Gollin & Co Ltd v Karenlee Nominees Pty Ltd

[1983] HCA 38

HIGH COURT OF AUSTRALIA

Mason, Murphy, Brennan, Deane and Dawson JJ.

GOLLIN &CO. LTD. v. KARENLEE NOMINEES PTY. LTD.

(1983) 153 CLR 455

13 October 1983

Landlord and Tenant

Landlord and Tenant—Rent—Review—New rent be percentage of mean of sworn valuations obtained by each party—Obligation to appoint valuer within reasonable time—Whether time of essence—Failure to appoint—Whether waiver of right—Valuations by valuers employed by each party—Failure to notify appointment—Whether valuers appointed under lease.

Decision

October 13.
THE COURT delivered the following written judgment: -
This appeal relates to the liability of Gollin &Company Ltd. ("Gollin") for rent under a lease of commercial premises in South Melbourne. The lessors, Karenlee Nominees Pty. Ltd. and Sheralex Nominees Pty. Ltd. ("the lessors"), purchased the premises from Gollin in 1972. The contract of sale provided for a ten year lease back to Gollin which became the tenant of the premises upon completion of the sale. After some two years, the lessors and Gollin renegotiated the lease and a new lease for a term of eight years from 29 September 1974 was drawn up and executed. It will subsequently be necessary to refer in some detail to the provisions of that lease ("the lease") which relate to rent. It suffices, for the moment, to say that the annual rent was payable monthly in advance and was $144,000 for the first three years and an amount determined by a rent review procedure but being not less than $144,000 for the remaining five years. The premises comprised three main sections. Gollin required but one of them for its own activities. It sub-let the other two. (at p460)

2. In 1976, Gollin was in financial difficulties and a provisional liquidator was appointed. A scheme of arrangement between Gollin and its creditors was accepted by the creditors and approved by the Supreme Court of Victoria. It became effective from 1 March 1977. At some time between the appointment of the provisional liquidator and the approval of the scheme of arrangement, Gollin ceased physically to occupy any part of the premises. Considerable difficulty was experienced in obtaining and retaining sub-tenants and the total rents which Gollin was receiving from sub-letting totalled substantially less than the $144,000 which the lease fixed as the rent for the first three years of the term. (at p460)

3. There were some discussions between the parties regarding the amount of rent to be paid by Gollin after the first three years of the lease but no agreement had been reached by 29 September 1977 when the fourth year of the term commenced. At about that time, the lessors informed Gollin that they considered that the appropriate rent for the last five years was $240,000 per year. For its part, Gollin adopted the approach that it opposed any increase at all in the rent and continued to pay rent at the rate of $12,000 per month in advance. In October 1977, the rent receipt was indorsed "without prejudice to rental increase due 1/10/1977". In November and December 1977, the receipts were indorsed "subject to rent review". Thereafter, the receipts for rent contained no such express qualification. (at p460)

4. After 29 September 1977, there were further discussions and some correspondence between the parties relating to the rent. At one stage, Gollin threatened to "disclaim" the lease. Alternatives to a rent increase were raised. In particular, a proposal was made on behalf of the lessors that the parties agree that any rent increase would remain in abeyance on the basis that Gollin would pay to the lessors any surplus resulting from sub-letting. This proposal was recorded in a "draft letter" dated 1 March 1978 which was forwarded under cover of a letter of 3 March 1978 from a director of the lessors to Gollin's solicitors. The solicitors for Gollin wrote in reply that they had some "suggestions for amendment to the drafting" of the draft letter but thought it appropriate first to seek their client's instructions. They subsequently wrote confirming that they were still seeking instructions on the proposals. Apparently such instructions were never received. In any event, Gollin failed to agree to the proposed arrangement. The monthly payments of $12,000 continued. (at p461)

