Landlord and tenant — Guarantee of payment of rent and performance of tenants’ obligations under terms of lease — Assignment of freehold reversion but no assignment of benefit of covenant of guarantee — Two peculiarities of guarantee, two guarantors each liable for half only of amounts guaranteed (one of them in any case insolvent) and guarantee effective only so long as lease remained vested in the named company tenant — Company went into liquidation and liquidator in present proceedings sought leave of court to disclaim lease — Landlords, assignees of the original lessors in whose favour the guarantee was given, opposed the application for leave to disclaim — The essential question was whether the landlords were entitled to the benefit of the guarantee, as this affected the attitude of the court to the proposed disclaimer — Where a company in liquidation are the original lessees, as here, leave to disclaim is not normally given if a subsisting guarantee is involved — Landlords accordingly put forward a number of arguments with a view to establishing that, despite the fact that there had been no express assignment of the guarantee when they acquired the reversion, they were nevertheless entitled to the benefit of it — Among these arguments were that the benefit passed without express assignment; that a supplemental deed in which the guarantee was reaffirmed in respect of an enlargement of the premises in fact created a new guarantee; that the deed created an estoppel; that the benefit passed as a result of section 62 of the Law of Property Act 1925; and that section 56 of that Act applied — All these arguments were rejected by the judge — He also rejected a submission that the landlords were entitled to claim a rectification of the transfer of the reversion — Decisions against the landlords’ contentions were the Australian case of Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd and Pinemain Ltd v Welbeck International Ltd — Finally, even if the landlords were entitled to the benefits of the guarantee, on the peculiar facts of the case the end result would be the same — If disclaimer was not granted, the liquidator could nevertheless proceed to cause the dissolution of the company and with it would go the existence of the guarantee, which was expressly tied to the continuance of the company — Leave given to the liquidator to disclaim the lease
This was an
application by originating summons by Ian Franses, the liquidator of
Distributors & Warehousing Ltd, to obtain the necessary leave of the court
to disclaim the lease vested in the company of warehouse premises situated on
the north side of the East Lancashire Road, Haydock, in the County of
Lancaster. The respondents were the present landlords, Co-operative Insurance
Society Ltd, and two sureties, Peninsular & Oriental Steam Navigation Co
Ltd and Yangzekiang (UK) Ltd.
Christopher
Pymont (instructed by Crellins, of Cobham, Surrey) appeared on behalf of the
applicant liquidator; Oliver Weaver QC and Martin Moore (instructed by the
Solicitor’s Department, Co-operative Insurance Society Ltd) represented the
society (the first respondents); Gabriel Moss (instructed by Masons)
represented P & O Steam Navigation Co Ltd (second respondents); Yangzekiang
(UK) Ltd (third respondents) were not represented and took no part in the proceedings.
Giving
judgment, WALTON J said: On March 6 1970 Townson Developments Ltd (‘Townson’)
demised certain warehouse premises situate on the northerly side of the East
Lancashire Road, Haydock in the County of Lancaster, to Distributors &
Warehousing Ltd (‘the company’) for a term of 42 years from December 15 1969.
The initial rent payable was the sum of £26,840, which was made subject to,
first, alteration and, second, periodic reviews.
The alteration
was to take place in the event that the company exercised an option contained
in the lease to require the landlord to construct an extension to the demised
premises. If it did so, the rent was to be increased from the date when the
lessor’s surveyors (after consultation with the lessee’s surveyors) issued a certificate
to the effect that the extension had been duly constructed or from the date
when the lessee entered into any part of the extension, whichever should be the
earlier. The amount of the increase of rent was to be
(40 NP + X NP)
x S –
(S x
1,000 x 100)/43,560 NP
where S
equalled the ground-floor area covered by the extension expressed in square
feet and X equalled the amount expressed in new pence per superficial square
foot of rental value representing the increase in building costs arising
between November 1 1968 and the date upon which the plans, drawings and
specifications relating to the extension should have been agreed by the lessor
and the lessee and — surprisingly enough — also Townson (even though this would
entail that their agreement was required even after they had ceased to be the
lessor) and should have been approved for the purposes of the Town and Country
Planning Acts 1962 to 1968 or any statutory modification or re-enactment
thereof and for the purposes of the local planning bye-laws affecting the same.
In default of agreement, there was a provision for determination by an
independent surveyor
There was then
in addition a rent review procedure, applicable both to the original reserved
rent and any such increase as would be caused by the erection of the extension.
The first rent review was destined to take effect from December 15 1983, being
triggered off by a notice in writing given by the lessor to the lessee not less
than three nor more than 36 months before that date.
The lessor was
defined in the usual way as, where the context so admitted, including the
persons deriving title under it, and the lessee was similarly so defined. Two
guarantors were joined in the lease: The Peninsular & Oriental Steam
Navigation Co Ltd (‘P & O’) and Yangzekiang (UK) Ltd (‘Yangzekiang’). The
covenant of guarantee which P & O and Yangzekiang gave was certainly in a
most unusual form and I think I should read it in full.
The
guarantors in consideration of the demise hereinbefore contained being made by
the Lessor at their instance and request hereby jointly agree with and
guarantee to the Lessor that at all times so long as the term hereby granted is
vested in Distributors and Warehousing Ltd that company will pay the rent
hereby reserved and all other sums and payments herein covenanted to be paid by
it at the respective times and in manner hereinbefore appointed for payment
thereof and also duly perform observe and keep the several stipulations herein
on the Lessee’s part contained and that the guarantors will each pay and make
good to the Lessor one-half of all losses costs and expenses sustained by the
Lessor through the default of Distributors and Warehousing Ltd in respect of
any of the beforementioned matters so long as the term hereby granted is vested
in Distributors and Warehousing Ltd provided always that any neglect or
forebearance of the Lessor in endeavouring to obtain payment of the said rent
and payments as and when the same become due or its delay to take any steps to
enforce the performance or observance of the several stipulations herein on the
Lessee’s part contained and any time which may be given by the Lessor to
Distributors and Warehousing Ltd shall not release or in any way lessen or
affect the liability of the guarantors or either of them under this guarantee.
