England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Birmingham Civil Justice Centre Bull Street, Birmingham B4 6DS
		4 August 2010

HHJ David Cooke :

1. This appeal raises a question in relation to the renewal of business tenancies under the Landlord and Tenant Act 1954 on which there is no direct authority at the level of the High Court or above. I am told that it has arisen in various other cases in the County Court, some of which are awaiting this decision. The point is this: where a landlord opposes the renewal of a tenancy on the grounds that it is his intention to redevelop the property, he must show that the requisite intention exists at a time which is determined by reference to the date of the trial of that ground of opposition. If the tenant does not wait for a trial but applies for summary judgment, is he entitled to that judgment if he can show that the landlord has no real prospect of establishing the requisite intention at a date determined by reference to the date of the summary judgment hearing, rather than the date of a prospective trial which may be many months into the future? If so, such an application would be a very valuable tactical weapon for a tenant since it would greatly reduce the time available to a landlord to formulate and put in place his proposals for the redevelopment.
2. The claimant in this case is the tenant under three leases of a supermarket and adjoining land in Sutton Coldfield. The leases expired in March 2008. The defendant is the landlord, having acquired the freehold in September 2006 with the intention of redeveloping the site. In 2007 the tenant served on the landlord notices under section 26 of the 1954 Act requesting new tenancies, which were met by counter notices stating that the landlord would oppose the grant of the new tenancies on the ground set out in section 30(1)(f), namely:

"that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding"

3. The tenant then made an application to court for the grant of the new tenancies it sought, and on 11 February 2008 an order was made for trial of the ground of opposition as a preliminary issue. Directions were given with a view to a two day trial in June or July 2008. It appears the parties did not adhere to the directions timetable, preferring instead to negotiate. On 27 February 2009 the landlord went into administration. The tenant promptly applied for permission to continue the proceedings pursuant to paragraph 43(6) of schedule B1 to the Insolvency Act1986, which permission was granted by HHJ Purle QC on 12 June 2009. A further directions timetable was set, this time with a view to a trial between March and May 2010, but rather than wait for that trial, the tenant made an application for summary judgment dismissing the ground of opposition, by notice dated 22 July 2009. That application came before District Judge Sheldrake on 27 October 2009, when he dismissed it with costs. In his judgment (at paragraph 9) Judge Sheldrake held that the tenant was required to establish clearly that the landlord would not be able to make out the ground of opposition either at the date of the summary judgment hearing or within a reasonable time thereafter, and that the tenant had failed to satisfy that test. In view of the novelty of the point the District Judge himself gave permission to appeal.
4. There was no dispute between counsel as to the framework provided by the 1954 Act in these cases. As to the quality of the intention the landlord must show, Mr Wonnacott referred me to the following extract from Woodfall, no doubt with a nod to Mr Dowding as one of the editors of that work:

"22.106 It is not sufficient for the landlord merely to assert that he "intends" since he may change his mind once he gets possession. An intention connotes that the landlord does more than merely contemplate; it connotes a state of affairs that he decides, so far as in him lies, to bring about, and which, in point of possibility he has a reasonable prospect of being able to bring about, by his own act of volition; the landlord does not "intend" if he has too many hurdles to overcome or too little control of events. The intention must be genuine and not colourable; it must be firm and settled, not likely to be changed. It must have moved out of the zone of contemplation - the sphere of the tentative, the provisional and the exploratory - and have moved into the valley of decision.

Thus the landlord's intention is composed of two main ingredients; a fixed and settled desire to do that which he says he intends to do and a reasonable prospect of being able to bring about the desired result."

I should say that Mr Dowding is not responsible for the slightly perplexing mixture of zones, spheres and valleys in that extract; the phrase is taken from the judgment of Asquith LJ in Cunliffe v Goodman [1950] 2 KB 237.

5. Ground (f) requires that the necessary intention is one to redevelop "on the termination of the current tenancy". Section 64(1) of the 1954 Act has the effect that where an application has been made to the court for the grant of a new tenancy, the termination of the existing tenancy is postponed until "the expiration of the period of three months beginning with the date on which the application is finally disposed of". By section 64(2) an application is treated as finally disposed of on "the earliest date by which the proceedings on the application (including any proceedings on or in consequence of an appeal) have been determined and any time for appealing or further appealing has expired…". That date was referred to as "the section 64 date".
6. Mr Dowding submitted, in my view correctly, that at a trial of the landlord's ground of objection the court would have to consider matters on the footing that the section 64 date would be three months and 21 days (the period allowed to appeal) after the conclusion of the trial; i.e. the trial judge would have to assume that the landlord's objection would succeed and that there would be no appeal. The landlord would have to show at trial both that he had by then formed the necessary firm subjective intention and also that he had a reasonable prospect of being able to commence the implementation of that intention on or at least within a short period after the section 64 date, as determined on the basis of those assumptions.
7. The proposition that the landlord's subjective intention must have been formed by the date of the hearing of the landlord's opposition, and not at any earlier date (such as the date on which he served his counter-notice) was established by the decision of the House of Lords in Betty's Cafes Limited v Phillips Furnishing Stores Limited [1959] AC 20. Viscount Simmonds held that the relevant date for proof of the required intention was the date of "the hearing", saying this at page 35:

"At the hearing [the landlord] will oppose and prove his avowed intention. This seems to me, with all deference to those who take a different view, to be the plain English of section 26(6) and section 30(1)(f). I have already pointed out that it appears to accord also with the general purpose of the Act. It harmonizes also with the language of section 31(1) which contemplates the landlord satisfying the court upon any of the grounds upon which he is entitled to oppose the application."

