England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE COUNTY COURT AT SOUTHEND
ORDER OF HHJ VAVRECKA DATED 11th NOVEMBER 2016
COUNTY COURT CASE No B00SS441

		Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NL
		29/06/2017

Mr Justice Birss :

1. This is an appeal from the order of His Honour Judge Vavrecka sitting in the County Court at Southend dated 17^th November 2016 which dealt with the claimant's claim for an order under s14(2) of the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA). The order sought was to extend the lease on a flat owned by the claimant at 64A Park Road, Westcliffe-on-Sea, Essex to 999 years for no premium. The judge dismissed the claim.
2. The claimant's flat is on the first and second floors of the property at 64 Park Road. The defendant owns the lease on the ground floor flat. There are no other flats. In April 2007 the claimant and the defendant acquired the freehold interest in the entire building for £19,500 from the existing freeholder (Regis Group Ltd). This was a collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 ("the 1993 Act"). At the same time they both signed a Deed of Trust relating to the freehold. The claimant and the defendant are the two trustees and are also the two beneficiaries under the trust. The trust deed is a simple document which provides the co-owners hold the property in trust for each other as tenants in common in equal shares. The price was determined by a valuation report dated 18 July 2006. At all times the parties had legal advice although the solicitors file is not now available.
3. Seven years later the claimant asked the defendant to agree to a 999 year extension of her lease at a peppercorn rent. No agreement was reached and the action was started as a Part 8 claim.
4. Put briefly, the claimant's case was that the court had power to make the order under s14 of TOLATA and that under s15 of the Act relevant factors are the common intentions of the parties who created the trust and the purpose for which the property the subject of the trust is held. The common intention was to extend the lease. The claimant's purpose throughout the whole process was that she wanted to extend her lease and she would have discussed the 999 year lease with the defendant. Given the common intention of the parties creating the trust, this should be a powerful factor in the exercise of the court's discretion under s14. The order should be made.
5. The defendant vehemently opposed the relief sought. His case was that there was no power under TOLATA to make the order sought because it would radically diminish the value of the trust property (i.e. the freehold). As to the facts, he denied that prior to the transaction there were any discussions between himself and the claimant about granting 999 year leases. The defendant also pointed out that the claimant's request for the 999 year lease came in 2014, seven years after the purchase of the freehold.
6. The trial lasted one day before the judge. He heard oral evidence from both parties and the parties' submissions. Both sides were represented by counsel. Judgment was reserved and was given just over six months later.
7. The judge accepted the claimant's case that there was power under TOLATA to make the order sought; however when it came to the facts the judge preferred the evidence of the defendant to the claimant about what had been discussed before the purchase of the freehold. He rejected her case that the common intention was to freely grant new leases and accepted the defendant's evidence about the advantages in acquiring the freehold. Those were that the parties would be able to manage the property without Regis and would save on ground rent and insurance (judgment paragraphs 7.3-7.9). He held that the freehold and leasehold interests were entirely separate and that the Declaration of Trust was clear and simply set out the contract entered into by the two parties as regards their co-ownership (para 7.10-11). He held that the grant of a 999 year lease would impact the value of the trust asset (paragraph 7.12-7.13) and that the claimant had an alternative route open to her to extend her lease under s39 of the 1993 Act (paragraph 7.14). The judge declined to exercise his discretion to make the order under s14.
8. The claimant sought permission to appeal on a number of grounds. The main ground of appeal was an argument based on the fact that the purchase of the freehold had been made as a collective enfranchisement under the 1993 Act. As a result the purchase price was determined reflecting the "marriage value" (see below). Other grounds were raised, including a point on delay arising from the period between the hearing and judgment.
9. Permission to appeal was given by Nugee J on the basis that the collective enfranchisement / marriage value point had a real prospect of success. The judge also held that while the other grounds had less obvious weight it did not seem appropriate to limit the issues to be heard.
10. The respondent filed a Respondent's Notice in order to submit that there was no power under TOLATA to make the order sought. If that submission is right then the result below would be supported on that ground.
11. Before me the claimant was represented by Mr Boncey (who did not appear below) instructed by Jeffries Essex LLP while the defendant was represented by Mr Feldman (who did appear below) instructed by BTMK Solicitors Limited.

