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Barrett & Ors v Morgan [1998] EWCA Civ 1118 (30 June 1998)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/1998/1118.html
Cite as:
[1998] L & TR 172,
[1998] EWCA Civ 1118,
[1999] WLR 1109,
[1998] 4 All ER 179,
[1999] 1 WLR 1109
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IN
THE SUPREME COURT OF JUDICATURE
CHANF
97/0353/
IN
THE COURT OF APPEAL (CIVIL DIVISION)
ON
APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY
DIVISION
NEWCASTLE
UPON TYNE DISTRICT REGISTRY
(MR
PETER SMITH QC (Sitting as a Deputy High Court Judge
))
Royal
Courts of Justice
The
Strand
London
WC2
Tuesday
30th June, 1998
B
e f o r e:
THE
VICE-CHANCELLOR
LORD
JUSTICE PETER GIBSON
LORD
JUSTICE JUDGE
-
- - - - -
(1)
ROBERT ASHETON BARRETT
(2)
PHILIP ADRIAN SCROPE
(The
trustees of SP Scott Children
)
(3)
MARY ISOBEL SCOTT
Appellants
-
v -
ROBERT
CECIL MORGAN
Respondent
-
- - - - -
(Computer
Aided Transcript of the Palantype Notes of
Smith
Bernal Reporting Limited, 180 Fleet Street,
London
EC4A 2HD
Tel:
0171 421 4040
Official
Shorthand Writers to the Court)
-
- - - - -
MR
D WOOD QC
and
MR
J MCGHEE
(Instructed by Messrs Burgess Salmon, Bristol BS1 4AH) appeared on behalf of
the Appellants
MR
AJ KOLODZIEJ
(Instructed by Messrs Smith Rodham, Bishop Auckland, Co. Durham DL14 7PG)
appeared on behalf of the Respondent
-
- - - - -
J
U D G M E N T
(As
approved by the Court
)
-
- - - - -
©Crown
Copyright
Tuesday
30th June, 1998
JUDGMENT
THE
VICE-CHANCELLOR: This appeal raises an interesting point on the law relating to
agricultural sub-tenancies. The plaintiffs, appellants in this court, are the
freehold owners of agricultural land in Co. Durham. The land was subject to a
tenancy held by two individuals but was farmed by the defendant, Mr Morgan, who
is the respondent in this court. Mr Morgan held a sub-tenancy from the two
individuals, who were tenants under the head-tenancy. The two individuals and
the plaintiffs, whose relationship to one another I will explain in a moment,
wanted to obtain vacant possession of the land in order to sell it with vacant
possession. They agreed that the freeholders would serve notice to quit on the
two tenants and that the two tenants would not serve any counternotice invoking
the relevant provisions of the Agricultural Holdings Act 1986. The purpose of
this agreement was so as to enable the freeholders to obtain possession against
the sub-tenant.
On
the expiry of the notice to quit the head-tenancy, so it was believed, would
come to an end and, with it, the sub-tenancy. The scheme, although put into
effect by the notice to quit served by the freeholders, originated, according
to the facts as found by the judge, from the two tenants, or from the advice
given to them by their land agent. The two tenants, it was appreciated, could
not themselves, by serving notice to quit on their sub-tenant, bring about the
desired state of affairs in which vacant possession could be obtained against
the sub-tenant. A notice to quit served on Mr Morgan would, as they knew, have
led to the service of a counternotice invoking the protection of the 1986 Act.
Nor, so the two tenants believed, could a notice to quit served by them on
their head landlord, the freeholders, have achieved the desired result either.
According to the case law as it then stood (it has since changed), a tenant
could not by putting an end to his own tenancy impair or destroy the interest
which he had granted to his sub-tenant (see
Brown
v Wilson
[1949] 208 LT 144). So the solution, the freeholders and the tenants concluded,
was for the freeholders to serve the notice to quit. The tenants would
naturally refrain from serving a counternotice invoking the statutory
protection.
The
short point on this appeal is whether the scheme works. The judge below, Mr
Peter Smith QC, sitting in Newcastle as a Deputy Judge of this Division, held
that it did not. He held that a notice to quit served pursuant to what he
described as a collusive agreement between freeholders and their tenants could
not by itself destroy a sub-tenancy held from the tenants. The deputy judge
relied particularly on
Sparkes
v Smart
[1990] 2 EGLR 245, a decision of this court on facts comparable to the facts of
the present case.
On
this appeal Mr Derek Wood QC, counsel for the appellants, has in effect
submitted that
Sparkes
v Smart
was wrongly decided, decided
per
incuriam
.
He has relied on two other Court of Appeal decisions,
Harrison
v Wing
[1988] 2 EGLR 4 and
Pennell
v Payne
[1995] QB 192, as constituting soundly based authority justifying a different
conclusion from that reached by the deputy judge. The deputy judge's order was
made on 18th October 1996. He refused leave to appeal but leave to appeal was
given by this court on 6th March 1997.
