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URL: http://www.bailii.org/ew/cases/EWCA/Civ/2011/805.html
Cite as: [2011] NPC 77, [2011] 30 EG 56, [2011] 2 P &CR 17, [2011] EWCA Civ 805

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		Neutral Citation Number: [2011] EWCA Civ 805
		Case No: A3/2010/1785

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
CHANCERY LIST
HIS HONOUR JUDGE COLLINS
CHY09669

Royal Courts of Justice
Strand, London, WC2A 2LL

20 July 2011

B e f o r e :

LADY JUSTICE ARDEN
LORD JUSTICE LLOYD
and
LORD JUSTICE TOMLINSON
____________________

Between:

	MRS AFREEN BEGUM HAQ	Claimant Respondent
	- and -
	(1) ISLAND HOMES HOUSING ASSOCIATION	Defendant Appellant
	- and -
	(2) THE MAYOR AND BURGESSES OF THE LONDON BOROUGH OF TOWER HAMLETS	Defendant Respondent

____________________

Mr Martin Rodger QC (instructed by Bircham Dyson Bell LLP) for the Appellant.
Ms Sarah Asplin QC and Mr Oliver Hilton (instructed by Archer Fields)
for the Respondent, Mrs Haq
Ms Michelle Stevens-Hoare (instructed by the Mayor and Burgesses of
London Borough of Tower Hamlets) for the Respondent Council
Hearing dates: 22 and 23 June 2011
____________________

HTML VERSION OF JUDGMENT
____________________

See also: Order

Lord Justice Lloyd:

Introduction

In these proceedings the court has once again to consider the position of parties who embarked on a negotiation with a view to agreements to be set out in written contractual documents, where much of what was intended to be done under the intended contract was done, at substantial expense to one party on land belonging to the other, but where the documents were never executed, though they had been agreed in substance. The land is now owned by a third party which refuses to execute the documents. The most important aspect of the agreements cannot have effect at law without executed documents. Accordingly the arrangements are sought to be enforced by way of a constructive trust, so as to give effect to a proprietary estoppel. The judge held that they should be so enforced. The landowner appeals.

Judgment was given by His Honour Judge Collins CBE in the Central London County Court on 1^st July 2010 following a trial which had occupied the previous three days. The order giving effect to his judgment was not sealed until 22^nd November 2010. The claimant who seeks to enforce the proprietary estoppel and resists the appeal is Mrs Afreen Begum Haq. In practice all relevant matters were dealt with by her husband Mr Anwar Ul Haq, who runs the business which is operated at the relevant premises. Unless it is important to refer to one or the other of them for a particular reason, my references to Mr Haq include references to him as agent for and on behalf of his wife.

The original owner of the land was the London Borough of Tower Hamlets. In late 2005 it transferred the relevant land, with much other land, to the first defendant, Island Homes Housing Association Ltd. The housing association is the appellant, with the Council supporting it by way of a respondent's notice. Before us Mrs Haq was represented by Ms Sarah Asplin QC, leading Mr Oliver Hilton who had appeared below, the housing association was represented by Mr Martin Rodger QC who had not appeared below, and the Council was represented by Ms Michelle Stevens-Hoare who also did not appear below. The court is grateful to all Counsel for their helpful written and oral submissions in the course of the hearing of the appeal, which took the best part of two days.

Mrs Haq is and has since 1995 been the tenant of premises at 286 Manchester Road, London E14 at which a convenience store business is conducted. Mr Haq runs the business and has done so since 1981, originally as a partner with his father. In 1983 the Council granted a fifteen year lease which came to be vested in Mrs Haq in 1995. That tenancy has the protection of statutory rights under the Landlord and Tenant Act 1954 Part II, which is why there is no doubt that Mrs Haq is still the tenant of premises despite the fact that the contractual term expired in June 1998. Before that date, indeed some considerable time before it, Mr Haq had proposed to the Council that he should expand his business and the premises, and he had obtained planning permission for the extension of the premises with the Council's support as landlord. After the expiry of the contractual term, and with notices and counter-notices having been served under the 1954 Act and an application made for the grant of a renewal tenancy, the parties started negotiating about a new tenancy to include extended premises and for Mr Haq to do, at his own expense, the substantial work that would be necessary to enlarge the shop. Agreement in principle, expressly subject to contract, was reached and recorded in November 2001. Eventually the documentation got very close to an agreed state.

Contrary to what was originally intended, Mr Haq was allowed to enter on premises which were not part of the original tenancy and were owned and used by the local authority, and to do the work that was contemplated, without the contractual documents having first been executed. The work started in late July 2002, to the knowledge of the Council. It was complete by the middle of 2003. Mr Haq then started trading from the enlarged premises. Disputes arose between the parties in the latter part of 2003, possibly due to misunderstandings on each side. By February 2004 Mr Haq's solicitor suggested to the Council's legal department that all was now ready for the documents to be executed. Thereafter the matter seems to have gone into a dormant state as between Mr Haq's lawyers and the Council's legal department. By July 2005 internal documents of the Council indicate that it seems to have been regarded as ready to be finalised. However that did not happen. In December 2005 the Council transferred a great deal of property, including that relevant to this appeal, to the housing association, which is a registered social landlord. In August 2006 the housing association's solicitors stated that they were not prepared to grant a lease on the terms which had been agreed with the Council.

The housing association then issued proceedings for a new tenancy to be granted to Mrs Haq for a period of 15 years, which is the maximum possible under the 1954 Act, at a rent of £36,000 per annum. In terms, although the point was not explicitly addressed, that would have applied to the existing holding under the previous tenancy. Mrs Haq's previous application on her own part had been for a new tenancy of 20 years at £6,200 per annum. That application, issued in 1997, would certainly have been in relation to the existing holding only.

In 2009 Mrs Haq started further proceedings claiming, by way of proprietary estoppel, to be entitled to the grant of a 60 year lease of the extended premises on the terms negotiated between the parties including an initial rent of £5,570 reviewable every five years but only to 15% of the open market rental or the previous rent if higher. Judge Collins held that Mrs Haq was entitled to that. The housing association, supported by the Council, maintains that Mrs Haq is entitled to a statutory renewal tenancy under the 1954 Act, of a holding which comprises the extended premises. It accepts that because the work was done at the expense of the tenant in 2002 it is to be disregarded in assessing the appropriate rent under the renewal tenancy. On the expiry of that tenancy Mrs Haq, or other the then tenant, would be entitled, under the present law, to apply for a renewal tenancy under the 1954 Act but at that stage the improvements done and paid for by the tenant would be too far in the past to be disregarded in the calculation of the appropriate rent. Accordingly in practice, if the housing association is correct, the fact that the tenant has done and paid for the works of improvement will be reflected in an abatement of the rent for the period up to the grant of the first renewal tenancy and throughout the period of 15 years of the term for which that tenancy would last, but not thereafter. It seems that this would mean that the tenant would pay a discounted rent for 23 years, so that this is the period during which the benefit of the expenditure would be recouped by way of a discount on the rent.

The facts

I must now set out the relevant facts in some detail. I start with a brief description of the property. The premises of which Mrs Haq is tenant are on the ground floor of a six storey block of flats within a housing estate. As let under the 1983 lease the sales area extended to some 773 square feet with associated storage and other ancillary space. It had a frontage to Manchester Road but the entrance to the premises for customers was off a covered walkway which led off Manchester Road along one side of the building. At the far end of the covered walkway there were a workshop and a store which were retained by the local authority for use in connection with the block of flats and the housing estate of which it formed part. They were sometimes referred to as the sheds. The walkway was covered by a roof at first floor level. The surface of the roof of the covered walkway constituted part of the gardens of the flats, or some of them, at first floor level. Access to those flats was reached by way of a stairway which was at the end of the covered walkway but not within it. The proposal for the expansion of the premises was that the covered walkway would be enclosed and would form part of the sales area, as would the store and workshop previously retained by the Council. This would enlarge the sales area very considerably, to just over 2,000 square feet. It would enlarge the frontage to Manchester Road but the entrance to the premises would still be just off Manchester Road within the area of the former covered walkway. In addition to the incorporation within the demise of the covered walkway, the store and the workshop, there would also be a new plant room for the premises which, according to the approved plan, was to be fitted in under the stairway leading to the upper floors with a connection by way of a covered duct into the main part of the shop premises.

The 1983 lease of the original holding was to last for 15 years expiring on 30^th June 1998, at a starting rent of £3,750 per annum. This was subject to review at five-yearly intervals. By the time of its expiry the rent had risen to £6,600 per annum. The original tenant was Mr Mohammed Sabir, father of Mr Haq. He carried on business at that stage in partnership with Mr Haq. The lease was assigned to Mrs Haq in 1995. The initial proposal by Mr Haq for the enlargement of the premises and the business was put forward in 1992 and was well received by the Council. Mr Haq applied for planning permission for this purpose in 1994 which was eventually successful. Since it had not been implemented within five years, he had to apply again when the matter was to be taken forward; he was again successful.

By 1997 Mr Haq was a sole trader at the premises. In February 1997 the Council served a notice under section 25 of the 1954 Act to terminate the tenancy at its contractual expiry date. Mrs Haq served a counter-notice under the Act and then issued proceedings applying for a new tenancy. Negotiations followed, Mr and Mrs Haq being advised at that stage by Strettons on issues of valuation. In January 2001 Strettons reported to Mr and Mrs Haq as to the current open market rental value of the property in readiness for negotiations to renew the lease and in the light of the proposal to extend the shop in the way that I have described. It is apparent from the valuation report that by then the Council had offered to grant a new lease for 40 years at 20% of the open market rental value of the premises. At paragraph 10.5 of the report Strettons said this:

"We would suggest that you consider carefully whether it is viable to invest £300,000 in the business, as you advised is your intention, over what is a relatively short period of time. Your bank may wish you to have a lease for a longer period of time such as 90 or 99 years. We are curious as to why the Council have only offered a lease for 40 years and would recommend that your solicitors make the necessary enquiries."

Mr Haq's bank, National Westminster Bank, indicated a wish for a 60 year lease. This was passed on to the Council and was accepted in principle. At the end of October 2001 a meeting took place at the site between Mr Haq's surveyor and representatives of the Council at which agreement was reached in principle as to how the matter should proceed. This was then set out in a letter dated 14^th November 2001 from the legal department of the Council to Cornish & Co., the solicitors acting for Mr and Mrs Haq. This letter is expressly marked "subject to contract".

The Council was willing to agree to the proposal for the expansion of the premises and for the grant of a new lease for a period of 60 years at a reduced rental, to be calculated as 15% of the rental value of the premises, with an initial rent of £5,570 per annum. This was to be documented by an interlinked set of four documents. One would be a licence to occupy and do works, which would permit occupation of the areas necessary for the works and would permit the works to be done, subject to various pre-conditions and to supervision by a Council surveyor. The second, to be entered into simultaneously with the licence, would be an agreement for lease providing for the new lease to commence upon practical completion of the works to be done under the licence. The third would be the new lease itself and the fourth would be a surrender of the existing lease. The Council was then about to undertake some repair work to the residential part of the building which was expected to last until May 2002. The proposed works could not start until after that. The proposed conversion work to the shop premises was expected to take 20 weeks. It would involve access to the outdoor areas occupied by residential leaseholders for the sake of work to seal the roof to the former covered walkway. That required the consent of the tenants of the relevant flats and access for that purpose was to be restricted to a period of six weeks.

The letter required Mr Haq to accept responsibility for the Council's legal costs and the fees incurred by the valuation department, whether or not the matter proceeded to completion. On 20^th November 2001 Cornish & Co. replied agreeing to these proposals and giving the required undertaking as to costs. (Later the undertaking was extended to costs involved in supervision of the work.) In the course of December 2001 the legal department sent the four draft documents to Cornish & Co. Mr Janaway of that firm sent the draft licence to occupy and the draft lease to Mr Haq and also to the surveyor then advising Mr and Mrs Haq, Mr D Purcell, pointing out to him a number of matters which Mr Purcell was going to need to confirm to him.

Only two points were taken on behalf of the tenant in relation to the text of the draft lease. One concerned the covenant restricting the use of the premises; on this an amendment was agreed readily. The other related to the hours of trading; on that a compromise text was agreed by the 17^th April 2002. There seem to have been no amendments, or nothing of substance, to the draft deed of surrender nor to the draft agreement for the lease. There was however information to be added to or scheduled to the licence to do the works, on which Mr Haq and his advisers were working. Some of these points were still said to be outstanding in April 2002 at the time when the draft lease came into an agreed form.

At that time the tenant's position was that the work should start by the middle of June. He had recently changed his adviser on matters of design and surveying; from then on he retained Mr Coughin of Main Street Design for this purpose. At the end of April 2002 Mr Coughin invited a number of builders to tender for the project; by the end of May he had received three tenders. The preferred tender was from Amar Construction at £210,000. By the middle of June Mr Coughin wrote to Mr Janaway to tell him that Amar Construction had been chosen and that they intended to commence works on 8^th July. Consistently with that Mr Coughin wrote to Amar Construction on 22^nd June 2002 confirming the instruction and the acceptance of the tender and stating that Mr Haq required an early start for the works and wanted site operations to begin on 8^th July with a contract period of 20 weeks.

Ms Janice Richards, a valuer in the Council's Corporate Property Services Department who had been dealing with Mr Haq and the property for years, got to know of Mr Haq's intention to start the works on 8^th July. On 3^rd July she told Mr Janaway that the works could not be allowed to start on 8^th July because the documents had not been completed and there was information still outstanding that was required for the building licence. It was proposed that there should be a round table meeting to sort out the final details. On 8^th July Mr Coughin told Mr Janaway that Ms Richards was not prepared to hold such a meeting until all the paperwork had been supplied to the local authority's legal department. Various further information was supplied, and on 12^th July Ms Richards wrote to Mr Coughin acknowledging receipt of the documentation which had been supplied and confirming a pre-contract site meeting for 19^th July at the local authority's local housing office. She listed a number of outstanding points which needed to be dealt with, some of them of a practical nature and one or two dealing with the documentation. She also stated that the work could not commence until the licence to occupy had been signed by both parties and all documents had been received and approved.

On Monday 15^th July it came to light that the Council's legal department had lost the draft documents. Ms Richards told Mr Janaway of this and on the same day he sent further copies of the approved draft lease and deed of surrender to the legal department. He asked that, if the amendments to the documentation including the licence to occupy were now approved, they should be engrossed ready for signature. Meanwhile Mr Coughin was doing his best to assemble the necessary information, including by approaching the insurance brokers who represented Mr Haq and also the builders to obtain information concerning the insurance requirements under the licence.

The meeting duly took place on 19^th July attended by Ms Richards, Mr King, who was a surveyor for the Council, Mr Andy Britten from the Council's local housing office, Mr Bateman the Council's local housing manager, Mr Haq, Mr Coughin and Mr Sahota of Amar Construction. For the most part the minute of the meeting, which was prepared within the Council and possibly by Ms Richards, is concerned with matters of practicality about the works including for example decibel levels and hours of working and other points of detail. The first item, however, reads "Draft Lease – JR to complete draft lease as soon as possible next week". The second item refers to the licence to occupy and do works. It stated that Ms Richards was in receipt of all documentation but that further insurance documentation might be required, Mr Coughin having supplied a copy of the insurance documents but having yet to supply something in relation to a particular aspect of the insurance cover. The reference at point 1 to the draft lease cannot be to the completion of the lease itself and must be taken to refer at best to an endeavour to ensure that the draft lease, and perhaps also the draft surrender and the draft agreement for lease, were all to be got into approved form and ready to be engrossed and, as regards the agreement for lease, executed. If that had been done, and if the licence to occupy and do works had also been finalised and engrossed ready for signature, then it would have been possible for all the documents to be in place before 29^th July, which was the intended starting date for the works. That was confirmed among the items recorded in the minute and it was also stated that a meeting would be arranged with the tenant from one of the flats on the first floor which was intended to take place in the following week so that that could also be sorted out before the start of the works. In fact that did not take place until 1^st August.

Following the meeting on 19 July a telephone conversation took place between Mr Janaway's secretary and Ms Richards on 22^nd July 2002. The secretary seems to have been enquiring whether engrossments of the documents were ready. The note records that Ms Richards said that engrossments would be sent shortly which should be checked. The note prepared by the secretary concludes as follows:

"When lease is completed – keys for storage rooms with housing department - Janice Richards will release them when lease is completed."

Mr Janaway had not been at the meeting on 19^th July, nor had any representative of the Council's legal department. Mr Janaway would have been present but for the fact that the meeting was arranged for a day on which he was on holiday, as he was for the following couple of weeks. However clearly some aspect of the content of the meeting had been passed on to Cornish & Co. and it was as a result of this that Mr Janaway's secretary made the enquiry leading to this conversation.

On 23^rd July Mr Coughin wrote to the builders confirming that the contract could commence on 29^th July and confirming also that Mr Haq agreed to what was called a pro-forma mobilisation fee in the sum of £20,000, to be reconciled within the first two or three valuations dependent on the expenditure. He also said that it was important that the programme for the works be presented as part of the requirement from the Council for the licence to carry out works together with the insurance details, particularly for the cover for the flats above and he asked that those be expedited immediately so that they could be added to the licence. He thus gave the builder the go-ahead and committed Mr Haq to the first substantial expenditure on the works.

Following the conversation on 22^nd July the Council's legal department wrote to Cornish & Co on 24^th July sending clean copies of the agreement, licence to occupy, lease and surrender for approval by Cornish & Co together with a lease plan. The letter stated that the licence requires several schedules which Cornish & Co were to supply for approval and attachment together with the items listed in them. It also stated that the solicitor was seeking instructions as to whether all the preconditions contained in certain clauses of the licence had been complied with. This letter was not expressly marked subject to contract but Ms Asplin accepted that no significance could be attached to that.

On 25^th July Mr Coughin sent to Ms Richards a copy of the contractors' programme for the work for information and separately certain information concerning the contractors' insurance position as well as a copy of the photographic schedule of the condition of the premises which had been taken on 19^th July.

That then was the position by the end of the week beginning 22^nd July and on the eve of 29^th July, the intended start date for the works. It seems that the draft lease, draft surrender and draft agreement for lease were in agreed form. The draft licence to occupy was probably in agreed form as regards the body of the document but a number of items referred to in it which were required to have been supplied to the Council or to be scheduled to it had not yet been supplied. None of the documents had been executed by both parties. If the Council had maintained consistently the position stated by Ms Richards in her letter of 12^th July and the telephone conversation of 22^nd July, work would not have begun until after the agreement for lease and the licence to occupy had been signed by both parties. However, the work did start on 29^th July and continued thereafter, and for very much longer than the 20 weeks of the intended contact period. It seems not to have been completed until the middle of 2003. The issues in the case turn on the significance of the fact that Mr Haq was allowed to start the work as he did, no objection being taken to that being done or continuing to completion, but that the agreements were never executed.

Much attention was devoted at trial and in the course of the hearing of the appeal to the question of the keys for the storage rooms mentioned in the note of the telephone conversation on 22^nd July: see paragraph [19] above. I must therefore explain the position in this regard.

As I said when describing the layout of the premises, there were two areas adjacent to the original shop which were retained and used by the Council, being marked respectively as workshop and store on the plan of the layout as it was before the works. Both of them were kept securely shut with steel doors and with locks to ensure that whatever was kept inside remained in a secure state. Both of these areas were to be incorporated in the new enlarged shop. The Council had therefore to make them available to Mr Haq and his builder. The evidence on this was far from clear but Mr Haq confirmed that the keys to these two areas were made available to him or to his builder and that the two areas had first been cleared of all items within them belonging to the Council, a process which Mr Haq said took a couple of days. The keys to these areas were the subject of the passage quoted above from the note of the telephone conversation on 22^nd July. In fact the keys were released, after the two areas had first been cleared of their contents by the Council. It is not entirely clear when this took place. Mr Haq's evidence in his witness statement was that the keys were received in about the third week of July. While the judge did not make an explicit finding to that effect, he did accept that the keys were handed over or at any rate made available so that Mr Haq or his builder was able to open up the two areas, which had by then been cleared of their contents, and could then proceed to do what was necessary in accordance with the plans in respect of incorporating those two areas in the enlarged shop.

The judge clearly regarded the keys as being handed over before 29^th July or no later than on that date. It is not quite clear that this is correct. A meeting took place on 1^st August 2002 attended by Mr Coughin, Mr Haq, Mr Britten, Mr King and the tenant of flat number 7 on the first floor. The main purpose of the meeting was to satisfy the tenant's concerns and requirements and to ensure that she was content with the proposals in relation to her garden area. In that respect the meeting was entirely successful. The note of the meeting does however record that Mr Britten complained that the newly erected hoarding was preventing access to the storeroom. Mr Coughin agreed that access would be arranged. That shows that a hoarding had been erected which must have been to enclose the area of the former covered walkway. In that position it would certainly have prevented access to the storeroom. It therefore shows that work had begun by then and it is common ground that it started on 29^th July. But it also indicates that the Council still required access to the caretaker's storeroom. That suggests to me that the storeroom had not yet been cleared and that access was still required even if only for the purpose of clearing it before it was made available to Mr Haq. If that is right, it seems unlikely that the keys had been made available to Mr Haq or his builder already because that would only have been done once the contents of the storeroom had been cleared and removed. That therefore suggests that although the work had already started in relation to the covered walkway it had not yet started in relation to the storeroom and the workshop and that access had not yet been made available to Mr Haq to those areas on 1^st August. In one sense not a great deal turns on that, because unquestionably the storeroom and workshop were cleared, access was allowed and the keys were handed over for that purpose. But given the importance placed on the fact and circumstances of the handing over of the keys in Ms Asplin's submissions, and given Mr Rodger's challenge to the judge's findings on this, the point does require closer attention. I will return later to the submissions on this and what the judge said on the point.

The draft documents

At this point however I should record such points as matter on the state of the documents in their final versions. The surrender of the existing tenancy requires no further notice. The new lease provided for a term of 60 years from a "Term Commencement Date" which was to be the date of practical completion under the licence. The premises were to be the enlarged premises as shown on the plan including the plant room under the stairs to the upper storeys. The rent was to start at £5,570 subject to review every five years on an upwards only basis. The rent review was governed by Schedule 5 and provided for a review to 15% of the open market rent on given assumptions. Paragraph 11 of the Fifth Schedule featured in Ms Asplin's submissions and I accordingly set it out here:

"11. Renewal

The Eighty-five percent reduction in the Rack Rental Value is limited to the Term of this Lease and has been inserted to amortise the costs of certain works done by the Tenant to the Premises and Building prior to the commencement of this Lease and for which the Landlord will retain the benefit of. The parties agree that any renewed term or period under this Lease shall be without such reduction and the Rack Rental Value would be read as if the words "an amount equal to Fifteen percent (15%) of." did not appear in its definition."

No other points need attention under the lease itself.

The agreement for lease contains a number of important definitions. Among them is the Commencement Date. This means the date of Practical Completion as defined in the licence to occupy. It provided for the parties to enter into the lease and the surrender "on obtaining the Commencement Date", with a timetable starting from the commencement date for the steps to be taken by each party. Clause 5(a) gave the tenant the right to possession of the new area in the terms of the lease on the completion date. It is not clear what that date was to be, unless it is a mistake for the Commencement Date, but subject to that no point seems to arise on that document.

The licence to occupy and do works is of more importance in the present circumstances. It was to give Mr Haq the right, which he would not otherwise have, to occupy, first, the area on the ground floor to which the shop was to be extended and, secondly, the area above this on the first floor, namely the rooftop, so far as necessary for carrying out the works. It was also to allow him to carry out the intended works but subject to various conditions. It was to be entered into simultaneously with the agreement for lease. The licence gave Mr Haq a licence to occupy the ground floor area and the rooftop area, both as defined, in each case for a defined period, subject to possible extension in the event of delays, for the purposes of doing the agreed works and for no other purpose. The licence in respect of the rooftop area was subject to the Council getting the consent of the relevant residential tenants which it was to use its best endeavours to obtain. The licence allowed the works to be done subject to conditions including the prior approval of the building contract, the health and safety plan and the financial capacity of the tenant by the Council, and to Mr Haq obtaining all necessary consents to the work. There were obligations as to the time within which the work was to be done and as to the standard of the work as well as the details of the specification. Special provisions related to disrupting to a minimum the residential tenants and as to maximum noise levels and working hours. There were provisions for indemnities to the Council and insurance by the builder and by Mr Haq and for defaults under the licence and their consequences which could include termination of the licence and of the agreement for lease. There were to be schedules to the licence dealing with or including plans, the existing lease, approvals for the purposes of planning legislation, building regulations and otherwise, details of the approved materials for the works and the finishes for the works, details of the timeline for the work and the specification of the work itself.

Practical Completion was defined. It was to be the date on which (a) Mr Haq completed the works and (b) the preconditions in the licence as regards reporting and final inspection were satisfied, but it was not to be later than the end of the period (including any extension) allowed for the ground floor works which was originally a period of 20 weeks.

