England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE WEST LONDON COUNTY COURT
(HIS HONOUR JUDGE COWELL)

		Royal Courts of Justice Strand London WC2 Thursday 16 May 2002

1. LORD JUSTICE ROBERT WALKER: This is an appeal from an order of His Honour Judge Cowell, made in the West London County Court on 18 October 2001. The judge's order dismissed an application by the Wellcome Trust Limited ("the Trust") for a declaration as to the invalidity of an exercise of a tenant's claim to acquire a new lease by a notice under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 ("the 1993 Act"). The tenant which served the notice is a company called Bellhurst Limited ("Bellhurst"). It is incorporated in the British Virgin Islands but has an office in Jersey. The property to which the notice related is Flat 3, 27 Lennox Gardens, London SW1. As is well known, in the mid-1990s the Trust acquired the Kensington estate formerly owned by the trustees of Henry Smith's charity.
2. The main purpose of Part I of the 1993 Act was to extend to owner-occupiers of leasehold flats rights comparable to those granted to owner-occupiers of leasehold houses by the Leasehold Reform Act 1967. Part I, Chapter I, of the 1993 Act provided for collective enfranchisement, typically but not necessarily of a purpose-built block of flats, by the tenants as a body. Chapter II provided for an individual tenant of a flat to obtain a new lease in place of his existing lease continuing for 90 years beyond its term. This appeal turns entirely on the correct construction of some of the provisions of Chapter II. There is no disputed issue of fact and I can summarise the undisputed facts quite shortly.
3. The Trust is the freehold owner of 27 Lennox Gardens, subject to a headlease granted on 28 May 1964 to Mr H A Pitt-Roche for a term expiring on 29 September 2015 at a yearly rent of £375. In December 1993 the headlease was assigned to Charlgrove Securities Limited ("Charlgrove"). It is still owned by that company.
4. In the meantime Mr Pitt-Roche had by an underlease dated 29 June 1977 granted an underlease, at a premium and at an annual rent of £100, of Flat 3 on the first floor of the house. The underlease was for a term expiring on 28 September 2015, one day before the headlease. The premium was £42,500 payable as to £35,000 to Mr Pitt-Roche and as to £7,500 to Mr G S Edgson who, as the underlease recited, had had a contract to take an underlease, but had evidently assigned the benefit of that contract to the original under-tenant, Countess Gioconda Cicogna. For that reason Mr Edgson was made a party to the underlease. In 1978 the Countess declared that the underlease was held in trust for her sons, Gianfranco and Gianluca. It appears that Gianfranco was occupying Flat 3 as his ordinary residence for at least three of the previous ten years at the time of the service of the tenant's notice to which I shall refer. Bellhurst has held the underlease as trustee since 1992.
5. Before I recite the facts as to the notices which have given rise to this litigation, I should say more about Part I, Chapter II, of the 1993 Act and the provisions upon which issues of construction have arisen. Section 39 (as now amended by the Housing Act 1996) lays down the right of a qualifying tenant to the new lease and the conditions for qualification (which extend to a tenant who is trustee for an occupying beneficiary).
6. Section 40 identifies the landlord for the purposes of the chapter as the "competent landlord". Where there is more than one leasehold interest the competent landlord is whichever landlord is nearest to the tenant in any chain of interests, but has a freehold or leasehold interest large enough to permit the grant of the new lease. In this case the Trust is the competent landlord. Charlgrove, whose headlease expires in 2015, is what is referred to in section 40(4)(c) as an "other landlord". Subsection (2) provides as follows:

"Where in accordance with subsection (1) the immediate landlord under the lease of a qualifying tenant of a flat is not the landlord in relation to that lease for the purposes of this Chapter, the person who for those purposes is the landlord in relation to it shall conduct on behalf of all the other landlords all proceedings arising out of any notice given by the tenant with respect to the flat under section 42 (whether the proceedings are for resisting or giving effect to the claim in question)."

7. Subsection (3) incorporates Schedule 11 (conduct of proceedings by competent landlord on behalf of other landlords).
8. Section 41 contains fairly elaborate provisions entitling a qualifying tenant to give a notice to his immediate landlord or the landlord's agent requiring him to give information as to the identity of the freeholder, the duration of the immediate landlord's interest, and other matters which may be relevant to the tenant's rights under Chapter II. In this case Bellhurst did not give a section 41 notice. That fact is relevant because, if a section 41 notice is given and is complied with, certain consequences follow under Schedule 11 paragraph 4, as explained below.
9. Section 42 provides for a qualifying tenant to exercise his right to a new lease by giving notice:

"(1) A claim by a qualifying tenant of a flat to exercise the right to acquire a new lease of the flat is made by the giving of notice of the claim under this section.

(2) A notice given by a tenant under this section ('the tenant's notice') must be given-

(a) to the landlord, and

(b) to any third party to the tenant's lease."

10. Third party is defined in section 62(1) as:

"...any person who is a party to the lease apart from the tenant under the lease and his immediate landlord."

11. Section 57(9) explains the purpose of this provision. It is convenient to quote this section out of sequence:

" Where any person-

(a) is a third party to the existing lease, or

(b) (not being the landlord or tenant) is a party to any agreement collateral thereto,

then (subject to any agreement between him and the landlord and the tenant) he shall be made a party to the new lease or (as the case may be) to an agreement collateral thereto, and shall accordingly join in its execution; but nothing in this section has effect so as to require the new lease or (as the case may be) any such collateral agreement to provide for him to discharge any function at any time after the term date of the existing lease."

12. The general effect of section 57(9) is to keep a third party in the picture and subject to his existing obligations, but only for the period of the original lease which is, in effect, to be reflected in the first years of the new lease.
13. Section 42(3) prescribes in detail what is to be contained in the tenant's notice, including the tenant's proposals for the amount of premium to be paid and for the other terms of the new lease. The notice must also set a date at least two months ahead for the landlord to respond. Section 45 provides for the landlord to respond by giving a counter-notice either admitting or contesting, with reasons, the tenant's claim to a new lease. A landlord which gives notice contesting a claim must, within two months, apply to the county court for a declaration that the tenant does not have the right to a new lease.
14. The other provisions most material to this appeal are found in Schedule 11 to the 1993 Act. Part 1 (Procedure in relation to tenant's notice) states as follows:

"Tenant's notice may be given to any of the other landlords

1. The tenant's notice under section 42 shall be regarded as given to the competent landlord for the purposes of subsection (2)(a) of that section if it is given to any of the other landlords instead; and references in this Chapter to the relevant date shall be construed accordingly

Tenant to give copies of notice

2 - (1)Where the tenant's notice is given to the competent landlord, the tenant shall give a copy of the notice to every person known or believed by him to be one of the other landlords.

(2) Where the tenant's notice is, in accordance with paragraph 1, given to one of the other landlords, the tenant shall give a copy of the notice to every person (apart from the recipient of the notice) known or believed by the tenant to be either the competent landlord or one of the other landlords.

(3) The tenant's notice shall state whether copies are being given in accordance with this paragraph to anyone other than the recipient and, if so, to whom.

Recipient of notice or copy to give further copies

3 - (1) Subject to sub-paragraph (2), a recipient of the tenant's notice or of a copy of it (including a person receiving a copy under this sub-paragraph-

(a) shall forthwith give a copy to any person who-

(i) is known or believed by him to be the competent landlord or one of the other landlords, and

(ii) is not stated in the recipient's copy of the notice, or known by him to have received a copy; and

(b) if he knows who is, or he believes himself to be, the competent landlord, shall-

(i) give a notice to the tenant stating who is the person thought by him to be the competent landlord, and

(ii) give a copy of it to that person (if not himself) and to every person known or believed by him to be one of the other landlords.

(2) Sub-paragraph (1) does not apply where the recipient is neither the competent landlord nor one of the other landlords.

(3) Where a person gives any copies of the tenant's notice in accordance with sub-paragraph (1)(a), he shall-

(a) supplement the statement under paragraph 2(3) by adding any further persons to whom he is giving copies or who are known by him to have received one; and

(b) notify the tenant of the persons added by him to that statement.

Consequences of failure to comply with paragraph 2 or 3

4 - (1) Where-

(a)the competent landlord r any of the other landlords does not receive a copy of the tenant's notice before the end of the period specified in it in pursuance of section 42(3)(f), but

(b)he was given a notice under section 41 by the tenant and, in response to the notice under that section, notified the tenant of his interest in the tenant's flat,

the tenant's notice shall cease to have effect at the end of that period.

(2)Where-

(a) sub-paragraph (1) does not apply, but

(b) any person fails without reasonable cause to comply with paragraph 2 or 3 above, or is guilty of any unreasonable delay in complying with either of those paragraphs,

he shall be liable for any loss thereby occasioned to the tenant or to the competent landlord or any of the other landlords."

15. Finally, Schedule 12, paragraph 9, provides that a tenant's notice shall not be invalidated by any inaccuracy in any particulars required by section 42(3). I mention that, not because Mr Howard Smith, for Bellhurst, relied on it in his skeleton argument in this court (nor did he rely on it below), but because it was relied on in some reported cases to which reference has been made. Schedule 13 deals with the premium and other sums payable by the tenant.
16. I can now return to the facts. On 23 January 1998 surveyors acting for Bellhurst sent a tenant's notice to the Trust. They also sent two copies to Mr Pitt-Roche at different addresses. It is not necessary to go further into those two notices as it is common ground that they would have been unnecessary and ineffective even if they had been received. Mr Pitt-Roche, even if he is still alive, had no extant interest in the matter. Bellhurst gave no notice to Charlgrove although, as the judge observed, it would be surprising if the tenant did not know to whom it was paying ground rent. Nor did the tenant give notice to Mr Edgson.
17. The tenant's notice proposed a premium of £150,000 and a payment of £1,000 as another amount payable under Schedule 13 (the intended payee being the immediate landlord, although this was not specified in the notice). Apart from the question of to whom it was given, the notice failed to comply with Schedule 11, paragraph 2(3), since it did not state whether copies were being given to anyone other than the competent landlord. The notice specified 30 March 1998 as the last date for the landlord's counter-notice.
18. The Trust's counter-notice was dated 30 March 1998 and was, presumably, given on that date. The counter-notice did not admit Bellhurst's right to a new lease. It set out various grounds of opposition on which it relied, only one of which (in paragraph 4 of the counter-notice) is still relevant:

"Alternatively the Section 42 Notice incorrectly states that the intermediate landlord is Henry Alfred Pitt-Roche whereas the Landlord understands the headlease was assigned to Charlgrove Securities Limited on 6th December 1993. The Section 42 Notice also fails to state whether it was served on the present intermediate landlord or its successor or at all."

19. There was no mention in the counter-notice of Mr Edgson being a third party to whom notice had not been given, but that issue has since been raised and is still a live issue.
20. After some open correspondence between the parties' solicitors, the Trust commenced these proceedings on 29 May 1998, just within the two month limit. The Trust itself had in the meantime given notice of the claim to Charlgrove under Schedule 11, paragraph 3(1). That notice was given on 6 May 1998. The pleadings raised a number of issues reflecting the different grounds in the Trust's counter-notice and also some further points raised by amendment. But, at trial, the issues had been narrowed to two: (i) whether the tenant's notice was invalidly given because notice had not been given to Charlgrove until it was given by the Trust itself, as just mentioned; and (ii) whether it was invalidly given because notice had not been given to Mr Edgson.
21. The judge gave an extempore judgment at the end of a day's argument. He rejected both attacks on the validity of the giving of the tenant's notice and dismissed the Trust's application for a declaration as to the invalidity of the exercise of the tenant's rights. He refused permission to appeal. Permission was granted by Kay LJ on paper, on what I would call the "other landlord" point, but refused on what I would call the "third party" point. A renewed application for permission on the third party point was adjourned to the full court and is now before this court.
22. In his judgment the judge dealt first with the third party point. I shall do the same. He noted the mandatory wording of section 42(2), ("must be given") and stated, in my view correctly:

"It is perfectly clear that if Mr Edgson comes within the definition of 'any third party to the tenant's lease', the notice is defective."

23. By that he must have meant the process of giving notice rather than the document itself. The judge concluded that Mr Edgson was not a third party within the meaning of the 1993 Act because there was no practical purpose to be achieved by giving notice to him:

"....it would be entirely futile for any document or notice to be served upon him because there is nothing that he could do about it; no obligation would be imposed on him on the service of notice, and no right would arise in his favour on the service of a notice. Service of a notice upon him would be a complete waste of time and, in short, he would simply have no interest in being served with a notice."

24. Mr Kenneth Munro, appearing below as he has in this court for the Trust, had relied on the decision of this court in John Lyon Grammar School v Secchi & Anor [1999] 3 EGLR 49. That was a decision on section 42(2) in the context of a house in St John's Wood, 94 Carlton Hill, which had been divided into four flats. A company called 94 Carlton Hill Limited was a party to the leases of the flats and undertook obligations for their repair and insurance. That company had not been given notice until a late stage. Most of the judgment of Aldous LJ, with whom Beldam and Tuckey LLJ agreed, was concerned with submissions about the effect of the decision of the House of Lords in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, and also about Schedule 12, paragraph 9, of the 1993 Act. At page 51 Aldous LJ clearly identified the statutory purpose of giving notice to a third party:

"It is not right that a third party does not have an interest in the tenant's notice. In this case the third party has covenanted with the landlord and with the tenant to repair and insure the premises. It will, subject to making an agreement to the contrary with both the landlord and tenant, be a party to and have obligations under the new lease if one were to be granted."

25. Mr Munro drew attention to and emphasised the words "in this case" in that passage. It is true that Aldous LJ was drawing attention to the very important obligations which the management company had undertaken. Nevertheless, that seems to me a clear and helpful indication of the statutory purpose. I have already referred in that context to section 57(9). Mr Edgson, by contrast, had dropped out of the picture as soon as he had executed the underlease. On that purposive approach the judge disposed of what he called "the easy part of the case".
26. In my judgment, the judge was right in his approach. Mr Edgson was undoubtedly a party to the underlease, viewed as a deed executed on (or in any event dated) 29 June 1977. He was made a party to the deed and he signed and sealed it. He did so only for the purpose of giving effect to his subsale, if that is the appropriate expression for passing on the benefit of a contract for the grant of a new lease which has not yet been granted. Once the lease had been granted and was in existence as an interest in property rather than as a document, Mr Edgson had no involvement or interest in it at all. The purpose of requiring notice to a third party is, as Aldous LJ indicated in the John Lyon case, because of the rights and obligations which that person is going to have under section 57(9) in relation to the early years of any new lease.
27. This view is supported by considering the use of the word "lease" in these statutory provisions. Occasionally the word naturally refers to the document granting the lease. I note that the different expression "leasehold interest" is used in section 40(1) and section 41(2) in relation to the interest of an immediate landlord. Nevertheless, throughout the chapter as a whole, the word "lease" seems to be generally used to describe an interest in land, not a document. I would grant permission to appeal on the third party issue (as it has been fully argued by Mr Munro and is of some general importance), but I would not allow the appeal on that issue.
28. In his judgment the judge went on to what he called the more difficult part of the case, the "other landlord" point. Charlgrove was not given notice by Bellhurst, and it had an interest affected by the proposed new lease, even though its reversion to the underlease was a single day in 2015. In the meantime it was entitled to £100 a year for the rest of the duration of the headlease. The tenant's notice had proposed to pay £1,000 in respect of this interest, in effect commuting the ground rent at ten years' purchase.
29. The judge discerned a difference between the mandatory language of section 42, which he perceived as going to the essential validity of the notice, and the provisions of Schedule 11, which introduces the provisions relating to any "other landlord". That is broadly correct as to the structure of the provisions, although it may be noted that an inaccuracy in particulars given under section 42(3) does not invalidate a notice (see Schedule 12, paragraph 9). Conversely, failure to give notice to an "other landlord" is fatal in the special case provided for in Schedule 11, paragraph (4)(1). That subparagraph applies only if the tenant has successfully applied for information under section 41, and only in relation to the person who has supplied that information, which is not this case.
30. The judge went on to consider in detail the various paragraphs in Schedule 11, Part I. He described paragraph 1 as "a little remarkable". I am inclined to agree with that comment because it makes a large inroad into the apparently basic and mandatory requirement in section 42(2)(a). The effect of paragraph 1 is that, in the end, it does not matter that notice is not given to the competent landlord, provided that it is given to some "other landlord".
31. In the course of his oral submissions, Mr Munro put forward an anomaly or hardship which he said could arise as a result of a tenant taking advantage of Schedule 11 paragraph 1. He instanced the case of an intermediate landlord with an interest of little real value and, moreover, with no assets of its own. Such an intermediate landlord could, he said, by its disregard of its obligations under paragraph 3, produce a position in which the competent landlord had not received the notice which he should have received and might, in an extreme case, find himself landed with a very poor bargain as regard the premium which he was to obtain. That is, to my mind, a serious criticism of the drafting of Schedule 11. I would accept that in circumstances which are by no means wholly fanciful, it could produce real hardship for a landlord. However, it cannot be right to use that possible anomaly or hardship (striking though it may be) in order to distort what appears to me to be the plain effect of the provisions of Schedule 11.
32. Paragraph 2 imposes obligations on the tenant to give copies of his notice, in effect, to every landlord except the main recipient (under section 42(2) or paragraph 1 as the case may be) and to state in his main tenant's notice what copies are being served. The judge made the justifiable assumption that Bellhurst must have known or believed that Charlgrove was an "other landlord" since Bellhurst was paying ground rent to Charlgrove. That has not been challenged in this court. So there were, the judge noted, two breaches by Bellhurst of paragraph 2.
33. Paragraph 3 imposes duties on landlords who are recipients of tenants' notices, or copies of tenants' notices, to pass them on. This is the provision under which the Trust themselves eventually gave a copy of the tenant's notice to Charlgrove. In the court below Mr Munro referred to paragraph 3 as producing what he called a "snowfall of paper". I see some force in that observation. The statutory policy seems to be to require dissemination of information in all directions without regard to any possible duplication of effort.
34. Then the judge came to paragraph 4 which he regarded as particularly significant. It is headed "consequences of failure to comply with paragraph 2 or 3". I have already set out its terms. Paragraph 4 seems to draw a clear distinction between two situations and their respective consequences in subparagraphs (1) and (2) respectively. Subparagraph (1) applies where the tenant has obtained information under section 41 but has then failed to make proper use of it. It applies only in relation to any landlord or landlords who have been requisitioned under section 41 and have complied with their obligation under it.
35. In such a case the tenant has only himself to blame. The sanction is that his notice ceases to have effect; that is, his claim fails completely.
36. In any other case a tenant or landlord who fails to comply with paragraph 2 or 3, without reasonable cause for his failure, is made liable for any loss occasioned to any other interested party. The judge accepted Mr Smith's submission that:

"....that contrast is sufficiently great to make it clear that if the case comes within subparagraph (1) of paragraph 4 the notice ceases to have effect, but if it comes within subparagraph (2) it does not affect the validity of the notice, yet enables loss to be recovered."

37. The judge found that reading to be confirmed by a provision in section 49(2), which contemplates that a tenant's notice may come before the court in the absence of a landlord's counter-notice, even though the requirements of Part I of Schedule 11 as to copies of the tenant's notice have not been complied with. In that case the tenant will not get a summary order under section 49(1), but his claim will still be on foot. The judge distinguished the John Lyon case which had also been relied on on this issue. It seems to me that it gives little help on this issue.
38. In his written submissions in this court, Mr Munro has described the judge's decision as being based on the proposition that Schedule 11, paragraph 4(1), provides the only sanction for a tenant's failure to comply with paragraph 2. I do not think that is quite right. The judge decided that paragraph 4(1) is the only provision where a failure in the giving of a notice, as opposed to a failure in relation to the contents of a notice, is attended by the sanction of total invalidity. There are other less severe sanctions in paragraph 4(2) and, where it applies, in section 49(2), as the judge noted.
39. Mr Munro also submitted in his written submissions that the judge gave insufficient reasons for his decision. However, despite the great complexity of these statutory provisions, in the end this is a very short point of statutory construction. I agree with the judge that, whatever other problems may arise in other circumstances on Schedule 11, there is a clear contrast in the language of subparagraphs (1) and (2) of paragraph 4. The point does not have to be dignified with a latin maxim in order for it to be (as in my view it is) clear and cogent.
40. Mr Munro has drawn attention to a number of recent decisions of this court on points of statutory construction in the field of landlord and tenant. Apart from the case of John Lyon, he has referred to Speedwell Estates Ltd & Anor v Dalziel & Ors [2002] 02 EG 104; Burman v Mount Cook Land Ltd [2002] 06 EG 156; Ravenseft Properties Ltd v Hall (and two other appeals heard with it) [2002] 11 EG 156; and R (on the application of Morris) v London Rent Assessment Committee [2002] EWCA Civ 276.
41. These cases, all decisions of the Court of Appeal, were concerned with errors or deficiencies in the contents of notices: under the Leasehold Reform Act 1967 in Speedwell; under the 1993 Act in Burman; under section 20 of the Housing Act 1988 in Ravenseft; and Part I of the Landlord and Tenant Act 1954 in Morris. In my view, they are of only marginal assistance in this case; that is in their general admonition (as Mummery LJ put it in Ravenseft at paragraph 24):

"...to apply to the notice the approach to construction laid down by the House of Lords in Mannai in the contextual setting of the statutory objective in requiring the giving of a notice in the prescribed form."

42. Mummery LJ made a very similar observation in paragraph 11 of his judgment in Morris, to which Mr Munro referred. In my judgment, the judge did adopt the right approach to construction and I think that he decided both issues correctly. Mr Munro has, in his skilful and economic submissions, said all that can possibly be said in support of the appeal. However, I would dismiss this appeal.
43. LORD JUSTICE CLARKE: I agree.
Order: Appeal dismissed with costs summarily assessed in the sum of £6,259.22.