ON APPEAL FROM THE SWANSEA COUNTY COURT
B e f o r e :
THE RIGHT HONOURABLE LORD JUSTICE PITCHFORD
THE HONOURABLE MR. JUSTICE LLOYD JONES
| Gordon Keith Brumwell
|- and -
|Powys County Council
Mr. Graham Walters (instructed by Powys County Council) for the Respondent
Hearing date: Tuesday 29th November 2011
Crown Copyright ©
MR. JUSTICE LLOYD JONES :
"The fundamental question is why should the Department be engaged in the operation of what is essentially a commercial facility. The answer might well be that the Department in theory should not be so engaged. The way forward could then be to lease or sell the site. Whenever, however, this line of action is explored the question arises of the complexity of site ownership. Trying to externalise the site, for this reason, could create many difficulties and turn out to be far less profitable that might be expected. After all, the site is at present bringing a useful income to the Department. The need therefore seems to be to find some way of introducing a delegated or franchised type of management, taking the Department away from the day to day administrative operations.
After some consideration and in the light of the performance of the current warden the best way forward would seem to be a franchise arrangement with that individual on a year by year basis."
The proposal then set out a number of proposals for possible agreements. I note that many of these features are not contained in the agreements which were eventually entered into between Mr. Brumwell and the Council.
"(1) Subject to the provisions of this Act, this Part of this Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes."
(1) Was and is the Claimant running a business on the site, and accordingly did he have a tenancy of the site by reason of the operator agreement?
(2) If not –
(a) Has he held over as tenant after 1st May 2001;
(b) Is the operator agreement a sham agreement; or
(c) Is the Defendant estopped from denying that the Claimant occupies the site as a tenant and is entitled to a new lease?
(3) Has the Defendant had established ground (g) in Section 31 of the Act?
(1) The effect of the Operator Agreement was that Mr. Brumwell was appointed to manage the business which was to be retained by the Council. The judge was not persuaded that the agreement on its proper construction showed an intention of the parties that that business, and hence exclusive possession of the site, should pass from the Council to Mr. Brumwell.
(2) The correspondence in May 2002 was sufficient to terminate the agreement and Mr. Brumwell, not having a tenancy beforehand, did not thereafter hold over as such a tenant.
(3) Neither the Bungalow Agreement nor the agreement under which Mr. Brumwell was employed as a part-time security guard was a sham.
(4) The representations made on behalf of the Council did not amount to a clear representation that Mr. Brumwell already had a tenancy. In the light of the documents, the judge considered that it was likely that Mr. Brumwell understood what the position was. Mr. Brumwell was anxious to ensure that a lease was entered into but in the event it was not. Furthermore the vast majority of the expenditure relied on by Mr. Brumwell was expenditure he was either required to make under the Operator Agreement or under the obligation to use best endeavours to maximise the use of the site. Accordingly, the judge was not satisfied that the reliance was such as to make it unconscionable for the Council to deny that the Claimant was a tenant.
(5) The Council had adduced no evidence in support of its reliance on ground (g) in section 31. The judge did not consider that the Council had the intention or the capability of occupying the site for itself.
The 1998 Agreements.
The Operator Agreement.
"The Council wishes to appoint the Operator to manage the said caravan site and the camping site (hereinafter together called "the Undertaking") upon the terms and conditions hereinafter appearing."
The deed then provides:
"1. The Council hereby appoints the Operator and the Operator hereby accepts the appointment to manage the Undertaking for a period of two years (hereinafter called "the terms") from the 1st day of April 1998 but terminable as hereinafter contained and upon the terms and conditions hereinafter contained.
4. The Parties hereby agree that the Council shall be paid by the Operator the sum of £32,890.00 for the first year of the term such sum to be paid by four equal instalments…and the Council shall be paid in respect of the second year of the term such sum as shall be agreed between the parties before the commencement of the second year of the term and which in any event shall not be less than the sum paid in the first year of the said term such sum to be paid by four equal payments in similar manner to the previous year.
5. In the event of the tenancy of the camping site being terminated before the expiration of this agreement it is hereby agreed that this agreement will cease on the date of termination of the said tenancy without prejudice to the obligations of the parties under the terms of the agreement up to such date.
6. This Agreement may by agreement between the parties be extended by a further term of three years upon such terms and conditions as the parties hereto shall have agreed before the expiration of the term of this Agreement subject to the Council at that time having a tenancy of the camping site and having a leasehold interest in the part of the caravan site which is held under the lease."
"1. To manage the Undertaking as an independent contractor under the name or style of "The Wyeside Caravan and Camping Park."
There are then set out various obligations relating to the running and maintenance of the Park and its facilities. The Schedule setting out the obligations of the Operator then continues:
"(7) Subject to the prior approval of the Director of Community Leisure and Recreation to set the fees and charges for the use of the facilities at the Undertaking.
(8) To collect all fees and charges as they become due and payable.
(9) To pay all energy charges water rates and other recurring charges in respect of the Undertaking other than those agreed to be paid by the Council.
(10) To be responsible for marketing and promoting the Undertaking including all advertising relating thereto and at all times to use his best endeavours to maximise the use of the Undertaking.
(11) To be responsible for all lettings of pitches and to have the sole rights for the sale of caravans and other equipment to the occupiers of the sites and to charge such commission to the users as he considers appropriate for such services.
(12) To charge for any services he renders to the users of the Undertaking.
(13) To keep properly written up books of accounts in respect of all financial transactions relating to the Undertaking and to use the accounting services of the County Treasurer (which shall be provided free of charge).
(14) To make available to the County Treasurer and to the Director of Community Leisure and Recreation the books of account at all reasonable times upon request.
(15) To employ such staff as he requires to assist him in carrying out his functions under this Agreement.
(16) To comply with all licences regulations and planning permissions relating to the Undertaking and the terms of the lease and tenancy agreement.
(17) To ensure that he complies with the obligations of a person in control of the Undertaking within the meaning of the Health and Safety at Work Etc Act 1974 and as the occupier of the premises within the meaning of the Occupiers Liability Act 1957 to the intent that the Council may not at any time be in breach of its obligations (if any) under these two Acts.
(18) At all times throughout the term of this Agreement to keep the Council indemnified against all claims actions damages and loss in respect of the operation of the Undertaking arising from actions or omissions on the part of the Operator.
(19) Within four weeks of the end of each year of the term hereby granted to produce to the County Treasurer such accounts as shall be required to show the income and expenditure and net profits of the Undertaking in the preceding year."
"(1) To pay the non-domestic rates on the Undertaking.
(2) To maintain all appropriate insurance policies in respect of the Undertaking and to pay the premiums thereof on demand.
(3) To repair and keep in repair the roads, footpaths, buildings and services on the sites
(4) To comply with the terms and conditions of the Lease and tenancy agreement.
(5) To provide free of charge to the Operator an accountancy service and all legal services required in connection with the operating of the Undertaking.
(6) To pay the rent under the Lease and Agreement."
Paragraph 4 of the Second Schedule refers to the leases of the northern and southern portions of the site to the Council.
The Bungalow Agreement.
"(1) The Employee is in the part-time employment of the Employer as The Caretaker and Security Officer at Wyeside Caravan and Camping Site Rhayader in the County of Powys.
(2) The Employee's contract of employment requires him to occupy the dwelling-house hereinafter described for the better performance of his duties."
Clause 1 provides that the employee "whilst in the said employment and for the better performance of his duties in the said employment" is required during the term of such employment to occupy the warden's bungalow. Clause 2 provides that the employee shall in respect of such occupation of the bungalow pay the annual sum of £1,000 or such other sum as shall from time to time be agreed between the employer and employee, such sum to be paid by 12 equal instalments each year by deduction from salary.
The agreement further provides:
"(6) Nothing herein contained shall create the relationship of landlord and tenant between the parties hereto and the benefit of this Agreement shall be personal to the Employee and shall not be assignable by him.
(7) The occupation of the premises by the Employee is a condition of his employment with the Employer and the right of the Employee to occupy the premises shall cease upon the termination of the Employee's said employment or upon the Employee being transferred to another place of business of the Employer."
The Service Agreement.
"I write to confirm that with effect from the 1st April 1998, it has been agreed with you to vary the terms of your employment contract from that of a full-time Caretaker at the above site to that of a part-time Security Officer of the caravan and camping site.
The duties of this post are to be responsible for the security of the Wyeside Caravan and Camping Site, Rhayader, Powys.
It will be a condition of employment that you will occupy the Warden's bungalow situated on the caravan site throughout the term of your employment for the better performance of your duties.
The revised annual salary will be £1,000 and payment will be monthly. The hours of employment will be such as is required to properly carry out the above duties. There will be no paid holiday allowance, and any holidays must be taken outside the period from Easter to the end of October in each year.