It has been
accepted by all parties that the effect of this clause is that each of the two
guarantors is liable only for one half of the amounts thereby guaranteed. The
effect of this in the present situation is that only P & O are, on any
view, effective guarantors (assuming that they are still under any liability
under this covenant) for the future. For it is beyond all question that
Yangzekiang is no longer trading and that its sole asset is a debt of £50,000
from its parent company, which is itself, although still trading, in by no
means a satisfactory financial position. But even if the whole of this sum were
to be repaid, it would not suffice to meet Yangzekiang’s already accrued
liabilities under the covenant of guarantee, of course on the same suppositions
as before. It is, of course, virtually beyond all belief that its parent
company would spend its endeavours in ensuring a prosperous future for Yangzekiang
merely for the purpose of meeting the guarantee. And its disinterest in the
position is shown by the fact that although made a respondent to the present
proceedings it has taken no part therein.
The other
curious feature of the guarantee is that it lasts, in any event, only so long
as the term granted by the lease remains vested in the company. If the company
were to assign the lease — it would of course require the consent of the lessor
so to do — the covenant of guarantee would come to an end. Similarly, if the
company were to be dissolved, or struck off the register, the covenant of
guarantee would again come to an end. The lessor could have no conceivable
complaint, because that is exactly and precisely what the covenant of guarantee
provides. Mr Weaver, for Co-operative Insurance Society Ltd (‘CIS’), one of the
parties to this summons, did indeed submit the contrary to me; but it was
obvious from the manner in which he made his submission that he had not even
convinced himself.
On March 9
1970 Townson conveyed the freehold reversion expectant upon the lease to CIS.
The transfer was an ordinary registered land form, and the curious feature
thereof is that no attempt was made to assign to CIS the benefit of the
covenant of guarantee. As will be seen hereafter, Mr Weaver, for CIS, has made
a number of submissions to the effect that, for various reasons, this omission
is of no importance, and that the benefit of such covenant passed automatically
to CIS notwithstanding.
Although I do
not think that at the end of the day anything turns upon it, it appears to me
that neither of the guarantors can, at this stage, have been aware of this
omission. Of course, they will soon have learnt of the change of landlords, but
probably both of them assumed (of course quite wrongly) that the benefit of
their guarantees had been assigned to the new landlord. Certainly my attention
was not called to any piece of evidence which suggested that the two
guarantors, at the respective dates of the two documents to which I shall next
turn, were in any way aware of the true position.
The first of
these documents is a deed dated September 19 1977 made between CIS of the first
part, the company of the second part, and the two guarantors of the third part.
It is expressed to be supplemental to the lease of March 6 1980; it recites
that the reversion immediately expectant on the determination of that lease is
vested in CIS; that the extension had been erected by the lessee with the
consent and at the expense of the lessor; and that it had been agreed between
all parties that the lease should be varied in the manner thereinafter
appearing. The operative parts of the deed, so far as material, then read as
follows:
In
consideration of the premises the Lease is hereby varied in manner following,
that is to say: (i) The Lease will in addition to allowing substitution for the
said yearly rent of £26,840 (hereinafter called ‘the existing rent’) also
reserve and make payable from and after the 5th day of July 1976 during the
residue of the term granted by the Lease the additional yearly rent of £19,200
(hereinafter called ‘the additional rent’) payable by the like instalments and
on the same dates as the existing rent, the payments of the additional rent due
from the period from the 5th day of July 1976 to the 29th of September 1977
having been made prior to the date hereof. (ii) Every reference in the Lease to
rent including the Lessee’s covenant to pay the same and the proviso for
re-entry in respect thereof will be read and construed as referring both to the
existing rent and to the additional rent. (iii) The Lease will henceforth be
read and construed as though the provisions of the Schedule hereto were
substituted for the provisions contained in the Schedule to the Lease. 2. The
covenants on the part of the Lessee and the provisions and stipulations
contained in the Lease will extend to the extension and in particular the Lease
will be read and construed as though the expression ‘the premises’ included the
extension as well as the land and buildings thereby demised.
And clause 6:
The
Guarantors hereby consent to the terms of this Deed and acknowledge that their
obligations under the Covenant on their part contained in the Lease extends to
and includes the payment by Distributors and Warehousing Ltd of the additional
rent and all other sums hereby made payable,
and then there
is the schedule containing substituted rent review provisions.
So one can see
quite clearly why, on the supposition that the covenant of the guarantors was
still effective, they should have been joined in such a deed. First, whereas
the lease provided that the building should be erected by the lessor, it had
apparently been erected by the lessee, albeit at the expense of the lessor; the
formula for calculating the additional rent was a complicated one, and there
might possibly be scope for doubt as to whether it had been correctly
ascertained; and there was to be a change in the rent review clause. Any of
these matters might well have afforded the guarantors scope for saying that
there had been a material variation of the terms of the original contract with
the lessee, which would have the automatic effect of discharging the
guarantors’ obligations. It appears to me that this is the reason for this
deed, and is indeed a very satisfactory reason for its having been brought into
existence. Mr Weaver has a submission to make upon this deed: first, he says
that it contains a fresh guarantee by the guarantors, which in my judgment it
manifestly does not, and, more pertinently, that, having joined in this deed in
this manner, the guarantors are thereafter estopped from denying that they are
bound to CIS in the terms of the guarantee. I shall have to consider this
submission later.
The second
deed, upon which nobody has suggested that anything material in the present
application depends, is a deed of May 3 1978 supplemental to the deed of
September 19 1977 and made between exactly the same parties. All it did was to
effect a small increase in the additional rent as from September 29 1977.
The company,
unfortunately, has fallen upon hard times; and on August 30 1984 it went into
creditors’ voluntary liquidation, with Mr Franses being the liquidator. The
accounts of the liquidator demonstrate that there will be a substantial
shortfall of assets as regards creditors: indeed, there will not even be
sufficient to pay the preferential creditors in full.
There is one
issue in this matter which I do not have to resolve. It is this. Just before
the company went into liquidation, the first rent review, reviewing the rent of
the demised premises as from December 15 1983, came to a head in the shape of
an agreement as to the rent between CIS and the company. Whether in all the
circumstances of the case, this is a firm agreement upon which the company
(were it necessary for it to do so) and P & O (as a possible guarantor)
could rely, I do not determine. CIS evidently took the view that this was not,
in that sense, a binding agreement, and invoked the procedure via the
appointment of an independent surveyor. Again, there is some possible dispute
as to whether notice of his appointment was properly conveyed to the company
and the guarantors so that they might put before him such argument as they
might wish. In the event, he decided the revised rent without reference to any
arguments of any party, as none were put before him. Accordingly, there are
three possible views as to the current rent: first, that, there having been no
agreement and no valid determination of any fresh rent, whatever might be the
position hereafter, the rent remains at its old rent of £19,508 per annum.
Second, that the rent is now the ‘agreed’ rent of £60,000 (but due to rise on
December 15 1986). Third, that the rent is the rent determined by the independent
surveyor of £92,000 per annum.
It would be
interesting and instructive to learn precisely how the independent surveyor
arrived at this latter figure, for all the professional surveyors on all sides
are fairly clearly agreed upon the position that having regard to the facts (i)
that the demised premises are situated in an extremely economically depressed
area of England (half way between Liverpool and Manchester) and (ii) their
considerable size, and the consideration that, except to a limited extent which
would still leave one extremely large warehouse, it would be extremely
difficult, if not at the moment absolutely impossible, to let the premises as
they stand, or even to divide the premises and as so subdivided to let them at
all, at any rent. Nobody wants a warehouse of this size, or even one of the
scaled-down size which would be produced by such division in this area at the
moment.
However, the
crucial point is that having regard to the foregoing factors, there is
absolutely no premium value in the lease: if the liquidator could find a person
willing to take the lease, in the present economic climate he would have to pay
him to cart it away.
In these
circumstances, the liquidator very naturally wishes to disclaim the lease, and
the actual application before me is an originating summons taken out by him on
September 28 1984 to obtain the necessary leave of the court to this course of
action. Naturally, the landlords, CIS, and the two guarantors are parties
thereto. In view of what I have already indicated in relation to their
financial position, it comes as no surprise that Yangzekiang has indicated that
it does not wish to contest the proceedings.
It makes no
difference to the present proceedings, but they are in fact being conducted
pursuant to the provisions of the Companies Act 1948 in this respect, and not
those of the Companies Act 1985: see Companies Consolidation (Consequential
Provisions) Act 1985, section 31(8)(c).
For what
purpose was the concept of disclaimer introduced? It was in order to ensure, if at all
possible, an orderly winding up of the affairs of the company. It is apparently
quite clear that if no leave is given to disclaim a lease, the liquidator will
nevertheless be in a position to proceed with the usual procedure for the
summoning of a final meeting, leading up to the dissolution of the company
pursuant to the Companies Act 1948, section 300: see Re Katherine et Cie Ltd
[1932] 1 Ch 70. There is, unfortunately, no guidance in any reported case as to
the precise manner in which the future claims of the landlord are, in such a
case, to be dealt with. That, no doubt, is because in the only case which deals
with the matter, the landlord opposed the granting of leave to disclaim
because, as a result of such disclaimer, he would have lost the benefit of a
full guarantee of the rent and other obligations under the lease. Presumably,
he considered that the guarantee would be a complete guarantee; and so no
question of future claims by him would arise. He would look to the guarantors.
The guarantors, in their turn, would have future claims against the company,
for which presumably they might prove in the liquidation. And in the middle of
all this, the actual lease itself would be in balk; presumably in evaluating
the claims of the guarantors the prospect of the landlord finding it to his
advantage to forfeit the lease for non-payment of rent and so releasing the
guarantors would have to be taken into consideration. But this would be a
future, hypothetical event, extremely difficult to evaluate in monetary terms.
Be all that as
it may, the cases have thrown up this curious dichotomy. In a case where the
company is not the original lessee, but an assignee, the presence or absence of
guarantors makes no difference to the approach of the court to the question of
granting the liquidator leave to disclaim. This is because where leave to
disclaim is given, the effect is to release the company from all liability of
the company ‘in or in respect of the property disclaimed’ (see Companies Act 1948,
section 323(2)) and if the guarantors were not also discharged, they would or
might have a right over against the company on the usual indemnity principles.
This, being a claim in respect of the property disclaimed, cannot be allowed to
continue, and so all liability of the guarantors must be discharged so far as
the company is concerned. So that, if the company is the original lessee, there
can be no question but that the liability of the guarantors ceases on
disclaimer (see Stacey v Hill [1901] 1 QB 660 CA and D Morris
& Sons v Jeffreys [1932] 148 LT 56). But if on the other hand
the company is an assignee of the lease, so that the guarantee is strictly a
guarantee of the liability of the original lessee to pay the rent, then no such
question of indemnity arises, so that, if the liquidator is given leave to
disclaim, both the liability of the original lessee to pay the rent and the
guarantee thereof by the guarantors remains.
This leads to
the conclusion that, although in a case where the company is the lessee by
assignment of the lease, leave to disclaim will readily be given, since such
leave in no way affects the rights of the guarantors, in the case where the
company is the original lessee, such leave will not normally be given: Re
Katherine et Cie Ltd (supra).
Hence the
first crucial question in the present case is whether CIS is entitled to the
benefit of the guarantee of P & O and Yangzekiang. If it is, then the court
will certainly lean, in the usual case, to a refusal of the leave to disclaim;
if it is not, then, unless any particular reason is shown for taking a
different course, leave will be granted.
Before turning
in more detail to the detailed submissions by which Mr Weaver sought to
persuade me that the benefit of this guarantee was now vested in CIS
notwithstanding the omission of any express assignment, I must notice an
extremely attractive submission which he made to the effect that I need not in
any way attempt to decide the point, because all that was necessary was for CIS
to show a seriously arguable case that they had the benefit of the guarantee,
not to demonstrate that they did in fact have it.