The arguments

12. The claimant's counsel took three points. His first and principal point is the one relating to the collective enfranchisement and marriage value. He submits that the judge failed to deal with this issue at all.
13. The claimant's case on common intention was said to be supported by the fact that the freehold had been acquired under the procedure of the 1993 Act. The price which had to be paid by the parties under that procedure was determined to a significant extent by the "marriage value" of the freehold. The marriage value reflects the value attributable to the effect of marrying together the leases with the freehold. It recognises the higher value of the freehold in the leaseholder's hands than it has in the original freeholder's hand. That arises because once they have acquired the freehold, the purchasing tenants can have new leases granted to them for no premium and for very long terms. Under the 1993 Act the marriage value is calculated by taking into account the ability to grant 999 year leases at a peppercorn rent. It is not the only factor determining the marriage value but it is an important one.
14. The claimant pointed out that the parties had agreed that a 60% share of the purchase price should be paid by the claimant, to reflect the fact the flats took up a larger portion of the property. However the parties had also agreed to a 50:50 split of the freehold title and the claimant argued that this was only rational because it was envisaged at the time of the purchase that the freehold had no value; which in turn supported her case that the intention on acquiring the freehold was to extend the leases substantially.
15. Therefore the claimant submits the judge's finding of fact on the common intention was plainly wrong and should be overturned. Even if that finding of fact cannot be challenged on appeal, the same 1993 Act/marriage value factor leads to the conclusion that the purpose of the trust was to facilitate the lease extension, and in any event even if that is not accepted, the same 1993 Act/marriage value factor is a relevant aspect of the circumstances to be considered in the exercise of the discretion under s14 of TOLATA. The claimant submits that since the judgment does not show that the judge took this factor into account, even on the high hurdle on appeal to review the exercise of a discretion, the appeal should be allowed and the order sought should be made.
16. The second, related, submission is that the judge was wrong to consider that the existence of an alternative remedy under different provisions of the 1993 Act as a factor in the defendant's favour. Consideration of that alternative procedure is said to be a factor which weighs in the claimant's favour because it would only produce a 90 year lease and it would require payment of a further premium. That premium is another form of marriage value (calculated under paragraph 4 of Sch 13 of the 1993 Act rather than paragraph 4 of Sch 6 of the same Act applicable to collective enfranchisement). Since the claimant had already in effect paid a price calculated by taking into account a 999 year lease extension when the parties bought the freehold in 2007, this alternative is not workable.
17. The third submission is delay. The claimant's counsel submits that following Bond v Dunster Properties [2011] EWCA Civ 455 and Langsam v Beachcroft [2012] EWCA Civ 1230, when a judge has delayed in giving his or her judgment for such a long period the approach to reviewing findings of fact is different from the normal question of whether the finding was "plainly wrong". In a case of delay, if the reviewing court finds that the judge's recollection of the evidence is wrong on any material point, then unless the error cannot be due to the delay a retrial must be ordered. The failure to deal with the marriage value as part of the consideration of common intention was a relevant material consideration and in the absence of any reasoning on it by the judge, the appellate court cannot be satisfied that had the judge considered it he would not have reached a different conclusion and there must be a retrial.
18. Also raised in the Appellant's Notice but not advanced further before me were grounds 3 (a point of fact on valuation), 4 (a complicated point about whether the freehold interest is married to the leasehold interest under the trust deed) and 5 (a point on beneficiaries). There is no need to consider those issues.
19. Aside from the issue on the Respondent's Notice about the power under TOLATA, the defendant's submissions before me supported the judge. Counsel argued that the judge made plain findings of fact which are unassailable. If they stand then they firmly support the defendant's case on common intention and the purpose of the trust with the result that the exercise of the discretion was clearly correct. In relation to marriage value and the way the original purchase price had been calculated the respondent pointed to the valuation evidence before the judge which explained how that was done (including the marriage value and 999 year lease) and pointed out that the judge referred to the valuation in his judgment. The defendant also submitted that the fact that seven years after the purchase the claimant may now believe she made a bad bargain because to acquire a lease extension of 90 years requires a premium to be paid, does not justify allowing the claimant to acquire a 999 year lease extension for no premium at all and deprive the trust property of any substantial value.
20. As for the delay, the judge's findings of fact were plainly right and Bond v Dunster Properties and Langsam v Beachcroft do not justify a retrial in this case.

