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IN THE SUPREME COURT OF JUDICATURE CCRTI 96/0435/E

(HIS HONOUR JUDGE MOSELEY )

Royal Courts of Justice

Strand

London WC2

Friday, 11 December 1997

B e f o r e:

LORD JUSTICE BELDAM

LORD JUSTICE HUTCHISON

LORD JUSTICE MUMMERY

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JOHN LAWRENCE DAVID BELL & ORS

PLAINTIFFS/APPELLANTS

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GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION LTD

DEFENDANTS/RESPONDENTS

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(Transcript of the handed down judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MR N COOKE [MISS M PACK 11-12-97 ] (Instructed by Messrs Doeland & Co, Cardiff, CF1 1TJ) appeared on behalf of the Appellant

MR M HUTCHINGS (Instructed by Messrs Iliffes Booth Bennett, Middlesex UB8 1LQ) appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court )

- - - - - -

©Crown Copyright

Thursday, 11 December 1997

J U D G M E N T

LORD JUSTICE HUTCHISON: The question of law to which this appeal gives rise, narrowly stated, is whether a company which has granted a lease of business premises in circumstances which would ordinarily mean that the provisions of the Landlord and Tenant Act 1954 ("the Act") applied can invoke s. 24 A of that Act even though it did not have title to the premises the subject of the lease at the time of the demise. Put rather more widely, the question is whether a tenant by estoppel of business premises can invoke the protection of the Act. I must begin by stating the facts which give rise to that issue.

On 15th July 1960 General Accident Life Assurance Ltd. ("Life") bought the freehold of the office building at 31-33 Newport Road, Cardiff. The land in question has at all material times been unregistered. On 29th June 1978 another company in the General Accident Group, General Accident Fire & Life Assurance Corporation Plc. ("Fire") let part of the building ("the premises") to Eagle Star Insurance Company Ltd. for a term beginning on 15th May 1978 and ending on 29th September 1992 at a yearly rent £16,600. On 25th December 1988 Eagle Star assigned the lease to the appellants, partners in a firm of solicitors. By then the rent had been increased pursuant to a rent review clause to £26,250.

It is common ground that at all material times both parties to the lease were under the impression that Fire had at the date of the demise been and remained the owner of the premises and that the provisions of the Act applied. Accordingly, on 15th February 1992 Fire served a section 25 notice terminating the tenancy on 28th September 1992 and stating that it would not oppose the grant of a new tenancy. On 24th February 1992 the appellants served a counternotice under section 29 and on 15th May 1992 applied for a new tenancy proposing a five year term at a rent of £25,000. On 4th June 1992 Fire served an answer proposing a 14 year term at a rent of £61,000 with a review at 5 years. The answer also contained an application to the court to determine a reasonable rent during the interim period of statutory continuance of the tenancy, in accordance with the provisions of s. 24 A.

On 22nd November 1993 Life granted a reversionary lease of the premises to Fire for a term from 29th September 1993 to 24th December 2008. It might be thought that this was because it had been appreciated on the respondent's side that an error had been made in 1978, and that this was an attempt to regularize things, though counsel for the respondent tells us that this is not so, and that it was only sometime later that it was appreciated what had happened. On 11th February 1994, Life sold the freehold in the building to Provident Mutual Life Assurance Association.

On 14th February 1994 the appellants, who had decided to move to other premises, withdrew their application for a new tenancy. By virtue of the provisions of section 64 of the Act this had, or at any rate would on the basis that the Act applied have had, the effect of bringing the extended lease to an end on 14th May 1994 and it seems that the appellants vacated the premises on or about that date. However the respondent's application for an interim rent to be determined survived, and a confirmatory order to that effect was made by consent by a district judge on 21st February 1994.

The section 24 A application was not actively pursued and on 10th October 1995 the appellants applied to strike it out. The summons did not specify the grounds of the application but the district judge, treating it as one based on the contention that the section 24 A application disclosed no reasonable cause of action, acceded to it. The respondents appealed and Judge Moseley Q.C., on 7th March 1996, allowed the appeal. It is from his decision that the applicants appeal to this court.

Section 24 A, which was introduced into the Act by section 3 of the Law of Property Act 1969 to remedy the injustice that (until the amendment) could be caused to a landlord by the prolongation of the proceedings for a new tenancy by reason of that tenancy's continuing at the old rent, provides as follows:

(1) The landlord of a tenancy to which this part of this Act applies may -

(a) if he has given notice under section 25 of this Act to terminate the tenancy; or

(b) if the tenant has made a request for a new tenancy in accordance with section 26 of this Act;

apply to the court to determine a rent which it would be reasonable for the tenant to pay while the tenancy continues by virtue of s. 24 of this Act, and the court may determine a rent accordingly.

(2) [date from which such rent to be payable]

(3) [basis on which the amount of the rent is to be determined]

"The landlord" is a term having a defined meaning in the Act. Section 44 provides that

(1).......in this part of this Act the expression "the landlord" means the person (whether or not he is the immediate landlord) who is the owner of that interest in the property comprised in the relevant tenancy which for the time being fulfils the following conditions, that is to say -

(a) that it is an interest in reversion expectant (whether immediately or not) on the termination of the relevant tenancy, and

(b) that it is either the fee simple or a tenancy which will not come to an end within fourteen months or less by effluxion of time...., and is not itself in reversion expectant (whether immediately or not) on an interest which fulfils those conditions.

I must also mention the interpretation section, section 69 of the Act, where one finds among others the following definition:

(1) In this Act the following expressions have the meanings hereby assigned to them respectively, that is to say - ....."tenancy" means a tenancy created either immediately or derivatively out of the freehold, whether by lease or underlease, by an agreement for a lease or underlease or by a tenancy agreement or in pursuance of any enactment (including this Act).....

Section 23 (1) of the Act provides that the Act applies to:

....... any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant .... for the purposes of a business carried on by him .......

The statutory continuation effected by s. 24 (1) is in respect of:

A tenancy to which this Part of this Act applies .....

Section 25 provides:

(1) The landlord may terminate a tenancy to which this part of this Act applies by a notice given to the tenant in the prescribed form ....

The appellants' argument, forcefully advanced by Mr. Cook before us, is the same as that on which he relied before the judge and can be quite shortly stated. He accepts that a tenancy by estoppel came into being on 15th May 1988 between Fire and Eagle Star and that by virtue of the assignment to the appellants that tenancy passed to them. He accepts that the terms of the tenancy were those contained in the lease. However he argues that the tenancy was not one to which the provisions of the Act ever applied, because it was not a tenancy as defined in s. 69 - not being created immediately or derivatively out of the freehold - and Fire was not a landlord within s. 44 - because it did not meet the requirements of s. 44 (1) (b). He accepts that this argument, if correct, means not only that the s. 25 notice and the subsequent proceedings were a nullity - the tenancy simply came to an end by effluxion of time on 28th September 1992 - but also that the Act could never apply to a tenancy by estoppel. While justifying his submissions on the basis that they simply involve a matter of statutory construction, and that the relevant provisions are plain beyond argument, he suggests that if some rationale were required it is to be found in the supposition that Parliament cannot have intended to make available to a tenant by estoppel the rights conferred by the Act when his position is precarious by reason of his vulnerability to a claim by someone with title paramount.

The answer given by the judge to these submissions was based on his analysis of important authorities decided in the middle of the last century on the subject of tenancy by estoppel - Sturgeon v Wingfield [1846] L.J. 15 212: 15 M & W 224 and Cuthbertson v Irving [1859] 4 H & N 742 and [1860] 6 H & N 135. The judge said:

Those authorities appear to me to establish the following principles: (1) the title by estoppel vested in the lessor is a fee simple. Whether that is irrebuttably presumed to be so, as suggested in Parke B's first interjection in Sturgeon v Wingfield , or a rebuttable presumption, as suggested by the words "prima facie" in his second interjection and by Whiteman J. in Cuthbertson v Irving , is arguable. A rebuttable presumption arising by estoppel does not appear to me to be in accordance with modern thinking, so I favour the former. It does not, however, matter in the present case because the only evidence adduced is that the lessor had no title at all, which the lessees in the present case are estopped from alleging. Mr. Cooke argued that that reasoning could not possibly be right because the result would be two fee simples: one in Life and the other in Fire, and it was axiomatic that that could not happen. I reject the argument. It is axiomatic that there cannot be two actual fee simples. That cannot prevent a fee simple as between parties arising by virtue of an estoppel any more than it would prevent the court from proceeding on the basis of an admission which was in fact incorrect.

