England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM EXETER COUNTY COURT
HIS HONOUR JUDGE GRIGGS
6BJ00857

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/04/2008

Lord Justice Longmore:

Introduction:

1. According to Neil Oliver in the current television programme "Coast", Looe is the second largest fishing port in Cornwall. Many fishermen live in or near the port and it has sustained a sizeable fishing fleet for many years. The fishing boats need a refuelling facility and this has been provided for some years from a tank operated by Looe Fuels Ltd ("LFL"), a company of which Michael Soady has been sole director and chief executive, pursuant to a lease granted by the owners and operators of the port, the Looe Harbour Commissioners ("LHC" or "the Commissioners").
2. The Commissioners are a statutory body incorporated under the East and West Looe Harbour and Bridge Act of 1848 and a registered charity. There are currently 10 commissioners and the townspeople of Looe hold an election once every 3 years. The Commissioners employ about 18 people, including Mrs Tina Hicks as their Chief Executive. There has historically been a close connection between LFL and LHC. Mr Soady served as Chairman of the Commissioners for a long time and is still an elected Commissioner. His son-in-law Mr Newton was Chairman between 1988 and October 2004. The current chairman is Mr A. Toms.
3. LFL assert and LHC deny that in late 2004 or early 2005 a contract for a lease of a new fuel tank yet to be constructed was made orally between them. There is little doubt that subject to the detailed arguments to which I shall come that the parties thought at the time that some such arrangement had been made. For a large part of 2005, however, Mr Soady was unwell and the project for the new tank was not pursued and there came a time when LHC decided that when the new tank was built they would operate it themselves and not, after all, grant a lease to LFL. LFL therefore brought the current proceedings for specific performance of the alleged contract to grant the lease and also brought proceedings in the Administrative Court for judicial review of LHC's decision themselves to provide fuel to the fishermen on the grounds that selling fuel was beyond the powers conferred by the 1848 Act. On 27^th April 2007 Burnton J decided that selling fuel was indeed beyond the powers of the Commissioners. There was hope that that decision might render the other litigation unnecessary. That hope was falsified when the Commissioners decided that, if they could not sell fuel themselves they would lease the new tank to some third party rather than to LFL. That has led LFL not merely to pursue the claim against LHC for specific performance of the alleged agreement to grant a lease but, if that fails, to make an alternative claim for an injunction prohibiting any lease to some other party on the basis that to grant such a lease would be an impermissible derogation from the grant made by the current lease of the old fuel tank to LFL. As I understand it, the new tank has now been erected (just next to the old tank) but is not yet in use pending the outcome of this litigation. Meanwhile LFL are holding over as tenants under the Landlord and Tenant Act 1954, although LHC have stated that they wish (and are entitled) to bring the tenancy to an end since they want to redevelop the site.

The Facts

4. The old tank has outlived its natural utility. It is too small and the pumps work rather slowly. Since the fishing fleet tends to return from sea at much the same time, queues form at the facility and larger boats take longer to fill their fuel tanks than is desirable; meanwhile other boats have to wait. The capacity of the tank is only 50,000 litres which means tankers have to come down to the harbour to supply the facility rather often. There are no contingency arrangements for any possible interruption of supply. If the supply is interrupted, the boats cannot go fishing. If there were a larger capacity, better discounts and bulk deals could be negotiated.
5. This old tank is owned by LFL. LHC originally became involved in the project for the new tank because it is open to them to obtain grant aid (in the form of what was known as an "Objective 1 FIFG grant" from or through the Ministry of Agriculture Fisheries and Food ("MAFF")) for 75% of the cost of a new tank. It was for this reason that during the years 2002-2004 lengthy discussions took place between Mrs Tina Hicks, LHC's Chief Executive, and Mr Soady for the new fuel tank to be built by LHC and for it to be leased to LFL who would, for the first 3 years of the lease, pay annually one-third of the 25% of the total cost for which LHC would not receive a grant and thus be out of pocket. Thereafter an annual rent would be payable based on the value of the fuel tank and its site. These discussions came to a head on 24^th November 2004 when agreement in principle was achieved between Mrs Hicks and Mr Soady although, as they both knew, that agreement had to be approved by the Commissioners. Mrs Hicks considered that the best way forward was for the proposal to be considered by the Works Committee of the Board of Commissioners prior to a Board meeting which could fully discuss the matter. That was arranged shortly after the proposals had been formulated. The Works Committee recommendation was recorded at the Board Meeting which took place on 20^th December 2004 in the following terms:-

"The Chief Executive advised that the works committee had met and discussed the matter the previous week. Their recommendation to the Board was as follows:-

For the Harbour to apply for an Objective 1 FIFG grant, for the costs involved with the replacement of the tank.