I
will state the facts as shortly as possible for the point of issue to be
comprehensible. The case, of course, involves agricultural land. The land is at
Mordon in Co. Durham and belonged in 1970 to the Fourth Earl of Eldon. On 1st
March 1970 the Fourth Earl granted a tenancy of the land to himself and his two
sons. The elder of his two sons is now the Fifth Earl. His younger son is Mr
Simon Scott. So the Fourth Earl and his two sons became tenants of the Fourth
Earl. The tenancy comprised over 900 acres. It was a tenancy from year to year
from 1st March 1970 with an annual rent of £3,350. Under Clause 3 of the
tenancy agreement, the tenancy was terminable by 12 months' notice to quit
given by either landlord or tenants expiring on 13th May in any year. That is
the tenancy in respect of which the notice to quit that has led to the present
proceedings was given.
The
Fourth Earl of Eldon died on 20th October 1976. His two sons were his
executors. On 1st April 1977 probate was granted to the two of them. A number
of transactions or dispositions relating to the freehold land comprised in the
1st March 1970 tenancy agreement were entered into or made. First, on 3rd April
1984, 3.2 acres of land were vested in the first and second plaintiffs in this
action as trustees for Mr Simon Scott's children. The first plaintiff is Mr
Barrett, a partner in the firm of solicitors, May, May & Merrimans; the
second plaintiff is Mr Scrope, a partner in the firm of land agents, Smith
Goreham.
On
25th July 1984 the two executors assented to 387-odd acres of land vesting in
Mr Simon Scott. On 30th July 1984 Mr Simon Scott transferred 23.58 acres of the
land that had been vested in him to his wife, who is the third plaintiff in
this action, Mrs Mary Scott. Finally, on 23rd July 1986 Mr Simon Scott
transferred 331-odd acres of land, are comprised in the 1st March 1970 tenancy
agreement, to the first and second plaintiffs, Mr Barrett and Mr Scrope. Here
again the first and second plaintiffs were to hold as trustees for Mr Scott's
children.
The
position from 1970 to 1980 was that the tenants under the 1st March 1970
agreement farmed the land. They had originally been the Fourth Earl and his two
sons but after the death of the Fourth Earl in 1976 the tenants farming the
land were the Fifth Earl and Mr Simon Scott. But, apparently, by 1980 the land
was becoming somewhat dilapidated and in bad condition and a local farmer, a Mr
Morgan, began farming the land under an arrangement made with the tenants. An
attempt was made to produce an arrangement under which Mr Morgan would not have
the benefit of the protection afforded to agricultural tenants by the relevant
statute. In 1970 it was the Agricultural Holdings Act 1948, now it is the
Agricultural Holdings Act 1986. The arrangement involved the creation of a
so-called partnership between the Fifth Earl, Mr Simon Scott and Mr Morgan
under which the partners would pay a rent of an agreed sum for the land.
On
5th December 1980 Mr Morgan accepted the proposed terms and began farming the
land, ostensibly under this partnership arrangement. But it was held by the
deputy judge in this present litigation that the partnership was no more than a
pretence. That is now accepted by the other parties. The Fifth Earl and Mr
Simon Scott accept that Mr Morgan became -- as a result of his going into
occupation of the land, farming it and paying a rent for it to them -- their
sub-tenant.
So
from December 1980 Mr Morgan has been farming the land under what is accepted
to be, although it was never formally prepared as, a sub-tenancy from the two
surviving tenants, the Fifth Earl and Mr Simon Scott. The freeholders, from
whom those two tenants held the 1970 tenancy, were the first and second
plaintiffs in respect of the land they held as trustees for Mr Simon Scott's
children, and in relation to a small parcel of land, the 23-odd acres, Mr Simon
Scott's wife, Mrs Mary Scott.
By
1991, with Mr Morgan still farming the land under the arrangement I have
described, Mr Simon Scott was anxious to raise capital for the benefit of his
children. He had some discussions about how to do this with Mr Scrope, the
family land agent, and one of the trustees holding the freehold interest in the
land for the benefit of his children. Mr Simon Scott's brother, his co-tenant
the Fifth Earl, sympathised with Mr Simon Scott's desire to raise capital for
the benefit of his children and supported him in his proposals. There were
negotiations for the sale to Mr Morgan of the land which he was farming. Mr
Morgan was, it seems, a willing purchaser but there was a dispute as to the
price. The family, including the freeholders, the trustees of the family
settlements and Mrs Scott, and the tenants under the 1970 tenancy, the Fifth
Earl and Mr Simon Scott, wanted to sell the land at its vacant possession
value. Mr Morgan, farming the land with, as he thought, the protection of the
statutory scheme under the 1986 Act, was willing to purchase at a price which
took account of his protected possession. The deputy judge's recital of the
facts suggests that the value of the land subject to the occupancy of an
agricultural tenant would have been something like 30 per cent less than the
vacant possession value of the land. The 30 per cent reduction would have been
a substantial sum.
