Monella & Anor v Pizza Express (Restaurants) Ltd

Section 12 of the Arbitration Act 1996 may extend a contractual time limit for commencing arbitral proceedings even where the parties dispute whether time was originally of the essence. The court must first identify circumstances outside the parties’ reasonable contemplation when they agreed the time bar, and then ask whether an extension would be just. Ordinary failures to comply with contractual time limits in the course of business are generally within reasonable contemplation. A later change in legal understanding may create the occasion for default without causing it. Where the default resulted from the claimant’s advisers failing to act in time, the statutory threshold is not met. The court has no jurisdiction to consider the justice or prejudice of an extension once that threshold fails.

The claimants were landlords under a 25-year lease containing an upwards-only rent review clause. The clause required an application for the appointment of an arbitrator within one month after the tenant’s rent proposal. The claimants served their application approximately ten days late.

They sought an extension under section 12 of the Arbitration Act 1996, arguing that the perceived change in the law following Starmark Enterprises Ltd v CPL Distribution Ltd [2002] 2 WLR 1009 was outside the parties’ reasonable contemplation when the lease was made. The central issue was whether that change satisfied the statutory condition for extending time.

1. Claim dismissed. The claimants’ application for an extension of time was refused.
2. Clause 8.2(E) imposed a time bar within section 12(1) of the Arbitration Act 1996, whether or not time was initially of the essence. The issue was the effect of the contractual time limit and any further steps required for a valid reference.
3. Section 12(3) required both conditions to be satisfied: the circumstances had to be outside the parties’ reasonable contemplation when they agreed the provision, and it had to be just to extend time.
4. The Vice-Chancellor adopted the approach in Harbour and General Works Ltd v Environment Agency [2000] 1 WLR 950. Parties must be taken to contemplate omissions occurring in ordinary business circumstances. The relevant circumstances must include those causing or significantly contributing to the failure. Section 12 protects party autonomy and restricts judicial interference with an agreed contractual bargain.
5. The relevant circumstance identified by the claimants was the change from the earlier understanding of rent-review time limits after Starmark. That change was foreseeable, had been publicised a year before the review date, and did not cause the late notice. The operative cause was the failure of the claimants’ solicitors or agents to give notice within time, an ordinary commercial possibility.
6. Because the first statutory condition failed, the court had no jurisdiction to extend time. The length of the delay and comparative prejudice were therefore irrelevant. It was unnecessary to decide whether the application was also too late or whether an extension would otherwise have been just.