COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Central London Civil Justice Centre
His Honour Judge Cowell
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE THOMAS
LORD JUSTICE ETHERTON
| Hussain Ahmed
|- v -
|(1) Mohammed Abdul Ahad (Deceased)
(by his executor) Zakariya Ahad
(2) Ful Miah
|(1) National Westminster Bank Plc
(2) Mohammed Abdul Ahad
(3) Ful Miah
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Paul Clarke (instructed by Rippon, Patel and French) for the Respondents
Hearing dates : 18th January 2011
Crown Copyright ©
LORD JUSTICE ETHERTON :
The course of the proceedings
"continue to allow a profitable and successful restaurant to operate in the Property in order to:
i. enchance its long-term value; and
ii. pay rent in the meantime."
"(b) Whether the relevant partnership between the Claimants and the Defendant granted a tenancy or some other licence or entitlement to occupy 61 Berwick Street, London, W1V 3PA ("The Property") to the Defendant.
c. Whether there was a sub-tenancy or licence to occupy the property in favour of Dinepark Limited and, if so, what has happened in respect of such sub-tenancy or licence to occupy.
d. Whether the Defendant presently has a tenancy of, or some other right by way of licence or by virtue of his interest as part owner of the freehold of the property to be entitled to occupy and/or run a restaurant there."
Judgment of HH Judge Cowell
"1. … The first general question is: has he done it as his own business or as one of three partners? The second question that arises is: was he granted a lease of the premises by the three freeholders of the property who are the two claimants and himself, the defendant? "
"3. On the first two days in March of the hearing there were three counsel: Mr Gavaghan for the two claimants (Mr Ahad and Mr Miah), Mr Paul Clarke for the defendant (Mr Ahmed) and a Mr Stacey appeared for the mortgagee bank. The volcano in Iceland meant that on 19 April Mr Stacey was still in Turkey and so Mr Bankes-Jones stepped in representing the bank on 19 and 20 April."
"6. The defendant was the only one of the three to give evidence and to speak English reasonably fluently. Yesterday the defendant's wife was called but she hid beneath a burka and shielded her evidence by means of an interpreter although clearly she could speak a certain amount of English, and my general impression was that she probably knew very little about any relevant matter.
"10. So because of the problems over the reliability of much of the evidence, for the reasons which I have given -- and I should add that one of the problems about the defendant's case is that certain payments were made by him in 2005 to Mr Ahad through his son, which suggested some kind of entitlement on the part of the first claimant to something, and what may be unsatisfactory reasons were given by the defendant for doing so, that first of all it was a loan, secondly it was to encourage Mr Ahad to think that the defendant was someone who should be appointed to some financial post abroad, and that sort of thing -- I feel that I am bound to rely heavily upon the undoubtedly authentic documents in this case."
"The defence is a long document running to 12 pages settled by Mr Jonathan Rich of counsel. It is a very prolix document; it is not easy to see from it what the real defence is. Counsel have attempted to analyse the defence. It would appear from paragraphs 5, 14 and 51 that what is being claimed is that the defendant was a tenant of the premises paying a rent and that at some stage he granted a subtenancy of the premises to a limited company called Dinepark Ltd which eventually went into liquidation and which as a matter of formality was directed by the defendant's wife while the Company Secretary was the defendant's sister. The counterclaim is rather baffling. Fortunately, the defendant has been represented by Mr Paul Clarke to whose sense of relevance I pay tribute."
"27. Dinepark Ltd was set up and the wife of the defendant and his sister were made officers of it on 22 February 2002 in preparation for the business which was run. Between April and July one can see from the bank account that six payments of £2,500 were being made to pay off the mortgage. That figure of course is more than a monthly amount based on an annual rent of £22,000, the figure which featured in the document of July 1999 which, so far as one can tell, was intended to be a rent, so called, for five years.
28. What is known is that by the year 2003 the figure that was being regularly paid by Dinepark which was used to discharge the mortgage instalments (which I should have explained, but it is an obvious point, had greatly increased as a result of the additional loan of £120,000 in March 2002), the rent, so called, which Dinepark paid became £975 a week, which is far in excess of £22,000 a year. One thing which is quite clear is that the payments that were being regularly made by this stage were such as to discharge the mortgage instalments which were much higher.
29. After Mr Duffin retired, a Mr Griffiths took over as bank manager. Mr Griffiths noted: "Mr Ahmed has income from Golden Orient/Taste of Spice business which will reduce to £500 per month when he leaves to concentrate on the new ventures". In July 2004 he made a note to the effect that "£975 per week is transferred ..." His note is extremely difficult to read, but he read it out in evidence. The gist of it was that it seemed to Mr Griffiths that effectively income derived from the property was being used, as indeed it was, to discharge the mortgage instalments.
30. I will return later to the order of events because it is at this stage that it is important to appreciate what the position was as between these three "partners", and my findings as to what the position was at the end of 2001 was as follows.
31. First, the business had stopped and the accounts were to be done up to 17 January 2002. Secondly, at any rate until the property could be refurbished, no rent was being paid by anyone, nor was any income being generated from the property. Thirdly, the mortgage instalments had to be paid if the investment which had been made by the purchase in 1999 was to be retained and ultimately sold on good terms when the occasion was right. The fourth point is that the immediate priority was for somebody to be on the property paying for the privilege.
32. Fifthly, neither Mr Ahad senior nor Mr Miah had any inclination to carry on or be involved in any business run at the premises. Because they had been encouraged to invest in the freehold by the defendant and would readily blame him if anything went wrong, they looked to the defendant to find a way to produce money to pay the instalments.
33. The question is whether the defendant carried on the partnership business (in which he would have a 26 per cent share, though ordinarily there would be some agreement about some management fee), or did he carry on or allow someone else to carry on, in the form of Dinepark, a new business, paying the owners of the property for the privilege of occupying the property in order to do so? In answering that question it is necessary to see what all of them did.
34. I find that the defendant, finding nobody else who wanted to rent the property either at £22,000 a year or at a higher amount, persuaded his wife, through the company Dinepark Ltd, to run the business; she would nominally run it though he effectively ran it as a manager, at any rate when he was not attending to another similar business that he had in East London; and in so far as she was concerned, he persuaded her to make payments through Dinepark sufficient to pay the mortgage instalments which he and the claimant had to pay. It seems to me all the parties knew, for at any rate the years 2002 to 2004, that that was how the mortgage instalments were paid. They were paid from fixed payments made by a business introduced and managed by the defendant and to some extent by his wife. The claimants accepted the receipt of those monies on that basis and they did not risk taking merely a share of the profits, if any, after some kind of remuneration of the defendant or whoever was managing it, nor did they take a share of any loss. It seems to me that during that period they cannot reasonably have believed that what they received was their entitlement to a share in the partnership.
35. Indeed, as I shall mention, they continued to seek to recover the fixed sums being paid between 2002 and until about June of 2006. They sought to recover those same sums afterwards.
36. I come back to the documents. There are many things which in my judgment support the conclusion that the business which was started was the business of the defendant in respect of which the claimants understood they were receiving what they called rent but at any rate was a regular payment sufficient to pay the mortgage instalment."
"46. So what all that shows is that the claimants' concern was to receive a fixed amount, the £975 which they described as being due, sufficient to pay the mortgage and to preserve their investment of the freehold. The fixed amount bears no relation to the profit or loss of the new business, with which they had nothing to do, and in which they did nothing. It is another question whether it was accurately called rent in the sense that it might not have been due under a lease or tenancy but may have been the consideration for the freeholders' permission or licence to occupy. It is not of crucial importance as between the claimants and the defendant in relation to the first question or issue I mentioned at the outset of this judgment, and I will come back to it later because it is crucial to the second. However, what is important is that it connotes the payment of a fixed sum which cannot be referable to a share in the business paying it."
"48. The understanding of the defendant that the claimants were partners in the freehold, while they were not partners in the business, does in my judgment entirely reflect the reality of the situation, at any rate for so long as the fixed amount was paid.…"
" 55. The next and second question or issue is whether any kind of lease or tenancy was granted. What is quite clear is that nothing was ever reduced to writing. The nearest one gets, but this of course relates to the position in 1999, is the document at page 42. As between the claimants and the defendant it is clear they thought in these terms of a lease being granted and of a fixed sum being paid to the freeholders. But it seems to me that what essentially was done in this case was that there was an arrangement made between the three freeholders by which one of them, in this case the defendant, might make an income out of the premises for so long as he ensured that enough of the income was used to pay the mortgage instalments. That arrangement was no doubt conditional upon the instalments being paid, conditional in the sense that it was of the essence of the arrangement that they should be, and that a failure to pay would bring the arrangement to an end, just as in the case of a well drawn lease for a term the failure to pay rent occasions a forfeiture, It is entirely understandable that the other freeholders used the bailiffs as if they were entitled to forfeit the lease and took possession accordingly as they did in December of 2008.
56. I find that the three freeholders essentially permitted the defendant, who was one of them, to use the premises as he might decide, provided sufficient of its income paid the mortgage instalments, and if they were not paid then that permission might be withdrawn. I can see no reason to strain in order to find the equivalent of a formal written agreement or lease or to find that exclusive possession was given to the defendant by the co-owners. The element of partnership between the three of them precludes that, and I am much persuaded by the submissions of Mr Gavaghan in this respect that as between partners one does not readily find that one of them is granted a particular interest to the exclusion of the others. In short, there was nothing more than an arrangement that was made between them, conditional as I have explained.
57. Equally there is no need to strain in order to find that the claimants agreed to share any profit or any loss that the defendant might make in circumstances in which they expected the defendant to pay their mortgage instalments whether or not he made any profit or loss, and I am quite satisfied that no lease or tenancy was granted to Dinepark Ltd. Dinepark was simply what businessmen describe as a 'vehicle' which carries on business with the advantages as against the outside world of limited liability.
58. My analysis of all that is that the three freeholders, by their agent the defendant, one of them, simply permitted the limited company to operate on the premises. Eventually the limited company went into liquidation and the defendant as agent of the freeholders retook possession. So although as between the parties they referred to "rent", the crucial point was that that was a payment to discharge the mortgage instalments, it did not connote the granting of any leasehold interest in favour of either the defendant or Dinepark Ltd."
"61. The second question (b) is whether the relevant partnership between the claimants and the defendant granted a tenancy or some other licence or entitlement to occupy 61 Berwick Street to the defendant. I would answer in this way: the claimants and the defendant as freeholders simply permitted the defendant to do whatever business he chose that would enable payment of the mortgage instalments. It was no more than a permission.
62. (c): Whether there was a sub tenancy or licence to occupy the property in favour of Dinepark Ltd, and if so, what has happened in respect of such subtenancy or licence to occupy? In my judgment there was clearly a licence to occupy which was terminated either on the liquidation or when the defendant as agent of the three freeholders regained possession.
63. (d): Whether the defendant presently has a tenancy of or some other right by way of licence or by virtue of his interest as part owner of the freehold of the property to be entitled to occupy and/or run a restaurant there. In my judgment he has no tenancy and he has no permission that survives the so-called forfeiture, by which time it was quite clear that the arrangement under which he had occupied had come to an end, and the defendant is simply a beneficial owner of a share of the freehold in the share stated in the document of 28 January 2002."
"64. I am quite satisfied that there is nothing that precludes the bank from obtaining possession and it would be wholly disproportionate, having heard all the evidence, for me to say that the issues between the bank and the parties can be tried, for it would be tried effectively all over again. There is no entitlement in the defendant to resist possession either by the bank or by the claimants, who it seems to me are fully entitled to sell the property."
The appeal in the Mortgage Action
(1) Findings of the Judge on the evidence.
"As with other consensually-based arrangements, parties frequently proceed with an arrangement where by one person takes possession of another's land for payment without having agreed or directed their minds to one or more fundamental aspects of their transaction. In such cases the law, where appropriate, has to step in and fill the gaps in a way which is sensible and reasonable. The law will imply, from what was agreed and all the surrounding circumstances, the terms the parties are to be taken to have intended to apply. Thus if one party permits another to go into possession of his land on payment of a rent of so much per week or month, failing more the inference sensibly and reasonably to be drawn is that the parties intended that there should be a weekly or monthly tenancy. Likewise, if one party permits another to remain in possession after the expiration of his tenancy. But I emphasis the qualification "failing more".
(2) Procedural unfairness
"Before new loan is drawn, please clarify strategy for new ltd coy without existing principals as directors. What lease is to be granted to Ltd coy and for what parts of the building? What is the effect of any lease on our S/R value…."
The appeal in the Partnership Action
"5. Taking all matters into consideration, bearing in mind the success of each party, possibly the more important success is that of the claimant but more time was taken at trial on the matter on which the defendant succeeded. I think the fair result is that as between the claimants and the defendant there should be no order as to costs."
LORD JUSTICE THOMAS
LORD JUSTICE MAURICE-KAY