Landlord and Tenant Act 1954 — Summons by tenants for leave to discontinue proceedings for a new tenancy under section 24 — Whether leave to discontinue should be granted unconditionally or only on terms that tenants should not pursue any claim for statutory compensation to which they might be entitled under section 37 — Under RSC Order 21, rule 3, in contrast with county court rules, proceedings commenced by originating summons cannot be discontinued without leave of the court — Court’s discretion under rule 3 — When tenants in present case decided to discontinue they were not aware that landlords had decided not to oppose grant of a new tenancy — Landlords relied on case of Young, Austen & Young v BMA for imposition of ‘no compensation’ term — Case distinguished by judge on the ground that tenants here were influenced by their belief in landlords’ continued opposition to grant of new tenancy — Leave to discontinue given without condition
This was a
summons taken out by the plaintiffs, Ove Arup Incorporated, consultant
engineers, seeking leave to discontinue proceedings commenced by them under
section 24 of the Landlord and Tenant Act 1954 for a new tenancy of business
premises at 88-94 Tottenham Court Road, London W1. The defendants to the
summons were the landlords, Howland Property Investment Co Ltd.
John L Powell
(instructed by Berwin Leighton) appeared on behalf of the plaintiffs; G N N
Huskinson (instructed by Jaques & Co) represented the defendants.
Giving
judgment, MR MICHAEL WHEELER QC said: This is a summons by the plaintiffs, Ove
Arup Incorporated (whom I will call ‘the tenants’) for leave to discontinue
proceedings commenced by them by originating summons dated August 29 1980 under
section 24 of the Landlord and Tenant Act 1954 (which I will refer to as ‘the
Act’) for a new tenancy of the third floor of business premises at 88-94
Tottenham Court Road, London W1, of which the defendants, Howland Property
Investment Co Ltd, are the landlords. But for the fact that the tenancy is one
to which Part II of the Act applies it would come to an end by effluxion of
time on March 20 1981.
The sole
question which I have to decide is whether, in the events which have happened,
I should make it a term of granting the tenants leave to discontinue their
application for a new tenancy that they will not pursue any claim for statutory
compensation from the landlords under section 37 of the Act.
The provisions
of Part II of the Act so far as relevant for the present case can be summarised
as follows:
Under section
24(1) a business tenancy to which Part II of the Act applies is not to come to
an end unless terminated in accor-
for a new tenancy (a) if the landlord has given him a notice of termination
under section 25 or (b) if the tenant has made a request for a new tenancy in
accordance with section 26. In the present case I am concerned with a procedure
which effectively commenced with the landlord giving a notice under section 25.
Under section
25(1) the landlord may terminate the tenancy by giving notice to the tenant in
the prescribed form specifying the date at which the tenancy is to terminate.
Under section 25(5) the notice is not to have effect unless it requires the
tenant to notify the landlord within two months whether or not the tenant will
be willing to give up possession at the date of termination specified in the
section 25 notice: and under section 25(6), the notice must also state whether
the landlord would oppose an application to the court for the grant of a new
tenancy and, if so, the grounds upon which he would do so.
Under section
29(1) if the tenant applies to the court for a new tenancy under section 24,
the court is bound, subject to the provisions of the Act, to make an order for
the grant of a new tenancy at such rent and on such other terms as are provided
elsewhere in Part II. But where the section 24 application to the court is made
in consequence of a landlord’s section 25 notice of termination, the
application is not to be entertained unless the tenant has duly notified the
landlord that he (the tenant) will not be willing to give up possession at the
date of termination specified in the landlord’s notice (section 29(2)): and the
tenant’s application has to be made not less than two nor more than four months
after the giving of the landlord’s section 25 notice (section 29(3)).
The statutory
grounds upon which a landlord may oppose a tenant’s application for a new
tenancy are such of the grounds set out in section 30(1) as the landlord has
specified in his section 25 notice. He has a choice of all or any of seven
grounds, which are set out in paragraphs (a) to (g) of section 30(1). Grounds
(a), (b) and (c) are cases where, because of failure to repair, delay in paying
rent or other substantial breaches of the tenant’s obligations under the
existing lease, he has in effect proved to be a bad tenant. Ground (d) is where
the landlord has offered a tenant suitable alternative accommodation. Ground
(e) is where the existing tenancy is of part only of the property and where the
landlord wants to let the whole property and thereby expects to get a substantially
higher rent than he could obtain from separate lettings. Ground (f) is where
the landlord wishes to demolish or reconstruct the property, and ground (g) is
where he wants to occupy the property, in whole or in part, for his own
business or as his residence.
Where the
landlord opposes the tenant’s application on such of the above grounds as he
specified in the landlord’s section 25 notice and establishes any of those
grounds to the court’s satisfaction, the court is, by section 31(1), bound to
refuse to make an order for the grant of a new tenancy. The court is also
bound, under section 31(2), to refuse to make an order where the landlord’s
grounds of opposition are all or any of grounds (d), (e) and (f) but where, in
effect, he has specified a wrong date of termination in his section 25 notice.
