum of TWENTY THOUSAND POUNDS (£20,000) this Agreement shall be construed as if the Option Period was 15 years."
"I accept the submission of Mr Reynolds QC, that it is implicit in this formulation [i.e. that of Lord Steyn in Mannai] that, where the case is one where it is an indispensable condition that the notice should contain "specific information", the omission of that information invalidates the notice. Mr Reynolds submits that clause 9.1, in describing a notice thereunder as being one "requir[ing] such a period to be extended", was making it an indispensable condition that the notice should contain this specific information that that was what the defendant required. The notice of 12 September contained no words which "required" the Option Period to be extended."
"But the provision that Westbury should by the notice 'require [the option] period to be extended by 5 years' is a stipulation of a different nature. It simply describes what it is that the notice must convey to the recipient, without prescribing any particular form of words or any particular details that must be included. There is nothing in the nature of a condition precedent to valid exercise of the right, but rather a statement of the meaning which the notice must communicate to the intending Vendor. Such statements fall squarely within the ambit of the Mannai test, and the question is simply how they would have been understood by a reasonable recipient."
" … In my view, Lord Steyn's first proposition cannot sensibly be pressed into service, as contended by Mr Reynolds. A typical case of an "indispensable condition" is where the contract states that the relevant notice shall be in writing and shall contain particular information. Some clauses may expressly say that "the notice shall only be valid if …". Where express language of this kind does not appear in the clause, it will be a question of construction whether it is an indispensable condition for validity that the notice satisfies the requirements of the clause. I accept the submission of Mr Male that it would be formalism in the extreme if the notice in the present case were to be held to be invalid because it failed to say in terms "I require such a period to be extended", if the notice clearly conveyed to the recipient that the defendant was seeking to exercise its right under clause 9.1 to require the period to be extended.
 To put the point another way, it is not a condition precedent to the proper exercise of the right conferred by clause 9.1 that the defendant should state in terms that it requires the Option Period to be extended. Clause 9.1 does not so provide expressly or by necessary implication. It is sufficient, if the defendant makes it clear to a reasonable recipient, that it is exercising the right conferred by the clause."
"In all cases, one must first construe the statutory or contractual requirement in question. It may require strict compliance with a requirement as a condition of its validity. In Mannai at 776B Lord Hoffman gave the example of the lease requiring notice to be given on blue paper: a notice given on pink paper would be ineffective. Against that, on its true construction a statutory requirement may be satisfied by what is referred to as adequate compliance. Finally, it may be that even non-compliance with a requirement is not fatal. In all such cases, it is necessary to consider the words of the statute or contract, in the light of its subject matter, the background, the purpose of the requirement, if that is known or determined, and the actual or possible effect of non-compliance on the parties. We assume that Parliament in the case of legislation, and the parties in the case of a contractual requirement, would have intended a sensible, and in the case of a contract, commercial result."
What was the requirement of clause 19.2?
"…must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954."
"The question whether strict compliance with a statutory requirement is necessary has arisen again and again in the cases. The question is not whether the requirement should be complied with; of course it should: the question is what consequences should attend a failure to comply. The difficulty arises from the common practice of the legislature of stating that something "shall" be done (which means that it "must" be done) without stating what are to be the consequences if it is not done. The Court has dealt with the problem by devising a distinction between those requirements which are said to be "mandatory" (or "imperative" or "obligatory") and those which are said to be merely "directory" (a curious use of the word which in this context is taken as equivalent to "permissive"). Where the requirement is mandatory, it must be strictly complied with; failure to comply invalidates everything that follows. Where it is merely directory, it should still be complied with, and there may be sanctions for disobedience; but failure to comply does not invalidate what follows."
Did the notice comply?
Sir Timothy Lloyd:
Lady Justice Black: