Landlord and Tenant Act 1954–Possession of public house sought by freeholders from lessee–Whether Part II of Act applied to give lessee security of tenure–On-licensed premises excluded from Act, but exception to exclusion in section 43(1)(d)(i)–Exception where business includes the reception of guests to sleep on premises or the carrying on of a restaurant, or both, and a substantial proportion of the business consists of transactions other than sale of alcoholic liquor–Whether a substantial proportion so consisted in this case–Meaning of ‘substantial’–Tenant’s submission that proportion was between 17 and 18 per cent–Impossible to lay down any precise figure as a test of substantiality–However, accepting the percentages submitted, and looking at the whole picture, it could not be said that the non-alcoholic transactions constituted a substantial proportion of the business–Tenant not entitled to claim security of tenure under Act–Appeal from county court dismissed
This was an
appeal by the tenant from a decision of Deputy Judge Rawlins in favour of the
landlords in a possession action heard at Andover County Court. The plaintiffs,
trustees of the will of the late Mr Butler-Henderson, of Faccombe Manor, sought
possession of the George and Dragon public house in Faccombe from Mrs Winifred
Margaret Ellen Gresham, the lessee and licensee. The appellant claimed that she
was entitled to the protection of Part II of the Landlord and Tenant Act 1954.
J L Powell
(instructed by Warner & Richardson, of Winchester) appeared on behalf of
the appellant; J Gaunt (instructed by Bischoff & Co) represented the
respondents but was not called on.
Giving
judgment, ROSKILL LJ said: This is an appeal from a decision of Mr Christopher
Rawlins sitting as a deputy judge at Andover County Court. Judgment was given
by the learned deputy judge on March 9 1979, there having been an earlier
hearing about a month previously.
The case arose
in this way. The plaintiffs were the trustees of the will of the late Mr
Butler-Henderson of Faccombe Manor, Faccombe, being a village on top of the
North Hampshire Downs to the south-west of Newbury. The trustees sought to
obtain possession of a public house, the George and Dragon Inn in Faccombe, of
which they were the freeholders. The defendant was a Mrs Gresham, who at the
time these proceedings were brought was the lessee and licensee of those
premises. She held a justices’ licence and she was in possession of those
premises under a lease dated September 6 1971 between her and the late Mrs
Butler-Henderson, who presumably was the life tenant of that estate at that
time. That lease was for seven years from March 6 1971 and therefore expired on
March 6 1978. In May 1977 Messrs John German, Ralph Pay, estate agents acting
for the trustees, warned Mrs Gresham that the trustees would not be willing to
renew that lease when it expired by effluxion of time.
The lease
originally had been in favour of Mrs Gresham and her husband, but during the
currency of the lease matrimonial differences arose as a result of which Mrs
Gresham became the sole lessee and the sole licensee of those premises. The
case is one of the utmost importance to her, for in 1971 with her husband’s
assistance she took on this public house which all the evidence shows was in an
exceedingly bad, one might almost say derelict, condition. She invested some
£12,000 in it, and now, if her appeal fails, she loses the benefit of her
investment, for she has, as the respondents claim and the learned deputy judge
has held, no security of tenure at all.
Her defence to
the trustees’ claim was that she had such security of tenure, and she relied
upon section 43(1)(d)(i) of the Landlord and Tenant Act 1954. The protection
given to tenants by that statute and the consequent entitlement to renewal of
leases upon their expiry by effluxion of time does not, as is well known,
extend to premises ‘licensed for the sale of intoxicating liquor for
consumption on the premises’ — and I quote from the words in paragraph (d) of subsection
(1) of section 43. But to that basic rule there is an exception, and it is upon
that exception that Mrs Gresham seeks to rely. The exception reads thus:
(i) premises which are structurally adapted to be
used, and are bona fide used, for a business which comprises one or both of the
following, namely, the reception of guests and travellers desiring to sleep on
the premises and the carrying on of a restaurant, being a business a
substantial proportion of which consists of transactions other than the sale of
intoxicating liquor;
The argument
advanced before the learned deputy judge and again by Mr Powell on Mrs
Gresham’s behalf in this court is first that these premises were structurally
adapted to be used and were bona fide used for a business which comprised one
or both of those purposes, namely the reception of guests and travellers
desiring to sleep on the premises and the carrying on of a restaurant, and
secondly was a business a substantial proportion of which consisted of
transactions other than the sale of intoxicating liquor. The learned deputy
judge, if I may say so, in a most careful judgment (he obviously appreciated
the importance of this case to Mrs Gresham) found in her favour on the first
two points. He held–and his findings have not been challenged–that these
premises were structurally adapted to be used for a business which comprised
one or both of those two purposes, and secondly (and this was not challenged
below) that they were bona fide used for those purposes. The controversy below
and in this court is whether when one looks at the totality of the business,
that is to say the business of the public house, the business of reception of
guests and travellers desiring to sleep on the premises and the business of
carrying on a restaurant, it could be said on the evidence that a substantial
proportion of that business consisted of transactions other than the sale of
intoxicating liquor.
Not
surprisingly in these circumstances Mrs Gresham did not keep detailed accounts.
Apparently at the beginning of her tenure of this public house some accounts
were kept with the aid of accountants, but, particularly after her husband left
her, she was no doubt too preoccupied with work to keep detailed accounts, and
therein lay part of the learned deputy judge’s difficulty and part of our
difficulty, and of course part of her difficulty in seeking to upset the
findings of the learned deputy judge. It was agreed that the problem which had
to be resolved should be resolved by reference to such evidence as was
available from various sources of the figures of her takings for the last year
of her tenancy, that is March 1977 to March 1978. It is not necessary to
consider as a general question what is the right date to take for the purpose
of resolving the problem which paragraph (d)(i) requires the county court to
resolve; in this case it has been agreed that this problem should be resolved
by reference to that period and none other.
A good deal of
time was spent with counsel trying to decide what were the relevant figures,
and naturally–and this is not a matter of criticism in any way–it was difficult
for the relevant figures to be ascertained with any degree of mathematical
precision. But solicitors on both sides have–and the court are very grateful to
them for the trouble they have obviously taken–gone through the relevant books
and produced schedules which showed that for the last 12 months of the
contractual tenancy the takings otherwise than from board and lodging and
evening meals were £9,512; and that is one of the few figures in this case
which has been able to be ascertained with a reasonable degree of certainty.
And of course the great bulk of that figure would be from the sales of
alcoholic liquor, though, as Mr Powell rightly said, if one were concerned with
mathematical precision one would have to deduct something from that figure for
what was included in it for the sales of soft drinks and the like which got
into the global figure of sales at the George and Dragon Inn.
The next thing
which the learned judge had to consider was what were the figures for the bed
and breakfast that was provided. The learned judge arrived at a figure for that
for 41 customer nights, if I may use that phrase, at £184. That was working on
a basis of £4.50 for bed and breakfast for people who were recorded in Mrs
Gresham’s visitors’ book. But in addition there was evidence from Mrs Gresham,
which the learned deputy judge undoubtedly accepted (and this was supported by
a diary for 1977 which she produced on the last day of the hearing) showing
that a number of other people used to come to the George and Dragon to stay and
eat there, and indeed no doubt drink there, whose names did not appear in the
visitors’ book. And there was evidence of the takings from those other persons,
which the learned deputy judge put at £650. He therefore reached a total of
takings from the letting of overnight accommodation at £830. And he increased
that figure to a round figure of £1,000 by adding the figure of £170 in respect
of dinner and other matters that are referred to in his judgment. So the
learned judge added the £9,512 and £1,000 together and obtained the resulting
round figure of £10,500. He then said, ‘Looked at in the round I think that
probably represents the approximate total income which Mrs Gresham received in
respect of transactions made in the running of the business. This indicates a
proportion of about 9 1/2 per cent of the total income being derived from
overnight accommodation and meals.’
