England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		7 Rolls Building Fetter Lane London EC4A 1NL
		31 July 2018

1. MR JUSTICE BUTCHER: This is an appeal from a decision of Mr Recorder Cohen QC (to whom I will refer as "the Judge") of 4 May 2018. The Judge delivered his judgment after a two-day hearing of the Respondent's (which I will call "CGML") claim for possession of Ingestre Court 2, London, W1F 0JL (which I will call "the Property"). CGML's claim was that the Property was occupied by the Appellant (to whom I will refer as "Mr Khoo") pursuant to a licence which had been determined by a notice which was served on 11 September 2017, that Mr Khoo was now a trespasser and that CGML was entitled to an order for possession. Mr Khoo's case was that he was occupying the Property not pursuant to a licence but to a tenancy, which took effect as an assured shorthold tenancy, of one room and two storage rooms at the Property.
2. The Judge held in favour of CGML, and made an order for possession. In the course of his judgment, the Judge said at paragraph 23 that Mr Khoo had not just de facto exclusive possession of a single room and storerooms but that he had a right to that exclusive possession. Nevertheless, the Judge considered that the arrangement under which Mr Khoo was in occupation of the Property was not a tenancy at all but was accurately described as a licence (paragraph 29).
3. Mr Khoo was granted permission to appeal against the Judge's order by May J, who ordered the appeal to be expedited and stayed the order for possession until the determination of the appeal. CGML has served a Respondent's Notice. In it, CGML contends that the Judge was wrong to conclude that Mr Khoo had a right to exclusive possession of any part of the Property. The Respondent's Notice also sets out further matters, which it describes as "special circumstances which negated the creation of a tenancy", as additional grounds supporting the Judge's decision. I heard the appeal yesterday and, in view of its urgency, have given judgment today. Mr Khoo was represented by Mr Edward Fitzpatrick and CGML by Ms Kerry Bretherton QC. I am grateful to both counsel for their submissions.

Outline of Essential Facts

4. As the Judge recorded, most of the background facts are almost wholly uncontentious. What follows is a summary. I will return to certain features of the facts when considering the issues and the circumstances surrounding the conclusion of the agreement between the parties and the issues of pretence.
5. CGML is part of a group of companies (which I will call the "Camelot Group") which, at all material times, carried on business providing security services to property owners for the protection of temporarily vacant property. It did this by sourcing what were described as "property guardians" to occupy the relevant vacant property. CGML manages the properties that are occupied by guardians. One of the properties managed by CGML is the Property.
6. The Property is office space not designed for residential accommodation. The freehold owner of the Property is the Lord Mayor and Citizens of the City of Westminster (which I will call "Westminster City Council"). On or about 9 April 2015,

Westminster City Council entered into a contractual agreement with a member of the

Camelot Group of Companies which granted a right of possession of the Property to that company to secure the Property against trespassers and to protect it from damage. That agreement contained, among other provisions, a requirement that the Camelot entity should arrange for suitable guardians to occupy the Property under licences, to arrange for regular inspections of the Property and to ensure that Westminster City Council can inspect the Property at all reasonable times.

7. That agreement, which appears to have been in standard terms, contained a provision that it could be determined by Westminster City Council on not less than five weeks' notice to Camelot. However, it also provided that, if there were an inconsistency between the standard terms and the offer letter relating to the particular premises concerned, the terms of the offer letter would prevail. The offer letter in relation to the Property specified that the notice period was of one week "after which the Property will be delivered clean and empty on the next Monday morning".
8. As I have said, CGML manages the Property and it entered into a number of agreements with property guardians to occupy the Property. One of the guardians with whom it entered into an agreement was Mr Khoo. Mr Khoo had previously been a guardian at a different property managed by CGML, White Knight Laundry, from August 2014 to December 2015. On 17 December 2015, Mr Khoo was invited to view the Property by Mr Jason Greer, the Property manager. He then entered into an agreement with CGML. I will refer to that agreement as "the Agreement". It is in writing and it is dated 22 December 2012. In the Agreement, Mr Khoo is referred to as "the Guardian".
9. The terms of the Agreement are of importance and they include the following. Under the heading, "Licence agreement" on the first page, an "Important Note" is set out as follows:

"This constitutes as an agreement under which Camelot Guardian Management Limited agrees to let you share living space in a building. You will not get a right to exclusive occupation of any part of the living space.

The space will be shared with other individuals who Camelot permits to share the space. You will have to agree with those other individuals how the space is to be used. The extent of this space may vary from time to time as directed by Camelot. However, there will always be at least one room for each individual or couple sharing the space.

The House of Lords has held that this sort of sharing agreement does not create a tenancy (see AG Securities v Vaughan [1991] AC 417). You will therefore have to vacate the building as soon as the agreement is terminated.

Our terms and conditions contain important rules about how the building is to be occupied and used. By signing this document, you agree to keep those rules. Please do not sign this agreement unless you have read our terms and conditions.

Licence between Camelot Guardian Management Limited (1) and your name, Heiko Khoo (2). Licence for non-exclusive shared occupation of premises at Ingestre Court 2, London, W1F 0JL ...

signed by the parties on the date inserted as the date of this agreement.

By signing this agreement, you agree to keep the rules that are set out in this agreement. Please do not sign this agreement unless you have read it. By signing this agreement, you acknowledge that: you have read it; the living space will be shared with other persons; you are not being given exclusive occupation of any part of the Property; you have inspected the living space as currently designated and found it in good condition and working order and satisfactory [and then a space for signatures]."

10. There then followed a page of financial calculations which indicated that Mr Khoo was a transfer guardian, which was because he had previously been a guardian at a different property. There then followed the Camelot Property Management terms and conditions. In those terms and conditions, there was no actual definition of the Property but it is apparent from the terms of the Agreement that the Property contained and was not confined to the Living Space. It is implicit in the Agreement that the Property is Ingestre Court 2. The term "Living Space" was defined as:

"Such part or parts of the Property as CGML may from time to time designate as being available for the shared residential use of the Guardian and other persons."

11. There then followed a number of clauses to which it is necessary to refer. Clause 2 is headed, "Background" and it provides:

"2.1. CPML provides services to property owners to secure premises against trespassers and protect such premises from damage, among other things, and has agreed to provide such services to the Owner in respect of the Property.

2.2. To assist CPML in providing those services, the Owner has agreed that, during the period set out in CPML's agreement with the Owner, CPML may grant permission to Camelot to enter into licence agreements with persons who will share accommodation in the Property.

2.3. CPML has given Camelot permission to grant temporary nonexclusive licences to persons selected by Camelot to share occupation of such part or parts of the Property as Camelot may from time to time designate on terms which do not confer any right to the exclusive possession of the Property or any part of it.

2.4. Neither CPML nor Camelot are entitled to grant possession or exclusive occupation of the Property or any part of it to any person ..."

12. Clause 3 then provided, under the heading, "This is not a tenancy":

"3.1. This agreement does not give a right to exclusive possession to the Guardian of the Property or any part of the Property.

3.2. As a result, the Guardian accepts that this agreement does not create a tenancy of any kind and that, on termination of this agreement, the Guardian will have no right to stay in the Property."

13. Clause 4 is headed, "Permission to share the living space." It includes the following provisions:

"4.1. Camelot gives the Guardian permission to share the occupation of the Living Space with such other persons as Camelot may from time to time designate, provided that there is always enough Living Space to provide at least one room for each of the Guardians who are authorised to share the Living Space.

4.2. This permission is personal to the Guardian; it may not be assigned.

4.3. This permission will last for the licence period or until termination of this agreement if that happens before the end of the licence period.

4.4. Camelot may alter the extent and location of the Living Space within the Property at any time on reasonable notice provided that there is always enough Living Space to provide at least one room for each of the Guardians who are authorised to share the Living Space.

4.5. This agreement does not give the Guardian a right to use any specific room within the Living Space. It is for the Guardians for the time being to decide where each Guardian is to sleep subject to the terms of this agreement. However, Camelot must be kept informed of which room each of the Guardians are sleeping in within the Living Space. This is to enable Camelot to manage the Property in accordance with its obligations to CPML. For example, if Camelot finds that someone has been smoking in a room, Camelot needs to be able to identify the person sleeping in that room so as to take appropriate action.