However, I
feel that I must reject this submission. As I have already noted it is well
established by now, first, that leave to disclaim will normally be given
automatically in a case where there are no guarantors involved, and, second,
that leave will normally not be given where guarantors are involved. Hence, it
must have been obvious from the first to any counsel as astute as Mr Weaver —
indeed obvious to any competent counsel skilled in company law — that the
crucial or, at any rate, one of the crucial points in issue was going to be
whether or not CIS did have the benefit of the guarantee. CIS should therefore
have been prepared with the necessary evidence upon which they were going to
rely to make good that submission. In this connection, Mr Moss for P & O
submitted that I should in any event take the situation as it existed at the
time of the hearing of the summons, and that I should not pay any attention to
future events — such, for example, as a contemplated assignment of the benefit
of the guarantee now from Townson to CIS which was stated by CIS to be a
possibility. I think there is a great deal of force in that submission, but I
am not prepared to follow him all the way on that. If, for example (which is of
course not the case here), CIS had been in the middle of a hotly contested
action against Townson for the rectification of the transfer of the reversion
to it, I do not think it would be just for any court to say that as at that
precise moment no order for rectification had been made, the court would view
the situation as if it did not have the benefit of the covenant.
But, on the
other hand, I do accept Mr Moss’ submission thus far — that in relation to the
ingathering of the benefit of the covenant, the onus is heavily upon CIS to
show more than an arguable case; in short to show that they have a strong case
for saying that they are likely to succeed.
Bearing these
submissions in mind, how does Mr Weaver seek to
there was no mention of the covenant of guarantee in the transfer of March 9
1970, nevertheless the benefit passed in that transfer, and he also submitted
that this would give it business efficacy. I do not take this last submission
seriously; many leases without covenants of guarantee are assigned every day,
and the lease without it is a perfectly viable business document.
Here his sheet
anchor was the case of Griffith v Pelton [1958] Ch 205. This is a
case where there was an assignment of a lease containing an option to purchase
the freehold in certain well-defined circumstances, followed by, first, an
assignment of that lease, without any express mention of the option, followed
by an express assignment of the benefit of the option. The Court of Appeal
held, affirming the decision of Vaisey J, that the benefit of the option had
indeed passed by the assignment of the lease, but that if it had not it
certainly had by the express assignment. As Mr Goulding (as he then was)
arguing for the plaintiff well put it, the defendant was on the horns of a
dilemma.
The reason
that the Court of Appeal came to the conclusion they did was that set out with
his usual admirable clarity by Jenkins LJ (as he then was) at the top of p 228
of the report:
We think that
upon the true construction of the proviso, including the definition to be read
into it of the term lessee as including the lessee’s assigns, the original
parties to the lease must be taken to have agreed that the option should be
exercisable by Miss Blaker herself or by any assignee of the term to whom she
might assign the benefit of the option, and that a mere assignment of the term
should operate as an assignment of the benefit of the option to the assignment
of the term.
That is to
say, they treated it as a pure matter of construction of the contract itself.
Viewed in that light, it is miles away from the present case. Indeed, Mr Pymont
called attention to the fact that that was a case of the assignment of the
lease, whereas in the present case what is in issue is the assignment of the
reversion, and that in Woodall v Clifton [1905] 2 Ch 257 CA a
different result was reached for that very reason. Indeed, if I may with
respect refer to part of Mr Goulding’s successful argument in Griffith’s
case, it ran as follows at p 213:
(2) There is an ambiguity concealed in the use of
the words ‘touching and concerning’. The class of covenants which run with the
land under a lease is not the same as the class of covenants which pass under
the Grantees of Reversions Act 1540. There is no essential identity between the
class of covenants where, if the term is assigned, the burden or benefit (as
the case may be) of the covenants pass to the assignee of the term, and that in
which, if the reversion is assigned, the burden or benefit (as the case may be)
of the covenants pass to the assignee of the reversion. These two branches of
the law of covenants have a different origin.
Leaving this
on one side, Mr Weaver then turned to the deed of variation of September 19
1977. He said that that deed clearly indicated that the transfer had been
effective to transfer the benefit of the covenant of guarantee. I do not,
however, think that I can accept that submission just like that. It is, of
course, obvious that when the guarantors joined in the deed of variation they
must have done so under the belief that CIS had indeed obtained the benefit of
their guarantees, but this is a vastly different matter. Merely because a
person acts on a certain assumption, which is indeed the natural assumption to
make, it does not mean that he is accepting the legal consequences of a
document which, so far as the evidence goes, he did not see, but was merely
informed as to the operation. So, so far from the deed of variation
‘demonstrating’ (as Mr Weaver would have it) that the effect of the transfer
was to pass the benefit of the covenant of guarantee, I do not think it did
anything of the kind.
However, this
is purely negative. Mr Weaver then submitted positively that the terms of
clause 6 of the deed of variation which I read again:
The
Guarantors hereby consent to the terms of this Deed and acknowledge that their
obligations under the Covenant on their part contained in the Lease extend to
and include the payment by Distributors and Warehousing Ltd of the additional
rent and all other sums hereby made payable,
constituted a
new guarantee, or else provided the materials for estoppel by deed.
I regard it as
quite impossible to regard the provisions of clause 6 as producing either result.
There is no additional contractual obligation being undertaken by the
guarantors: all that they are doing is acknowledging that something is within
the terms of their existing obligation. One can well see why it was necessary
or, at the lowest, highly desirable to obtain their acknowledgement to the
‘additional rent and other sums’ which the company were undertaking to pay:
they would thereby clearly thereafter be estopped from taking the point that
due to a variation of the obligations imposed upon the company they were
thereby released from their guarantees, on the usual principles. But merely to
acknowledge that an obligation which may possibly include x does indeed include
x appears to me to be light years away from undertaking an entirely fresh obligation.
As regards the
suggestion of estoppel by deed, what is the law? It is in my judgment accurately set out in Halsbury’s
Laws of England, vol 16 at paras 1571 and following:
Estoppel by
deed is based upon the principle that when a person has entered into a solemn
engagement by a deed under his hand and seal as to certain facts he will not be
permitted to deny any matter which he has so asserted. It is a rule of evidence
according to which certain evidence is taken to be of so high and conclusive a nature
as to admit of no contradictory proof. The averment relied upon to work an
estoppel must be ‘certain to every intent’ without any ambiguity, but may be
contained in the recital or in any part of the deed. A mere mistake in a deed
on account of which no one has acted to his detriment will not give rise to an
estoppel but may give grounds for rectification. A party is estopped from
denying any specific facts contained in a recital in the deed to which he is a
party provided the recital is certain, precise and unambiguous. He is not bound
by inferences which may be drawn from the statements in the deed and a recital,
which although incomplete is true so far as it goes, does not prevent the party
from averring what is necessary to complete the truth. Nothing is to be taken
by a way of ‘intendment’; there is no such thing as an estoppel by something
implied, and the averment relied upon to work an estoppel must be of something
particular, not of a generality. A covenant that a man has a thing is not equivalent
to a positive statement that he has it, and consequently, in order to work an
estoppel, a recital of title must aver precisely that the person in title is
seised in fee or has the legal estate, and thus the operative words of an
ordinary conveyance by grant create no estoppel.