Assessment

21. I turn to address the issues to be decided on this appeal.

Power to make the order

22. The relevant provisions of TOLATA which need to be considered are s6, s14 and s15. Under s6(1) of TOLATA the Act provides that for the purpose of exercising their functions, the trustees of land have all the powers of an absolute owner of the relevant land. Section 6(6) constrains the exercise of that power by providing essentially that it may not be exercised on contravention of any other enactment or rule of equity. While section 6 is concerned with the power of trustees, s14 is concerned with the power of the court. Under s14(2) the court may make any order as it thinks fit which relates to the exercise by the trustees of their functions. Under the same provision the court may also declare the nature and extent of a person's interest in the trust property. As Arnold J said in Kyaw v Claasen [2015] EWHC 3337 (Ch) at para 33 this provision gives the court a wide power.
23. Section 15 sets out factors which must be included in the factors the court is to have regard to. The relevant ones in this case are the intention of the creators of the trust (s15(1)(a) – which must be a common intention, see White v White [2003] EWCA Civ 924 at 22-23); and the purpose for which the property is held (s15(1)(b)). The section also refers to the welfare of minors and the interests of secured creditors but they are not relevant in this case. The list of factors in s15 is not exhaustive but the factors in the section must be included in the consideration, assuming they are relevant.
24. Now there is a difference between whether the jurisdiction or power to do something exists and whether, in the proper exercise of the relevant discretion, that thing should be done in any given circumstances. So in Bagum v Hafiz [2015] EWCA Civ 801, Briggs LJ (with whom the other members of the court agreed) upheld the first instance judge's conclusion that the court had no jurisdiction under TOLATA to make the order sought in that case at all. The order sought was to direct a beneficiary under the trust to sell their beneficial interest to another beneficiary. The court there held (paragraphs 17 - 18) that it was no part of the function of trustees of land to deal directly with beneficial interests whether by sale or otherwise, and hence no jurisdiction.
25. The court in Bagum also upheld the judge's decision to make a different order, directing sale of the property as a whole with one of the beneficiaries in effect having a right of first refusal. Sale of the trust property as a whole was something the trustees could do and so was something which could be ordered if it was appropriate. Where the position of the court and the trustees differed was that under s14 and s15, the court enjoyed a wider discretion than the trustees themselves. That could be seen from the factors in s15. The court's power was not constrained by the rules of equity provided pursuant to s6(6). This is addressed in paragraphs 23-24 of Bagum.
26. I was also referred to Harris v Black (1983) 46 P & CR 366 but it is not necessary to address that case to deal with the appeal.
27. In summary, the question of jurisdiction is answered by examining what the trustees could properly do. Whether it would be the right thing to do in a given case is a different issue.
28. The judge held that although in no case put to him could the powers in TOLATA be shown to have been used to make an order of the kind sought here, the powers were wide and the court could make the order in this case. I agree. Since s6 of TOLATA provides that trustees have all the powers of an absolute owner of the property and since the absolute owner can grant a new lease, so too can the trustees. Since trustees can do so, so, as a matter of jurisdiction, an order can be made by the court to that effect. The defendant's argument that the order would greatly diminish the value of the trust property assumes the correctness of its case on the facts. If the common intention of the parties (contrary to the defendant's case on the facts,) and the express purpose of the trust set out in the trust deed, had been to allow for the grant of 999 year leases at a peppercorn rent to the leaseholders, then the trustees could have done so and the court could have made an order to that effect under TOLATA. I reject the defendant's point taken via the Respondent's Notice.

Collective enfranchisement / marriage value

29. The judge addressed the particular facts of the case starting from paragraph 7.2 of the judgment. He focussed first on the intentions of persons who created the trust under s15(1)(a) and rightly held it had to be a common intention (paragraph 7.3 – 7.4). At paragraph 7.5 the judge referred to paragraph 15 of the claimant's skeleton argument before him. He described the claimant's case as that "she 'asserts she positively discussed' being able to freely grant new leases without any further penalty or premium." The quoted submission is from paragraph 15 of the claimant's skeleton argument below. The judge then held as follows (paragraph 7.6):

"Having heard the parties and considered the available evidence, I do not accept the claimant's evidence that 'she would have discussed the 999 year leases'. She asks me to infer that it was in some way the common intention of the parties that the lease be extended in the way now sought. However, I cannot find any evidence to corroborate the suggestion that the claimant and the defendant discussed the possibility of agreeing to 999 year leases. I was shown a large number of emails that passed between the parties and there is no suggestion within any of these discussions between the claimant and the defendant at the time of the trust deed being prepared and signed."