4.6. Within 24 hours of signing of this agreement, the Guardian must inform Camelot which room the Guardian will be sleeping in. If there is any subsequent change in the room which the Guardian is sleeping in at any time, the Guardian must inform Camelot immediately ..."

14. Clause 10 of the Agreement contained a number of provisions as to the use of the Property by the Guardian. They included the following:

"10.5. The Guardian will not hold meetings, parties or other similar gatherings in the Property.

10.6. The Guardian will not permit any other person (other than other Guardians) to stay overnight in the Property.

10.7. The Guardian will not invite more than two guests at any one time to visit the Guardian at the Property. The Guardian will ensure that guests are not left unsupervised in the Property at any time and will always escort guests off the Property when their visit comes to an end.

10.8. The Guardian will not allow any former Guardian whose licence has been terminated access to the Property ..."

15. Under clause 11, there were provisions as to use of the Property, containing other obligations. Those included the following:

"11.1. The Guardian will use the Living Space as a place for the Guardian to live in and not, without Camelot's prior written consent, sleep away from the Living Space for more than two nights out of any seven. Camelot's normal practice is to give such written consent when Guardians wish to travel for up to four weeks a year provided that Camelot is given reasonable advance notice, but Camelot is under no obligation to give such consent ...

11.3. The Guardian will do their best to ensure that either they, or at least one other person, are present in the Property for at least one hour in every 24 hours.

11.4. The Guardian will do their best to share the Property amicably and peaceably in common with such other persons as Camelot shall from time to time permit to make use of the Property. The Guardian will not interfere with such occupation in any way whatsoever ..."

16. After the making of the Agreement, Mr Khoo went into occupation of the Property. CGML entered into other similar agreements with other property guardians. It is said in Mr Fitzpatrick's skeleton argument that initially six rooms were occupied but the numbers went up to some 11 rooms with 14 residents. In about August 2017, Westminster City Council indicated to CGML that it would shortly need the Property back in order to start plans for redevelopment. On 11 September 2017, CGML served a notice to determine on Mr Khoo, which gave him notice that his licence was to terminate on 11 October 2017. Mr Khoo has remained in occupation since. By the time the possession claim was heard, he was, as I understand it, the only person in occupation.

Matters Not in Dispute

17. There is agreement between the parties:

(1) that, if Mr Khoo was a tenant, then the tenancy was an assured shorthold tenancy;

(2) that, if Mr Khoo was an assured shorthold tenant, that tenancy had not been determined;

(3) accordingly, that, if Mr Khoo was a tenant rather than a licensee, the claim for possession should be dismissed.

The critical issue is thus whether there was a tenancy or a licence.

Tenancy or Licence: The Law

17. I was referred to a number of well-known authorities in relation to the distinction between a tenancy and a licence and the court's approach to determining whether a particular arrangement was one or the other. In short summary and insofar as relevant for present purposes, the position as to the existence of a tenancy is as follows:

(1) If an agreement confers exclusive possession of residential premises for a fixed or periodic term certain in consideration of a premium or periodical payments, then, subject to what follows, there is a tenancy (Street v Mountford [1985] 1 AC 809 at 818E-F and 827A-B per Lord Templeman).

(2) There are exceptional cases in which, even though there has been a grant of legal exclusive possession, the circumstances show that that right is referable to a legal relationship other than a tenancy (Street v Mountford at 821A-C and 827A-B) and it was common ground before me that the categories of such exceptional cases are not closed.

18. In determining whether an agreement creates a tenancy or a licence, the approach of the courts is, as I understand it, as follows:

(1) The court will begin by construing the agreement between the parties to consider whether it creates a tenancy, including in particular construing it to see whether it confers a right to exclusive possession (Street v Mountford at 819D-G and 825C).

(2) In the process of construction, the court will consider the words used in the document in its context by reference to its subject-matter and in light of other relevant circumstances known, or which may be presumed to be known, to both parties at the time of the conclusion of the agreement, other than prior negotiations as to the terms of the agreement. In this respect, the process of construction of such agreements is not different from that of other contracts and the proper approach is that which has been considered by the Supreme Court in inter alia Arnold v Britton [2015] UKSC 36; [2015] AC 1619 and Wood v Capita Insurance Services Limited [2017] UKSC 24.

(3) In this exercise of construction, there is no requirement that, before considering the context and background circumstances in which the agreement was entered into, there should be a finding of ambiguity in the words used in the agreement. On the other hand, it is normally safe to assume that the parties intended to give the words they chose their natural meaning and that the clearer the natural meaning of the words used, the less willing the court will be to depart from it. The court will not, however, be bound by the label which the parties have attached to their agreement.

(4) Furthermore, in this area, the court will also consider whether the terms of the agreement are what Lord Templeman described in Street v Mountford as "a sham device" (825H) or, as he put it in AG Securities v Vaughan [1990] 1 AC 417 at 462H, "a pretence whose object is to disguise the grant of a tenancy and evade the Rent Acts".

(5) For the purposes of this exercise of identifying sham devices or pretences whereby the true bargain between the parties is other than that which appears in the written document, but not for the purposes of construing the agreement, it is permissible to have regard not only to matters predating the conclusion of the agreement but also to how the arrangements were operated in practice afterwards (AG Securities v Vaughan at 469C per Lord Oliver; 475E-F per Lord Jauncey). The justification for this is that that conduct may indicate that the parties never intended that the obligations imposed by the terms of the agreement should be honoured or the rights conferred thereby should be enjoyed (see National Westminster Bank plc v Jones [2001] 1 BCLC 98 at [45] per Neuberger J). Accordingly, such conduct may give rise to the inference that, at the time it was entered into, the agreement was a pretence.

(6) The production of a sham device or of a pretence ordinarily involves a degree of dishonesty. The court is slow, but not naively or unrealistically slow, to find dishonesty (Westminster Bank plc v Jones at [46] and [68]).

The Nature of the Agreement

19. I turn to consider the nature of the Agreement in this case. I will first consider whether it conferred a right to exclusive possession. That is a point which, as I have said, the Judge decided against CGML. He considered that Mr Khoo was given a right to exclusive possession of a bedroom and two storerooms with, in addition, a right to the shared use of the remainder of the premises excluding the bedrooms or particular spaces of the other occupants. His conclusion that Mr Khoo had a right to exclusive possession of any part of the Property is put in issue on this appeal by the Respondent's Notice. It is necessary, or at least convenient, to start with the words of the Agreement.
20. Given the terms of the "Important Note" and of clauses 2.4, 3.1, 4.1, 4.4 and 4.5 in particular, I consider that the natural meaning of the words of the Agreement is that Mr Khoo did not have a right to exclusive possession. The first point in this regard is that the subject-matter of the Agreement is a right in respect of the Property as a whole, not a room or other part of the Property. Rights of possession in respect of the Property as a whole are plainly not exclusive in that it is provided that there should be occupation of the Property by other Guardians as well. The terms of the Agreement do not create two species of rights in the Guardian, one of exclusive possession of a part of the Property and another type of right over the rest of the Living Space. There is a unitary right, which is provided in clause 4.1, to share the occupation of the Living Space. As I have said, this cannot be a tenancy because it was a right enjoyed with other Guardians.
21. Furthermore, none of the clauses can be said, on their natural meaning, to confer a right to exclusive possession of the Property or any part of it. Clause 4.1 gives a right to share the occupation of the Living Space with others. Clause 4.2 is consistent with that in stating that the permission is personal. Clause 4.4 permits CGML to alter the extent and location of the Living Space within the Property. That might, for example, mean that CGML could say that a particular room or rooms, including rooms which have been hitherto occupied by the Guardian, were no longer part of the Living Space.

Clause 4.5 specifically states that the Guardian does not have the right to use any specific room within the Living Space.

22. The terms of clauses 10 and 11, which I have quoted, appear to me consistent with an interpretation of the Agreement as not conferring exclusive possession. The degree of control as to what a Guardian should and should not do, for example clause 10.6 and clause 11.1, would constitute unusual restrictions in an agreement which conferred a right to exclusive possession. They are consistent with an arrangement which is not intended to confer exclusive possession but to be a licence and add support to a construction of the Agreement as conferring a licence without exclusive possession.
23. The Judge considered that clause 4.1 of the Agreement meant that a right to exclusive possession of a particular room or rooms was conferred by the Agreement. He placed reliance on the provision:

"... provided that there is always enough Living Space to provide at least one room for each of the Guardians who are authorised to share the Living Space."