Mr Powell has
challenged the learned judge’s conclusion that 9 1/2 per cent is the relevant
figure to take when one has to consider what was a substantial proportion for
the purpose of paragraph (d)(i) of section 43. He sought to break down that
figure. As I have already said, he said that the £9,512 had to be discounted
for non-alcoholic sales and other like matters; and he proceeded to suggest how
we should approach the relevant calculation. There was evidence before the
learned judge that expenditure–and I stress the word is expenditure and not takings–on
alcohol was £6,429 and the expenditure (again expenditure and not takings) in
non-alcohol was £1,511. Taking the ratio of those two figures to each other he
sought to apply that same ratio to the takings figure of £9,512, and thus,
proceeding in that way, arrived at a total figure of £10,500 from which had to
be deducted £8,720, as he said, for alcohol, and submitted that the difference
gives a percentage of between 17 per cent and 18 per cent as attributable to
transactions other than the sale of intoxicating liquor. He attacked a sentence
in the judgment where the learned judge said: ‘If I sell alcohol which includes
soft drinks it is part of the same sale.’
He also attacked the next sentences: ‘Perhaps tobacco is in a different
category. If one looks at the expenditure on food and miscellaneous and relates
that expenditure to expenditure on alcohol excluding bar sales I get a total of
£7,300 of which £900 is food and miscellaneous. That is about 12 per cent.’
Mathematical
precision here unfortunately, and I think it is unfortunate for Mrs Gresham, is
unobtainable. It would be a rare case of this kind where exact mathematical
precision was obtained. And of course the question that has to be resolved
under section 43(1)(d)(i) does not have to be resolved by reference only to
mathematical calculations. One has to look at the facts as they emerge and then
ask oneself–in this business is there a substantial proportion which consists
of transactions other than the sale of intoxicating liquor? For my part I think the right approach to the
present case is to assume every fact that one possibly can in favour of Mrs
Gresham, having regard to the degree of uncertainty which attaches to the
figures, and I have endeavoured, following Mr Powell’s argument, to approach
the problem in this way. We asked Mr Powell what the highest figure was that he
could reasonably
intoxicating liquor, and he said that the proportion would be a figure
somewhere between 17 per cent and 18 per cent. Proceeding on that basis and
accepting, at any rate to a certain extent, the correctness of his criticism of
certain sentences of the judgment I ask myself–can it be said on the facts of
this case, having regard to the nature of this business as a whole, which was
primarily at any rate the running of a public house, that the transactions
relating to non-alcoholic sales represented a substantial proportion of the
total? That of course depends on what
one means by the word ‘substantial.’ In
recent legislation one finds the word ‘substantial’ used in many different
contexts. We were referred to a number of cases upon the Rent Acts. One finds
the same adjective or adverb used in other statutes; one finds it, for example,
in the Homicide Act 1957 in connection with diminished responsibility. There
can be no one meaning of the word, whether it appears as an adjective or
adverb, which is applicable in all circumstances. One has to look at the
context of the statute in which the wording is used and then look at the facts
of the particular case. Now if one thing emerges with a reasonable degree of
certainty in this case it is that so far as night lettings and night visitors
were concerned the business was a comparatively small part of the whole. One
finds in the learned judge’s findings that in relation to those who were
recorded in the visitors’ book there were only 41 customer nights; and one
finds that there were periods of time when there were no visitors there at all.
At other times, perhaps in the summer, it would have been rather more, because
no doubt this is an attractive place to stay. But I find myself unable to lay
down any precise figure beyond which something is substantial or below which it
is not substantial. I do not believe that is the right approach at all. I think
that one has to look at this on the basis of fact most favourable to Mrs
Gresham and then say–can it be fairly said that on those figures the
non-alcoholic sales figures represented a substantial proportion of the
business? And asking myself that
question I have come to the conclusion, like the learned deputy judge, that I
cannot do so.
I would only
say this. The problems which one might imagine might arise under section 43 do
not appear to have been many. but we were referred to a very brief report of a
decision of the then Vice-Chancellor of the Lancaster Palatine Court decided on
July 2 1968, J G Swales & Co v H S Mosley (1968) CLY 2187.
The case is also mentioned at p 1848 of the 1979 County Court Practice
where a note appears as follows: ‘The words ‘structurally adapted to be used .
. . for a business which comprises . . . the carrying on of a restaurant’ in
subsection 1(d)(i) means that it must be shown that the principal business
carried on upon the premises is that of a restaurant and that the sale of
intoxicating liquor is ancillary.’ The
report in (1968) CLY 2187 under para 1 of the rubric is to the like effect. I
can only say with profound respect to any judgment of the late Sir Thomas
Burgess, that if his judgment be correctly reported I would not agree with it
as regards paragraph (i). If one looks at section 43(1)(d)(i) and compares the
provisions of that paragraph with section 43(1)(d)(ii) one finds the word
‘ancillary’ is used in subparagraph (ii). The word ‘ancillary’ is not used in
subparagraph (i), and so therefore, with great respect to Sir Thomas Burgess,
it seems to me wrong to import the word ‘ancillary’ from one paragraph to the
other where the word is deliberately used in (ii) but not in (i). The test
seems to be, as I have already indicated, whether the business consists of a
substantial proportion of transactions other than the sale of intoxicating
liquor. I do not think that the test suggested by the then Vice-Chancellor is
the correct one.
For those
reasons, which I have given at a little length in deference to Mr Powell’s
argument, I would dismiss this appeal.
Agreeing,
ORMROD LJ said: I entirely agree with the judgment which has just been given
and I would only like to say that I too have great sympathy for Mrs Gresham,
whose position is extremely difficult, and I can only wish that it had been
possible to help her within the confines of the law as it stands. Mr Powell has
said on her behalf everything that could be said and with great dexterity, if I
may say so.
I would only
say this. At the conclusion of his judgment the learned judge said: ‘Looking at
both the mathematical and circumstantial approach and the broad picture I
conclude that a substantial proportion of the business did not consist of
transactions other than the sale of intoxicating liquor.’ In my judgment that is precisely the right
approach to this difficult question as to what the word ‘substantial’ means.
It seems to me
that the most helpful passage in relation to the application of this term is to
be found in Buckley J’s judgment in Re Net Book Agreement, 1957 [1962] 1
WLR 1347 at p 1377. The learned judge in fact adopted precisely the approach of
Buckley J (as he then was).
Mr Powell
referred us to a passage in the judgment of Scarman LJ (as he then was) in Woodward
v Docherty [1974] 1 WLR 966. The passage in question is at p 970G, where
the learned Lord Justice said this: ‘I do not think this court could reverse
his’–that is the judge below’s–‘finding that £70 a year was a substantial part
of a rent of about £520 a year–though it was, I think, very near the
borderline.’ That is not, in my
judgment, to be used as authority for the proposition in all cases that the
proportion of £70 to £520 is to be treated as a definition of the meaning of
‘substantial.’ It is clear from the
words that the learned Lord Justice used that he himself was not thinking that
way. He was merely saying that he could not reverse the finding of fact of the
county court judge on that particular point. But it would be wrong I think with
respect to cite it as authority or as an indication of the meaning of
‘substantial.’
I, too, would
dismiss the appeal.
Also agreeing,
SIR DAVID CAIRNS said: Because, with great respect to the learned judge who
heard the case, I am not entirely in agreement with him as to the proper
approach to the evidence in this case I will briefly state my own reasons for
the conclusion that he did come to the right decision.
I consider
that on the true construction of section 43(1)(d)(i) of the Landlord and Tenant
Act 1954 the questions to be considered are whether the whole business carried
on on the premises includes the reception of sleeping guests or the carrying on
of a restaurant or both, and whether a substantial proportion of the whole
business consists of transactions other than sales of alcoholic liquor.
In my judgment
the learned judge was wrong to treat the tobacco and bar sales, the bar sales
being sales of soft drinks etc at the bar, as part of the transactions in
alcoholic liquor. I consider that those sales fall into the part of the
business other than transactions in alcoholic liquor. On that basis the figures
that were in evidence point to a proportion of 16 per cent or 17 per cent
rather than 9 per cent to 12 per cent as arrived at by the learned judge as
being the proportion of the business attributable to non-alcoholic transactions.
That being so I consider that the proper approach of this court is to apply its
own mind to those figures, to take into account the inherent difficulty of
exactness in arriving at the figures sought, and further to take into account
the whole picture of the business as presented in the evidence. Looking at the
matter in that way I agree with my Lords that the proportion of business
attributable to transactions other than transactions in alcoholic liquor is not
a substantial one.
For those reasons
I, too, would dismiss the appeal.
The appeal was dismissed with costs.