Lord Somervell agreed with Viscount Simmonds. Lord Morton expressed a similar conclusion at page 41:

"Section 26(6) provides that the landlord's notice of opposition "shall state on which of the grounds mentioned in section 30 of this Act the landlord will oppose the application." The words "will oppose" must surely refer to some date after the delivery of the notice in which the landlord states the ground on which he "will oppose" the tenant's application. And, in my view, that date can only be the date when the opposition of the landlord is heard by the High Court or the county court, as the case may be."

Lord Denning also agreed in the result, saying this at page 51:

"Provided, however, that the notice is a good and honest notice when it is given, then it is clear to my mind that the ground stated therein must be established to exist at the time of the hearing...

To succeed [the landlord] must satisfy the trial judge that, at the time when the court comes to make its order, he is then willing to provide alternative accommodation, or then intends to reconstruct, or as the case may be…

In short, it comes to this: the landlord must honestly and truthfully state his ground in his notice and he must establish it as existing at the time of the hearing."

Lord Keith dissented.

8. The question of what constituted the relevant hearing was considered by Megarry J in Dutch Oven Ltd v Egham Estate and Investment Co. Ltd [1968] 1 WLR 1483, when he approved an application that the landlord's ground of opposition be tried as a preliminary issue. Only if the landlord failed to establish his ground would the court then need to go on to address matters relating to the terms of any new tenancy. He held that the relevant hearing for the purpose of establishing the landlord's intention was the hearing to determine the preliminary issue and that if he failed on that occasion, so that a further hearing became necessary to determine the terms of a new tenancy, the landlord could not have a second bite of the cherry and seek to establish that his intention had been made good by the date of the later hearing.
9. The question in this case could not have arisen prior to the introduction of the CPR in 1999, because until then it was not possible to apply for summary judgment in these cases. Now that it is, Mr Wonnacott submits that the hearing of such an application must be regarded as being similar to the hearing of a preliminary issue. In his argument, he used the expression "final hearing", although that was not the expression used by any of their Lordships in Betty's Cafes, and submitted that although the determination of a summary judgment application is not normally regarded as a final hearing (because it does not necessarily determine the matters at issue whichever way the application is decided, see Tanfern Ltd v Cameron-Macdonald [2000] 1 WLR 1311) it could be the final hearing, in the sense that it would in fact dispose of the landlord's grant of objection, if it were the tenant's application and if it were successful. If the tenant was unsuccessful, of course, there would have to be a further hearing at which the landlord's objection would be considered and decided upon.
10. In my judgment, this proposition runs counter to the essential nature of the summary judgment jurisdiction, which is to determine whether a party has a real prospect of establishing his cause of action (or defence as the case may be) at a future trial date. In most cases of course the facts relied on will have occurred at some previous date, so the issue at the summary judgment hearing in relation to those facts will be whether there is a real prospect that the evidence available at trial will be sufficient to establish that the alleged facts had already occurred. The "real prospect" test is a forward-looking one (as the word "prospect" itself implies), and means that the court is entitled to have regard to evidence that may realistically be expected to emerge between the date of the summary judgment hearing and the trial itself. But, crucially, the substantive nature of the cause of action (or defence) is not affected by the fact that the matter is considered at a date earlier than the trial itself.
11. No doubt the jurisdiction in issue in the present case is an unusual one, in as much as the fact to be proved (ie the formation of the necessary intention) is one which is required to exist at the trial, and not one which is required to be shown to have existed at some date in the past. The court can ask itself on a summary judgment application whether, looking forward, the landlord has a real prospect of forming, and proving that he has formed, the requisite intention at an anticipated trial date. It would however fundamentally change the substantive issue to be determined if the court were required to ask itself not whether the relevant intention is reasonably likely to be formed by the date of a future trial, but whether it already exists.
12. Indeed it seems to me that pursuing Mr Wonnacott's proposition leads to a number of absurdities arising from its essential circularity of reasoning. The circularity is that the summary judgment hearing is only "final", in the sense that it is the last hearing, if (on a tenant's application) the landlord has no real prospect of establishing the existence of the necessary intention. The date at which he must show a real prospect of establishing that intention is only the date of the summary judgment hearing if it is first assumed that the tenant's application will succeed. Thus the requirement on the landlord to establish a "real prospect" at the summary judgment hearing only arises if it is first assumed that he will fail to do so.
13. If the question is, as Mr Wonnacott submits, to be considered by reference to the date of the summary judgment hearing, what can be meant by the expression "real prospect of succeeding" in CPR 24.2? Either the court would be asked to determine whether the evidence available at the date of the summary judgment hearing was sufficient to show that the necessary intention already existed, or it would be required to ask itself whether at some future trial date the evidence by then produced would be likely to be sufficient to establish the existence of the necessary intention at the date of the earlier summary judgment hearing.