So
Mr Simon Scott consulted Mr Scrope as to what might be done. Mr Scrope was a
land agent. Mr Scrope consulted solicitors, Burgess Salmon, about what could be
done. The upshot of these consultations was that advice was given to Mr Simon
Scott, and through him to his co-tenant the Fifth Earl, that if notice to quit
were served by the freeholders on the tenants under the 1st March 1970 tenancy
agreement, the Fifth Earl and Mr Simon Scott, and if the tenants refrained from
exercising their statutory right of serving a counternotice invoking the
statutory regime established by the 1986 Act, then, on the expiry of the notice
to quit, the 1970 tenancy would determine and with it, they were advised, would
determine also by operation of law, willy-nilly and whether Mr Morgan liked it
or not, his sub-tenancy. So the family decided, and no one can criticise them
for doing so, to take advantage of the legal consequences of the steps to which
I have referred. Notices to quit were prepared, either in the office of the
solicitors or in the office of the land agents. They were sent by the
freeholders to the tenants, Mr Simon Scott and his brother the Fifth Earl,
requiring them to give up possession of the land comprised in the tenancy on
13th May next. The notices were dated 1st April 1992 and the date on which
possession was to be given up was 13th May 1993.
The
legal thinking underlying the scheme that was put into operation was, very
shortly stated, as follows. At common law a periodic tenancy, a tenancy from
year to year or tenancy from month to month, can be determined by notice to
quit served either by the tenant or by the landlord. Where agricultural
tenancies are concerned, statute requires that the notice to quit must be
notice of at least 12 months, as indeed was provided for by the 1st March 1970
agreement. At common law a sub-tenancy granted by a tenant holding under a
periodic tenancy determines with the tenancy on the expiry of the notice to quit.
That
state of affairs is in contrast to the position brought about by a surrender by
the tenant of the tenancy. If a tenant surrenders his tenancy to the landlord,
that too will put an end to the existence of the tenancy. But it will not, in
so doing, bring to an end sub-tenancies that the tenant had previously granted.
That is a crucial distinction between the result of bringing a tenancy to an
end by notice to quit and bringing the tenancy to an end by surrender. The
notice to quit, being essentially a unilateral act whether served by the
landlord or served by the tenant, brings the tenancy to an end in accordance
with the terms of the tenancy itself. Accordingly an interest granted out of
the tenancy, such as a sub-tenancy, comes to an end with the determination of
the tenancy. Surrender, however, is not a unilateral transaction. A surrender
may be express, by deed to which both landlord and tenant are parties, or may
be implied by law from acts done by the landlord and the tenant respectively.
Whether express or implied, a surrender is essentially a consensual
transaction. The parties agree to bring about the termination of the tenancy.
The distinction between a surrender and a notice to quit is, in my view,
essentially the difference between a consensual act, the surrender, and a
unilateral act, the notice to quit. In the present case, the freeholders and
the tenants, and those advising them, believed that a unilateral act by the
landlord, in serving notice to quit, could terminate the sub-tenancy whereas a
surrender by the tenants to the landlords would not have achieved that result.
The
deputy judge came to the conclusion, and there has been no challenge to this
before us (nor, I imagine, could there be), that the freeholders and the two
tenants had agreed between themselves, prior to the service by the freeholders
of the notice to quit, to adopt the scheme to which I have referred and to
adopt it for the purpose of bringing to an end Mr Morgan's sub-tenancy. There
are a number of passages in the judgment which make that plain. I should, I
think, refer to them.
In
paragraph 7.1 of his judgment the deputy judge referred to the discussions
following the realisation that Mr Morgan was not prepared to buy at a
non-vacant possession price. The paragraph reads as follows:
"Faced
with this, Mr Scrope sought advice, probably from Burgess Salmon. The position
was considered, I find, exclusively with Mr Scott [that is Mr Simon Scott]
alone. This at first sight was curious. Mr Scott is after all one of the mesne
tenants with Lord Eldon, his brother. Mr Scrope, I find, took no instructions
from the children, nor from Mrs Scott, the other freeholder. Mr Scrope in his
advice tellingly said he was glad the children had taken
his
advice. The result of the advice was that a decision was made to serve notices
to quit terminating the head lease."
Then
the judge said:
"8.4
The next part of the scheme was
not
to serve a counternotice, otherwise vacant possession could not be obtained. No
counternotice was served. The only reason given was that Mr Scott, not
surprisingly, and Lord Eldon, hardly less surprisingly, were anxious to assist
the freeholders in the desire to recover possession from Mr Morgan by
destroying his subtenancy. They could not do so because as against them he
would be able to assert their rights. It was quite clear that Lord Eldon was
willing to fall in to any scheme which would give vacant possession to his
nephews and nieces. He was not really consulted, he was informed of the
proposed notice and, according to Mr Scrope, took it on the chin.
8.5
Mr Scrope barely consulted Mrs Scott or his client, all discussions were
between him and Mr Scott.
8.6
Mr Scott and Lord Eldon were quite frank about this. Their stance was that the
decision not to challenge the notice was to ensure the landlords recovered
possession. Mr Scrope was equally frank in conceding if there was of no
connection between the landlord and the tenants he would (if advising the
tenant only) advice the service of a counternotice.
8.7
Similarly Lord Eldon and Mr Simon Scott both acknowledged that the desire not
to challenge the notice was motivated solely to achieve a benefit to the
landlord and I so find that was the position."
Then
the deputy judge expresses his conclusion in this way:
"11.1
In my view, the facts of the present case as set out above show that the
landlords acted collusively with the tenant. The purpose was a contrived scheme
to deliver up vacant pressure for the children."
The
use of the word "collusively" and the use of the adjective "contrived" have a
somewhat pejorative innuendo. The innuendo is unnecessary. The scheme that was
acted on is no better or no worse for being described as contrived. If the
agreement between the freeholders and the tenants enabled their joint object of
obtaining vacant possession against Mr Morgan to be achieved, their object
cannot be defeated by describing their agreement as a collusive agreement. The
fact of the matter, as to which there can be no dispute, is that the purpose of
the scheme that was agreed upon was to enable vacant possession to be obtained
from Mr Morgan. That was its purpose. The steps agreed upon were that the
freeholders would serve notice to quit on the tenants and that the tenants
would not, by serving an appropriate counternotice, claim the protection of the
statutory regime under the 1986 Act.
It
was an agreement between or an arrangement concurred in by the freeholders and
the tenants. In these circumstances the deputy judge came to the conclusion
that the scheme did not work. Relying, as I have said, particularly on
Sparkes
v Smart
,
he said this:
"12.1
The court should look to the reality. If a tenant chooses not to act as one
would expect a tenant to act, as happened here, to further the landlord's
desire to recover possession and destroy the subtenancy, the court would be
astute to prevent that happening. It will not interfere if the tenant has
genuine, independent grounds for so acting."
Mr
Wood, who has argued the appeal, has taken us through the authorities, bar two
they are all Court of Appeal authorities, that bear upon this issue. He has
taken us through them for the purpose of submitting that an agreement between
landlord and
tenant
prior to the service of a notice to quit, and as a result of which the notice
to quit is served on the tenant and the tenant serves no counternotice, does
not make any difference to the effect of the notice to quit in destroying the
tenancy and thereby putting an end to any sub-tenancy that may have been
granted. It is necessary to go through the cases to see how the legal
principles are formulated.
One
may start, perhaps, with a citation from Coke upon Littleton, cited by Simon
Brown LJ in one of the most recent of the cases,
Pennell
v Payne
.
The passage in question was dealing with the surrender of a tenancy, a
sub-tenancy having previously been granted. The passage is as follows:
"...
having regard to the parties to the surrender, the estate is absolutely drowned
... But having regard to strangers, who were not parties or privies thereunto,
lest by a voluntary surrender they may receive prejudice touching any right or
interest they had before the surrender, the estate surrendered hath in
consideration of law a continuance."
That
is a statement of the common law position. A surrender cannot prejudice rights
or interests granted by the surrendering tenant previously to the surrender. As
it was put:
"...
the estate surrendered hath in consideration of law a continuance."
The
continuance of the tenancy was necessary for the purpose of enabling the
strangers' interests, the sub-tenancy in the present case, to continue. The
principle was applied in
Mellor
v Watkins
[1874] 9 QB 400, a decision of the Court of Queen's Bench. It was a case in
which a tenant had surrendered to his landlord property comprised in the
tenancy. The question arose as to the effect of the surrender on a sub-tenancy
that the tenant had previously granted. Counsel for the plaintiff, who had
taken a new tenancy from the freeholder, claimed possession against the
sub-tenant. His counsel was Sir Henry James QC. In the report of Sir Henry
James' argument it appears that he said this:
"It
must be admitted that it has been decided that no voluntary act of a lessee in
surrendering, or otherwise putting an end to his tenancy, can affect the
interests of his under-tenant."
There
is no controversy as to the result of a voluntary act of surrender. But the
interesting part of the citation lies in the additional words "or otherwise
putting an end to his tenancy". Those words suggest that if a tenant does
anything, whether by a surrender or anything else, to put an end to his tenancy
he cannot by doing so adversely affect the interests of his sub-tenant.
The
Court of Queen's Bench found in favour of the defendant, the sub-tenant.
Cockburn CJ said this:
"...
the voluntary surrender of Allen of his interest could not affect the
defendant's underlease of the cellars. If Allen had continued lessee, the
defendant's interest could not have been determined except by a notice to quit,
and the surrender of Allen's lease leaves the defendant's underlease untouched."
And
a few lines later:
"It
is clear that when a person voluntarily surrenders his lease, he cannot by so
doing put an end to an undertenancy created by himself; ..."
Those
statements of principle are unexceptionable and are, of course accepted by Mr
Wood. But they do not go as far as the admission made by Sir Henry James QC in
argument. Blackburn J, however, went a little further. He said this:
"Allen
had no power to derogate from his landlord's rights. Subject to those rights,
he had a right to sub-let; and by doing that he could not prevent the landlord
from giving a notice to quit in invitum, which would have determined both
Allen's and the defendant's interest. But no voluntary act on the part of
Allen, by which his own interest might be determined, could put an end to the
interest which he had created in the defendant. Allen's tenancy was put an end
to as far as he was concerned, as between him and Williams, by the voluntary
surrender of his lease; but the defendant's tenancy in the cellars still
remained, until determined by a proper notice to quit."
There
are two passages in that citation which go further than the simple proposition
that a surrender of a tenancy does not adversely affect a sub-tenancy. First,
Blackburn J referred to a landlord's ability to give a notice to quit "in
invitum"
and thereby to determine both the tenant's and the sub-tenant's interests. The
use of the words "in
invitum"
suggests that a different result would follow if the notice to quit had been
given at the invitation of the tenant. Then, in the next sentence in his
judgment, Blackburn J says:
"But
no voluntary act on the part of Allen, by which his own interest might be
determined, could put an end to the [subtenancy]."