5. In May 1978, Gollin received a detailed valuation of the premises which had been jointly prepared, at its request, by Baillieu Allard Real Estate Pty. Ltd. and Richard Ellis Sallmann &Seward Pty. Ltd. The valuation ("the Baillieu Allard valuation"), like the other valuations which are in evidence, was a "speaking" one in the sense that it set out the factual and other considerations involved in the valuation process. It valued the premises, as at 29 September 1977, "at or about $1,550,000". Gollin did not disclose to the lessors that the valuation had been sought or obtained. The lessors first learnt of it in the course of the present proceedings. Gollin obtained two subsequent valuations. One of them, by Messrs. Richard Ellis Sallmann &Seward acting alone ("the Ellis valuation"), was obtained about November 1980 and was apparently in the amount of $1,270,000. It is not in evidence. The other ("the Eastwood valuation") was made by a New South Wales valuer, Mr. H. W. Eastwood, and was obtained in August 1981. It valued the premises at $1.4 million. The first valuation obtained by the lessors was in October 1980 after the question of rent review for the last five years of the lease had again been raised. This valuation ("the Jepson valuation") was made by Messrs. Peter Jepson &Associates. It stated that it had been prepared "for rental determination purposes" and valued the premises, as at 29 September 1977, at $2 million. (at p461)

6. During April and May 1980, there were discussions between the parties relating to a proposal that Gollin pay $150,000 or more for the privilege of being allowed prematurely to surrender the lease. A firm offer on behalf of the lessors to accept $150,000 was not accepted by Gollin within the time which the lessors had allowed for acceptance. On 1 July 1980, the lessors' solicitor wrote to Gollin's solicitors a letter which referred to the discussions which had taken place during July, November and December 1977 and asserted that no agreement had been reached regarding the rental payable by Gollin for the last five years of the lease. The letter stated that the lessors considered that the appropriate rental was $240,000 per annum and requested that they be advised within seven days of the name of the valuer nominated by Gollin pursuant to the provisions of the rent review clause. On 27 October 1980, the lessors' solicitor again wrote to Gollin's solicitors noting that Gollin had "still not yet appointed its Valuer" pursuant to the rent review clause and advising that the lessors had obtained the Jepson valuation of $2 million. By letter dated 3 November 1980, Gollin's solicitors asserted that the lessors had "waived any rights which they may have had to rent review" pursuant to the lease and advised that Gollin had, in any event, obtained a valuation (presumably the Ellis valuation) which indicated that "the current value of the property is such as not to warrant a review". Shortly thereafter, the lessors invoiced Gollin for surplus rent on the basis that rent had been payable at a reviewed annual rate of $200,000 for the period from 29 September 1977. On 2 December 1980, Gollin's solicitors wrote to the solicitor for the lessors enclosing a copy of the Ellis valuation. The letter stated that the copy valuation was forwarded on a "without prejudice" basis and repeated the assertion that the lessors had waived any right to a rent review. (at p462)

7. On or about 15 December 1980, the lessors served notices under s. 222(2) of the Companies Act 1961 (Vict.) upon Gollin in respect of the claimed surplus rent and other associated charges. Gollin instituted the present proceedings in the Supreme Court of Victoria for an injunction restraining the lessors from presenting a winding up petition. The lessors, for their part, counterclaimed for sums representing rent and management fees calculated on the basis of an annual rental of $200,000 per year from 29 September 1977 or, in the alternative, calculated on the basis of an annual rental equal to 10 per cent of the mean of the Jepson valuation ($2 million) and the Ellis valuation ($1.27 million). By amendment made after the lessors became aware of the Baillieu Allard valuation, a further alternative counterclaim was added for rent and management fees calculated on the basis of an annual rent of 10 per cent of the mean of the Jepson valuation ($2 million) and the Baillieu Allard valuation ($1.55 million). The action was heard, at first instance, by Marks J. who found that there was an implied agreement between the parties that the annual rent should remain at $144,000 for the last five years of the lease. Alternatively, his Honour found that the lessors were estopped from alleging that no such implied agreement had been made. His Honour also concluded that, in any event, the Jepson valuation, upon which the lessors had relied, was "on a wholly erroneous basis or, if not, so vitiated by error, that it ought not to be received". In the result, Marks J. granted an injunction restraining the lessors from presenting a winding up petition based on the s. 222 notices and dismissed the lessors' counterclaim (1982) VR 493 . (at p462)

8. The lessors appealed to the Full Court of the Supreme Court of Victoria. The Full Court (Lush, Murphy and Jenkinson JJ.) upheld the appeal and dissolved the injunction (1983) 1 VR 657 . Their Honours held that, on the evidence, there had been no implied agreement between the parties and no representation by the lessors which could found an estoppel precluding them from denying that there had been such an agreement. Their Honours also held that the lessors were entitled to judgment in an amount calculated on the basis that the annual rental from 29 September 1977 was $177,500 which represented 10 per cent of the mean of the Jepson and Baillieu Allard valuations. Gollin now appeals to this Court from the judgment and orders of the Full Court. (at p463)

9. The main provisions of the lease defining the liability to pay rent were contained in the reddendum clause and cl. III(vii). They are marred by poor drafting and some obvious errors. The reddendum clause provided that the demised premises were:
"To BE HELD by the Lessee as tenant for a term of eight years on and from the 29th day of September One thousand nine hundred and seventy-four at a yearly rental of ONE HUNDRED AND FORTY-FOUR THOUSAND DOLLARS ($144,000.00) payable by equal monthly instalments of TWELVE THOUSAND DOLLARS ($12,000.00.) during the first three years of the term hereby created and thereafter at the yearly rental agreed or determined in manner provided in cl. III(vii)(a) and (b) hereof to be paid to the Lessor or to the Lessor's Agents monthly in advance on the first day of each month during the said term subject to the covenants conditions stipulations and provisoes hereinafter appearing."
Reference to cl. III(vii) discloses that it consisted of one paragraph which was numbered neither (a) nor (b). It read:

"(vii) The annual rental payable by the Lessee hereunder shall be reviewed during the three month period immediately preceding the commencement of the third year of the term of this Lease and shall be such annual rental as shall be agreed by the parties hereto and failing agreement between the Lessor and the Lessee prior to the commencement of the third year of the term hereby created the amount of the annual rental to be paid by the Lessee to the Lessor during the last five years of the term hereby created shall be determined as the equivalent of ten per centum per annum on (sic) the mean of two sworn valuations made of the demised premises one such sworn valuation being made by a sworn valuer appointed by and at the cost of the Lessor and one such sworn valuation being made by a sworn valuer appointed by and at the cost of the Lessee, both such sworn valuers being members of the Commonwealth Institute of Valuers PROVIDED HOWEVER that the annual rental determined shall not be less than $144,000.00."

It is common ground that the references to the "commencement of the third year of the term" should be read as being to the commencement of the fourth year of the term and the reference to the "Commonwealth Institute of Valuers" as a reference to the "Australian Institute of Valuers". It is also common ground that each of the relevant valuations satisfied the requirements of being a "sworn" valuation by a "sworn" valuer who was a member of that institute. (at p464)

10. Apart from cl. III(vii), the lease contained no provision relating to the amount of rent to be paid for the last five years of the term. The reference to $144,000 in that clause did not fix the amount of rent for the last five years pending or in default of determination of the equivalent of ten per cent of the mean of the designated valuations obtained by the parties. It merely provided the minimum amount which could result from that determination (see Booker Industries Pty. Ltd. v. Wilson Parking (Qld.) Pty. Ltd. (1982) 149 CLR 600, at pp 606-607 ). It was submitted on behalf of Gollin that, during the period from the commencement of the fourth year of the term without agreement and such time as a reviewed rent was determined, Gollin was under no obligation to pay anything at all on account of rent. That construction of the lease, which was not advanced in the courts below, has something to commend it on the ground of the literal interpretation of the words used. It has little to commend it on the grounds of commercial efficacy or common sense. It involves the conclusion that the intention of the parties to be derived from the lease was that the obligation to pay rent monthly in advance should be devoid of all content during the period involved in obtaining valuations and ascertaining the rent in accordance with cl. III(vii) notwithstanding that the agreement between the parties was that the rent as determined for the last five years of the term must be at least equal to the rent fixed for the first three years. The preferable construction of the lease is that the obligation to pay rent monthly in advance, in its application to the circumstances which would exist during that interim period, required the continued payment, by monthly instalments in advance, of that minimum annual amount of $144,000 on account of the rent as finally determined. (at p464)

11. Four distinct grounds of attack on the decision of the Full Court are pressed on behalf of Gollin. First, it is submitted that the Full Court was in error in overruling the learned trial judge's findings of implied agreement and estoppel. Secondly, it is submitted that it should have been held that the lessors had, by their own delay in appointing a valuer, lost any right to invoke the provisions of the rent review clause. Thirdly, it is submitted that it should have been held that neither the lessors nor Gollin had ever effectively appointed a valuer for the purposes of that clause. Finally, it is submitted that the learned trial judge had been correct in holding that no reliance could properly be placed upon the Jepson valuation which the Full Court accepted as a basis of its judgment on the counterclaim. We shall consider these submissions in turn. In so doing, we shall on occasion refer to the two lessors as a single "party" to the lease.

Implied Agreement and Estoppel. (at p465)

12. The basis of any implied agreement or estoppel must be found, if at all, in the actions of the lessors in failing effectively to activate the rent review clause until more than two and a half years after the time when its provisions had become applicable and in accepting, without continued qualification by way of reference to rent review, the monthly payment of $12,000 on account of rent. When those actions are viewed in the context of the parties' common awareness of a number of related facts, there is plainly some force in the view that they provide a basis for inferring an agreement that the rent would not be increased or for finding that there had been a representation by the lessors that they had reached an agreement to that effect. These facts are: that Gollin was opposed to any increase of rent; that there had been inconclusive discussions about an agreed arrangement for avoiding the invocation of the rent review clause; that Gollin had, in its financial difficulties, given consideration to repudiating its obligations under the lease; that, after Gollin had ceased to use any part of the premises for its own activities, Gollin's outgoings under the lease consistently and significantly exceeded its receipts from sub-letting; and that discussion of a possible premature surrender of the lease had proceeded on the basis that the annual rent payable by Gollin in respect of the last five years would be $144,000. (at p465)

13. If the above facts stood alone, there would probably be little difficulty in concluding either that an agreement should be inferred between the parties to the effect that the rent review clause would not be applied or that the lessors had, by their conduct, represented to Gollin that they agreed that the rent would remain unchanged for the last five years of the term. They do not, however, stand alone. To the contrary, there is a strong body of evidence militating against such a conclusion. Thus, on 25 October 1977, the lessors' real estate agents had written to Gollin giving notice that "any monies received re this property from 1 October, 1977 shall be accepted without prejudice to rental increase due on 1 October, 1977, which is yet to be determined". That notice was never countermanded or withdrawn. In a letter of 13 December 1977 which was written to the lessors in the context of the discussions which were then proceeding, Gollin expressly affirmed its "understanding . . . that rent review under the Lease is to be agreed or determined in the manner provided for in cl. III(vii) of the Lease". The draft letter of 1 March 1978, which set out the proposal that any increase in rent should remain in abeyance on terms which were not accepted by Gollin, expressly records the lessors' claim that the annual rent should have been $240,000; the proposed period of abeyance was limited until the time when "the Lessors (sic) could re-let" the vacant parts of the premises. The Baillieu Allard valuation, which was obtained by Gollin in May 1978, stated that the valuers' understanding was that the parties to the lease had failed to agree on a revised rent and that it was "in connection with finalising the rent review in accordance with the lease terms" that the valuation was required. Perhaps most important is the evidence of the then General Manager of the Gollin group of companies (Mr. Foster) upon which the members of the Full Court placed particular reliance. His evidence in chief included the following:

"Did you believe that there was any possibility in 1978 or 1979 - I will limit it to say the second half of the calendar year 1978 and 1979. Did you believe at that time that there was any possibility that the rent could be increased pursuant to the terms of that rent review clause contained in the lease? - To the rent review clause, yes. But we had passed the time when we had had that communication from Mr. Brand. I had always believed that all he had to do was get a valuation as we subsequently did and we could have complied with the lease. HIS HONOUR: I do not follow what you mean, would you mind explaining that to me if you can? - Well, we received a letter asking us to enter into an agreement of which the first clause referred to the landlord's belief that the value, that the annual value, rental value was $240,000 per annum. If there was to be a rent review all that we understood was that the landlord only need get a valuation. We then went forward and obtained one in 1978."

That evidence of Mr. Foster is unchallenged. It is inconsistent with there having been an agreement between the parties that the rent review clause should not be invoked or with there having been a representation by the lessors, which was acted upon by Gollin, that such an agreement had been made. It should also be mentioned that, when the lessors finally invoked the rent review clause, Gollin did not suggest that there had been an agreement that the rent should remain at $144,000 or that a representation that there was such agreement had either been made by the lessors or acted upon by Gollin. (at p466)

14. The primary facts relevant to the issues of implied agreement and estoppel were largely not in dispute; the real dispute concerned the inferences which should properly be drawn from the facts. As regards those issues, the case was not one in which the learned trial judge enjoyed any significant advantage from seeing and hearing the witnesses give their evidence. That being so, the members of the Full Court were entitled and required to examine the evidence for themselves. While we are conscious of the force of the considerations which led Marks J. to a contrary conclusion at first instance, we consider that the conclusion of the members of the Full Court that the evidence did not support a finding of either an implied agreement or an estoppel was correct. The attack by Gollin on that conclusion must be rejected.

Waiver etc. (at p467)

15. The argument that the lessors had, even in the absence of an implied agreement or estoppel, lost the right to rely on the rent review clause by a failure to appoint a valuer or otherwise activate its provisions "within a reasonable time" after 29 September 1977 was propounded, on Gollin's behalf, on the basis of what were described as "the doctrines" of "waiver", "acquiescence", "laches" or "abandonment". It was also argued that, as a matter of construction of the lease in the circumstances which existed, the lessors were required to appoint a valuer for the purposes of cl.III(vii) within a reasonable time after the commencement of the fourth year of the term and that, in that regard, that reasonable "time for performance . . . was of the essence" in the sense that failure to appoint a valuer within that time resulted in the loss of "the right to make such an appointment and thereby to rely thereafter on the rent review clause". (at p467)

16. Clause III(vii) did not in terms impose an obligation upon either the lessors or Gollin to appoint a valuer or obtain a valuation. It provided a formula for determining the rent for the last five years by reference to the valuation of two valuers appointed respectively by the lessors and Gollin. Each party was, no doubt, under an implied obligation to do whatever was necessary to give efficacy to the terms of the rent review clause when required so to do by the other party. That included an obligation to appoint a valuer "within a reasonable time" of being required so to do (see, e.g., Reid v. Moreland Timber Co. Pty. Ltd. (1946) 73 CLR 1, at p 13 ). It does not follow that either party was guilty of a breach of its obligations under cl. III(vii) because it failed to appoint a valuer in circumstances where the other party had neither given notice requiring such appointment nor otherwise invoked the provisions of the clause by itself appointing a valuer or advising that it intended to appoint one. It would be an unattractive construction of the clause that required the rent review procedure to be invoked while the parties were still endeavouring to reach agreement on the amount of the rent. Be that as it may however, it is clear that, even if the lessors were under an implied obligation to appoint a valuer within a reasonable time after the commencement of the fourth year of the term, it was neither a condition of the availability of the procedure in cl. III(vii) nor of the essence of the contract that that implied obligation be performed within that reasonable time. (at p468)

17. The provisions of cl. III(vii) cannot be treated as having been solely for the benefit of the lessors. They constituted the only agreed procedure for ascertaining a rent for the last five years of the lease. If the application of that procedure were to result in the minimum rent of $144,000, that amount would represent the determination of rent by that procedure as distinct from an amount nominated in default of it. In these circumstances, even if the lease had contained a provision expressly requiring Gollin and the lessors respectively to appoint a valuer or to activate the rent review procedure within a specific time, the performance of that obligation within that particular time could not, without more, have properly been seen either as a condition of the applicability of cl. III(vii) or as being of the essence of the contract (see, generally, United Scientific Holdings Ltd. v. Burnley Borough Council (1978) AC 904 ). The position is even clearer in the present case where there was no express obligation and no express provision as to time. It is, as has been seen, difficult enough to imply in the lease an unqualified requirement that each party appoint a valuer or obtain a valuation or otherwise activate the rent review procedure within a reasonable time of the commencement of the fourth year of the term without agreement having been reached on the rent for the last five years. It is plainly impossible to imply a further provision that that implied time for the performance of that implied obligation was of the essence of the contract or that the performance of that implied obligation within that implied time was a condition of the operation of the only clause of the contract which made provision as to the amount of rent to be paid for the last five years of the term. It follows that any delay of the lessors in invoking the provisions of cl. III(vii) and in appointing a valuer did not, in the circumstances, involve any breach of an essential term of the contract or a failure to comply with the requirements of a condition of the operation of cl. III(vii). If it had involved such a breach, a serious question would have arisen whether, in circumstances where Gollin had not purported to rescind the contract, the consequence of the breach was that the lessors lost the right to invoke the procedure which the parties had agreed should be applied to determine the annual rent for the last five years of the term. (at p469)

18. The conclusion that the provisions of cl. III(vii) cannot properly be seen as having been solely for the benefit of the lessors effectively disposes of the argument that the lessors waived any right to rely on the provisions of that clause. As has been seen, the clause provided the only agreed means for ascertaining the rent for the last five years of the term. The provisions of the clause were not capable of being unilaterally waived by any one party (cf. George v. Roach (1942) 67 CLR 253 ). Even if they had been capable of being so waived, the lessors' delay in appointing a valuer and in invoking the provisions of the clause could not, in the circumstances of the present case, properly be construed as involving either an actual or imputed election to "treat the matter as if" the rent review clause was not applicable or as involving an actual or imputed intention to give up their rights to have the rent determined in accordance with the agreed procedure under that clause (see, generally, Craine v. Colonial Mutual Fire Insurance Co. Ltd. (1920) 28 CLR 305, at p 326 ). Nor was the conduct of the lessors such as to deprive them of the right to rely on the provisions of the clause by reason of any "doctrine" of "acquiescence", "laches" or "abandonment".

Appointment of Valuers. (at p469)

19. Determination of the rent for the last five years pursuant to the formula contained in cl. III(vii) required, as has been seen, "two sworn valuations". One of those valuations was required to have been "made by a sworn valuer appointed by and at the cost of" Gollin: the Full Court held that the Baillieu Allard valuation had satisfied that description. The other was required to have been "made by a sworn valuer appointed by and at the cost of" the lessors: the Jepson valuation was held to have satisfied that description. (at p469)

20. The requirement that each valuation be made by a sworn valuer "appointed" by one or other of the parties carried with it the implication that the valuer must be "appointed" for the purposes of the clause before making the valuation. It is common ground that, in the case of each valuation, no notice at all was given to the other party that the valuer was "appointed" or that the valuation had been sought until after the valuation had been completed by the valuer and received by the party which had commissioned it. The question arises whether, in those circumstances, the valuer had been effectively "appointed" for the purposes of the clause at the time he made the valuation. The lease itself provides no explicit answer to that question in that its provisions contain no express reference to what would constitute such an effective appointment. (at p470)

21. As Edmund Davies L.J. pointed out in Tradax Export S.A. v. Volkswagenwerk A.G. (1970) 1 QB 537, at p 546 , the meaning of the words "appoint" and "appointed" varies according to the context in which they are used. In some cases, the appointment of a person to fill a particular role or to perform a particular task will require nothing more than communication between appointor and prospective appointee. That is not ordinarily so in a case where one party to a contract is entitled or required to appoint a third person to do something with consequences that are contractually binding upon the other party or parties. In such a case and in the absence of contrary provision in the contract, the appointment will ordinarily be effective only when the prospective appointee has been clothed with the requisite authority by being identified as the person appointed for the purposes of the contract by communication of his identity by the party entitled or required to appoint to the other party or parties. (at p470)

22. In Tew v. Harris (1847) 11 QB 7 (116 ER 376) , a case involving the nomination of referees under a contract, it was held by Lord Denman C.J., Coleridge, Wightman and Erle JJ. that "there was no effective nomination till the notice was given to the other party". The reasons given by Erle J. for that conclusion were related to the provisions of the particular contract. The reasons of the other members of the Court were not so confined. Coleridge J. (1847) 11 QB, at p 11 (116 ER, at p 378) commented:
". . . it seems to me that there was no effective nomination till the notice was given to the other party. For, though one party might, on hearing who the referee of the other party was, be satisfied with the referee whom he had selected for himself, yet the meaning of the agreement here must have been to include all cases. Each was to know who the referee of the other was. Otherwise, each might have nominated the same person, or one might have nominated a person to whom the other had a valid objection." Wightman J.'s judgment read (1847) 11 QB, at p 12 (116 ER, at p 378) :

"I am of the same opinion. The agreement could hardly mean that each party was to name, without communicating to the other party, his own referee. If so. there would be no opportunity of appointing a new referee in case the one before selected appeared objectionable, nor indeed any opportunity of knowing that an appointment had taken place."

Lord Denman C.J. said (1847) 11 QB, at p 12 (116 ER, at p 378) :

"Clearly, to bind one party with respect to the opposite party, something should take place authorising the one to consider that the other has made his nomination."

In successive editions of Russell on Arbitration (see, e.g., 20th ed. (1982), p. 123), Tew v. Harris has been accepted as establishing that an appointment of an arbitrator by a party is "not complete without communication thereof to the other party". (See, also, Thomas v. Fredricks (1847) 10 QB 775 (116 ER 294) (a case involving the appointment of valuers); Cox v. Johnson (1914) 14 SR (NSW) 240, at p 250 ). In Tradax Export S.A. v. Volkswagenwerk A.G. (1970) 1 QB, at pp 544, 545-546 , Lord Denning M.R. and Salmon L.J. expressed the view that three things were necessary to constitute an effective appointment of an arbitrator under a clause in a charter-party which stated that all disputes were to be referred to the arbitration of two arbitrators, one appointed by each party. In the words of Lord Denning M.R. (1970) 1 QB, at p 544 : "First, it is necessary to tell the other side. That is plain from Tew v. Harris . . . . Second, it is necessary to tell the appointee himself. That is obvious because he often has to start acting at once. Third, it is necessary that he should be willing to act and have intimated his willingness to accept the appointment." (at p471)

23. It was argued on behalf of the lessors that cases involving the appointment of an arbitrator were distinguishable from the appointment of a valuer for the purposes of cl. III(vii) in that an arbitrator appointed by one party to a contract needs to co-operate with an arbitrator appointed by the other party and in that the other party to the contract is entitled to be involved in the actual arbitration proceedings. Such distinctions are, however, of but peripheral relevance to the reasoning underlying the proposition that, in the absence of any contrary intention appearing from the contract and of any definition of what constitutes an effective appointment, notice to the other party to a contract is ordinarily an element of an effective exercise of a right to appoint a stranger to perform a function under the contract. That reasoning appears from the above extracts from judgments in Tew v. Harris. It encompasses the following four related considerations: (i) that such an appointment involves the exercise of the contractual right to appoint which exists against the other party to the contract; (ii) that a purpose of such an appointment is that the actions of the person appointed will be binding upon that other party; (iii) that that other party is ordinarily entitled to object if the purported appointment does not comply with the requirements of the contract or is vitiated by conflict of interest on the part of the purported appointee or by fraud or corruption; and (iv) that the opportunity so to object should be available to the other party before the appointee embarks on the appointed task. (at p472)

24. There is nothing in the lease in the present case which has the effect of dispensing with the ordinary requirement of notice to the other party as an element of the appointment of a valuer for the purposes of cl. III(vii). To the contrary, there are strong reasons for insisting upon the requirement. If, as the lessors submit, each party were free to appoint a valuer without notifying the other party, the other party could be left uninformed that the procedure under the clause had been set in train and, as Coleridge J. pointed out in Tew v. Harris, would be denied the opportunity of raising any legitimate objection to the proposed appointee and, in the case (as here) where each party intended to appoint a different valuer, be at risk of attempting to appoint the same valuer. More importantly, in a situation where it is common ground that, apart from the case where an initial appointment miscarries, the clause was intended to authorize each party to appoint but one valuer as distinct from "shopping around" for the lowest or highest valuation, a conclusion that a party could effectively appoint a valuer for the purposes of the clause without notifying the other party until after the valuation had been received would place the other party in a situation where he would ordinarily have no means of knowing whether the valuation produced was in fact the valuation made by the valuer appointed (i.e. the valuer first appointed) for the purposes of the clause. (at p472)

25. None of the valuations in the present case was obtained from a valuer whose appointment had been notified to the other party to the contract. The consequences of the failure to notify the other party were that none of the valuations was "made" by a valuer "appointed" for the purposes of cl. III(vii) and that the necessary basis for the operation of the formula in the clause did not exist. The verdict for the lessors on theircounterclaim must be set aside.

The Jepson Valuation. (at p472)

26. The conclusion that the Jepson valuation was not a valuation "made" by a valuer "appointed" for the purposes of cl. III(vii) makes it unnecessary to consider whether the Full Court was in error in failing to hold that it should, in any event, be disregarded by reason of identifiable error and mistake. It does, however, appear desirable that we indicate our agreement with the conclusion reached by the members of the Full Court that none of the suggested errors and mistakes in the Jepson valuation was of a nature which would, if Mr. Jepson had been effectively "appointed", have precluded that valuation from satisfying the requirements of cl. III(vii).

Conclusion. (at p473)

27. It follows from the foregoing that the lessors were not entitled to give the notices in purported pursuance of the provisions of s. 222 of the Companies Act 1961 or to present a petition for the winding up of Gollin on the basis of those notices. That being so, the order of Marks J. granting an injunction restraining the presentation of a winding up petition should be restored. On the other hand, Gollin was not entitled to resist the determination of the rent for the last five years of the lease pursuant to the procedure contained in the rent review clause. The fact that the lessors wrongly maintained that they were entitled to rely on the Jepson valuation is relevant to the question of costs and to the question whether an order for specific performance should be made at this stage. It did not however deprive the lessors of the right to rely on the clause at the time when they invoked it. Nor does it make it inappropriate to grant relief by way of a declaration of the existence of that right. Indeed, as we followed the argument, it was common ground that, if the lessors had not lost the right to invoke the provisions of cl. III(vii) at the time when they sought to invoke them, a declaration should be made to that effect. (at p473)

28. The appeal should be upheld. The judgment and orders of the Full Court of the Supreme Court of Victoria should be varied to restore the injunction granted by Marks J. at first instance and to substitute for the judgment and order on the lessors' counterclaim declarations that the provisions of cl. III(vii) of the lease are applicable to determine the rent payable for the last five years of the term and that Gollin and the lessors are respectively obliged to obtain a valuation complying with the requirements of that clause. The question of costs has caused us some difficulty in that Gollin has obtained the injunctive relief which it sought but the lessors have had substantial success on the central issue. It would seem to us that the appropriate course is that there should be no order as to the costs of the proceedings before Marks J. or of the appeal to this Court and that the order of the Full Court of the Supreme Court as to the costs of the proceedings before it and the certificate given by that Court should be allowed to stand. The Court will however reserve to each party liberty to apply within fourteen days of the date hereof for an order varying the order of the Full Court as to the costs of the proceedings before it. (at p474)

Orders

1. Appeal allowed.

2. Orders numbered 2 and 3 of the judgment of the Full Court of the Supreme Court of Victoria set aside and in lieu thereof order as follows:

2. That orders numbered 2 and 3 made by his Honour Mr. Justice Marks on 10 September 1981 be set aside and in lieu thereof it be ordered

2. That it be declared that the provisions of cl. III(vii) of the lease are applicable to determine the rent payable by the plaintiff for the period 29 September 1977 to 29 September 1982.

3. That it be declared that each of the plaintiff and defendants is obliged to obtain a valuation in compliance with the requirements of cl. III(vii) of the lease.

3. No order as to the costs of the proceedings before his Honour Mr. Justice Marks or before this Court.

4. Liberty is reserved to each party to apply within fourteen days of the date hereof for an order varying the order of the Full Court of the Supreme Court of Victoria as to the costs of the proceedings before the Full Court.