England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
HIS HONOUR JUDGE RICH QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/03/2005

Lord Justice Auld :

Introduction

1. This appeal concerns a claim by the appellant, as nominee of a number of tenants of flats in the same building ("the tenants"), to exercise their right of collective enfranchisement under Part 1, Chapter 1 of the Leasehold Reform, Housing and Urban Development Act 1993 ("the Act"). The appellant has, as the start of that claim, served an initial notice under section 13 of the Act on the common landlord, the Royal Borough of Kensington and Chelsea ("the landlord"), specifying a proposed purchase price of £210. As part of the claim, the appellant challenges the validity of the landlord's counter-notice under section 21 of the Act, proposing a price of £130,000. The tenants' challenge to the landlord's counter-notice is that it proposes an unrealistically high price, relying on the reasoning of this Court in Cadogan v Morris [1999] 1 EGLR 59 in a different context of the Act, namely Part 1, Chapter 2, relating to a tenant's right to acquire a new lease. The claim failed in the court below; if it had succeeded or if the appellant were to succeed in this appeal, the tenants would obtain "in default" of a valid counter-notice, the freehold of the building containing their flats for the price they proposed in the appellant's section 13 notice, namely £210.
2. The landlord contends that its counter-notice was valid, raising as it did an issue between the parties as to the price at which the tenants should be entitled to exercise their undoubted right of enfranchisement, and that the appropriate price should be determined by a leasehold valuation tribunal under the machinery provided by section 24 of the Act. In so contending, it maintains that the Cadogan v Morris requirement of a "realistic" proposal does not apply to a landlord's counter-notice under section 21 of the Act, or that, if it does, it is satisfied where, as here, the proposed price was made bona fide and on advice from a professional valuer.
3. Before I turn in more detail to the facts of the case and to the issues of law that it raises, I should attempt a summary of the material parts of the legislative scheme of the Act.

The legislative scheme

4. In 1993 Parliament, by the Act, conferred for the first time on tenants of flats rights to collective enfranchisement of the premises containing their flats and to the grant of new leases. These were not the first inroads on landlords' right to retain their freehold or to exercise their reversion on the expiry of leases. The first was in the Leasehold Reform Act 1967, which gave residential tenants of houses held on long leases at low rent the right to acquire either the freehold or an extended lease. When considering the proper approach to construction of this type of legislation, it is important to remember that, whilst its effect is expropriatory in nature, that is a necessary consequence of its main purpose, which was to confer benefits on tenants. It is not, therefore, appropriate to construe it strictly in favour of landlords whose property is being subjected to compulsory acquisition, but, as Millett LJ (as he then was) said in Cadogan v McGirk [1996] 4 All ER 643. at 647j-648b,

"fairly and with a view, if possible, to making it effective to confer on tenants those advantages which Parliament must have intended them to enjoy."

5. Chapter 1 of Part 1 of the Act conferred the right to collective enfranchisement and provided the means and conditions of its exercise, and Chapter 2 of Part 1 made corresponding provision for acquisition of new leases. This appeal is concerned primarily with the right to collective enfranchisement in Chapter 1, though there are comparable provisions in relation to acquisition of new leases in Chapter 2, the interpretation and application of which are of some assistance to the resolution of the issues before the Court.
6. As I have indicated, Chapter 1 of Part 1 of the Act sets out the procedural machinery by which tenants of flats can in certain circumstances assert a right to collective enfranchisement. One of the critical matters for resolution in the exercise of such a statutory right is the price to be paid for the freehold of the premises in which the tenants live. The Act provides a mechanism for resolution of that matter and satisfaction of other requirements of exercise of the right, consisting broadly of two stages. The first is that of an exchange of notices between the tenants, or their nominee, and the landlord, which serves to identify at an early stage whether and broadly what issue or issues there are between them as to the tenants' right to exercise the power and/or as to the terms, including price, of its acquisition. It does not serve, as the Judge appears to have considered at paragraph 25 of his judgment, as a means of securing a final definition of, or constraint on, the issue or issues for determination by court or a leasehold valuation tribunal, if the matter goes that far. Rather, it serves as a useful negotiating stage during which any issues may be resolved so as to avoid, if possible, recourse to the second stage, namely application to the court to determine the tenants' entitlement to enfranchisement and/or, as the case may be, to a leasehold enfranchisement tribunal to determine the price and/or other terms.
7. The Act, in section 13(1) provides that qualifying tenants who wish to exercise their right to collective enfranchisement must do so by "the giving of notice" under the section, described as an initial notice. The section includes, in subsection (3)(d) a requirement that such a notice must "specify the proposed purchase price" for the freehold interest(s) sought to be acquired.
8. If, for some reason, the notice is agreed or held to be invalid for want of compliance with the requirements of section 13, there would be no bar to the tenants giving a valid notice without delay. And, if, by the operation of some provision of Chapter 1 of the Act, it is withdrawn or deemed to have been withdrawn or otherwise ceases to have effect, then the only inhibition on the giving of a further notice by the tenants in respect of the same premises is, as provided by section 13(9), read with 13(11), that they must wait a year from the date of withdrawal or of it ceasing in some other way to be of effect before doing so.
9. On giving a valid notice, which remains in effect, section 21 of the Act requires the landlord to respond by way of a counter-notice. As a result of section 13(3)(g) and (5), this will be not less than two months after receipt of the initial notice. The counter-notice must state whether the landlord admits that the tenants on whose behalf the initial notice was given are entitled to exercise their right to enfranchisement and, if so, which, if any, proposal in the notice he accepts and which, if any, proposal he does not accept. By section 21(3)(a)(i), he must specify "in relation to any proposal which" he does not accept, his "counter-proposal". And, by section 24(1) and (2), if the landlord, by his counter-notice admits the participating tenants' right to exercise their right of enfranchisement, but disputes the proposed price or any other term of the acquisition, and the parties remain in dispute for a period of two months after the giving of the counter-notice, there is then a further period of four months in which they can apply to a leasehold valuation tribunal for determination of the matter. Thus, the exchange of notice procedure specified by the Act allows the parties a generous period – normally up to six months – for negotiation before one or other of them is driven to put the matter before the tribunal.
10. If the landlord fails to serve a counter-notice the tenants are entitled, by virtue of the Court's interpretation of section 25 of the Act in Willingale v Globalgrange Ltd [2000] 2 EGLR 55, to acquire the freehold on the terms, including those as to price, proposed in their notice. Section 25 provides, so far as material, that where a landlord fails to serve a counter-notice under section 21 in response to an initial notice under section 13 the court "may" on an application on behalf of the tenants make an order determining the terms on which they are to acquire, in accordance with the proposals in the initial notice, the freehold interest sought. In that case May LJ, with whom Waller LJ agreed in a short concurring judgment, held that the word "may" in this context means "must", or, put another way, means "shall have power to" and does not confer on the court a discretion whether or not to make an order. It followed, he said, that the court has to make an order in such circumstances, and the landlord, in the absence of a duly given counter-notice cannot challenge the tenants' proposals, including that as to price.
11. May LJ's approach involved a recognition, as he put it at page 57B, of the "irretrievable" prejudice to the landlord arising from this construction, which he contrasted with the position of the tenant who, if his notice were to cease to have effect, "could serve another one". However, as appears in the following statement of his reasons, at page 57D-G, he drew some consolation for the landlord from the "safeguard" of the decision of this Court in Cadogan v Morris, that, if a tenants' notice proposes an "unrealistic" purchase price, the notice is invalid:

"The scheme of Part I of the 1993 Act is to provide a strict procedural timetable with serious consequences if either the tenant or the freeholder does not comply with it. There are a number of circumstances in which a tenant may lose out if the tenant does not take steps that the timetable requires.

There would be no one point in [the] machinery for the court or the leasehold valuation tribunal determining differences arising after the service of a counter-notice if the court had an equivalent discretion even if a counter-notice were not served. The provisions for counter-notices could simply be ignored.

The Act has the safeguard recognised by Cadogan v Morris. The tenant's proposals must be realistic.

…

The statute does not work if there is a discretion. There is no guidance as to how the discretion should be exercised. The statute provides for disputes about the terms of acquisition to be referred to the leasehold valuation tribunal. But section 25 does not so provide,… [if] there is no reversioner's counter-notice to form the basis for the dispute.

The court is not obliged to make an order in every circumstance – hence the empowering use of the word "may". The court has to be satisfied that the matters referred to in section 25(3) are proved. If they are not, there will be no order. If they are, the court has to determine the terms of acquisition 'in accordance with' the proposal in the initial notice."

12. However, in the more usual circumstance where tenants have served a valid initial notice and the landlord has served a counter-notice under section 21, including a counter-proposal as to price, the Act provides in section 24 a mechanism for resolution of the competing proposals. It provides that a leasehold valuation tribunal should determine the issue.

The facts, the issues, Cadogan v Morris and the judgment below

13. All of these matters may be shortly stated. The appellant, the nominee of tenants making a collective enfranchisement claim served an initial notice specifying a proposed purchase price of £210. The landlord responded in good time with a counter-notice admitting the right to collective enfranchisement, accepting all the tenants' proposals save for the proposed purchase price, and counter-proposing the price of £130,000. In fixing upon that price, the landlord consulted its own in-house valuer, Mr Cerian Jones FRICS, who produced a detailed valuation report advising such a figure; moreover, his report had been reviewed by another surveyor before the landlord acted on it. The counter-proposal was written in clear English and was readily comprehensible.
14. The tenants took the view that the counter-proposed price was so high as to be "unrealistic", and, instead of seeking resolution of the issue by application to a leasehold valuation tribunal under the machinery provided in section 24 of the Act, sought a declaration from His Hon Judge Rich QC in the Central London County Court that it was invalid, so as to enable them to proceed with the acquisition at their own proposed price in default of a counter-notice, pursuant to the construction of section 25 of the Act by this Court in Willingale v Globalgrange.
15. At the hearing before the Judge, it transpired that Mr Jones could not support his earlier valuation. First, he accepted that it was not an open market valuation, but an assessment of the heads of value that could be claimed, prepared for the purpose of enabling the landlord to put a negotiating figure in the counter-notice. As such, he said it was at the "top end of values that could be attributed to it". Secondly, he said that he had made his assessment by reference to a plan and without having had an opportunity to inspect the property for this purpose. Having since inspected it, he was of the view that he had pitched his valuation £20,000 higher than any margin for which could properly have allowed. He accordingly accepted that the landlord's proposed purchase price, as set out in its counter-notice, was not within the bracket of possible valuations.
16. The claim raised two related issues going to the validity of the counter-notice, namely:

i) whether a proposal of an "unrealistically" high figure in a counter-notice can invalidate it, and, if it can

ii) whether it still does so if the landlord based his figure on bona fide advice from a professional valuer.

17. Those issues derive from jurisprudential overlay of the statutory provisions, and have their starting point in the decision of this Court in Cadogan v Morris, to which I have briefly referred. That case concerned, not a tenants' initial notice in support of a collective claim for leasehold enfranchisement under Chapter 1 of Part I of the Act, but a notice by an individual tenant in support of his claim to acquire a new lease under Chapter 2, of Part I. The latter provisions contain a similar mechanism, namely for the giving of notice by a tenant under section 42 and of a counter-notice by the landlord under section 45, and for resolution of claims under section 48 and 49 by a leasehold valuation tribunal or a court respectively. It was common ground before the Judge that the test in Cadogan v Morris applied to collective enfranchisement notices as well as to notices in relation to the grant of a new lease, as had clearly been clearly accepted by this Court in Willingale v Globalgrange..
18. In Cadogan v Morris the tenant's notice proposed a nominal premium of £100 for a new lease, whereas it was common ground that the premium would be at least £100,000. The Court held that, as the tenant has proposed only a nominal figure, one that he clearly did not propose to pay, the notice was invalid. Stuart-Smith LJ, with whom Otton and Tuckey LJJ agreed, said that the tenant ought to offer a realistic figure, albeit that it might not be his final figure. He expressed the Court's reasoning on the issue before it - the validity of a tenant's notice under section 42 - in the following terms at p 61A-D:

"… if section 13(3)(d) requires a bona fide and genuine proposal as to a purchase price, as Mr Cowen [counsel for the tenant] concedes, I cannot see why the same should not apply to section 42(3)(c).

I do not consider it necessary to read any words into section 42(3)(c). The tenant is required to specify the premium that he proposes to pay. He did not do so; he deliberately specified a figure that he did not propose to pay. I do not think the tenant is required to offer his final figure that he may be prepared to go to, but he should, in my view, offer a realistic figure. The judge was troubled by the difficulty in telling whether the offer was a realistic one. I very much doubt whether in practice this will present the difficulties that the judge envisaged. It ought to be possible both for the landlord and the judge to recognise whether the offer is a realistic one or simply a nominal or wholly unrealistic one. The landlord would need to be on fairly firm ground if he sought to challenge a substantial offer, even if he thought it was considerably too low. The court will obviously allow a fairly wide margin. If the landlord unsuccessfully challenges the validity of the notice, he will find himself paying the costs. On the other hand, even it is the tenant's opening bid, it should, in my view, be a realistic one. I decline to lay down any more precise guidelines. In this I follow what Sir John Donaldson MR said in Cresswell v Duke of Westminster [1985] 2 EGLR 151, at 152:

'Where we draw the line I do not know, I doubt whether it is in anybody's interest that I should attempt to draw that line. Many cases will answer the question on their own facts.'

This seems to me to be an application of the well known elephant test. It is difficult to describe, but you know it when you see it. I think we can trust to the good sense of landlords not to make frivolous applications and county court judges to take a robust line and not get enmeshed in hearing detailed evidence. A brief inquiry, if necessary with limited evidence from tenant and landlord, should suffice."

19. He added, at page 61 D-E - obiter, for the point did not arise in the case - that the same reasoning applied to a landlord's counter-notice under section 45(3)(b):

"I also consider that when the landlord makes counter-proposals in his counter-notice …, this too should be a realistic figure and not an absurdly high one, which might have the effect of intimidating the tenant. If the landlord does not give a valid counter-notice in the time allowed, the consequences in section 49(1) will result. But here again there is no reason why the landlord should not specify the highest figure that he realistically hopes to get."

20. As I have mentioned, Stuart-Smith LJ's reasoning in the case that the validity of an individual tenant's notice in support of a claim for a new lease under section 42 depends, inter alia, on the specified premium that he proposes to pay being "realistic" has been accepted by this Court in Willingale v Globalgrange as to the validity of an initial notice specifying a proposed purchase price in support of a claim for collective enfranchisement under section 13(3)(d).
21. The first question for Judge Rich was whether the Cadogan v Morris test also applies to a landlord's counter-notice under section 21. He held that it does, but that Stuart-Smith LJ, in his use of the word "realistic" did not intend to impose an objective test, but more of a subjective one, namely that it must be genuine in the sense of more than a nominal figure and must be made bona fide.

The first issue – whether a landlord's proposal as to price in a counter-notice under section 21 requires justification of the Cadogan v Morris or any other sort

22. On this issue the Judge relied first on ordinary canons of construction to give consistent meanings to the same word in a statute, namely the specification of the "proposed purchase price" in the tenants' initial proposal in the notice under section 13(3)(d) and the same in the landlord's counter-proposal" under section 21. He relied secondly upon the obiter dictum of Stuart-Smith LJ in Cadogan v Morris in concluding that the figure proposed by a landlord in his counter-notice should also satisfy whatever criterion or criteria was or were properly derived from his reasoning as to what was required to render a tenant's initial notice valid.
23. In support of the landlord's Respondent's Notice on this issue, Mr Anthony Radevsky made the preliminary, but obvious, point that neither section 13 nor 21 of the Act expressly qualifies in any way the meaning of the expression "proposed purchase price". However, in acknowledging that this Court in Cadogan v Morris has done so in the case of a section 13 initial notice, he submitted that there were special reasons for it that are not applicable to a section 21 counter-notice. He submitted that the Cadogan v Morris principle that an initial notice is invalid if the proposed purchase price specified in it is "unrealistic" does not apply to a landlord's counter-notice. He went further and submitted that, unlike the tenants' initial notice, it requires no safeguard for the tenants in support of its validity since, whatever sum the landlord counter-proposes, it can have no prejudicial consequence for them. In particular, there is no scope in the statutory machinery for the "judgment by default" effect in favour of the tenants established in Willingale v Globalgrange where a landlord serves no counter-notice or serves an invalid one. All that the specification of a different price in the counter-notice does is identify that there is an issue about it, so as to enable either party in the ensuing six months to apply to the leasehold valuation tribunal for determination of the appropriate price. In support of those submissions, he referred the Court to its reasoning in Sun Life Assurance plc v. Thales Tracs Ltd [2001] 1 WLR 1562, in particular that of Dyson LJ, to which I shall return. In summary, Mr Radevsky submitted that the Judge should have held that, since there were no legal consequences of significance in the landlord's counter-notice, the context of section 21 was different from that of section 13 and, therefore, did not require, as did section 13, that the counter-proposal as to price should be justified or qualified in any way.
24. Mr Radevsky contrasted the function and importance in Cadogan v Morris of the tenant's section 42 tenant's notice with the effect of a landlord's counter-notice under section 45. First, if the landlord does not serve a counter-notice, the tenant is entitled, by default of it, to a new lease on his proposed terms; the same is true, mutatis mutandis, to a notice and counter-notice in respect of a claim for enfranchisement under sections 13 and 21. Secondly, the tenant's proposed figure in a notice under section 42 determines the level of deposit that a landlord can demand under the Leasehold Reform (Collective Enfranchisement and Lease Renewal) Regulations 1993, viz 10% of the proposed figure or £250, whichever is the greater; see sch. 2 para 2.
25. Mr Radevsky drew attention to the point made by May LJ at page 57 in Willingale v Globalgrange, a section 13 case, that in such cases Cadogan v Morris provides a safeguard to landlords against unrealistic proposals by tenants. By contrast, Mr Radevsky pointed out that a figure proposed by a landlord in a counter-notice can never become the enfranchisement price by default, and there is no need for the tenants to be similarly safeguarded.
26. With that contrast in mind, Mr Radevsky referred us to this Court's decision in Sun Life Assurance v Thales Tracs, which concerned a tenant's request for a new business tenancy under section 26 of the Landlord and Tenant Act 1954. The Court declined to apply the Cadogan v Morris principle to such a request, even though the tenant's intention in making it was to obtain statutory compensation for disturbance, not a new tenancy. Mr Radevsky compared the request in that case with a section 21 counter-notice in a leasehold enfranchisement claim, in that it has no significant legal consequences of the sort attending a section 13(3)(d) tenants' initial notice. A tenant's request and proposals under section 26 of the 1954 Act, as Dyson LJ said, at paragraph 34:

"do not commit the tenant or the landlord to anything. They are merely the prelude to a possible new tenancy on terms to be agreed or determined by the court."

In the case of a section 21 counter-proposal, it simply indicates that there is an issue as to the purchase price so as to trigger a further period of months in which the parties can negotiate, following which, if negotiations fail, the issue can be precisely developed and defined in section 24 proceedings. In advancing these submissions Mr Radevsky took the Court to and relied on the reasoning of Dyson LJ, with which Waller and Hale LJJ agreed, at paragraphs 17-18:

"17. … The words 'request' and 'proposal' are ordinary English words. A request is an act of asking for something. A proposal is something that is put forward for consideration. It may in some circumstances be an offer which, as a matter of law, is capable of being accepted so as to give to a binding contract. But, it does not have to be. Both 'request' and 'proposal' are what Mr Lewison [leading counsel for the tenants] called 'performative utterances'. They describe an act. They do something. It is not meaningful to ask whether a request or a proposal say anything about the state of mind of the person who makes the request or puts forward the proposal. The meaning of a request and a proposal is judged objectively. The state of mind of the person who makes the request and the proposal is irrelevant to their meaning. Nor is it meaningful to consider whether they are true. ….

18. I would therefore hold, as a matter of ordinary language, that the fact that a request is made or a proposal is put forward says nothing about the state of mind of the person making the request or proposal. A may make a proposal to B which he believes, and possibly even hopes, B will refuse. …"

27. As Mr Radevsky observed, Dyson LJ, in expressing those general propositions, was not oblivious to the reasoning of Stuart-Smith LJ in Cadogan v Morris in its application to a tenant's notice of a claim for a new lease pursuant to section 42 of the Act. In paragraph 33 of his judgment, Dyson LJ drew attention to the similarity between the wording of section 42 of the Act, "which the tenant proposes to pay", and section 26 of the 1954 Act, "the tenant's proposals". And, in paragraph 34, he, of course, had in mind that that was a wholly different statutory context. But he drew particular attention to the two factors to which Stuart-Smith LJ himself had drawn attention at page 60D and E of his judgment in Cadogan v Morris (and upon which Mr Radevsky relied in his submissions to this Court (see paragraph 24 above)). This is what Dyson LJ said:

"34. … there were two particular factors which influenced the court in reaching its decision. The first was that, if the landlord failed to serve a counter-notice under the 1993 Act, it was arguable that the court was bound to order the grant of a new lease at the figure specified in the tenant's notice. That was understandably described as a 'very harsh result'. It has since been held that what the court said was 'arguable' is in fact the correct construction: see Willingale v Globalgrange … The second factor was that the sum proposed by the tenant by way of premium determined the amount of the deposit that was payable. It follows that … there were two respects in which the premium proposed by the tenant under the 1993 Act had legal consequences of considerable significance. There are no corresponding provisions in the 1954 Act. The tenant's request and proposals under section 26 have no legal consequences. They do not commit the tenant or the landlord to anything. They are merely the prelude to a possible new tenancy on terms to be agreed or determined by the court. The tenant is not obliged to pursue an application for a new tenancy. … In my judgment, therefore, the decision in the Cadogan case is only of limited assistance in deciding the question of construction that arises in the present case. "

28. Mr Radevsky drew from all this the proposition that a landlord's counter-notice under section 21 of the Act is analogous to a request under section 26 of the 1954 Act rather than to a notice under section 42, which the Court was considering in Cadogan v Morris, since the price proposed by the landlord can never become the price by default and has no relevance to any deposit. In short, he submitted that the Cadogan v Morris principle should be restricted to tenants' notices under the Act, for there is no compelling reason for extending its scope.
29. As to Stuart-Smith LJ's obiter dictum in Cadogan v Morris at p 61E, suggesting that a landlord's counter-proposal should not be an "absurdly high" figure, Mr Radevsky submitted that, as the landlord's figure could never automatically become the price, there was no warrant for so qualifying it, and that, in any event, it could not stand in the light of the reasoning of this Court in Sun Life Assurance. In short, his stand was that however ludicrously high, or, in Cadogan v Morris terminology, "unrealistic", a landlord might pitch his proposed price in a section 21 counter-notice, it would not render the notice invalid. He added that such a conclusion is unlikely to be a significant problem, since sensible landlords would not do it, or persist in it, since to do so would only involve them in unnecessary and expensive litigation before the tribunal.
30. Mr Stan Gallagher, for the appellant, sought to support the reasoning of the Judge in holding that the Cadogan v Morris test applied to a landlord's counter-notice as well as to a tenants' initial notice. First, he relied upon Stuart-Smith LJ's obiter observation in Cadogan v Morris at p 61E. He accepted that it was obiter, but suggested that it is part of the overall code provided by the Act. Secondly, he relied upon the well-established canon of construction that, in the absence of express provision in a statute or some compelling contextual reason to the contrary, the same word should be given the same meaning wherever it appears in the same statute. More particularly, he submitted that the meaning of the word "proposed" in the term "the proposed purchase price" in section 13(3)(d), as referred to in section 21(3)(a)(i) in the expression "any proposal" must have the same meaning in the latter provision. And, thirdly, he sought to distinguish the reasoning of Dyson LJ in the Sun Life case, on the basis that it concerned a wholly different piece of legislation.
31. As a general rule the same expression used in different parts of the same Act should be construed in the same way unless the Act, expressly or by reference to the different contexts in which the expression appears, otherwise requires. However, in my view, both the common purpose of a section 13 notice and a section 21 counter-notice, and an important difference in their respective effects, require a different construction of the expression "proposed purchase price" as expressed in section 13 and as incorporated by reference in section 21. Their common purpose, as the general scheme provided by Chapter 1 indicates, is to set the scene for a process of negotiation, not in general a definition of issues for final determination of the matter by litigation. This is well illustrated, in particular, by the wording of section 24(1), in relation to a counter-notice admitting the tenants' entitlement to exercise their collective right to enfranchisement, which provides, so far as material, that where:

" … any of the terms of acquisition remain in dispute at the end of the period of two months beginning with the date on which the counter-notice … was so given, a leasehold valuation tribunal may, on the application of either the nominee purchaser or the reversioner, determine the matters in dispute." (my emphasis)

The important difference between them is the effect of section 25, as interpreted in Willingale v Globalgrange, of enabling the proposed purchase price in a tenants' section 13 notice to determine the terms of acquisition in the event of the landlord not serving a section 21 counter-notice, an outcome paralleled in a section 42 tenant's notice in support of a new lease. No such "default" advantage can accrue to the landlord if, for any reason, a section 13 or 21 notice is, for any reason, invalid or otherwise ineffective. There is, therefore, not the same imperative for the courts to qualify the expressly unqualified words of the Act, as the Court did in Cadogan v Morris to prevent tenants from abusing their entitlement under section 49(1) to acquisition on their terms in default of a counter-notice. Indeed, there is, as a result of that construction of section 25, an important contextual difference which, in my view, requires the Court not to qualify the construction of the expression "proposed purchase price" as incorporated by reference in section 21, as it does in relation to a section 13 (or section 42) notice.

32. I am reinforced in that conclusion by the reasoning of Dyson LJ in the Sun Life Assurance case. Although such reasoning concerned the use of the words "request" and "proposal" in a different Act, it is, as a matter of logic, of clear general application in the absence of any express or clear contextual qualification, as to be of application to a section 21 counter-notice, though, not for the reasons I have given in the last paragraph, to a section 13 notice. And if, as Mr Radevsky suggested, the Court were to substitute section 21 of the Act for section 26 of the 1954 Act in Dyson LJ's reasoning, in particular at paragraph 34 of his judgment (see paragraph 27 above), the parallel is clear. Neither carries any significant legal consequences such as a default mechanism to be found in section 13 and 42 notices. And both are merely preludes to determination of the terms of acquisition of an interest from a landlord, albeit that the section 26 request and proposals are those of the tenant and the section 21 proposal is that of the landlord.

The second issue – whether, in the alternative, if there is a test of validity of a landlord's counter-proposal, it is objective or subjective.

33. If my ruling on the first issue is correct, the second and alternative issue does not arise. But it was the one raised by the appellant in his main challenge to the Judge's modification of the Cadogan v Morris principle in its application to a counter-notice in his holding that a landlord need only propose a purchase price that is bone fide and genuine in the sense of being more than nominal.
34. The Judge's interpretation of Stuart-Smith LJ's thinking in the passage in which he used the term "wholly unrealistic", whether in relation to a tenant's notice or in a landlord's counter-notice, was that it could only be invalid if 1) was not made in good faith after allowing for a margin for negotiation; and 2) whether the proposal was objectively unrealistically low or high, as the case may be, is only relevant if and insofar as it may throw light on the issue of good faith:

"54. The defendant in this case specified a figure with some negotiation margin above any expectation. Stuart-Smith LJ, however, did go so far, as I read his judgment – even his obiter remarks – as to say that to exceed such figure would make a counter-proposal invalid. His test was whether the figure was an absurdly high one. A figure produced in good faith, with the purpose of leaving a margin for negotiation should not, in my judgment, be so categorised merely for that reason.

…"

35. Later, at paragraphs 61 to 67 of his judgment, the Judge, after referring to and disagreeing with a passage in the judgment of His Hon Judge Knight QC in Mount Cook Land Ltd v Rosen [2003] 10 EG 165, concerning the validity of a tenant's notice under section 42 of the Act, said:

"61. I think his mistake is to misunderstand the Court of Appeal in the Cadogan case as applying an objective test as to whether the proposal is a genuine one. The submission of Mr Radevsky … [in that case] was:

'… the proposal as to premium must be a bona fide and genuine one, not just a nominal figure or one which bears no relation to the true value."

….

62. In my judgment, Stuart Smith LJ was not, when referring to a requirement that the figure should be 'realistic' meaning anything more. If he had in mind an objective test against a figure that can be justified by valuation advice, he could not, in my judgment, have contemplated that an issue as to whether a proposal had been properly made could be resolved, as he suggested at page 61D, by 'a brief enquiry, if necessary of limited evidence from tenant and landlord.

63. Such evidence could, however, provide an answer to a subjective test whether the proposal was bona fide and genuine in the sense of being genuinely intended to be a figure put forward in negotiating a price, or was the nominal figure proposed in the Cadogan case, a nominal figure put forward without any relationship either to the true value or the tenants' intended negotiated position.

…

66. In my judgment, it is no part of the test of the validity of a notice or counter-notice to review the valuation upon which it is based. Whether there has been valuation advice will throw light upon whether the proposer is proposing a figure for the purpose of arriving at a price, or for some ulterior motive, such as to limit the liability to pay a deposit, or to frighten a purchaser off.

67. In my judgment, however, that is the limit of the enquiry that should be made in a challenge to the validity of a notice or counter-notice."

36. Mr Gallagher submitted that this test is wrong in law in that it is subjective only. It was not enough, he said, for the proposal to be genuine, it must also be realistic. His starting point was that any qualification to a counter-notice proposal has to be ascertained as a matter of construction of the statutory language and that, following the normal rule of construction, the Cadogan v Morris introduction of the qualification of realism to the tenants' proposal applies equally to that of landlord's counter-proposal. They are the same words in the same statute.
37. He added that once it was accepted, as the Judge did, that the expression "proposed purchase price" has the same meaning in the tenants' initial notice and the landlord's counter-notice, there is a sound reason for including an objective element in the test, namely: to provide a practical safeguard to a landlord who has failed to serve a counter-notice in good time from being ordered by the county court under section 25(1) to dispose of his freehold at an unrealistically low price specified by the tenants in their initial notice, whether or not, in doing so, they acted in good faith.
38. He also relied on Stuart-Smith LJ's use, in his obiter dictum on counter-notices, of the expression "not an absurdly" high price "which might have the effect of intimidating tenant", as the converse of his use of the word "realistic" in expressing the test in relation to the initial notice. Removal of such an objective requirement, he submitted, would reduce the Cadogan v Morris test to an empty formality, and it would be open to every landlord to propose an astronomical figure on the basis that it would be one at which he would be delighted to dispose of the reversion.
39. As to the question of how, in any individual case, the line is to be drawn between an objectively "realistic" and "unrealistic" offer, he suggested that the exercise should depend on professional valuation evidence, with a view to determining whether the proposed price is clearly outside the broad bracket of valuations of any reasonably competent valuer, such as Mr Jones conceded before the Judge his initial valuation had been.
40. Mr Radevsky, without seeking to go behind the Cadogan v Morris test for a tenant's notice under section 42 or its application to an initial notice under section 13, submitted that it does not follow from the fact that landlords and tenants are in fundamental disagreement about valuation, as they frequently are, at the notice and counter-notice stage, that the validity of either notice should fall to be questioned in the county court by the court embarking on some form of valuation inquiry, however limited in scope. He submitted that, if, contrary to his submission on the first issue, some form of qualification of the landlord's counter-notice is called for, it should be less stringent than that applicable to a tenants' initial notice, given the difference in consequence between them in that, however high the landlord's proposed price, he cannot force it by default on the tenants. In the alternative he submitted that, if the test, i.e. the Cadogan v Morris test, is the same for both, the Judge correctly formulated and applied it as a subjective one, by treating as critical the good faith of the landlord and its valuer, Mr Jones, in putting forward a negotiating figure for inclusion in the notice.
41. As I have mentioned, tenants' notices and landlords' counter-notices for which the Act provides do not have the function of pleadings of identifying the issues for the purpose of determination of the appropriate price through litigation if the parties cannot come to terms. Subject to the Willingale v Globalgrange consequence in default of a valid counter-notice, they are primarily a means of enabling the parties to identify whether there are or are likely to remain, issues between them which may require resolution either by negotiation or, failing that, and after crystallisation in formal terms, by litigation. If there is a wide gap at the notice and counter-notice stage between the tenants and the landlord, each relying on their own valuers or otherwise, neither is unduly prejudiced. If they cannot agree, they can take the matter to the leasehold valuation tribunal; that is what it is there for. The county court should be wary of developing what could turn into parallel litigation of attempting to resolve fundamental disagreements as to valuation, often as between highly experienced and competent professional valuers, at the notice and counter-notice stage by developing a form of "strike-out" or default procedure. This is especially so in a process in which there are inevitably opening negotiating figures, which, as Stuart-Smith LJ acknowledged in Cadogan v Morris, may be no less genuine on that account. Quite apart from the difficulties for the court of discharging such a jurisdiction, it would not be the form of "brief inquiry … with limited evidence from landlord and tenant" that I believe Stuart-Smith LJ had in mind.
42. Whilst I believe it may be helpful for me to express some tentative views on this issue, I must remember that they would be necessarily obiter in the light of my view on the first issue if it is correct. Second, I should not go behind the reasoning of the Court in Cadogan v Morris in a way that might impugn it or undermine its application to section 42 and section 13 notices.
43. However, it seems to me that if Stuart Smith LJ's words at page 61A-D of his judgment (see paragraph 18 above) are read as a whole, his starting point, on the facts of the case, was whether there was a genuine offer in the sense of a figure that the tenant proposed to pay, that is, a bona fide offer, whatever its amount - and he considered that there was not. In so concluding, he expressly disclaimed any intention of reading words into section 42(3)(c). It was in the context of going on to remark that the provision does not require a notice-giver to offer his final figure, that he introduced in relation to a notice, and obiter in relation to a counter-notice, what at first sight might be regarded as a further qualification. That is, that the notice-giver, in the case of a tenant, should propose a "realistic figure", or not "simply a nominal or wholly unrealistic one", and, in the case of a landlord, "a realistic figure and not an absurdly high one".
44. The combination of the subjective element of a genuine offer made in good faith and a possible objective element that it should also not be "wholly unrealistic" is not easy in this context. And I do not think that Stuart-Smith LJ intended it. It seems to me that the primary consideration for him was the genuineness of the proposal, as a proposal and subject to a negotiating margin. The notion of a proposal that is not "wholly unrealistic" or, in the case of a landlord, not "absurdly high" is in most cases likely to arise for consideration only in extreme cases where it may serve as an aid to the court's assessment of the genuineness of the proposal. As I have mentioned in the last paragraph, and as the Judge observed at paragraph 62 of his judgment, Stuart-Smith LJ's contemplation of the county court's resolution of such an issue by a brief inquiry with limited evidence from the tenant and landlord, not apparently, their respective professional valuers, suggests that it was the subjective element of genuineness of the proposal that was uppermost in his mind. I am, therefore, of the view that, if the Judge needed to consider this at all, he was right to find that lack of good faith is the sole necessary pre-condition of a declaration of the invalidity of a landlord's counter-notice under these provisions.
45. Accordingly, I would, pursuant to the landlord's Respondent's Notice, reverse the Judge's ruling on the first issue that the Cadogan v Morris test, whatever its proper construction, applied to the landlord's counter-notice under section 21 of the Act. If I am wrong about that, I would dismiss the tenant's appeal and uphold the Judge's ruling that, if the test applies, it is to be construed as importing only a subjective condition that the landlord's proposal of a purchase price be made in good faith.

Lady Justice Arden :
 


46. This appeal is about the requirements for a valid statutory notice. At the risk of stating a truism, what a statutory notice must state is what the statute in question requires it to state. In this case, the statute in question is section 21(3)(a)(i) of the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act), and so the question for determination is the true interpretation of that provision. Counsel have cited a number of authorities to us, but not on this provision. I propose to examine the various statutory provisions in issue in the two key authorities cited, and then to examine the case law by reference to those provisions. Those two authorities are Cadogan v Morris [1999] 1EGLR 59 and Sun Life Assurance plc v Thrales Tracs Ltd [2001] 1WLR 1562. They are not of course directly binding on us on this appeal. Nonetheless, they are persuasive authority and so analysing them is a necessary part of deciding this appeal. We have rightly not been invited to conduct a comprehensive review of the case law on notices, even notices in the field of landlord and tenant. The problems that have arisen on notices in this field are many and various. However, the two key authorities cited in this case lead me to the conclusion that what matters are the words used in the statute, duly considered in their context, and that there is no overarching, judge-made doctrine of genuineness of intention, or requirement that the offer be realistic, to be satisfied in this case.
47. Section 21 of the 1993 Act provides that, following service of an initial notice by the nominee purchaser of tenants who wish to exercise their right of collective enfranchisement:

"(1) The reversioner in respect of the specified premises shall give a counter-notice under this section to the nominee purchaser by the dates specified in the initial notice in pursuance of section 13 (3) (g).

(2) The counter-notice must comply with one of the following requirements, namely –

(a) state that the reversioner admits that the participating tenants were, on the relevant date, entitled to exercise the right to collective enfranchisement in relation to the specified premises …

(3) If the counter-notice complies with the provision set out in subsection (2) (a), it must in addition –

(a) state which (if any) of the proposals contained in the initial notice are accepted by the reversioner and which (if any) of those proposals are not so accepted, and specify

(i) in relation to any proposal which is not so accepted, the reversioner's counter-proposal, …"

48. Confusion may arise in the present case from Parliament's use of the word "propose" and cognate expressions in section 21 and related provisions. This is because the word "propose" has more than one meaning. The Shorter Oxford English Dictionary (2002) gives as the primary meaning of "propose"

(i) verb trans. Put forward as a scheme or plan, suggest (a thing), (foll. by to do, that, doing). Also, intend, resolve (on), purpose, (to do, doing). ME…

Thus the cognate expression "proposal" means

i) The action or an act of stating or propounding something M-L17.

ii) An act proposing something; a course of action etc. proposed; a scheme, a plan, a motion; or suggestion, an idea M17…

49. Accordingly, in some contexts, "propose" means a state of mind similar to intention, as in the phrase "I propose to make an agreement". This was the case in Mainwaring v Trustees of Henry Smith's Charity [1998] QB 1, where this court (Sir Thomas Bingham, MR, and Simon Brown and Hutchison LJJ) held at 18E that "the expression "proposes" [in section 5 of the Landlord and Tenant Act 1987] describes a state of mind between mere consideration of a possible course of action at one extreme and a fixed and irrevocable determination to pursue that cause of action at the other". In my example, "propose" is followed by the infinitive, connoting action by the proposer. Indeed it is difficult to see how "propose" followed by the infinitive could ever be a suggestion that someone other than the maker of the suggestion should do anything, or how it could ever be more than a statement of the maker's intention as opposed to a suggested plan of action. If it was a suggested plan of action, the word "propose" would more naturally be followed by "that" as in "I propose that I should make an agreement". In some contexts, "to propose" means "to put forward for consideration" as in "I propose this resolution". Sometimes, the word "propose" could have either meaning, as in the phrase "I propose that this term should be included in the agreement." This could connote either a state of mind or the putting forward of a term for consideration, or possibly, both. It all depends on the context: to whom and on what occasion it was said, and so on.
50. Where the true meaning of a statute is in doubt, and in dispute between the parties, it is the court's function to decide that meaning. In modern theory, the court primarily finds the interpretation of a phrase by examining the words used by Parliament in their particular context. Courts have moved away from a purely literal approach to statutory interpretation. As Lord Steyn held in R (o/a Quintavalle) v Secretary of State for Health [2003] 2 AC 687 at 700:-

"The pendulum has swung towards purposive methods of construction. This change was not initiated by the teleological approach of European Community jurisprudence, and the influence of European legal culture generally, but it has been accelerated by European ideas: see, however, a classic early statement of the purposive approach by Lord Blackburn in River Wear Commissioners v Adamson (1877) 2 App Cas. 743, 763. In any event, nowadays the shift towards purposive interpretation is not in doubt. The qualification is that the degree of liberality permitted is influenced by the context, e.g. social welfare legislation and tax statutes may have to be approached somewhat differently."

51. Thus, while I have set out the dictionary meanings of "propose" and "proposal" above, I have done so to illustrate the range of meanings which these words have. The dictionary is a good place to start to find such range of meaning, but it is not essential that a particular meaning to be applied in a statute should be shown in the dictionary.
52. By "context", I mean the legislative context, and the policy context, as shown by any admissible material, such as Law Commission reports, explanatory notes accompanying legislation, travaux préparatoires and (in certain cases) Hansard. Courts will not speculate as to Parliament's purpose, though they may infer it from (for example) the indications provided in the legislation itself. In this particular case, we have not been taken to any material outside the 1993 Act.
53. We are not concerned with notices which are alleged to contain fraudulent misstatements. If such allegations were made, different considerations might well apply.

First case: "(3) The tenant's notice must… specify the premium which the tenant proposes to pay"

54. These were the words in issue in Cadogan v Morris, and they come from section 42 of the 1993 Act, dealing with the right of an individual tenant to claim a new lease.
55. Section 42 of the 1993 Act (and following) contain the procedure for an individual tenant to obtain the renewal of his lease. This procedure is similar to that for collective enfranchisement described by Auld LJ in his judgment. I need only summarise the procedural steps relevant for my purposes. The tenant starts the process by serving an initial notice. This must comply with section 42 of the 1993 Act and in particular the notice must set out the premium which the tenant "proposes to pay". Following the receipt of the tenant's notice, the landlord must serve a counter-notice. If he admits the tenant's claim, he must state whether he accepts the tenant's proposal as to the premium, and if not, his counter-proposal. As with collective enfranchisement, there are special provisions dealing with disputes as to the tenant's right to service an initial notice (section 46) and for the case where the landlord intends to redevelop the premises (section 47). As with collective enfranchisement, where the landlord fails to give a counter-notice which complies with section 45 and the tenant wishes to proceed, the court must make an order "in accordance with the proposals contained in the tenant's notice" (section 49, and see Willingale v Globalgrange Ltd [2000] 2 EGLR 55, a decision on the equivalent provision for collective enfranchisement purposes). A tenant may withdraw his notice by giving notice to that effect at any time before he enters into the new lease (section 52; the equivalent provision in relation to collective enfranchisement is section 28).
56. In Cadogan v Morris, the problem that arose was that the tenant put in a nominal sum of £100 as the premium he proposed to pay. He knew that it was a "formal nominal figure" but he had been professionally advised that this was acceptable. This court proceeded on the basis that, in the absence of a landlord's notice complying with the 1993 Act, the premium stated by the tenant in his initial notice would bind the landlord (the point ultimately decided in relation to collective enfranchisement by the Willingale case). The landlord argued that the proposal as to premium had to be made in good faith and be genuine. The tenant argued that such a construction would involve reading words in. Stuart-Smith LJ, with whom Otton and Tuckey LJJ agreed, held:

"I do not consider it is necessary to read any words into section 42(3)(c). The tenant is required to specify the premium that he proposes to pay. He did not do so; he deliberately specified a figure that he did not propose to pay. I do not think the tenant is required to offer his final figure that he may be prepared to go to, but he should, in my view, offer a realistic figure. The judge was troubled by the difficulty in telling whether the offer was a realistic one. I very much doubt whether in practice this will present the difficulties that the judge envisaged. It ought to be possible both for the landlord and the judge to recognise whether the offer is a realistic one or simply a nominal or wholly unrealistic one. The landlord would need to be on fairly firm ground if he sought to challenge a substantial offer, even if he thought it was considerably too low. The court will obviously allow a fairly wide margin. If the landlord unsuccessfully challenges the validity of the notice, he will find himself paying the costs. On the other hand, even if it is the tenant's opening bid, it should, in my view, be a realistic one. I decline to lay down any more precise guidelines. In this I follow what Sir John Donaldson MR said in Cresswell v Duke of Westminster [1985] 2 EGLR 151 at p152:

Where we draw the line I do not know, I doubt whether it is in anybody's interest that I should attempt to draw that line. Many cases will answer the question on their own facts.

This seems to me to be an application of the well-known elephant test. It is difficult to describe, but you know it when you see it. I think we can trust to the good sense of landlords not to make frivolous applications and county court judges to take a robust line and not get enmeshed in hearing detailed evidence. A brief inquiry, if necessary with limited evidence from tenant and landlord, should suffice.

I also consider that when the landlord makes counter-proposals in his counternotice (see section 45(3)(b)), this too should be a realistic figure and not an absurdly high one, which might have the effect of intimidating the tenant. If the landlord does not give a valid counternotice in the time allowed, the consequences in section 49(1) result. But here again there is no reason why the landlord should not specify the highest figure that he realistically hopes to get."

57. In my judgment, in Cadogan v Morris this court by implication took the view that the word "proposes" in the context of section 42(3)(c) meant "intends" rather than "puts forward for consideration". That is not surprising since the statute uses the word "proposes" followed by the infinitive. This court then went on to make a number of references to a "realistic" figure. But this was after the court had decided the point of construction, which it did by holding:

"I do not consider it necessary to read any words into section 42(3)(c). The tenant is required to specify the premium he proposes to pay. He did not do so; he deliberately specified a figure that he did not propose to pay."

After this (and before dealing with the landlord's counter-notice) this court dealt with practical objections that had been raised. The tenant did not have to set out his final figure. The judge would not find it difficult to tell whether the premium was a realistic one, and so on. Accordingly, although in this further discussion this court refers many times to a "realistic figure", it did so for the purposes of dealing with these practical objections to its construction, not for the purpose of overlaying on the statute an additional requirement that the figure for the premium be "realistic". Accordingly, I do not consider that those references serve to introduce a new requirement, that the offer be realistic. If, however, the offer is not realistic, that will be a matter from which the court can infer that the tenant did not in fact intend to pay the premium specified and thus that the tenant's notice did not comply with the 1993 Act. But there is no additional requirement that, even if the premium stated is one which the tenant proposes or intends to pay, the premium should be realistic.

58. As I put it in argument, the tenant in Cadogan v Morris had simply not answered the statutory requirement. The collective enfranchisement provisions of the 1993 Act were substantially amended by the Commonhold and Leasehold Reform Act 2002. The amendments did not directly or materially affect section 13 or section 21. Nonetheless the fact that the scheme for collective enfranchisement was thereby amended and extended is some endorsement of this court's decisions in Cadogan v Morris and the Willingale case. The ratios of those cases are in any event binding on us.
59. In 7 Strathray Gardens Ltd v Pointstar Shipping & Finance Co Ltd [2004] EWCA Civ 1669, (2005) 1EG 95 (CS), at [38], I said in relation to collective enfranchisement under the 1993 Act:

"If the tenants' initial notice deliberately specifies an unrealistic sum, the tenants' initial notice will be invalid: Cadogan v Morris [1999] 1 EGLR 59. This provides some protection for the landlord if he fails to serve an appropriate counter-notice. However, it will only be available in an extreme case. It is not suggested that it would be available here."

60. Ward and Jacob LJJ gave concurring judgments. As Mr Radevsky (who appeared for the respondent in that case) pointed out, the scope of this court's decision in Cadogan v Morris was not in issue in the Pointstar case, and accordingly what I said in that case should now be read in the light of this court's conclusions on this appeal.

Second case "[The landlord's counter-notice] must… state which (if any) of the proposals in the tenant's notice are accepted… and specify, in relation to each proposal which is not accepted, the landlord's counter-proposal."

61. This extract from section 45(3) of the 1993 Act was considered by this court obiter in Cadogan v Morris at the end of the passage cited above.
62. This particular passage is not binding on us, and I would not myself wish to follow it. In this passage, the critical words are "proposal" and "counter-proposal". As I sought to show above, the word "propose" has several meanings. It would be natural to conclude that a statement of that which a tenant proposes to do (i.e. "propose" plus infinitive) results in a "proposal" meaning a statement of what the tenant intends to do. But that proposal is then communicated to the landlord. In his hands, the function of the notice is that it states what the tenant intends to pay in order that the landlord can decide whether he accepts that offer or not. Thus, in my judgment, in the context of section 45(3) the term "proposal" more naturally means that which is put forward (in this case) as the suggested premium for consideration by the landlord. It would follow that the landlord's counter-proposal should state the sum he puts forward as the amount of the premium which the tenant should pay for consideration by the tenant.
63. Moreover it follows from my approach to the interpretation of "propose" that I do not consider it to be any part of the requirements of section 45(3) that the landlord should make a realistic offer. The mere fact that, in error, he puts forward an exaggerated figure which he later discovers he cannot maintain does not, in my judgment, mean that he has not complied with the 1993 Act. It is enough, in my view, that, on the face of it, the landlord's counter-notice complied with the requirements of section 45(3). It would do this by specifying a particular figure to be the landlord's counter-proposal as to price.
64. This conclusion receives some further support from the fact that Parliament has provided a procedure for determining whether a tenant was entitled to serve his initial notice as a preliminary issue (section 46). But Parliament has not provided a procedure for determining the validity of the landlord's notice as a preliminary issue. This suggests that Parliament did not anticipate that it would be necessary to determine whether the statement by the landlord of his counter-proposal as to price fulfilled the requirements of section 45(3). The presence of section 46 and the absence of any counter-part in relation to the landlord's counter-notice is part of the legislative context, to which I referred in paragraph 52 of this judgment.

Third case: "(3) A tenant's request for a new tenancy shall not have effect unless it… sets out the tenant's proposals as to the property to be comprised in the new tenancy…"

65. These words come from section 26 of the Landlord and Tenant Act 1954 and were interpreted by this court in the Sun Life case.
66. The issue in the Sun Life case was not whether the tenant had specified the proposed rent, but rather whether he was entitled to serve a notice, given that he did not genuinely intend to apply for a new tenancy. In other words, he had acquired other premises and no doubt hoped to extract compensation from the landlord if he served the notice. However, his notice complied with all the requirements of section 26(3) of the 1954 Act set out above. That is the primary basis on which this court decided the case. The court rejected the submission that section 26 could not be used by a tenant who did not genuinely wish to acquire a new tenancy. On its true interpretation, the relevant statutory provision did not contain such a requirement and no such requirement could be implied into it. Dyson LJ, with whom Hale and Waller LJJ agreed, held as follows:-

"17 For the reasons that follow I cannot accept these submissions. The words "request" and "proposal" are ordinary English words. A request is an act of asking for something. A proposal is something that is put forward for consideration. It may in some circumstances be an offer which, as a matter of law, is capable of being accepted so as to give rise to a binding contract. But it does not have to be. Both "request" and "proposal" are what Mr Lewison called "performative utterances". They describe an act. They do something. It is not meaningful to ask whether a request or a proposal say anything about the state of mind of the person who makes the request or puts forward the proposal. The meaning of a request and a proposal is judged objectively. The state of mind of the person who makes the request and the proposal is irrelevant to their meaning. Nor is it meaningful to consider whether they are true. On the other hand, there are different kinds of words that do say something about the state of mind of the person using them. Thus, for example, if a person says that he believes or intends something, he is undoubtedly saying something about his state of mind. It is meaningful, and may be relevant, to consider the truth of a statement of belief or intention.

I would therefore hold, as a matter of ordinary language, that the fact that a request is made or a proposal is put forward says nothing about the state of mind of the person making the request or proposal. A may make a proposal to B which he believes, and possibly even hopes, B will refuse. A may do this solely in order to show himself in a good light in the eyes of C, where he would be deeply unhappy if B were to accept the proposal. He does not wish or intend B to accept the proposal but, as a matter of ordinary language, it is nevertheless a proposal. Take another example: suppose that A makes a proposal which he believes means X, but in fact it means Y, and, if he had understood that it meant Y, he would not have been willing to make it. Again, as a matter of ordinary language, what A puts forward is a "proposal", notwithstanding his mistake. This is because whether something is a proposal is to be judged objectively and without regard to the state of mind of the proposer.

This ordinary meaning of the word "proposal" is reflected in the law. It is trite law that in the contractual context the existence and meaning of an offer has to be determined objectively. The law is not concerned with the subjective intention of the offeror."

67. The issue in the Sun Life case was thus different from the issue on this appeal. The question was whether any requirement for genuine intention to take a new tenancy was to be implied. I recognise also that the Sun Life case is a decision on different legislation. Thus the meaning ascribed by Dyson LJ to "proposal" is thus only persuasive authority in relation to the interpretation of other legislation using that phrase.

Fourth case (this case): "[The landlord's counter-notice]… must in addition… state which [if any] of the proposals contained in the initial notice are accepted… and specify… in relation to any proposal which is not so accepted, the [landlord's] counter-proposal…"

68. These words come from section 21 of the 1993 Act (see above). The requirement for the tenant's initial notice are in section 13 of the 1993 Act. Among other requirements, section 13 provides that the notice must

"specify the proposed purchase price …" (s.13(3)(d))

69. Mr Anthony Radevsky, for the landlord, submits that the principle in Cadogan v Morris does not apply to the landlord's notice because of the different features of the landlord's notice. He submits that both the initial notice and the counter-notice serve to initiate negotiation as to the price and other terms of acquisition. It is only after two months have elapsed, following service of the counter-notice, that either party may apply to the leasehold valuation tribunal: see section 24(1) of the 1993 Act. There is, submits Mr Radevsky, a vital difference between the initial notice and the counter-notice, because the former may become the terms of acquisition if the landlord fails to serve a counter-notice, whereas the landlord's counter-notice has no such effect. He draws support from the manner in which this court in the Sun Life case distinguished Cadogan v Morris. Dyson LJ distinguished Cadogan v Morris on the basis that it was a decision under a different statute. He observed that there were two particular factors which had influenced the court in reaching its decision:-

"The first was that, if the landlord failed to serve a counter-notice under the 1993 Act, it was arguable that the court was bound to order the grant of a new lease at the figure specified in the tenant's notice. That was understandably described as a "very harsh result". It has since been held that what the court said was "arguable" is in fact the correct construction: see Willingale v Globalgrange Ltd [2000] 2 EGLR 55. The second factor was that the sum proposed by the tenant by way of premium determined the amount of the deposit that was payable. It follows that, as Mr Lewison points out, there were two respects in which the premium proposed by the tenant under the 1993 Act had legal consequences of considerable significance. There are no corresponding provisions in the 1954 Act. The tenant's request and proposals under section 26 have no legal consequences. They do not commit the tenant or the landlord to anything. They are merely the prelude to a possible new tenancy on terms to be agreed or determined by the court. The tenant is not obliged to pursue an application for a new tenancy. If he does make an application and the court orders a new tenancy, the tenant may seek a revocation of the order under section 36(2). In my judgment, therefore, the decision in the Cadogan case is only of limited assistance in deciding the question of construction that arises in the present case."

70. The issue we have to decide is an issue of statutory construction. Accordingly the issue I must address is the meaning of the term "counter-proposal" in section 21(3) of the 1993 Act. I have already held that in respect of the meaning of "proposal" the Sun Life case is only persuasive authority on this appeal. But the context is similar: both statutory contexts concern the content of notices to be served by tenants on landlords and vice-versa. In this situation, in my judgment, the court may apply even a judicial definition of the same phrase in a different statute. Moreover, the judicial definition of "proposal" given by Dyson LJ is very close to the dictionary meaning I have given above. Accordingly, in my judgment, this court is entitled to apply this meaning in construing the term "counter-proposal" in section 21(3) of the 1993 Act.
71. I reach the conclusion that the same meaning should be applied in section 21(3) substantially for the reasons advanced by Mr Radevsky (see above). Moreover, if the landlord specifies an excessive price, this will not mean that the tenant has to pay that price, since in the event of dispute the price will have to be determined by the leasehold valuation tribunal. If the landlord has acted frivolously or otherwise unreasonably in connection with the proceedings in the leasehold valuation tribunal, the tribunal can award costs against him, though this is limited to a maximum of £500 (Commonhold and Leasehold Reform Act 2002, schedule 12, para 10). Moreover, the recovery by the landlord of his costs of investigation and other similar costs under section 33 of the 1993 Act is limited to reasonable costs. The considerations discussed in this paragraph are relevant as part of the legislative context, as explained in paragraph 52 of this judgment.
72. There will often be time constraints on a landlord who has to serve a counter-notice under section 21(3). He may have to file it within two months: see section 21(1) and section 13(3) and (5). This tight timetable provides some further support for the view that Parliament did not expect a landlord necessarily to insert a figure within striking distance of that ultimately determined by the leasehold valuation tribunal as to price. Indeed, in my judgment, it is implicit in the use of the word "propose" that Parliament had in mind a figure that was not final (see generally the Mainwaring case, above).
73. For the reasons given above, I consider that the meaning ascribed by Dyson LJ in the Sun Life case to the word "proposal" also applies here to the word "proposal". It follows that the word "counter-proposal" must mean, in this context, that which is put forward by the landlord, in opposition to the tenant's proposal, for consideration by the tenant. The validity of the counter-notice does not, in my judgment, depend on whether the figure stated to be the landlord's counter-proposal as to price is realistic or genuine for the same reasons, with necessary modifications, as I gave under the second case considered above in relation to the landlord's counter-notice under section 45(3).
74. The issue on this appeal is whether the landlord's counter-proposal as to price satisfied section 21(3) in circumstances where the landlord's valuer accepted that the figure was not within the bracket of possible valuations. The judge accepted that the figure could not be justified by valuation evidence. It had been arrived at as a result of certain errors. Nonetheless, the judge was satisfied that the landlord had not acted in bad faith, and that he had put forward his counter-proposal as a genuine figure for negotiation. In my judgment, a landlord's counter-proposal as to price complies with section 21(3) even if the figure is not justified by the valuation evidence.
75. Mr Radevsky's further submission was a bold one. He submitted that the landlord could take any figure out of the air and put it in his counter-notice, and that, if it was stated to be the landlord's counter-proposal as to premium, it would be precisely that. For my part, and subject to the qualification made above that different considerations may apply to a notice which contains fraudulent misstatements, I would accept this submission. In my judgment the law is as stated above. It would not follow, however, that the same result would follow in relation to other statutory notices. It all depends on the statute in question.
76. The judge relied on a further point, namely that once the landlord had put a figure in his counter-notice as the proposed price, he could not argue for a higher price before the leasehold valuation tribunal. This point was not fully argued and I express no view thereon. It is not necessary for me to do so.

Disposition

77. For the reasons given above, I would dismiss this appeal.

Mr Justice Wilson

78. I also agree that the appeal should be dismissed.
79. I base my agreement squarely upon my concurrence with the view of Auld L.J. upon the first issue which he has identified. In other words I hold, like him, that the validity of a landlord's counter-proposal as to price in a counter-notice given under s.21 of the Act of 1993 does not depend upon satisfaction of the criterion, whatever it be, which was identified in Cadogan v Morris above.
80. At first sight it will seem odd that, whereas the validity of the tenants' notice under s.13(3)(d) of the Act should depend upon whether its proposal as to price satisfies a criterion, the validity of the landlord's counter-notice under s.21(3)(a)(i) should not depend upon whether its counter-proposal as to price satisfies the same criterion. But what drives this inconsistency of statutory construction is s.25 of the Act, the surprising effect of which was explained in Willingale v Globalgrange above: namely that, where the landlord has failed to give a valid counter-notice within the time lawfully specified in the notice, the court has no option but to determine the terms on which the tenants are to secure enfranchisement "in accordance with the proposals contained in the initial notice". Whatever the circumstances of his default, there is no facility for rescuing the landlord from having to suffer enfranchisement at the price proposed by the tenants. The provision in s.25 for what Auld L.J. conveniently describes as "judgment by default" is to be contrasted with the case in which the landlord is missing and so cannot be given the notice. In such a case the tenants can secure enfranchisement only upon such as terms as may be determined to be appropriate by a leasehold valuation tribunal: see ss.26 and 27 of the Act.
81. In Cadogan v Morris Stuart-Smith L.J. at 61B disavowed any suggestion that he was reading words into the provision (which, in that Mr Morris was seeking to acquire a new lease, was s.42 of the Act) relating to the proposals in the tenant's notice. Nevertheless, even if the exercise of statutory construction required by that case can properly, if no doubt subtly, be regarded less as casting a gloss on the word "proposes" than as simply extracting from it a meaning suitable to its context, there is no analogous justification for such a construction in the case of the counter-proposals in the landlord's counter-notice. In Cadogan v Morris at 60K the justification for the construction which it required was related in part to the spectre of "judgment by default". Equally in Willingale v Globalgrange the conclusion that the tenants were indeed entitled to "judgment by default" was justified in part by what at 57M was described as the "safeguard" provided by the decision in Cadogan v Morris.
82. In that, therefore, the decision in Cadogan v Morris does not apply to his counter-notice, all that is required of a landlord under s.21(3)(a)(i) of the Act is that, in relation to any proposal in the tenants' notice which he does not accept, he should "specify [a] counter-proposal". If, in particular, therefore, he does not accept the proposal as to the purchase price specified in the tenants' notice, he must specify in his counter-notice the price which he counter-proposes.
83. My view is that, in this respect, it is open to the landlord to specify any price, however high. He will, no doubt, be foolish to specify a demonstrably excessive price because, unless it be soon reduced, it is likely to propel the parties to litigation in the tribunal, in relation to which he will in any event bear most of his own costs. But the question in this respect is whether the specification of a demonstrably excessive price, however foolish, goes so far as to invalidate the counter-notice and indeed to precipitate a "judgment in default". My answer is no. I myself have difficulty with the argument, propounded, as it happens, by Stuart-Smith L.J. in Cadogan v Morris at 60B, that, when in their notice tenants specify a nominal price, they are deliberately specifying a figure which they do not "propose" to pay. I consider that, if enabled to do so, for example by obtaining "judgment in default", the tenants would be delighted to secure enfranchisement at such a figure and thus that they are more than content to "propose" it in their notice. I have the same difficulty with the analogous argument that, when in his counter-notice a landlord specifies an excessive price or indeed an absurd price, he likewise is not even making a "proposal". My difficulty with such arguments is, in short, that they place an undue strain on the meaning of the word "proposal". In my view, moreover, it is greatly preferable that the demand by a landlord in a counter-notice of an excessive price should lead to an application to the tribunal for determination of the price payable rather than, as is exemplified by this appeal, to preliminary proceedings by which, without directly addressing the issue as to the proper price, the tenants aspire first to secure a ruling that the counter-notice is invalid and thereupon to enter "judgment by default".
84. Does the decision in Cadogan v Morris require a proposed price to be arguably appropriate in the light of objective criteria? Or does it merely require the specified price to be genuinely proposed or intended to be paid? How practicable is it, in the latter case, for the court to determine, with potentially crucial consequences, whether, at the outset of what may have been anticipated to be a hard-nosed negotiation, a specified price was genuinely proposed or intended to be paid? These are difficult questions of which, in the light of my conclusion that the decision applies only to proposals by tenants, I am resolved to stay well clear.
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