Landlord and tenant — Appeal from decision of Goulding J in favour of long leaseholders of flat in action by them against lessors (Selico Co Ltd) and management agents (Select Managements Ltd) on grounds of fraudulent misrepresentation by lessors and breaches of obligations and trusts under the lease — Goulding J had awarded the plaintiff leaseholders (the present respondents) damages for deceit and he had made an order under section 125 of the Housing Act 1974 by way of specific performance, requiring the lessors to put so much of the block of flats as was in their possession or control into such reasonable condition as not to cause damage to the lessees or their flat by the incursion of water, propagation of dry rot or otherwise — One of the lessees’ main complaints had been of an extensive outbreak of dry rot in the flat, indications of which, it was alleged, had been deliberately covered up before the purchase — The lessors and the agents appealed — There was no challenge on the appeal against Goulding J’s finding of a deliberate and fraudulent cover-up by a building contractor instructed by the management agents, but it was claimed by the lessors and the agents that neither were answerable for the tort of the contractor on the basis of actual or ostensible authority — Goulding J had held that the lessors were liable for the deceit on the ground that the dishonest act was done by the contractor in the course of work ordered by the management agents within the scope of their authority as the lessors’ agents — The Court of Appeal, while upholding the judge’s finding of deceit against the lessors, arrived at the same conclusion by a different route — In their view the management company was, through its main shareholder, a party to the deceit and, as the lessors had entrusted the company with sufficiently wide authority, they were vicariously liable for the fraudulent misrepresentation — The Court of Appeal also agreed with the judge that both the lessors and the agents had been guilty of breaches of covenant and breaches of trust under the lease — As regards relief, damages were not by themselves a sufficient remedy and an order for the enforcement of the trusts of the lease was required — In view of the complexity, the Chief Chancery Master would be charged with the working out of the order — Accordingly, the court ordered the lessors to pay the lessees damages for the tort of deceit and for breaches of contractual obligations under the lease and made orders for the execution of the trusts of various clauses in the lease and for specific performance of the lessors’ covenants to keep certain parts of the block in good repair in pursuance of section 125 of the Housing Act 1974 — The Chief Chancery Master was entrusted with the authority to give all necessary directions for the working out of these orders — Appeal dismissed with variations of Goulding J’s order as indicated in the judgment of the court
This was an
appeal by the defendants, Selico Co Ltd and Select Managements Ltd, from a
decision of Goulding J in favour of the plaintiffs (the present respondents),
Jack Leonard Gordon and Anya Teixeira. The action and appeal concerned Flat C
in a block called Court Mansions, Frognal, Hampstead, London NW3, of which the
appellants, Selico Co Ltd, were the lessors and the respondents were the
lessees. The decision of Goulding J was reported at [1985] 2 EGLR 79, (1985)
275 EG 899.
J H G Sunnucks
(instructed by Druces & Attlee) appeared on behalf of the appellants;
Jonathan Brock (instructed by Sebastian Coleman & Co) represented the
respondents.
Giving the
judgment of the court, SLADE LJ said: This appeal arises out of a dispute
between landlords and tenants concerning premises known as Flat C, Court
Mansions, 13-15 Frognal, London NW3. The respondents, who are the tenants and
the plaintiffs in the proceedings, are Mr Gordon and Mrs Teixeira. The first
defendant and appellant, Selico Co Ltd (‘Selico’), has at all material times
been the owner of Court Mansions. The second defendant and appellant, Select
Managements Ltd (‘Select’), is an estate agent, which has at all material times
managed Court Mansions for Selico. By an order made on January 28 1985, after
the trial of the action, Goulding J ordered that Selico should pay to the plaintiffs
damages for the tort of deceit, such damages to be assessed on inquiry before
an official referee. He further ordered that Selico should, by way of specific
performance of covenants contained in a lease made between the parties to the
proceedings on August 24 1979 in respect of Flat C, on or before September 28
1985 and at its own expense, put so much of Court Mansions as was in the
possession or control of Selico ‘into such reasonable condition as not to cause
damage to the plaintiffs or to the premises demised by the said lease by the
incursion of water, the propagation of dry rot or otherwise’. In addition he
ordered that each of Selico and Select should pay to the plaintiffs damages for
breach of covenant in the sum of £10 and dismissed their counterclaim in the
proceedings. He directed the two defendants to pay to the plaintiffs their
costs of the action and the counterclaim and gave the parties liberty to ‘apply
at chambers for any necessary directions for the purposes of enforcement and
clarification of the order for specific performance and generally’.
The defendants
now appeal from the whole of this judgment. They ask that it should be set
aside and that judgment may be entered for them for the relief asked in their
counterclaim or that a new trial may be ordered.
The learned
judge gave the following description of the block in which Flat C is situated:
Court
Mansions contains five floors symmetrically disposed about a central front door
and staircase. On the left, as you look at the building from the street and
raise your eyes from the basement to the roof, there are in succession flats A,
C, E, G and K. Similarly, on the right are flats B, D, F, H and J. The basement
flat on the left, Flat A, has been subdivided. The anterior part is now known
as Flat L — the rear as Flat A. The defendants say that they never consented to
the subdivision. So far as material to this judgment, it appears that Flats A,
C, F, J and K have been let on long leases, all assumed (though without much
evidence) to be in terms similar to the lease held by the plaintiffs. The other
flats have been let on short tenancies, in some cases at least with furniture.
The evidence
did not establish when or in what condition Selico had acquired Court Mansions,
but the learned judge had no doubt that the building was already in a poor
state structurally when the plaintiffs first came on the scene in late 1978 and
that by then dry rot organism was already established in some parts of the
premises. Furthermore, as the judge found, the defendants ‘were not unaware of
the position’. In 1974 the tenant of Flat A had complained of damp due to the
blockage of external down-pipes. In January 1976 an occupier of Flat H had
drawn attention to a leaking roof. In October 1976 a solicitor, Mr Pringsheim,
who was the tenant of Flat F, reported the entry of rainwater from a defective
roof and/or gutters and in November 1976 protested at what he described as the
appalling state of the outside repairs to the building and common parts. In
March 1977 he sent a schedule of dilapidations to Selico’s solicitors,
alleging, among other things, defective tiling on the roof, perished valley and
parapet gutters, loose brickwork, wood rot in and around sashes and window
frames and defects of rainwater pipes and gullies, causing dampness to the
external walls. He began proceedings against Selico and appears to have settled
his claim and costs for £3,000. Furthermore, in July 1977, Select had received
a complaint about dry rot, among many other defects, in Flat H from a Mr
MacGillivray, who had occupied that flat for several years.
In or about
1977 a Mr Podolski, who had been the tenant of Flat C, died. The flat then
remained unoccupied until the plaintiffs moved into it. During this interim
period, however, Mr MacGillivray inspected it because he himself was interested
in purchasing it. He works in the timber industry. He gave evidence at the
trial on behalf of the plaintiffs. His evidence was that, when he started in
the trade, he studied timber technology for four years, that he was an
Associate Member of the Institute of Wood Science and that he would know dry
rot if he saw it. His evidence in chief was that when he inspected Flat C ‘it
looked a very sorry state indeed. On entering the flat the first thing that you
noticed was the smell and on inspection of the front room and also the bathroom
you could clearly see evidence of dry rot’. The front room in question was a
bedroom which, like the adjoining bathroom and lavatory, overlooked the road.
Later in his evidence in chief he was asked whether he was satisfied that what
he had seen in these two rooms was dry rot rather than some other form of
decay. In his reply he accepted that in some cases it is difficult to
distinguish between dry rot and wet rot, but expressed the opinion that what he
had seen was dry rot. This evidence of Mr MacGillivray was not challenged in
cross-examination. The learned judge accepted him as a truthful witness and his
evidence is significant for reasons which will appear.
Subsequent to
Mr MacGillivray’s visit to Flat C, steps were taken by Select, on behalf of
Selico, to render the flat more presentable for the purposes of sale. The
business of Select, as the judge found, was under the effective direction and
control of a surveyor, Mr C J Haskins, who held all but two of its issued
shares but was not a member of its board. Under his active control the business
was managed by one of Select’s directors, Mr P G Colenutt.
As the
documentation shows, Mr Haskins and Mr Colenutt were at the material time also
both members of a firm of incorporated valuers, surveyors and estate agents
known as ‘Grenadiers’. The writing paper of that firm shows the name of Mr
Haskins above a line and, below the line, the names of Mr Colenutt, under the
heading ‘Management’, and of another gentleman, under the heading ‘Sales’.
The evidence
shows that at a time probably in the latter half of 1978 Select, through Mr
Haskins and/or Mr Colenutt, instructed a building contractor, Mr Azzam, to do
any work to Flat C ‘to bring it up to a very good standard for the purpose of
selling’. In his oral evidence Mr Azzam, who was called as a witness by the
defendants, substantially exaggerated the extent of the work which he had done
to Flat C. However, he undoubtedly did do work to the front bedroom and
bathroom.
The first
plaintiff, whom the judge accepted as a truthful witness, drew attention in his
evidence in chief to a ‘startling contrast’ between the appearance at the
beginning of 1979 of the front rooms, which seemed in good condition, and the
rear rooms. He said:
The bathroom
and toilet were panelled in shiny new Laconite. The woodwork in the toilet and
bathroom appeared perfect, there was perfect painting and the same was true of
the front bedroom. The rest of the flat was disfigured by various stains of the
type produced by the flooding from somebody’s bathroom and the like and
certainly the rear, the terrace door, looked as if the woodwork would require
replacement.
Mr Azzam’s
evidence at the trial was that he had worked for Select for about 20 years and
that 80% of his turnover was work done for Select. He said his work to Flat C,
on which four men had been engaged, had taken 8 to 10 weeks, that it had been
supervised by Mr Haskins, who had visited the flat at least weekly while it was
proceeding, and that he (Mr Azzam) had found no dry rot. If he had found it, he
said, he would have reported it immediately to Mr Haskins. The learned judge,
apparently without hesitation, rejected Mr Azzam’s evidence that he had not
found dry rot. He described Mr Azzam as ‘a careless witness easily trapped into
inconsistencies and demonstrably untrue assertions’. The oral testimony of the
plaintiffs’ surveyor, Mr Wolmark, of the defendants’ surveyor, Mr Job, and of
Mr Tribbick, an environmental health officer in the service of the local
authority, led irresistibly, in his judgment, to the inference that Mr Azzam
had deliberately covered up patches of dry rot without any attempt at
eradication. On this appeal there is no challenge to this important finding of
fact relating to Mr Azzam’s activities.
In the latter
part of 1978, the plaintiffs obtained particulars of sale relating to Flat C
from a firm of estate agents, Hamptons, who were acting as subagents for
Grenadiers, the firm in which Mr Haskins and Mr Colenutt were concerned.
Grenadiers had apparently been appointed agents for the sale of Flat C by or on
behalf of Selico. In or about November 1978 the plaintiffs visited the flat for
the purposes of inspection. Mr Azzam gave evidence to the effect that one or
both of them inspected the flat while his work was in progress. The judge,
however, rejected this evidence, accepting the plaintiffs’ evidence that they
never saw Mr Azzam before November 1980. It seems clear that Mr Azzam’s
cover-up operation had been completed before they saw the flat.
Flat C was for
sale as a long leasehold and in November 1978 the plaintiffs agreed, subject to
contract, to pay £31,000 for a 99-year lease.
The usual
preliminary inquiries were then made and answered. In February 1979 the
plaintiffs obtained a detailed report relating to the condition of Flat C from
surveyors, Spyers & Partners. Among other things they reported that they
had found no dry rot, but pointed out that they had only lifted one floorboard
in the flat and could not guarantee that dry rot did not exist elsewhere in the
building.
Formal
contracts providing for the sale of the leasehold interest in Flat C were
exchanged between Selico and the plaintiffs in May 1979. The contract
incorporated clause 4(2)(a) of the Law Society’s General Conditions of Sale
(1973 revision) which, so far as material, provides that ‘the purchaser shall
buy with full notice of the actual state and condition of the property and
shall take it as it stands . . .’. As the judge found, at the date of the
contract certain exterior repair work was in hand and Selico’s solicitors
promised that the plaintiffs would not be charged a proportion of its cost.
In June 1979
the plaintiffs became aware that dry rot had appeared on the external front
elevation between the top of their front bedroom and the bottom of Flat E,
above their own flat. They informed their solicitors but, it seems, not the
defendants. Their evidence was that they did not take the matter very seriously
and were advised, rightly or wrongly, that they must complete their purchase.
It seems that they did not realise that the interior of Flat C was also
affected.
The contract
was completed by the grant of the lease on August 24 1979.
The lease
dated August 24 1979
This is an
elaborately drafted and lengthy document, but we see no satisfactory
alternative to a full summary of its contents coupled with the quotation of a
number of its specific provisions. The parties to it were Selico, defined as
the lessor, the two plaintiffs, defined as the lessee, and Select, defined as
the maintenance trustee. It recited, inter alia, an agreement for the
grant by the lessor to the lessee of the lease of Flat C for a premium of £30,000.
Clause 1(F) defined ‘the lessor’s property’ as meaning the land and buildings
comprising the block of flats known as Court Mansions and ‘the building’ as
meaning the main and ancillary buildings standing on the lessor’s property.
Clause 1(G) defined ‘retained property’ as including all such parts of the
lessor’s property not by this or any other lease or tenancy demised or let.
Clause 1(H) and the first schedule to the lease contained a lengthy definition
of ‘the demised premises’ which, while in general terms including Flat C,
excluded (inter alia) those parts of the building lying above the
surfaces of the ceilings or below the floor surfaces, the main timbers and
joists of the building and of the external walls and conduits in the building,
not serving exclusively the flat. These wide exclusions had the effect of
extending the ambit of the ‘retained property’.
Clause 1(L),
so far as material, defined ‘maintenance year’ as meaning every 12-monthly
period ending on March 25. Clause 1(N) defined ‘maintenance contribution’ as
meaning:
a sum equal
to such percentage proportion of the aggregate annual maintenance provision for
the whole of the Building (computed in accordance with the provisions of the
Fourth Schedule hereto) as the rateable value of the Demised Premises bears to
the aggregate of the rateable values of all the flats in the Building.
It further
defined ‘maintenance account’ as meaning:
the account
into which all Maintenance Contributions for the Building are paid and out of
which all disbursements relating to the maintenance of the Building are made.
Clause 1(N)
contained a definition of a distant ‘perpetuity date’. Clause 1(O) defined
‘maintenance trustee’ as meaning ‘the trustee or trustees for the time being of
the Maintenance Account’.
By clause 2
the lessor, in consideration of the premium, demised the demised premises to
the lessee for 99 years from June 24 1978 at a yearly rent of £65 for the first
25 years and with certain modest increases thereafter. Clause 3 contained a
number of covenants on the part of the lessee, which were expressed to be made
with the lessor and the maintenance trustee. These included, inter alia,
covenants to pay rent and outgoings in respect of the demised premises, a
covenant to repair and maintain them and a covenant to permit the maintenance
trustee or the lessor entry for the purpose of effecting repairs to other parts
of the building.
By clause 4
the lessee further covenanted with the maintenance trustee and with the lessor
to pay the maintenance contribution, so far as material, in the following
terms:
THAT the
Lessee will in respect of every Maintenance Year pay the Maintenance
Contribution to the Maintenance Trustee by four equal instalments on the
quarter day immediately preceding the Maintenance Year and on the three
subsequent quarter days in the Maintenance Year . . .
The fourth
schedule to the lease contained provisions for the computation of the annual
maintenance provision. Para 1 provided that this provision in respect of any
maintenance year, other than the year ending March 25 1980, should be computed
not later than the beginning of June immediately following the commencement of
the maintenance year and should be computed in accordance with para 2. Paras 2,
3 and 4 provided:
2 The Annual Maintenance Provision shall
consist of:
(a) a sum comprising the expenditure estimated as
likely to be incurred in the Maintenance Year by the Maintenance Trustee for
the purposes mentioned in Clause 6 of this Lease;
(b) the remuneration of the Maintenance Trustee
which shall be an amount equal to One per centum of the sum calculated in
accordance with paragraph (a) hereof after deduction from such sum the
remuneration of the Surveyor.
3 As soon as practicable after the end of each
Maintenance Year the Lessor shall procure that the accounts for that
Maintenance Year shall be audited by an accountant in accordance with the
provisions of the Housing Finance Act 1972 (as amended) and such audited
accounts for each Maintenance Year shall be conclusive of the amount of the
Annual Maintenance Provision or the amount of any adjustment thereof for the
Maintenance Year.
4 Upon receipt of the audited account the
Lessor shall deliver a copy thereof to the Lessee and shall notify the Lessee
of the amount by which the estimate under 2 above shall have exceeded or fallen
short of the actual expenditure in that Maintenance Year and the Lessee shall
be allowed or shall pay as the case may be the proportion appropriate to the
Demised Premises of the excess or deficiency.
This, then,
was the machinery by which the obligations of the lessee to contribute to the
maintenance fund were to be quantified and enforced. Clauses 5 and 6 of the
lease declared the trusts upon which the maintenance trustee was to hold the
maintenance fund. Clause 5 provided:
The
Maintenance Trustee shall pay the Maintenance Contribution into the Maintenance
Account and shall pay thereout its remuneration calculated in accordance with
sub-paragraph (b) of paragraph 2 of the Fourth Schedule hereto and shall hold the
balance (if any) in the Maintenance Account upon trust to apply the same until
the Perpetuity Date for the purposes specified in Clause 6 hereof and subject
thereto upon trust set forth in Clause 7 hereof.
Clause 6(A)
set out the purposes for which the maintenance fund is to be applied. These
included such purposes as the employment of a surveyor, the decoration and
repair of the structure of the building, the payment of rates in respect of the
building, the upkeep of the grounds, insurance, management expenses and the
decoration of common parts.
The purposes
specified in clause 6(A)(ii) included the following:
AND ALSO at
all times during the said term to keep the walls ceilings and floors of the
Retained Property (but excluding those of any flat for the time being not
demised by a lease in similar terms to this Lease as envisaged in Clause 10(C)
hereof) and the whole of the structure roof balconies foundations and main
drains of the Building and the walls rails fences and gates appurtenant thereto
in good repair and condition.
Clause 7
declared ultimate trusts of the maintenance fund to take effect on the
perpetuity date.
Clause 8
provided that the statutory power of appointing a new maintenance trustee
should be vested in the lessor, who was also to have the power by deed to
remove from office a maintenance trustee and to appoint a new one.
Clause 9
authorised the maintenance trustee and the lessor to enter into any agreement
whereby the maintenance trustee undertook to render any services to the lessor.
Clause 10
contained a number of covenants on the part of the lessor which were expressed
to be made both with the lessee and with the maintenance trustee. Subclause (A)
was a covenant for quiet enjoyment. Subclause (B) placed an obligation upon the
lessor, subject to certain provisos, if so required by the lessee, to enforce
against the tenant or occupier of any other part of the building the covenants
and conditions contained or implied in any lease thereof and enforceable by the
lessor, similar to the lessee’s covenants in the present lease. By clause 10(C)
the lessor covenanted that every lease of a flat in the building thereafter
granted for a term of years similar to the term granted by the lease should be
substantially in the same form and should contain similar lessee’s covenants.
Clauses 10(E),
(F) and (G) provided:
(E) THAT the Lessor will for the period that any
flat in the Building is let without the tenant thereof being required to pay a
Maintenance Contribution under an obligation similar to that contained in
Clause 4(A) hereof or is unlet pay in respect of all such flats to the
Maintenance Trustee a sum equal to the total of the Maintenance Contributions
that would be payable by the tenants of such flats and every amount so paid by
the Lessor shall be dealt with for all purposes as if it were Maintenance
Contribution paid by the tenants of such flats.
(F) THAT subject to the payment by the Lessee of
the Maintenance Contribution in accordance with the provisions of Clause 4
hereof the Lessor will procure the due performance by the Maintenance Trustee
of the obligations contained in Clauses 5 and 6 hereof and in the event of the
Maintenance Trustee failing to perform any of its said obligations the Lessor
will (subject to the aforesaid) duly perform and observe such obligations.
(G) AT the Lessor’s own expense at all times
during the said term to keep the walls and ceilings and floors of such of the
Retained Property as comprise any flats for the time being not demised by a
lease or leases in similar terms to this Lease as envisaged in Clause 10(C)
hereof in good repair and condition.
Of the several
other provisions of the lease we need only refer to clause 12, which reads as
follows:
NEITHER the
Lessor nor the Maintenance Trustee shall be liable or responsible for any
damage suffered by the Lessee or any servant or workman of the Lessee or any
member of the Lessee’s family or any guest of his through any defect in any
fixtures conduits staircase lift machinery (if any) or thing in or upon the Lessor’s
Property or any part thereof (including the flat) or through the neglect
default or misconduct of any porter or other servant employed by the
Maintenance Trustee or by the Lessor in connection with the Lessor’s Property
except in so far as any such liability may be covered by insurance effected by
the Maintenance Trustee pursuant to Clause 6(A)(v) and (vi) hereof.
Events
between the grant of the lease and the trial
The plaintiffs
moved into Flat C on January 1 1980 and were soon faced with serious problems.
Early in the same year a very badly corroded rainwater down-pipe situated
immediately adjacent to the external face of the walls of the front bedroom,
bathroom and lavatory of Flat C was removed and shortly afterwards extensive
dry rot was found to be present in the front bedroom, bathroom and lavatory.
The learned judge was satisfied that the probable cause of the disaster was
that stated in a subsequent joint report from the parties’ surveyors, namely
‘defects to the external plumbing for disposal of rainwater resulting in water
penetration of the brickwork’. Neither the plaintiffs nor the defendants were
willing to do the necessary work at their own expense. The local authority
served a dangerous structure notice in respect of the dry rot, dated August 18
1980, and obtained an order of the magistrates’ court on January 5 1981. Since
it was not complied with, builders instructed by the local authority did the
required work in March and April 1981. The plaintiffs told the judge that they
had to move into a hotel for 13 days, that Flat C was left in a condition
requiring extensive repairs and redecoration and that the dry rot in the flat
was not wholly extirpated.
This outbreak
of dry rot, however, was very far from being the only trouble which faced the
plaintiffs as Selico’s tenants. The learned judge gave this description of the
defendants’ activities or inactivity during the period between the grant of the
lease and the start of these proceedings in November 1982, which has not been
challenged on behalf of the defendants:
After
completion, more than three years passed before the commencement of this
action. During that time things went from bad to worse. The defendants made no
attempt to operate the system of maintenance set up by the Lease. Select did
not appoint a managing agent as provided by clause 6: it managed (or
mismanaged) Court Mansions itself, charging 10% of the Lessor’s maintenance
expenditure as a management fee, in addition to its 1% as trustee’s
remuneration. No real attempt was made to budget for estimated expenditure in
advance. The figures of actual expenditure, audited annually by Mr Schwartz,
pitifully increased each year by a conventional £200 called ‘Reserve Fund’,
were charged against lessees in proportion to rateable value. No Maintenance
Account, as contemplated by the Lease, ever existed, either at a bank or even
as a ledger account. Mr Sunnucks for the defendants said that one could be
constructed retrospectively. It has not however been done. Not only did the
defendants not seek to budget for and raise the money needed to put the
building in repair; but they made no serious effort to get the work physically
performed. Repeated complaints by the tenants were disregarded. Little was done
during these years except under the pressure of statutory notices, of which
there were many, from the Camden London Borough Council. Not all such notices
were obeyed. More than once the local authority did the work itself, and by the
time of the trial it was claiming over £30,000 in respect of Court Mansions.
Moreover, such work as was ordered by the defendants was frequently executed by
incompetent or ill-instructed builders. On more than one occasion the local
authority’s environmental health officer required it to be done again.
The
judgment of Goulding J
Against this
background the plaintiffs issued proceedings against both the defendants on
November 18 1982 and in their reamended statement of claim asserted six
cumulative or alternative causes of action, namely (1) deceit (against Selico);
(2) breach of the defendants’ express obligations contained in the lease; (3)
breach of terms alleged to be implied by the lease; (4) negligence; (5)
nuisance; (6) breach of trust on the part of Select.
The learned
judge did not find it necessary to say anything about the last cause of action,
which he said had not been seriously developed in the argument. In dealing with
the case generally, he said he had found his task made more difficult by what
he described as the undue reticence of the defendants. As he observed, constant
pressure by the plaintiffs had been required, both in the interlocutory
proceedings and during the course of the trial, to obtain adequate discovery of
documents. As to viva voce evidence, he had not seen any officer or
employee of Selico, except a Mr Schwartz, who was called only as the accountant
who, for the purpose of service charges and on the instructions of Select,
certified Selico’s costs. Though three employees of Select were called, the
judge described them as having strictly departmental duties. As he said, none
of them could speak of the policy or the responsible decisions adopted on
behalf of Select.
Neither Mr
Haskins nor Mr Colenutt was called to give evidence. We were told that the
first time the plaintiffs became aware of the identity of the person who had
actually carried out the relevant works was when Mr Azzam came to give his
evidence as the last of the defendants’ witnesses.
In the event,
the learned judge did not find it necessary to make any findings as to the
state of knowledge of Mr Haskins or of Select or of Selico in regard to the
cover-up because, as we infer from what counsel have told us, of the way in
which the case was then argued. The defendants’ counsel vigorously submitted
that the judge should not make any finding that Mr Azzam had perpetrated the
dishonest concealment alleged. As we understand the position, however, while
making no explicit concession on this point, he did not seek to argue that if,
contrary to his submission, Mr Azzam had been guilty of a fraudulent
misrepresentation, his tortious act would not be attributable to Selico.
In these
circumstances, the learned judge felt able to dispose of the issue of deceit
quite shortly. Having found as a fact that Mr Azzam was guilty of the dishonest
cover-up alleged, he continued:
Is it,
however, actionable at law? The law must
be careful not to run ahead of popular morality by stigmatising as fraudulent
every trivial act designed to make buildings or goods more readily saleable,
even if a highly scrupulous person might consider it dishonest. But it is to my
mind quite a different matter for an intending vendor to hide so sinister and
menacing a defect as active dry rot. The case is fairly comparable, in my view,
with the concealment of cracks indicating the settlement of foundations,
considered in Ridge v Crawley (1958) 172 Estates Gazette 637 and,
in the Court of Appeal (1959) 173 Estates Gazette 959. There the plaintiff
relied on a combination of words and conduct, but I believe it to be the law
that conduct alone can constitute a fraudulent misrepresentation. (See Horsfall
v Thomas (1862) 1 H&C 90 and Smith v Hughes (1871) LR
6 QB 597.) In my judgment the
concealment of dry rot by Mr Azzam was a knowingly false representation that
Flat C did not suffer from dry rot, which was intended to deceive purchasers,
and did deceive the plaintiffs to their detriment. I am satisfied that the
plaintiffs would not have entered into a contract or accepted the lease had
they known there was dry rot inside Flat C. I do not know whether the lessor
(against whom alone this claim of deceit is made) had by its responsible
officers any dishonest state of mind, but the dishonest act was done by Azzam
in the course of work ordered by Select within the scope of Select’s authority
as the lessor’s agent. The contrary has not been argued. I accordingly hold
that the lessor is liable to the plaintiffs in damages for deceit.
The learned
judge next turned to consider the defendants’ express obligations under the
lease. In this context he expressed his conclusions thus:
Clause 5 of
the Lease begins with the words ‘The Maintenance Trustee shall’, and is in my
opinion a promise by Select to open and operate a maintenance account and to
act as trustee thereof in accordance with clause 6. Then in clause 10(E) the
lessor covenants to make its own maintenance contributions and in clause 10(F)
to procure Select to carry out its part of the scheme. It seems to me plain
that, by failing to carry out the scheme of maintenance provided for by the Lease,
Select was in breach of clause 5 and the lessor was in breach of clause 10(E)
and 10(F) thereof. On the evidence the Lessor was also in breach of its
covenant in clause 10(G) to maintain the walls,
being Flat E immediately above the plaintiffs. I am also of opinion that the
failure of the lessor to keep the building watertight was a breach of the
covenant for quiet enjoyment contained in clause 10 (A).
In expressing
these conclusions as to breach of covenant the learned judge rejected four
points argued by Mr Sunnucks on behalf of the defendants. We need not refer to
three of these points (respectively based on the wording of clauses 10(B),
10(G) and 12 of the lease), since they have not been pursued on this appeal. We
will revert to the fourth (which was based on the introductory words of clause
10(F)) later in this judgment.
The learned
judge dealt with implied covenants and negligence together. He held that the
lease contained an implied covenant by Select to estimate or procure the
estimation of each year’s likely expenditure by Select for the purposes of the
4th Schedule and that this implied term had been inexcusably broken. There is
no appeal against this.
The other
implied term alleged by the plaintiffs had been formulated in para 11 of their
statement of claim as follows:
Further or
alternatively the First Defendant at all times retained possession and control
of the whole of the Building except the Flat and in particular retained
possession and control of those parts of the building described in paragraphs 5
and 6 hereof. By reason thereof the First Defendant impliedly covenanted to
take reasonable care that the condition of the said retained premises should
not cause damage to the Plaintiffs or to the Flat.
The parts of
the building described in paras 5 and 6 are the structure, conduits etc. This
claim was founded on the general principle established by such cases as Hargroves,
Aronson & Co v Hartopp [1905] 1 KB 472, and Cockburn v Smith
[1924] 2 KB 119 and recently considered by this court in Duke of Westminster
v Guild [1984] 3 WLR 630.
The learned
judge accepted this submission in so far as it was based on implied term,
saying this:
So here, the
plaintiffs have pleaded negligence as well as the implied term. For my part I
think the better characterisation of the alleged duty of the lessor is as an
implied term. Where there are gaps in an instrument expressing the reciprocal
obligations of landlord and tenant, it is, in my judgment, more natural to fill
them by implication, as the House of Lords did in Liverpool City Council
v Irwin [1977] AC 239, than to invoke the law of tort. The distinction
may be of more importance since the enactment of section 125 of the Housing Act
1974 to which I shall refer hereafter. On either view, however, the question
arises whether any such general duty, be it in contract or be it in tort, is
not excluded by the express maintenance scheme now under scrutiny. In my
opinion it is a question of difficulty. On the whole I think the particular
provisions of the lease are sufficient to exonerate the lessor from the
obligation generally arising from a landlord’s retention of property whose
proper maintenance is necessary for the protection or safe enjoyment of the
demised premises. It is clear that the maintenance scheme might not always
provide necessary and timely protection, for example, through the continued
inability or refusal of other lessees to pay their proper contribution, and in
the absence of express provision I do not think it can fairly be taken to
exclude altogether a landlord’s ordinary duty in this sphere.
Clause 12 of
the Lease, however, provides a defence to claims for damages falling within its
scope.
Finally, so
far as the action was concerned, the learned judge dealt with the plaintiffs’
claim in nuisance, which he regarded as precluded by clause 12 of the lease.
Since the plaintiffs have not sought to challenge this particular conclusion on
this appeal, it need be considered no further.
Having
surveyed the several causes of action on which the plaintiffs relied, the
learned judge considered and dismissed the defendants’ counterclaim for the
reasons stated in his judgment. Mr Sunnucks has advanced no argument in
relation to the counterclaim on this appeal and we do not think it will require
any consideration separate from the other issues.
Finally in his
judgment, the learned judge considered the relief to be given to the plaintiffs
on their claim. He ruled out the possibility of rescission and pointed out the
obvious difficulties which, on the face of it, specific performance would
present. However, he drew attention to section 125 of the Housing Act 1974,
which empowers the court, in proceedings in which a tenant of a dwelling
alleges a breach on the part of his landlord of a ‘repairing covenant’, to
order specific performance of the covenant ‘whether or not the breach relates
to a part of the premises let to the tenant and notwithstanding any equitable
rules restricting the scope of that remedy . . .’. With the support of that
section, the learned judge decided in effect to grant specific performance not
of the express covenants on the part of the landlord contained in the lease but
of the implied obligation which he considered to fall upon Selico,
arising from its retention of property whose proper maintenance was necessary
for the protection or safe enjoyment of the demised premises. Having delivered
his judgment, he gave the parties the opportunity to address further argument
to him as to the precise form of the order on a later occasion. We have already
indicated the form which his order eventually took. As he explained in his
judgment, the thought behind his awards of nominal damages against both
defendants was that the plaintiffs must look to their damages in tort as
compensation for their past and present loss, while the order for specific
performance would protect them for the immediate future.
The learned
judge’s order contained a provision by virtue of which the inquiry for damages
for deceit has been stayed pending the result of an appeal. It contained no
similar provision relating to the order for specific performance. The latest
date specified for compliance with this order was September 28 1985, but it has
not been complied with.
The claim
in deceit
Neither in his
notice of appeal nor in argument has Mr Sunnucks sought to challenge the
learned judge’s findings that (a) Mr Azzam deliberately covered up active
patches of dry rot in Flat C without any attempt at eradication; (b) the
concealment of dry rot by Mr Azzam was a knowingly false representation that
Flat C did not suffer from dry rot; (c) this representation was intended to
deceive purchasers of Flat C; and (d) it did deceive the plaintiffs to their
detriment. These findings inevitably mean that this court must proceed on the
footing that, in relation to the plaintiffs, at least Mr Azzam personally was
by his conduct guilty of the tort of deceit. Mr Sunnucks made it clear that, so
far as his clients are concerned, by far the most important issue on this
appeal is whether this fraudulent tortious conduct of Mr Azzam is to be imputed
to the vendor, Selico, so as to render Selico liable to the plaintiffs for
damages for Mr Azzam’s fraud.
Mr Sunnucks’
principal submissions under this head can, we think, be sufficiently summarised
as follows. The capacity of Mr Azzam was no more than that of an independent
building contractor employed by the defendants for the renovation and
decoration of Flat C. In his submission, neither of the defendants themselves
made any representations whatever, whether orally or in writing or by conduct,
as to the presence or absence of dry rot in Flat C. The plaintiffs, he
submitted, did not plead or establish in evidence that either of the defendants
had authorised such a representation or held out Mr Azzam as having express or
implied authority to make such a representation. Mr Azzam, as a builder, had no
ostensible authority to make any representations or to act as agent on behalf
of the vendor. In any event, it is said, there is no evidence that either of
the defendants knew of the existence of dry rot in Flat C, though they knew of
its existence on the other side of the building in Flat H.
The principles
according to which one person may be held vicariously liable in tort for the
deceit of another have recently been fully considered by this court in Armagas
Ltd v Mundogas SA [1985] 3 WLR 640 (which, we understand, is now
under appeal to the House of Lords). From this decision it appears that in
order to render an employee vicariously liable for his employer’s deceit, it
has to be shown that the employer had conferred on the employees either (i)
actual authority or (ii) ostensible authority to make the particular representation
complained of (see particularly at p 658 E et seq, per Robert Goff LJ). If the
tort of deceit has been committed by the employee outside the scope of the
employee’s actual or ostensible authority, it cannot be claimed that it has
been committed in the course of his employment in such manner as to render the
employer vicariously liable. For this purpose the scope of such authority
limits the course of the employment. Subject to what the House of Lords may
decide, earlier authorities which suggest a wider test of vicarious liability,
intended for the more liberal protection of innocent parties against the
wrongful acts of their employees, can no longer be regarded as good law (see,
for example, at p 681 per Stephenson LJ).
The learned
judge held Selico liable for Mr Azzam’s deceit on the short grounds that the
‘dishonest act was done by Azzam in the course of work ordered by Select within
the scope of Select’s authority as the lessor’s agent’. The only evidence of
what instructions were given to Mr Azzam about Flat C is to be found at pp 2
and 3 of the transcript of his evidence. He was, as we have said, to do ‘any
work to bring it up to a very good standard for the purpose of selling’. This
was clearly the ‘course of work ordered by Select’ to which the learned judge
referred. But Azzam’s failure to remedy the
by Select and therefore cannot, in our judgment, be accurately described as
done in the course of work ordered by Select. Though, for reasons which will
appear, we think that Select must be held responsible in law for the cover-up,
we are of the opinion that, on the basis of the Armagas decision, the
mere fact that the dishonest cover-up was effected by Mr Azzam while he was
engaged on work of renovation ordered by Select would not suffice to render his
tortious act attributable in law to either of the defendants. Nor would the
additional fact that Selico had conferred on Select authority to order the work
to be done suffice to saddle Selico with liability. As we have already
explained, these points of law do not appear to have been canvassed in argument
before the learned judge at the trial. If the plaintiffs are to establish
liability on the part of Selico for Mr Azzam’s deceit, we think they must do so
on grounds other than the short grounds relied on by the leaned judge. This
they seek to do by a respondents’ notice, which they were allowed to submit
during the course of this appeal.
Mr Brock, on
behalf of the plaintiffs, has not submitted that Mr Azzam himself acted in
connection with Flat C in any capacity other than as a building contractor or
that he had any ostensible authority to make any representation to any
prospective purchaser or lessee of Flat C as to the state of its repair. The
essence of his case on deceit, as developed before us, can we think be
summarised in the four following propositions:
(A) On the evidence, the learned judge should
have found (and, if the legal argument presented to him on behalf of the
defendants had led him to suppose that a finding on this point was necessary,
would have found) that Mr Haskins was at all material times fully aware of the
cover-up operation which was being effected or had been effected by Mr Azzam
and approved of it, whether or not he had expressly directed it.
(B) In view of the relationship between Mr
Haskins and Select, such knowledge and approval on the part of Mr Haskins must
be attributed to Select.
(C) Select was therefore a party to the
fraudulent misrepresentation made by Mr Azzam to prospective purchasers of Flat
C.
(D) Selico had invested Select with ostensible,
if not actual, authority wide enough to make representations to prospective
purchasers or lessees as to the state of repair of Flat C and was accordingly
vicariously liable to the plaintiffs for the fraudulent misrepresentation made
by Select.
Mr Sunnucks
submitted that the plaintiffs’ reamended statement of claim does not adequately
cover a claim on these lines, but we think it does. Para 17 begins with an
allegation that prior to the execution of the lease, Selico ‘by its servants or
agents’ represented that the flat did not suffer from dry rot. The allegation
of a fraudulent cover-up of the dry rot by Selico is to be found in
subparagraph (4) of the pleading. True it is that subparagraph (4) does not
repeat the reference in the opening words of para 17 to Selico’s ‘servants or
agents’. However, Selico, being a corporate body, could only act by servants or
agents. The pleading is, in our judgment, wide enough to cover a claim against
Selico on the grounds that it is vicariously liable for the fraudulent
concealment of the dry rot effected by its servants or agents. It was so
treated without objection at the trial. Though it can be said that the plea of
deceit is somewhat inadequately particularised, two answers to any such
complaint can, in our opinion, fairly be given. First, further and better
particulars of this allegation were not sought. Second, the undue reticence of
the defendants, which the judge criticised in his judgment, would, in any
event, have made it difficult for the plaintiffs to give full particulars until
the relevant facts had emerged at the trial. We have already mentioned that
until Mr Azzam gave his evidence, the plaintiffs did not even know who had done
the relevant work.
Apart from
this pleading point, Mr Sunnucks’ principal opposition to a finding of deceit,
based on the lines indicated in (A), (B), (C) and (D) above, was directed to
point (A). In the absence of any specific finding to this effect, he submitted
(and we accept) that the court should be very slow to infer that Mr Haskins was
aware of, or approved, the cover-up operation carried out by Mr Azzam. The
evidence, in his submission, does not suffice to justify any such conclusion.
Nevertheless,
on the basis of the findings of fact which the learned judge did make and of
the other evidence, we are irresistibly driven to make that inference, if only
for these principal reasons. It would appear from the evidence of Mr MacGillivray,
whom the judge accepted as a truthful witness, that before Mr Azzam began his
work on Flat C in 1978, any person reasonably familiar with dry rot would have
detected evidence of dry rot on inspecting the front bedroom and bathroom of
the flat. Mr Haskins was a qualified surveyor. At the material time he had a
very close connection with Court Mansions, and Flat C in particular, in a
number of different capacities. He effectively directed and controlled the
business of Select, which not only managed Court Mansions for Selico but also
in due course rendered to Selico a fee note, which included a claim for £680
‘commission upon introducing Mr G L Gordon and Ms A Teixeira to purchase the
above leasehold property in the sum of £31,000 and fee re plans and supervision
of repairs’. The strong probability, therefore, is that Mr Haskins would have
seen the flat before Mr Azzam (who had a long working association with Select)
began his work and would have been aware of its condition. Significantly, as Mr
Gordon’s evidence indicates, the work of renovation to Flat C appears to have
been concentrated particularly on these two rooms where the dry rot was
present. However, matters go further than this. The following questions were
put to Mr Azzam and answered thus in the course of his cross-examination.
(Q) When you did the work in Flat C in
1978/beginning 1979, the work about which we have been talking, would Mr
Haskins be supervising that?
(A) Yes.
(Q) And how often did he inspect and supervise
the work?
(A) Normally as often as he liked and to my
recollection he has visited the premises in question several times.
(Q) During that eight to ten week work period
when you did the work in Flat C, do you remember how many times he visited to
carry out inspection and give advice?
(A) At least once a week.
(Q) At least once a week?
(A) Yes.
(Q) So he was fully aware of what was going on at
the flat during that period?
(A) He would be fully aware of what is happening
there.
From this
colloquy we think it must have been quite obvious to the defendants and their
advisers that when the plaintiffs’ counsel came to make his final speech he
would be submitting, not only that there had been a cover-up by Mr Azzam, but
that Mr Haskins was fully aware of what Mr Azzam was doing (as indeed we
understand was submitted). Nevertheless, there was no re-examination of Mr
Azzam on this evidence and, more importantly, Mr Haskins was not called as a
witness on behalf of the defendants to rebut the potentially damaging
allegations of a cover-up by Mr Azzam, of which Mr Haskins was said to be
aware. It was not suggested to the judge that Mr Haskins was not available to
give evidence. No explanation whatever was given of his absence.
We of course accept
that the mere failure to call a witness cannot by itself be treated as evidence
against that witness or against the parties to the proceedings. As Mr Sunnucks
rightly pointed out, the onus has throughout rested on the plaintiffs to
establish fraud, not on the defendants to refute it. However, Mr Haskins, as
the controlling shareholder in Select, which was a party to the proceedings,
must have been fully aware of the course of this action, and we assume that he
would have been afforded the opportunity to give evidence by the defendants’
legal advisers if he had wished to do so. Mr Azzam said that he himself was
giving evidence at the request of Mr Haskins and Mr Colenutt. In default of any
other explanation, we can only infer that, for reasons of his own, Mr Haskins
did not himself wish to give evidence. In our judgment, in deciding whether or
not on the balance of probabilities to draw the suggested inference against Mr
Haskins and through him against the defendants, on the basis of all the
evidence in this case, in particular the evidence of Mr Azzam, it must be
permissible for the court to have regard to the fact that the defendants,
without any explanation, failed to call Mr Haskins, who could on any footing
have given highly material testimony in relation to the alleged cover-up and,
if this represented the truth, could have told the court either that there had
been no cover-up by Mr Azzam or that, if there had been, Mr Haskins himself had
been unaware of it, because Mr Azzam had succeeded in misleading him, no less
than he had deceived the plaintiffs.
In response to
Mr Sunnucks’ vigorous submissions on point (A) above, we have considered
carefully and anxiously whether the evidence as a whole is strong enough to
justify a conclusion that Mr Haskins was at all material times aware of the
cover-up operation which was being or had been effected by Mr Azzam and
approved of it. Taken as a whole, however, the evidence in our judgment
inexorably leads to that conclusion on the balance of probabilities.
And, indeed, we believe that the learned judge would have so found if he had
considered such a finding relevant, since, significantly, he expressly found
that Mr Azzam’s cover-up operation was intended to deceive purchasers
(not Select, with whom he had had such a long working association).
As to point
(B) above, we feel no doubt that the relevant knowledge and approval on the
part of Mr Haskins must be attributed to Select, having regard to his intimate
connection with that company. Indeed, we do not think that Mr Sunnucks
submitted to the contrary.
As to point
(C) above, Select not only managed Court Mansions but, through Mr Haskins,
supervised the relevant works of repair and indeed rendered an account to
Selico for them. As we have already concluded, Select, through Mr Haskins, must
be treated as having known and approved of Mr Azzam’s cover-up operation.
Having regard to such knowledge and approval, and to the fact that neither Mr
Haskins nor Select took any steps to disabuse the plaintiffs’ minds as to the disguised
condition of Flat C, we conclude that Select should be held itself to have been
a party to that operation and to have knowingly induced the plaintiffs to enter
into the lease upon the faith of a fraudulent misrepresentation that the flat
was free from dry rot.
As to point
(D) above, we think the position is fairly clear. The judge found as a fact
that Select had ‘at all material times managed Court Mansions for the first
defendant’. The further details of the relationship between Selico and Select were
never explored in evidence at the trial, presumably because no one considered
them material. The whole of the trial was apparently conducted on the basis
that no relevant distinction fell to be drawn between them, and indeed, at
least at one stage in his argument before this court, Mr Sunnucks said that he
did not seek to draw any distinction between Selico and Select. The authority
given by Selico to Select must, in our judgment, have imported a general
authority, ostensible if not actual, to do anything relating to the management
of the property, including selling a long lease of any flat and making any
representations with a view to selling the lease. If, as we consider, on a true
view of the facts Select can be held to have knowingly induced the plaintiffs
to enter into their lease on the faith of a fraudulent misrepresentation as to
the state of repair of Flat C, that representation was within the actual or
ostensible authority conferred on Select by Selico, notwithstanding its
falsity. In these circumstances, subject to what is said below, Selico, on the
principles of the Armagas case, must be vicariously liable to the
plaintiffs for Select’s fraudulent misrepresentation. In this context the
following observations of Lord Wright in Bradford Third Equitable Benefit
Building Society v Borders [1941] 2 All ER 205 at p 220 appear to us
material:
I do not
question that, if a person knowingly and deliberately profits by another’s
fraud he may be properly held to have participated in the fraud and to be liable
for the damage. This may happen where a continuing false representation has
been made by a person, on the basis of which the transaction is concluded. I am
prepared to assume here that, not only may that person be guilty of fraud (With
v O’Flanagan [1936] Ch 575, at p 584), but so also may any person who,
though not a party to the fraudulent original representation, afterwards learns
of it and deliberately and knowingly uses the delusion created by the fraud in
the injured party’s mind in order to profit by the fraud.
On the
evidence there seems to be no doubt that both Selico and Select stood to gain
and did gain from a sale of this property.
By way of
further defence to the claim based on deceit, Mr Sunnucks relied on a number of
subsidiary points. Even if any relevant misrepresentation was made by or on
behalf of Selico, he submitted, the plaintiffs did not act upon it; they acted
on the report of their own surveyors, which had been obtained before the
contract was concluded and had warned them of the possibility of dry rot, even
though no dry rot had been discovered. He referred us to a letter of April 17
1979 in which, before contracts were exchanged, Selico by its solicitors had
expressly refused to give any undertaking as to repairs. He also relied on
clause 4(2)(a) of the Law Society’s Conditions of Sale (quoted above) under
which a purchaser of a property is deemed to purchase ‘with full notice of its
actual state and condition’. The plaintiffs, he pointed out, were content to
accept this condition and the refusal of the vendor to give any warranty in
relation to the condition of the flats. Furthermore, he observed, the
plaintiffs and their surveyor had ample opportunity to inspect the flat, an
opportunity of which they availed themselves. In these circumstances, decisions
such as Horsfall v Thomas (1826) 1 H&C 90 and Smith v Hughes
(1871) LR 6 QB 597 precluded the plaintiffs from complaining of any
misrepresentation.
Both these two
cases, however, are distinguishable from the present on their facts. In the
former, not only was the defect in the gun patent and discoverable on
inspection but the purchaser took no steps to inspect it, so that he did in
fact not rely on any misrepresentation as to its condition which might have
been made. In the latter case, the vendor did nothing to disguise the character
of the oats sold. In the present case, on the learned judge’s relevant findings
of fact, with which we see no reason to disagree, not only was a fraudulent
misrepresentation made, which was intended to mislead prospective purchasers of
a lease of the property; the misrepresentation did mislead the purchasers and
they acted on it to their detriment. In these circumstances, it is in our
judgment no answer in law to the claim in deceit for the defendants to say that
the plaintiffs or their surveyor could have discovered the dry rot on a
closer inspection of Flat C or were content to purchase without any warranty as
to the condition of the property; they and their surveyor were in fact misled
by the cover-up operation, as they were intended to be. The general principle caveat
emptor has no application where a purchaser has been induced to enter the
contract of purchase by fraud. Nor can clause 4(2)(a) of the Law Society’s
Conditions of Sale avail a purchaser in these circumstances. These subsidiary
submissions made by way of defence to the claim based on deceit are not in our
judgment well founded. Even if at the date of completion the plaintiffs had
been fully aware of the fraudulent misrepresentation which had been made to
them, this would not have precluded them from affirming the contract and
seeking appropriate relief, though it would have prevented them from seeking to
rescind it: Campbell v Fleming (1834) 1 Ad & EI 40.
For all these
reasons, albeit by a much longer route than that which the learned judge
followed, we agree with his conclusion that the claim in deceit against Selico
must succeed.
The
plaintiffs’ other claims
We can deal
with the plaintiffs’ other claims much more shortly, because in this context
there is much common ground.
Mr Sunnucks
has submitted that, having regard to the comprehensive nature of the provisions
of the lease relating to the repair and maintenance of Flat C and of the block,
Court Mansions, as a whole, this is not a case where the learned judge was
justified in implying any covenants relating to these matters. The lease, he
pointed out, is in an unusual form, providing as it does for the repair and
maintenance of the building by a system of express covenants and trusts. If the
defendants are in breach of any of those express provisions relating to repair
and maintenance, the proper remedy, in his submission, is by reference to the
agreed system and not by reference to suggested implied covenants to which the
parties never agreed.
We think this
submission is correct and indeed in this court Mr Brock, on behalf of the
plaintiffs, has not sought seriously to challenge it. Where a written tenancy
agreement relating to a flat, forming part of a larger building in multiple
occupation, manifestly does not embody the complete agreement between the
parties the court may well be willing to supplement the written document by
implying terms placing obligations on one party or the other. Such a case was Liverpool
City Council v Irwin [1977] AC 239, where the ‘conditions of
tenancy’ which tenants were required to sign related only to the obligations on
the part of the tenants, not of the lessor council. However, as Lord
Wilberforce observed in that case (at p 254), ‘such obligation should be read
into the contract as the nature of the contract itself implicitly requires no
more, no less: a test in other words of necessity’. Lord Cross in the same case
said (p 258) that the court ‘must be able to say that the insertion of the term
is necessary to give — as it is put — ‘business efficacy’ to the contract and
that if its absence had been pointed out at the time both parties — assuming
them to have been reasonable men — would have agreed without hesitation to its
insertion’. The repair and maintenance scheme provided by this lease is a very
cumbersome one and we agree with the learned judge that, even if the lessors
and their agents were duly to carry out their obligations, the scheme might not
always suffice to give the lessees necessary and timely protection — for
example, as he pointed out, through the continued inability or refusal of other
lessees to pay their proper contribution. Nevertheless, on a reading of the
lease, we feel little doubt that it was intended, by all parties, to provide a
comprehensive code in regard to repair and maintenance of the block. We are by
no means satisfied that the
business efficacy, or that the lessor, assuming it to have been a reasonable
person, would have ‘agreed without hesitation’ to the insertion of the
suggested implied additional terms relating to the repair and maintenance of
the block.
In agreement
with the learned judge, however, we construe clause 5 of the lease as amounting
to a covenant by Select with the plaintiffs to open and operate a maintenance
account and to act as trustee thereof in accordance with clause 6 — and indeed
also to collect all the maintenance contributions which it may be entitled to
collect from other tenants. We also agree with his finding of an implied
covenant by Select to estimate or procure the estimation of each year’s likely
expenditure by Select for the purposes of the 4th Schedule. (For brevity we
will henceforth refer to this implied covenant as the ‘implied estimation
covenant’.)
Subject to one
overriding point raised by way of defence in this context, we do not think that
Mr Sunnucks sought to challenge the learned judge’s findings that Select was in
breach of clause 5 of the lease and that Selico was in breach of clauses 10(E),
(F) and (G). His one point can be summarised thus. The obligations of the
lessee under clause 10(F) are introduced by the words ‘subject to the payment
by the Lessee of the Maintenance Contribution in accordance with the provisions
of Clause 4 hereof . . .’. Furthermore, there is a general principle that a
party cannot claim to take the benefit of provisions in a deed without
subscribing to his own obligations thereunder: Halsall v Brizell
[1957] Ch 169 at p 182, per Upjohn J. It appears that in the present case the
plaintiffs paid to the defendants sums totalling £129 in April 1980 by way of
maintenance contribution but have so far declined to pay any further sums on
this account and have intimated that, at least for the time being, they do not
intent to do so. Such refusal, it is submitted, disentitles them from claiming
any relief against the defendants in respect of alleged breaches of covenant or
trust. The learned judge dealt with this point thus:
The
plaintiffs’ failure to pay the contribution was justified at first by the
demand of sums for which they were not liable and later by the complete and
obvious unwillingness or inability of the defendants to carry out the scheme of
the Lease in such a way as to keep the building in repair.
Mr Sunnucks has
accepted that their initial refusal to pay the contribution was justified for
the reasons given by the learned judge; the defendants were asking for
contribution in respect of items for which Selico had agreed to pay. As to the
later demands, the learned judge’s conclusion seems to us clearly correct, if
only for the following reason. Para 1 of the 4th Schedule required the annual
maintenance provision in respect of any maintenance year after March 25 1980 to
be computed in accordance with the provisions of that schedule. No such
computation was ever made because Select was at all material times in breach of
the implied estimation covenant referred to above. Such computation is an
essential preliminary to any demand for maintenance contributions other that
the first. No proper demand for further maintenance contributions was ever
addressed to the plaintiffs. With due deference, Mr Sunnucks’ overriding point
is in our judgment without substance.
We thus accept
that, as the judge found, the plaintiffs have established breaches by Selico
of
(1) its covenant under clause 10(E) (to make
payments to the maintenance trustee for other flats);
(2) its covenant under clause 10(F) (to procure
the due performance by Select of the obligations contained in clauses 5 and 6);
(3) its covenant under clause 10(G) (to keep the
walls, ceilings and floors of such of the retained property as comprise any
flats for the time being not demised by a lease or leases in similar terms to
the lease as envisaged in clause 10(C) thereof in good repair and condition).
We further
accept that, as the judge found, the plaintiffs have established breaches by
Select of its obligation under clause 5 to open and operate a maintenance
account and to act as trustee thereof in accordance with clause 6.
The relief
to be granted
It is in our
judgment clear that, by virtue of clauses 5 and 6 of the lease, Select has
covenanted to act as trustee upon the trust purposes for the benefit of the
lessee set out in clause 6 of the lease and that it is in breach of this trust.
Likewise, in our opinion, Selico itself, by virtue of clause 10(F), has
covenanted in the event (which has happened) of Select failing to perform any of
its obligations as trustee, itself to assume and perform these obligations. We
think that Selico, by virtue of its failure to comply with this undertaking, is
itself technically in breach of trust. (Though breach of trust on the part of
Selico is not in terms pleaded, a breach by Selico of its obligations under
clause 10(F) is, we think, sufficiently pleaded and relief is sought in respect
of such breach.) The plaintiffs, as the
intended beneficiaries under these trusts and as persons who have given good consideration
for the assumption by the defendants of their obligations as trustees, are, in
our judgment, entitled to ask the court, as they now do, to make an order for
the enforcement of these trusts.
In view of the
complicated provisions of this lease, the process of working out any such order
would, unfortunately, be likely to be a long, complicated and expensive one. We
have therefore considered whether any order for suitable monetary compensation
would by itself afford the plaintiffs all the relief for which they are
reasonably entitled to ask. But we accept Mr Brock’s submission that it would
not. Particularly if, as we understand to be the case, the plaintiffs intend to
continue living in their flat at least for the time being, we see no reason why,
even with the consolation of a monetary payment, they should be expected to
tolerate a continuing total failure on the part of Selico and Select to operate
the machinery of the lease which was intended to provide for the block of flats
being maintained in reasonable condition, but in fact has been operated wholly
inadequately, with the result that the condition of the block must be
continually deteriorating, to the serious detriment of Flat C itself.
Though we fear
that he will be confronted with a difficult and unenviable task, it appears to
us, with due respect to all concerned, that a Chancery Master will be better
qualified to deal with the working out of an order for the execution of the
trusts of this lease than an official referee (by whom the learned judge
directed that the inquiry as to damages for deceit should be assessed). It will
manifestly be convenient that one tribunal should be charged with the working
out of the whole of any order which this court may make. And, in view of the
unusual nature and complexity of the matter, we think that this should be the
Chief Chancery Master.
While in the
course of argument reference has been made to claims against Select and Selico
for damages for breach of trust, we think that the obligation of a defaulting
trustee is strictly that of accounting by way of restitution to the trust
estate, rather than that of paying damages: see Snell’s Equity (28th ed)
at p 282.
In all the
circumstances, subject to any further submissions by counsel as to the
appropriate form of order, we propose to make an order to the following effect:
(1) An order for payment by Selico to the
plaintiffs of (a) damages for the tort of deceit and (b) damages for breach of
its contractual obligations under clauses 10(E) and (G) of the lease, all such
damages to be assessed on inquiry before the Chief Chancery Master.
(2) An order for execution of the trusts of
clauses 5 and 6 of the lease against Select, together with all necessary
accounts and inquiries, including an order for payment of all or any sums found
to be due from Select to the trust fund (the maintenance fund) in respect of
its breaches of those trusts.
(3) An order for execution of the trusts of
clause 10(F) of the lease against Selico together with all necessary accounts
and inquiries, including an order for payment of all or any sums found to be
due from Selico to the trust fund in respect of its breaches of those trusts.
(4) An order for specific performance of the
lessor’s covenants under clause 10(G) (in exercise of the power conferred on
the court by section 125 of the Housing Act 1974).
(5) A provision giving the Chief Chancery Master
authority in his discretion to make any necessary or appropriate directions for
the working out of all or any of the above orders, including (without prejudice
to the generality of the foregoing) the powers to grant a temporary stay in
respect of any one or more of such orders and to impose a time-limit within
which the order for specific performance must be complied with.
Subject to
these variations in the form of the order, we dismiss this appeal.
The appeal
was dismissed with costs; the order of Goulding J to be varied as indicated in
the judgment of the court.