He considered that that was a provision that there would "always be a room exclusively for the Guardian". I do not consider that clause 4.1 has that effect. What that provision does is to prevent CGML from placing more Guardians in the Property than there were rooms. Furthermore, it must be read in conjunction with clause 4.5, which provides that the Guardian does not have a right to use any specific room in the Living Space. Accordingly, as a matter of interpreting the words of the Agreement themselves, I conclude that they do not provide for legal exclusive possession of any part of the Property.

24. As I have said, however, and as the Judge considered, the process of construction is not confined to considering the words of the Agreement in isolation but can and should take into account the background and other circumstances existing at the time of the conclusion of the Agreement which must be taken to be known to both parties. Does a consideration of this context indicate that the words of the Agreement should be interpreted as providing for a right to exclusive possession of part of the Property?
25. The Judge analysed what he considered might count as the relevant context for these purposes. The only matters which he identified as existing before or at the time of the Agreement and which he considered were relevant to its interpretation are those referred to in paragraph 22 of his judgment. These are the terms of the Camelot websites, which are referred to in paragraphs 5 and 6 of the judgment, and how the letting took place, which is a reference to what is set out in paragraph 7 of the judgment. As to the websites, these do not appear to me to take the matter very far. It is true that they use the word "let" but equally refer to "property guardianship" as an alternative, and a more social one, to private rental.
26. As to the way in which the letting took place, I do not see that this provides a basis for construing the Agreement as providing for legal exclusive possession of a particular

room. The fact that Mr Khoo was shown a particular room and was asked to occupy it does not mean that the relevant clauses of the Agreement should be construed as not having their ordinary meaning. The fact that it may have been envisaged from the outset that Mr Khoo would occupy a particular room does not mean that the terms of the contract should, as a matter of construction (I return to pretence below), be construed in a way which their language does not bear.

27. Furthermore, I do not consider that the relevant background, or what is often still referred to as the "factual matrix", is confined to the matters referred to by the Judge which I have identified. The relevant background against which the Agreement is to be construed includes the nature of the Property Guardian Scheme. Indeed the importance of this background is made clear by its inclusion in clause 2 of the Agreement itself. This must have been known not just to CGML but also to Mr Khoo and indeed, as is apparent from clause 2 of the Agreement, it was essential to the operation of the guardianship scheme that the relevant premises should be able to be returned to the owner of the Property, with vacant possession. This might well be at short notice and clause 5.2 of the Agreement makes it clear that, whenever CGML's permission to use the Property is terminated, the Agreement will come to an end.
28. The operation of the scheme, its commercial purpose and indeed the continued existence of such scheme depends upon the terms of the contract meaning what they say and not creating a tenancy. Given that the commercial purpose of the transaction would be undermined if the terms of the Agreement were given a strained or artificial meaning, then that supports the construction of those terms which accords with their natural meaning. Accordingly, as a matter of construction, taking both a textual and contextual approach, I consider that the Agreement does not confer legal exclusive possession.
29. That is not the end of the matter, however. There remains the question of whether the Agreement was in relevant respects a sham or pretence for, as it was put in Street v Mountford, the court should be:

"... astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts."

For this purpose, it is permissible to take into account not only what occurred before but also what happened after the Agreement was entered into.

30. As I have already said, what is involved in this investigation is to see whether the parties in fact had no intention of honouring their respective obligations or enjoying their respective rights under the provision or agreement in question (National

Westminster Bank v Jones at [45]). As Neuberger J further said in that case, in carrying out this exercise:

"... one should not lose sight of the fact that there is obviously a strong presumption, even in the case of an artificial transaction, that the parties to what appear to be perfectly proper agreements on their face intend them to be effective, and that they intend to honour and enjoy their respective obligations and rights [46]."

31. In the same case, Neuberger J said, as I have already referred to, that an allegation of sham carries with it a degree of dishonesty. In the present case, Mr Fitzpatrick for Mr Khoo said that the provisions in the Agreement between CGML and his client, which provided that there was no exclusive possession and provided rights which were inconsistent with exclusive possession did involve a degree of dishonesty on the part of CGML. As in any case where dishonesty is contended for, the court will carefully consider whether it is made out, the onus being on the party which is alleging that an agreement or provision is a sham or pretence to make that out (see generally National Westminster Bank v Jones at [46], [59] and [68]).
32. In considering such matters, it has to be borne in mind that not every departure from the terms of a contract and how it is operated indicates that the relevant agreement was a pretence when entered into. Furthermore, the fact that a contractual right is not exercised does not of itself mean that it ceases to exist. The relevant party may be entitled subsequently to insist on its performance nevertheless, as stated in Huwyler v Ruddy [1996] 28 HLR 550 at 556 per Peter Gibson LJ.
33. I consider that a case that there was a relevant sham or pretence in the present case was not made out. In entering into the Agreement, as both parties knew and must be taken to have intended, the basis of the arrangement was that CGML was providing some protection to temporarily-vacant premises against vandals and trespassers by arranging for accommodation by Guardians. As I have set out above, it was essential to such an arrangement that the Guardians should not have tenancies. The inference I would draw is that CGML did indeed intend, when entering into the Agreement, that its terms would be enforceable by and capable of being enforced against it. It was in its interests that they should be.
34. By way of example, I do not consider that there is any adequate basis on which to conclude that CGML did not intend clause 4.5 to be enforceable against it such that, if the Guardians at any time decided that where they were to sleep should be different from what had been initially indicated in discussions between a particular Guardian and CGML, they would be entitled to insist on doing so subject to informing CGML of what had been decided in this regard. The fact that this did not actually occur does not mean that CGML did not intend to honour that term. Equally, there is no adequate basis on which to conclude that CGML did not intend clause 4.4 to be effective so that it could decide that a particular room or rooms did not fall within the Living Space.
35. This is not a case where there is "an air of total unreality" (to use the expression of

Lord Oliver of Aylmerton in AG Securities v Vaughan at 467H) about reading the Agreement as meaning what it says in the light of the circumstances in which it was entered into. Those circumstances include that this was an unusual arrangement whereby office accommodation would be occupied by a number of different people who might be entire strangers to each other at the outset of their occupation, where their presence was desirable because of concerns as to the security of the premises, and where it was essential that the building should be capable of being restored to its owner at short notice. Given those matters, I cannot for my part see how it can be concluded that the true bargain was not that in the Agreement or that there was a sham or pretence. Nor do I see a basis for considering that there was any element of dishonesty on the part of CGML.

36. The Judge did not rely on any finding that the Agreement or provisions within it were a sham or pretence in his conclusion in paragraph 23 of his judgment that Mr Khoo had a

right to exclusive possession. He did, however, at paragraph 29, state that some of the obligations or statements in the contract were portrayed in a way which he regarded as misleading "almost certainly intentionally on the part of CGML" with regard to exclusive possession. This, however, it may be noted, was in the context of the Judge's finding that overall the Agreement did indeed create a licence and that the reality of the substance of the position was that there was not a tenancy.

37. The Judge's statement that provisions of the Agreement were "almost certainly intentionally" misleading on the part of CGML was not based on any evidence relating to the actual intentions of anyone who may have been responsible for the terms or entering into of the Agreement; it was an inference by the Judge. I do not consider that it was an inference which can be safely drawn from any of the materials which the Judge referred to in his judgment. Although Mr Khoo may in fact have been permitted exclusive occupation of a room or rooms, that does not in the circumstances of this case overcome the strong presumption that parties to a transaction intend its terms, both as to rights and obligations, to be effective.
38. As I have endeavoured to set out, as a matter of construction, I regard it as clear that the Agreement did not confer a right to exclusive possession of the Property or any part of it and the case as to sham or pretence was not made out. For these reasons, I find that there was no right to exclusive possession of any part of the Property created by the Agreement and that it was not, for that reason, a tenancy. I do not, therefore, need to deal with the question of whether, if there was the right to exclusive possession, nevertheless the case fell within one of the exceptional cases whose continuing existence was recognised by Lord Templeman in Street v Mountford. For these reasons, the appeal must be dismissed.

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