By clause 2.4 the Council was to approve the building contract prior to commencement of the works, having had not less than six weeks' notice before the expected commencement date of the terms of the building contract. Within the same timeframe it was to approve a health and safety plan for the conduct of the works. Clause 3 includes a covenant to do the works within the periods of the occupation licences, that is to say 20 weeks for the ground floor and six weeks for the rooftop, to have them undertaken in a good and workmanlike manner using the materials and finishes specified in the schedules and to the specification set out in the schedule for that purpose, and restricted to the particular alterations and works described in that specification. The Council was to be allowed to undertake regular quality inspections of the works and Mr Haq was not to vary from the works except by written agreement or with prior approval of the Council. Clauses 4.4 and 4.5 provided for extensions to the period of the licence in relation to the rooftop and the ground floor if the relevant works were not completed within the relevant time due to unforeseen circumstances. Before practical completion Mr Haq was to provide to the Council copies of all final approvals and consents relating to the works, and the Council was to make a final inspection of the works for the purposes of determining any minor defects which were to be notified to Mr Haq within a month of practical completion and rectified within a month after notification. Mr Haq was to indemnify the Council and others in a number of respects under clause 5 and was to be responsible for any public liability associated with the relevant areas. He was required, prior to commencement of the works, to produce copies of any public liability insurance policies to the Council and correspondingly of the insurance policies maintained under clause 5.5 which required him to insure and keep insured the works and various specified risks throughout the period of the work up to practical completion.

What happened after 29 July 2002?

It is reasonably clear that much of the documentation required for the seven schedules to the licence had been provided to the Council before the 29^th July 2002, but that not all of it had. It is clear that the building contract and the health and safety plan were not supplied before commencement, still less six weeks before commencement as required by clauses 2.4 and 2.5. Some evidence about insurance had been supplied before 29^th July but there appear to have been other aspects of the insurance obligations in respect of which the necessary evidence had not been supplied by the start date of the works. On 12^th August 2002 Mr Janaway wrote to the Council's legal department enclosing five items for the schedules including a copy of the building contract and the health and safety policy and some documents relating to insurance. He said that he believed that the enclosures were all the items required by the schedules to the licence and he awaited engrossments of the various documents for signature. He asked for an engrossment to the lease to be sent at that stage so that it could be signed in contemplation of all the works being completed and final inspections taking place towards the end of September. That was overoptimistic on any basis since the 20 weeks allowed would have taken the time through to the end of November. In fact, as I have mentioned, the work was not completed until well into 2003.

At this point the matter seems to have moved well down in any order of priority as regards how it was progressed by the Council's legal department and for that matter by Cornish & Co. Thus having asked for engrossments on 12^th August 2002 it seems that Cornish & Co had heard nothing by the time they wrote again to the Council on 3^rd January 2003 repeating their request for the documentation. The legal department acknowledged the letter and stated that instructions were being sought within the Council on the outstanding matters. Two months later Cornish & Co chased for the documentation in a letter of the 10^th March 2003 and on 4^th April 2003 the legal department "hastened" to enclose the engrossment of the lease and the deed of surrender for execution. The letter also indicated that the licence required several schedules which the writer believed Cornish & Co should be supplying and in particular stated that plans denoting the air conditioning units to be attached to the wall were required. That is the first time that air conditioning units were mentioned in the correspondence and it seems likely that this was a point that had arisen in the course of the works and had not been cleared in advance with the Council. Cornish & Co replied on 14^th April 2003 making the inept comment that there did not appear to be any schedule requiring to be completed in the deed of surrender. On 25^th April they were able to tell the Council that the lease and deed of surrender had been signed by Mrs Haq. In response on 28^th May the legal department pointed out that the schedules were to the licence not to the deed of surrender. The letter repeated the request for the schedules and for plans of the air conditioning units.

On 17^th June the legal department wrote again. The request for plans in respect of the works, in particular the air conditioning works was repeated. The Council had gathered that Mr Haq had discharged his builders with the works not yet complete but that Mr Haq was already trading from the additional premises which were the subject matter of the licence to occupy and that that licence needed to be completed as a matter of urgency. The letter included a threat that unless Mr Haq ceased to trade from the additional premises he would be treated as an illegal occupier of the additional premises and that the licence must be completed first and the works inspected to ascertain that they were satisfactory before the surrender of the existing lease under grant of the new lease. It seems that Mr Haq did sack his builder Amar Construction though not until July 2003. This led to successful litigation brought by the builder against Mr Haq.

Cornish & Co responded to the Council's letter of 17^th June, though not with great expedition. They seem to have attempted to contact Mr Haq in order to find out whether he or Mr Coughin had supplied the necessary plans to the Council but on the 10^th July Cornish & Co wrote to the legal department to enquire whether they had received the plans, on the basis that if they had not Mr Haq would be chased again. This may reveal some difficulty in getting instructions from their client. On 21^st July Mr Coughin sent to Ms Richards, rather than to the legal department, a copy of a plant room layout drawing and a drawing dealing with the air conditioning units which he said had been sent previously under cover of a letter in February 2003, though that is a letter which is not in the appeal bundles. The drawing of the plant room shows that it is substantially larger than that which was indicated on the plan prepared and agreed before the commencement of the works. It also shows that it is divided by a new wall from a storeroom which is not and was not to be part of the area used by Mr Haq. A note on that plan says "new wall built to form plant room. All electrics to store to be kept separate from plant room. Circuit to plant room to be connected to shop unit." That was evidently a variation from the originally agreed plans. It does not seem that the Council's consent had been sought or obtained to this variation.

That letter went to Ms Richards, not to the legal department, and it seems that the legal department was not made aware that it had been sent. On 8^th August 2003 therefore, without a satisfactory response to the letter of 17^th June 2003, the legal department sent a letter to Mrs Haq enclosing a notice under section 146 of the Law of Property Act alleging a breach of her existing lease. The notice stated that she was in breach of her obligation not to make alterations to the premises and specified the breach as being that works had been conducted without details of the plans and the plans of the air conditioning works, thereby preventing the grant of a formal licence to occupy and carry out works, so without the Council's consent. The notice required the breach to be remedied. It should have been reasonably plain that the appropriate manner in which to remedy the breach was to supply the necessary plans.

It was at about this time that the shop reopened. Mr Jim Fitzpatrick, the local Member of Parliament, accepted an invitation from Mr and Mrs Haq to attend the reopening which was to take place on 16 August 2003.

Having had the benefit of Mr Fitzpatrick's attendance at the opening, Mr Haq asked for his help when the Council brought pressure on him about the status of his trading from the extended premises. On 13^th October 2003 Mr Fitzpatrick wrote to the Chief Executive of the Council stating that he had been told that the Council had not signed the relevant part of the lease and that accordingly trading had to cease in the new part of the shop and expressing the hope that this would be dealt with and sorted out. The letter was passed to a senior officer in the Property and Facilities Management department who replied to Mr Fitzpatrick on 3^rd November 2003. His letter is revealing as to the view of the position then taken by the Council. I therefore quote the larger part of it here:

"The Council has been very supportive of Mr Haq of Muree Food Stores Limited and his desires to expand his food store in Manchester Road.

The process that needs to be followed is for a Licence for the building works to be granted. On completion of the works the existing lease would be surrendered and a new longer lease granted.

In order for this process to work, Mr Haq was requested to supply full plans of the work. In the absence of these plans no licence for building works could be granted, however, the Council allowed works to commence and simply asked for plans to be provided as soon as possible.

Despite the works having been completed some months ago, and indeed the enlarged area of the store open for trading since June 2003, Mr Haq has still not supplied the plans. Indeed, a further issue has arisen since the area taken specifically for the air conditioning units is much larger than that originally agreed.

The Council is happy to grant the new lease to Mr Haq, and to enlarge the area to reflect what is actually the case on site. However, despite meetings on site and correspondence, Mr Haq has consistently failed to provide these plans to the Council.

As a last resort the Council has taken legal action against Mr Haq under the Law of Property Act 1925 stating there was a breach of the lease. The remedy for that breach is for the plans to be provided by Mr Haq to the Council.

Mr Haq therefore, has the matter entirely in his hands, he has only to provide the plans, the licence can then be granted followed by the new lease coming into effect.

I feel the Council has been extremely patient with Mr Haq in this matter. However, the situation has to be regularised. I greatly regret that legal action was necessary but in the absence of any reciprocal co-operation from Mr Haq that was the only alternative left to the Council."

This letter was copied to those acting for Mr Haq. Mr Coughin took grave objection to the way the matter was presented. He wrote to Mr Peacock on 17^th November asserting that Ms Richards confirmed that no further drawings were required and that it was quite wrong to suggest that there was anything outstanding. Mr Peacock replied on 15^th December 2003 by a letter of which unfortunately we have only the first page. That letter stated that the plans of the air conditioning room had not been provided to the Council at the time of his letter to Mr Fitzpatrick and also stated that in discussions between the solicitors on 22^nd October 2003 Mr Haq was contending that there was no responsibility to supply such plans and that he maintained that position. Mr Peacock then said this:

"Mr Haq had no right to start building works in advance of the grant of the building licence nor to arbitrarily extend the scope of the building works beyond that discussed. The Council would have been well within its rights to insist at that stage that all work ceased, it chose not to on the expectation that there was a willingness on the part of Mr Haq and his advisers to meet their obligations to the Council. We have been greatly disappointed in respect of the failure in that regard."

Nothing further happened as a result of that particular flurry of correspondence. There appears to have been a meeting at the local housing office on 7th January 2004 attended by Mr Ormrod of Cornish & Co, Mr Coughin, Mr Haq, Mr Britten, Mr King and Ms Richards. There is a note of that meeting though from internal indications it seems not to have been prepared until on or after 17^th March 2004. It looks as if it may have been prepared by Ms Richards. Mr Coughin was to supply documentation about the equipment in the plant room and the minute contains a note that this had been received by 9^th February 2004 and was satisfactory. (This seems to have been done by a letter dated 12 February 2004.) The note also states that Mr Ormrod confirmed that the employers and public liability insurance had been extended to cover the period of the works and that this could be confirmed in writing. Once this was received the building licence could be completed. There is a further mention of access to a store. This is under the heading Caretaker's Store, Mr Britten being reported as saying that he still did not have access to the store due to a change of locks by Mr Haq's contractors, Mr Haq responding that he would arrange for the lock to be changed and would supply the keys to the housing office. It was also noted that the electrical supply was still serving both the caretaker's store and the plant room and Mr Haq was to arrange for separation. Neither of those items was reported to have been done by 17^th March 2004. Finally the note records that there was to be a site meeting on 19^th March 2004 "to include plant room in lease plan and rent". Following this meeting Mr Ormrod wrote to the legal department sending the information about the safety of the equipment in the plant room and also dealing, whether or not satisfactorily, with the point about insurance. The letter concludes "could you please now liaise with Ms Richards and finally complete the licence for alterations and then send the lease so that this incredibly long-standing matter can be completed". There is no indication from the papers that the meeting on 19^th March took place or that any further meeting took place and it seems that the lease plan was never revised to include the extended and enlarged plant room.

The Council did not reply to Cornish & Co's letter of 12^th February 2004 until 23^rd August 2004. By that time a new person was dealing with it in the Legal Department, Ms Power, and Ms Richards had left the Corporate Property Services Team. In turn, Mr Ormrod had left Cornish & Co so that a new person had to pick up the file there as well. Ms Power for the Council was seeking instructions as to completion from the Corporate Property Services Department. She was aware that Cornish & Co held the surrender and the new lease executed by Mrs Haq. She asked whether they had the licence to occupy and the documents that should form part of the schedules to that document. The reply on 2^nd September 2004 was that they held a draft agreement from 2001, that the person (Mr Buxton) now dealing with the file was uncertain whether the licence had ever been executed but that they had a large quantity of plans. Mr Buxton was unaware of the background and had not heard from his client for some time. On 15^th September 2004 Ms Power replied and stated that she was unsure whether the licence was ever agreed but she understood the works had been completed and would be recommending that the licence be completed as simply as possible.

Ms Power seems to have been unable to get instructions to take the matter any further forward and informed Cornish & Co of this on a number of occasions including on 18^th April 2005. On 1^st June 2005 accordingly Cornish & Co wrote directly to the head of the Corporate Property Services Department seeking confirmation that there were no outstanding issues which would prevent this long drawn out transaction being finalised. Shortly thereafter Mr Haq changed his solicitors to Messrs Hargreaves who, on 17^th June 2005, wrote again to the head of the Corporate Property Services Department seeking a reply to the letter of 1^st June. There was at last a response on 11^th July 2005. Mr Stewart of the Corporate Property Services Department stated that the licence would need to be completed and he would be checking with the Council's solicitor as to matters of detail. He stated that the staff in the Property Services Department had spent 39 hours on the matter at the rate which had been quoted and he sought payment of £1,482 in respect of that time. On 25^th July 2005 Hargreaves sent their client's cheque for that amount. The next communication between the parties seems to have been a letter from Hargreaves of 9^th December 2005 chasing the matter for completion as soon as possible. However, by that time, in fact on 5^th December 2005, the property had been transferred to Island Homes as a registered social landlord, incidentally to the transfer of the Council's residential properties.

The papers include a number of internal communications within the Council in the latter part of 2005 but since none of these were known to Mr Haq or his advisers they are irrelevant for present purposes.

In July 2006 Messrs Strettons, by then acting for Island Homes, wrote to Hargreaves stating that they had not received a complete set of documents from the Council and that the little information which they had was somewhat confusing and surprising in terms of the lease on offer. They sought clarification of the position prior to their instructing solicitors. On 15^th August Messrs Bowling & Co, solicitors for Island Homes, wrote to Hargreaves having been passed correspondence by Strettons. They said "We can see that this matter has not completed and we are in fact not willing to proceed on the current proposed terms including the proposed rent review mechanism." That remained and remains the position of Island Homes, subject of course to the Court's order. That position led to Mrs Haq commencing her proceedings against Island Homes and the Council in 2009 on which the judge found in her favour.

The evidence

I have concentrated on what appears from the documents because that is really the only safe guide to what happened. At the trial before the judge evidence was given by Mrs Haq and by Mr Haq. It seems to me that Mrs Haq's evidence is likely to have been of very limited assistance. No mention of its content was made by the judge and we were not shown any parts of it in the course of argument. We were shown some passages from Mr Haq's witness statements and his oral evidence but it is clear that his recollection was extremely limited and that his understanding of legal and property matters was also limited. The judge said this:

"Mr Haq gave evidence for the best part of a day. His English, with respect to him, was poor when it came to dealing with the sort of matters that he was asked about in this case, although I am sure his English is perfectly good for everyday purposes and, as he told me, several times, quite rightly, he said, "I run a convenience store, I'm not a lawyer." And as Mr Dutton fairly accepted, in the course of his cross-examination, he was obliged to put many matters to the Claimant, which were virtually impossible for somebody with a limited knowledge of legal and property matters to answer. Although the cross-examination lasted the best part of the day, there is no criticism of that. Mr Dutton rather ruefully accepted in his closing submission that very little had come out of it which took the case much further than the written evidence."

The Judge referred to the fact that Mr Haq said that he had lost many relevant papers which he had kept in a garage at home because a lot of the contents of that garage had been burned in a fire when a child was playing there with fireworks. He also referred to the fact that many files appeared to have got lost after the transfer from the Council to Island Homes. It also seems that the legal department files of the local authority were no longer available, having been partly lost and partly destroyed by fire. Moreover no witness was called who could give evidence of the facts on behalf of the Council. A witness statement indicated that Ms Richards had been found but had stated that she did not recall anything about the matter given the time that had elapsed. The judge was very critical of that proposition. He thought that she would have remembered relevant matters if she had been reminded from such papers as there were and had been given the opportunity of refreshing her memory. At all events the only witness called on behalf of the Council was a current or recent employee as to steps taken to trace people who might have known something about the facts in or around 2002 and the only witness called on behalf of Island Homes was someone who had no knowledge of matters arising before Island Homes became the owner of the property. Thus there was a very limited amount of oral evidence, most of it not seriously reliable in detail, to be added to what was apparent from the documents.

In Mr Haq's second witness statement, he referred at paragraph 44 to a conversation with his solicitor close to the day on which the works started, during which the solicitor (Mr Janaway, presumably) advised Mr Haq "that the lease had been agreed and the Council would grant my wife a new lease on the terms agreed upon completion of the works". Then at paragraph 45 he said: "it was on the basis of all this that I believed that as soon as the works were completed the Council would grant my wife a new lease. I did not believe that there was any legal document to sign before the works were completed." He went on to say that if before completion of the works the Council had said that they would not grant his wife the new lease he would have stopped the works at once.

From that it appears that one highly material factor in giving him the belief which he claimed to have was what his own solicitor had told him. That is not in any way surprising, but it does not of itself justify the proposition that it was the Council that had led him to have that belief, if what the Council had said to the solicitor did not justify him in passing on such a position to his client.

Consistently, and unsurprisingly, during Mr Haq's cross-examination, he referred to his reliance on his solicitor. Thus at one point the evidence proceeded as follows (Day 2, transcript page 52, from D):

"Q. But presumably you thought that there was some sort of agreement between you and the council which you could rely on if the council refused to complete the lease, did you not, or did you?

A. I never thought council can refuse the lease after all that, so you know, after all the work. I haven't seen any document from the council saying -

Q. At the moment I'm not asking for documents. What I am saying is did you think that you had a binding agreement with the council so that, if the council failed to grant the lease, you could sue the council. Is that what you thought at this time?

A. I never thought council would need to – I mean, grant the lease or I could sue the council or anything like that. I never thought. I thought in good faith they will do it.

Q. You thought they were going to grant it.

A. In a good, you know, good intention, you know because they are the – I mean, the people's authority. The people in our council, so you know, the people where they work for next century, you know.

Q. So would it be true to say then that you expected the council to sign the lease, but you did no think it had a legal obligation to. Is that what you are saying?

A. I don't know, that is what my solicitors can, you know –

Q. That is where your solicitors come in?

A. My solicitors should have done –

Q. So we are really back to the point that the judge made earlier on, that these are really matters that were matters for the lawyers to think about were they not?

A. Yes."

The keys to the sheds

I come now to what the judge said about the question of the keys, and the submissions on that point. At paragraph 23 of his judgment he referred to two paragraphs from Mr Haq's second witness statement. Mr Haq said he thought that he came into possession of the keys around the third week of July 2002 which his builders needed, since the sheds had to be demolished and the Council's equipment in them had to be taken out first. They had been asking for the keys since around the end of June. That of course is consistent with his wish to start the works originally on the 8^th July. He said "I believe that Ms Richards had released the keys from Gary Bishop, one of the Council's cleaners. It was at this time that two Council officers came and emptied the sheds. It took two days to do so. Then they left the keys in the shop." The judge commented that the evidence is that the keys were released with the authority of Ms Richards who would have been able to come and give evidence if that were not the case. At the end of paragraph 24 he said "So the local authority handed over the keys for the specific purpose that the work should be able to start on 29^th July and followed the progress of the works throughout".

The judge did not refer to the note of the meeting on 1^st August 2002 with its reference to access still being required to the caretaker's store. I have no difficulty with the judge's proposition that the Council allowed the work to start on 29^th July or at any rate that it acquiesced in the work having been started on 29^th July by not protesting and not taking any steps to stop it proceeding until the documents had been executed. But it seems to me that the finding that the keys had been released to Mr Haq before 29^th July might be questionable in the light of the note of the meeting held on 1^st August 2002. In his oral evidence Mr Haq was unable to remember any detail at all as to who provided the keys, or to whom they were provided or when that happened. He was firm that he would not have started the work without having the keys and it is plain that he would have been unable to deal with the necessary work to the store room and workshop without the keys. As he said, he would not have broken in to those areas. Precisely when the areas were cleared and the keys were made available to him for the purposes of the works is not clear but it seems to me that it might have been after the 1^st August rather than on or before the 29^th July.

Ms Asplin submitted that the reference in the note of the meeting on 1^st August to access to the store room may have been to the same store room as was referred to in the note of the meeting on 7^th January 2004. That cannot have been the case. It is reasonably plain from the contents of the note of that meeting that the store room there referred to was a new store room abutting onto the new and enlarged plant room as shown in the plan which was sent to Ms Richards in the course of 2003. It is not the store room and workshop which are shown on the plan of the premises as they were before the start of the works. That store room and workroom would have been within the area enclosed by the hoarding which Mr Haq's contractors put up at an early stage of the works and that is why it was necessary for access to be allowed as described and agreed on 1^st August 2002 so that the spaces could be cleared and made available to Mr Haq for the purposes of the works.

It could therefore have been open to the judge to conclude that the works started on 29^th July 2002 but that the store room and workshop were not made available on or by that day, that a hoarding was put up to enclose the covered walkway which, therefore, also prevented access to the store room and the workshop, that the areas were cleared shortly thereafter by the Council, access being allowed for that purpose by Mr Haq's builders, and that when they had been cleared the keys were made available to Mr Haq or to his builder and they were therefore then able to go in and incorporate those areas in the new and enlarged premises. Mr Rodger submitted that this would have been the correct finding of fact.

However, the point about the 1 August 2002 meeting note does not seem to have been made to the judge, and Mr Haq was not cross-examined about it. Accordingly, despite the inference that might have been drawn from that note, leading to a different conclusion from that of the judge, it seems to me right to proceed on the basis of the judge's finding that the keys had been made available to Mr Haq at any rate no later than 29 July 2002, the two areas having been cleared by that date so that the work could start then.

The judgment

The judge set out in his paragraph 25 a number of findings of fact which were significant for him in the conclusion that he reached. I will quote that paragraph:

"Now, in the light of that history I make the following findings of fact. (1) The local authority waived the requirement for a written licence as a condition of the works starting. (2) They waived the associated requirement for an agreement for a lease to be signed before the works started. (3) They encouraged the Claimant to commence a programme of works on land which was partly subject to a lease vested in her and partly owned by the local authority, knowing that hundreds of thousands of pounds would be spent on this work by the Claimant. (4) They actively monitored the progress of these weeks over the best part of a year until completion. (5) They knew or must have known that there were no circumstances in which the Claimant would have (a) commenced or (b) continued until completion, works of this magnitude if he had any doubt that the lease would be granted on the date which had been provided for in the draft documentation. (6) The local authority knew that the Claimant was relying upon an expectation actively encouraged by them by their conduct, which in my judgment was the only expectation consistent with their conduct. I ought to add that it was suggested by Mr Dutton in his closing submissions that the Second Defendant's conduct could have been consistent with a pragmatic wish to let the works start as the builders were on the starting blocks, but with the need to get the documents signed as a condition of the legal status of the works being regularised still clear in the minds of both parties. The weakness of that suggestion was that it has absolutely no evidence to support it, although as I have indicated, the evidence was potentially available from Ms Richards if that were the case. And although there was correspondence from the legal department still trying to set up the licence documentation well after the works had been completed, let alone commenced, it seems to me that the need for the licence would have become otiose once the work had been completed. Rather than giving any indication of what might anybody have thought was the legal position, it shows the tidy legal mind at work of someone who had taken over the file and did not have any real grasp of what had happened on the ground. But the essential point is that the absence of evidence from Ms Richards speaks volumes on this point."

The case made on behalf of Mrs Haq in the amended particulars of claim, on the basis of the facts as I have described them, was that the Council had agreed with her, or encouraged her to believe, that it would not rely on its strict legal rights and that she could commence the works on the premises without the relevant documents being executed, that this was conditional upon her providing the necessary documentation for execution of the licence and that upon completion of the works and that condition being satisfied, the Council would grant her the new lease. That is in paragraph 15 of the amended particulars of claim. From that at paragraph 17 it was said to follow that the Council represented to her, by active encouragement from its words or conduct, that it would waive the formalities of requiring execution of the licence, agreement for lease, lease and surrender by signed writing and would grant a lease of the premises including the relevant terms if Mrs Haq undertook the proposed works to the premises, thereby improving the premises, and that Mrs Haq reasonably believed that to be the case. By paragraph 18 it was alleged that she reasonably believed in the Council's representations, and that she incurred detriment in the expectation and belief that the Council would grant her a new lease in the agreed form. In paragraph 19, the detriment that she suffered was said to be the cost to her of carrying out the works which were said to have been completed in August 2003 at a cost of at least £210,000 payable to the builders. It is said that in fact the builders were paid £140,000 and following a dispute as to the remainder of the contractual sum Mr Haq was ordered to pay to the builders £62,500 by the Central London County Court with interest. It is also said in paragraph 20 that she met all the conditions necessary for the licence to be granted and with it the lease and the deed of surrender.

In his judgment at paragraph 34, having referred to some of those allegations in the pleadings, the judge said that he regarded the defendants as being estopped from denying that Mrs Haq became the tenant for the whole of the premises on the terms agreed on practical completion of the works. At paragraph 38, he said this:

"To mention one matter which is canvassed in the authorities, this is not a case where the Claimant's belief was simply that the Defendant was bound in honour to grant the lease. He believed and the Second Defendants must have known he believed, that the handing over of the keys without any licence or agreement and allowing him to do the works and cooperating with the progress of the works meant that he believed that all legal technicalities had been dispensed with and the lease would automatically follow when the works were done and in reliance upon that he spent the money."

Having referred to arguments as to the appropriate remedy he concluded that the only appropriate course to do justice as between Island Homes and the Council on the one hand and Mrs Haq on the other was by recognising that she was entitled to a lease in accordance with the agreed draft judgment.