In that event, if the landlord would otherwise have succeeded the court can
substitute a different date for the date of termination of the tenancy
specified in the section 25 notice but is precluded from making an order for
the grant of a new tenancy: what then happens in effect is that the tenant has
14 days in which to require the court to substitute the different date for the
date originally specified in the section 25 notice, and if he does, the notice
then takes effect accordingly.
The only other
provision which I need mention before turning to the compensation provisions of
section 37 itself is section 64, which provides for the interim continuation of
a tenancy pending the determination by the court of an application for a new
tenancy.
Section 37(1)
provides as follows so far as material for present purposes:
Where on the
making of an application under section 24 of this Act the court is precluded
(whether by subsection (1) or subsection (2) of section 31 of this Act from
making an order for the grant of a new tenancy by reason of any of the grounds
specified in paragraphs (e), (f) and (g) of subsection (1) of section 30 of
this Act and not of any grounds specified in any other paragraph of that
subsection [or where no other ground is specified in the landlord’s notice
under section 25 of this Act . . . than those specified in the said paragraphs
(e), (f) and (g) and either no application under the said section 24 is made or
such an application is withdrawn] then, subject to the provisions of this Act,
the tenant shall be entitled on quitting the holding to recover from the
landlord by way of compensation an amount determined in accordance with the
following provisions of this section.
The remainder
of section 37 is concerned with the quantification of the compensation, which
is not an issue with which I am concerned, except to notice in passing that the
legislature appears to have opted for a relatively simple if somewhat
rough-and-ready formula for compensation, being either the rateable value of
the property concerned or twice the rateable value, dependent upon the length
of time that the tenant or his predecessor in business has been in occupation.
It rather looks, therefore, as if compensation is, at least in part, for loss
of goodwill, although it will be seen that a tenant cannot get compensation
under ground (d) where the landlord has offered him reasonable alternative
accommodation.
The words in
square brackets in the extract from section 37(1) quoted above were inserted by
section 11 of the Law of Property Act 1969.
It will thus
be seen that under section 37(1) as originally enacted, a tenant could get
compensation only if he had made an application under section 24(1) but had
been opposed by the landlord on all or any of grounds (e), (f) and (g) (and on
no other ground) with the result that the court had been precluded from making
an order for the grant of a new tenancy either under subsection (1) of section
30 where the landlord had, so to speak, won on the merits, or under subsection
(2) of section 30 where the tenant had in effect elected to allow the section
25 notice to take effect but with a different date of termination. The 1969
amendment of section 37(1) added two further cases in which a tenant was to be
entitled to compensation, namely where the only ground of opposition specified
in the landlord’s section 25 notice was one or more of grounds (e), (f) and
(g), and, either (1) the tenant did not make an application under section 24(1)
at all, or (2) he made such an application but the application was subsequently
withdrawn.
It will thus
be seen that the legislature clearly contemplates the possibility of a tenant
making a section 24 application, withdrawing it and getting compensation. What
the legislature appears to have overlooked or ignored is the fact that the
procedure for withdrawing a section 24 application differs in the High Court
and in the county court. In the High Court an application under section 24 (not
being proceedings commenced by writ) cannot be discontinued without the leave
of the court which, under RSC O 21, r 3 may grant leave ‘on such terms as to
costs, the bringing of a subsequent action or otherwise as it thinks just’. I
pause here to note that although O 21, r 3 is headed ‘Discontinuance’, the
order as a whole is headed ‘Withdrawal and Discontinuance’, and it is clear
that although section 37(1) contemplates withdrawal rather than discontinuance,
nothing turns on this distinction of language as Bridge LJ pointed out in Covell
Matthews & Partners v French Wools Ltd [1978] 1 WLR 1477 at
1479. In the county court, however, leave of the court to discontinue a section
24 application is not required.
I now turn to
the facts of the present case as extracted from the affidavit evidence of the
parties. As I have already mentioned, the tenancy in the present case was due
to expire by effluxion of time on March 20 1981. In the spring of 1980 the
tenants heard rumours that the landlords were likely to oppose the grant of new
tenancies to tenants on all floors of the Tottenham Court Road premises.
Accordingly the tenants resolved at a board meeting held on March 31 1980 to
instruct their solicitors to serve a notice on the landlords requesting a new tenancy
under section 26 of the Act with a view, as the tenants put it in evidence, to
‘ascertaining the landlords’ plans so as to make contingent plans if
necessary.’ Both sides accept that this
section 26 notice was defective and inoperative. It is unnecessary, therefore,
to burden this judgment with a statement of the procedure which would have been
available or which would have become available if the notice had been
effective. The only relevance of this notice, which was served on or about
April 10 1980, is that it was the first intimation to the landlords that the
tenants wanted a new tenancy.