It could, of
course, be said to be an inference from the terms of the deed of variation that
the covenant of guarantee had been assigned to CIS, because otherwise, if still
in the hands of Townson and therefore incapable of being sued upon, the
acknowledgement in clause 6 would be completely without force and effect. But
it is, of course, precisely this kind of ‘inference’ which does not found an
estoppel. If authority for this proposition is required, a few sentences from
Bowen LJ (as he then was) in Onward Building Society v Smithson
[1893] 1 Ch 1 at p 14 will suffice:
It would be
very dangerous to extract a proposition by inference from the statements in a
deed, and hold the party estopped from denying it; estoppel can only arise from
a clear, definite statement. For instance, it is not enough to say that a
vendor is well entitled in fee at law or in equity: he cannot be estopped from
denying that he has the legal estate unless there is an express statement in
the deed that he has it. In the present case there is an omission in the deed,
so that it falls short of saying that the vendors have the legal fee: it may
have been an accidental omission: but what right have we to supply it?
Accordingly,
it appears to me quite clear that, there being no unequivocal statement upon
which it is possible for CIS to latch to the effect that the guarantors are
bound to them in the terms of the covenant of guarantee, I do not think that
the deed of variation assists CIS in the slightest.
Mr Weaver’s
next point was that CIS was entitled to enforce the guarantee pursuant to
section 62 of the Law of Property Act 1925. This reads:
(1) A conveyance of land shall be deemed to
include and shall by virtue of this Act operate to convey, with the land, all buildings,
erections, fixtures, commons, hedges, ditches, fences, ways, waters,
water-courses, liberties, privileges, easements, rights, and advantages
whatsoever, appertaining or reputed to appertain to the land, or any part
thereof, or, at the time of conveyance, demised, occupied, or enjoyed with, or
reputed or known as part or parcel or appurtenant to the land or any part
thereof.
This is, of
course, another way of putting the point that the transfer, as it stood, passed
the benefit of the covenant. Mr Weaver referred to the well-known statement in Rogers
v Hosegood [1900] 2 Ch 388 at p 395:
Covenants
which run with the land must have the following characteristics: (1) They must
be made with a covenantee who has an interest in the land to which they refer.
(2) They must concern or touch the land. It is not contended that the covenants
in question in this case have not the first characteristic, but it is said that
they fail in the second. I am of opinion that they possess both. Adopting the
definition of Bayley J in Congleton Corporation v Pattison (1808)
10 East 130, 135, the covenant must either affect the land as regards mode of
occupation, or it must be such as per se, and not merely from collateral
circumstances, affects the value of the land.
And he submitted
that the covenant of guarantee affected the value of the land just as much as
the covenant to pay rent. But this submission was well answered by Mr Pymont
for the liquidator by
Sportsman Ltd [1971] Ch 764. The precise facts of that case do not matter,
but the question arose whether rent had been paid when, rent not having been
paid, the guarantor in fact paid up. The answer returned by the Court of Appeal
was in the negative. At pp 780-1 Russell LJ (as he then was) said:
The
plaintiffs, first, say that all Miah’s rent from his first direct default from
the March quarter day 1964 up to and including the June 1965 quarter day has in
fact been paid, inasmuch as the payments by the third party to Miah’s then
landlord under the guarantee must be considered as made in satisfaction of
Miah’s rent or on behalf of Miah. Consequently there has never been an occasion
of forfeiture. The judge did not accept that proposition, and neither do I. The
payments were of sums under the liability assumed by the third party when it
guaranteed to the landlord that Miah would fulfil his obligations under the
lease. Of course they were payments made because of Miah’s failure (or expected
failure) to meet his rent obligations, and in that sense were made in respect
of Miah’s rent. But in law they were nothing but payments under the guarantee
in satisfaction of the third party’s contractual obligation thereunder and it
is not possible to infer that they were made or accepted as agent for Miah so
as to release Miah from his obligation to pay rent as such to his landlord. Our
attention was drawn by the plaintiffs to phrases in solicitors’ letters which,
they said, supported the submissions that the payments were made in satisfaction
of rent or on behalf of Miah: but I do not consider that the use of such
phrases in such correspondence can define the legal characteristics of such
payments. We were referred to Pellat v Boosey (1862) 31 LJCP 281,
not as covering this case, but as indicating that there may be circumstances in
which payment by a third party stranger to the lease may be taken as payment of
rent or in satisfaction of rent under the lease. Maybe so; but the case is of
no assistance to the plaintiffs here, and I need not analyse the facts, which
were wholly different. Consequently, in my judgment, the rent under Miah’s
lease was at all relevant times unpaid.
Mr Moss had
earlier analysed the position accurately. He said that the lease really
embraced two separate contractual arrangements: one between the landlord and
the tenant, and the other between the landlord and the guarantors. And the
second contract of course had as its subject-matter the performance of the
covenants in the first, but that was its subject-matter — namely the
performance of covenants — and in no way did it itself touch and concern the
land. I suppose one might just say that the covenant of guarantee touched and
concerned covenants for the payment of rent etc which themselves touched and
concerned the land. But Mr Weaver cited no authority for including covenants at
this double remove in the terms of section 62(1) of the Law of Property Act
1925.
Mr Weaver’s
next submission was under section 56 of the Law of Property Act 1925. That
reads as follows:
(1) A person may take an immediate or other
interest in land or other property, or the benefit of any condition, right of
entry, covenant or agreement over or respecting land or other property,
although he may not be named as a party to the conveyance or other instrument.
Mr Weaver here
fastened upon some words used by Mr Nugee QC in a case called Pinemain Ltd
v Welbeck International Ltd, to which I shall refer later, and submitted
that CIS was an existing and identifiable non-party who was therefore in a
position to take the benefit of the covenant of guarantee which was a covenant
respecting land and who accordingly did so. I am afraid that this submission is
extremely wide of the mark. First, as already explained, the covenant in
question is not one respecting land; its subject-matter is covenants, not land.