Assuming that a 75% grant is secured, that an agreement is drawn up between the harbour [Commissioners] and Looe Fuels Ltd, whereby Looe Fuels repay the project shortfall, (25% of the total cost), over the next three years following completion of the project… …She added that the repayments would be classified as "rental" of the equipment, and the equipment would remain in the ownership of the Harbour at all times. The Chief Executive advised that Mr Soady had previously mentioned the possibility of the fuel company repaying the "shortfall" via an agreed "pence per litre sold" payback scheme. However, she would advise against this form of repayment scheme, as the fuel sales, (and therefore repayment period), were variable, and could not be guaranteed.

Following repayment of the "shortfall", (after the three year period), Looe Fuels would be charged an annual rental, (based on the value of the land).

LHC would propose a "pence per litre sold" agreement, commencing on installation of the new tank, whereby the Harbour received an amount "x", for every litre sold. ("x" yet to be determined). This percentage would be payable monthly, and reviewd every three years, to coincide with the renewal of the lease."

6. A vigorous discussion then took place at the December Board Meeting. Queries were raised about the type of tank envisaged and whether it should be above or below ground and how expensive it would be. The relevant minute of the discussion concluded in this way

"A further discussion took place, during which the Chief Executive stated that it was imperative that the Board made a definite decision as to the type of development they wished to see on the site. She added that a considerable amount of time had been expended on researching and discussing the replacement fuel tank possibilities over the past three years, and it was time that some action was taken. The committee had made a recommendation, and a vote on the matter should be taken accordingly.

Mr Eckersall proposed that the recommendation made by the works committee be adopted for a double bunded, above ground, tank and dispensing system. Mr Bussell seconded the proposal. Mr M Toms voted in favour of the proposal. Mr Webb voted against the proposal, stating, "I think the whole thing is a mish-mash". Mr Cotton also voted against the proposal, stating, "The proposal is nonsense, the Board should attempt to secure grant funding for a bigger build". Mr Bond and Mr A Toms abstained from voting, Mr Cotton advised that the vote was invalid, as for financial decisions such as this, a minimum of five qualifying votes were required.

It was agreed that the matter would be made an agenda item for the next monthly meeting."

At the next monthly meeting on 7^th January 2005 it was determined that there had been 5 qualifying votes after all, 3 for and 2 against the recommendation of the Works Committee. The previous vote was therefore accepted to be binding and there the matter rested apart from (as was assumed at the trial) the Board's decisions being communicated to Mr Soady.

7. Mr Soady then fell ill for 9 months and no progress was made until 2005 when a proposal in relation to improving Newlyn Harbour fell through and the Cornish authorities became worried that the £75,000 or so earmarked for that project would be lost to Cornwall if it was not used by the end of the year. Accordingly a hurried application was made to MAFF on 29^th November 2005 for the new fuel tank at Looe but (since more money than expected appeared to be available) also for a building on the site where fishermen could store fishing tackle and other gear. The costing for the project as a whole was £72,789 and the application made clear that the new fuel tank would be leased to LFL.
8. Meanwhile the Charity Commissioners had become interested in the matter. An earlier visit by their personnel was followed up by a Mr Harvey Grenville and a Mr Matt Jennings of the Commission who made what they called a "Follow Up Review Visit" to Looe on 15^th February 2005. The fuel tank was one of the matters discussed and the subsequent report stated as follows:-

"The charity has reached agreement with Looe Fuel Services, over the purchasing and provision of a new fuel tank. 3 trustees have shares in Looe Fuel Services. The charity will purchase the tank and look to purchase with 75% grant funding. The intention is that a rental agreement will be drawn up and set at a level which enables the 25% shortfall in funding to be paid to the charity. The rental income would continue generating another ongoing source of income. The equipment will remain in the ownership of the charity. The charity confirmed that when this project has been discussed at trustee meetings, all connected parties have been allowed to speak but not to vote.

As there are three trustees who hold shares in Looe Fuel services the arrangement may be considered to be a connected party transaction and may require an application for a legal authority from the Charity Commission."

On 5^th August 2005 Mr A Bartlett of the Charity Commission confirmed that the Commission's authority would be needed if the proposed lease was to be proceeded with and he also asked questions about the lease of the existing fuel tank. Ms Hicks answered the questions about the existing lease in her reply of 1^st September 2005 and added:-

"As you are aware, the Board are considering applying for an Objective 1 Grant to replace the tank, which would then be rented to Looe Fuels Ltd."

She enclosed a copy of the draft contract.

9. The lease of the old tank was due to expire on 24^th June 2005 so LHC decided to value the premises before negotiating a new lease for another 3 years. Arrangements for that had been put in hand in March 2005 and two independent assessments were made in April and May 2005 at £2.70 and £2.20 per square foot respectively. At the May Board meeting it was decided to fix the rent at the higher of these figures which resulted in a figure of £1350 for the first year with an increase of 3.5% in each of the following years. No formal offer was made to Mr Soady until 26^th September 2005 (no doubt because he had been ill). His reaction to that offer on 16th October was that rent up to 31^st December had already been agreed. Agreement in principle was reached at some later stage and the Charity Commission said in February 2006 that they were prepared to authorise the current arrangements for a further lease of the old tank (or, more accurately, the ground on which the old tank stood) up to 24^th June 2008. That still left outstanding the arrangements for the new fuel tank as and when funding for that would come forward.
10. I have already said that the application to MAFF of 29^th November 2005 made clear that the proposal was that the new fuel tank would be leased to LFL. There was a detailed description of the project annexed to the application which read in part as follows:-

"Detailed project description.

The project involves the purchase and installation of a new larger fuel tank (60,000 litre capacity) and a surrounding building. The larger tank will be fitted onto a raised concrete plinth, so that it is above the flood level and has a secure foundation. The automatic fishermen operated (key and PIN) system, for delivery and invoicing, will still be used, as it will be moved to the new tank. The Looe Fuel Co Ltd (co-op) will continue to run the fuel operations at the port.

The delivery system will be via two separate hoses. One of these hoses will have a faster delivery pump, and will therefore speed up the refuelling time. The dispensers will have gates across the front, which can be extended to protect the hose during fuel delivery and stop it becoming a trip hazard.

Environmental protection will be improved by the tank, which is double bunded, and designed to contain 110% of stored liquid volume. The dispensing areas at the quayside will be bunded to avoid leakage. An emergency spill cleaning kit will also be purchased.

A new building will surround the whole tank and it will include a new secure storage area for heavy fishing gear. The aesthetic quality of the outside of the building will be in keeping with the Conservation Area status."

11. It had now become clear to LHC that the involvement of the Charity Commission might give rise to difficulty with the arrangement for the proposed new fuel tank if it ever got off the ground especially since this was a new contract and it could be said that it should be put out to tender. One way out of the difficulty might be to revive a proposal made about 2½ years earlier for LHC to acquire the shares of LFL. Accordingly on 1^st March 2006 Ms Hicks wrote to Mr Soady in the following terms:-

"As you are aware, the Board have been corresponding with the Charity Commission re the above matter.

It is felt, that there might be "complications" with regards the leasing of the land and tank to Looe Fuels, and the Board might need to go through the tendering process prior to any decision being made; the Board wish to know whether the shareholders of Looe Fuels might still be interested in negotiating the disposal of the company?

I look forward to your reply."

12. This produced an immediate reply from Mr Soady on 3^rd March reminding the Commissioners about what they had earlier "agreed" with him:-

"You have not made it clear who it is, who feels there may be "complications" or what they might be. You will remember that I discussed the upgrade of the installation with the Chairman, Board members, yourself and the Environment Agency during the term of the last Board. It was agreed that it made financial sense for all concerned that the Commissioners take advantage of a 75% D.E.F.R.A. grant, rather than Looe Fuels applying for only a 40% grant. It was also agreed, that when the installation was upgraded, the Commissioners would lease back the tank to the Company, with an ongoing agreement which would enable the Commissioners to recoup there (sic) financial outlay and obtain a fair rental in years to come.

This is exactly the procedure adopted by the Commissioners with Looe Fish Selling Ltd when the Electronic Auction was introduced in July 2004. As your Commissioners are aware, the Board purchased the MOBI Auction Clock with the aid of a DEFRA grant and Looe Fish Selling Ltd are now repaying the Commissioners on an annual basis, including maintenance of the Clock.

No tendering procedure was adopted by the Board in this instance, neither was the Auction process advertised publicly as Looe Fish Selling had been operating on the market since 1989. I would also remind your Commissioners that Looe Fuels Ltd, (was Looe Fish 88), have been a tenant of the Harbour since 1988."

He added

"… on behalf of Looe Fuels, I expect this Board of Commissioners to honour the decision of their predecessors with regard to the Fuel Installation."

13. He then said that if the Board were interested in purchasing the Company, he would need to have a clear offer to put before his (62) shareholders. The Board's reply on 10^th March was not in terms a refutation of Mr Soady's assertions but said this:-

"Thank you for your letter dated 3^rd March 2006.

The Board are currently obtaining independent valuations for rental purposes, for the land upon which the new tank will be placed.

In the meantime, the Board anticipate that the annual rental for the land & tank combined will be in the region of £7,000 to £10,000. (Based on a three year lease).

With this in mind, the Board would be grateful if Looe Fuels would advise whether they would be interested in proceeding with a lease based on these terms?

I look forward to receiving your comments."

14. Mr Soady's response to this letter was much relied on by Mr Auld for the Commissioners because it was said that there was no reference to any prior agreement which was very odd. Mr Soady explained this in his evidence by saying he had "lost the thread" by this time and the judge accepted that explanation. This letter must, therefore, be quoted more or less in full:-

"(1) You have made no reference in your reply to my letter dated 3^rd March 2006, whether, or not, your commissioners wish to continue with their interest in the purchase of this Company (as per your letter 11/LF/010306FT dated 1^st March 2006).

(2) I am amazed, and concerned, that your Commissioners are obtaining further valuations for rental purposes, the land upon which the new tank will stand. Your letter IIL/260905/T11 dated 26^th September 2005 stated that your Commissioners had based the "revised rental" for the Tank on "current valuations". What on earth is going on? Are your Commissioners expecting the valuation to have significantly increased in less than 6 months? How can your commissioners justify this waste of the Charity's resources on three more valuers fees 6 months later. The Commissioners accounts for period ending 18^th May 2005 noted depreciation in the valuation of the "Harbour Undertaking"!!!! Am I to understand that your Commissioners are of the opinion that this is in correct and they believe that there is, in fact an increase in value: hence their need to have the Tank site revalued???

(3) The new installation will take up an area of 784 sq. ft., including the 312 sq. ft. of old fishermen's shelters (which at present accrues no income for the Commissioners and, in fact, is a financial liability of some £2000.00 annually!!!!!). The current Ground rental for 390 sq.ft. is £1350.00 p.a. Therefore a pro-rata rental for the new site is 784/390 x £1390.00 = £2713.85 per annum.

(4) As to the rental for the Tank itself. I calculate a figure to be as follows:-

Installation Cost £72788.90

Less Grant Aid £54591.68

Cost to Commissioners £18197.22

The useful life of the new tank is 20 years minimum. This week the Chancellor of the Exchequer reported annual inflation to be 2%. Assuming a low inflation rate for the useful life of the tank a realistic estimate for a replacement tank in 2006 would be £41,000. (This is based on the increase from 1989 to date.)

Therefore cost to Commissioners to replace Tank in year 2026 is:-

£18,197.22

£41,000.00

£59,197.22

Therefore annual repayment £59,197.22/20 years

£2,959.86 fixed for 20 years

NOTE. This rental of £2,959.86 has already taken annual inflation into account.

Based upon the above rationale, I consider the following terms to be fair and equitable for both Looe Fuels Ltd and the Charity

Commencing June 2006 a 3 year renewable lease to incorporate the total in Fuel Installation. Rental as follows:-

Rental for ground £2,713.85 p.a. with an annual increase of 2 % in line with current inflation

i.e. 1^st year £2,713.85

2^nd year £2,768.13

3^rd year £2,823.49

Rental for Tank and ancillary equipment £2,959.86 p.a. fixed for 20 years

Total accumulative rental is:-

1^st year £2,713.85 + £2,959.86 = £5,673.71

2^nd year £2,768.13 + £2,959.86 = £5,727.99

3^rd year £2,829.49 + £2,959.86 = £5,783.35

Rental to be paid Quarterly in advance. Maintenance of installation to be covered by Looe Fuels Ltd. Renewal of major equipment due to "wear and tear" to be covered by the Commissioners.

I'm sure there is further minushi (sic) that your Commissioners wish to investigate, so I will be pleased to meet with you/them at a mutually agreeable date. I await your reply."

15. It is not easy to understand the logic of the figures proposed in this letter but two comments may be made

i) The cost to the Commissioners is built into the equation at £18,197.22. That is the critical element in the amount to be paid for the first three years of the new "agreement" for the use of the new tank and to that extent it seems that Mr Soady was still thinking of that "agreement" when he wrote the letter.

ii) Likewise the total cumulative rental proposed is not far away from the actual cost to LHC and, indeed, the rent finally fixed on by the judge when he settled the terms of the lease.

It may, therefore, be queried whether this reply of Mr Soady was as inconsistent with the case he advanced at trial as LHC now contend it to be.

16. Naturally enough these matters were discussed at LHC's contemporaneous Board Meetings in some detail. Internal exchanges during Board Meetings are, or course, only marginally relevant to the question whether a binding agreement with LFL had been reached but the April minutes do record this exchange

"Mr C Cotton referred the Board to Mr Soady's letter dated 3^rd March 2006, whereby a paragraph stated, "I would expect the Board to honour the decision of their predecessors with regard to the fuel installation". He added that the previous Board had put the company in "promise land", when they had previously considered the company's financial statements, and decided, (for a number of reasons) not to enter into negotiations to purchase the company, nor to take over the running of the fuel business. It was instead agreed that the Board would apply for Objective 1 funding to replace the tank, and if successful, rent the tank to Looe Fuels. He added that, as far as he was aware, none of the minutes concerned had been rescinded.

Mr M Cotton queried if the previous Board had made a formal written offer to the fuel company re the new tank? The Chief Executive replied, "No", however, it had verbally been suggested that Looe Fuels would be offered the lease of the new tank."

17. The grant from MAFF finally came through on 1^st March 2006 and was accepted by Ms Hicks on 9^th March on the basis of a total project cost of £72,789 with the grant being £54,591. On about the same day she passed that "good news" on to Mr Soady.

The Judgment

18. On these facts His Honour Judge Jeremy Griggs decided that

i) the Commissioners had orally bound themselves to grant a lease of the new tank to LFC;

ii) it did not matter that the agreement was not a written but an oral (parole) agreement because the agreement was for a 3 year lease at the best rent which could be reasonably obtained and, therefore, fell within the exception, contained in section 2(5) of the Law of Property (Miscellaneous Provisions) Act 1989, to the normal rule that agreements to make dispositions of land must be in writing;

iii) alternatively (if necessary) any proposed lease to a third party would be a derogation from the existing lease of the old tank.

Submissions

19. The Commissioners now challenge these conclusions and Mr Charles Auld has submitted on their behalf:-

i) the Commissioners' decision in December 2004 and January 2005 was only a decision as to the type of tank to be built and not an agreement to lease the tank to LFL;

ii) if any such decision was made, it was only on the terms of the Works Committee proposal identified in the minutes of 20^th December 2004 which contained a condition (or counter-offer) to the effect that the rent for the first 3 years should contain a "pence per litre" element as well as the annual one third of the 25% which LHC would not be able to recover through the grant system;

iii) Mr Soady's own letter of 22^nd March 2006 never suggested that any agreement had been reached and virtually accepted that it had not;

iv) The rent, if it was just "the annual one-third", was not the best rent which could reasonably be obtained for the fuel tank and the site;

v) It was no derogation from grant for LHC to lease to a third party who would be no more than a rival trader of LFL.

What was decided at the Board Meeting of 20^th December 2004?

20. The judge recorded that LHC's witnesses (Mr John Eckersall, Mr Michael Cotton and Ms Hicks) had given evidence that all the Board meeting had decided was what type of construction the new tank should be. He also recorded that, while Mr Colin Cotton had given written evidence for LFL to the effect that the Board Meeting had agreed a deal with LFL, in his oral evidence he said that the vote taken at the meeting was on the question whether the new tank should be above or below ground and not on the rest of the Works Committee recommendation. Mr Colin Cotton was in favour of an underground tank which would, of course, have been more expensive. The judge concluded, however, in paragraph 22 that all present at the Board Meeting knew and understood that what they were approving was the type of facility which was going to be operated by LFL. He dismissed the contrary oral evidence of the witnesses as having been given with the benefit of hindsight. Mr Colin Cotton's evidence, in particular, was given because he remembered how opposed he had had been to an above ground tank. The judge also relied on the fact that the parties were keenly aware that they had taken a financial decision which needed a minimum of 5 votes to be valid. As to this Mr Auld submitted to us that even a decision about the type of tank to be constructed or the location where it was to be built (above or under the ground) was a financial decision.
21. There is some force in this last submission of Mr Auld but not, in my view, so much force as to detract substantially from the judge's conclusion. The Board needed to know how its own contribution to the construction (25% as opposed to 75% from MAFF) was to be financed; that was certainly a major financial decision. The fact is, however, that the judge's decision on the question was essentially a question of fact and there was evidence on which he was entitled to reach it – particularly a fair reading of the minutes themselves. He gave appropriate reasons for rejecting the evidence of Ms Hicks, Mr Eckersall and the (oral as opposed to the written) evidence of Mr Colin Cotton. It was he who heard the witnesses; this court has not.
22. He was also entitled to rely on Ms Hicks' comments to Mr Grenville as recorded in his report and her own completion of the application forms for the grant sent to MAFF. Ms Hicks claimed in her oral evidence that Mr Grenville had misunderstood her but the judge was entitled to reject that part of her evidence and conclude that the position was as stated by him and, indeed, later by Ms Hicks herself when she filled in the application form.

Proposal for "pence per litre" in addition to the agreed rent

23. The judge regarded this proposal as just that. It did not contradict the fact that agreement had been reached to lease the new facility to LFL at the rent agreed. As a concept, it was originally a proposal made by Mr Soady to Ms Hicks as a substitution or alternative to an annual rent of a third of the 25% of the capital cost. But as the second bullet point of the Works Committee recommendation (recorded in the 20^th December minutes) demonstrates, Ms Hicks advised against that for the very good reason that it would not guarantee return of the 25% outlay. To the extent that the proposal became a proposal for pence per litre in addition to the rental, that was something to be passed on to Mr Soady by LHC but in fact no such proposal ever seems to have been made and that is the last that is heard of it. It is not mentioned in the Charity Commission documentation or the application to MAFF. It cannot and does not affect the fact that an agreement had been made. This is what the judge concluded in paragraph 26 and I agree with him.

Mr Soady's letter of 22^nd March 2006

24. This letter needs to be set in its context. In 2005 LHC had commissioned valuations; although this was not explored in argument, it seems likely that those valuations were of the site of the old tank for the purpose of renewing the old lease. At some time between November 2005 when LHC sent the grant application to MAFF and March 2006 when LHC decided they were not in law bound to grant a lease to LFL, they commissioned new valuations (presumably for the new site) and asked Mr Soady whether LFL would be prepared to pay a figure of £7,000 - £10,000 by way of rent for the new facility. Not unnaturally Mr Soady was somewhat incensed by this and in his letter of 22^nd March berated LHC for commissioning new valuations (perhaps not understanding that the respective valuations were not of identical sites). Mr Auld made the point to the judge (and to us) that if Mr Soady had really thought he had an agreement for a lease at a particular rent he would have so said and had no need to get into any other argument. The judge accepted Mr Soady's explanation that he had been ill for most of 2005 and had "lost the thread".
25. Mr Auld made the points that Mr Soady had in fact been out of hospital since September 2005 and that in the slightly earlier letter of 3^rd March 2006 to LHC Mr Soady had in terms referred to what had been agreed with LHC in December 2004 so that it was unlikely that Mr Soady could have lost the thread by 22^nd March.
26. These points do have some (but not in my view telling) force. They are points which might be persuasive if the letter of 22^nd March had been written by a lawyer but it was not. Laymen, such as Mr Soady, may not think it necessary to re-iterate points recently made. Indeed, as the judge pointed out, Mr Soady's own view on the question whether a contract had been concluded was, strictly speaking, irrelevant in any event.
27. It may well also be that under Mr Auld's fair but pressing cross-examination Mr Soady was selling himself somewhat short when he asserted that he had "lost the thread" on 22^nd March 2006. His letter of that date reads coherently enough when it is set in the context of the additional valuations being sought by LHC. It is only by implication that one could conclude he was not relying on any agreement. He does not say that expressly and had said the contrary only 19 days before.
28. If therefore I were minded to accept the invitation contained in paragraph 4(b) of Mr Auld's grounds of appeal to reverse the judge's finding of fact that Mr Soady had lost the thread when he wrote the letter of 22^nd March 2006, it would not compel me to reverse the more important finding or holding of the judge that there was a binding contract made in December 2004 on the terms relied on by LFL – quite the contrary.