About this
time an inspection of the premises by the landlords revealed that the property
was in need of substantial modernisation and improvement, and at a board
meeting of the landlords held on April 21 1980 it was resolved that section 25
notices specifying grounds (e) and (f) should be served on all tenants. At that
stage the only indication of tenants’ wishes was, I think, the abortive section
26 notice which the tenants had served. According to the evidence of a Mr
McGee, a director of the landlords, the board contemplated that possession of
the premises would be obtained at or very shortly after the termination date
specified in the section 25 notice, which was March 25 1981. Accordingly the
landlords instructed architects and quantity surveyors to prepare a feasibility
budget. The specification and drawings were received from the architects during
August 1980 and the budget in September 1980. The budget was based on an
estimated tender date of April 1981 with completion of the proposed works in
July 1982.
During the
period of three months between July and September 1980, five more section 24
applications were made by various tenants of parts of the Tottenham Court Road
premises. I know nothing of the five applications except that two of them were
apparently started in the county court and were subsequently transferred to the
High Court.
The landlords
were clearly alarmed by the number of these applications and sought advice from
their solicitors as to the likely date that possession of the premises as a
whole could be obtained; and in view of the time which was likely to elapse
before the applications were finally disposed of (including the possibility of
appeals) the solicitors not surprisingly advised that the earliest possible
date for commencement of the reconstruction works was October 1981 but that no
guarantee could be given that the work of reconstruction could be started even
then. The landlords’ quantity surveyors also indicated that in view of this the
original feasibility budget would need to be revised and that such a deferred
and uncertain commencement date for the work of reconstruction would have a
significant effect on costs.
Meanwhile, in
early June 1980 the tenants had set up a working party to look into the
position generally and specifically at plans for leaving the Tottenham Court
Road premises if they should have to do so. The recommendation of this working
party was considered at a board meeting of the tenants held on July 21 1980. At
that meeting it was decided, in the light of the working party’s
recommendations and having regard to the landlords’ opposition to any new
tenancy (my emphasis), to carry out alterations to other premises leased by
the tenants in Soho Square whereby the Soho Square premises could be adapted so
as to house the staff of the Tottenham Court Road premises, which then numbered
some 50 people. The move to Soho Square, assuming a start in September 1980,
was estimated to last approximately 17 weeks and to cost some £52,000. Thus, as
long ago as July 1980 the tenants had decided upon a programme which, if
implemented, would culminate in the occupants of their Tottenham Court Road
premises being relocated by the end of March 1981 when the existing tenancy was
due to expire. At the same time, the tenants wished to protect their position
with regard to the Tottenham Court Road premises and to investigate, so far as
possible, the genuineness of the landlords’ stated intentions. But so far as
the tenants were aware, the landlords were maintaining their objections to the
grant of a new tenancy.
I should here
mention that the tenants are a well-known firm of consultant engineers who
carry on business from a number of different premises with a staff of some
1,250 in London and 1,700 in the UK as a whole: and it is fair to say, as the
tenants quite frankly admit, that the Tottenham Court Road premises represent a
comparatively small proportion of the total office space occupied by the
tenants.
The tenants
assert — and their assertion is not challenged — that a move of the type
involved in the present case if the Tottenham Court Road lease is terminated
involves a great deal of time and preparation and that it is not realistic to
make and alter policy decisions of this nature on little or no notice. It is
imperative therefore that contingency plans are made in good time: and the
tenants stress that throughout the time that these plans were being made they
believed that the landlords were genuinely opposing the grant of a new tenancy
on the grounds specified in their section 25 notice, in which event it was
unlikely that the tenants would be able to remain in possession of the premises
after the expiration of the current tenancy. There is no doubt that the
landlords’ opposition was perfectly genuine, and it was against this background
that on August 29 1980 the tenants issued their originating summons under
section 24 for the grant of a new lease.
By the autumn
of 1980 matters were coming to a head in both camps. The tenants, in the face
of continued opposition from the landlords, had incurred (and were likely to
have to incur still further) considerable expense in preparing to move and in
moving to Soho Square: and the compensation which they would be likely to get
under section 37 of the Act was unlikely to cover the cost of the
refurbishments at Soho Square and of the move. On the other hand, the
landlords, who had also incurred substantial expenditure in furtherance of
their plans for reconstruction, were faced with the possibility of protracted
legal opposition to their attempts to regain possession of the premises: and it
so happened that each side took critical decisions at almost the same time.
At a board
meeting of the landlords held on December 8 1980, after reviewing the legal
position, it was agreed that it would be unprofitable for the landlords to
carry out the reconstruction work originally envisaged and that it would be
more expedient for them to relet the premises in their existing state.