Both
those passages in Blackburn J's judgment constitute an endorsement of Sir Henry
James' admission that I have cited.
Sir
Henry James' admission and Blackburn J's apparent approval of it have been
accepted in subsequent cases and in the textbooks as correctly stating the law.
It is worth, I think, having looked at Blackburn J's statement of principle in
Mellor
v Watkins
,
again emphasizing the difference between the termination of a tenancy by
surrender and its termination by notice to quit. The difference is that a
notice to quit is essentially a unilateral act: a surrender is not, it is
consensual. If a notice to quit is given by a landlord under an agreement with
the tenant it is not given as a unilateral act; it is not given in
invitum.
If a tenant under an agreement with the landlord gives a notice to quit, the
giving the notice to quit is not unilateral. It is unilateral notices to quit
that destroy sub-tenancies; it is unilateral acts determining the
head-tenancies that destroy sub-tenancies. Consensual acts done by arrangement
between landlord and tenant do not, in my judgment, do so.
In
a case in which a notice to quit has been served pursuant to some agreement or
arrangement consensual in its character, and to which both landlord and tenant
are parties, the termination of the lease as a result of the service of that
notice to quit becomes, in my opinion, indistinguishable from a surrender. That
that is so is, in my opinion, supported by
Elsden
v Pick
[1980] 3 All ER 235. This was an agricultural tenancy case in which the tenant
gave the landlord a notice to quit which was short by a day or so of the
requisite 12 months. The tenant had previously discussed his tenancy and the
continuation of it with the landlord's agent and had made it known that, for
various reasons, he wanted to relinquish his tenancy. Hence the notice to quit,
short, as I have said, by a day or so. By the time the notice to quit had
expired the tenant had changed his mind. He contended then that the notice to
quit did not comply with the statutory requirement of being a 12-month notice,
and that, accordingly, the statute had prevented it from being effective to
determine the agricultural tenancy. The judge at trial upheld the contention.
The landlords appealed successfully to the Court of Appeal. The Court of Appeal
held that the agreement to allow short notice to quit to be served and to be
effective was tantamount to an agreement to surrender. Shaw LJ at page 240 said
this:
"Thus
the time for the ending of a tenancy is a matter of common interest both to a
landlord and to his tenant. It may suit them both to determine a tenancy
without waiting for what may be as long as nearly two years to bring it to an
end. No statute could have so absurd an intention as to constrain a landlord
and a tenant of an agricultural holding to remain bound in that relationship at
a time when neither desires that it should endure. If they are in accord, can
it matter whether they demonstrate that accord by an agreement to surrender or
an agreement to accept short notice?"
In
such a case, whether it is by agreement to accept short notice or whether it is
by agreement for surrender, the termination of the tenancy is brought about not
by a unilateral act but by a consensual act.
Brown
v Wilson
[1949] 208 LT 144 was a decision of Hilbery J. The report of the case is
somewhat abbreviated, but essentially the facts were that there was an
agricultural holding let by B to K and sub-let by K to W. K gave B notice to
quit and, at the same time K gave W notice to quit. W served a counternotice
under the relevant statutory provision (at that time it was section 31 of the
Agricultural Act 1947) but K, who plainly wanted to put an end to his tenancy,
did not refer the matter to the relevant tribunal. At the expiration of the
respective notices to quit, W refused to give up possession to B. Hilbery J
found in W's favour. He said, among other things, this:
"In
my view, the effect of the decided cases is that a lessee cannot, by putting an
end to his own tenancy, impair or destroy the interests which he has granted to
his under-tenant."
He
said also:
"...
the law will not allow a man, by an act done between him and another, to impair
or destroy the rights which he has granted a third party."
He
referred in particular to
Mellor
v Watkins
and to Sir Henry James' concession in the course of argument in that case.
Johnson
v Moreton
[1980] AC 37 was a case in which the House of Lords held that the statutory
regime for the protection of tenants of agricultural holdings gave the tenant
of an agricultural holding an option whether or not to serve a counternotice
claiming the protection of the relevant statutory provisions, and that the
tenant could not by a prior agreement divest himself of the benefit of that
option. Consequently, a clause in a tenancy under which a tenant agreed not to
serve a counternotice was held by the House of Lords to be unenforceable. The
case casts doubt on the enforceability against a tenant of an agreement to
surrender an agricultural tenancy. It does not, in my opinion, detract from the
conclusion that a notice to quit given pursuant to an agreement between
landlord and tenant is tantamount to a surrender.
Gisborne
v Burton
[1989] 1 QB 390 is the next case I should mention. In this case an individual
owned an agricultural holding. He wanted to let it but, in doing so, to deprive
the tenant of the benefit of the statutory regime giving security of tenure. So
he let the property to his wife, and his wife granted a sub-tenancy to the
defendant. The freeholder subsequently died and his personal representatives
wanted to recover possession. So they served notice to quit on the wife
determining her tenancy. She refrained from serving any counternotice, nor did
he serve any notice to quit on the sub-tenant. The scheme was, in substance,
the same scheme as was put into effect in the present case. The personal
representatives, after the expiry of the notice to quit, claimed possession
from the sub-tenant. A majority in the Court of Appeal held that the tenancy
to the wife was a sham, a pretence without any reality. They held that the
sub-tenant was in reality a tenant holding directly from the landlord to whom
he had, for years, been paying his rent. No notice to quit had been served on
the sub-tenant, so his agricultural tenancy continued. The notice to quit
served on the wife was so much waste of paper. Ralph Gibson LJ dissented in
this case. He held that the tenancy granted to the wife was not a sham, was a
reality, and should be treated on that footing. It is of interest that nowhere
in the case is there to be found any discussion of what the consequence would
have been had Ralph Gibson LJ's view, that the tenancy to the wife was
effective, had been the majority view. There was no consideration given to the
question whether the apparently collusive arrangement between wife and personal
representatives under which notice to quit would be served on the wife and she
would refrain from serving any counternotice invoking the statutory protection,
made any difference to the effect of the notice to quit on the sub-tenancy and
whether the freeholders could claim possession from the sub-tenant.
Harrison
v Wing
[1988] 2 EGLR 4 was another Court of Appeal decision. In this case the owner of
an agricultural holding died. His executors allowed one of their number,
described in the report as S, to occupy the land paying £12 an acre for
it. S then granted Harrison an annual tenancy. Harrison thought, and there was
nothing to indicate the contrary, that S was the owner of the land. Later S,
who had become the sole surviving executor, assented to the land vesting in him
and two other persons. The three of them then served notice to quit on S, S
being one of those serving the notice as well as the recipient of it. S, an
agricultural tenant, did not serve a counternotice claiming the benefit of the
statutory regime nor did he serve a notice to quit on Harrison. The County
Court judge held that S did not have a tenancy and therefore could not create a
valid sub-tenancy. But the Court of Appeal (a two-man Court of Appeal) decided
the case on a different ground. They agreed with the judge below that a valid
sub-tenancy had not been created. But Croom-Johnson LJ, who gave the judgment
with which Sir Denys Buckley (the other member of the court concurred), noted
that Harrison had been allowed into occupation by S. Harrison could not have
been described as a trespasser; he was therefore a licensee. He was a licensee
occupying agricultural land and his interest was, accordingly, transformed by
the relevant Act into a tenancy from year-to-year. On that footing
Croom-Johnson LJ held that notice to quit had been given by the freeholders
terminating S's tenancy and that S had been under no obligation to serve a
counternotice. S's duty as executor or trustee, would have required him not to
serve such a notice. So the freeholders were entitled to possession against
Harrison. No consideration was given in this case, anymore than had been given
in
Gisborne
v Burton
,
to the effects of the collusive arrangement between the three freeholders, one
of whom was S, and the tenant, S himself, as to the steps to be taken to obtain
possession as against Harrison. There was no discussion of that matter and, for
that reason, no opinion expressed on it.
The
consequence of a collusive arrangement made between head landlord and
intermediate tenant was, however, considered in
Sparkes
v Smart
[1990] 2 EGLR 245. This was a case in which an agricultural holding was farmed
by a farmer under a tenancy from freeholders. Their identity does not matter.
The father had, apparently, a number of children, one of whom was a son,
Rodney. The father allowed Rodney to take over the farm. The arrangement
between the father, the tenant, and Rodney, his son, was construed as
constituting Rodney a sub-tenant of the farm. The family turned out to be
thoroughly disunited and everybody wanted (bar Rodney) to ease Rodney out of
his position as sub-tenant farming the land. It was learned that the
freeholders were desirous of selling. So the husband of a daughter of the
tenant purchased the land from the freeholders. He then, by prior arrangement
between himself and his father-in-law, the intermediate tenant and Rodney's
landlord, served notice to quit on his father-in-law. His father in law did not
serve a counternotice claiming the protection of the statutory regime and did
not serve any notice to quit on Rodney. The scheme was so far as possible
concealed from Rodney. At the expiry of the notice to quit the son-in-law,
Sparkes, brought proceedings for possession against Rodney, contending that his
father-in-law's tenancy had been determined by the notice to quit and that
Rodney's sub-tenancy had gone with it. The Court of Appeal would not accept
that that was so. The main judgment was given by Purchas LJ. At page 249 he
said:
"It
is necessary to consider the position of Rodney when the notice was served by
[the son-in-law] upon William [the father] and in the further context of
William's failure to serve a counternotice. On this aspect of the case Mr Evans
readily conceded that his only hope was to attack the findings made by the
judge that the whole of this operation was collusive. If it was collusive then
Mr Evans did not seek to argue that Rodney was entitled to be placed in the
position of William as Kelston's tenant. Notwithstanding Mr Evans able
arguments, I find it quite impossible to entertain any doubt as to the judge's
finding on this aspect of the case. The evidence was overwhelming."
Ralph
Gibson LJ agreed. He referred to what he described as "the issue of collusion"
at page 251 and went on:
"I
have no doubt that the judge's findings were open to him on the evidence and
could not properly be disturbed by this court."
Stuart-Smith
LJ also agreed. He dealt with the point at page 253 of the report. He said:
"In
my judgment, the judge was fully justified in holding that there was a
collusive agreement.
I
would, therefore, dismiss the appeal on this ground."
Mr
Wood has pointed out, with justification, that there does not seem to have been
in
Sparkes
v Smart
any argument addressed to the court to the effect that even if there had been a
collusive agreement the sub-tenancy would still have been brought to an end by
the notice to quit. It seems to have been accepted that if the finding of a
collusive agreement was correct, the notice to quit terminating the tenancy
could not also have determined the sub-tenancy. I agree with Mr Wood that it
appears that that was the way the matter proceeded before the Court of Appeal in
Sparkes
v Smart
.
But that circumstance does not, in my judgment, deprive the case of its status
as an authority. The question of the consequence of a collusive agreement was
clearly before the court as one of the main issues in the case. The language of
Purchas LJ, in saying Mr Evans, who was counsel for the freeholder, readily
conceded that his only hope was to attack the finding made by the judge that
the whole of the arrangement was collusive, suggests to my mind that the court
agreed with the sense of the concession and that Mr Evans was swimming with the
tide: "Mr Evans readily conceded."
Sparkes
v Smart
is a Court of Appeal authority and is binding on us. In my judgment, it is
authority for the proposition that if there has been an agreement between
landlord and tenant, entered into for the purpose of enabling the landlord to
obtain possession as against a sub-tenant, and the terms or the gist of which
are that the landlord will serve a notice to quit and the tenant will refrain
from serving any counternotice invoking the protection of the statutory regime,
then the agreement between landlord and tenant, the "collusive" agreement, has
the consequence that the notice to quit may determine the tenancy but does not
determine the sub-tenancy. In effect, the determination of the tenancy is as
though it were brought about by a surrender.
For
my part I find this conclusion consistent with principle. In such a case as the
Court of Appeal was considering in
Sparkes
v Smart
the tenancy was brought to an end not by a unilateral act on the part of the
freeholder in deciding to serve a notice to quit on the intermediate tenant,
but by a consensual agreement, and intermediate tenant as to how the
sub-tenant, Rodney, was to be defeated. The sharp distinction between notice to
quit and a surrender to which I have already referred, between a unilateral act
on one of the hand and a consensual arrangement on the other, requires, to my
mind, that the sort of arrangement facing the Court of Appeal in
Sparkes
v Smart
,
and indeed facing us in this case, to be placed on the consensual side with a
surrender, rather than on the unilateral side, with a notice to quit.
The
final case to which I should refer is
Pennell
v Payne
[1995] QB 192. This was a case involving an agricultural holding with a tenancy
and a sub-tenancy. It was a case in which the tenant had sub-let the holding to
a company in breach of a term in the tenancy agreement. The question which
arose after the landlord had given notice to quit (relying on the tenant's
breach of the term of the tenancy agreement, and the case having been referred
to an Agricultural Land Tribunal in accordance with the statutory provisions)
was whether the landlord's position had been in any respect adversely affected
by the grant of the sub-tenancy. The argument that the landlord's position had
been adversely affected was that the tenant could no longer, by a service of
notice to quit, determine the tenancy and with it the sub-tenancy. The
proposition was that once the sub-tenancy had been granted the tenant had
barred himself from being able, by service on the landlord of notice to quit,
to destroy the sub-tenancy. In
Brown
v Wilson
Hilbery J had so held. The case involved, therefore, a consideration of whether
Brown
v Wilson
had been correctly decided. The Court of Appeal held that it had not. The only
judgment given in the case was given by Simon Brown LJ. Hoffmann and Leggatt
LJJ agreed with it. The case is clear authority, in overruling
Brown
v Wilson
,
for the proposition that an intermediate tenant who serves notice to quit on
the head landlord does an act which on the expiry of the notice to quit
determines not only his own tenancy but also any sub-tenancy that he may have
granted. The case is not, however, an authority on the consequences of a
collusive arrangement between landlord and tenant for service by one of them on
the other of a notice to quit. It does not, and could not, detract from the
authority of the decision of the Court of Appeal in
Sparkes
v Smart
to which I have already referred.
There
are, if one goes down every avenue of possible facts, difficulties in
reconciling
Pennell
v Payne
with
Sparkes
v Smart
.
But each decided a separate point.
Pennell
v Payne
decided that
Brown
v Wilson
had been wrongly decided and that a head tenant could at common law give a
notice to quit to a landlord which, on its expiry, would determine also a
sub-tenancy. As to that, the case is of course binding on us. But that is not
the point that arises in the present case.
Sparkes
v Smart
,
on the other hand, was a case dealing with consequences of a collusive
arrangement between landlord and tenant entered into for the purpose of
determining a sub-tenancy. In regard to that, the decision of the court,
binding on us, was that the notice to quit served pursuant to such an
arrangement may determine the tenancy, but it does not affect the continuance
of the sub-tenancy. For the reasons I have given, I regard the result of
Sparkes
v Smart
as being consistent with principle. But that perhaps is not as important as the
fact that, in my judgment, it binds this court.
In
my view the deputy judge came to the correct conclusion, a conclusion to which
he was bound to come on authority, and I would therefore dismiss this appeal.
LORD
JUSTICE PETER GIBSON: I agree that this appeal should be dismissed. But in
deference to the closely reasoned argument of Mr Wood QC, for the appellant
landlords, I add a few words of my own.
Mr
Wood submitted, uncontroversially, that at common law upon the determination of
a head lease any sub-letting created out of it automatically comes to an end.
He acknowledged an exception at common law, recognised by statute in section
139 Law of Property Act 1925 and its predecessor provisions, where the head
tenant surrenders his tenancy to the head lessor. But he submitted on the basis
of two Court of Appeal decisions,
Harrison
v Wing
[1988] 2 EGLR 4 and
Pennell
v Payne
[1995] QB 192, that the exception to the common law rule is strictly limited to
cases of surrender properly so called. To that he added the absence of any
exercise of the power in section 29 of the Agricultural Holdings Act 1986 and
paragraph 7 of Schedule IV to that Act, or of the corresponding power in the
Agricultural Holdings Act 1948, to provide protection for sub-tenants where the
interest of the head tenant is terminated by a notice to quit. This, he said,
makes it plain that Parliament never intended that sub-tenants should
(otherwise than by the recognised exception) enjoy statutory protection against
a head landlord, and it was inherent in the position of the sub-tenant that he
had no such protection. He contrasted the position of business sub-tenants,
under Part II of the Landlord and Tenant Act 1954, and residential sub-tenants
under the Rent Act 1977, who are protected.
I
acknowledge the force of that argument but I am not able to accept it. Like my
Lord, it seems to me that the characteristic, significant for present purposes,
of a surrender, as distinct from the determination of a tenancy as a result of
a notice to quit, is that the former is consensual, there being agreement
outside the lease and the landlord not being obliged to accept the surrender,
whereas the latter is a unilateral act within the lease of the person serving
the notice. Of course the person on whom the notice to quit is served has the
right to exercise his statutory option to serve a counternotice or to choose
not to do so. But this does not alter the nature of that transaction as being
essentially unilateral, in the straightforward case, where the landlord and
tenant act as landlords and tenants ordinarily do in their own interests. Where
the facts are as they are here, that in order to obtain vacant possession and
destroy the sub-tenancy the mechanics of a notice to quit are employed by the
landlord, but only because the tenant himself, in agreement with the landlord,
has taken the initiative to obtain the service on him of that notice to quit on
the footing that a counternotice will not be served, then the position seems to
me to be tantamount to a consensual surrender, even though technically it would
not constitute surrender.
Why
should the form of the transaction be allowed to prevail over the substance,
that is to say that the tenant wishes to give up the tenancy by being party to
a scheme to defeat the interests of the sub-tenant? I can see no reason in
principle why the law should not regard that as a proper exception to the
common law rule, just as it regards a surrender as constituting an exception.
Do
the authorities preclude us from arriving at such a result? Certainly there is
nothing in
Mellor
v Watkins
[1874] LR 9 QB 400 inconsistent with this approach. The decision of this court
on the relevant point in
Harrison
v Wing
seems to me to have turned on the narrow question whether a person who is both
one of three landlords holding jointly as trustees for sale and is also the
tenant was voluntarily putting an end to his own interest by joining in the
notice to quit served by the landlords. In answering that question in the
negative, this court did not consider any question of a collusive agreement
designed to defeat the sub-tenancy. This court specifically accepted the
principle of
Mellor
v Watkins
,
but distinguished that case on its facts.
Sparkes
v Smart
[1990] 2 EGLR 245 is the closest to the present case on its facts. The court
agreed with His Honour Judge Da Cunha in the court below that the effect of a
collusive scheme between landlord and tenant for the landlord to serve a notice
to quit and for the tenant not to serve a counternotice in order to defeat the
sub-tenancy was in effect the same as a voluntary surrender of the head lease,
though it is right to acknowledge that counsel for the landlord in that case
was recorded (see page 249G) as not seeking to argue that the sub-tenant was
not entitled to be placed in the position of tenant of the landlord if this
court accepted that the scheme was collusive. Nevertheless, that case is
entirely consistent with what I believe to be the right principle.
In
Pennell
v Payne
no doubt was cast by this court of the correctness of the proposition that a
collusive scheme between head landlord and head tenant designed to destroy the
sub-tenancy constituted an exception to the common law rule. That case was
concerned with the effectiveness of an upwards notice to quit served by the
head tenant, a conditional termination of the tenancy. It was not concerned in
any way with a collusive scheme. I cannot read it, therefore, as constituting
authority supporting Mr Wood's submission that the exception from the common
law rule is confined to surrenders in the strict sense.
I
therefore conclude that there is nothing in the authorities that compels a
result contrary to that which I am minded to accept, that is to say that where
there is an agreement between the head landlord and head tenant designed to
defeat the sub-tenancy, the consequent determination of the head lease leaves
the sub-tenant as the tenant of the landlord.
The
existence of the statutory provisions, to which Mr Wood refers, does not seem
to me to take the matter much further. We do not know the reasons why the
Minister or the Lord Chancellor has not exercised the power to provide express
protection for sub-tenants. It may well be that it was considered that the
common law position provided satisfactory protection in itself.
For
these, as well as the reasons given by my Lord, I too would dismiss this appeal.
LORD
JUSTICE JUDGE: For the reasons given in both judgments I agree that the appeal
should be dismissed. There is nothing that I can usefully add.
ORDER:
Appeal dismissed with costs; leave to appeal to the House of Lords granted.
(Order
not part of approved judgment)
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