14. If the hearing proceeded along the former lines, the court would not be considering a "prospect" at all but making a finding of fact as to whether the requisite intention existed or not. Evidence at a summary judgment hearing is normally in written form and considered without cross-examination, which would not be a suitable method of making determinations of contested fact.
15. If the hearing proceeded on the latter basis, assuming the landlord got over the "real prospect" hurdle there would have to be a further hearing at which the landlord's ground of objection would still be in issue, and at which witnesses would be called and cross-examined, and the question would then arise whether the evidence was required to show that the necessary intention existed at the date of the summary judgment hearing, or the later hearing. In this respect, the position would be different from that considered in Dutch Oven, because the trial of the landlord's ground of objection as a preliminary issue, as considered in that case, would mean that barring any appeal there could be no further hearing at which that ground was still in issue.
16. At any such further hearing, if the court were considering whether the necessary intention was shown to have existed at the previous summary judgment hearing, that would mean that the substantive issue for determination by the court had changed merely by virtue of the fact that an application (necessarily unsuccessful) had been made for summary judgment. If the court were instead to consider whether the evidence then showed that the necessary intention existed at the date of the later hearing, that would mean that the substantive question being tried was no longer that on which the landlord had been required to demonstrate a real prospect of success at the summary judgment hearing.
17. In my judgment, much the preferable view is that the date of the hearing at which the necessary intention must be shown to exist is always the date of the substantive trial of the landlord's ground of objection. This accords with the passages from the judgment in Betty's Cafes that I have set out above; it seems to me plain that in all those extracts what is envisaged is a hearing at which evidence is tested and facts found for the purpose of a final determination one way or the other of the landlord's ground of opposition. It is consistent with the decision in Dutch Oven because the hearing at which the landlord's ground of objection is determined as a preliminary issue is a hearing of that nature. A summary judgment hearing on the other hand is not; no determination is made of any facts in dispute, and it can only result in the substantive issue coming to an end if the decision goes one way; e.g. if it is the tenant's application, if that application is successful.
18. It follows that at any summary judgment application in question to be considered is whether, looking forward to the anticipated date of trial, the landlord can show a real prospect of being able to establish the necessary intention at that future date. Insofar as it is necessary to show a reasonable prospect of being able to commence work by reference to a particular date, that date would also have to be determined by reference to the anticipated date of trial.
19. Mr Dowding points out a further logical difficulty which would arise if the tenant's submission were correct. If the court at a summary judgment hearing were considering (on a tenant's application) whether the landlord held the necessary subjective intention at the date of that hearing, logically it would have to be an intention then existing to commence work three months and 21 days after the date of that hearing. But the landlord would never be in a position to have possession and to commence work by that date, because even if the landlord were successful at the summary judgment hearing that would not result in the immediate dismissal of the tenant's application for a new tenancy. Instead, it would go on to a later hearing at which the landlord's ground of objection would still have to be finally determined. It would be absurd to consider at the summary judgment hearing whether the landlord then had an intention, but only to commence work at a much later date after the inevitable further hearing.
20. Finally, I should say that it seems to me that the interpretation the tenant contends for would introduce an unnecessary opportunity for the adoption of artificial tactics in an area of litigation which is, in my experience, already regarded by commercial parties as a costly tactical adjunct to their negotiations. It may be said that the present regime in which the landlord has all the time up to the final hearing to formulate and put in place his plans is somewhat favourable to the landlord, but that is what is determined by the decision of the House of Lords in Betty's Cafes to have been the intention of Parliament. If it were open to the tenant to bring forward the date at which the intention must be formed by the simple expedient of putting on a summary judgment application, I have no doubt that the application would be made in virtually every case. This would either result in a transformation of the present balance to one which was strongly in favour of the tenant (which no doubt some may regard as desirable, but would be a wholly unintended consequence of the procedural changes introduced by the CPR) or it would lead to increased costs with the parties fighting such applications, only in many cases, to have to conduct essentially the same fight all over again at the final hearing. In my view, if the tenant has concerns that the landlord is unreasonably dragging things out in the hope of being able to put together a workable development proposal by the date of the final trial, the remedy is to proceed expeditiously with the directions timetable fixed by the court, and make any applications necessary to hold the landlord to it so that the trial comes on in good time.
21. The result is that I would dismiss the appeal and uphold the decision of the District Judge, although for reasons that I have expressed differently from those he gave.