You will continue to be paid during any sickness period up to a maximum of six months. Your continuous service will be taken into account for statutory employment rights. You will be subject to Powys County Council disciplinary and grievance policies."
"acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create." (at p. 802D).
He emphasised, however, that:
"for acts or documents to be a "sham," with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating." (at p. 802E-F).
"I have not signed as yet the service occupancy agreement of the Warden's bungalow or the contract of employment as it was agreed that the amount you paid me was to cover the bungalow rent, so in effect I would be paid nothing. You will recall it was a legal loophole you wanted to cover so that I could not exercise my right to buy under council housing law."
He enclosed the unsigned copy of the Bungalow Agreement and the Service Contract so that they could be "amended to balance".
The effect of the agreements.
(1) Paragraph 1 of the First Schedule provides that Mr. Brumwell shall manage the undertaking "as an independent contractor". This may have been included by the parties to distinguish the role performed by Mr. Brumwell under the Operator Agreement from that which he performs as an employee under the Service Agreement. The fact that he runs the business under the Operator Agreement as an independent contractor is, to my mind, equally consistent with his acting as principal or agent.
(2) Mr. Brumwell is responsible for all lettings of pitches and has the sole rights for the "sale of caravans and other equipment to the occupiers of the site and to charge such commission to the users as he considers appropriate for such services." (Paragraph 11 of the First Schedule) Mr. Blohm accepted that the reference to the sale of caravans is a reference to the selling of rights to occupy caravans. I accept Mr. Blohm's submission that the statement that Mr. Brumwell is responsible for all lettings of pitches carries the implication that the Council is not. However, this casts little light on the question as to the capacity in which Mr. Brumwell does so. He can be responsible for doing so while at the same time acting on behalf of the Council. It seems to me that this obligation is equally consistent with Mr. Brumwell acting in his own right and with his acting as agent for what may well be an undisclosed principal. On the other hand, the fact that Mr. Brumwell was entitled to retain the profits of this operation, if it was profitable, is a factor in favour of his acting as principal, as noted above.
(3) Mr. Brumwell undertakes an obligation (paragraph 17 of the First Schedule) to ensure that he complies with the obligations of a person in control of an undertaking under the Health and Safety at Work Act 1974 and of the occupier of premises under the Occupiers Liability Act 1957. This is similarly equivocal. While, at first sight, this provision might be seen to support the view that Mr. Brumwell acts as principal, it would, as Mr. Blohm accepted, be possible for a person in control of an undertaking or occupying land to be acting as an agent for another. The stated intention of this provision is "that the Council may not at any time be in breach of its obligations (if any) under these two Acts." The inclusion of the words "if any" may be said to support the view that the Council would not be in control of the undertaking or the occupier of the premises because Mr. Brumwell is performing these functions in his own right. However, I consider that this is equally consistent with prophylactic drafting.
(4) Mr. Brumwell undertakes (paragraph 18 of the First Schedule) to keep the Council indemnified against all claims and actions damages and loss in respect of the operation of the undertaking arising from actions or omissions on his part. This makes equal sense whether Mr. Brumwell is running the business on behalf of the Council or on his own behalf.
(1) It is a striking feature of the Operator Agreement that Mr. Brumwell undertakes detailed obligations as to what he must do in running the Park. The Council retains a high degree of control. For example, he undertakes to ensure that all refuse bins are emptied at suitable intervals and the areas surrounding such bins are kept tidy and free from refuse. (Paragraph 2 of the First Schedule). He undertakes to ensure that the owners and tenants of caravans and the users of the camping site keep the Park in a clean and tidy condition and that all refuse is deposited in the appropriate receptacles. (Paragraph 3 of the First Schedule). He undertakes to keep the toilets and showers on the sites in proper working order and at all times clean and tidy. (Paragraph 4 of the First Schedule). If Mr. Brumwell were running the Park in his own right, it would be a matter for him as to precisely how he ran the Park. The fact that the Operator Agreement spells out these duties in such detail is a strong indication that he is carrying on the business of the Council as its agent.