Discussion

In Attorney-General of Hong Kong v Humphreys Estate (Queen's Gardens) Ltd [1987] AC 114, the Privy Council had to consider a situation in which the Government and the Hong Kong Land group had undertaken negotiations which were and remained expressly subject to contract, but where the parties had acted on the basis of the anticipated contracts in a substantial way, including by demolishing premises and making large payments, but where, eventually, one side had called the dealings off before contracts were entered into. The Government sought to prove that Hong Kong Land could not withdraw at that stage. It failed at all levels. I quote three passages from the judgment of Lord Templeman which were relied on before us, the first from page 124:

"Their Lordships accept that the government acted to their detriment and to the knowledge of HKL in the hope that HKL would not withdraw from the agreement in principle. But in order to found an estoppel the government must go further. First the government must show that HKL created or encouraged a belief or expectation on the part of the government that HKL would not withdraw from the agreement in principle. Secondly the government must show that the government relied on that belief or expectation. Their Lordships agree with the courts of Hong Kong that the government fail on both counts."

Next, later on page 124 and into page 125:

"Their Lordships accept that there is no doubt that the government acted in the confident and not unreasonable hope that the agreement in principle would come into effect. As time passed and more and more actions were undertaken in conformity with the proposals contained in the agreement in principle, the government's hopes were strengthened. It became more and more unlikely that either the government or HKL would have a change of heart and would withdraw from the agreement in principle. But at no time did HKL indicate expressly or by implication that they had surrendered their right to change their mind and to withdraw. That right, expressly reserved and conferred by the government, was to withdraw at any time before "document or documents necessary to give legal effect to this transaction are executed and registered." HKL did not encourage or allow a belief or expectation on the part of the government that HKL would not withdraw. HKL proceeded in accordance with the proposals contained in the agreement in principle but at the same time they continued to negotiate the exact provisions of the documents which were necessary to be executed before the parties could become bound."

Lastly at pages 127 to 128:

"It is possible but unlikely that in circumstances at present unforeseeable a party to negotiations set out in a document expressed to be "subject to contract" would be able to satisfy the court that the parties had subsequently agreed to convert the document into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transactions envisaged by the document. But in the present case the government chose to begin and elected to continue on terms that either party might suffer a change of mind and withdraw."

Mr Rodger submitted that the present case is analogous. The parties' negotiations were expressed to be subject to contract from the start. There was no agreement to change the status of the negotiations, and nothing happened to preclude the Council from proceeding on that basis, and from withdrawing if it wished to do so.

Ms Asplin submitted that the judge was entitled to find that the subject to contract status was waived entirely by the Council, that the Council represented unequivocally to Mr and Mrs Haq that it would not withdraw from the transaction once the works had started, and that the lease would be granted when the works had been done. In effect, her position was that, with effect from 29 July 2002, the licence and the agreement for lease were to be treated as immediately binding on the parties, by way of estoppel, even though the agreement for lease could not be legally effective as a contract (unlike the licence to occupy) because of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.

Whereas in the Hong Kong case there had been nothing from which waiver of the subject to contract status could be inferred, she argued that in the present case it was shown by the release of the keys to the store room, as a change of position from the previous stance that they would not be released until the documents had all been signed, and by the Council having approved the work being undertaken without the documents having first been signed. She submitted that the Council granted what was in effect an implied licence to enter on the additional land (including the storerooms) and to undertake the work, and that this licence, which could lawfully be granted without any document being signed, should be taken to be on the terms of the draft licence as it had already been negotiated. Moreover, because the licence and the agreement for lease as drafted were interdependent, each referring to the other as entered into simultaneously, the grant of the licence by implication had to be taken as extending to a commitment to comply with the agreement for lease.

As against those contentions, Mr Rodger submitted that the continuing subject to contract status of the dealings between the parties precluded Mr and Mrs Haq from satisfying any of the requirements of proprietary estoppel. First, the steps taken by the Council lacked the necessary degree of commitment so that they could not amount to an inducement or encouragement to Mr Haq on which he could act. Secondly, the negotiations were not reasonably capable of being relied on by him. Thirdly, there was nothing unconscionable in the Council or Island Homes withdrawing from negotiations undertaken and pursued on that basis, because that was the right that each party had reserved to itself by using the "subject to contract" label. He accepted that if the Council would have been bound to grant the lease, then Island Homes was so bound.

Ms Asplin for her part rightly accepted that, if Mr Rodger's contention as to the continuing subject to contract status of the negotiations was correct, then the proprietary estoppel case could not be made out.

Mr Rodger pointed out that all negotiations on legal matters were conducted between lawyers on each side, and there was no communication other than through lawyers as to the rights to be granted or the status and position of the negotiations. As between the lawyers the position was quite clear: it was and remained subject to contract throughout. At the highest the release of the keys was equivocal conduct. It was easy to see it as consistent with the provisional status of the negotiations, on the basis of the grant of an informal and implied licence to start on the works, while not dispensing with the need for the formal documents to be entered into before either party was bound. It could not provide the basis for an unequivocal representation of the kind that had to be established in order to make out Mr Haq's proprietary estoppel case.

Ms Asplin submitted that, on the facts, Ms Richards had taken control of the negotiations on behalf of the Council on 19 July, as regards legal matters as well as on the practical property-related points which were within her normal responsibility. No lawyer was present at the meeting on 19 July on either side. I would reject that argument. It is not supported by anything in the notes of the meeting or elsewhere in the documents. This was a meeting which was concerned barely, if at all, with legal matters. She was endeavouring to get the matter progressed in a proper fashion, but I see no sign that she strayed outside her normal sphere of operation or responsibility.

Mr Rodger accepted that an oral licence could be granted, and no doubt was granted in practice, to Mr Haq to allow the works to be undertaken. But he pointed to the fact that at no stage during the course of the works did the Council's legal department indicate in any way that it was unnecessary to have the licence completed and executed. To the contrary they insisted throughout that all necessary information and documents must be supplied. At a later stage there were disagreements as to whether everything that was required had been supplied, but there was no doubt that it had to be provided.

He also made the pertinent point that at all relevant times, and even now if the judge's order were set aside, Mrs Haq is in the position of having security of tenure under Part II of the 1954 Act. Originally her statutory rights would have extended only to the holding, that is to say that area demised under the 1983 lease. However, Island Homes confirmed before the judge that her statutory rights should be treated as extending, as regards a renewal lease, to the expanded holding as it now stands. Therefore her occupation of the original premises has at all times been lawful, and her occupation of the enlarged premises has been acquiesced in by the freeholder so that her statutory protection applies to the whole. This is therefore not at all like cases where a person incurs expenditure on land to which he has no rights at all, on the basis of an expectation that he does have, or will obtain, some interest in the land which would justify the expenditure.

One thing is plain, namely that the Council did agree to allow Mr Haq to have access to and to use the covered walkway and the store and workshop in order to start the proposed works. The acts of the Council in clearing the store and workshop and allowing Mr Haq or his builder to have the keys, and its awareness without any protest at his having started the work in the week of 29 July 2002, show that the Council, in practice, changed from its previous position that he could not start without the licence and the agreement having been signed and exchanged first. It waived that precondition and could not have said that he had started without their consent.

However, it does not follow from that alone that the Council had dispensed with the need for the documents to be executed at all. Nothing in what the Council said or did could justify that inference. Before the start of the works, in the letter from the legal department dated 24 July 2002, the Council showed that it did require the documents to be finalised and signed. Cornish & Co in their letter of 12 August 2002 showed that they were proceeding on the same basis. With respect to the judge's contrary conclusion, it does not seem to me possible to infer that the Council did more than grant Mr Haq a temporary licence, implied from its conduct, to start the work. It did not, by the same conduct, waive the requirement that the documents should eventually be signed and exchanged, when they were agreed in their final form.

While I therefore agree with the first two points made by the judge in his paragraph 25 quoted at paragraph [56] above, I cannot agree with the judge's other propositions in that paragraph or with what he said at paragraph 38, quoted at paragraph [58] above. Ms Asplin argued that the Council waived the subject to contract status of the negotiations by allowing Mr Haq to start work without the licence or the agreement having been first been signed and exchanged. I would reject that contention for two reasons. The first is that, if negotiations are proceeding on an explicitly subject to contract basis, it is not open to one party alone to convert their status from being "subject to contract", so that if agreement has been reached it may be regarded as binding even if the formal documents contemplated have not yet been signed and exchanged. That process must itself require agreement, so it has to be bilateral, and not unilateral.

The second reason is that there is nothing in the Council's conduct which permits the inference that it was doing anything other than agreeing to allow Mr Haq to start without the documents first being put in place as binding documents. Nor is there anything in the dealings between the parties that could suggest that Mr Haq believed that it was no longer necessary that the documents be agreed and signed. If he did have that belief, as some of his evidence suggests, it seems clear from his witness statement that this was as a result of his understanding of things said to him by his solicitor. If his solicitor did say to him what he recorded in his witness statement, it was not based on a fair assessment of anything which the Council had said to the solicitor. Therefore it could not form the basis of a proprietary estoppel claim.

It is clear that staff of the Council were aware that the work was proceeding. If the Council had given thought to it, it would have realised that it was all taking a great deal longer than the initially agreed twenty weeks. No reference was made to the provisions in clause 4 of the draft licence for an extension of time in the event of delay. It may be that, if the point had been addressed explicitly, the Council would have been content to agree to the extension. The judge said at paragraph 24 that the works were "carefully monitored by the Council". I have to say that this seems to me to be a substantial overstatement. The judge relied on the fact that the Council became aware that work was undertaken beyond what had been agreed, including the much larger plant room and the air conditioning units. The Council staff would have become aware of the construction of a much bigger plant room from even a casual inspection from outside. It does not follow that the Council monitored the work in any other respect, as they could have done under the licence. It is reasonably clear that the process that should have taken place at the stage of practical completion with notice to the Council, a final inspection and notification of any defects, never did take place.

In the latter part of paragraph 25 the judge refers to the submission for the Council that it allowed the work to start without dispensing with the need to get the documents signed in order to regularise the legal status of the work. He rejected that on the basis that there was no evidence to support it but he also referred to correspondence continuing about finalising the documents. That itself is the evidence which supports, and to my mind demonstrates, this proposition. I also disagree with the judge's view that the licence was otiose once the work had been completed. Nor did Ms Asplin support that position. It was needed to record and regularise the position.

It is clear that the judge was strongly influenced by the Council's dilatory conduct both before the disagreement arose in the correspondence in mid 2003 and even more so thereafter. It is true that by early 2004 there seems to have been nothing, or almost nothing, remaining to be agreed as regards the documents other than a proper plan to be annexed to the lease in order to show the correct area of the enlarged plant room. That is noted as to be dealt with in the note of the meeting of 7 January 2004. So far as we know it never was dealt with.

It is fair to say that neither on the part of the Council nor on that of Cornish & Co can the history of the dealings of the parties after August 2002 be regarded as showing anything like proper diligence or application. The Council did not reply to the letter from Cornish & Co dated 12 August 2002 until after a chaser on 3 January 2003. It then took three months to reply substantively to that letter. The dealings between the parties became a little more active between May 2003 and the meeting in January 2004. Thereafter they subsided back into suspended animation after February 2004. The Council can be criticised for delay which may have amounted to maladministration. Cornish & Co also, and later Hargreaves, allowed far too long to go by before chasing the Council.

Mr Rodger fairly referred to the later history as showing a very sorry tale of the Council's mishandling of what should have been a routine conveyancing transaction, in the course of which the Council could be said to have behaved very badly.

However, none of that, as it seems to me, has any bearing on the issues raised by Mrs Haq's claim. If Mrs Haq was entitled to relief by way of proprietary estoppel and constructive trust, it must have been by virtue of what happened in July and August 2002. At any rate that is how Ms Asplin argued it and how the judge decided it.

I would accept the submission of Mr Rodger for Island Homes that nothing happened to change the status of the negotiations for a licence and an agreement for lease from being subject to contract, as it clearly was in late 2001, to no longer being subject to contract, in such a way that it was not open to either party to withdraw at any time before the documents needed to give the transaction legal effect were executed. The only thing that did happen, unconditionally, was an implied licence to Mr Haq to start the work without waiting for the documents to be signed first. It is unfortunate that this was not itself regularised by an exchange of correspondence, but it must have been clear that, although both parties intended to proceed and may well have hoped and expected that the other party would also proceed, for the time being each side was acting at its own risk. I cannot see that the Council said or did anything that could amount to a clear and unequivocal representation either that it would not require the intended formal legal documents to be finalised and executed or that it would in no circumstances withdraw before that stage.

Equally, given the subject to contract status of the negotiations and the continuing attention given, even in a sporadic and dilatory fashion, to finalising the state of the draft licence, there was nothing in the Council's conduct on which Mr or Mrs Haq could fairly or reasonably rely as precluding the Council from insisting on its legal rights, so as to confine Mrs Haq to the statutory renewal rights as extended, once the works had been done, to the enlarged holding.

Mr Rodger's additional point seems to me also to be well made, namely that Mr Haq in fact committed himself to the building contract and the works on 23 July, by Mr Coughin's letter referred to above, in which he instructed Amar Construction to begin the work on 29 July and committed Mr Haq to an upfront payment of £20,000 to enable the work to be embarked upon as soon as possible. That shows that Mr Haq did not wait for the Council to provide the keys and did not act in reliance on that in binding himself to the works and the consequential expenditure. That may not be Mr Rodger's best point because clearly if on 29 July the Council had persisted in its stance that the documents had to be in place before the work started so that Mr Haq had to defer the start of the works, and if the Council had then withdrawn before the works had started in earnest, Mr Haq would have incurred much less expenditure. However I agree with Mr Rodger that Mr Haq did not in fact rely on the Council's alleged representation before he made his final commitment to the building works, as well as accepting that there was in fact no representation as alleged by the Council and certainly nothing that could be reasonably relied upon by Mr Haq.

We had the benefit of interesting submissions from Counsel on a number of different points arising on others of the grounds of appeal. However, on the view that I take of the case, it is unnecessary to go into any other point than the first and basic issue, namely whether the negotiations continued to be "subject to contract" or not. Since I have concluded, for the reasons given above, that they did, the other points do not arise, and I do not need to lengthen this judgment still further by discussing the other points.

Accordingly, I respectfully disagree with the judge and hold that the basic requirements for a proprietary estoppel were not made out in this case. Nothing happened to make it unconscionable for the Council to rely on its strict legal rights. Mrs Haq is entitled to her statutory rights to a renewal tenancy, but to nothing more. I would therefore allow the appeal and remit the case to the County Court to determine the terms of Mrs Haq's new tenancy if they cannot be agreed.

After the deadline specified by the court for the communication of suggested corrections to the judgment, the court received from the solicitors for Mrs Haq a request to defer the handing down of judgment and to reconvene the hearing of the appeal so that additional arguments could be considered by the court. The nature of those arguments was indicated in lengthy submissions accompanying the request.

By these arguments, for example, the Hong Kong case referred to at paragraph [60] above was sought to be distinguished, further argument would be addressed as to the scope of the responsibility and therefore the authority of Ms Richards, points were to be made as to the inference to be drawn from the section 146 notice served by the Council, and various arguments were presented as regards the implication to be drawn from the provision to Mr Haq of the keys to the sheds without the licence and the agreement for lease having first been signed. These are examples, not a complete list of the points identified.

All of these points could have been argued before us at the hearing of the appeal. No indication was given as to why they were not, and why they were sought to be raised before us only at the last moment. The solicitors went so far as to submit that it was unnecessary to consider the reasons why any of the new submissions were not put before the court at the proper time or why the points were not argued. Plainly the request was an attempt to re-argue the appeal in the face of the draft judgment which had been made available, in the usual way and on the usual terms, to Mrs Haq's solicitors and Counsel. Some of the points taken were variants of arguments which were put to the court. Others were unrelated to the arguments addressed in the skeleton arguments and at the hearing. In some instances the new argument was incompatible with submissions made at the hearing.

None of the points made brought the case anywhere near being within the very narrow range of circumstances in which it is proper to invite the court to defer handing down judgment and to re-open the case for further argument. In the circumstances we declined the request made on behalf of Mrs Haq, and I need say no more about the points sought to be opened up for further argument.

Lord Justice Tomlinson

I agree.

Lady Justice Arden

I also agree.

ORDER

UPON READING the Appellant's notice filed on 22 July 2010 on behalf of the Appellant, on appeal from a decision of HHJ Collins dated 1 July 2010 and subsequent order sealed on 22 November 2010

AND UPON READING the Respondent's Notice filed by the Respondent Council on 9 June 2011

AND UPON HEARING Leading Counsel for the Appellant, Junior Counsel for the Respondent Council and Leading and Junior Counsel for the Respondent Mrs Haq

IT IS ORDERED THAT: