England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
LANDS TRIBUNAL (HH JUDGE RICH QC)

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday 15 November 2001

LORD JUSTICE ROBERT WALKER:

Introduction

1. This is an appeal from a decision dated 27 November 2000 of the Lands Tribunal (His Honour Judge Rich QC) on a reference raising issues as between landlord and tenant. The issues arose on the compulsory acquisition of land by the Highways Agency for the construction of the Batheaston Bypass.
2. The compulsory purchase order was made on 17 June 1993. The relevant land was a piece of pasture of no more than about 1.3 hectares. But because a certificate of appropriate alternative development (for residential purposes) had been issued under s.17 of the Land Compensation Act 1961 in respect of the northern part of the land, the total compensation payable on compulsory acquisition is likely to be in excess of three-quarters of a million pounds. The issues before the Lands Tribunal concerned the division of the compensation between the landlord, a charity whose full name is the Hospital of St John the Baptist with the Chapel of St Michael ("the Hospital") and the Hospital's tenant farmer.
3. The facts are reasonably simple and were for the most part not in dispute (there were some disputed issues of fact on which the judge made findings, and his findings are not challenged on appeal). Nevertheless the appeal has raised questions of real difficulty.

The facts

4. The Hospital is an ancient charity based in the City of Bath. Its substantial endowments included about 2.1 hectares of pastureland near Batheaston, which is to the north-east of the city. Part of this land lies between the River Avon and the London Road (the A4) and the remainder (the land which was compulsorily acquired) is on the other side (that is the north side) of the A4.
5. This land was on 4 October 1961 let by the trustees of the Hospital to Mr Frederick Keevil ("the father"). There was a conventional written tenancy agreement providing for an initial rent of £25 a year, payable half-yearly at Lady Day and Michaelmas. The tenancy agreement contained an unqualified prohibition on assignment, underletting or parting with possession during the tenancy. It did not contain any provision enabling the landlords to resume possession of part of the holding for any non-agricultural use (a "part resumption clause"). The rent was reviewed at three-year intervals and was increased from time to time.
6. Apart from the land comprised in the tenancy, the father owned a small farm at Bathford and he had a tenancy of some other agricultural land. He used the land for dairy farming. His son, Mr Ross Keevil ("the son"), lived at home and was also a farmer, but not a dairy farmer, and there was no partnership between them. The son had other livestock of his own, and father and son used the available land for their separate enterprises, accounting for expenses on what the judge called a family basis.
7. On 6 September 1989 there was a meeting between the Keevils and Mr Timothy Gray ARICS of Smith Woolley. Mr Gray was the chartered surveyor who acted as the Hospital's agent. At this meeting an increase of rent to £140 a year was provisionally agreed. Also there was discussion of the father's wish to pass on his tenancy to his son. The father was 66 at that time and the son was 29. Mr Gray noted down details of the son's training and experience and undertook to raise this question with the Hospital's trustees. On the same day Mr Gray wrote to Mr Christopher Couchman, a solicitor who acted as the clerk to the trustees. His letter recommended the rent increase for approval and referred to the proposal for a transfer to the son. The letter continued:

"Keevil fully accepts that the proposal for his Son to succeed to the tenancy by negotiation is one which the Trustees will want to consider carefully. He would like to know the Trustees reaction but has in his mind that nothing could really be achieved until the next term day in a year's time.

My own view is that there could be some advantage to the Trustees in agreeing to a succession. It would be an opportunity to revise the rent again and also an opportunity to modernise the Tenancy Agreement so that, for example, a resumption clause in the case of development could be included. It is of course recognised that in context of the Bypass proposals the land to the North of the A4 may not be available in practical terms for agriculture for very much longer."

8. On 25 September 1989 Mr Gray wrote a fairly encouraging letter to the father. There matters rested until 1992, except that in 1991 the father took steps to dispose of his milk quota. In April 1992 the cheque for the half-yearly rent was paid by the son. This was accepted, but expressly as paid on behalf of the father. In the same letter (dated 7 April 1992) Mr Couchman wrote to the son,

"The Trustees are minded to agree to your succession to your father's tenancy if that is what is intended. However, formal letters need to be exchanged to take effect at Michaelmas (the term date of the tenancy) and the question of the rent payable needs also to be considered.

