United Kingdom House of Lords Decisions

Parliamentary Archives,
HL/PO/JU/18/248

P. & A. Swift Investments (a firm) (Respondents)

v.
Combined English Stores Group plc (Appellants)

(On Appeal from the Queen's Bench Division of the High Court

of Justice)

JUDGMENT

Die Jovis 7° Julii 1988

Upon Report from the Appellate Committee to whom was
referred the Cause P. & A. Swift Investments (a firm) against
Combined English Stores Group plc, That the Committee had
heard Counsel on Tuesday the 7th and Wednesday the 8th days of
June last upon the Petition and Appeal of Combined English
Stores Group plc, whose registered office is at 65, Hanover
Street, Liverpool, Ll 3EJ, praying that the matter of the
Order set forth in the Schedule thereto, namely an Order of
His Honour Judge Oddie (sitting as a High Court Judge) of the
29th day of January 1988, might be reviewed before Her Majesty
the Queen in Her Court of Parliament and that the said Order
might be reversed, varied or altered or that the Petitioners
might have such other relief in the premises as to Her Majesty
the Queen in Her Court of Parliament might seem meet; as upon
the Case of P. & A. Swift Investments (a firm) lodged in
answer to the said Appeal? and due consideration had this day
of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the said Order of His Honour Judge Oddie
(sitting as a High Court Judge) of the 29th day of January
1988 .complained of in the said Appeal be, and the same is
hereby, Affirmed and that the said Petition and Appeal be, and
the same is hereby, dismissed this House: And it is further
Ordered, That the Appellants do pay or cause to be paid to the
said Respondents the Costs incurred by them in respect of the
said Appeal, the amount thereof to be certified by the Clerk
of the Parliaments if not agreed between the parties.

Cler: Asst. Parliamentor:

Judgment: 7.7.88

HOUSE OF LORDS

P. & A. SWIFT INVESTMENTS (A FIRM)
(RESPONDENTS)

v.

COMBINED ENGLISH STORES GROUP PLC

(APPELLANTS)

(ON APPEAL FROM THE QUEEN'S BENCH DIVISION OF

THE HIGH COURT)

Lord Keith of Kinkel
Lord Roskill
Lord Templeman
Lord Ackner
Lord Oliver of Aylmerton




LORD KEITH OF KINKEL

My Lords,

I have had the opportunity of considering in draft the
speeches to be delivered by my noble and learned friends Lord
Templeman and Lord Oliver of Aylmerton. I agree with them and
for the reasons they give would dismiss the appeal.

LORD ROSKILL

My Lords,

I have had the advantage of reading in draft the speeches
of my noble and learned friends Lord Templeman and Lord Oliver
of Aylmerton. I agree with them and would dismiss this appeal
for the reasons they give as well as for those given by the Sir
Nicolas Brown-Wilkinson V.-C. in Kumar v. Dunning [1987] 3
W.L.R. 1167.

LORD TEMPLEMAN

My Lords,

The appellant, the surety, joined in a lease to guarantee the
performance and observance of the covenants by the tenant
contained in the lease. A covenant by a tenant which touches and
concerns the land runs with the reversion; the benefit of such a
covenant vests in the successors in title of the landlord; the
successors in title of the landlord may sue upon the covenants



although the benefit of the covenants may not have been expressly
assigned. For this purpose a successor in title of the landlord is
the person who, at the date of the breach of covenant, is entitled
to the reversion expectant on the expiration or sooner
determination of the term demised by the lease. In the present
case the original landlord assigned the reversion to the respondent
landlord; there was no express assignment of the benefit of the
tenant's covenants or of the benefit of the surety's covenant. The
tenant defaulted in payment of the rent reserved by the lease and
thereby committed a breach of a covenant which touched and
concerned the land. The respondent landlord, failing to recover
the rent from the tenant, brings these present proceedings against
the surety to recover the amount of the unpaid rent. The surety
denies liability, pleading that the surety's covenant does not touch
and concern the land and does not run with the reversion so as to
be enforceable by the respondent landlord. The respondent
landlord replies that a covenant by a surety, in whatever form or
expression the surety covenant may take, is a covenant that the
tenant's covenants shall be performed and observed. A covenant
by a surety that a tenant's covenant which touches and concerns
the land shall be performed and observed must itself be a
covenant which touches and concerns the land; the benefit of that
surety's covenant will run with the reversion, and the covenant is
therefore enforceable without express assignment. I agree. A
surety for a tenant is a quasi tenant who volunteers to be a
substitute or twelfth man for the tenant's team and is subject to
the same rules and regulations as the player he replaces. A
covenant which runs with the reversion against the tenant runs
with the reversion against the surety. For these reasons and for
the reasons to be given by my noble and learned friend, Lord
Oliver of Aylmerton, I would dismiss the appeal.

LORD ACKNER

My Lords,

I have had the advantage of reading in draft the speeches
of my noble and learned friends Lord Templeman and Lord Oliver
of Aylmerton. I agree with them and for the reasons they give I
too would dismiss this appeal.

LORD OLIVER OF AYLMERTON

My Lords,

This is an appeal from an Order made on the 29 January
1988 in an action in the Queen's Bench Division of the High Court
whereby the plaintiff, the respondent firm, recovered judgment
against the appellant in a sum of £4,250 together with interest
and costs, that sum being the amount of the arrears of rent due
to the respondent as the landlord of certain premises under a lease
to which the appellant was a party not as tenant but solely as
guarantor. The judge, His Honour Judge Oddie (sitting as a judge



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of the High Court), granted a certificate pursuant to section 12 of
the Administration of Justice Act 1969 and on 24 March 1988
leave was granted by your Lordships to appeal direct to your
Lordships' House. The appeal raises the much debated question
whether the benefit of a covenant by a surety for the performance
of the tenant's obligations under a lease is one which is capable of
running with the reversion so as to be available without express
assignment to the successor in title of the original landlord. The
point had been decided in favour of the landlord by the Court of
Appeal in Kumar v. Dunning [1987] 3 WLR 1167 at the time of
the hearing before Judge Oddie and his order was accordingly
made without hearing full argument since he was, in any event,

bound by that decision.




The relevant facts can be shortly stated. Two individuals,
Paul and Annie Swift, were the lessees of premises at 58-60, Lime
Street, Liverpool, for a term of 99 years from 1 December 1950.
In 1959 they assigned their leasehold interest to a company, P. &.
A. Swift (Investments) Ltd. At that time they were carrying on
business at the premises but in July 1967 they ceased to trade
there and sold their business to a subsidiary company of the
appellant. By an underlease dated 26 July 1967 P. & A. Swift
(Investments) Ltd. demised the premises to a subsidiary of the
appellant, P. & A. Swift Ltd., which company subsequently changed
its name to Dubarry (Liverpool) Ltd. ("Dubarry"). The underlease
was for a term of 35 years at a substantial rent and the
undertenant's obligations were guaranteed by the appellant, which
joined in the underlease as surety only. In July 1968 P. & A.
Swift (Investments) Ltd. was wound-up voluntarily and by a
conveyance dated 18 August 1969 the leasehold reversion expectant
upon the underlease was assigned by the company and its liquidator
to the respondent firm. That conveyance did not contain any
specific assignment of the benefit of the surety's covenant entered
into by the appellant in the underlease. P. £ A. Swift
(Investments) Ltd. has since been dissolved. Dubarry failed to pay
the rent due under the underlease for the quarter commencing on
29 September 1984 and subsequent quarters and on 18 November
1986 went into creditors' voluntary winding-up. On 31 July 1987
the liquidator of Dubarry disclaimed all interest in the underlease.
The appellant has not paid the outstanding rent although called
upon to do so.

The underlease was a full repairing and insuring underlease
containing standard covenants on the part of the tenant. The only
clause which matters for present purposes is clause 5 which, so far
as material, is in the following terms:

"5. THE SURETY in consideration of the demise
hereinbefore contained having been made at its request
HEREBY COVENANTS with the lessor that the tenant shall
pay the rent hereby reserved on the days and in manner
aforesaid and shall duly perform and observe all the
covenants hereinbefore on the tenant's part contained and
that in case of default in such payment of rent or
performance or observance of any of the covenants as
aforesaid during the currency of the said term and also
thereafter during such period as the tenant remains in
occupation of the demise premises the surety will pay and
make good to the lessor on demand all loss damages costs



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and expenses thereby arising or incurred by the lessor . . .
[there follows an immaterial proviso] PROVIDED FURTHER
and it is hereby further agreed that in the event of this
lease being disclaimed by the tenant or on behalf of the
tenant under any statutory or other power the surety will
take from the lessor but only if so required by the lessor by
written notice to the surety within three months after such
disclaimer a grant of another lease of the demised premises
for the residue of the said term unexpired at the date of
such disclaimer at the same several rents as those
hereinbefore reserved and subject to the like covenants and
provisoes as are herein contained and the surety on the
execution of such further lease shall pay the costs thereof
and shall execute and deliver to the lessor a counterpart
thereof."

The only other observation which requires to be made about the
terms of the lease is that in the usual way the expression "the
lessor" is expressed to include the reversioner for the time being
immediately expectant on the term thereby created.

The relationship between the landlord and a surety in a case
such as the present is, of course, contractual only. The surety has
no interest in the land the subject-matter of the demise and there
is thus no privity of estate. In seeking, therefore, to enforce the
surety's covenant, an assignee of the reversion cannot rely upon
the Grantees of Reversions Act 1540, the provisions of which were
substantially re-enacted in section 141 of the Law of Property Act
1925 and which apply only to covenants between landlord and
tenant. His claim to enforce rests upon the common law rule,
under which the benefit of the covenant would run with the land
if, but only if, the assignee had the legal estate in the land and
the covenant was one which "touched and concerned" the land.
There is no question but that the first of these conditions is
complied with in the instant case, but it is said, first, that a
reversion on a lease is not "land" for the purposes of the
application of the common law rule and, secondly, and in any
event, that the covenant of a surety is no more than a covenant
to pay a sum of money which is entirely collateral and does not
therefore touch and concern the land.

As to the first point, Mr. Barnes has argued with his usual
persuasiveness that although there is no specific authority on the
point the reversion of a lease clearly could not have been treated
as "land" under the old common law rule since, if it had, the
Grantees of Reversion Act 1540 would have been unnecessary.
Certainly that seems to have been so as regards covenants
between the tenant and his landlord, but, of course, the tenant's
covenants ordinarily endure only during the term of the lease and
this may, therefore, have been peculiar to that particular
relationship. There seems to be no logical reason in the case of a
third party covenant why the mere fact that the land is let, either
at the time of the covenant or of its transfer to a successor,
should prevent the benefit from running with the land. Certainly
it appears that some incorporeal hereditaments (for instance an
easement) rank as "land" for this purpose: see Gaw v. Coras
Iompair Eireann [1953] I.R. 232. As was pointed out by Romer
L.J. in Grant v. Edmundson [1931] 1 Ch. 1 at p. 28, it is
impossible in this area of the law to argue safely either by reason



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or by analogy for "the established rules concerning it are purely
arbitrary, and the distinctions, for the most part, quite illogical."
We are, in any event, concerned with what is the position in 1988
and not in 1539 and there being no direct decision upon the point
I am, for my part, not prepared to assume that the common law
has not developed in the four centuries which have elapsed since
the Act of 1540 nor that "land" for the purposes of the common
law rule has not, over this period, come to bear the same meaning
as it does in the context of landlord and tenant.

In my opinion the question of whether a surety's covenant in
a lease touches and concerns the land falls to be determined by
the same test as that applicable to the tenant's covenant. That
test was formulated by Bayley J. in Congleton Corporation v.
Pattison (1808) 10 East 130 and adopted by Farwell J. in Rogers v.
Hosegood [1900] 2 Ch 388 at 395:

"the covenant must either affect land as regards mode of
occupation, or it must be such as per se, and not merely
from collateral circumstances, affect the value of the land."

The meaning of those words "per se, and not merely from
collateral circumstances" has been the subject matter of a certain
amount of judicial consideration and the judgment of Sir Nicolas
Browne-Wilkinson V.-C. in Kumar v. Dunning [1987] 3 WLR 1167,
(where the problem was identical to that in the instant case save
that the covenant was giving on an assignment and not on the
grant of the lease) contains a careful and helpful review of the
authorities. No useful purpose would be served by repeating this
here and I am both grateful for and content to accept both his
analysis and his conclusion that the correct principle was that
pronounced by Best J. in Vyvyan v. Arthur (1823) 1 B. & C. 410,
417, and approved by this House in Dyson v. Foster [1909] A.C.
98:

"The general principle is, that if the performance of the
covenant be beneficial to the reversion, in respect of the
lessor's demand, and to no other person, his assignee may
sue upon it; but if it be beneficial to the lessor, without
regard to his continuing owner of the estate, it is a mere
collateral covenant, upon which the assignee cannot sue."

The Vice-Chancellor stated his conclusion at p. 1177:

"From these authorities I collect two things. First, that the
acid test whether or not a benefit is collateral is that laid
down by Best J., namely, is the covenant beneficial to the
owner for the time being of the covenantee's land, and to
no one else? Secondly, a covenant simply to pay a sum of
money, whether by way of insurance premium, compensation
or damages, is a covenant capable of touching and
concerning the land provided that the existence of the
covenant, and the right to payment thereunder, affects the
value of the land in whomsoever it is vested for the time
being."

It is objected that this states the matter too broadly because, for
example, it is said that it would involve the conclusion that a
simple covenant to pay an annuity of £x per annum to the owner



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for the time being of Black acre would then be treated as a
covenant touching and concerning the land because it would
enhance the value of the land. This is, I think, to read the Vice-
Chancellor's words too literally, for it is, as it seems to me,
implicit in them that he is referring to a monetary obligation
related to something which issues out of or is to be done on or to
the land. His approach to the problem, (which, again, I
respectfully adopt) emerges from the following passage from his
judgment at p. 1174:

"The surety covenant is given as a support or buttress to
covenants given by a tenant to a landlord. The covenants
by the tenant relate not only to the payment of rent, but
also to repair, insurance and user of the premises. All such
covenants by a tenant in favour of the landlord touch and
concern the land, i.e., the reversion of the landlord. The
performance of some covenants by tenants relate to things
done on the land itself (e.g. repair and user covenants).
Other tenants' covenants (e.g. payment of rent and
insurance) require nothing to be done on the land itself.
They are mere covenants for the payment of money. The
covenant to pay rent is the major cause of the landlord's
reversion having any value during the continuance of the
term. Where there is privity of estate the tenant's
covenant to pay rent touches and concerns the land: Parker
v. Webb (1822) 3 Salk. 4. As it seems to me, in principle,
a covenant by a third party guaranteeing the performance
by the tenant of his obligations should touch and concern
the reversion as much as do the tenants' covenants
themselves. This view accords with what, to my mind, is
the commercial common sense and justice of the case.
When, as in the present case, the lease has been assigned on
the terms that the sureties will guarantee performance by
the assignee of the lease, justice and common sense ought
to require the sureties, not the original tenant, to be
primarily liable in the event of default by the assignee. So
long as the reversion is not assigned, that will be the
position. Why should the position between the original
tenant and the surety be rendered completely different just
because the reversion has been assigned, a transaction
wholly outside the control of the original tenant and the
sureties?"

I entirely agree and would add only this. It has been said
that the surety's obligation is simply that of paying money and, of
course, in a sense that is true if one looks only at the remedy
which the landlord has against him in the event of default by the
tenant. But for my part I do not think that this is a complete
analysis. The tenant covenants that he will do or refrain from
doing certain things which undoubtedly touch and concern the land.
A surety covenants that those things shall be done or not done as
the case may be. Now it is true that the remedy for breach will
sound in damages only, but the primary obligation is the same,
namely that that which is covenanted to be done will be done.
Take for instance the tenant's covenant to repair. There is
nothing here requiring personal performance by the tenant. The
effect of the covenant is that the tenant must procure the
premises to be kept in repair. Equally, a guarantee by the surety
of the repairing covenant is no more than a covenant or warranty



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that the guarantor will procure that the tenant, in turn, procures
the premises to be kept in repair. The content of the primary
obligation is, as it seems to me, exactly the same and if that of
the tenant touches and concerns the land that of the surety must,
as it seems to me, equally do so.

Formulations of definitive tests are always dangerous, but it
seems to me that, without claiming to expound an exhaustive
guide, the following provides a satisfactory working test for
whether, in any given case, a covenant touches and concerns the
land:

1. The covenant benefits only the reversioner for time
   being, and if separated from the reversion ceases to
   be of benefit to the covenantee.

2. The covenant affects the nature, quality, mode of
   user or value of the land of the reversioner.

3. The covenant is not expressed to be personal (that is
   to say neither being given only to a specific
   reversioner nor in respect of the obligations only of a
   specific tenant).

(4) The fact that a covenant is to pay a sum of money
will not prevent it from touching and concerning the
land so long as the three foregoing conditions are
satisfied and the covenant is connected with
something to be done on, to or in relation to the
land.

For my part, I am entirely satisfied that the decision of the
Court of Appeal in Kumar v. Dunning; [1987] 3 WLR 1167 was
correct and was reached for the correct reasons. The instant case
is indistinguishable in any material respect. Nothing I think turns
upon the precise terms of the covenant in either case. It follows
that I would dismiss this appeal.

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