England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
Mr Justice Morgan
[2011] EWHC 3553 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		01/06/2012

Lord Justice Rimer :

Introduction

1. The question raised by this appeal is a short one as to the interpretation of a licence agreement. In essence, it is this. If A and B (described as 'the Licensor') grant a licence to occupy land to B and C (described as 'the Licensee'), and the licence automatically terminates upon the failure of B and C to remedy any remediable breaches within the time specified by a notice given by 'the Licensor' to 'the Licensee', can such a notice validly be given by A alone?
2. That question arose for decision before Morgan J in a family dispute in which the claimant is Harry Fitzhugh and the defendant is his brother Anthony. In his judgment delivered on 11 November 2011 ([2011] EWHC 3553 (Ch)), Morgan J answered the question in the affirmative and, by his order of the same date, declared that the licence had been determined by notice with effect from 27 February 2006.
3. With the permission of the judge, the defendant appeals against that declaration. He was represented before us, as before the judge, by James Howlett. Timothy Clarke represented the claimant, as he did before the judge.

The facts

4. Harry Fitzhugh Senior died intestate on 10 April 1995 survived by nine children of his first marriage. The claimant is his sixth child, and I shall call him Harry. The defendant is his youngest child, born in 1960, and I shall call him Anthony. Letters of administration of the father's estate were, on 15 June 1995, granted to his four sons, Geoffrey, Colin, Harry and Anthony. Colin died in 1997.
5. The principal asset of the father's estate was Poplars Farm, near Derby, comprising a farmhouse and garden and five other plots of land. On 3 July 1998 the three surviving administrators, Geoffrey, Harry and Anthony, conveyed the farmhouse and garden to Anthony and his partner, Karen Boddey ('Karen'). On the same day, they also granted the licence to Anthony and Karen. It was of farm outbuildings and various fields.
6. I must set out the material terms of the licence. It is described as a 'Licence' and as being between (1) Geoffrey, Anthony and Harry (described as 'the Licensor') and (2) Anthony and Karen (described as 'the Licensee'). It then provides:

'1. The Licensor grants to the Licensee the right to keep sheep cattle horses or pigs on the premises described in the First Schedule hereto for grazing purposes and the right to mow premises twice a year and to take away the grass

2. Further the Licensor permits the Licensee to enter onto the premises to the extent necessary to exercise the rights and for the avoidance of doubt full occupation and possession of the premises remains with the Licensor subject only to the rights granted by this Licence to the Licensee

3. The Licensee agrees with the Licensor to pay the Licence fee of one pound a year and to use the premises for the exercise of the rights and for no other purposes and on the termination of the Agreement to remove the Licensee's stock from the premises

4. The rights granted under and this Licence itself will terminate immediately on the happening of any of the following events:-

(a) The Licensee dying or becoming incapable by reason of mental or physical illness from discharging his obligations under this Agreement

(b) The Licensee commits any grave or persistent breaches of this Licence and the Licensor having given written notice to the Licensee of such breach or breaches the Licensee fails within such period as the Licensor may specify to rectify such breaches if capable of rectification

(d) [sic: there is no (c)] Upon the Licensor obtaining planning permission for the development of all or any part of the land the subject of this licence …

6. This Licence and the rights contained in it are personal to the Licensor and Licensee and will not be capable of being assigned or otherwise dealt with'

7. Geoffrey died in 2001, upon which event Harry and Anthony became the sole surviving administrators, as they still were at the date of the judge's judgment, although his order provided for both to cease to be administrators and to be replaced by two new administrators.
8. Anthony and Karen did not pay the annual licence fee of £1. On 16 February 2006 Walker Terry & Wilson, solicitors, purportedly writing 'on behalf of all the family members of the late Harry Fitzhugh Senior regarding his estate', made various requests of Anthony and Karen, including that, within seven working days, they paid the £7 arrears of licence fee owing to the estate. They did not do so. Over three years later, in September 2009, Harry commenced these proceedings against Anthony in the Chancery Division, seeking various heads of relief including possession of the land the subject of the licence. Anthony defended the claim, which was tried before Morgan J in 2011. Morgan J's 112-paragraph judgment reflects that he had to consider many issues, the one giving rise to the present appeal being but one of them.

The judge's decision

9. That issue was whether the licence had been terminated. Harry claimed that it had been terminated under clause 4(b) in consequence of the failure of Anthony and Karen to pay the £7 arrears of the licence fee within the seven day period prescribed by the notice given in February 2006. Morgan J found, and it is not challenged, that the failures to pay the licence fee from 1998 to 2006 amounted to 'persistent breaches' of the licence within the meaning of clause 4(b). He did not, in those circumstances, find it necessary also to decide whether such breaches were 'grave'. He found that Anthony and Karen did not remedy the breaches within the seven day period specified in the notice. He explained that Mr Howlett did not invite him to assume any jurisdiction (if such there was) to grant Anthony relief against forfeiture.
10. In that state of play, the only remaining issue was whether the solicitors' letter of 16 February 2006 was a valid notice for the purposes of clause 4(b). That turned on the fact, as the judge found, that it had been given only on behalf of Harry, but not also on behalf, or with the authority of Anthony, whereas at the relevant time 'the Licensor' was both Harry and Anthony. Did the notice meet the requirements of clause 4(b)?
11. The judge referred to the well-established common law principle that a contractual periodic tenancy granted by joint landlords to joint tenants continues only for so long as they all agree in its continuation. Such a tenancy can thus be determined by a notice to quit given by just one of the landlords without the concurrence of the others or (likewise) by just one of the tenants: see Hammersmith and Fulham London Borough Council v. Monk [1992] 1 AC 478. The judge, however, regarded that principle as having no application to the issue before him, since he was faced with an express contractual provision in the licence (clause 4(b)) which required the notice to be given by 'the Licensor'; and the critical question was whether, upon the true interpretation of the licence, that meant both Harry and Anthony or just Harry. The distinction that the judge was there recognising was that expressly identified in the Hammersmith case by Lord Bridge, at [1992] 1 AC 492, 490G to 491A, and by the later decision of the Court of Appeal in Hounslow London Borough Council v. Pilling [1993] 1 WLR 1242 (see at 1246H to 1247E).
12. The question was thus whether, as a matter of interpretation, 'the Licensor' in clause 4(b) meant both Harry and Anthony; or whether it meant, or could be read as meaning, a reference just to Harry. The judge's opening view, in paragraph 86 of his judgment, was that there was no easy way to read 'the Licensor' as there referring to any one of the licensors. He was, however, reluctant not so to read it and considered it necessary to take into account that there was an overlap between the persons who were the licensor and licensee. In such a case, he said it was unlikely, if not certain, that a licensee who is also a licensor would join in giving the notice on a voluntary basis. If not, and all licensors must join in the service of the notice, then the non-licensee licensors must precede the giving of any notice either by (i) seeking the removal of the reluctant licensee as a trustee (as a co-owner of the land, he will necessarily be a trustee), or (ii) perhaps by seeking an injunction requiring him to join in the giving of a notice.
13. In the judge's view:

'89 … to hold that no notice can be given is an unsatisfactory contractual result which the parties cannot have intended. It also seems to me that a requirement in my example of A and B that A gets B removed or A gets an injunction requiring B to serve a notice on himself is equally a cumbersome, slow, expensive proceeding which I hesitate to think the parties intended. There is in my judgment a solution to these difficulties. The solution is to construe the reference to the Licensor in clause 4(b) as referring to all persons who together are the Licensor apart from any person who is also the Licensee. If that is the construction of the word 'Licensor' in clause 4(b) then the notice can be given by Harry alone, and this notice, being so given, was an effective notice.'

14. In concluding that that was the correct construction of 'the Licensor' in clause 4(b), the judge drew on two sources of support. The first was assistance drawn from some obiter observations of Slade LJ (with whose judgment Stocker LJ and Sir Roualeyn Cumming-Bruce agreed) in Featherstone and Others v. Staples and Others [1986] 1 WLR 861. There the four plaintiffs were the trustees of a will and owned the relevant land. They let it under three tenancies to three partners as tenants. Two of the partners/tenants were individuals and the third was a company wholly owned by the landlords. The issue was as to the validity of counter-notices served only by the two individual tenants (without the authority of the company) requiring that section 2(1) of the Agricultural Holdings (Notices to Quit) Act 1977 should apply to notices to quit served by the plaintiffs. Clause 11 of the partnership agreement provided, however, that no partner might serve such a counter-notice without the consent of the company. The issue in the proceedings was as to the validity of the counter-notices: section 2(1)(b) of the 1977 Act required any counter-notice to be served by 'the tenant'. Did that mean by all joint tenants or by all or any one or more of them?
15. Slade LJ explained that, subject to a qualification, he had come to the clear conclusion that 'the tenant' in that sub-section meant, or ordinarily meant, all the joint tenants. But he also considered whether, by necessary implication, the phrase 'the tenant' nevertheless excluded the landlord himself, or a company controlled by the landlord, in cases in which the landlord or such a company also happened to be one of the joint tenants. In relation to that, he said, [1986] 1 WLR 861, at 876H:

'There are, in my opinion, quite strong grounds for saying that in the particular context where the landlord himself is one of the tenants (not the present case), the word "tenant" in section 2(1)(b) would be capable of bearing more than one meaning, namely, (1) all the joint tenants or (2) all the joint tenants other than the landlord himself; and that the court should prefer the second construction as leading to a "sensible and just result" complying with the statutory objective (see Johnson v. Moreton [1980] AC 37, 50G, per Lord Salmon) instead of adopting a construction which would invalidate a counter-notice given in such circumstances, unless the landlord had joined in or consented to its service on himself. On the other hand, I think that the engrafting of further exceptions, by a process of statutory interpretation on the ordinary meaning of the phrase "the tenant," to cover the case (such as the present) where one of the joint tenants was merely a company controlled by the landlord or was otherwise associated with the landlord, would present rather greater difficulties, if only because of problems of definition and deciding where to draw the line.

However, I find it unnecessary to express any concluded view on the question whether, as a matter of construction, any exception should be engrafted on to what I would regard as the ordinary meaning of the phrase "the tenant," as used in section 2(1)(b), in the case where the tenants are more than one in number. Even assuming for present (as I will assume) that as a matter of statutory interpretation the phrase must mean all the joint tenants, in any case where joint tenants are involved, I am still of the opinion that, for the reasons to be given later in this judgment, the counter-notices in the present case must be treated as having been served with the authority of [the company], even though that authority was not in fact given.'

The reasons referred to in the latter part of that quotation were public policy reasons relating to the efficacy of the restrictive condition in clause 11 of the partnership agreement. Slade LJ explained them as follows ([1986] 1 WLR 861, 881C):

'I am driven to the conclusion that, if a land owner chooses to grant other persons a tenancy of agricultural land (whether or not including himself as a tenant), public policy (affirmatively) requires that those other tenants should have authority, or be treated as having authority, to serve an effective counter-notice under section 2(1) of the Act of 1977 on behalf of all the tenants without his concurrence, and thus (negatively) requires the avoidance of any contractual condition, whether express or implied and whether contained in the tenancy agreement itself or in a partnership agreement or elsewhere, which purports to deny those other tenants such authority. I might add that any contrary decision of this court would be likely to open the door to widespread evasion of the Act of 1977 to the detriment of the security of tenure which Parliament clearly intended to confer on agricultural tenants: see and compare Johnson v. Moreton [1980] AC 37, 52-53, per Lord Salmon.'

