United Kingdom House of Lords Decisions

Ross & Cromarty District Council v. Patience [1996] UKHL 7 (12th December, 1996)

LORD GOFF OF CHIEVELEY

My Lords,

    I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Clyde. For the reasons he has given, I too would allow this appeal.

LORD GRIFFITHS

My Lords,

    I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Clyde. For the reasons he has given, I too would allow this appeal.

LORD MUSTILL

My Lords,

    I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Clyde. For the reasons he has given, I too would allow this appeal.

LORD STEYN

My Lords,

    I have had the advantage of reading in draft the speech of my noble and learned friend Lord Clyde. For the reasons he has given, I too would allow this appeal.

LORD CLYDE

My Lords,

    The presentation of this case has undergone some significant changes since the decision of the Second Division of the Court of Session. The third defenders who are the feudal superiors of the appellants had been seeking to insist on the clause of pre-emption which appeared in the appellants' title. They had argued successfully in the lower courts that the appellants as proprietors of the dwelling house in question were not entitled to sell or implement the sale of that dwelling house to the second defenders who as their tenants in occupation of the dwelling house had sought to exercise their statutory right to purchase it. However after the case had been decided by the Second Division in their favour the respondents proceeded to grant a gratuitous minute of waiver of their rights relating to the dwelling house thereby removing the particular cause of dispute in the case. The appellants persisted in their appeal and a question then arose whether that was competent. However it became evident that although this issue between the appellants and the third defenders was no longer live in respect of the particular tenancy held by the second defenders, except as to costs since the third defenders wished to be heard on that matter, there remained a live and real problem in relation to other houses let on secure tenancies by the appellants which lie within lands which may be affected by such a clause of pre-emption as existed in the present case. Moreover the problem of the apparent conflict between such a pre-emption clause and the right to acquire given by statute to a secure tenant is a point of practical importance to local authorities in Scotland and requires resolution. This House determined that the appeal was competent and, since the third defenders then decided not to argue the case before this House reserving only their position regarding costs, an amicus curiae was appointed by the Lord Advocate to secure a balanced presentation of the argument. Gratitude should be expressed to Mr. Bonomy for the careful assistance which he gave in performing that function.

    It should also be recorded that following the recent reorganisation of local government in Scotland the identity of the appellants has changed and the appropriate procedural steps have been taken to recognise this change. While thus the specific issue relating to the particular dwelling house owned by the predecessors of the present appellants is no longer of moment there is here a substantial question to resolve and the present action is a proper vehicle for that purpose. This is a further example of what Lord Brougham long ago referred to as "that most beneficial and admirably contrived form of proceeding, called a declaratory action" (Earl of Mansfield v. Stewart (1846) 5 Bell 139, 160).

    There has been another change in the presentation of the argument which is not insignificant. The issue of the construction of the pre-emption clause was treated in the argument before the Second Division as dependent upon the appellants' success on the question whether the existence in the landlord's title of a clause of pre-emption prevented the process of a statutory sale of a secure tenancy under the provisions of the Housing (Scotland) Act 1987. But counsel for the appellants before this House submitted that both questions were equally open and he presented argument on both of them. While most of the discussion was taken up with the matter of the statutory construction it seems to me that logically the first question is whether the clause of pre-emption applies and I turn immediately to that issue.

    The clause of pre-emption appears in a feu charter of 11 September 1939 recorded on 16 September 1939 in the Register of Sasines. The feu charter was granted by the predecessors in title of the respondents to the County Council for the County of Ross and Cromarty. The appellants are the statutory successors of that authority. The clause was in these terms:

 "(Fourth) The feuars shall not sell or dispone the feu or any part thereof or any of the buildings thereon to any person or persons whomsoever until the same shall first have been offered to the Superiors at a price to be fixed by arbitration."

    The question is whether this clause applies to the process which Parliament has provided under the Housing (Scotland) Act 1987 for the acquisition of his dwelling house by a secure tenant. I am of the view that it does not.

    I shall come later to the particular statutory provisions but it is sufficient at this stage to observe that, provided he qualifies under the statutory provisions, the tenant has a right to acquire the dwelling house and the landlord is obliged to sell and convey it to him. While the statute uses the terminology of "purchase" and "sell" both the serving of the relevant notices and the constitution of the contract of sale are matters ordered in terms of the statutory provisions and the statutory purchase which is achieved by the procedure is not a consensual sale.

    There is no special context in the use of the word "sale" in clause four which can deprive it of its ordinary meaning of a voluntary contract. As was recognised in Kirkness v. John Hudson & Co. Ltd. [1955] A.C. 696 the word is not commonly used to describe a compulsory acquisition under the Lands Clauses Consolidation Acts. It is commonly used to mean a consensual sale. Similarly the word "dispone" in the context of the clause under consideration should also be understood as referring to a voluntarily conveyance, whether on sale or by way of gift. I do not find it necessary to rely on any rule requiring a strict construction of such a clause nor the rule of contra proferentem. These rules merely affirm the conclusion to which I have reached. It is sufficient in my view to look to the words used without such further assistance.

    Beyond the ordinary meaning of the words used it is proper to construe the deed as at its date in 1939. It is inconceivable that at that date the parties could have contemplated that council tenants would be given a statutory right to acquire their homes and that the public sector landlord would be obliged to sell and convey their houses to them. For that reason also I am unable to construe the clause as covering the procedure which has occurred in the present case. Furthermore that the sale or disposition at which the clause of pre-emption strikes is of a voluntary character is confirmed to my mind by the consideration that the clause is fenced with an irritancy. It cannot have been the intention of the parties that the feudal grant could be annulled by a sale of the subject in question which the landlord was bound under statute to carry out.

    The conclusion which I have reached as matter of the construction of this clause is one which the Lord Justice Clerk in the Second Division indicated was one which could be supported with arguments of considerable force had the submission stood alone. However on the approach taken by the appellants in the Second Division he was unable to decide the case on this point. In the presentation before this House the submission was made as a distinct argument and in my view it is sound.

    While that is sufficient to determine the matter so far as the construction of the clause is concerned, mention should be made of two further lines of argument related to it. It was submitted that the words should not be construed so as to include the grant of a sub-feu such as has been made in the present case by the appellants to the tenants. But I have little difficulty in holding that the form of the conveyance adopted would still fall within the word "dispone." It is inappropriate to refer to section 338(1) of the Act of 1987, where it is provided that in that Act "sell" and "sale" includes "feu." The ordinary use of the word seems to me sufficient to embrace both a disposition and the creation of a sub-feu. The only remaining submission in relation to the clause was that it was void for uncertainty and unenforceable. However this was not a matter which was canvassed in the lower courts. It is a matter which does not require to be investigated in the present case and I would say nothing about it.

    I turn next to the question which occupied the greater part of the hearing. That is whether on a proper construction of the provisions of the Act of 1987 the secure tenant can exercise his right to purchase his dwelling house regardless of a right of pre-emption in the title of the landlord. It was recognised by the Lord Ordinary that this involves a stark choice between holding on the one hand that all rights inconsistent with the right to purchase are superseded by the legislation and on the other hand that the legislation may only operate when no such rights exist. It was suggested by the amicus curiae that a solution might be found through the imposition of a condition in the statutory sale reflecting the qualification on the landlord's title. He pointed out that under section 81A of the Act of 1987 the right to buy may be preserved on a disposal to a private sector landlord, such as their superior, and suggested that the condition should reflect the requirement of obtaining the consent of the Secretary of State in accordance with Schedule 6A of the Act. In Henderson v. City of Glasgow District Council 1994 S.L.T. 263 the view was expressed that a condition could be inserted into the offer to sell reflecting the qualifications on the landlord's title. But that view was correctly rejected in the Second Division in the present case. As the Lord Justice Clerk pointed out the conditions of sale under section 64 of the Act must be conditions consistent with the sale taking place. While it appears that section 81A may not have been drawn to their Lordships' attention it seems to me that the kind of condition now suggested would still fail to meet that test. The necessity to obtain the consents required under the statutory scheme is part of the whole statutory process and the acquisition is necessarily dependant upon such consents being obtained. The necessity to obtain the consent of a third party outwith the statutory scheme remains outside the scope of section 64. Furthermore the validity of a condition reflecting the superior's right of pre-emption would remain open to challenge; and that immediately raises the basic question which is an issue in the present case. The matter accordingly comes to be one of making the stark choice which the Lord Ordinary identified. He did not find the choice an easy one to make but both he and the majority of the judges in the Second Division preferred the view that Parliament could not have intended to abrogate the right of pre-emption.

    One consideration which clearly weighed in the thinking of the majority of the judges in the Second Division was the absence of any express provision showing Parliament's intention that clauses of pre-emption were to cease to apply. Reference was made to examples in the compulsory purchase legislation and the crofter's legislation to support this line of thought. But while this is of course a relevant factor it does not seem to me in the context of the clear purpose of this Act to be determinative. In the persuasive presentation of the appellants' case by Mr. Emslie before this House we have had the benefit of a detailed and careful study not only of the relevant provisions of the Act of 1987 but of the previous legislation from and after the Tenants' Rights' Etc. (Scotland) Act 1980 and of the more recent amendments. That review has persuaded me that the clear purpose of Parliament in this legislation was that every tenant in the public sector who fell within the scope of the particular requirements specified by Parliament should have an unobstructed right to purchase the house which he occupies and become the owner of it. I am satisfied that to that end it was intended that a tenant's right to buy was not to be impeded by a third party's right of pre-emption.

    There are some difficulties in fitting a right of pre-emption into the context of local authority housing at least where under section 12(7) of the Act of 1987 the sale may require the consent of the Secretary of State. But when one turns more particularly to the situation of a secure tenancy it is difficult to find any room for the operation of a clause of pre-emption. The qualification for a secure tenancy depends, inter alia, on the identity of the landlord. The landlord must be one of the bodies mentioned and referred to in section 44(2) of the Act of 1987. It is evident that a sale to someone in the private sector would in the absence of any express provision otherwise extinguish the security of the tenure. A sale to a superior under a clause of pre-emption would be likely to be such a sale. But section 46 of the Act which lists the only ways in which a secure tenancy may be brought to an end does not include a unilateral disposal of the property to a third party by the landlord without the agreement of the tenant and the tenant would not be expected to give such consent since he is seeking to acquire the house for himself. Under section 81A provision is made for the preservation of the right to purchase despite a sale to a private sector landlord. But here by virtue of paragraph 5 of Schedule 6A the consent not only of the Secretary of State but also of a majority of the tenants is required for the disposal to proceed. That a minority may lose the benefit of the secure tenancy does not in my view detract from the general proposition that the landlord cannot unilaterally dispose of the property and of course even for the minority the right to purchase is preserved.

    When one turns to the particular provisions relating to the right to purchase, the comprehensive nature of the statutory provisions in my view leaves no room for the exercise of a pre-emption by a third party. Section 61, which in subsection (1) provides the right to purchase, applies in terms of subsection (2) to "every house let under a secure tenancy" where certain particular qualifications are satisfied. Section 61 and the later section 84A prescribe precise limits regarding the cases where the right may and may not be exercised. Had Parliament intended to preserve a right of pre-emption that could readily have been done.

    That the tenant's right to purchase is intended to be unimpeded can also be clearly seen in the procedure which requires to be followed. Under section 63 the tenant is required to serve on the local authority a notice referred to as an "application to purchase." The landlord may then serve a notice of refusal under sections 68-70. Under section 68(4) the tenant may apply to the Lands Tribunal for a finding that he has a right to purchase. Sections 69 and 70 only apply to certain particular kinds of houses. Beyond that the landlord is obliged to serve on the tenant a notice, referred to as an "offer to sell" all as set out in section 63(2). Thereafter subject to the resolution of any conditions of sale sought to be imposed by the landlord the tenant is required to serve on the landlord a notice of acceptance under section 66. Section 66(2) provides that when an offer or an amended offer to sell has been served on the tenant and a relative notice of acceptance has been duly served on the landlord a contract of sale shall be constituted between the landlord and the tenant on the terms contained in the offer or amended offer to sell. There is no room in all of this for the landlord to sell to a third party holding a right of pre-emption. The conclusion of the contract, subject only to the provisions of the statute, is a matter which is mandatory on the landlord. Sections 66A-66C impose financial penalties if the landlord fails to carry through the process timeously. Indeed an express duty is imposed on him under section 74 "to make provision for the progression of applications . . . in such manner as may be necessary to enable any tenant who wishes to exercise his rights under this Part to do so. . . ."

 

    Particular attention was drawn in the argument to the opening words of section 61(1) "Notwithstanding anything contained in any agreement. . . ." In that connection reference was made in the lower courts to Cooper's Executors v. Edinburgh District Council 1991 S.C. (H.L.) 5. In that case this House held that where a contract of sale had been constituted under section 66(2) of the Act of 1987 and the purchaser had died before settlement of the transaction the right to purchase did not revive in favour of the person who succeeded to the secure tenancy but that the deceased's executors were entitled to enforce the contract. One argument presented for the council was to the effect that the opening words of section 61(1) were wide enough to cover the contract already constituted between the local authority and the deceased tenant. In that connection Lord Keith of Kinkel observed (at pp. 20-21):

 "Despite the apparent width of these words, they must, I think, be construed as relating to agreements between the landlord and the tenant who would otherwise have the right to purchase. The object is to prevent landlord and tenant contracting out of the right to purchase."

    It was recognised by the Lord Justice Clerk in the present case that this was not intended as a statement of general principle which could be applied to the present case. The case related to an agreement between the landlord and the late tenant and that context explains why the observation was framed under reference to those parties. But it respectfully seems to me that the significance of the observation lies in the reference to the substance of the agreement rather than the parties to it. The substance of the agreements referred to in section 61(1) is the obviation of the right to purchase. That the parties to the agreements may be others than simply the landlord and the tenant may be seen in the example which his Lordship gives to show the error in the argument presented on behalf of the council where he refers to an agreement to sell to a tenant or to members of his family under section 14(1) of the Act of 1987. Moreover comparison with corresponding phases in other sections of the Act confirms to my mind that while, as his Lordship observed, the substance of the agreement must be one which strikes at the statutory right to purchase, the agreement need not involve both landlord and tenant. In the original form of the relative enactment in section 1(1) of the Tenants' Rights' Etc. (Scotland) Act 1980 the words used were "Notwithstanding anything contained in any tenancy agreement. . . ." The word "tenancy" was subsequently deleted by an amendment made by section 66(2) and Schedule 4 of the Local Government and Planning (Scotland) Act 1982. Moreover while the phrase carried forward into section 61(1) of the Act of 1987 remains unrestricted by reference to "any agreement" as distinct from "any tenancy agreement", sections 46(1) and 54(1), following the wording of sections 12(1) and 17(1) of the Act of 1980, commence "Notwithstanding any provision contained in the tenancy agreement," which plainly restricts attention to the particular contract between the particular landlord and the particular tenant. In my view the scope of the phrase in section 61(1) is certainly wide enough to include an agreement to which either the landlord or the tenant is a party provided the agreement is one which in its substance involves a contracting out of the obligation to sell and the statutory right to purchase. Reference was also made to section 75 of the Act of 1987 which, inter alia, forbids the landlord from making any agreement which purports to restrict a tenant's right to purchase. This provision in its terms is not limited to agreements between the landlord and the tenant but operates only in relation to agreements made after the Act came into force. It gives some support for the adoption of a similar construction of the opening phrase in section 61(1) in the application of that subsection to agreements entered into prior to the legislation. Taken together these provisions seem to me to constitute an effective bar on any contracting out of the statutory right to purchase.

    In my view the clear purpose of the legislation which I have already sought to identify can be sufficiently ascertained from the legislation even if the opening words of section 61(1) are simply taken as a further indication of the general intention that the tenant's right is to prevail over any impediment. But given the width of the expressions "anything contained" and "any agreement" it seems to me that the relationship established by the feu charter in favour of the appellants may reasonably be included within the scope of the phrase "any agreement." As Professor Halliday has observed (Conveyancing Law and Practice) vol. II, para 17-19, p. 127:

 "The superior and the vassal are parties to a contract of tenure, a continuing personal contract automatically renewed between successors of the respective parties. If the contract has been created by a unilateral deed such as a feu charter or feu disposition, delivery of the deed and acceptance of it by the vassal impose a contractual obligation upon the vassal to pay the stipulated feu duty and to perform the other obligations imposed upon him by the deed. . . ."

    In a strict sense the feu charter is a grant but the basis of the feudal relationship is one of a continuing contract and it does not seem to me to be an undue straining of the statutory language to include a right of pre-emption as being something contained in an agreement for the purpose of section 61(1). On that approach the section overrides the right of pre-emption as being an impediment to the right to purchase.

    Some weight was attached by the majority of the judges in the Second Division to the consideration that the landlord was in terms "the heritable proprietor". The argument then runs that since the statute recognised that the landlord was holding property under a feudal title the statute should be understood as intending that the obligations and conditions in the feu rights should be preserved. Certainly the identification of the heritable proprietor is an element in the qualifications relating to the landlord in section 61(2). But this identification of his status does not in my view operate to import the necessary preservation of a right to pre-emption contained in the feudal title. So also in the later sections 76, 77 and 84A it does not seem that Parliament is concerned with the quality of content of the title but only with the status of the titleholder. A right of pre-emption may be created as a real burden and it is within the definition of a land obligation for the purposes of the Conveyancing and Feudal Reform (Scotland) Act 1970, but it is essentially a contractual right. It is not among the naturalia of a feu and it is not special to the feudal relationship. Certainly as a matter of generality the landlord can only convey the lands subject to the burdens which attach to them. But where a sale is contemplated and the superior fails to accept the offer made to him under a clause of pre-emption then by virtue of section 9 of the Conveyancing Amendment (Scotland) Act 1938 as amended by the Conveyancing and Feudal Reform (Scotland) Act 1970 section 46 the clause is thereafter null and void so that in this respect even the feudal character of the landholding will not perpetuate the clause of the pre-emption. Furthermore section 64(4) of the Act of 1987 prevents the introduction of a condition of pre-emption into the offer to sell.

    I find it difficult to believe that Parliament would have intended that the provisions carefully made to secure to the tenant the right to purchase and the restraints of disposal by the public sector landlord could all be overcome by a superior's right of pre-emption. Moreover standing section 81A it is hard to see what is to be gained at least if the sale is made under that section to a private body with the right to purchase preserved. It is not immediately obvious what purpose is served by a sale to the superior which would simply be followed by an involuntary sale to the tenant. On that approach it does not appear that the loss of the right through the operation of the statutory procedure, even if the clause of pre-emption was sufficiently framed to cover that procedure, is of such significance as to provide powerful reason for its preservation.

    Reference was made to the English legislation in the same field but while some correspondence obviously exists between the two sets of provisions I do not feel that they are sufficiently close in terminology or substance as to be of real assistance. In my view the appellants are entitled to the declarator which they seek subject to the proposed amendment to recognise that the feu disposition has in fact been granted to the first and second defenders. The appeal should be allowed.