B J Aviation Limited v Pool Aviation Limited

An option to renew is unenforceable where, on its true construction, it makes agreement of an essential term a condition precedent and leaves each party free to agree or disagree. A court may imply an objective standard, such as a fair or reasonable rent, only where that is consistent with the parties’ bargain and can operate in the circumstances contemplated by it.

The court cannot rearrange professionally drafted wording to convert a requirement that rent be renegotiated before renewal into a term to be determined after renewal. Where late exercise of the option could leave no time for objective determination before expiry, that requirement is an unenforceable agreement to agree.

The owner of an airport sought possession from the operator after the expiry of a seven-year operating agreement. Clause 4 gave the operator an option for a further seven years if it served notice in the final six months, subject to the re-negotiation of the rent payable at no less than the current rent.

Master Bowman granted the owner summary judgment. On the operator’s appeal, a Deputy High Court Judge held that clause 4 was enforceable and implied a term for a fair rent. The owner appealed to the Court of Appeal with permission.

The sole issue was whether the renewal provision in clause 4 had legal effect despite the absence of agreement on the renewed rent.

1. Appeal allowed unanimously. Lord Justice Chadwick gave the leading judgment, with which Lord Justice Schiemann and Sir Murray Stuart-Smith agreed. The Deputy Judge’s declaration that clause 4 was valid and enforceable was wrong.

2. The court identified the governing distinction. A bargain fails where its true construction leaves an essential matter, such as rent, for future agreement while each party remains free to agree or disagree. In that event there is neither an enforceable bargain nor a duty to negotiate in good faith. Conversely, where an enforceable bargain was intended and the unresolved matter is objectively determinable, the court may imply a fair, market or reasonable standard. It may also supply machinery for determination if the agreed machinery is absent or fails.

3. Those principles could not save clause 4. Its structure made renegotiation of the rent a condition precedent to the owner’s obligation to grant a fresh agreement. The rent therefore had to be renegotiated and fixed before the renewal obligation arose and, in practical terms, before expiry of the original term.

4. The operator could give its renewal notice as late as the last day of the six-month notice period. The parties could not therefore have contemplated an objectively determined rent where agreement had not been reached, since there might be no time to determine it before expiry. There was no basis for implying an objective standard of fairness or reasonableness into the condition precedent.

5. To imply a fair rent would require the court to reorder the clause so that renegotiation became a term of the renewed agreement rather than a condition of the obligation to grant it. That would redraw a professionally drafted bargain, which the court could not do. The condition had not been satisfied, and clause 4 was consequently an unenforceable agreement to agree.

6. The court set aside the orders below and made the consequential orders indicated, including costs in the owner’s favour. Permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): Allowed the owner’s appeal in [2002] EWCA Civ 163. It held that clause 4 was unenforceable and set aside the orders below.
• Chancery Division: On 29 March 2001, a Deputy High Court Judge allowed the operator’s appeal from the Master, held clause 4 valid and enforceable, and implied a fair-rent term.
• Master: On 1 August 2000, Master Bowman granted summary judgment for the owner, holding the renewal provision void for uncertainty and ordering the operator to vacate.