England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Mrs Justice Laing
QB/2014/0333

		Royal Courts of Justice Strand, London, WC2A 2LL
		07/12/2016

Lord Justice Briggs :

1. This is an appeal from the order of Laing J made on 7 November 2014, whereby she dismissed, with costs, the appeal of Clear Call Limited ("Clear Call") against the order of HHJ Faber, made on 9 May 2014 in the County Court at Central London, fixing the new rent and interim rent for business premises in Edgware Road, London at £125,700 p.a. and £80,000 p.a. respectively, upon Clear Call's unopposed application for a new tenancy under Part II of the Landlord and Tenant Act 1954.
2. This is therefore a second appeal, but it raises no important point of principle or practice. Permission for a second appeal was granted by Sir Robin Jacob on 17 March 2015 on what appeared to him to be the compelling reason that Clear Call submitted that the main comparable transaction relied upon by Judge Faber in fixing the new rent was artificial and unreal.
3. At the conclusion of the hearing of the appeal, on 29 November 2016, and without calling upon counsel for the respondent landlord Central London Investments Limited ("CLIL"), we announced our decision that the appeal was to be dismissed, with reasons to follow. I now set out my reasons. Since I find myself to be substantially in agreement with the reasoning of Laing J in dismissing the first appeal, I can do so relatively briefly.
4. Clear Call is the tenant of business premises comprising the ground floor and basement at 151 Edgware Road, London, pursuant to a lease for a term of 15 years from 27 September 1996, which continued pursuant to the Act, at a rent of £71,000 per annum. The only issue for the County Court's determination on Clear Call's application for a new tenancy, heard before Judge Faber on 22 January 2014, was the rent: that is the rent to be payable under the new lease and the interim rent. In the usual way, Judge Faber heard expert rental valuation evidence from both sides. Clear Call's expert was a Mr Lever. CLIL's expert was a Mr Nash.
5. Section 34(1) of the Act provides that the rent payable under a new business tenancy granted by the court should, in default of agreement:

"be determined by the court to be that at which, having regard to the terms of the tenancy (other than those relating to rent), the holding might reasonably be expected to be let in the open market by a willing lessor…"

subject to specified disregards.

6. Mr Nash's opinion as to that open market rent was £127,250. For that purpose he relied upon three alleged comparable transactions, to each of which I will shortly refer. Mr Lever's opinion was that the market rent was no more than £88,000 p.a., for which he put forward no comparable transactions. Rather, he relied upon evidence about a "historic tone" of rents in the locality. For reasons given in detail in her reserved judgment, Judge Faber was unimpressed with Mr Lever's expertise in relation to market rents in Edgware Road, and preferred the evidence of Mr Nash. Mr David Berkley QC who appeared for Clear Call on this appeal (but not below) did not challenge Judge Faber's general assessment of the relative reliability of the two experts.
7. The three comparable transactions put forward by Mr Nash as the basis of his opinion as to rental value were as follows:

i) 159-163 Edgware Road, let to Al Qahtani Group Limited on 28 September 2012.

ii) 167-169 Edgware Road, let to Lloyds Bank PLC on 12 September 2012.

iii) 165 Edgware Road, purportedly let to Love London Limited in April 2013.

I will refer to these three comparables as "Qahtani", "Lloyds" and "Love London" respectively. In all three of them the landlord was CLIL.

8. Judge Faber rejected the Love London comparable both because it fell through before completion and because the letting was on significantly different terms and conditions. I need say no more about it.
9. By contrast Judge Faber found it appropriate to place reliance upon both the Qahtani and the Lloyds comparables. She derived Zone A comparable rents from each of them (by a process of calculation which is not challenged on appeal), and her determination of the new rent for Clear Call's premises was based upon taking the average of the two comparable Zone A rates. It is convenient to address the two comparables in reverse order.
10. Lloyds agreed to pay £225,000 p.a. for the premises after originally offering £175,000 p.a. Judge Faber rejected Mr Lever's opinion that Lloyds was a special purchaser prepared to pay well over the market rent. Laing J held that Judge Faber was entitled to do so. There has been no suggestion at any stage that there was anything artificial or unreal about the Lloyds comparable, and its merits have played no significant part in this second appeal.
11. In sharp contrast, it was always Clear Call's case that the Qahtani comparable was not a genuine market transaction. It was described by Clear Call's counsel before Judge Faber (Mr Edward Denehan) in cross examination of Mr Nash as "suspicious", and she understood that the allegation was, in substance, that the Qahtani transaction was a sham. In his skeleton argument for the appeal before Laing J, Clear Call's counsel Mr Martyn Berkin said:

"Clear Call contends that the Al Qahtani lease is a sham in the sense that Al Qahtani are not genuine or tenants within the ambit of an open market letting pursuant to S.34 of the Act."

In this revised skeleton argument for this appeal Mr Berkin described the Al Qahtani letting as "clearly highly suspicious". A sustained attack on the genuineness of the Qahtani comparable has therefore lain at the heart of Clear Call's case throughout, at first instance and on both appeals. When we invited Mr Berkley QC (who led Mr Berkin on this appeal) to define precisely what the allegation was, he acknowledged that he would have difficulty in submitting that it was a sham, in the sense of a dishonest pretence, rather than a transaction which actually occurred. Nonetheless he submitted that it was not a "proper comparable" and that there should be a retrial of the question whether it was a genuine letting.

12. The basis upon which the allegation of sham was put to Judge Faber was as follows. First, it was pointed out (and not in dispute) that the premises let to Qahtani had been unoccupied from September 2012 until January 2014, a period of sixteen months, which was surprising if Al Qahtani had agreed to pay £400,000 per annum for the premises. Secondly it was said that CLIL and Mr Nash had been caught out in similar proceedings about another property in Edgware Road, in the Central London County Court in 2011, putting forward offers which had not been made bona fide. It was put to Mr Nash in cross examination in the present case that he had failed to enquire as to the genuineness of the Qahtani transaction.
13. The judge noted that there was not, in the event, any challenge to the bona fides of Mr Nash in the present case, and she accepted his hearsay evidence that, although 159-161 Edgware Road had remained vacant for a long time after the letting to Qahtani, rent was being paid, and Mr Nash had been told that the tenants were going through the process of obtaining consents for fitting out the premises for a changed use. Judge Faber found that there was no evidence supportive of the allegation of sham.
14. Following the handing down of Judge Faber's reserved judgment in March 2014, Mr Khaled Youssef, a director of Clear Call, made three witness statements, dated respectively the 1 July, 6 July and 18 August 2014, all of which were sought to be relied upon by Clear Call at the hearing of its appeal before Laing J, on 7 November 2014. Taken together, the three statements made the following points, so far as relevant to this appeal:

i) The premises at 159-161 Edgware Road were still vacant.

ii) They were in a dilapidated state, and no building or fitting out works were being carried out there.

iii) The tenant Al Qahtani Group Limited was registered at Companies House as a dormant, non-trading company.

iv) Other tenants of CLIL were complaining that CLIL would be relying upon Judge Faber's award for the purpose of increasing rents.

v) That it made no commercial sense for anyone to agree to pay £400,000 per annum to run premises in Edgware Road as a fish shop.

15. Clear Call attempted, but without success, to rely upon this material as fresh evidence in the appeal before Laing J. In a concise extempore judgment, she dealt with that application as follows, at paragraph 40:

"Finally, Mr Berkin relies on two strands of fresh evidence which he seeks to adduce. The first is that the Al-Qahtani unit is still empty. I accept Ms Fitzgerald's submission (for CLIL) as to that, but that doesn't take the case any further, and he also relies on some documents from Companies House, which he produced I think either yesterday evening or this morning, which are exhibited to an unsigned witness statement, which suggests that the Al-Qahtani company is a dormant company. I accept Ms Fitzgerald's submission that this does not satisfy the test in Ladd v Marshall, nor is it relevant to the issues which I have to decide."