I omit the judge's reference to the second principle, which is not for present purposes material. He then continued:

It follows from those principles (1) that the solicitors' lease was a tenancy for the purposes of s. 69 (1) of the Act, because it was created by Fire which owned a fee simple by estoppel. The lease was therefore created immediately out of the freehold. (2) Fire was at all material times a landlord within the definition in s. 44 (1) and in particular s. 44 (1) (b) because it owned the fee simple by estoppel. (3) It follows that the notice given under s. 25 (1) was given by the landlord, and that the requirement in s. 24A (1) (a) is therefore satisfied. (4) That the point in issue in the present case whether the application under s. 24A was by the landlord must be resolved in favour of Fire and against the solicitors.

The judge rejected a further argument on behalf of the appellants, that to accept that the court could entertain the section 24 A application was illegitimate because it would involve conferring jurisdiction by estoppel. He allowed the landlord's appeal. He rejected an alternative plea of estoppel by convention.

The tenants' appeal first came before this court in February of this year. The appellants' notice of appeal advanced the arguments which I have already summarized. There was no respondent's notice. However, after conclusion of the argument the court (Waite L.J. and Singer J.) raised with the parties the possibility that there was another basis (not considered by the judge) for rejecting the appellants' application to strike out - namely that Fire's action in granting the lease of 29th June 1978 amounted to a dispossession of the true owner, Life, on that date; and that after 12 years, namely on 29th June 1990, Fire acquired a freehold possessory title and was thus by the date of the section 25 notice and the later date of the s. 24 A application the actual freehold owner of the premises.

Appraised of this argument by a note from the court, the respondent's counsel, Mr. Hutchings, asked to be allowed to adopt it and the court, on 1st May 1997 and despite opposition by the appellants, gave leave for the service of a respondent's notice out of time on condition that the respondent paid the appellants' costs of the appeal to date and directed that the case should be heard afresh. Thus it is that it comes before us.

I have, for reasons which I shall explain, reached the clear conclusion that the judge's decision was right. In the circumstances I do not propose to give any detailed consideration to the new argument on Limitation, as to which not the least difficulty is that we are told that there have, since the sale to Provident Mutual Life Assurance Association, been further dispositions of the freehold title, and neither Provident nor any subsequent owner is before the court. There is the further problem that no evidence was adduced relative to the limitation issue.

It would, I consider, be surprising if the Act did not apply to this tenancy. The Act is one, as appears from its title: ".....to enable tenants occupying property for business, professional or certain other purposes obtain new tenancies in certain cases ....". The circumstances of the appellants' occupation were such that both parties regarded the Act as applying and conducted themselves accordingly. There is, I consider, no good reason why Parliament would have wished to afford to a landlord whose title happens to be deficient the advantage of being able to deprive his tenant of the protection of the Act, and I reject Mr. Cooke's submission that precariousness of the landlord's title may be said to be such a reason. Moreover, if the appellants were right, landlords - particularly corporate landlords - would without much difficulty be able to circumvent the Act. These considerations are not, of course, grounds for rejecting Mr. Cooke's arguments in support of the appeal if they are well-founded but they at least suggest that they are unlikely to be well-founded.

The concept of a tenancy by estoppel is in some ways a difficult one, embodying as it does the seemingly inconsistent notions that there is a tenancy and that nevertheless recourse has to be had to estoppel to prevent either party asserting that there is not. The current (5th) edition of Megarry and Wade's Law of Real Property describes it in these words (page 661):

Where the landlord's title is defective but the parties are bound by the estoppel there is said to be a tenancy by estoppel. Even though the landlord's want of title is apparent to the parties, both they and their successors in title will be estopped from denying that the grant was effective to create the tenancy that it purported to create. Thus, in effect, there is brought into being a tenancy under which the parties and their successors in title have (as against one another) most of the rights and liabilities of a legal estate. The tenancy by estoppel will devolve and may be alienated in the same way as any other tenancy, and the landlord may distrain for rent in the ordinary way. But since estoppels do not bind strangers, he cannot exercise his normal right to distrain goods not owned by the tenant.

As the authors make clear in a previous passage, the foundation of the doctrine, which is a doctrine of common law, is the rule that neither landlord nor tenant is allowed to deny the other's title. Millett L.J., in First National Bank Plc v Thompson [1996] 2 WLR 293, said (at page 297):

[Title by estoppel] is the product of the fundamental principle of the common law which precludes a grantor from disputing the validity or effect of his own grant ..... [I]t is exclusively the creation of the common law, not equity ..... It appears to be merely the product of the relative character of title to land in English law.

The essence of the relationship of landlord and tenant is the granting of possession and not of title. In Baynes & Co. v Lloyd & Sons [1895] 1 QB 820 at 824 Lord Russell of Killowen C.J. said:

....... a lease is nothing more than a contract to deliver up possession to another for a fixed term, and provided this is secured the lessee seldom requires more. Hence it is that .... the only usual covenant for title in leases is that for quiet enjoyment, and that generally a qualified covenant only.

In the present case the judge was right to regard Cuthbertson v Irving as a leading authority in this area: Denning L.J. in Industrial Properties Ltd. v AEI [1977] 1 QB 580 plainly so regarded it, and Millett L.J. in the First National Bank case at 299 described it as such. The judgement of Baron Martin in that case, affirmed by a court of six judges, including Blakburn J. and Willes J., in the Exchequer Chamber, contains the following passage:

First, if any estate or interest passes from the lessor, or the real title is shewn upon the face of the lease, there is no estoppel at all. Secondly, if the lessor have no title, and the lessee be evicted by him who has title paramount, the lessee can plead this and establish a defence to any action brought against him: Higginbotham v Barton ; but, thirdly, so long as the lessee continues in possession under the lease, the law will not permit him to set up any defence founded upon the fact that the lessor "nil habuit in tenementis;" and that upon the execution of the lease there is created in contemplation of law a reversion in fee simple by estoppel in the lessor which passes by descent to his heir, and by purchase to an assignee or devisee. A pleading test may be applied. Had the plaintiff declared that Biglands was seised in fee and demised to the defendant and assigned his reversion to the plaintiff, the defendant could not effectually have traversed the assignment. Could he the seisin? The plaintiff would have made a prima facie case by shewing the lease to the defendant, and possession taken and enjoyed under it. The defendant could not have shewn any other estate in Biglands. He must therefore have said Biglands "nil habuit in tenementis". We are of opinion that the law will not permit him to do so. This state of law in reality tends to maintain right and justice, and the enforcement of the contracts which men enter into with each other (one of the great objects of all law); for so long as a lessee enjoys everything which his lease purports to grant, how does it concern him what the title of the lessor, or the heir or assignee of his lessor, really is. All that is required of him is, that having received the full consideration for the contract he has entered into, he should on his part perform it. For these reasons we think the verdict on the second issue ought to be entered for the plaintiff.

There is nothing surprising about the proposition that the title created in the lessor by estoppel is one in fee simple. In Megarry & Wade, in a passage in which the learned authors consider the relativity of titles, they summarize the law in this way:

Relativity of titles . "At common law .... there is no such concept as an "absolute" title. Where questions of title to land arise in litigation the court is concerned only with the relative strengths of the titles proved by the rival claimants. If party A can prove a better title than party B he is entitled to succeed notwithstanding that C may have a better title than A, if C is neither a party to the action nor a person by whose authority B is in possession or occupation of the land".

Some examples will illustrate this fundamental doctrine and the right and wrong occasions for the plea of jus tertii. If last year S dispossessed O of land which had hitherto belonged to O, and O is taking no action, there are now two incompatible titles to the land: as between O and S, O is the owner, for he can recover the land by bringing an action; but as between S and the rest of the world (except O and persons claiming through him) S is owner, for he is in possession and that is equivalent to ownership as against all persons who have no better right. Thus S can sue strangers for trespass or nuisance, just as O could before. Furthermore, S can convey the land, or make any other disposition which an owner can make. If S dies, the land will pass under his will or intestacy. But all such rights derived through S are subject to O's (or his successor in title's) paramount right to recover the land. S's possession at once gives him all the rights and powers of ownership: S has, in fact, a legal estate, a fee simple absolute in possession. But so also has O, until such time as his title is extinguished by limitation.

To the same effect is a passage in the second edition of Professor Gray's Elements of Land Law where, dealing with the operation of the Limitation Act 1980, the learned author says of the nature of a squatter's rights:

Even before the paper owner becomes statute-barred from recovery, the squatter acquires incipient rights in the land which are good against all the world except those persons who (like the paper owner) are meanwhile able to assert a better title. From the inception of his "possession" the squatter is recognised as having a common law estate in fee simple, despite the fact that his possession of the land was initially tortious and notwithstanding that until the 12 year period of limitation has expired he may be turned out by legal process. The same land is therefore capable of yielding up a multiplicity of simultaneous legal estates in fee simple on behalf of different adverse possessors entering upon the land seriatim, subject only to the vulnerability of each claimant to the unbarred rights of earlier claimants or indeed of the original paper owner. Implicit in the notion of relativity of title is the recognition that mere fee simple ownership at common law does not foreclose the possibly that another person may have an older and better version of the fee simple title.

Mr. Cooke, accordingly, cannot make good the submission that is fundamental to the success of the appellant's case, which is that, though they are estopped from denying Fire's title to grant the lease the estoppel does not extend to prevent their asserting that at the time of the grant Fire did not have a title in fee simple and/or that the tenancy by estoppel was not created either immediately or derivatively out of the freehold. In addition to the argument, which I have already rejected, as to precariousness of title, Mr. Cooke submitted that if a tenancy by estoppel were accepted as falling within the Act, then section 44 and, particularly, section 69 had no purpose but were effectively surplusage, and that this was inconsistent with Wheeler v Mercer [1956] AC 416: he relied especially on the speech of Lord Somervell at 434. However, section 44 is in my view directed primarily to determining who should give and receive notices under the Act. As to section 69, I find nothing in Wheeler v Mercer inconsistent with the view that tenancies by estoppel are to be regarded as falling within the Act; and even if it were the case that it is difficult to see what tenancies could be excluded if not tenancies by estoppel, this would not lead me to decide that such tenancies were excluded, since it would not outweigh the considerations I have already mentioned which point so strongly the other way. In any event, as Wheeler v Mercer shows, the terms of section 69 exclude at least tenancies at will, so it has some purpose.

I would dismiss this appeal.

LORD JUSTICE MUMMERY: I agree with the judgment of Hutchison LJ.

The flaw in the tenants' argument is in misunderstanding the legal nature and reciprocal deeming effect of the common law doctrine of estoppel, which prevents a landlord and a tenant from disputing one another's title. Although it was the case, as both parties discovered on 21 February 1994, that General Accident Fire & Life Assurance Corporation PLC (Fire) had no freehold or other title to the property at 31/33 Newport Road, Cardiff at the date of the grant of the lease on 29 June 1978, the doctrine of estoppel operated to prevent the tenants under that lease (and those deriving title from them) from denying that Fire had title to the premises. The law proceeds on a hypothesis that Fire had a title which they did not in fact have. As between the tenants and Fire (and their successors in title), that hypothesis is irrefutable by evidence.

The tenants' submission that Part II of the Landlord and Tenant Act 1954 does not apply to tenancies by estoppel is not based on any express statutory exclusion. It is based on the language of the statutory definitions of "landlord" in section 44(1) and of " tenancy " in Section 69(1). In brief, the tenants' case is that Fire were not the "landlord", because they were not the owners of the fee simple in the premises or of any other interest which satisfied the conditions of section 44(1). A similar argument is based on section 69 (1): there was no "tenancy" of the premises to which the 1954 Act applied, as the tenancy by estoppel was not "created either immediately or derivatively" out of the freehold. It is argued that, although the doctrine of estoppel prevented the tenants from disputing Fire's title to grant the lease in 1978, it did not prevent them from contending that Fire were not the "landlord" within the statutory definition or that the tenancy by estoppel, which it is conceded existed, was not a "tenancy" within the statutory definition. On that argument there was, at the material time, no "landlord" and no "tenancy" of the business premises within the meaning of the 1954 Act.

In my judgment, these contentions are misconceived because, while accepting the existence of a tenancy by estoppel, they seek to avoid the legal consequences inevitably flowing from it. The wise words of Lord Asquith on statutory deeming provisions in East End Dwellings Co Ltd -v- Finsbury Borough Council [1952] AC 109 at 132 to 133 are in point:

"If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents, which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it."

The effect of the common law doctrine of estoppel is to bid you to treat an imaginary state of affairs as real ie that Fire were entitled to the fee simple or such other interest in the premises as would have enabled them to grant the term of years by the 1978 Lease.

The consequences of treating that imaginary state of affairs as real must also be imagined as real, unless there is a prohibition against doing so. One of those "real" consequences is that the tenants were not legally entitled,as against Fire, to assert that the title to the premises was vested in anyone other than Fire; or that someone other than Fire were the landlord; or that no tenancy existed between them and Fire. There is nothing in the language of the definitions or other provisions of the 1954 Act excluding a tenancy by estoppel from statutory protection. There is nothing in the evident policy of the Act excluding from its protection those tenants who occupy business premises under a lease in circumstances in which they are prevented from disputing their landlords' title to grant the tenancy.

The common law doctrine of tenancy by estoppel (which can be traced back to the Year Books) and the doctrine of relativity of title at the root of the English law of real property apply to and have effect in this case consistently with the language and the policy of the legislative scheme of protection in Part II of the 1954 Act. As appears from the citations in the judgment of Hutchison LJ, the juristic basis and the legal effect of the estoppel doctrine were authoritatively expounded in the Court of Exchequer by Martin B in Cuthbertson -v- Irving (1859) 4 H & N 742 in terms applicable to this case. (The estoppel runs with the land and binds it in the hands of successors in title.) The result is also consistent with the legal effect of the satellite doctrine of "feeding the estoppel" (referred to by the judge), which applies when an interest in the land is acquired by the person deficient in title at the time of the grant from which the estoppel arose: "so that,as Hale put it,' by purchase of the land, that is turned into a lease in interest, which before was purely an estoppel'": see Holdsworth's History of English Law, Vol.VII, p.246.

Under questioning from the court counsel for the tenants was unable to suggest any sensible reason why the estoppel and its legal consequences should suddenly evaporate in a puff of statutory smoke by virtue of the definitions of "landlord" and" tenancy" in the 1954 Act. I repeat the critical point: it is simply not possible to discern in the policy or in the scheme or in the detailed provisions of the Act any sound reason why a tenancy by estoppel, affecting premises occupied by tenants for business purposes, should be excluded from its protection.

It is unnecessary to decide the new point, raised by the Respondent's Notice in the circumstances described by Hutchison LJ, that Fire acquired title by adverse possession of the premises as against their associated company in whom the fee simple was in fact vested. If it were necessary to deal with that point, the proper course would be for this court not to decide it, but to remit the case, so that appropriate directions could be made as to parties and pleadings and so that the factual situation could then be the subject of evidence and argument at the trial of the landlords' application for interim rent under section 24A of the 1954 Act.

For all those reasons, I also would dismiss this appeal.

LORD JUSTICE BELDAM: For the reasons given in the judgments of Hutchison L.J. and Mummery L.J., I agree that the appeal should be dismissed.

ORDER: Appeal dismissed; defendants to have the costs of the appeal from the date of the last order.