30. Whether the parties had discussed the issue between them was the most important factual question the judge had to decide in this case. He rejected the claimant's evidence and gave reasons for doing so. The emails the judge referred to numbered about 60. None of them mention the point.
31. Next the judge turned to the defendant's evidence and in paragraph 7.7 he accepts the defendant's account, referring to "in particular his [the defendant's] clear evidence about the discussions that took place at the time, which is consistent with the written material from the time". The judge recognised another point made in paragraph 15 of the claimant's skeleton argument below, that was the suggestion that the defendant did not point to any positive reason in his evidence for entering the arrangement. The judge rejected that too, explaining that he (the judge) has accepted the defendant's evidence that there would be considerable advantages in acquiring the freehold, particularly being able to manage the property without the involvement of Regis and in relation to savings on ground rent or insurance.
32. Then in paragraph 7.8 the judge gives further reasons for his conclusion on the facts, noting that the parties had the benefit of legal advice at the time and if the claimant sought at that time a 999 year lease at a peppercorn rent then that would have been what she asked for at the time the freehold was purchased, but she did not. In the same paragraph the judge also refers to the seven year period between the purchase and the claimant's request.
33. At paragraph 7.9 the judge concludes:

"So far as the central part of the claimant's argument, I do not accept that there was a common intention to extend the lease for the 999 years as now claimed."