Accordingly, it was resolved that the landlords should no longer seek to oppose
the various applications for new tenancies on ground (f) and that this ground
of opposition should be withdrawn. It was however agreed to continue to oppose
applications for new tenancies on ground (e) where applicable. (It was common
ground before me that in spite of the landlords’ original section 25 notice
ground (f) did not apply in the case of the tenants.) In short, as the landlords’ evidence put it,
they were ‘not prepared to take a decision to spend an unascertainable amount
of money with a view to obtaining a future unascertainable rental increase’.
In the
tenants’ camp, too, the position was being reviewed and at a board meeting also
held on December 8 1980 a decision was taken to discontinue the section 24
application, in which case the existing tenancy would terminate on March 25
1981. I am satisfied that this decision was taken as a result of the landlords’
continued opposition and in the belief that the opposition was genuine and was
likely to succeed.
What happened
next is of particular importance. On December 16 1980 the tenants’ solicitors
telephoned the landlords’ solicitors and informed them that the tenants
intended to discontinue the application for a new tenancy and would vacate the
premises on the termination of the existing tenancy. In the course of this
telephone conversation the landlords’ solicitors indicated they anticipated
receiving instructions from the landlords to withdraw their previous grounds of
opposition to the grant of a new tenancy. This was the first occasion on which
the tenants knew of this possibility. On December 17 1980 the tenants’
solicitors issued the summons for leave to discontinue which is now before me.
This summons was served on the landlords’ solicitors under cover of a letter
dated December 18 1980 and was due to come before the master on December 23
1980. But it was not until the morning of the hearing that the tenants’
solicitors received a letter from the landlords’ solicitors formally advising
them that the landlords were withdrawing their opposition on ground (f): and
even then it was only in the course of the hearing before the master that the
landlords’ solicitors formally withdrew the opposition on ground (e).
It will be
apparent from the facts summarised above that if the tenants had not issued
their section 24 application in due time their existing lease would have come
to an end on March 20 1981 and they would have been entitled to statutory
compensation: but that because of the section 24 application the date of
termination became wholly uncertain, although the landlords were to some extent
protected by the interim tenancy provisions of section 64. Equally it is clear
that the decisions taken on December 8 1980 by the tenants to withdraw their
section 24 application and by the landlords to withdraw their opposition to
that application were taken independently and in ignorance of the other party’s
change of intention.
Such, then,
are the basic facts. Do they require me (assuming that I have power to do so —
a point which I shall have to touch on briefly later in this judgment) only to
grant the tenants leave to withdraw their section 24 application on terms that
they agree not to pursue any claim for section 37 compensation? Before attempting to answer this question it
will be convenient to summarise the principal rival arguments which were
presented to me: and it is right that I should emphasise at the outset that before
me neither side challenged the genuineness of the motives of the other in
seeking to maintain (or to resist) the claim for compensation.
In considering
the relative arguments put forward on behalf of the rival parties it will be
convenient to start with the arguments put forward by Mr Huskinson on behalf of
the landlords. The arguments were, of course, based solely on a case where the
landlord is opposing the tenants’ section 24 application on one or more of
grounds (e), (f) and (g) and not on any other ground. Mr Huskinson’s arguments
can, I think, be summarised as follows:
(a) Under section 24 a tenant’s existing tenancy
is not to terminate except in accordance with the Act. The basic right which
the Act is intended to assert and protect, therefore, is a right to continued
occupation of the premises.
(b) Once the landlord has served his section 25
notice, the tenant has four months in which to decide whether or not to apply
to the court for the grant of a new tenancy. This, says Mr Huskinson, is the
legislature’s assessment of what is a reasonable time within which the tenant
has to take such a decision, including time to look for suitable alternative
premises: and if the tenant decides within this period not to make an
application, justice is done to both sides: the landlord knows when he will get
possession (as specified in his section 25 notice), and the tenant knows that
he will get the statutory compensation under section 37.
(c) The tenants’ decision whether or not to make
a section 24 application is all-important because this can introduce
uncertainty into a situation which, if no application is made, is certain (see
(b) above); because the making of the section 24 application of necessity
leaves the landlord in doubt as to whether he will regain possession of the
premises at all, and, if so, when. Therefore, says Mr Huskinson, if the tenant
makes a section 24 application (and thus introduces this element of
uncertainty) and later changes his mind, he can hardly be surprised to find
that he may have jeopardised his right to statutory compensation.
(d) In considering whether or not to give leave
to a tenant to withdraw his section 24 application the High Court clearly has a
complete discretion under O 21, r 3 whether or not to impose terms; and leave
is not given lightly or as a matter of course (see per Bridge LJ in the Covell
Matthews decision, supra, at p 1485). Mr Huskinson argues that a ‘no
compensation’ term should be imposed in the present case, not merely because
the tenants are seeking an indulgence from the court, but also because the
imposition of the term is necessary in order to protect the landlords’
position. Their position, on the facts, is that unless the tenants are given
unconditional leave to withdraw their application, they (the landlords) cannot
be required to pay compensation, because the tenants will only have two courses
open to them, namely (i) to accept a new lease (which they no longer want) or
(ii) to allow their section 24 application to be dismissed: and neither course
would qualify them for section 37 compensation. It follows, therefore, on this
argument that if I were to grant the tenants unconditional leave to withdraw,
the landlords would (to borrow a phrase used by Whitford J in a case to which I
shall have to refer in some detail later in this judgment) ‘be disadvantaged’.
Therefore, a ‘no compensation’ term should be imposed in order to maintain the
balance between the parties as it at present exists as a result of the tenants’
deciding that they no longer wish to obtain a new tenancy.
(e) Finally Mr Huskinson relies upon the decision
of Whitford J in Young, Austen & Young Ltd v British Medical
Association [1977] 1 WLR 881: [1977] 2 All ER 884, the ratio decidendi
of which, he says, if properly understood, effectively governs the present
case.
For the tenants,
Mr Powell starts by emphasising the fact that section 37(1) in terms
contemplates the possibility of a tenant withdrawing his section 24 application
and yet getting statutory compensation. This shows, says Mr Powell, that the
mere fact of withdrawal is not in itself intended to deprive the tenant of
compensation: and this in turn throws doubt on Mr Huskinson’s argument that a
‘no compensation’ term should be imposed in order to preserve to the landlords
the advantage which they have obtained as a result of the tenants no longer
wanting a new tenancy; because this argument, if of general application to
withdrawal cases, conflicts with — and virtually overrides — what on the face
of it is a statutory right to compensation. Mr Powell stressed that the object
of section 37 was to do justice between the parties and that therefore in
deciding whether or not to grant unconditional leave to withdraw the court must
have prime regard to the justice of the situation. The court undoubtedly has a
complete discretion under O 21, r 3 to do whatever justice requires and in
exercising that discretion it should have regard to all the facts of the
particular case before it: the landlords’ argument based on the assumed need to
preserve their accrued advantage is, says Mr Powell, an attempt to fetter the
court’s discretion and to substitute for that discretion something akin to a
rule of law. He says that on the facts of the present case the tenants were
forced to make a difficult decision (ie not to proceed with their section 24
application) at a time when, so far as they were aware, the landlords’
opposition was not only genuine but might well be effective: and it was a
fortnight later that the landlords’ own decision to withdraw their application
was formally notified to the tenants. Tenants in a case such as this cannot
reasonably be expected to reverse a bona fide decision taken by them as a
result of the landlords’ continued opposition merely because at a comparatively
late stage the landlords themselves change their minds, even though the
landlords’ decision was partly due to the delay which the hearing of the six
section 24 applications might involve.
I asked Mr
Huskinson in what circumstances he considered that a section 24 application
could be withdrawn and the tenants still get compensation, as section 37(1)
clearly contemplates. He suggested that this might be a case where the landlord
did not change his mind about opposing the tenant’s application but the tenant
thought that the landlord’s opposition was likely to succeed and ‘wanted to get
out’. But if this suggestion is correct, the case postulated is not far removed
from the facts of the present case where, as Mr Rigby, a director of the
tenants, deposed: ‘Throughout the time that these plans and decisions’ (that is
to say plans to move to Soho Square and to discontinue the section 24
application) ‘were made, the tenants believed that the landlords were genuinely
opposing any application for a new tenancy on the grounds stated in its section
25 Landlord and Tenant Act notice and that accordingly it would not be possible
for the tenants to remain in the premises after the expiry of the current
tenancy.’
I also asked
Mr Huskinson how long, on his argument, the landlords could have delayed their
decision to withdraw their opposition and still avoid having to pay
compensation: and he suggested that they could have withdrawn right up to, and
during, the actual hearing of the present summons. But this could work manifest
injustice for the tenants as the following example given by Mr Powell shows.
Assume a tenant’s section 24 application which the landlord opposes on ground
(e), (f) or (g). During month one the tenant decides in the face of the
landlord’s continued opposition not to pursue his section 24 application and to
apply to withdraw. During month two the tenant is offered (not by the landlord)
suitable alternative accommodation but only on the terms that he enters into a
binding contract forthwith, which he does. The tenant’s summons for leave to
withdraw comes on for hearing during month three and the landlord then for the
first time announces that he no longer opposes the grant of a new tenancy,
leaving the tenant with no alternative but to allow his section 24 application
to be dismissed. In circumstances such as these it would be entirely unfair, as
it seems to me, to deprive the tenant of compensation.
Mr Powell
points out that the uncertainty which arises in a case such as the present is
the product of decisions by both sides, by the tenants to apply for a new tenancy
and by the landlords to oppose the section 24 application.
If the
question which I have to decide were free from authority the conclusion which I
would have reached is that looking at the totality of the evidence, I could,
and should, give unconditional
Austen decision virtually answers the question in the landlords’ favour, I
ought loyally to follow it. I must therefore consider in some detail the facts
of that case and the reasoning of Whitford J which led him to grant the tenants
leave to withdraw but only on ‘no compensation’ terms.
The procedure
adopted in the Young, Austen case differed from that adopted in the
present case, but the differences are not, I think, material for present
purposes. There were two existing tenancies in Young, Austen in respect
of each of which the landlord served a section 25 notice of termination. Then
the tenants apparently served requests for new tenancies under section 26 of
the Act (although I am not entirely clear how this squared with section 26(4),
which provides that a tenant may not request a new tenancy if the landlord has
already given a section 25 notice, but I do not think that matters), and the
landlord served counter-notices under section 26(6) opposing the grant of new
tenancies on ground (g) in section 30(1). The tenants applied to the High Court
for new tenancies. Subsequently the landlords indicated that they were prepared
to grant a new tenancy of one of the premises but continued to oppose a grant
in the case of the other premises. The tenants having decided, however, that
they no longer wanted a renewal of either tenancy applied to the court under O
21, r 3 for leave to discontinue the proceedings on payment of the landlords’
costs. Whitford J, in an extempore judgment, held: (1) that a tenant’s right to
compensation under section 37(1), as amended, did not preclude the court, on
the tenants’ application to discontinue, from considering whether or not some
term should be imposed on any claim for compensation, but (2) — and I quote
from the headnote at p 881:
that in the
present circumstances, where the tenants had started proceedings in the High
Court for new tenancies and now were seeking the court’s indulgence because
they no longer wanted those tenancies, it would not be right to give them leave
to discontinue under O 21, r 3 without imposing some term; accordingly the
tenants would be granted leave to discontinue on giving an undertaking not to
pursue a claim for compensation under section 37 of the Act of 1954.
I observe at
the outset that Whitford J imposed a ‘no compensation’ term in respect not only
of the premises which the landlords were prepared to relet but also of the
other premises which they required for their own purposes and for which they
were maintaining their opposition under ground (g). There is nothing in the
judgment to indicate why the learned judge treated both applications in the
same way except that the tenants no longer wanted new tenancies of either.
In one
important respect the facts in Young, Austen are not clear, namely
whether the tenants’ decision that they no longer wanted a renewal of the
tenancies was taken before the landlords intimated that they would relet
one of the premises: or whether (as in the instant case) the tenants’ decision
to withdraw was taken at a time when they believed the landlords were
persisting in genuine opposition to the section 24 applications. I have been
referred to the reports of Young, Austen both in the Weekly Law
Reports and in the All England Reports. There is nothing in the
judgment to assist me on this point, but the language of the headnotes does
lend some support for the view that in Young, Austen the landlords’
intimation that they were prepared to relet one of the premises preceded
the tenants’ decision to apply to withdraw their applications. If this is
correct, then in my judgment there is an important factual difference between Young,
Austen and the present case. Another factual difference appears to be that
in Young, Austen both sides seem to have been suspicious that the other
party was trying to secure an unfair advantage. ‘In the result’, said Whitford
J at p 885, ‘a stage was reached where the tenants concluded that they would
very much prefer to seek accommodation elsewhere and they have in fact . . .
made preparations to move to other premises altogether. So the position now is
that they no longer want a renewal of these tenancies in any event, and it is
on this basis that they seek to withdraw their application.’
In order to
understand the ratio decidendi of Young, Austen it is necessary
to quote extensively from the judgment. I start at p 885:
I think the
point made by the landlords can be put very briefly in this way: they say that
if leave were not granted, and the case came on to be heard, the tenants would
find themselves in the position that so far at least as the first premises are
concerned, there would be no resistance to the grant of the new lease by the
landlords. The only question would be the terms on which it is to be granted.
So far as the second premises are concerned, there would be resistance on
ground (g) of section 30(1) of the Act. In any event, however, the tenants, if
the matter were to proceed, would not wish to secure new tenancies either of
the first or the second premises. They would not seek an order from the court
for the grant of new tenancies in respect of either of these premises.
It is of course
to be remembered that, even where a matter of this kind proceeds to a hearing
and a new tenancy is in fact granted, the tenant has 14 days after the making
of an order within which an application can be made to the court for revocation
of the order, and if such an application is made and the order is revoked, then
apart from specific provisions as to the date on which the existing tenancy
shall be determined, the position must be that the tenant, having pursued the
matter thus far and then decided not to accept the tenancy order, is not going
to be entitled to compensation, for no provision in section 37 is made for
compensation in circumstances such as these.
So the point
made on the landlords’ side is that it would be quite wrong in such
circumstances for leave to be given to discontinue, as if such leave were given
without any undertaking with regard to the question of an application for
compensation, they would be disadvantaged. As the matter at present stands,
their point is that if the tenants have to proceed, they are not going to seek
an order for the grant of new tenancies and in those circumstances their
applications will be dismissed and no compensation will be payable to them; and
it is quite wrong that they should be allowed to withdraw without some term
being imposed which will preserve to the landlords the position which would
undoubtedly result so far as compensation is concerned if the action were to
proceed.
There can be
said to be some difference so far as these two premises are concerned because,
of course, in relation to the first premises the landlords do not oppose the
application. It was suggested to me that certain questions have to be
considered, and the first was — and I shall consider the first premises
initially — whether, on a withdrawal of the application, the tenants are
entitled to statutory compensation. It seems to me that the answer is perfectly
simple and straightforward. On a withdrawal of the application, they are
entitled to compensation: section 37(1) in terms so provides. As I have said,
no question arises as to the amount of the compensation. Of course, as was
quite rightly pointed out on behalf of the landlords, as the matter at present
stands they are not entitled to compensation because their application has not been
withdrawn and it cannot be withdrawn without the leave of the court.
What was said
first on the tenants’ side was that if the statute has provided — as I hold it
does — that on a withdrawal of an application they are entitled to
compensation, it would be wholly wrong that the court should purport to impose
a term depriving them of compensation. This, it was said, would on the face of
it be going against the provisions which Parliament has specifically enacted.
It was indeed suggested to me that it was not within the power of the court to
impose a term of this particular kind.
Assuming
however that they did not succeed on this point, it was then suggested that if
the matter came to be considered whether or not a term of this kind should be
imposed, then as a matter of discretion it would be quite wrong that the court
should impose a term of this kind. First, it was said that it would be wrong
because it would be against the apparent policy of the Act of 1954, which
indicates a specific intention that there shall be a compensation upon
withdrawal of an application. Secondly it was said that an absurd position
would result in this way: here the sum at stake is such that the tenants have
necessarily had to come to the High Court. It might well have been that the sum
at issue would have been such that proceedings could have been brought in the
county court. If proceedings had been brought in the county court, the tenants
could have withdrawn without leave, and indeed the possibility of the
imposition of any term relating to compensation simply would not have existed.
I am bound to
say that it does not appear to me that the court is in any way precluded from
considering the question as to whether a term should or should not be imposed.
The tenants come to this court, having started this proceeding, seeking an
indulgence, and RSC O 21, r 3 specifically provides that in considering whether
such an indulgence should be granted, the duty is thrown on the court of
considering all the circumstances of the case and of considering whether, in
justice, it would be right that leave to discontinue should be granted and, if
so, the terms upon which such leave should be granted.
Whitford J
then referred to the Covell Matthews decision at first instance
(reported in [1977] 1 WLR 876) where, after referring to a number of cases,
Graham J said this at p 879:
The
principles to be culled from these cases are, in my judgment, that the court
will, normally, at any rate, allow a plaintiff to discontinue if he wants to,
provided no injustice will be caused to the defendant. It is not desirable
that a plaintiff should be compelled to litigate against his will. The court
should therefore grant leave, if it can without injustice to the defendant, but
in doing so should be careful to see that the defendant is not deprived of some
advantage which he has already gained in the litigation, and should be ready to
grant him adequate protection to ensure that any advantage he has gained is
preserved.
Then, after
referring to Robertson v Purdey [1906] 2 Ch 615 as an example of
the need to impose a term when granting leave to discontinue under O 21, r 3 in
a case where if unconditional leave had been given the defendants would have
been ‘at a grievous disadvantage’, Whitford J continued:
The
circumstances are very different, but what was submitted to me by counsel for
the landlords was that the principle to be applied is clear and its application
to the circumstances of this case must lead to this, that, in fairness, leave
to discontinue ought not to be granted without the imposition of a term
relating to compensation, as unless such a term is imposed injustice will be
done to the landlords. That as I have said — and I repeat it once more — arises
in this way: that, in this case, if the matter were to proceed in the
circumstances which have arisen, the tenants are now no longer going to seek
the fresh tenancies which they originally sought, and their action would be
dismissed and their right to compensation would go.
I think the
submission on behalf of the landlords is a good one. It is perhaps a little
troubling that, as counsel for the tenants quite rightly pointed out, if this
had been a proceeding brought in the county court, the imposition of a term of
the sort which I think ought to be imposed would not have been possible. It may
be that this is a matter which was never in the contemplation of those
responsible for the amendment to section 37 of the Act of 1954. Prior to the
amendment of that section, it will of course be recalled that the position was
that there was no specific provision relating to compensation upon mere
withdrawal and the right to compensation arose only after there had been a
decision adverse to the tenant. It may possibly have been thought that to force
the parties to a hearing in circumstances where it would be likely to be
apparent to the tenants that they would not succeed in opposing a section
30(1)(g) objection would be unnecessarily onerous, and that therefore they
should be granted a right to withdraw. What I think was never in contemplation
was a circumstance such as this, where basically the reason why the tenants
want to withdraw is not that they fear they will be unable to resist the
objection of the landlords; indeed, in one case, there is no question of
objection by the landlords. Basically, the reason why they want to withdraw is
that they no longer want the tenancies in question. I do not think that in
those circumstances it would be right that I should grant them leave to
discontinue without imposing some term. It may be that the injustice, if there
be any, lies in this, that it is impossible, if proceedings be brought in the
county court, for a term of this character, which I think is in fact
appropriate, to be made.
I am prepared
to grant leave to discontinue, but only on an undertaking by the tenants that
they will not pursue any claim to compensation pursuant to section 37 of the
Act as amended.
Mr Huskinson
claims that the ratio decidendi of Young, Austen is entirely
clear and was to this effect: that by reason of the proceedings which the
tenants had commenced for the grant of new tenancies, the tenants had got
themselves into a position where, unless they were given leave to discontinue,
they could not get compensation. Therefore, the landlords — who, unlike the tenants,
were not seeking the court’s indulgence — were in the position where they would
not have to pay compensation unless the court granted unconditional leave to
withdraw: that was the landlords’ existing position, and accordingly the court
should only grant leave on terms which preserved that position.
Not
surprisingly, Mr Powell does not accept Mr Huskinson’s interpretation of Young,
Austen. Mr Powell lays great emphasis on the factual differences between
the two cases, although (as I have already pointed out) this is largely a
matter of inference from somewhat insubstantial material. He therefore urges
caution against expressing the ratio of Young, Austen at a more
general level than the facts of that case — as he invites me to infer them to
have been — warrant. He submits that the true ratio of Young, Austen
is to be found in the one sentence in the judgment at p 887: ‘Basically the
reason why they [the tenants] want to withdraw is that they no longer want the
tenancies in question.’ Mr Powell
suggested, as a possible reconciliation between the decision in Young,
Austen on the one hand and the approach which he invites me to adopt in the
instant case, that if the tenant’s decision to withdraw is their independent
decision uninfluenced, or only minimally affected, by the landlords’
opposition, the tenant could fairly be put on terms not to seek compensation:
but that where the tenant takes a reasonable business decision in the
circumstances then prevailing and is primarily influenced in that decision to withdraw
by the landlord’s continued opposition the court should recognise the practical
reality of the decision and should not deprive the tenant of his right to
compensation.
I confess to
having been puzzled as to the true ratio of Young, Austen, and I
bear in mind in particular that Master Dyson clearly considered that the
present case was indistinguishable from Young, Austen. But at the end of
the day I have come to the conclusion that the basic reason for Whitford J’s
decision was as stated in the sentence from his judgment at p 887 which I have
just quoted: because otherwise I cannot see any justification for his having
treated the two tenants’ applications, one of which was no longer opposed but
the other of which was still opposed, as meriting the same ‘no compensation’
treatment.
If my
assessment of Young, Austen is correct then, in my judgment, the
decision does not preclude me from doing what, apart from authority, would have
been my inclination, on the basis that what I am required to do is to hold the
scales evenly between the parties in the light of the facts as a whole of the
case before me (and of no other). The truth of the matter, in my judgment, is
that Part II of the Act is at best a somewhat rough-and-ready method of doing
justice as between landlord and tenant against the background of the general
policy of Part II of the Act, which is to provide an element of security of
tenure for business tenants. I wholly endorse Whitford J’s approach to the Act
when he said, earlier in his judgment at p 883:
Of course,
the apparent purpose of the Act, or so it seems to me, is to endeavour to
ensure, so far as possible, that justice can be done to the landlords and
tenants in relation to what may be rapidly changing circumstances.
For my part I
would emphasise the importance of the concluding words of the above extract,
which in my judgment provide the key to the way in which the court should
approach an application such as that which I have to consider. In terms,
section 37(1) gives the tenant an unqualified right to compensation if his
application is withdrawn but says nothing about the circumstances in which a
tenant may (in the High Court at all events) withdraw his application. This, I
suggest, is because the legislature was concerned not with the procedure for
withdrawal but simply with the fact of withdrawal.
Accordingly,
for the reasons which I have given, I do not consider that there is anything in
the Young, Austen decision which requires me, on the facts of the
present case, to impose a ‘no compensation’ term upon the tenants as a
condition of granting the leave to withdraw their section 24 application.
There are two
final points which I should mention. First, it will be apparent from the
extracts which I have cited from the Young, Austen decision that
Whitford J considered, and expressly decided, the question whether on the true
construction of section 37(1) the court had power to impose a ‘no compensation’
term upon the tenant at all. Accordingly, before me, Mr Powell did not seek to
argue that the court had no such power but he reserved the point for argument
in a higher court if this case should go to appeal. Secondly, and as a
safeguard against the possibility that an appellate court might hold that the
court had no power to impose a ‘no compensation’ term (in which case the only
choice open to the court on an application such as the one before me would be
simply to grant or refuse the application) Mr Huskinson invited me to say which
course I would take in that event. The answer is of course that on the facts of
this case I would grant the application.