But more to the point, it completely fails to understand the scope of section
56. This section is dealing with the ability of parties to confer, by their
conveyance or other instrument, rights of certain kinds on third parties. For
this purpose, it is essential that the third party, upon whom rights are thus
sought to be conferred, should be in existence and identifiable. One cannot
confer such rights on the third son of A hereafter to be born, or upon the first
counsel who next comes through the swing doors of Court 17. But where section
56 fails to connect at all with the present case is that at no stage has
anybody expressed a desire to confer a benefit on CIS. Of course, they may
always have been potential persons deriving title under Townsons, but the
covenant of guarantee as it stood did not confer any rights on them at all; it
conferred rights upon Townsons, which Townsons were free to assign (or not to
assign) to any person, whoever that person might have been, who derived title
under them. The guarantors were covenanting with one person — Townsons — not
with two, namely Townsons and CIS. All this is elementary, but if weighty
authority be required perhaps the best place to seek it is in the speech of Lord
Upjohn in Beswick v Beswick [1968] AC 58 at p 106:
First, let me
assume for a moment that the agreement in this case is an indenture inter
partes under seal — does section 56 help B?
Plainly not. C did not purport to covenant with or make any grant to B;
he only covenanted with A. Had C purported to covenant with B to pay the
annuity to B, though B was not a party, then any difficulty B might have had in
suing might be saved by section 56. The narrow view which I take of section 56
is, I think, supported by the observations of Simonds J (as he then was) in White
v Bijou Mansions when he said at p 625: ‘Just as under section 5 of the
Act of 1845 only that person could call it in aid who, although not a party,
was a grantee or covenantee, so under section 56 of this Act only that person
can call it in aid who, although not named as a party to the conveyance or
other instrument, purports to grant something or with which some agreement or
covenant is purported to be made.’ So to
the same effect Wynn-Parry J in In re Miller’s Agreement [1947] Ch 615.
That was another example of the familiar case where, upon the dissolution of a
partnership, the continuing partners covenanted with the retiring partner to
pay as from his death annuities to his three daughters. The learned judge said:
‘In my view, the plaintiffs [the daughters] are not persons to whom the deed
purports to grant something, or with whom some agreement or covenant is
purported to be made . . .’
Having now
dealt with all Mr Weaver’s arguments on construction, I need, I think, refer
only extremely briefly to two cases which bear out the totality of the views I
have already expressed upon his submissions. They are, first, a case from
Australia, Sacher Investments Pty Ltd v Forma Stereo Consultants Pty
Ltd [1976] 1 NSWLR 5. The headnote of that case reads in part as follows:
Two companies
were the parties to a lease registered under the Real Property Act 1900. In the
lease ‘the lessor’ was defined to mean and include ‘the lessor, its successors
and assigns . . .’. The two directors of the lessee executed the memorandum of
lease as guarantors ‘for the payment of all moneys and performance of all
obligations on the lessee’s part therein contained’. In September 1974 the
first company transferred the reversion expectant upon the lease to a third
company hereinafter called ‘the lessor’. Both guarantors were aware of this
transfer at the time when it took place. There was, however, no express
assignment of the benefit of the guarantees. . . . Held . . . (3) In order that
the lessor might sue upon the guarantees supposing them to be debts or other
legal choses in action, it was necessary pursuant to section 12 of the
Conveyancing Act 1919 that there should have been an assignment in writing of
the benefit thereof together with appropriate notice to the guarantors and
there was no evidence of either. Nor did sections 51 and 52 of the Real
Property Act 1900 operate to cure this position. . . . Upon the supposition
that the benefit of the guarantees (any assignment of which must in the present
case be deemed to have taken place at a time when no rent was owing and when it
was completely uncertain whether any rent would, or would not, be owing in the
future) was not a legal chose in action within section 12 of the Conveyancing
Act, and that the assignee of the benefit of a guarantee may enforce it against
a debtor, even though no notice of the assignment had been given, nevertheless,
there was no evidence of any assignment of any type however informal. . . . The
fact that the guarantors had covenanted with the original lessor ‘its
successors and assigns’ (including the transferee of the reversion of the
lease) did not of itself without more entitle the latter to enforce the
guarantee. Griffith v Pelton distinguished. 6. Section 117 of the
Conveyancing Act
which
corresponds to section 62 of the English Act
did not
assist the lessor, because it does not deal with collateral obligations such as
that with which the present case was concerned. 7. Section 36(c)
corresponding
to section 56
of the
Conveyancing Act did not assist the lessor. Beswick v Beswick
referred to.
I would be
perfectly content to adopt the whole of Yeldman J’s careful judgment as my own:
in substance he comes to precisely the same answers upon precisely the same
submissions as Mr Weaver has raised before me. In particular, it will be
observed that he also regards Griffith v Pelton as affording no
guidance in this area of the law. The second case is Pinemain Ltd v Welbeck
International Ltd (1984) 272 EG 1168 where exactly the same points as have
been raised before me were raised in virtually precisely the same circumstances
and rejected by Mr Nugee QC sitting as a deputy judge of this division. My
conclusions on this aspect of the case are therefore backed up by the state of
existing authority, by which I should in any event be content to be guided, but
which accord precisely with my own conclusions.
However, Mr
Weaver was by no means finished. His next submission was that CIS was entitled
to rectification of the transfer. He submitted, perfectly correctly, that it
was no ground for refusing rectification that one of the parties to a
transaction, or their solicitor, had been careless. But what is the situation
here? In the first place, it must be
borne in mind that rectification is a very special remedy, and although views
have differed from time to time as to the precise nature of the evidence
required to secure rectification, it has been asserted that there is no known
case of rectification having been established on oral evidence only. Be that as
it may, in the present case clearly Townson and CIS have nothing to lose from
rectification. Indeed, by being willing to concede it, Townson may put
themselves in the good books of CIS, which, as a body controlling large sums of
money, is a very useful contact for a builder to have. It is quite obvious that
the only person interested in opposing rectification would be P & O. In
these circumstances, the case for rectification would have to be made out with
absolutely convincing clarity.