34. This is a finding of primary fact on a matter on which the parties gave contradictory accounts.
35. It is true, as the claimant contends, that the judge's reasoning does not address in terms the 1993 Act collective enfranchisement/ marriage value point and the way the price for the freehold had been calculated. However looking at this from the point of view of Bond v Dunster Properties and asking if this indicates that the judge's recollection of the evidence is wrong in any material point, I can see no foundation for that submission. The key evidence the judge had to grapple with was the claimant's evidence that granting new leases had been discussed between the parties. The judge addressed that evidence head on and found it had not been.
36. That factual issue was a simple question of whether something was or was not discussed between the parties. One person said it was and the other said it was not. The 60 odd emails passing between them which did not mention it, the fact the parties had professional advice but it was not mentioned, the seven year gap in time and the defendant's "clear evidence about the discussions" are ample evidence to support the judge's finding. The 1993 Act/marriage value point was an inferential point at best but the judge had much stronger pieces of evidence to weigh up and consider.
37. It also bears observing that the judgment in this context refers expressly to paragraph 15 of the claimant's skeleton argument before him. That paragraph starts with the very point made by the claimant on appeal that the 1993 Act and the Parliamentary intention to be inferred from it is that tenants should be able to purchase the freehold in order to freely grant new leases. So the judge clearly had the point before him (and the next paragraph in the same skeleton argument, paragraph 16, refers to the related point about the 60:40 split of the purchase price). The fact the judge did not mention either of these points in the paragraphs I have referred to in which he made this central finding of fact does not justify overturning the crucial finding of fact since, in the light of everything else, both the lease extension and the 60:40 split are very weak points. That is true for each individual point and taking them together. Their absence does not indicate that the findings are plainly wrong.
38. In my judgment the judge was entitled to make the findings he did on common intention. Moreover no retrial on a Bond v Dunster basis is justified.
39. The claimant's counsel also submitted that although the judge rejected the claimant's case on common intention, he did not find as a fact what the common intention of the parties actually was. He simply made no finding on the point. I do not agree. It is true that in 7.9 the judgment focusses on rejecting the claimant's version of events and does not go further, but that is because this point was central to the claimant's case, as the judge recognised. In paragraph 7.7 the judge accepts the defendant's evidence. Although it is not spelled out, as I read that paragraph the judge is there accepting that the ability to manage the property without Regis and the ability to save on ground rent represent the common intentions of the parties in acquiring the freehold.
40. The claimant's counsel submitted that saving ground rent and an ability to manage could not be the intention behind acquiring the freehold and setting up the trust because removing Regis from managing the property could be arranged in another way more cheaply and the saving in ground rent did not justify the cost of the freehold. There is nothing in this point however because the judge's approach in paragraph 7.7 of the judgment was to accept the defendant's evidence that these two aspects represented considerable advantages. It is not suggested before me that the judge was wrong in identifying that this was indeed the defendant's evidence. It may be that in truth the advantages referred to were not as considerable as all that (e.g. because management could have been obtained more cheaply in another way), but that does not matter. The defendant's evidence was what the judge thought it was and the judge was entitled to accept it.
41. The claimant's next submission was that even if the finding of fact on common intention could not be overturned on appeal, the collective enfranchisement/marriage value point could and should be taken into account when considering the purpose of the trust, which arises under s15(1)(b).
42. As I mentioned at the outset the judge dealt with the declaration of trust in paragraph 7.11, finding it simple and clear. I agree. It does not recite any specific purpose. The judge did not make a specific finding about what the purpose of the trust was, no doubt because he regarded it as obviously not adding anything, given his findings about common intention. I can see no basis on which a purpose relating to extending the lease for no premium could be read into the terms of the declaration of trust by implication. Counsel suggested that such a purpose could be in effect imputed to the trust by the circumstances but on the facts found by the judge I cannot see how. I reject that submission.
43. Finally Counsel for the claimant submitted that even if the lease extension purpose was not part of the parties' intention under s15(1)(a) nor the purpose of the trust under s15(1)(b), nevertheless the point was still relevant in an overall exercise of the court's discretion, which is not limited by the terms of s15.
44. Here I think the claimant is on somewhat firmer ground. Going as far as taking account the argument that a lease extension is what the claimant wanted in the first place, as the judge understood (see e.g. judgment para 2.2), would not be appropriate since intentions have to be common intentions to fall within s15(1)(a) (White v White). Nevertheless it is a fact that the price paid by the parties together was determined to a substantial degree by the marriage value calculated by reference to the possibility of a 999 year lease extension at a peppercorn rent under the 1993 Act. It is also a fact that the claimant paid 60% of the price but acquired only an equal share of the freehold interest. These two points do form part of the background of fact which led to the purchase and to the trust. Moreover the claimant can point out that they are not something the judge refers to expressly in the section of the judgment dealing with discretion.
45. However I reject this aspect of the claimant's case as well. Although the judgment does not spell out the basis on which the valuation was reached, the judge clearly recognised that the purchase was a collective enfranchisement under the 1993 Act with a price of £19,500 based on a valuation in that context (judgment paragraphs 2.2-2.4). The judgment refers to the valuation report at paragraph 2.4. As the defendant's counsel submitted that report explains the calculation of marriage value using the 999 year lease. Given the references to the valuation report in context and overall, I am sure the judge had it in mind.
46. I am not surprised that the judge did not refer to valuation again in the section of the judgment on discretion because given the vital importance of the finding on common intention, it would have been a matter of little weight in the overall balance based on the facts as he found them.
47. A freehold which had not been bought with the express purpose (or common intention) of leading to a grant of a lease extension would obviously be diminished in value if a 999 year lease was granted for no premium, as the judge found in paragraph 7.13. That was the reason the defendant did not want to grant the lease to the claimant (paragraph 7.12). That is a strong reason on the facts not to exercise the discretion in favour of the claimant and it is not outweighed by the fact that seven years earlier, the way the price for the freehold was calculated in the first place was based on a legal test which involved considering a 999 year lease.
48. Now I can see that if the intention in setting up the trust had been, as the claimant contended, to grant 999 year leases then the extension was always what was intended to be done and so granting such an extension would not diminish the value of the freehold since it would always have been subject to that grant. The way in which the price was calculated might well have played a part in that consideration on those alternative facts but the problem for the claimant is that the judge did not accept her version of the facts.
49. The judgment does not mention anywhere that the claimant paid 60% of the price but acquired an equal share. Unlike the wider issue of valuation, it is not possible to infer that the judge had it in mind at all but I am not persuaded this is a significant omission. Given everything else, it would not have made any difference to the outcome.
50. The final point raised by the claimant is that the judge erred in regarding the alternative route open to the claimant to obtain a 90 year lease as a factor weighing against the exercise of the discretion in her favour. The claimant submits the judge was wrong because the alternative, in which only a 90 year lease is available and a premium has to be paid, is materially worse than a 999 year lease at a peppercorn rent.
51. However the judge's point was not concerned with the fact that the extension available was comparable either in term or price to what the claimant wanted the court to direct under TOLATA. The judge simply recorded, correctly in my judgment, that an alternative route to a 90 year extension was available and it would not be unreasonable for her to use that procedure. The claimant's argument effectively assumes the correctness of the claimant's primary case on the facts, which failed, i.e. that the parties' common intention really was to grant 999 year leases at no premium. If that had been correct then no doubt using an alternative route, which could only produce a much shorter lease and only by paying for it, would indeed have been unreasonable. But the claimant's case failed on its major premise.
52. I have considered the claimant's various points separately and rejected them. Standing back and looking at them as a whole, I am un-persuaded that they amount to anything material in the exercise of the judge's discretion on the facts as he found them to be. There is no proper basis in this case to challenge the exercise of the judge's discretion on appeal and I will dismiss this appeal.