As you know, Mr Gray of Smith-Woolley acts for the Trustees, and I have asked him to be in touch with you."

9. There had been some discussions between Mr Couchman and Mr Gray as to whether the son would, in the absence of a permitted assignment, be entitled on his father's death to succeed to the tenancy under Part IV of the Agricultural Holdings Act 1986 ("the 1986 Act"). Mr Gray thought that the son might not have a claim, because of paragraph (b) in the definition of "eligible person" in s.36(3) of the 1986 Act. It is unnecessary to decide whether Mr Gray was right; but that, like the impending compulsory purchase order, was part of the commercial context to the negotiations which took place later in 1992.
10. On 27 April 1992 Mr Gray wrote to the son. The letter was marked 'without prejudice' but neither side took any point on that. It was an important letter which needs to be set out in full:

"I think you may have heard recently from Christopher Couchman about the future of your father's tenancy of the Hospital's land at Bailbrook. Of course we discussed your possible succession to the tenancy in 1989 and my clients have since considered, and in principle, approved you as a successor to your father provided we can reach agreement on terms and subject to my preparing formal documents for exchange in order to evidence the succession and the terms which relate to it.

I think it would be a good idea for you and I to meet so that we can have a discussion about matters and be sure that we have taken account of the aspirations of both sides in evidencing the succession.

You will know that the term date of the tenancy is Michaelmas and the Trustees would be working towards a succession at that date. As I explained in 1989 they would also be looking for a rent review and the inclusion of a resumption clause in the present tenancy agreement.

There is a general wish to keep things simple both because the tenancy is over a small acreage and because of the threat posed by the bypass.

It might be prudent for you to take advice on this matter but on the other hand I imagine that costs need to be kept in proportion and we may find when we meet that there is unlikely to be any real difficulty.

If you are agreeable to a meeting then perhaps you could telephone me in order to arrange a convenient time."

11. Three points should be made about this letter. First, Mr Gray referred to "my preparing formal documents for exchange in order to evidence the succession". Second, he referred to the inclusion of a "resumption clause" as well as a rent review, but he did not explain its significance (the judge accepted the son's evidence that he did not know what it meant). Third, he mentioned the possibility of the son taking separate advice, but he certainly cannot be said to have pressed the point.
12. The son seems not to have been good at answering letters but eventually Mr Gray arranged a meeting which was held on the land on 17 September 1992. Mr Gray brought with him a document which he left with the son. He and his father signed it on or before 29 September 1992, and it was approved and signed on behalf of the trustees on the day after a trustees' meeting held on 15 October 1992. It was therefore dated 16 October 1992.
13. The document ("the 1992 agreement") begins, without any heading, "It is agreed between … " and then identifies the parties: the trustees (defined as the landlords), the father (defined as the tenant) and the son (defined as the successor). It contains recitals (introduced by the word 'whereby') referring to the 1986 Act and to the prohibition on assignment in the original tenancy agreement. The operative part must be set out in full:

"NOW THIS MEMORANDUM WITNESSETH AS FOLLOWS:-

a. PROVIDED and on the basis that (as the Tenant and the Successor hereby respectively acknowledge) the assignment hereby permitted shall constitute an 'occasion' for the purposes of Section 37(1) and 37(2) of the 1986 Act the Landlords hereby permit the Tenant (notwithstanding the provisions of Clause 7 of the Tenancy Agreement) to assign the benefit of the Tenancy Agreement to the Successor on the 29 September 1992 and on no other date.

b. THE Tenant and the Successor hereby further acknowledge and confirm that:-

i. The rent payable in respect of the Tenancy shall from the 29 September 1992 be £180 per annum exclusive of value added tax.

ii. The Successor is a 'close relative' of the Tenant and is an 'eligible person' for the purposes of Part IV of the 1986 Act.

c. THE Landlords, the Tenant and the Successor hereby respectively agree and confirm that:-

i. In view of the increased rent payable from the 29 September 1992 that date namely the 29 September 1992 shall be a date as from which there took effect an increase of rent for the purpose of paragraph 4 (1)(b) of Schedule 2 to the 1986 Act.

ii. Save as amended hereby all the terms, provisos and conditions of the said Agreement will remain in full force and effect and in particular nothing shall affect or prejudice the future effect and application of the said Clause 7.

d. THE Successor will immediately after taking possession of the premises comprised in the Tenancy release the Landlords from all liability (if any) to make compensation to the Tenant or to make any other payments to him in respect of any matters arising under the Tenancy Agreement or otherwise.

e. THE Successor hereby covenants with the Landlords that:-

i. As from the date of completion of the assignment to him he will observe and perform the Agreements stipulations conditions and provisos contained in the Tenancy Agreement on the part of the Tenant and will pay the rent thereby reserved.

f. THE Successor further agrees that with effect from 29 September 1992 the Tenancy Agreement dated the fourth day of October 1961 shall be deemed to include an additional clause making it lawful for the Landlords at any time upon giving to the Successor not less than three months previous notice in writing to expire on any quarter day to resume possession and determine the tenancy of any part of the holding for any purpose not being the use of the said land for agriculture and whether the use of the land for any of such purposes is to be made by the Landlord or by a purchaser, lessee, assignee or other person deriving title from or through the Landlords.

AS WITNESSED the hands of the Tenant, the Successor and of Smith-Woolley duly authorised Agents of the Landlords this sixteenth day of October 1992."

There follow the signatures (all witnessed) of the father, the son and Smith Woolley (signed by Mr Gray).

14. At the hearing Mr Gray was challenged on the basis that his dealings with the Keevils over the 1992 agreement amounted to sharp practice, or something close to it. The judge did not go nearly that far, but he also refrained from according to Mr Gray the full vindication which the Hospital's counsel (Miss Ann McAllister) asked for in her closing submissions.
15. I will set out the judge's findings about the execution of the 1992 agreement and Mr Gray's conduct:

"Mr Gray arrived at the meeting with a draft memorandum of agreement already prepared. Having heard both his evidence and that of Mr Ross Keevil, I find that the meeting was short, that there was no discussion of the terms, save that Mr Gray indicated that the rent was to be increased to £180 a year, but Ross was told that if he got his father to sign the memorandum then, and this is in my judgment a matter of importance, subject to the Claimants' formal approval, the tenancy could be transferred to him. Specifically I find that there was no discussion of the part resumption clause, which forms clause (f) of the memorandum, nor was it drawn to Ross's attention. On the other hand, I accept that Mr Gray did not give any assurance that the document was not one which Ross needed to worry about, nor did he misrepresent it to Ross. Nevertheless, I do accept that Ross was left with the impression that the document contained no terms which were to his disadvantage save the rent increase which was spelled out.

I think it convenient to interpolate in this account of the facts some conclusions at which I have arrived on certain of Miss McAllister's submissions on behalf of the Claimants. I accept that Mr Gray owed the Keevils no duty of care: none has been suggested. Nor was he under any duty to ensure that the Keevils were independently advised. Miss McAllister has however asked me to find specifically that Mr Gray's conduct was entirely proper. I do not so conclude. I would not have expected a professional man to introduce such a term as the part resumption clause into a document proffered in this way, without specifically and expressly discussing and agreeing it with the laymen with whom he was in negotiation. I find as a fact that he knew that Ross was not professionally advised on this matter, even though his father was so advised in regard to the sale of the milk quota. Indeed he had in his letter of 27th April advised Ross that he might manage without such advice. I am sure that in doing so he was acting honestly and with good intentions. He was however as mistaken as he was in assuming that he was himself competent to document the transaction which he was negotiating."

16. The judge had also accepted Mr Gray's evidence that he did not have in mind the possible effect of a part resumption clause on the measure of compensation payable to the tenant (in fact the difference is likely to be in excess of £200,000, as both sides agree). That is quite a surprising finding, in view of Mr Gray's experience as a chartered surveyor and the fact that he and Mr Couchman had been aware, since 1989 at latest, that the land was affected by the by-pass. Nevertheless neither side has sought to challenge the judge's findings and they are the basis on which this court has to consider the issues of law which arise.
17. No separate assignment of the tenancy was ever executed, either on 29 September 1992 (the date specified in clause (a) of the 1992 agreement, which was in fact before the execution of the agreement on behalf of the trustees) or at any later date. The son treated himself as the tenant and so did the trustees. He paid rent at the increased rate of £180 a year and it was accepted by the trustees. He claimed subsidies and he carried out some fencing work on the land. However the father did not retire completely, and he and the son continued to make use of all their land for their separate enterprises, as before. The father's cattle feeder remained on the land. The father retained possession of the original tenancy agreement, but the son retained the 1992 agreement (which, the judge found, he regarded as "the transfer papers").
18. The processes of compulsory acquisition and compensation proceeded. Correspondence also proceeded between solicitors. It was not until September 1998 that the solicitors then acting for the Keevils wrote to the Hospital's solicitors reporting counsel's advice that the father was still the tenant.
19. That led to three questions being referred to the Lands Tribunal. One (as to the application of the 1986 Act) was not live at the hearing. The other two, which were live issues, were (a) which of the Keevils was the tenant; and (b) on what terms was the land held, and in particular whether the Hospital had the benefit of a part resumption clause.

The proceedings below

20. Before the judge most of the facts were agreed, but he did hear sufficient oral evidence to enable him to make the findings which I have mentioned. When he turned to the law he took as his starting point the propositions (a) that a deed is required for the legal assignment of a tenancy (even if the tenancy itself was not created by deed) and (b) that the 1992 agreement was not a deed.
21. The first of these propositions follows from s.52 of the Law of Property Act 1925, as interpreted and applied by this court in Crago v Julian [1992] 1 WLR 372. This result has been criticised (see Megarry & Wade, The Law of Real Property 6^th ed (C. Harpum) para 14-038) but it has not been suggested that Crago v Julian does not bind this court. The other proposition was common ground below and in this court, although in the view of the terms of s.1 of the Law of Property (Miscellaneous Provisions) Act 1989 and the relative formality of the 1992 agreement the contrary view might have been at least faintly arguable.
22. Before the judge the trustees' main argument was based on estoppel. Miss McAllister argued that the Keevils were estopped from denying that there had been a legal assignment, and she relied on the decision of this court in Rodenhurst Estates Ltd v W H Barnes Ltd [1936] 2 AER 3. In that case there had been a formal agreement for an assignment (by an individual trader to a family company of his) and the judge thought the facts of the present case quite different. He thought it at least doubtful whether the son was an equitable assignee of the father.
23. The judge was still more concerned about whether all the elements of an estoppel were established. He said that the Keevils had not made any representation to the Hospital; they had merely signed the 1992 agreement which Mr Gray had prepared and had invited them to sign. So if there was any estoppel it was an estoppel by convention, which (like estoppel by representation) could be established only if there had been detrimental reliance on the part of the trustees. On this point the judge referred to the decision of this court in John v George (1995) 71 P&CR 375.
24. He then observed that there was no pleading of detrimental reliance by the Hospital, despite this point having been raised by him at a pre-trial review. The issue had really been addressed only in counsel's closing submissions, after all the oral evidence had been heard. The judge took account of the trustees' counsel's late submissions as to detrimental reliance, despite a risk of unfairness which he acknowledged. But he concluded that none of the evidence was sufficient to establish that the Hospital had altered its position to its detriment.
25. The judge also rejected the Hospital's last-ditch argument that the failed assignment took effect as a surrender and regrant. He did so because he saw it as inconsistent with what the parties had done and with the terms of the 1992 agreement:

"It is clear however from the terms of the [1992 agreement] that it was assumed that the rights of succession did apply and [the son's] succession was to be treated as an occasion of succession for the purposes of the Act. The common intention was therefore that the tenancy should continue. That, of course, is only consistent with the clear intention of the parties that the transfer, which they envisaged and indeed intended, would be effected by an assignment. The words of the document which they used for that purpose, in my judgment make it quite impossible to say that [the father] or indeed the [Hospital] performed any unequivocal act which amounted to an acceptance that the tenancy had ended. On the contrary their acts assumed that it had not. I therefore conclude that the [Hospital] fail on this alternative basis also."

26. For these reasons the judge concluded that the father was still the tenant, and the part resumption clause was not part of the terms of the tenancy. The trustees appeal with the permission of Rix LJ, limited to issues of law.

The appeal: estoppel

27. The appellant's notice started off (through an oversight about the new procedure) as a request for a case to be stated. The permitted grounds of appeal are fairly elaborate but essentially they focus on the issue of detrimental reliance, with implied surrender and regrant as the Hospital's last-ditch position. There is a respondent's notice contending that if the son is held to be tenant as a result of surrender and regrant, the new tenancy should not include the part resumption clause on the ground that Mr Gray's conduct was not entirely proper.
28. In her written and oral submissions on behalf of the trustees Miss McAllister relied strongly on Rodenhurst Estates Ltd v W H Barnes Ltd, the facts of which I have already touched on. Mr Barnes had been a piano dealer and he had died less than a year after selling his business to the family company, and obtaining a licence to assign his lease. No assignment had been made but the company had paid rent (in response to demands addressed to it) for nearly five years after the grant of the licence. Then it vacated the premises and failed to pay any more rent.
29. On an appeal from the Southwark County Court the company argued that it had not made any representation that a legal assignment had taken place; the facts were consistent with the company having taken possession and paid rent as a licensee. The respondent landlord argued that there had been a representation and that it had changed its position, mainly by refraining from taking proceedings against the company.
30. This court dismissed the appeal, holding that the company had made a representation and that the landlord had relied on it to its detriment by changing its position for the worse. Sir Boyd Merriman seems to have placed most weight on Mr Barnes having removed his goods from the premises, so prejudicing the landlord's ability to distrain for rent (that is puzzling, as Mr Barnes had sold his trading stock to the family company). Scott LJ thought that it was prejudiced by "being kept in the dark as to what the true position was". Eve J did not give any separate reasons for his agreement in the result.
31. Rodenhurst is not therefore very clear in its reasoning as to detrimental reliance. It may give some slight support to Miss McAllister's submission that the requirement of detriment is relatively undemanding in the context of the relationship between landlord and tenant. Against that, however, this court upheld a finding of no detrimental reliance in Brown & Root Technology Ltd v Sun Alliance and London Assurance [2000] 2 WLR 566. That was a case where an assignment to an associated company, for which the landlord had granted its licence, had been executed but had never been registered at the Land Registry. The landlord had been told that the assignment had been "completed" and that was treated as a representation; but the case was also considered on the alternative basis of estoppel by convention (also requiring detrimental reliance). The reasoning on this point in the judgment of Mummery LJ (with whom Butler-Sloss LJ and Sir Ralph Gibson agreed) is quite briefly expressed.
32. In my judgment the judge was right to approach this case simply as a possible case of estoppel by convention, since there was no representation by either of the Keevils. As he said,

"The reality is that there was a common mistake, induced by Mr Gray, as to the true position in law, and … the parties acted under such common misapprehension."

The judge was also right to recognise the risk of injustice arising out of an assertion of estoppel which was raised almost for the first time during closing submissions, after the evidence has been completed. I say 'almost for the first time' because Miss McAllister's opening skeleton did refer (echoing Scott LJ in Rodenhurst) to the trustees having been kept in the dark and having been prejudiced as a result. But the skeleton argument of Mr Anthony de Freitas (who appeared below, as in this court, for the Keevils) referred to the trustees having disclaimed detrimental reliance at the pre-trial review. If estoppel was in the forefront of the Hospital's case then its position on detrimental reliance should have been made much clearer. Then the unpleaded matters which were ultimately relied on could have been put to the Hospital's witnesses.

33. I think the judge would have been entitled to decline to consider the Hospital's unpleaded case on detrimental reliance. In fact he considered it and found it inadequate. In my view he was entitled to come to that conclusion. He could also, I think, have come to the same conclusion on the basis that in the particular and unusual circumstances of this case, it would not be unconscionable or unfair for the son to go back on the common understanding that he had become the tenant.
34. On this point Mr de Freitas relied on John v George (1995) 71 P&CR 375, and especially a passage in the judgment of Simon Brown LJ at p.396:

"It follows that for estoppel by convention to apply there must be, first, an assumption (shared and communicated between the parties) underlying the transaction and, secondly, unfairness or injustice in allowing the party seeking to benefit to go back on that assumption.

How then does one determine when it is unfair or unjust to allow the party to be estopped to go back on the common mistaken assumption?

As I have already suggested, it is a pre-condition of establishing such unfairness that the party to be estopped must be in some way responsible for the other party acting to his prejudice under the mistaken assumption."

Simon Brown LJ then referred to what Kerr LJ had said in The August P Leonhardt [1985] 2 LLR 28, 35, as to the need for the alleged representor to be in some sense "open to criticism". Simon Brown LJ continued:

"Once, however, that pre-condition is satisfied so that in that sense at least the representor (a term here used loosely to encompass also the party putatively estopped under the principle of estoppel by convention) is open to criticism (or at any rate would be if he then held to his rights), what else is required before it will be held unconscionable for him to go back on the common assumption?

The answer seems to me to be this: sufficient in the way of prejudice to the party who has acted to his detriment in reliance upon the mistake to tip the overall balance of justice in favour of an estoppel.

I am not, let me make plain, suggesting that the only relevant considerations in play are, first, the relative responsibility of the parties for the action taken pursuant to their shared mistake and, secondly the prejudice to their respective positions thereby occasioned. On the contrary, within the parameters indicated, it is right that this quintessentially equitable doctrine should remain sufficiently flexible to respond to the demands of justice in a wide variety of situations. But those two considerations, to my mind, are likely in the great majority of cases to be determinative."

Morritt LJ (with whom Evans LJ agreed) recognised the need for unconscionability and referred to The August P Leonhardt, but not to what Kerr LJ had said on this particular point.

35. I do not consider that the overall balance of justice tips in favour of an estoppel in this case. Mr Gray was an experienced and no doubt well-respected chartered surveyor acting for an ancient and well-endowed charity. The Keevils were small farmers without the benefit of legal advice. All they did was to sign the document which Mr Gray prepared for them. I see nothing unconscionable in the son now relying on a defect in that document.

The appeal: surrender and regrant

36. The judge also rejected the Hospital's last-ditch argument based on implied surrender and regrant. I think he was right to do so. I am not much impressed by the particular argument based on the recitals being inconsistent with the language of s.34(1)(b)(iii) of the 1986 Act. If that were the only or the worst problem, it would be surmountable in order to give effect to the parties' intentions, if they were otherwise clear.
37. The insurmountable problem about surrender and regrant, it seems to me, is that that analysis would be inconsistent, not only with the commercial context of the 1992 agreement, but also with six out of its seven operative clauses. Clause (a) gave the landlord's consent to an assignment of the original tenancy as an occasion of succession under the 1986 Act. Clause (b) confirmed an increase of rent (already negotiated) under the original tenancy. Clause (c) confirmed all the terms of the original tenancy except as amended by the 1992 agreement. Clause (d) alone (relating to the release of claims by the father) would have been consistent with a surrender and regrant. By Clause (e) the son assumed liability for the tenant's obligations under the original tenancy. Clause (f) contained the part resumption clause which (although binding the son alone) was expressed as a variation of the original tenancy.
38. However imprecisely the parties to a commercial agreement may have expressed their bargain, the court will always try to give effect to the parties' evident intention, if it can be gathered from the language which they have used, read in its commercial context. This principle applies as between landlord and tenant as well as in other fields (Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749). But the court cannot make a new agreement for the parties.
39. It is true that all three parties to the 1992 agreement intended (and made plain by its terms that they intended) that the son should become the tenant in place of the father. But they also made plain that they intended this result to be achieved by an assignment of the existing tenancy, not by the surrender of that tenancy and the grant of a new tenancy. Had the 1992 agreement been a deed and had its only defect been the absence of words of assignment the court might have been able to fill that gap, since the parties' intention (an assignment on 29 September 1992) was clear. But there are limits to how far the court can restructure a transaction as something which the parties did not intend, in order to save it from failure in the form which the parties did intend. In my view the judge was right in his conclusion that the permissible limits would be exceeded here.
40. I would therefore dismiss this appeal.

MR JUSTICE LADDIE:

41. I agree.

LORD JUSTICE PILL:

42. I also agree.
Order: Appeal dismissed with costs order made pursuant to Community Legal Service regulations. (Order does not form part of the approved judgment)