The most
obvious way of doing it would be by producing correspondence dealing with the
covenant of guarantee, or a contract — presumably there was a contract in the
present case — dealing with or referring to the contract of guarantee, and which
it can clearly be shown was not carried into effect according to its tenor by
the transfer. None of this would be difficult to put in evidence; a trawl
through the files of CIS would, if such documents in fact do exist, readily
produce them.
Instead, the
only evidence that is offered, and it is not really any evidence at all, is a
telex from Townson to Mr Weaver himself (he was only used as an addressee as a
matter of convenience, and nothing turns upon that, he being definitely in
existence and identified). This telex is in the following form:
We hereby
acknowledge that if and insofar that the benefit of the guarantee provided in
the lease made the 6th of March 1970 between Townson Developments Ltd as
lessor, Distributors and Warehousing Ltd as a lessee, P & O Steam
Navigation Company and Yangzekiang (UK) Ltd as guarantors was not assigned to
CIS Ltd by reason of the transfer of the freehold reversion dated 9th March
1970. We have always regarded ourselves as holding the benefit of such a
guarantee for the benefit of CIS Ltd and will execute any requisite assignment
if called upon to do so.
This is really
a most confused telex. It says that ‘if and so far as there was no assignment,
we have always regarded ourselves as holding the benefit of the guarantees for
CIS’. But this is not the way in which people behave in the real world. It
would have been logical to have said something like ‘If the guarantees were not
assigned, that was not what we intended, and we would now be willing to assign
them forthwith’. But if they really did intend to assign the benefit of the
guarantees, and thought they had done so, the question of trusteeship would
never have crossed their minds, let alone resulted in their ‘always regarding’
themselves as trustees. So, in itself, the terms of the telex are suspicious.
But the crucial point is, of course, that no evidence in the form of contracts,
memoranda, letters or whatever, of the crucial date are offered in support of
the allegation of trusteeship. In the circumstances, it appears to me quite
clear that I must proceed on the footing that there is no real prospect of CIS
obtaining rectification.
Mr Weaver then
submitted that Townson could still assign the benefit of the guarantee to CIS,
who would then be in a position to enforce it. It is, of course, obvious from
the terms of the telex that such assignment is a possibility which must be
taken seriously. However, it appears to me quite clear that, having once duly
assigned the lease without the benefit of the covenant of guarantee, it is no
longer possible for Townson to act as Mr Weaver suggests with any meaningful
result. I think that there are really two strands to this conclusion, which
mesh together. One is that it is quite impossible for an assignor to assign anything
more than that of which he is himself at the moment seized. Townson at the
moment has a covenant of guarantee which is, so far as it is concerned,
completely worthless and unenforceable: it is elementary that in such a case it
cannot confer upon an assignee any better title than it has itself. I think the
simplest way of appreciating this is by imagining that there was now an
equitable, instead of a legal, assignment of this legal chose in action. Any
action would then have to be brought in the name of the assignor — Townson —
and their inability to sue would have been manifest. Second, if Townson are
left with anything at all, they are left with a bare right of action: and once
again it is elementary that although of course rights of action may be assigned
together with the property to which they relate, they cannot be assigned apart
therefrom: see Halsbury’s Laws of England, 4th ed, vol 6, para 86.
The parallel
strand of argument is that the guarantee is only taken to make the payment of
the rent more secure, a circumstance which would, from the point of view of the
lessor considered as a potential assignor of the reversion, make it possible
for him to dispose of the lease to better advantage than if the covenants were
unsupported. If the lessor then manages to dispose of the reversion without the
necessity of assigning the covenants of guarantee, he has no further use for
the covenants and they ought not thereafter to be assignable. There appears to
be no direct decision in the books, but in the case of Miles v Easter
[1933] Ch 611 it was held that where a vendor had taken the benefit of a
restrictive covenant for the benefit of certain land, but had disposed of the
whole of that land without assigning the benefit of the covenant to any
purchaser, he could not, thereafter, validly assign the benefit of the
restrictive covenant. Romer LJ (as he then was) had this to say at p 632:
In the third
place, the covenant cannot be enforced by the covenantee against an assign of
the purchaser after the covenantee has parted with the whole of his land. This
last point was decided, and in our opinion rightly decided, by Sargant J in Chambers
v Randall [1923] 1 Ch 149. As pointed out by that learned judge, the
covenant having been entered into to enable the covenantee to dispose of his
property to advantage, that result will in fact have been obtained when all
that property has been disposed of. There is therefore no longer any reason why
the Court should extend to him the benefit of the equitable doctrine of Tulk
v Moxhay. That is only done when it is sought to enforce the covenant in
connection with the enjoyment of land that the covenant was intended to
protect. But it was also held by Sargant J in the same case, and in our opinion
rightly held, that although on a sale of the whole or part of the property
intended to be protected by the covenant the right to enforce the covenant may
be expressly assigned to the purchaser, such an assignment will be ineffective
if made at a later date when the covenantee has parted with the whole of his
land. The covenantee must, indeed, be at liberty to include in any sale of the
retained property the right to enforce the covenants. He might not otherwise be
able to dispose of such property to the best advantage, and the intention with
which he obtained the covenant would be defeated. But if he has been able to
sell any particular part of his property without assigning to the purchaser the
benefit of the covenant, there seems no reason why he should at a later date
and as an independent transaction be at liberty to confer upon the purchaser
such benefit. To hold that he could do so would be to treat the covenant as
having been obtained, not only for the purpose of enabling the covenantee to
dispose of his land to the best advantage, but also for the purpose of enabling
him to dispose of the benefit of the covenant to the best advantage. Where, at
the date of the assignment of the benefit of the covenant, the covenantee has
disposed of the whole of his land, there is an additional reason why the
assignee should be unable to enforce it. For at the date of the assignment the
covenant had ceased to be enforceable at the instance of the covenantee
himself, and he cannot confer any greater rights upon the assignee than he
possessed himself.
I think this, mutatis
mutandis, applies to the present situation.