16. The decision in Featherstone's case therefore turned ultimately on a consideration of public policy. There was, rightly, no suggestion made to Morgan J or to us that like considerations have any part to play in this case. Morgan J, in coming to his own decision, drew no more from Featherstone's case than such support for his preferred construction of clause 4(b) of the licence as was to be derived from Slade LJ's obiter suggestion in the first quotation cited in [15] above, although Morgan J, in paragraph 92 of his judgment, also observed that such suggestion was 'quite a bold one'. He considered, however, that it was rather easier to imply into a contractual arrangement an appropriate qualification by applying the principles as to the implication of contractual terms discussed by Lord Hoffmann in the decision of the Privy Council in Attorney General of Belize and others v. Belize Telecom Ltd and another [2009] UKPC 10; [2009] 1 WLR 1988. Morgan J brought into consideration the type of case to which he had referred in paragraph 89 of his judgment (see [13] above). Of that example, he said:

'93. … A and B will be joint owners and necessarily trustees. In a case where the facts permit a notice to be given under 4(b), that is a case of grave or persistent breaches by the licensee, there must be a very strong argument that B's duty as a trustee, assessing him in that capacity, is to join in a notice to himself under 4(b). If he fails to join in that notice he is acting in breach of trust, he is committing a wrong to his fellow trustee A and the beneficiaries under the trust. If he then receives a notice from A alone and is able to challenge that notice on the ground that it is given by A alone and not by A plus B, he is in a real sense taking advantage of his own breach. There is a principle, whether it is a general principle of law or a principle of interpretation it matters not, that one should not take advantage, the court should not permit one to take advantage of one's own breach. That is a powerful argument for holding that when one comes to the word 'Licensor' in clause 4(b), one should interpret it as referring to everyone who is not also a licensee. …

95. By that process of reasoning, I do reach the conclusion that the notice given on 16^th February 2006 was valid and effective under clause 4(b). The non-payment of rent was a persistent breach, it was not rectified within the period permitted. The consequence is that the licence was indeed terminated.'

The appeal

17. We had succinct arguments from counsel. Mr Howlett said there is no scope for interpreting the words 'the Licensor' in clause 4(b) as meaning (in the events that have happened) other than both surviving licensors and therefore as including Anthony. He is expressly described in the opening words of the licence as one of the individuals making up 'the Licensor', it is obvious that 'the Licensor' in clause 1 includes Anthony and it is equally obvious that it includes him in the like phrase in clause 4(b). The obiter observations in Featherstone's case - upon which Slade LJ expressly eschewed the expression of any final view and being observations as to the interpretation of a statutory provision - provided no support for an interpretation of 'the Licensor' in clause 4(b) that involved such a basic departure from its ordinary meaning. As for the judge's reliance on the Belize Telecom decision, nothing in that authority weakened the requirement that it is always necessary to imply the proposed term; it is never sufficient that it should merely be reasonable to imply it: see the subsequent decision of the Court of Appeal in Mediterranean Salvage & Towage Ltd v. Seamar Trading & Commerce Inc [2009] EWCA Civ 531; [2009] 1 CLC 909, at [15] to [18], per Lord Clarke of Stone-cum-Ebony MR. There was in this case no necessity to imply into clause 4(b) that 'the Licensor' does not there mean what it means elsewhere in the licence. That is because if Anthony declined to join in the service upon him and Karen of a clause 4(b) notice with a view to the frustration of the operation of clause 4(b), he would be failing in his duties as an administrator of the estate and it would be open to Harry to seek to have him removed as an administrator. Once he was removed, he would no longer be a co-owner of the licensed land, or therefore a licensor, and Harry alone could serve a notice on him.
18. Mr Clarke's written argument sought to support the judge's reasoning by the proposition that the present case was not materially distinguishable from cases such as the Hammersmith case. The judge, however, rejected that approach and so any such argument strictly required a respondent's notice, which there is not. In the event, Mr Clarke did not seek to develop that argument orally and I consider he was right not to do so. The judge was correct to recognise that the case was not of a like kind as the Hammersmith case but that the relevant issue turned exclusively on the true interpretation of 'the Licensor' in clause 4(b). Mr Clarke felt compelled to accept that 'the Licensor' in clause 1 of the licence necessarily included Anthony but maintained that it did not do so in clause 4(b). In his submission this was a case where the meaning of 'the Licensor' in clause 4(b) had two possible constructions, it was therefore ambiguous, and accordingly the judge was right to prefer the construction that was consistent with business common sense and to reject the other. By way of support for that approach, Mr Clarke referred us to the decision of the Supreme Court in Rainy Sky SA v. Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900, at [21], per Lord Clarke of Stone-cum-Ebony. Mr Howlett's response to that in his reply was that there was no such ambiguity as Mr Clarke suggested.
19. I prefer and accept Mr Howlett's submissions. Anthony is expressly described as one of the individuals making up 'the Licensor' in the opening words of the licence. The phrase 'the Licensor' in clause 1 plainly includes him. So must it in clauses 2 and 3. The critical question, however, is as to the meaning that the same defined phrase in clause 4(b) would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the licence is addressed (see the Belize Telecom case, at [16], per Lord Hoffmann).
20. In my view, such a person would regard it as improbable that in this short, simple, professionally drawn document the defined phrase 'the Licensor' was intended to be mean one thing in the opening words of the document, the same thing in clauses 1 to 3 but something else in clause 4(b). There is, on the face of the document, nothing to suggest that there should in clause 4(b) be any such change of meaning, or that something has gone wrong with its drafting so as to support the conclusion that 'the Licensor' does not there mean the same as it means elsewhere. If, as is the ordinary inference, it does mean the same, the reasonable person might well also foresee the potential for practical difficulty in the event (as happened) that Harry wanted to serve a clause 4(b) notice on Anthony: in particular, he might foresee the possibility that Anthony would refuse to join in its service. He would, however, also know that Anthony was a party to the licence in his capacity as one of the joint administrators, and was presumably intending to remain one. He would therefore recognise (i) that Anthony's duties owed to the estate as such an administrator would require him, at least for the purpose of the service of such a notice, to subordinate his own conflicting personal interests and so concur in its service; (ii) that there would be no reason why (if so advised) Anthony could not so concur expressly without prejudice to his right in his personal capacity to dispute the justification for the notice; and (iii) that it would then be open to Anthony to dispute its justification in any proceedings that might subsequently be brought against him, in which proceedings the interests of the estate would be sufficiently represented by Harry. Alternatively, if it should turn out that Anthony were to decline to join in the giving of any notice for the service of which there was proper justification in the interests of the estate, the reasonable man would recognise that it would in principle be open to Harry to seek his removal as an administrator, if necessary, by court proceedings, upon the successful conclusion of which Anthony would cease to have any status as a licensor and would not need to join in any clause 4(b) notice.
21. The reasonable man would therefore be likely to conclude that although an interpretation of 'the Licensor' in clause 4(b) as including any licensor who was also a licensee might perhaps give rise to practical difficulties, and perhaps unwanted expense, in the future, there was no basis for a conclusion that it would render the machinery of clause 4(b) unworkable. He might well consider that clause 4(b) could instead have been drafted in a way that would avoid any such difficulties arising in the future – for example, by providing for the relevant notice to be given by 'the Licensors other than any who is for the time being a Licensee'. But even if he were to be of that view, it is no part of the function of a court of construction to improve the document it is called upon to construe, nor does it have any power to do so (see again the Belize Telecom case at [16], per Lord Hoffmann). Moreover, as clause 4(b) remains workable even if its working out may, in the event of obstruction from Anthony, prove cumbersome or expensive, there is no necessity to imply the sort of term that the judge was prepared to imply. There was therefore no justification for implying it.
22. In my judgment, the judge was in error in his interpretation of clause 4(b). I would allow Anthony's appeal, set aside the first declaration in his order and substitute for it a declaration to the effect that the licence has not terminated.

Lord Justice Patten :

23. I agree.

Lord Justice Longmore :

24. I agree also.