16. Dealing with the ground of appeal that the Qahtani transaction was a sham, (and before addressing the application to adduce fresh evidence) Laing J said that the matter had been fully argued and rejected by Judge Faber, that her rejection of the case of sham depended in part upon her assessment of the credibility of Mr Nash, and that it could not successfully be challenged on appeal.
17. Clear Call has repeated its attempt to have Mr Youssef's three statements submitted as fresh evidence on this second appeal. We agreed to look at the material de bene esse, reserving until judgment the question whether it should be admitted. Mr Berkley acknowledged that, if it were to be admitted, the evidence in reply to it by a Mr Robert Hoadley (head of asset management at CLIL's managing agents) should also be admitted, and we looked at that, de bene esse, as well.
18. Mr Berkley submitted that, in the light of the analysis of Lewison J (as he then was) in Davy's of London (Wine Merchants) Limited v The City of London Corporation, [2004] EWHC 2224(Ch), at paragraphs 38 to 56, a court hearing an appeal in a case about the fixing of a new rent under Part II of the Landlord and Tenant Act 1954 had little alternative but to admit fresh evidence, because the relevant date for the purposes of determining the terms of the new tenancy was the appeal date, rather than the trial date, by reason of Section 64 of the Act.
19. I disagree. Quite apart from the fact that the fresh evidence in that case was fundamentally different, and of far greater consequence, than the supposedly fresh evidence in the present case, it was admitted and subjected to detailed cross examination before Lewison J by agreement: see paragraph 38. It is true that there are dicta, in particular in paragraph 48, which suggest that certain types of dispute as to the terms of a new tenancy might lend themselves to the ready admission of fresh evidence. In that case the dispute was about the insertion and detailed terms of a re-development break clause and, as the judge said, the dispute in that case therefore turned on an evaluation of future rather than past events.
20. In the present case by contrast, the issue arising on this appeal has nothing to do with future events. The question is whether the judge properly relied upon the historic Qahtani transaction as a comparable. No more recent comparables or evidence about market rent have been proffered by either side on this appeal, nor were they before Laing J on the first appeal.
21. In my judgment Laing J was entitled to reject Mr Youssef's three further statements for admission as fresh evidence, substantially for the reasons which she gave. The evidence that 159-161 Edgware Road continued to be unoccupied between January and August 2014 added little to the impact of its having lain vacant for sixteen months before that. The evidence that it looked dilapidated and uncared for adds nothing of substance to the fact that it remained unoccupied. True it is that its status as an unoccupied unit from January to August 2014 could not have been deployed at a trial in January 2014, but it was, as the judge rightly concluded, of no real substance as fresh evidence. It therefore did not satisfy the second of the three cumulative Ladd v Marshall conditions.
22. The point that the Al Qahtani company was registered as a dormant, non-trading company at Companies House could have been deployed at trial, and so failed the first of the three cumulative Ladd v Marshall conditions. Mr Berkley and Mr Berkin (both of whom addressed us on this point) were unable to suggest otherwise. The point about other tenants complaining that CLIL would be likely to rely upon Judge Faber's award in raising rents was of no evidential substance, nor particularly surprising. Finally, the point that there was no commercial sense in leasing premises as a fish shop for £400,000 per annum was equally available at trial, if it had substance.
23. I would add that, even if the fresh evidence, together with Mr Hoadley's voluminous evidence about the Qahtani transaction, were admitted and taken into account, it would add nothing of substance to Clear Call's case that the Qahtani transaction was a sham, suspicious or unreliable. Taken as a whole, the evidence shows that the transaction undoubtedly took place, there were negotiations prior to the undoubted grant of the lease. Rent was paid, either by the tenant or its guarantor, for a substantial period, and planning permission for a change of use (from retail premises to a gymnasium) was actively pursued, before a default in restoring the rent deposit after recourse had been had to it to make good rent arrears led to forfeiture in 2015.
24. Leaving aside the fresh evidence, there is nothing else of substance in this appeal which would lead me to the conclusion that Laing J was not both entitled to dismiss the first appeal and, indeed, correct in doing so, for the reasons which she gave.
25. I would therefore dismiss this appeal.

Lord Justice Sales:

26. I agree.

The President of the Family Division:

27. I also agree.