(2) Mr. Brumwell undertakes to be responsible for marketing and promoting the undertaking, including all advertising relating thereto, and he undertakes at all times to use his best endeavours to maximise the use of the Undertaking. (Paragraph 10 of the First Schedule). In other circumstances, the fact that an individual is responsible for marketing and advertising might well be taken as an indication that he is acting in his own right. However, in the present case the fact that Mr. Brumwell undertakes an obligation to the Council to perform these functions has, to my mind, precisely the opposite effect. Similarly, if Mr. Brumwell is running the Park in his own right its promotion might be thought to be a matter for him and it is odd that he should be contractually bound to the Council to promote it. I accept that the force of this consideration may be diminished to a certain extent by the fact that it was clearly contemplated that the business would return to the Council at the end of the arrangement. The Council would therefore have an interest in the state of the business at the end of the agreement. An obligation to promote the undertaking may therefore be explicable even if the business is Mr. Brumwell's business for the duration of the agreement. Nevertheless, it is a consideration which I consider tends in favour of Mr. Brumwell acting as agent for the Council.
(3) The Operator Agreement imposes an obligation on Mr. Brumwell to employ such staff as he requires to assist him in carrying out his functions. (Paragraph 15 of the First Schedule). It is difficult to see why such an obligation should be included if Mr. Brumwell is running his own business. Rather, it appears that this obligation is imposed so that the Council can be satisfied that the business will be properly run. This again points towards the business being the business of the Council.
(4) If Mr. Brumwell operates the Site in his own right it is a curious feature of the Agreement that he is required to do so under the name or style of "the Wyeside Caravan and Camping Park". (Paragraph 1 of the First Schedule). A possible explanation is that the Council will eventually get the business back and therefore benefit from the goodwill built up in that name. If that is the case then this provision is neutral. However, I tend to the view that this requirement supports the agency analysis.
(5) Mr. Brumwell undertakes (Paragraph 7 of the First Schedule) to set the fees and charges for the use of the facilities on the Site, subject to the prior approval of the Council. Mr. Blohm submits that the fact that fees and charges are not set by the Council is an indication that Mr. Brumwell runs the business in his own right. However, if that were the case, Mr. Brumwell might be expected to have an unfettered right to set fees and charges. Even if, as Mr. Blohm submits, the prior approval of the Council is not to be unreasonably withheld, to my mind this provision reflects the retention by the Council of a degree of control over the business which is incompatible with the result for which Mr. Brumwell contends
(6) Mr. Brumwell is obliged to charge for any services he renders to users of the Park (paragraph 12 of the First Schedule) and to collect all fees and charges as they become due (paragraph 8 of the First Schedule). These are further examples of detailed provision governing the way in which Mr. Brumwell runs the Park and provide further support for agency.
(7) The First Schedule to the Operator Agreement imposes a series of obligations on Mr. Brumwell in respect of accounts. He is obliged to keep properly written-up books of financial transactions relating to the undertaking and to use the accounting services of the County Treasurer, which are to be provided free of charge (paragraph 13). The books of account have to be made available to Council officials' at all reasonable times upon request (paragraph 14). Within four weeks of the end of each year Mr. Brumwell is required to produce to the County Treasurer such accounts as shall be required to show the income and expenditure and net profits of the Undertaking in the preceding year (paragraph 19). Furthermore, the Second Schedule imposes an obligation on the Council to provide an accountancy service to Mr. Brumwell free of charge (paragraph 5). As the judge observed, the fact that Mr. Brumwell may not have used the accountancy services of the Council, as he was required to do, and may have instructed his own accountant is nothing to the point. It is difficult to see why such provisions should be included in an agreement if the intention is that Mr. Brumwell carry on the business in his own right. If that were the case, the agreement might be expected to include some provision in relation to the provision of financial information but the Council would have no justification for maintaining such a tight control over such accountancy matters. However, these provisions make eminent sense if the business remains the business of the Council, notwithstanding the fact that the Council is not sharing in the profits.
(8) In addition to the free provision of accountancy services, the Council undertakes to provide to Mr. Brumwell free of charge "all legal services required in connection with the operation of the Undertaking". (Paragraph 5 of the Second Schedule). To my mind this is totally inconsistent with the suggestion that Mr. Brumwell is running the Park as his own business. If that were the case, there could be no possible justification for the Council undertaking to meet all his legal expenses.
(9) The Council undertakes to maintain "all appropriate insurance policies in respect of the Undertaking and pay the premiums thereof on demand". (Paragraph 2 of the Second Schedule). This would appear to include the insurance of the buildings and installations on the Site. Mr. Blohm submits that there is nothing to prevent a landlord from insuring his interest in property. However, "all appropriate insurance policies in respect of the Undertaking" would be wide enough to include public liability insurance for the operation of the Site. If Mr. Brumwell were operating the business in his own right, there could be no possible reason for the Council to provide such public liability cover at its expense.
Lord Justice Pitchford:
Lord Justice Laws: