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||Neutral Citation Number:  EWCA Civ 1
||Case No: A3 2007/0869
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
MR NICHOLAS STRAUSS Q.C.
 EWHC 629 (Ch)
||Royal Courts of Justice
Strand, London, WC2A 2LL
||15 January 2008
B e f o r e :
LORD JUSTICE WALLER, VICE-PRESIDENT OF THE COURT OF APPEAL,
LADY JUSTICE SMITH
LORD JUSTICE LLOYD
|| HOMEPACE LIMITED
||- and -
||SITA SOUTH EAST LIMITED
Martin Hutchings (instructed by Clarkslegal LLP) for the Appellant
Mark Wonnacott (instructed by Bevan Brittan LLP) for the Respondent
Hearing date: 26 November 2007
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Lloyd:
- This appeal is about whether a certificate issued by an expert under a lease is valid and binding. If it is, the tenant's liability to pay £100,000 by way of annual rent came to an end in December 2005; if not, the tenant is still liable to pay that rent. Mr Nicholas Strauss Q.C., sitting as a Deputy High Court Judge in the Chancery Division, held that it was not valid, and so declared in his order dated 30 March 2007. SITA, the tenant, appeals, with permission given by the judge. Like Mr Strauss, we had the assistance of admirable submissions, in writing and orally, from Mr Hutchings for the tenant Appellant and from Mr Wonnacott for the landlord Respondent, in particular guiding us through the somewhat unusual relevant provisions of the lease.
- The lease is of land at Knockdown, near Tetbury in Gloucestershire, including a disused quarry. The agreement for lease was dated 22 May 1996, and the lease itself 10 September 1996. At that time planning consent existed, dating from 1990, for the extraction of limestone and backfilling the quarry with waste material to restore the land to agriculture. The lease demised much more land than had the benefit of that permission. In the agreement for lease the tenant agreed to take all reasonable steps at its own cost to obtain planning consent for the extension of the mineral extraction and waste activities to as much of the area to be demised by the lease as possible. In fact the tenant has not been able to obtain planning consent and it seems to be common ground that there is no current prospect of such a planning permission being granted.
- The lease, which runs for 999 years from 10 September 1996, but subject to certain provisions for early termination, granted to the tenant not only the whole of the large area of land (107 acres) but also rights to take minerals from the land and to tip waste materials on the land, but it also reserved certain rights to the landlord, in relation to what are called the Reserved Minerals. The interaction between the grant and the reservation lies at the heart of the case, and I will not anticipate the detailed treatment of the point which will be necessary. The tenant paid a premium of £250,000 for the lease, and was liable to pay a Certain Rent of £100,000 per annum, and royalties in respect of minerals extracted (at 50p per tonne) and also (at 16.5%) in respect of income from infilling the land with waste. The Certain Rent was paid on account of royalties; it was not refundable if the royalties fell short of the amount of the Certain Rent, but any excess could be carried forward to future years.
- Large as the area was to which the lease extended, it was no doubt foreseen that, even if there were no difficulties as regards planning permission, the mineral and waste activities would not continue for the whole 999 years of the term. The lease therefore contains provisions for the suspension of the Certain Rent, and also for early termination of the lease. It is the former that give rise to the issue in the proceedings, but they need to be seen in the wider context. In summary, as regards suspension, the tenant can serve a 12 months' notice that its liability to pay the Certain Rent is to cease, accompanied by a Surveyor's Mineral Exhaustion Certificate. That is what the Appellant did in December 2004; the question is whether the certificate (and therefore the notice which depends on it) was valid and effective. If any minerals are extracted after the cessation of the Certain Rent but while the lease still subsists, then the liability to pay the Certain Rent revives.
- As regards termination of the lease, if (a) the reserves of minerals are exhausted or not economically recoverable, as certified in a Surveyor's Mineral Exhaustion Certificate, and (b) the land has been restored in accordance with the obligations under the lease, as shown in a notice given by the tenant to the landlord, and certified by the relevant public authorities, and (c) the capacity of the land for infilling by waste materials is either exhausted or not economically usable for the purpose, as shown by a Surveyor's Waste Exhaustion Certificate, and (d) subject to various other conditions, including the service of 12 months' notice, then the tenant can terminate the lease by one month's notice, or it can purchase the land from the landlord for £1.
- The surveyor who has to issue a Surveyor's Mineral Exhaustion Certificate, or a similar certificate as regards waste, is an independent chartered surveyor experienced in mineral matters appointed by agreement between the parties or, in default, by the President of the RICS. The question in the proceedings, and on this appeal, concerns a Surveyor's Mineral Exhaustion Certificate which the surveyor appointed in this case, Mr John Hill, issued on 16 December 2004. Two different questions arise: did the certificate comply with the requirements of the lease, and how far, if at all, can that question be examined by the court. Logically the latter point needs to be addressed first, but before I do that I will set out the facts in more detail.
- I will start with the provisions of the lease. It was made between the Claimant, Homepace, as landlord and Hughes Waste Management Ltd as tenant. The Defendant, SITA, is an assignee of the lease. Nothing turns on that and I will refer to it, as necessary, as if it had been the original tenant. The demise is of the land shown on a plan annexed, together with the Rights but except and reserving the Reserved Rights. That grant and reservation take effect by reference to two other defined phrases. Minerals means:
"all minerals including limestone and clay deposits within the Land excluding for the avoidance of doubt the Reserved Minerals"
In turn Reserved Minerals means:
"up to 12000 tonnes in each year of this lease of limestone suitable for use as building walling and/or rockery stone and/or stone tiles and roofing slates"
- The point of this distinction is that the top layer of stone, of about 2 metres' depth, has a value as vernacular Cotswold stone for building purposes, and the landlord carries on a distinct business of extracting, cutting and dressing such stone for sale for this market, whereas the lower strata are only of use as aggregate or, once extracted, as providing a space for landfill.
- I do not need to say more about the Certain Rent and the royalties, or their interrelationship, but I must set out clause 3.5.4 (which I do with the correction of some obvious errors):
"3.5.4 The Lessee's liability to pay the Certain Rent shall cease upon the exhaustion of all the reserves of Minerals in on or under the Land or upon those Minerals becoming economically irrecoverable and there being no reasonable prospect of them becoming economically recoverable within the next ten years PROVIDED THAT:
220.127.116.11 not less than twelve (12) months prior to the date on which the liability to pay the Certain Rent ceases the Lessee has served on the Lessor a notice in writing of its intention to cease payment of the Certain Rent which notice shall append a Surveyor's Minerals Exhaustion Certificate; and
18.104.22.168 if at any time after the Lessee's liability to pay the Certain Rent has ceased and during the subsistence of this Lease any Minerals are extracted at the Property the Lessee's liability to pay the Certain Rent shall resume upon the terms herein before contained"
- The definition of Surveyor's Mineral Exhaustion Certificate, in clause 1, is as follows:
"A certificate signed by the Surveyor which unequivocally confirms that all Minerals in on and under the Land are exhausted or are not economically recoverable and there is no reasonable prospect of them becoming economically recoverable within the next ten years"
- Mr Hill's certificate in the present case was issued on the basis not of exhaustion of all Minerals but of the Minerals being economically irrecoverable.
- The lease contains tenant's covenants of a normal character for such a lease. One to which reference was made in argument is clause 5.15, as follows:
"5.15 Provided it is reasonable to do so in the prevailing market conditions throughout the Term and subject to clause 10 to exercise reasonable endeavours to:
5.15.1 Search for dig work and get the Minerals in a skilful and workmanlike manner without any unnecessary waste and without prejudice to the foregoing work the same continuously and without interruption
5.15.2 Procure waste materials for infilling of the land and without prejudice to the foregoing to continuously infill waste materials at the Land
5.15.3 Procure Foreign Waste Materials for bringing onto the Land and without prejudice to the foregoing to continuously bring Foreign Waste Materials onto the Land"
- Special provision was made to deal with the extraction by the landlord of the Reserved Minerals, in clause 7, which I set out in full:
"7. In relation to the extraction of the Reserved Minerals the Lessee and the Lessor covenant and agree and undertake with the other (as appropriate) and so that these covenants shall run with the Land and bind the parties hereto and their successors in title that at all times during the Term:
7.1 The Lessor shall be entitled to extract and remove entirely for its own benefit the Reserved Minerals and exercise the rights granted in the Second Schedule without hindrance or interference from the Lessee provided that the Lessor shall exercise the Reserved Rights in accordance with the relevant planning permission(s) licence(s) and statutory authorisations notified by the Lessee to the Lessor including (without prejudice to he foregoing) the Working Plan and the Lessor will observe the site rules made by the Lessee's site manager acting properly and reasonably in the course of his duties
7.2 The Lessor and the Lessee will work in compliance with the Working Plan and any reasonable directions of the Lessee's site manager and without prejudice to the Lessor's own working practices and programme of works the Lessor will upon request by the Lessee use all reasonable endeavours to extract within a reasonable period any Reserved Minerals from any part of the Land identified by the Lessee so as to enable the Lessee to comply with the Working Plan
7.3 The Lessor shall not permanently remove any Reserved Minerals from the Land without having first weighed and recorded them on the Lessee's weighbridge maintained under clause 5.8.
7.4 The Lessor shall keep proper records of all Reserved Minerals removed from the Land and shall permit the Lessee to inspect the same on reasonable notice to the Lessor and to take copies
7.5 The Lessee shall not agree with any relevant authority or body any draft Working Plan containing provisions affecting the exercise of the Lessor's rights in respect of the extraction of Reserved Minerals without first obtaining the Lessor's prior written approval to those provisions which approval shall not be unreasonably withheld or delayed
7.6 The Lessor shall indemnify the Lessee against any outgoings charges or expenses in relation to the extraction of the Reserved Minerals
7.7 The Lessor and the Lessee each covenant with the other to use all reasonable endeavours not to interfere with or interrupt the other in its extraction of minerals from the Land and the parties shall wherever possible give the other reasonable notice of their intention to excavate minerals from a particular part of the Land having regard to the operations of the other
7.8 The Lessor and the Lessee each covenant with the other to use all reasonable endeavours not to cause any damage to any minerals being excavated having been excavated or capable of being excavated by the other
7.9 The Lessee shall exercise reasonable endeavours not to use the Land or deal with the Minerals so as to prejudice the commercial operation of that part of the Lessor's business which is based on the exercise of the Reserved Rights
7.10 If a dispute shall arise between the parties over a conflict between the exercise of the rights of the Lessee under this lease and the rights of the Lessor under this clause the matter may be referred by either party for resolution to an independent Chartered Surveyor pursuant to clause 14 hereof but if such Surveyor shall determine that the Lessor's rights cannot be exercised without materially adversely affecting the Lessee's rights hereunder the Lessee's rights shall prevail"
- Clause 14 is an arbitration clause:
"If at any time after the date of this lease any dispute doubt or question shall arise between the Lessor and the Lessee touching the construction meaning or effect of this lease or any clause or thing contained in it or their respective rights and liabilities under this lease or in case any valuation shall require to be made or amount determined under the provisions contained above then every such dispute doubt question valuation or amount shall be referred to the decision in accordance with the Arbitration Acts 1950 to 1979 of an independent chartered surveyor experienced in mineral matters to be appointed by agreement between the parties or failing agreement to be appointed by the President for the time being of the Royal Institution of Chartered Surveyors or if more appropriate by the President for the time being of the Law Society and whose fees shall be borne equally between the parties to this lease"
- The rights granted to the tenant are set out in Schedule 1, and those reserved to the landlord in Schedule 2. Neither seems to me to require particular comment at this stage, save that, under paragraph 8 of Schedule 2, the landlord has the right to inspect the tenant's operations, including that of any weighbridge, and to take copies of records and details of sales of Minerals as may be required for the purposes of the lease.
- As mentioned above, the land comprised in the lease included a disused quarry, on an area for which planning permission had been granted in 1990, subject to a section 106 agreement. An application was contemplated and intended to extend that planning permission to a larger area, but the area comprised in the lease was much larger. Two different applications were made in turn, one in 1997 and the next in 2001, but each was withdrawn in the face of strong opposition, the second in 2002. In fact no mineral extraction has taken place at the site, apart from the extraction of Reserved Minerals by or for the landlord, since 1994. A particular geological problem was the discovery that the winter water table was much higher than had previously been thought, which imposes a severe limit on the level to which excavation can take place at all.
- Mr Hill was appointed by agreement between the parties to be the Surveyor for the purposes of the lease, by a letter of instruction dated 11 May 2004. He was asked to advise and, if his view permitted, to issue a certificate as required by the lease, that the minerals were not economically recoverable. He issued a report on 16 December 2004, which included at section 10 his certificate to the following effect:
"10.3.1 Mineral Exhaustion. There are proven recoverable permitted mineral reserves of limestone remaining to be exploited at Knockdown Quarry and hence it is not appropriate to consider such certification on mineral reserve grounds.
10.3.2 Economic viability The current evidence in respect of costs, selling prices, competitor activity and planning policies / guidance does not support the economic viability of the Knockdown operation but the opposite when considering the situation under each of the individual headings in turn. This Surveyor's Mineral Exhaustion Certificate therefore unequivocally confirms that the Minerals as defined in the lease dated 10 September 1996 are not economically recoverable and there is no reasonable prospect of them becoming economically recoverable within the next ten years."
- The binding effect, or otherwise, of an expert's determination has been considered in a number of cases in recent years. Each case depends on the terms of the contract under which the determination is made, both as to what it is that the expert has to decide, and as to how far his decision is binding on the parties. In each case it is necessary to examine the determination, in order to see whether it lies within the scope of the expert's authority. If it does not, then it has no effect as between the parties. If on the other hand it does, then the contract also governs the question whether the determination is binding or whether, and if so to what extent or on what grounds, the determination can be questioned.
- In Jones v Sherwood Computer Services plc  1 WLR 277, the issue concerned a determination of the amount of certain sales, in the context of the issue of new shares. The parties' respective accountants disagreed as to the value of the sales, and a third firm was brought in, in accordance with the agreement, to decide the matter. Their determination was, under the agreement, to be "conclusive and final and binding for all purposes". They decided, without giving reasons, that the correct amount was the same as the figure contended for by one of the parties' accountants. The other sought to challenge this. In the Court of Appeal Dillon LJ said a number of things of relevance to the present case. First, as regards speaking and non-speaking determinations, he said this at page 284:
"Both Campbell v. Edwards  1 W.L.R. 403 and Baber v. Kenwood Manufacturing Co. Ltd.  1 Lloyd's Rep. 175 were cases of non-speaking valuations and it is convenient to say a little at this juncture about the distinction between speaking and non-speaking valuations or certificates, which to my mind is not a relevant distinction. Even speaking valuations may say much or little; they may be voluble or taciturn if not wholly dumb. The real question is whether it is possible to say from all the evidence which is properly before the court, and not only from the valuation or certificate itself, what the valuer or certifier has done and why he has done it. The less evidence there is available, the more difficult it will be for a party to mount a challenge to the certificate. This may lead of course to questions such as whether it is proper to join the certifier as a defendant in proceedings for the purpose of getting discovery from him, a matter considered by Geoffrey Lane L.J. in Campbell v. Edwards  1 W.L.R. 403, 408-409, and whether it is proper to administer interrogatories to the certifier to discover his reasons, a matter considered in an analogous field in Berry v. Tottenham Hotspur Football and Athletic Co. Ltd.  Ch. 718 and Duke of Sutherland v. British Dominions Land Settlement Corporation Ltd.  Ch. 746; but those questions do not arise on this appeal."
- Later in his judgment he came on to the point more immediately relevant, at page 287:
"On principle, the first step must be to see what the parties have agreed to remit to the expert, this being, as Lord Denning M.R. said in Campbell v. Edwards  1 W.L.R. 403, 407G, a matter of contract. The next step must be to see what the nature of the mistake was, if there is evidence to show that. If the mistake made was that the expert departed from his instructions in a material respect - e.g., if he valued the wrong number of shares, or valued shares in the wrong company, or if, as in Jones (M.) v. Jones (R.R.)  1 W.L.R. 840, the expert had valued machinery himself whereas his instructions were to employ an expert valuer of his choice to do that - either party would be able to say that the certificate was not binding because the expert had not done what he was appointed to do."
His conclusion, to the effect that the determination could not be challenged, is expressed at page 288:
"If the parties to an agreement have referred a matter which is within the expertise of the accountancy profession to accountants to determine, and have agreed that the determination of the accountants is to be conclusive, final and binding for all purposes, and the chosen accountants have made their determination, it does not seem appropriate that the court should rush in to substitute its own opinion, with the assistance of further accountants' evidence, for the determination of the chosen accountants. When the parties provided in appendix I to the sale agreement for a third firm of accountants - in the event, Coopers - to act as the expert in the event of disagreement between Peats and Deloittes, they cannot have had in mind merely disagreements between Peats and Deloittes on simple arithmetic - the adding up of the figures of the sales."
Balcombe LJ agreed with him.
- This decision is binding on us, and has been so regarded in a number of cases since then. One is Norwich Union Life Insurance Society v P&O Property Holdings Ltd  1 EGLR 164, where the parties to complex contractual arrangements to do with the development of a new shopping centre were in dispute as to whether the "completion date" was the same as the date on which the architect had issued a certificate of practical completion. The contract provided for any such dispute to be referred for determination to a nominated arbiter. It was said that two issues needed to be decided before the arbiter could know how to proceed: first whether completion was the same as practical completion, and secondly which drawings had contractual effect as design drawings, in accordance with which the work had to be done. The claimant applied for an injunction to restrain the arbiter from proceeding until the court had given the answer to both those questions. Sir Donald Nicholls V-C dismissed the application and the Court of Appeal upheld his decision. The Vice-Chancellor said this:
"In my view the key question on this application is whether the Society is entitled to have the court, rather than Mr Reilly, determine the matters raised by the originating summons. If yes then an injunction will follow, subject always to questions of the so-called balance of convenience. If not, not. Whether the Society is so entitled in turn depends on what, as a question of interpretation of the agreement, is the ambit of the matters entrusted by the parties to the nominated arbiter for determination by him. This accords with the approach enunciated by the Court of Appeal in Jones v Sherwood Computer Services plc. … If, on the proper construction of the agreement, the question sought to be put to the court is an issue within the scope of the matters remitted to the nominated arbiter, then (by definition) the parties have chosen, for better or for worse, to have the question determined by a tribunal other than the court."
In the Court of Appeal Dillon LJ approved this approach and agreed with the judge's decision. The other members of the Court of Appeal also agreed.
- By contrast, in National Grid Co plc v M25 Group Ltd  1 EGLR 65, another pre-emptive proceeding for a declaration as to matters affecting the expert's determination, where no determination had yet been made, was held to have been properly brought. The determination in question was of a rent review, and was required to be arrived at in accordance with directions in the lease, including certain disregards. On the facts, there was a serious dispute, with potentially major effect on the valuation, as to what matters ought to be disregarded as a result of these provisions. Mummery LJ followed the approach set out in the Norwich Union case, but reached a different conclusion because of the different contractual provisions.
- In the meantime, the House of Lords had also had to consider a similar question, but after the determination had been made, in Mercury Communications Ltd v Director General of Telecommunications  1 WLR 48. Mercury contended that the Director-General (the expert for this purpose) had misconstrued and therefore misapplied two relevant phrases. The Defendants argued that the interpretation of these phrases was part of what had been left to the Director-General by the agreement. Lord Slynn rejected this argument, with the following reasoning at pages 58-9:
"What has to be done in the present case under condition 13, as incorporated in clause 29 of the agreement, depends upon the proper interpretation of the words "fully allocated costs" which the defendants agree raises a question of construction and therefore of law, and "relevant overheads" which may raise analogous questions. If the Director misinterprets these phrases and makes a determination on the basis of an incorrect interpretation, he does not do what he was asked to do. If he interprets the words correctly then the application of those words to the facts may in the absence of fraud be beyond challenge. In my view when the parties agreed in clause 29.5 that the Director's determination should be limited to such matters as the Director would have power to determine under condition 13 of the B.T. licence and that the principles to be applied by him should be "those set out in those conditions" they intended him to deal with such matters and such principles as correctly interpreted. They did not intend him simply to apply such meaning as he himself thought they should bear. His interpretation could therefore be reviewed by the court. There is no provision expressly or impliedly that these matters were remitted exclusively to the Director, even though in order to carry out his task he must be obliged to interpret them in the first place for himself. Nor is there any provision excluding altogether the intervention of the court. On the contrary clause 29.5 contemplates that the determination shall be implemented "not being the subject of any appeal or proceedings." In my opinion, subject to the other points raised, the issues of construction are ones which are not removed from the court's jurisdiction by the agreement of the parties."
- The first question, therefore, is what the agreement has entrusted to the expert. The second is whether that is what he has decided. If so, the third is whether it can be shown that he has made a mistake which vitiates his decision.
- We also had submissions as to the material which could be considered in order to decide whether the expert had made a mistake. Based on what Dillon LJ said in the first passage quoted above, at paragraph , from Jones v Sherwood Computer Services, Mr Hutchings for the Appellant contended that it was not legitimate to quiz the expert at length in correspondence in order to find out the basis of his determination, if it was not apparent on the face of the certificate, and that the court should not have regard to the results of any such questioning.
- In Dixons Group plc v Murray-Oboynski  All ER (D) 34, Judge Bowsher QC had to consider a dispute about a sale agreement including provision for net assets to be paid for at valuation, with disputed items "to be referred for final settlement to [a firm of accountants] such firm shall act as experts and not as arbitrators and their decision shall be final and binding on the parties save in the case of manifest error". The firm in question valued the assets at a low figure. The vendor contended that the determination was not binding because the firm had departed from its instructions and there were manifest errors in the determination. Judge Bowsher said this:
"Even if it were permissible to join the expert as a party for the purpose of discovery or to administer interrogatories to him (and in my view it would not be permissible) that has not been done. Any application to call the expert to give oral evidence on such a matter could only be on a speculative basis to fish out an unpleaded case and there is no justification in law for such a course. … Counsel for the Defendants accepts that any manifest error must be manifest without evidence from the expert, and the same must apply to any alleged failure to comply with instructions. Since the basis determined and applied by the expert is unknown it cannot be shown that there was any breach of instructions."
Later, in conclusion, he said this:
"As a matter of first impression, I find that on the true construction of the words of the agreement taken as a whole … for an error on the part of Mr Jackson to be manifest it must be plain and obvious on the face of his written decision. The error must be manifest: the terms of the agreement do not contemplate an error which after a lengthy enquiry may be made manifest."
- That was a case in which, so far as appears, no attempt had been made to ask the expert what was the basis on which he had proceeded, or at any rate, if such a question had been asked, he had not answered. The same course was not taken by the expert in Invensys plc v Automotive Sealing Systems Ltd  1 All ER (Comm) 222. In that case the agreement between the parties was that an expert's determination as to the final consideration payable under a sale agreement would be final and binding except in the case of manifest error, and that the determination would be set out in a written report giving a summary of the reasoning for the decision, on the basis of evidence and arguments submitted by the parties. The expert decided in favour of the vendor. The purchaser's solicitors questioned the expert as to his reasoning in one respect, and contended that there was a manifest error. The expert responded, though saying he was not obliged to, and gave some further comments by way of clarification. The purchaser refused to pay. In the vendor's subsequent proceedings, one issue was what material the judge should consider in order to decide whether there was a manifest error. Thomas J held that, despite the importance of certainty in these matters, which would suggest a narrower, rather than a wider, approach to the scope of a challenge, the fact that the parties had allowed for a challenge on the basis of manifest error, and had required the expert to provide reasons, showed that it was legitimate to consider his reasons and any materials referred to in the statement of those reasons. Given that the expert had given additional statements of his reasoning in answer to the purchaser's further questioning, it was also appropriate to include those later statements, and material referred to in them, as part of what could be examined. At paragraph 19 the judge said:
"As to the first of the manifest errors contended for by the purchasers, the expert's determination contained a simple statement of reference to the submissions. However, in the further reasons given by the expert in its letter of 15 March 2001 reference is made to specific paragraphs of the purchasers' first and second submissions. Should the court consider the further reasons? It seems to me the court should. If an expert considers it necessary to amplify or (as in this case) clarify the reasons given, when the terms of reference require reasons, it would not be right to ignore those further reasons in examining the question of manifest error. The documents setting out the further reasons, together with the original reasons, represent the totality of the reasoning and it is that totality that should be examined."
The agreement between the parties
- I must therefore consider, first, as a matter of the true construction of the lease, what it is that is referred to the expert, and with what effect, as regards the scope of a Surveyor's Mineral Exhaustion Certificate. I have set out the relevant provisions of the lease already. They may be summarized as follows.
i) The surveyor must have relevant experience in mineral matters; he is appointed either (as in this case) by agreement between the parties or in default by the President of the RICS. There is no question of a unilateral appointment.
ii) According to its definition, the certificate must provide unequivocal confirmation of one or other of the two matters referred to.
iii) Its effect is governed by clause 22.214.171.124; it provides the evidence of a fact whose existence is a precondition for the suspension of the lessee's liability to pay the Certain Rent.
iv) The relevant facts for the present case are two: all Minerals (as defined) are not economically recoverable, and there is no reasonable prospect that they will become economically recoverable within the next 10 years.
v) Nothing in the lease provides expressly that the certificate is conclusive as between the parties, or that it is conclusive absent manifest error, nor is any other such phrase used, nor does the definition expressly require a statement of reasons.
- The structure of these provisions seems to me to be such that, despite the absence of any words such as "final and binding", the surveyor is given exclusive power to determine the questions to which his certificate is directed, whether it be as to the exhaustion of all Minerals, or as to their not being economically recoverable, and with no prospect of being so within 10 years. If his certificate does no more (and no less) than determine one or other of those matters, it seems to me that it is not open to either party (it would in practice be the landlord) to contend that this is not the correct view of the facts. There would be no point to the certificate if the question to which it relates were to remain in contention between the parties after a valid certificate has been issued.
- However, concealed within those questions there is a point of construction, as to which it seems to me that the lease does not delegate the decision to the surveyor. That point is: what are the Minerals? If the surveyor has proceeded on a wrong understanding of that, his certificate is not binding between the parties, because it relates to the wrong question.
The expert's determination
- At this point I must revert to the facts, and describe briefly the course taken as regards the expert's determination and his reasoning.
- As mentioned, Mr Hill made his report dated 16 December 2004, as part 10 of which he issued his Surveyor's Mineral Exhaustion Certificate. Before that, the report set out his terms of reference, described the site and the planning history, and then at section 5 discussed the mineral reserves. Thereafter it dealt with development guidance and policies, including the relevant minerals local plan, referred to the lease and, at section 9, set out over several pages "the case for the Surveyor's Mineral Exhaustion Certificate". The certificate itself is the last part of the body of the report. The report also has a fair number of relevant documents annexed.
- The Respondent did not accept the validity of the certificate, as it stated in a letter of 14 January 2005. In a letter dated 10 February 2005 the Respondent referred to certain matters which it suggested called the certificate into question, and asked questions which it said Mr Hill's report ought to address. By a letter dated 23 February Mr Hill responded, explaining why he did not consider that these points called for any revision of his conclusion. After a long pause, the Respondent's solicitors wrote to Mr Hill, asserting directly that he had not undertaken the task which was entrusted to him, and raising points about the definition of Minerals. Mr Hill replied substantively, though briefly, on 24 August. The Respondent's solicitors replied to him on 1 September to which he replied on 6 September. I will refer next to the content of these exchanges, so far as relevant, but in the light of the decisions referred to above, and as a matter of general principle, I agree with the judge that it is legitimate to consider Mr Hill's explanations or clarifications of his reasoning and approach in this subsequent correspondence, as it is also to refer to the body of his report, not just to his certificate, to see whether he undertook the task entrusted to him by the agreement, or some different task. All of that material is "properly before the court", to borrow Dillon LJ's phrase in Jones v Sherwood Computer Services (see paragraph  above).
- The judge identified the point at issue as being that Mr Hill had excluded from the scope of his certificate all limestone suitable for building, walling and the other uses specified in the definition of the Reserved Minerals, and that in so doing he had misconstrued the definition of Minerals. This does not appear from the certificate itself, but it is hinted at in the report and is stated in the subsequent correspondence. In the report, at paragraph 5.3.2, when referring to the minerals available for the purposes of restoring the base level of the works (and limited to minerals within the area for which planning permission exists), Mr Hill mentions the in situ reserves as being 3000 m3, calculated as "28,000 m3 less Reserved Minerals", showing, therefore that the Reserved Minerals were estimated at 25,000 m3. We were told that a cubic metre of this stone weighs two tonnes, so on this basis Mr Hill seems to have assumed that the Reserved Minerals amounted to 50,000 tonnes within the area for which planning permission exists.
- In his letter dated 24 August 2005 Mr Hill is more explicit, stating that he took account only of the Minerals and not of the Reserved Minerals. He followed this up in his letter of 6 September, saying that he had not considered the available reserves of stone suitable for use as building, walling or rockery stone or as stone tiles, on the basis that the lessee was not entitled to remove any such material from the land.
- Mr Hill need not have responded to the requests for clarification of his certificate and his report. If he had not done so, he could not have been compelled to explain himself. However, since he did so, and thereby made clear the basis on which he had proceeded, it seems to me that the court must look at his explanations when considering what was the reasoning which led him to issue his certificate, and whether it was prepared on the correct basis.
What is meant by "the Minerals?"
- The next issue, therefore, is whether Mr Hill's approach to the rights of the lessee under the lease is correct or not. As already noted, the Minerals are defined as "all minerals within the land excluding for the avoidance of doubt the Reserved Minerals". The Reserved Minerals in turn are defined as "limestone suitable for use as building walling and/or rockery stone and/or stone tiles and roofing slates" (which, for short, I will refer to as building stone), not, however, as all such stone but as "up to 12000 tonnes in each year" of the lease. The evidence is that the top stratum of stone, to a depth of about 2 metres, is suitable for use as building stone. Mr Wonnacott told us that, the area demised by the lease being some 107 acres, or 432,922 square metres, the building stone, with a depth of 2 metres, would amount to 865,000 cubic metres, or 1,730,000 tonnes, so that, at a rate of no more than 12,000 tonnes per year, it would take 144 years for the landlord to extract all the building stone even if (as had not been the case in practice) 12,000 tonnes were taken in each succeeding year. His submission is that the lease cannot properly be construed as restricting the tenant so that it cannot touch any of the building stone, and can only dig down to the lower strata where the landlord has already extracted the building stone.
- The definition of Reserved Minerals is undoubtedly puzzling. The construction on the basis of which the expert has proceeded is that it amounts to a reservation of the whole of the upper stratum, but with a limit as to the amount which can be exploited in any year. It is not at all easy to see why there should be an annual limit on the landlord's workings, if all of that stone belongs to the landlord. The alternative is that the landlord only owns that which it can and does exploit in each year, and that the tenant can extract all the rest of the building stone as well as the lower strata, even if, sooner or later, this leaves the landlord with no more building stone available to it under the reservation.
- In resolving this conflict it is necessary to have regard to other provisions in the lease, to see what light they cast. One minor oddity, which is probably due to inadvertence, is that the parcels clause does not reserve to the landlord the Reserved Minerals, but only the Reserved Rights, as set out in the Second Schedule.
- The main provisions of the lease which are relevant to the issue of interpretation are those in clause 7. These give the landlord the right to extract the Reserved Minerals for its own benefit, but they clearly contemplate that there may be conflicts between the workings by landlord and by tenant. To resolve or regulate such conflicts, clause 7.2 entitles the tenant to request the landlord to extract within a reasonable period any Reserved Minerals from any part of the Land identified by the Lessee so as to enable the Lessee to comply with the Working Plan. It seems to me that this is a limited provision. It does contemplate that both parties may be working minerals at the same time, but it does not go so far as to say that the tenant can require the landlord to complete its workings, or otherwise vacate the relevant land, in order to allow the tenant to get on with extracting stone from a lower layer in the same area. The tenant's request is only aimed at ensuring that the tenant does not act inconsistently with any working plan agreed with the relevant authorities. It goes with clause 7.5 under which the tenant may not agree a working plan which affects the landlord's exercise of its rights without getting the landlord's approval.
- Clause 7.7 is a mutual covenant against getting in each other's way, so to speak, in the extraction of minerals. Again, this does envisage that both may be working different parts of the land simultaneously. Clause 7.8, a mutual covenant not to cause damage to minerals including those capable of being excavated by the other party, might be thought to be inconsistent with the tenant having the right to take for itself building stone which, in future years, might be taken by the landlord as part of its annual extraction of Reserved Minerals. However, it seems to me that it would be attaching too much weight to this covenant to read it as affecting what each party is allowed to extract, rather than giving limited and specific protection against incidental damage to such stone reserves. Likewise, clause 7.9, under which the tenant is not to use the land or deal with the minerals so as to prejudice the commercial exploitation of the Reserved Minerals by the landlord, is of at most limited significance in helping to decide what it is that the landlord is entitled to extract for its own benefit. The tenant contends that it amounts to a non-competition clause, preventing the tenant, if it were to extract any building stone, from selling it in competition with the landlord's business of that kind.
- Clause 7.10 is a different kind of conflict resolution clause. If there is a conflict between the exercise of the rights of the respective parties, in the landlord's case to the extent of his rights as regards the Reserved Minerals, that dispute may be referred to a surveyor under the arbitration provision (clause 14), but if the surveyor concludes that the lessor's rights cannot be exercised without materially adversely affecting the lessee's rights, then the tenant's rights are to prevail. It is said that, under this clause, if both parties seek to extract stone from the same area, and no other way round can be worked out or agreed, then the surveyor is able to direct that the tenant's workings shall prevail, so that it could therefore extract the building stone from that area, on its way to taking the lower strata.
- Few other provisions of the lease were relied on as being helpful either way on this issue. Mr Hutchings for the tenant submitted that paragraph 8 of the reserved rights in the Second Schedule, which I take to be a common or standard form provision in a mining lease, entitling the landlord to inspect the tenant's operations and to take copies of records and details of sales of Minerals, would be surprising if the two parties were to be entitled to carry on business in competition with each other. Even if competition is, in theory, possible, it seems to me that it would be of very limited significance in the context of the lease, and of the operations intended to take place under it, as a whole. I therefore regard this point as of very little, if any, importance.
- By contrast, Mr Wonnacott for the landlord placed emphasis on the overall purpose of the lease which, he argues, was to produce a landfill site with as large a capacity as possible as quickly as might be done, and then to fill it with waste: hence the waste and wayleave royalties, the working obligations in clause 5.15, and the provision for the lease to be terminated when the land could no longer economically be used for waste. He also relied on the agreement for lease, dated 22 May 1996, under which the tenant agreed to take all reasonable steps to obtain planning permission for the extension of the mineral extraction and waste activities on the land, an obligation which survived completion of the lease. This, he said, showed that the parties' principal interest under the lease was in producing as large as possible a hole in the ground to be filled with waste, as soon as possible, rather than in extracting quantities of mineral for sale.
- None of these provisions provides a very clear guide as to the scope of the provision about Reserved Minerals. It remains a puzzling definition. It seems to me, however, that some assistance is to be gained from the proposition that a landlord can only be taken to derogate from the grant made by a lease if he does so by clear words. In particular this would make it impossible for the landlord to argue that clause 7.9 amounts to a non-competition clause, all the more so as that sort of obligation must in any event be imposed in clear terms. Here, of course, it is the tenant that wishes to argue that such an obligation exists, but the test must be the same as if the landlord were contending for it. Equally, any doubt as to the scope of the reservation provision in the lease should be resolved in favour of the tenant, on the principle of non-derogation from grant.
- I would be reluctant to decide the case on the basis of a presumption, though it is appropriate to approach the lease with that in mind. In any event, however, I agree with the judge that, despite the odd drafting of the definition of Reserved Minerals, the implications of the rival interpretations are such that the landlord's reading is clearly to be preferred. The tenant's reading would defer almost indefinitely the time when, assuming it could get planning permission, the tenant could in fact extract the minerals whether for sale for their own sake or, more likely, in order to create a space into which waste could be tipped. The landlord's interpretation avoids that result, which cannot have been intended, while giving some point to the reservation, as being intended to allow a small scale continuation, for the time being, of the existing building stone business, which, however, could in effect be brought to an end if the tenant were able to get permission to extend the area in which stone could be extracted and waste tipped, and were to require the removal of the upper layer of stone in order to put that permission into practice. In practice the reservation has allowed for the only mining that has taken place since the grant of the lease.
- Mr Hutchings submitted that clause 7.10 is not to be read as a general overriding provision whereby, in effect, the tenant's position always prevails and the rest of clause 7 is of no avail to the landlord and can, in effect, be disregarded. I see the force of that. The clause is intended to operate in a situation in which both parties are continuing to work different minerals within the land. But in the end, it seems to me, as it did to the judge, that a decision in favour of the landlord's contention is compelled by the implications of the competing interpretations.
- For these reasons, in my judgment, the landlord was only able to take for itself 12,000 tonnes of building stone in any year, and could not necessarily insist on a single tonne of such stone if the tenant's activities permitted or required the taking of that stone. Nor, in that event, would the tenant be limited to selling or using the building stone in a form in which it was crushed for sale as aggregate. The tenant would be entitled to sell as building stone any stone suitable for that purpose which it in fact extracted.
Was the certificate issued on a mistaken basis?
- As I have said, the certificate itself does not disclose any error. The report of which it forms part hints at an error, in that the exclusion of the Reserved Minerals is shown as taking out of consideration 50,000 tonnes of stone from within the area for which planning permission already existed. In Mr Hill's letter of 24 August 2005 he says in terms that he left the Reserved Minerals out of account; in his letter of 6 September 2005 he says that he proceeded on the basis that the tenant is not entitled to remove from the land any limestone which is suitable for use as building stone.
- On the construction of the lease which I consider to be correct, as indicated above, this was the wrong reading of the lease. Mr Hill should not have left the Reserved Minerals out of account, or at most he should have disregarded one year's entitlement on the part of the landlord, i.e. 12,000 tonnes.
- For the Appellant, however, Mr Hutchings contended that, despite what was said in Mr Hill's letters, he did not in fact go wrong, because he took the view (one within the scope of his expertise) that all the stone in the relevant land would be required for reinstatement – see section 5 and paragraph 9.1.11 of his report. It does not seem to me to be at all clear from his report that he would have come to the same conclusion on this point if he had understood that all the building stone (or all except 12,000 tonnes) was available to the tenant, and that it could be sold by the tenant as building stone. I would not accept this fallback contention on Mr Hutchings' part to save the certificate despite what I have concluded was an error in the basis on which Mr Hill says that he proceeded.
Does this error vitiate the certificate?
- If the lease had left it to the surveyor to decide what he was to take into account and what to leave out of account in making his calculation, then the fact that a judge might disagree with him as to the proper reading of the lease would make no difference. In such a case I would regard the certificate (as the judge would have done) as binding between the parties and effective under the lease. However, it seems to me plain that this case is analogous to the National Grid case, mentioned above at paragraph , rather than to the Norwich Union case, also cited above, at paragraph . It is for the surveyor to come to his own view as to whether the Minerals are exhausted or, as the case may be, no longer economically recoverable. In so doing it is up to him to form a view as to what is the extent of the Minerals, and of what quality they are. But it is not for him to decide what is meant by "the Minerals" and his certificate is only effective under the lease if it considers the question of (in this case) economic recoverability by reference to the Minerals as correctly understood.
- It may be, as Mr Hutchings submitted, that a valid Surveyor's Mineral Exhaustion Certificate could perfectly well have been issued even if Mr Hill had been aware, and had taken into account the fact, that the tenant could extract and sell as building stone all, or all but 12,000 tonnes, of the top layer of stone. But that is not the basis of the certificate that he issued, and it is not legitimate to attempt to reconstruct the certificate to see if it could be issued on the correct basis. That task is given by the lease to the surveyor.
- For the reasons given above, in my judgment Mr Hill's certificate did not proceed on the correct basis in this respect. I agree with the judge that the certificate was not binding between the parties or effective under clause 126.96.36.199 of the lease. I would therefore dismiss the appeal.
Lady Justice Smith
- I agree.
Lord Justice Waller
- I also agree.
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