Accordingly,
it seems to me that CIS has not made out a case for the proposition that they
are entitled to the benefit of the guarantee of P & O — and, for what it is
worth, that of Yangzekiang. I think therefore that the result which should
follow — because I have not had my attention called to any other circumstance
which ought to result in the refusal of the relief claimed by the originating
summons herein — is that the liquidator should be granted leave to disclaim. I
do not think that any consequential directions are required, save and except
for this, that on an earlier hearing of this originating summons, on June 19
1985, an adjournment took place at the request of CIS, but upon the terms embodied
in draft minutes of order, which read as follows:
Upon the
undertaking by Co-operative Insurance Society Ltd by its counsel that if the
court gives leave to disclaim in respect of the lease the subject matter of the
liquidator’s summons herein dated September 28 1984 Co-operative Insurance
Society Ltd will as between itself on the one hand and the above-named company
and the Peninsular & Oriental Steam Navigation Company Ltd on the other
hand treat the lease as having been effectively disclaimed on June 19 1985 and
the disclaimer as having been duly filed on June 19 1985 and in particular will
treat any alleged liability of Peninsular & Oriental Steam Navigation
Company as alleged guarantor or part guarantor of the lease as having
terminated as at June 19 1985.
I think that
that undertaking by CIS should be formally re-embodied in the order which I am
now making.
So much for
the way in which the matter appears to me at the moment. But let it be supposed
that I am wrong on my main supposition, and that CIS ultimately does establish
that it is entitled to the benefit of the guarantees in question. Does any
different result follow? In my judgment,
on the very peculiar facts of the present case, it does not. In order to
demonstrate this, let it be assumed that no order for disclaimer is granted.
What follows?
It was quite
clearly envisaged by Maugham J (as he then was) in Re Katherine et Cie Ltd
[1932] 1 Ch 70 at pp 78, 79 that the refusal of an order for disclaimer does
not in any way inhibit the liquidator in proceeding with the usual train of
events which normally ensue in the case of a liquidation — namely, the calling
of a final meeting and ultimate dissolution of the company.
Once that took
place, what would the result be? As
pointed out by Maugham J in the case cited, having regard to an alteration of
the law made by the 1929 Act, the lease would become bona vacantia, and,
although it is a vesting which has some peculiar incidents, the lease
would vest in the Crown. However, for present purposes this is not particularly
material: what is the crucial point is that the lease would cease to be vested
in the company. Indeed, nothing can be vested in a dissolved company.
Accordingly,
having regard to the precise terms of the guarantee, which is expressly tied to
the lease remaining vested in the company, it would come to an end, and it
would come to an end pursuant to its own express provisions.
Faced with
this situation in the course of his argument, Mr Weaver first of all sought to
place a construction upon clause 9 of the lease which it patently would not
bear; but then, more realistically, he pointed out that in those circumstances
CIS could, as a person interested, make an application to the court to declare
the dissolution of the company void, under provisions of the Companies Act
1948, section 352. Mr Pymont pointed out that Mr Weaver had cited no authority
whatsoever to show that the court would be likely to make such an order, and
submitted that Mr Weaver’s submission that CIS would have suffered irretrievable
loss — a submission which might incline the court to be sympathetic towards the
making of such an order — were wide of the mark, because any detriment which
CIS suffered as a result of the dissolution of the company would have been
caused by its having the benefit of a covenant condition to last only so long
as the company lasted. The detriment, in other words, arises from the form of
the covenant, which would nevertheless have been performed to the letter down
to the date of dissolution.
In other
words, the only thing that would suit Mr Weaver’s purpose would be the
preservation of the rotting hulk of the company upon the broad stream of
ordinary commerce for no purpose or benefit involving the company, but merely
to enable CIS to take one-sided advantage of a contract of guarantee. I say
one-sided advantage, for I think that P & O would equally be in a position
to say that artificially to prolong the existence of the company for the
purpose of subjecting them to liability under a covenant expressly designed, so
far as they were concerned, not to outlast the life of the company would be to
subject them to very grave hardship indeed — hardship they have no prospect
whatsoever of mitigating at any stage, unlike CIS which could at any stage —
and undoubtedly would if the demised premises could be relet at over half
whatever the current rental value is — forfeit the lease for non-payment of
rent and thus get the property back in hand and relet it.
But there are
other objections to the life of the company being artificially prolonged in
this way. There would be the continued costs of keeping open the liquidation:
where are these to come from? It would
be an intolerable burden upon the preferential creditors of the company if the
funds available for them had to be milked for the benefit of a non-preferential
creditor. And besides such administrative costs, there would be other costs.
For although the liquidator would clearly not be personally liable in respect
of the covenants in the lease, he would have to ensure that no claims in
respect of negligence or nuisance could possibly be brought against him
personally. Indeed, he has between November 21 1984 and August 31 1985 spent
some £1,697.70 in inspecting and securing the premises and clearing rubbish deposited
by third parties away therefrom.
Mr Weaver
submitted that this point could be met by my imposing, as a term of the court’s
order, conditions upon his client which would ensure that all such
disbursements by the liquidator would be met at his client’s expense. I am not
sure if he was really ready on his client’s behalf to fund the continued
remuneration of the liquidator, but let that pass. However, I do not think that
the court has any such power. Subsection (3) of section 323 reads as follows:
The court
before or on granting leave to disclaim, may require such notices to be given
to persons interested, and impose such terms as a condition of granting leave,
and make such other order in the matter as the court thinks just.
In my view, the
concluding words ‘make such other order in the matter as the court thinks just’
are linked to the opening words ‘The court, before or on granting leave to
disclaim’. I do not think it can have occurred to the framers of that section
that if leave was refused any other order than that would be required.
There is,
however, a much more fundamental objection to the court sanctioning the
continuance, indefinitely, of a company which ought to be dissolved. It is that
it is clearly the policy of the legislature, and indeed most obviously in the
public interest, that defunct companies should be removed from the register.
Assuming that the company were dissolved, and that Mr Weaver succeeded in his
application to have it restored to the register, this would not in any way mean
that the company was carrying on business or in operation. Accordingly, it
appears to me that, upon discovering this fact, the registrar would be fully
entitled to strike it off the register, so that once again the company will be
dissolved.
Accordingly,
it appears to me that even if I have wholly misapprehended the position in
relation to where the benefit of the guarantees now lie, the end result should
not be any different. The liquidator must, as I have already indicated, be
given leave to disclaim, CIS in any event being ultimately defeated by the
circumstances that the guarantee in question is one conditioned to last, and
only last, so long as the lease remains vested in the company.