"The best rent which can reasonably be obtained"

29. The relevant exception to the general rule that contracts relating to land must be in writing is set out in section 2(5) of the 1989 Act as being contracts to grant such a lease as is mentioned in section 54(2) of the Law of Property Act 1925. That section, as enacted, exempted certain types of leases (as opposed to agreements for such leases) from the requirement that dispositions of real property should normally be in writing. This exemption now applies to agreements for such leases. This subsection provides:-

"Nothing in the foregoing provisions of this Part of this Act shall affect the creation by parole of leases taking effect in possession for a term not exceeding three years (whether or not the lessee is given power to extend the term) at the best rent which can reasonably be obtained without taking a fine."

No point is taken on the phrase "taking effect in possession"; nor is it suggested that the contract was for a term exceeding three years since the 1848 Act by which LHC is governed only empowers the granting of lease for 3 years or less. The only question is whether the agreed rent was the best that could reasonably be obtained.

30. The judge held that it was. He pointed out that the rent "would ensure repayment of the remainder of the capital cost". That "remainder" is, of course, the 25% of the capital cost which LHC must initially bear. They will therefore recover the whole of their capital outlay within 3 years. From LHC's point of view that is a remarkably good bargain. Very few landlords could boast that they can recover their capital outlay within three years of making their original investment. That picture is, of course, affected by the fact that LHC's own outlay is only 25% of the overall cost. Nevertheless the judge was, in my view, entitled to look at the actual, as opposed to the notional position, when deciding whether the rent was the best which could be reasonably obtained for the site.
31. The matter has been somewhat complicated by the fact that the entire capital outlay (three-quarters of which has now been reimbursed by MAFF) had included a sum for erecting the store for the fishermen's gear which is, of course, not to be leased to LFL. This subsequent and adventitious fact cannot affect the existence of the contract with LFL. In separate and subsequent proceedings the judge has done an apportionment and concluded that the contractually agreed rent is to be £6,000 p.a. for the first three years. Although the judge did not have this specific sum in mind when he concluded that the contractual rent was the best rent which could reasonably be obtained he was entitled to conclude that the agreed rent (whatever it might in due course be calculated to be) almost certainly exceeded the annual market value for the land. That was a finding of fact which he was entitled to make and I do not consider that this court should interfere with it.
32. Mr Auld's main arguments to the contrary were (1) that the burden of proof was on LFL to show that the rent was the best which could be reasonably be obtained and (2) that in his letter of 22^nd March 2006 Mr Soady had already offered more than the agreed value. But as to (1) the judge had decided that the rent did, in fact meet the requirements of section 54(2) of the 1925 Act and did not feel the need to consider any questions of burden of proof. As to (2), I have already said that the purpose of the letter was not to assert or disavow any contract already made but to complain about LHC obtaining new valuations, and, in effect, moving the goal posts. It is true that, on the basis that the goalposts were to be moved, Mr Soady does offer to pay £2713.85 per annum. That is, of course, much less than the judge has decided subsequently is to be due, but even the figure of £6,000 is less than the £7000 – £10,000 wrongly demanded by LHC.

Derogation from grant

33. If (as I believe it should be) this appeal is to be dismissed, it is unnecessary to say anything about derogation from grant. I will only observe that the judge's decision on this may not be completely unassailable. If it is right that the old tank is antiquated and past its useful life, it would be odd to use the doctrine of derogation of grant to prevent an up-to-date and useful facility even if that facility were to be operated by someone other than LFL. That is, however, academic and will be doubly academic if LHC are, in any event entitled to regain possession of the old tank for the purpose of redeveloping the site as a whole. The less said on this topic, therefore, is probably the better.
34. Left to myself I would dismiss this appeal.

Sir Robin Auld:

35. I agree.

Lord Justice Rix:

36. I also agree.