Agricultural holding — Unfortunate family dispute — Collusive transaction between purchaser of freehold of farm and ageing tenant (purchaser’s father-in-law) with object of destroying youngest son’s subtenancy — Notice to quit given to tenant under Case E — Tenant deliberately, in collusion with son-in-law, refrained from serving a notice requiring arbitration in response to notice to quit — Freeholder hoped to make considerable profits by obtaining vacant possession after the son’s subtenancy had perished with the father’s tenancy — Appeal by freeholder from decision by Judge Da Cunha, sitting as a High Court judge, who held that the collusive scheme failed and that the subtenant, whom the freeholder had hoped to see no more, reappeared as his direct tenant — The appeal was dismissed
in question was an agricultural tenancy from year to year containing the usual
covenants, including a covenant restricting assignment, subletting or parting
with possession of the property or any part thereof — The history preceding the
critical events in the case was a curious one where the members of a family,
except the uncle of the victim, devised various schemes for depriving him, the
respondent, who was actually carrying out the farming on the holding, of his
occupation and all rights to the farm — An attendance note made by the
appellant’s solicitor left no room for doubt: ‘The family want to stop Rodney
having the farm at all costs’ — The respondent, Rodney, the youngest son in a
family of six, had at first helped his father, the tenant, generally and had later
been taken into partnership on a profit-sharing basis, the father remaining the
sole tenant and the owner of the live and dead stock — Later, however, as the
tenant advanced in years, it was agreed that the son would take over all the
stock and retain the profits — It became understood that the son should acquire
either a subtenancy or an assignment of the tenancy, but the landlords showed
no signs of agreeing. They acquiesced, however, in the son carrying on the
farming and paying a rent to the father, who paid the amount in turn to the
landlords — The judge below decided that the tenant, although prevented by his
tenancy agreement from creating a subtenancy, gave the son the most which he
considered possible, namely a licence conferring exclusive possession; the
effect of this was a matter which called for examination later
to change when the freeholders decided to sell their interest and about the
same time the tenant’s attitude to his son appeared to alter — The tenant had
thoughts about buying the freehold as a sitting tenant and then reselling it
with the benefit of vacant possession — Other people also had ideas about a
profitable purchase, including the tenant’s son-in-law, the eventual plaintiff
in the action and appellant in the present appeal — The respondent’s occupation
of the holding was an obstacle to these schemes — Solicitors and agents began
to warn of the dangers of a collusive transaction intended to defeat the
respondent; and the decision in Mellor v Watkins was quoted — The warnings were not
taken very seriously — In the end the tenant’s son-in-law, the present
appellant, purchased the freehold for £92,000 — He gave the tenant a notice to
quit, relying on Case E in what was then section 2(3) of the Agricultural
Holdings (Notices to Quit) Act 1977 — The ground alleged was the irremediable
breach of underletting or parting with possession to the respondent contrary to
the provisions of the tenancy agreement — The respondent was kept in ignorance
of the service of the notice — The tenant deliberately did not, in response to
the notice to quit, serve any notice requiring arbitration or, indeed, any
other notice — His failure to do so was due, the judge held, to a collusive
agreement with the freeholder, now the tenant’s son-in-law, the objective being
to destroy the respondent’s subtenancy along with the tenant’s head tenancy —
Proceedings for possession were then taken against the respondent — These were,
however, dismissed; hence the present appeal
Cunha decided that the exclusive licence given to the respondent by the tenant
amounted to a licence within section 2 of the 1948 Act and took effect as an
agricultural subtenancy from year to year — Although contrary to the provisions
of the tenancy agreement, the breach was waived or acquiesced in by the
landlords — The tenant’s decision, in collusion with the appellant, not to
serve any notice in reply to the notice to quit was clearly intended, by
putting an end to both tenancy and subtenancy, to enable the appellant to obtain
the prize of vacant possession — Instead, as the judge decided, while the
scheme did put an end to the tenant’s interest, it produced the result,
unwelcome to the appellant freeholder, of making the respondent his direct
tenant — It was a case of the appellant being hoist with his own petard — The
effect was in fact the same as the voluntary surrender of a head lease: Mellor v Watkins
Appeal as a whole agreed with the judge on these issues and they rejected a
number of contrary submissions — Purchas LJ also approved an alternative
argument accepted by the judge, if the licence granted to the respondent were
held not to qualify as exclusive — He held that in that case the tenant was
bound by a constructive trust in favour of the respondent, of which the
appellant was fully aware — Neither Ralph Gibson LJ nor Stuart-Smith LJ was
prepared to express an opinion on this alternative view, in which they saw some
difficulties — Appeal dismissed
Cases referred
to in this report.
Ashburn
Anstalt v Arnold (No 2) [1988] 2 WLR 706;
[1988] 2 All ER 147; (1988) 55 P&CR 137; [1988] 1 EGLR 64; [1988] 23 EG
128, CA
Bahamas
International Trust Co Ltd v Threadgold
[1974] 1 WLR 1514; [1974] 3 All ER 881; [1975] EGD 1; (1974) 47 EG 233, HL
Errington v Errington and Woods [1952] 1 KB 290; [1952] 1 All ER 149,
CA
Finbow v Air Ministry [1963] 1 WLR 697; [1963] 2 All ER 647
Gissing v Gissing [1971] AC 886; [1970] 3 WLR 255; [1970] 2 All ER
780; (1970) 21 P&CR 702, HL
Goldsack v Shore [1950] 1 KB 708; [1950] 1 All ER 276; (1950) 66 TLR
(Pt 1) 636
Grant v Edwards [1986] Ch 638; [1986] 3 WLR 114; [1986] 2 All ER
426, CA
Isaac v Hotel de Paris Ltd [1960] 1 WLR 239; [1960] 1 All ER 348,
PC
Lewisham
Borough Council v Roberts [1949] 2 KB 608;
[1949] 1 All ER 815; (1949) 65 TLR 423
Mellor v Watkins (1874) LR 9 QB 400
Midland
Bank Trust Co Ltd v Green [1981] AC 513;
[1981] 2 WLR 28; [1981] 1 All ER 153, HL
National
Provincial Bank Ltd v Ainsworth [1965] AC
1175; [1965] 3 WLR 1; [1965] 2 All ER 472, HL
Street v Mountford [1985] AC 809; [1985] 2 WLR 877; [1985] 2 All ER
289; [1985] 1 EGLR 128; (1985) 274 EG 821, HL
This was an
appeal by Kelston Maurice Sparkes, from a decision of Judge Da Cunha, sitting
as a judge of the High Court, dismissing an action by the appellant as
plaintiff seeking possession of the agricultural holding known as Halfway Farm,
Stanton Drew, in the county of Avon, and other relief. The appellant challenged
the judgment and orders, including a declaration, made by the judge.
Mark Evans
(instructed by Bevan Ashford, of Bristol) appeared on behalf of the appellant;
Christopher Gosland (instructed by Lyons Davidson, of Bristol) represented the
respondent.
Giving
judgment, PURCHAS LJ said: This is an appeal by Kelston Maurice Sparkes,
to whom I shall hereafter refer as ‘Kelston’, from a judgment and orders made
by His Honour Judge Da Cunha, sitting as a judge of the Queen’s Bench Division
at Bristol on June 6 1988. The case concerns an unhappy and regrettable family
dispute over an agricultural holding known as Halfway Farm, Stanton Drew, in
the county of Avon (‘the farm’). The family is the Smart family. There is a
complete list of the dramatis personae given in an early paragraph of
the judgment. For the purposes of this appeal, however, I need only refer by
name to five members of the family as follows: William Smart, the father of the
family (‘William’); Lionel Smart, who is William’s brother (‘Lionel’); Rodney
Smart, the youngest son of the family and the respondent to the appeal
(‘Rodney’); and Kelston, William’s son-in-law, who is married to Kathleen his
second daughter.
At the outset
of the events with which the appeal is concerned the freehold of the farm was
owned by Coates Estates (‘Coates’) and managed by Orchard Executor &
Trustee Co, which was a company set up by a firm of solicitors named Meade-King
& Co (‘Meade-King’). The company was formed to carry out the various
managerial duties undertaken by the firm of solicitors on behalf of their
clients among which was supervising the agricultural letting of the farm by
Coates to William. Thomas Everett (‘Everett’) was the partner of Meade-King especially
charged with looking after the Coates affairs and was also a director of the
Orchard Executor & Trustee Co.
The relevant
history can be summarised as follows. William was born in 1905. By a tenancy
agreement made on January 23 1943 between the predecessors in title to Coates
as landlord, William as tenant and Lionel as surety William became the tenant
from year to year of the farm. The agreement contained the usual covenants
entered into by the tenant including a covenant not to assign, sublet or part
with possession of the property or any part thereof.
William and
his wife continued living in the farm where they brought up their family of
four daughters and two sons. During the 1939-45 war and post-war years each
member of the family in due turn was expected to and did take part in any way
which was appropriate in the running of the establishment. Each child left
school at the earliest age and helped in the house or on the farm itself.
William’s wife suffered from increasing rheumatoid arthritis, which added to
the difficulties of managing the home and bringing up the family. Her last two
children were twins, one of whom was Rodney. They were born in 1946. Kathleen
was born on January 3 1932. Rodney started work on the farm in 1960 at the age
of 14 1/2 and has continued working at the farm until the present day.
In about 1972
William decided to ‘encourage Rodney’ by taking him into partnership on a
profit-sharing basis only. William retained the ownership of the live and dead
stock on the farm and remained the sole tenant under the agreement. However,
instead of being paid a wage Rodney was given a share of the profits. However,
as time progressed the increasing disablement of his wife together, I am
certain, with the effect of advancing years caused William to decide to stop
active participation in the farm. He therefore lit upon a plan under which the
partnership would be dissolved, Rodney would buy at a price fixed by Lionel
both the live and dead stock on the farm and would, thereafter, be entitled to
the whole of the profits of the farming operation. The valuation and the
accounts on the dissolution of the partnership were formally drawn up and
approved by Lionel with a net balance owing by Rodney to William. In addition,
there was recorded a figure of £2,000 ‘for the transfer of the tenancy’. It
appears that at this time William and Rodney clearly had in mind that Rodney
should acquire either a subtenancy or receive an assignment of the tenancy of
the farm.
When William
approached Everett inquiring, inter alia, whether the landlords would
consent to an assignment or subtenancy he received an answer in the negative
but qualified in these terms as reported subsequently by William to Rodney and
related by Rodney in evidence:
Mr Everett
said that he could not have the tenancy transferred to me because of an old
lady, an owner, one of the owners, was very ill and not in a fit state to sign
any documents but that I could go on, still carry on farming the farm. All it
would mean is I would pay the rent to my father and he would pay it to
Meade-Kings, and I did not have to worry because I was covered by — if anything
happened to my father I was covered by the new Act.
Everett did
not have access to his contemporaneous documents or attendance when giving
evidence before the judge and, not surprisingly, his recollection was not good
when doing this many years subsequently. When this conversation was put to him
in cross-examination he accepted that he might well have said something to this
effect. In fact Everett had a standing instruction from Coates not to permit
the subletting or assignment of any of the agricultural tenancies under his
control. This, however, is not inconsistent with his giving a less abrupt and
more humane answer to the inquiries made by William as to whether his plan to
hand over to his son could be put into effect.
William died
on September 29 1982. Since January 2 1981, however, there had been a report on
his mental condition to the Court of Protection. On March 2 1981 the Official
Solicitor consented to act on his behalf. In a proof of evidence, prepared by
William in September 1979 when obviously compos mentis, which was
admitted under the Civil Evidence Act at the trial William described the
position following upon the landlords’ refusal in these terms:
I approached
my landlords requesting them to permit me to sublet the farm to my son. They
refused permission. They indicated, however, that they would have no objection
to me remaining as tenant and to my son paying me the rent which I would then
pay to them. This arrangement was then adopted from April 1978 onwards.
Some members
of the family gave evidence before the judge which did not agree with the
evidence given by Rodney. However, the judge accepted that in early January
1978 William called a family meeting which was attended by all the family. He
asked them whether they had any objection to his proposal, namely to hand over
the running of the farm to Rodney. Rodney said that none of them raised any
objection and after considering the evidence this was accepted by the judge. In
reaching his conclusion the judge also had in mind a letter dated April 14 1977
written by Everett to William referring to the latter’s inquiry about assigning
the lease or granting a subtenancy. Having referred to one of his clients, a
Mrs Pierce, as an elderly lady who found herself in a very difficult position
in relation to the other members of the family interested in the estate, the
letter continued:
As I am sure
you will appreciate, it is impossible for Mrs Pierce to give us instructions at
the moment and, therefore, she has asked us to write to you apologising for the
present situation, pointing out her difficulties and informing you that no
action can be taken at the present time.
I will bear
in mind your request for the transfer of your tenancy to your son and if the
situation changes, I will let you know.
This was the
basis upon which the judge came to certain conclusions, to which, in my
judgment, he was fully entitled to come, in connection with the refusal by
Coates to consent to a transfer by the father of the tenancy to Rodney:
. . . On his
part, I am satisfied at the relevant time Mr Everett did understand what was
happening but probably felt that so long as he did not formally consent to an
assignment or the creation of a subtenancy for Rodney and the rent continued to
be paid by William Smart then it was not in anyone’s interest that he looked
into the matter more closely.
However, no
matter what he may now recollect, and I have considerable sympathy for him for
it was many years ago and he was very actively engaged in his partnership
practice, he must surely have realised that this comparatively elderly farmer
with an ailing wife was anxious to finish with practical farming and to devote
his remaining time and energy to her daily care.
That in turn
meant from the request he had come to make (and not for the first
sublet to him, together with the reality of the situation, that was that the
son living in the farmhouse and working the farm, that he had or was about to
give Rodney everything short of a subtenancy, namely a licence to occupy the
land and buildings exclusively and in return to pay his father the rent the
lease demanded. And this is exactly what the father did.
In 1979 Coates
decided to sell the freehold of the farm. This decision was communicated to
William in a letter of July 5 1979. In fact, developments had taken place
earlier. In April 1979 a representative of Savills, the land agents, arrived to
inspect the farmbuildings and to walk the farm on behalf of the landlords.
William, Rodney and Lionel were also present at this inspection. The letter
from Savills offered the farm to William as a sitting agricultural tenant for
the price of £92,000. Although he did not communicate this to Rodney, William
was harbouring a new plan for the farm, namely to buy it as a sitting tenant
and thereby achieve the capacity to sell with vacant possession. This would
have achieved a large profit — more than doubling the price which had to be
paid for the farm. William had consulted a Mr Hoddell (‘Hoddell’), a land
agent, in order to value the farm with him as a sitting tenant. Hoddell arrived
at a figure of £76,500. The judge commented that it was significant that when
instructing Hoddell, William did so accompanied by his daughters but did not
take Rodney with him. The elder brother was in Canada and had not taken any
part in these various transactions. William’s intention was to sell with vacant
possession and divide the profit between the members of the family. He was
advised, however, that his position had been prejudiced by his agreements with
Rodney under which he had sold the live and dead stock and had accepted rent
from him. Hoddell advised William that he was in breach of the terms of his
tenancy by handing over the farm to Rodney. This then started a further chain
of events which are relevant to the appeal.
The judge’s
findings on this were as follows:
After Mr
Hoddell’s inspection, and no doubt because of the comments he had made, William
Smart’s attitude towards his son and later towards his brother Lionel changed.
When Rodney Smart asked him what was happening he was told to mind his own
business, as it had nothing to do with him. In fact his father had turned to
his son-in-law, Kelston Sparkes, for advice and in this way on September 2
1979, he was taken to see Mr Sparkes’ solicitor, Mr Berry of Harris &
Harris, solicitors, of Wells. Mr Berry advised [that] taking counsel’s opinion,
to which I have already referred. First of all a conference was arranged at
counsel’s chambers, Lincoln’s Inn, which was attended by William Smart, Kelston
Sparkes, Kathleen Sparkes and Pamela Lockyer.
Rodney by this
time was firmly asserting his position as an assignee or subtenant of the farm.
He wanted no part of any scheme which involved selling the farm with vacant
possession. In this context it is clear that William, Kelston and the two
sisters were taking advice as to the best way of dealing with Rodney. There was
a proposal that if the freehold of the farm was bought by the four daughters
they could then serve a notice to quit on their father, who would deprive
Rodney of his subtenancy by deliberately failing to serve a counternotice to
protect his position under the Agricultural Holdings Acts. On each occasion
when advice was given by counsel, solicitors and others, it was clearly
emphasised that any step of this kind must be free of collusion as between the
purchasers of the freehold and William so as to avoid a collusive surrender of
the head lease, since this would not dispose of the sublease but rather place
the subtenant into the shoes of the collusive head tenant vis-a-vis the
new landlord: see Mellor v Watkins (1874) LR 9 QB 400.
Rodney’s position
was made clear at a family meeting of November 12 1979 which was attended by
Hoddell, who explained to Rodney (and this for the very first time) what his
father planned to do if he, Rodney, would agree to leave the farm so that it
could be sold with vacant possession. Rodney was given time to consult with
Lionel, who has throughout been aligned with him in the various family
negotiations. If they required it Hoddell would see them on their own. On the
judge’s findings, however:
. . . None
the less, it would seem, according to Mr Berry’s attendance note, which is an
agreed document, that William Smart and Kelston Sparkes were by then determined
to go ahead with the purchase and would, if need be, go to the full price of
£92,000 to achieve it. On November 15 Rodney and his uncle Lionel took up Mr
Hoddell’s offer to mediate and I believe they put Rodney’s case to him. They
both say, though Mr Hoddell cannot confirm it, that when he was told that
Rodney had agreed when he took over the farm to pay the father an additional
£2,000 when the tenancy was formally transferred to him, he, Mr Hoddell,
suggested increasing that figure to £5,000 and he would put it to William
Smart. I accept this was agreed to by Rodney, the thought behind it being no
more than a way of offering compensation in some small measure to the family
for the loss of their prospect of receiving a much larger sum if the farm was
to be sold with vacant possession. That offer proved to be totally
unacceptable.
Hoddell
negotiated with Coates a sitting tenant price of £78,500 and received
instructions from Kathleen, acting for William, to accept this. William did not
have the available money, but it was arranged that this would be provided by
Kelston. There was some arrangement involving a back-to-back agreement under
which Kelston was going to be a front purchaser and deposit the deeds of the
farm with his bank. Whether or not he formed the conclusion immediately or at a
later date, Kelston at some stage formed the plan to buy the farm on his own
account so as to make a profit on the resale — a profit which the judge found
as a fact that he proposed to keep for himself and not to make it available for
distribution among the members of the family.
On December 6
the agreement by Kathleen, acting for William, to buy the farm for a price of
£78,500 was confirmed in a letter from Hoddell’s firm of chartered surveyors to
Savills, who were acting for Coates. At this stage a solicitor, Mr Berry
(‘Berry’) of Harris & Harris, solicitors for Kelston, had come into the
exchange of correspondence with Meade-King. An attendance note dated January 9
1980 recorded by Berry contains the first suggestion that if William did not go
forward to buy the farm Kelston would buy the farm as an ‘open market
arrangement and would take any profit which would be available on it’. This was
an internal discussion between Kelston and Berry the burden of which was not
imparted to anyone else. As a result of that meeting Berry wrote to William
enclosing the contract for the purchase of the farm at the price of £78,500
which had been prepared on behalf of Coates. The contract for sale, which was
signed by William, was forwarded with a deposit of £7,850. The exchange of
contracts, which should have taken place about January 15 1980, was held up
because the cheque for the deposit was wrongly dated.
Shortly
afterwards there was a further meeting between William, Lionel, Rodney and
another member of the family at which a final attempt was made to come to some
kind of settlement with Rodney and Lionel, who were now becoming allies in this
matter. The meeting was not conclusive. Rodney was given 36 hours to consider
his reply to certain specific proposals which had been put to him. Further negotiations
between Berry and Rodney were not fruitful. The fat was put in the fire on
January 25 1980 by a letter from Meade-King to Berry enclosing a cheque for
£7,850 as ‘repayment of the deposit’. The letter stated that Coates had
received a considerably higher offer for the farm. At the time the suspicion
was that the offer had been made by Lionel on behalf of Rodney. There is a
further attendance note made by Berry of January 28 recording:
The family
want to stop Rodney having the farm at all costs.
This message
was communicated by Kelston, who had arranged to visit Berry immediately on
hearing about the returned cheque. In fact, this meeting took place on the same
day. It was not known from whom the increased offer had come. Kelston indicated
that he was going to make one final effort to persuade Rodney to agree to some
kind of settlement. If this was not forthcoming he, Kelston, would persuade a
friend of his to buy the farm and allow his friend to have the profit.
Subsequently, on the same day, Kelston changed his mind and informed Berry that
he intended to buy the farm in his own name and did not believe that the court
would think that it was collusive in spite of the various opinions that had
been received. On January 29 Kelston exchanged contracts to purchase the farm
for £92,000, paid the deposit and agreed February 26 for the completion.
During the
first half of February 1980 Kelston was still trying to discover from whom the
increased offer had been received — unsuccessfully. At the same time, from various
attendance notes kept by Berry, it appears that Kelston was discussing with one
David Tibbs a sale-on of the farm for a price in the region of £200,000. The
negotiations with Mr Tibbs fell through. On his recommendation Kelston
approached, through Berry, other solicitors for the purpose of serving a notice
to quit on William. Berry had also recommended to Kelston that he should tell
William to find other solicitors, but the judge did not accept that Kelston
wished to do this or, in fact, that he ever did so either directly or
indirectly. On March 19 1980 Berry wrote a letter instructing Mr Durrant of
Harwood & James, solicitors of Aylesbury, to prepare and serve a notice to
quit. The judge considered that this letter was ‘unfortunate’, as was accepted
by Berry in evidence. The letter contained many errors. Acting upon these
instructions, however, Mr Durrant served upon William a
pursuant to a conveyance from the Orchard Executor & Trustee Co made on
March 18 1980. The notice to quit was served under the Agricultural Holdings
(Notices to Quit) Act 1977 and asserted that the ground for requiring
possession under section 2(3) of the Act was ‘Case E’:
CASE E
At the date of
the giving of this Notice the interest of the Landlord in the above holding has
been materially prejudiced by the commission by you of a breach which is not
capable of being remedied of a term or condition of your tenancy not
inconsistent with the fulfilment of your responsibilities to farm in accordance
with the rules of good husbandry, viz:–
You have
underlet or parted with the possession of the holding to Rodney Smart contrary
to Clause 3(15) of the Tenancy Agreement dated 14th January 1943 and made
between John Eaton Coates (1) and yourself (2).
This notice was
dated March 21 1980.
Rodney was not
told by his father that the notice to quit had been served. William, as found
by the judge, in accordance with a collusive agreement with Kelston and other
members of the family, did not serve a counter-notice under the provisions of
the 1977 Act calling for arbitration and the grant of a new tenancy. The
judge’s finding on this aspect was:
It is clear
beyond doubt that from the moment they sought counsel’s advice, William Smart
and Kelston Sparkes knew exactly what the position was and if anything, it was
repeatedly confirmed by Mr Densham, Mr Hoddell and even Mr Berry himself. They
both knew that so long as William Smart was the tenant of Halfway Farm and had
therefore to be served with notice to quit he had to agree that he would not
serve a notice calling for arbitration within the prescribed time; only then
would Rodney Smart be virtually powerless to prevent his eviction, and that is
what they decided to achieve.
Before leaving
this aspect of the case, I would make two comments. First, the importance of
keeping Rodney away from the information about the service of the notice to
quit upon William was crucial so as to prevent Rodney seeking an injunction
calling upon William to serve such a notice and thereby protect his position as
subtenant in accordance with the agreement, or understanding, they had reached
over the years. Second, it is not insignificant that the ground upon which the
notice was served was the parting with possession of the farm in breach of the
covenants of the lease — a contention wholly contrary to the main basis upon
which the present case has been argued, namely that there was no parting with
possession so as to grant a licence within the terms of section 2 of the
Agricultural Holdings Act 1948 (‘the 1948 Act’). This has to be viewed with
some reservation, since the solicitors acting for Kelston acted upon the letter
of instruction received from Berry. However, it is difficult to see that
Kelston, in giving this notice, is not to have been taken to have accepted that
at the time when Rodney took over the practical running of the farm to the
exclusion of William he was not given exclusive possession of the farm.
Relying upon
the notice to quit served upon William and the failure on William’s part to
serve a counternotice demanding arbitration and a new tenancy, Kelston issued
proceedings seeking possession of the farm against Rodney as a trespasser. This
was founded upon the contention that the subtenancy fell with the head lease
or, alternatively, that Rodney had never at any time acquired any interest in
the land.
The judge’s
findings, after considering the evidence and argument which he reviewed in a
careful and detailed analysis, are summarised:
If my
assessment of the overall effect of the evidence which has been given over a
period of some seven days is correct then firstly William Smart did give his
son Rodney licence to occupy Halfway Farm exclusively, paying rent due to his
father who in turn paid the head landlords. That licence was not merely
gratuitous but intended by William Smart to create a legal relationship between
them in that all along prior to April 1979, his intention had been to give his
son the protection of an agricultural tenancy which was requisite if the son
was to farm his lands efficiently.
Mr Everett,
as I have already said, must be deemed to have been acquainted in this granting
of a licence which by the operation of section 2, subsection (1) of the
Agricultural [Holdings] Act 1948, became a subtenancy from year to year. A
lessor who by his agent acquiesces in a breach of a covenant is deemed to have
waived it once and for all and cannot alter his decision and rely upon it.
The judge
came, then, to the firm conclusion that a licence granting exclusive possession
and falling within section 2 of the 1948 Act had been granted by William to
Rodney. In referring to the submissions made by Mr Evans that Rodney’s part was
never more than a manager of the farm for his father or, at best, a gratuitous
licensee without exclusive possession, the judge made the following comment:
I have
considered these and other matters which he raised in forming the opinion I
have stated. My opinion is however strengthened I feel by those expressed by Mr
Henty of counsel, Mr Hoddell the land agent, Mr Densham, the textbook writer,
Mr Durrant an experienced solicitor and even Mr Berry. These gentlemen were
considering the situation much nearer in time to the happening of the relevant
events. Furthermore most if not all, had the benefit of meeting the persons
directly concerned and were able to and no doubt did put pertinent questions to
them before planning their options.
I mention this
passage only for the purpose of dealing with a submission that in some way the
judge wrongly adopted the professional opinions of these witnesses on questions
of law. As I read this passage, the judge is drawing comfort from the fact that
their opinions coincided with his own but not that his own rulings in law had
been in any way influenced by the legal content of the opinions of these
gentlemen. On the other hand, if and in so far as they recorded questions of
fact such as the presence of parties at meetings or, alternatively, the receipt
by those parties of information and the decisions taken by them, their
‘opinions’ properly assessed in their appropriate context would be part of the
material upon which the judge was entitled to reach his own findings of fact.
Having decided
that an agricultural subtenancy in favour of Rodney had been created, the judge
continued to consider an alternative submission made by Mr Gosland, for the
defendant, Rodney, that even if the licence granted by William to Rodney did
not achieve a transfer of exclusive possession of the land, nevertheless a
constructive trust bound William in favour of Rodney of which Kelston clearly
had full knowledge. It is clear from the evidence of Rodney, from the proof
provided by William and from the general circumstances and evidence given by
Rodney and Everett that the basis upon which Rodney continued at the farm, paid
for the dead and live stock and undertook in the future to pay a further £2,000
was that if and when it was possible William would transfer the tenancy to
Rodney; or if Coates continued to refuse their consent to such a transfer,
William would do his best to ensure that in due course Rodney would succeed to
the tenancy under the provisions of section 18 of the Agricultural Holdings Act
1976 (‘the 1976 Act’). The judge accepted these submissions. He found the
necessary intention in William and he also found that Rodney had acted to his
detriment by carrying out his side of the bargain and paying the rent. This
constructive trust having been established, the judge accepted the further
submission made by Mr Gosland that Kelston was well aware of the existence of
the relevant circumstances and that he subsequently acquired the property in
that knowledge. In serving the notice upon William in the collusive
circumstances already outlined, Kelston became bound by a constructive trust
arising from his knowledge that William in failing to serve a counternotice
would be in breach of the trust. He would, therefore, be bound to recognise
Rodney’s equitable rights and to grant him a tenancy accordingly.
Mr Evans, in forceful
and attractive submissions, contended that any rights enjoyed by Rodney against
William were personal rights only and fell far short of the requirement
necessary to create an interest in the land for the purposes of creating a
licence with exclusive possession, to which the provisions of the 1948 Act
would apply. He submitted that there was no evidence before the judge capable
of establishing anything further than a bare expression of intention on the
part of William that he would allow Rodney to continue to farm the farm ‘as his
son’ and that this was incapable of creating any interest in the farm in favour
of Rodney to which a constructive trust could attach.
On the first
and main plank of his argument, Mr Evans submitted that, having received from
Everett Coates’ refusal to consent to a transfer of the tenancy or the creation
of a subtenancy, the father would not have formed an intention deliberately to
be in breach of the terms of the lease against assignment or subletting. It
was, he submitted, contrary to the evidence that the father should form an
intention to create any interest in favour of Rodney in the land which would
amount to a breach of covenant. In this way, Mr Evans submitted ‘that Rodney
remained on the land as a son and not as a tenant or assignee’.
To expand Mr
Evans’ submissions that the judge’s finding that a licence had been created by
William in favour of Rodney was wrong, he pointed out:
1 That there was no suggestion by any party
that they were seeking to do anything behind the landlords’ backs.
2 That the scheme whereby Rodney continued to
farm the land but that William paid the rent, receiving reimbursement in the
same amount from Rodney in accordance with Everett’s suggestions, was
supported the proposition that neither William nor Rodney was seeking in any
way to be in breach of the covenant in the lease.
3 That, therefore, it was impossible to infer
the creation of an interest in the land either as a subtenancy or a licence
with exclusive possession so as to bring into operation section 2 of the 1948
Act.
4 That, the understanding imparted by William
to Rodney that ‘he would be protected under the new Act’, by which he was
referring to section 18 of the 1976 Act, was inconsistent with the granting of
a licence with exclusive possession so as to qualify under section 2 of the
1948 Act.
5 That in the final analysis what interest, if
any, was created in favour of Rodney in the farm depended upon the intention
established by an objective analysis of the evidence of the attitude and
conduct of the parties. For an example of occupation falling short of creating
an interest in the land, Mr Evans referred to Errington v Errington
and Woods [1952] 1 KB 290: see Denning LJ, as he then was, at p 298. Mr
Evans submitted that the judge was not justified in inferring an intention in
the parties to create an interest in favour of Rodney which they had no right
to do: see Finbow v Air Ministry [1963] 1 WLR 697 at p 707 per
McNair J, where reference is made to the judgment of Denning LJ in Lewisham
Borough Council v Roberts [1949] 2 KB 608.
6 Relying upon Goldsack v Shore
[1950] 1 KB 708, that before any contract between William and Rodney could be
capable of creating an interest in the farm, it had to be enforceable at law;
and that any expression of intention on William’s part fell far short of this
test. It was, Mr Evans submitted, at the most purely executory and
unenforceable until the condition precedent was fulfilled, ie consent of the
landlord became available, a state of affairs which was never reached. In any
event, he submitted, it would, if an estate contract, have to be in writing and
registered in order to be binding upon a purchaser for value even with
knowledge.
7 Finally, that even if the arrangement could
be elevated to the status of a contractual licence to occupy, short of a
licence qualifying under section 2 of the 1948 Act, such a licence would not be
binding on a purchaser even with notice: see Ashburn Anstalt v Arnold
[1988] 2 WLR 706* and the reference by Fox LJ at p 721 to the dissenting
judgment of Russell LJ in National Provincial Bank Ltd v Hastings Car
Mart Ltd [1965] AC 1175. Mr Evans conceded, however, that if William and
Kelston had made a collusive bargain this authority did not assist him.
*Editor’s
note: Also reported at [1988] 1 EGLR 64.
I have set out
at some length out of respect for the skilful arguments of Mr Evans the
contentions which he urged before the court. Notwithstanding the attractive
presentation of this argument, I have come to the conclusion that this matter
can be resolved in a comparatively short and simple way. The judge in the
passage already cited in this judgment found that against the context of
Everett’s communicating Coates’ unwillingness to consent to this scheme,
William decided that ‘he had or was about to give Rodney everything short of a
subtenancy, namely a licence to occupy the land and building exclusively and in
return to pay his father the rent the lease demanded and this is exactly what
the father did’. The judge was, in my view, entirely justified on the primary
facts established before him in reaching this conclusion. The effect of this
was that whether in breach or probably in breach of the covenant in the lease
William created an exclusive licence in favour of Rodney to which the
provisions of section 2 of the 1948 Act applied. The judge also found, and in
my view was justified in finding on the evidence, that Everett was fully aware
of the arrangements being made between William and Rodney and indeed to a
degree suggested them. In the presence of this knowledge Everett, acting for
Coates, refrained from serving any notice to quit based upon this breach of
covenant; although years subsequently solicitors acting for Kelston framed
their collusive notice on this ground. In the light of these findings Coates
must be taken to have waived any breach of covenant through acquiescence on the
part of their duly appointed agent. The evidence and argument supporting the
judge’s conclusion on this aspect of the case have been more fully set out in
the judgment of Stuart-Smith LJ, which I have been privileged to see in draft
and which I gratefully adopt.
In these
circumstances I have no doubt that Rodney was a subtenant as a result of the
operation of section 2 of the 1948 Act upon the exclusive licence granted to
him by William.
It is
necessary, then, to consider the position of Rodney when the notice was served
by Kelston upon William and in the further context of William’s failure to
serve a counternotice. On this aspect of the case Mr Evans readily conceded that
his only hope was to attack the findings made by the judge that the whole of
this operation was collusive. If it was collusive then Mr Evans did not seek to
argue that Rodney was entitled to be placed in the position of William as
Kelston’s tenant. Notwithstanding Mr Evans’ able arguments, I find it quite
impossible to entertain any doubt as to the judge’s finding on this aspect of
the case. The evidence was overwhelming.
I now turn to
consider the alternative approach on the basis that the licence granted by
William to Rodney fell short of one with exclusive possession sufficient to
attract the operation of section 2 of the 1948 Act. Mr Gosland’s argument on
this part of the case is based upon the creation of a constructive trust under
which William held the farm under his agricultural tenancy with Coates and
subsequently, after Kelston had acquired the reversion, from Kelston. The judge
acceded to this submission relying, inter alia, upon a passage in the
judgment of Fox LJ in Ashburn Anstalt v Arnold [1988] 2 WLR 706
at p 725F:
The
constructive trust principle, to which we now turn, has been long established
and has proved to be highly flexible in practice. It covers a wide variety of
cases from that of a trustee who makes a profit out of his trust or a stranger
who knowlingly deals with trust properties, to the many cases where the courts
have held that a person who directly or indirectly contributes to the
acquisition of a dwellinghouse purchased in the name of and conveyed to another
has some beneficial interest in the property. The test, for the present
purposes, is whether the owner of the property has so conducted himself that it
would be inequitable to allow him to deny the claimant an interest in the
property.
The basis as
described by Lord Diplock in Gissing v Gissing [1971] AC 886 is
the intention of the parties on the one hand as expressed by the person to be
made subject to the constructive trust and on the other as understood by the
person to benefit from that trust. Furthermore, in order to support a
constructive trust it is necessary to establish more than mere common
intention. The claimant must prove some act to his or her detriment in the
reasonable belief that by so acting he or she was acquiring a beneficial
interest: see Grant v Edwards [1986] 2 All ER 426, per Sir
Nicolas Browne-Wilkinson V-C.
The judge
found a common intention expressed by William and accepted by Rodney that if
he, William, was unable to obtain the consent of Coates to a transfer of his
tenancy then he would hold on as tenant so that Rodney would benefit under
section 18 of the 1976 Act and thus acquire an agricultural tenancy by
succession. Furthermore, at p 34 of the judgment, the judge found:
In his turn,
Rodney acted to his detriment by carrying out his side of the bargain by paying
for the live and dead stock, farming the land, paying the rent demanded by the
head landlord to his father and continuing to make the farmhouse the family
home for his wife and children. In addition he applied his resources as well as
his energy to the farm’s maintenance.
Mr Evans’
attack on the judge’s finding that a constructive trust arose in favour of
Rodney so as to bind Kelston was based upon the necessity for the judge to find
an equitable interest in the land enjoyed by Rodney to which the constructive
trust could attach. He submitted that in the circumstances of this case such an
interest would have to depend upon a trust either expressed or implied under
which William held his interest in the farm for the benefit of Rodney. Mr Evans
submitted that if the arrangement was not an estate contract then it was purely
an expression of future intention on the part of William which could give rise
to no such trust.
If it was an
estate contract, then reliance was placed upon a passage from article 34 of Underhill
and Hayton’s Law of Trusts and Trustees (14th ed) at p 327:
The plea of
constructive trust will [not] . . . succeed where the statute (eg the Land
Charges Act 1972, the Land Registration Act 1925, the Companies Act 1985)
expressly requires certain interests to be registered or protected by entry on
a register upon pain of a purchaser taking property free from such interests.
It is not fraudulent or unconscionable for a purchaser to take advantage of his
strict statutory rights by relying on the absence of the registration or
protection stipulated for in the statute unless some dishonesty or want of
probity is involved.
The passage is
based for its main principle on Midland Bank Trust Co Ltd v Green
[1981] AC 513.
Mr Evans
relied upon the passage from the speech of Lord Diplock in Gissing v Gissing
[1971] AC 886 at p 906:
the relevant
intention of each party is the intention which was reasonably understood by the
other party to be manifested by that party’s words or conduct notwithstanding
that he did not consciously formulate that intention in his own mind or even
acted with some different intention which he did not
inference which the other party draws as to his intention unless that inference
is one that can reasonably be drawn from his words or conduct.
Mr Evans also
referred to the judgment of Fox LJ in Ashburn Anstalt v Arnold
[1989] Ch 1 at pp 22E and 25H. He submitted that there was no conduct
demonstrated by the evidence in the present case which could be identified as
creating a beneficial interest in the farm in favour of Rodney. With respect to
Mr Evans’ able arguments on this aspect of the case they fall foul of the firm
findings of fact which the judge reached.
Mr Gosland,
for the respondent, Rodney, relied upon article 35, Underhill, p 349,
which reads:
Article 35
Constructive
trusts imposed upon strangers receiving or dealing with trust property . . .
(2) A person, not being a trustee, becomes a
constructive trustee of trust property or its traceable equivalent still under
his control where:
(a) he received it as a volunteer or with actual,
constructive or imputed notice that it was trust property transferred in
breach of trust; or . . .
(3) A person not chargeable as a constructive
trustee of trust property or its traceable equivalent on the above principles
may, as a formula for equitable relief, be made personally liable to account as
if he had notionally been an express trustee (whether or not any trust property
or its traceable equivalent had ever been in his hands, whether as principal or
agent) where such person has with knowledge:
(a) assisted the trustee or other fiduciaries in
carrying out their dishonest design vis-a-vis the trust property or its
traceable equivalent, or induced them innocently to carry out his own dishonest
design vis-a-vis such property; or
(b) received such property transferred in breach
of trust or other fiduciary relationship or dealt with any such property
inconsistently with the terms of the trust or other fiduciary relationship.
Mr Gosland
submitted that Kelston knew the whole history and should have known that
William held the farm on trust in favour of Rodney. Kelston had been privy to
the various opinions received by the family relating to the possibility of
determining Rodney’s subtenancy and, moreover, had privately formed the
intention of keeping the proceeds of the sale of the farm to himself in breach
of the collusive arrangement he had reached with the family and under which
William himself did not serve a counternotice under the 1948 Act. To this
extent his secret intention compounded his collusion with deceit of his
co-conspirators.
It is in this
respect that the letter written by Berry is of importance and the further fact
that Rodney was not given notice of the service of the notice to quit by
Kelston upon William. Mr Gosland relied upon the paragraph in article 35 of Underhill
reading:
This personal
accountability in the guise of constructive trusteeship in vacuo,
constructively treating a defendant as if he had been a trustee, is imposed as
a personal remedy divorced from the institutional trust of specific property.
It is a fiction providing an equitable remedy where no remedy may be available
at common law eg in contract or tort. It requires some want of probity on the
defendant’s part to provoke equity’s intervention in the plaintiff’s favour.
The reality of knowledge (as opposed to the artificiality of notice) is
required for determining whether a person’s conscience is sufficiently affected
for it to be right to burden him with the obligations of constructive
trusteeship.
I have come to
the conclusion that Mr Gosland’s submissions are correct. If, contrary to my
view, there was not a licence with the necessary element of exclusive
possession, then it was the common intention to be construed from all the
circumstances of the case between William and Rodney that William would hold
the tenancy of the farm on trust for Rodney until it could be transferred to
him with the consent of the landlords or he succeeded under section 18 of the
1976 Act whichever first occurred. Furthermore, it is quite clear from the
evidence that Kelston knew perfectly well what the position was as between
William and Rodney. With this knowledge he was a party to the collusive
arrangement under which he was to serve William with a notice to quit and
William was, on his part, to refrain from serving a counternotice. Kelston knew
that in failing to serve a counternotice, William would be in breach of the
trust upon which he held the tenancy of the farm in favour of Rodney. In these
circumstances, even if Rodney failed to establish his defence based upon his
agricultural tenancy he would have succeeded upon the basis of a constructive
trust by which Kelston would have been bound arising out of his collusive part
in the breach of trust committed by William. I feel constrained to comment that
in blatantly ignoring the advice given by more than one adviser about
collusion, Kelston can command very little sympathy, quite apart from his
covert design to keep the profits, if his plan had succeeded.
For these
reasons I would dismiss the appeal and uphold the judgment and orders including
the declaration made by the judge.
Agreeing, RALPH
GIBSON LJ said: The first ground of decision of the learned judge was that
William Smart ‘did give to his son Rodney a licence to occupy Halfway Farm exclusively,
paying rent to his father who in turn paid the head landlords’ and ‘that
licence was not merely gratuitous but intended by William Smart to create a
legal relationship’ (judgment p 31).
It was not in
issue on this appeal that, if William did give to Rodney an exclusive licence
to occupy the farm on payment of the amount of the rent to William, so that
William could pay the rent under the tenancy, then the effect of section 2(1)
of the 1948 Act, assuming the licence not to be a gratuitous arrangement, is to
make Rodney a tenant of the farm from William from year to year.
The judge
proceeded, from the finding of a contractual licence for exclusive occupation,
which gave rise to the tenancy, to the further findings that Mr Everett, as
agent for the landlords, had waived the breach of covenant committed by William
in thus parting with possession of the holding to Rodney; and thence to the
conclusion that the collusive arrangement between Mr Sparkes and William caused
Rodney’s tenancy to be valid against Mr Sparkes notwithstanding the termination
of William’s tenancy.
Mr Evans
argued that any grant of a licence was gratuitous. He acknowledged that the
arrangement whereby Rodney purchased the live and dead stock from William and
the partnership was terminated, so that thereafter Rodney operated the farm as
sole trader and for his exclusive benefit, was a legal contract — the parties
intended to affect their legal relationships. But Mr Evans contended that the
arrangement under which Rodney was permitted to live on and work the farm was
separate and that it was gratuitous.
It is clear, I
think, that the arrangement between William and Rodney was not settled at one
meeting. It could not be, because it concerned not only the financial relations
between the father and the son but also the landlords. The way in which and the
terms upon which William would extricate himself and his capital from the farm
would depend upon what arrangement the landlords would accept. The arrangement
began with William inviting Rodney to take over the running of the farm as sole
operator of it. Whether it was expressly stated or not, it was clear to both of
them that Rodney required some protection or security if it was to be worth his
while to take on the farm and the stock. The proposal was that Rodney should
take an assignment of the tenancy or the grant of a subtenancy. If either
course were approved, William would cease to have any effective right to go
upon the farm and Rodney’s occupation would indeed be exclusive. In the result,
neither assignment nor subtenancy was permitted but the landlords’ agent, Mr
Everett, as the judge found, raised no objection to William’s permitting Rodney
to occupy the farm under the arrangement which they had made or which was
proposed to be made. Thereafter Rodney continued in sole control of the farm
and he operated the farm for his sole benefit, making payments to William under
the arrangement agreed. I see no ground for disturbing the judge’s finding that
the licence given by William to Rodney was contractual as forming part of an
arrangement which was itself contractual.
As to the
finding that William gave to Rodney ‘a licence to occupy Halfway Farm exclusively,
paying rent due to his father who in turn paid the head landlords’, I had at
first, on considering these papers, doubts as to whether it was justified on
the evidence. There was, of course, no evidence of express words to that
effect. The intention to grant an exclusive licence, with no apparent right to
terminate it, must be found, if at all, from the nature of the transaction
itself and in the light of all the circumstances and, in particular, in the
face of the fact that, if there was to be a transfer of the tenancy, William
required to be paid for it. He asked for £4,000 and it was reduced after
discussion to £2,000. Because there was no transfer of the tenancy nothing
became payable under that heading.
The
consequences of finding a grant of an exclusive licence are somewhat
surprising. William’s idea was to assign his tenancy or to grant a subtenancy,
but he clearly knew, I think, that he could do neither without the landlords’
consent. He went with Lionel, his brother, to ask for consent and he was told
that the landlords’ consent was not available to either course. He decided
therefore to continue with his plan to retire, and to leave Rodney to run the
farm for his sole benefit, and to take out his capital, the value of the live
and dead stock; and he did that because, having told Mr Everett what
he was intending to do, there was no objection from Mr Everett to that course.
If what he did amounted in law to the giving of an exclusive licence, so that
he parted with possession, and section 2 of the Act converted the licence into
a yearly tenancy, he committed a breach of covenant and presented the landlords
with a ground of possession which they could have asserted, if they did not
waive the breach, against both William and Rodney. The facts of this case
indicate the large commercial advantage to landlords of being afforded such a
ground for possession. The rent payable under the tenancy was £637 per annum;
the price which the landlords would accept on the basis that the farm was
tenanted by a secure tenant was £92,000; and if it was available for sale with
vacant possession it would have been worth, as I understand it, in excess of
£150,000. The arrangement which William and Rodney made was one which a tenant
farmer, with a covenant in his lease against parting with possession, might, as
it seems to me, think he was free to make without committing such breach in
order to retire from active farming and to leave his son to run the farm until,
upon his own death, the son might become tenant by succession; and it would, I
think, be surprising if, without a clear expression of intention, such a tenant
farmer might be held to have parted with possession of the farm in breach of
covenant, as contrasted with having let his son run the farm while himself
keeping possession in law. The right answer on the facts cannot depend upon
whether in a particular case it benefits or hurts the tenant or his subtenant
that the arrangement be held to constitute an exclusive licence.
Mr Gosland, on
behalf of Rodney, listed the evidence which, he submitted, fully supported the
judge’s finding of an exclusive licence:
(i) Rodney described in evidence the origin of
the arrangement:
William
wanted to finish with the farm and me to take the farm over.
William was to
go to see Mr Everett and Lionel was to make the valuation.
(ii) In the proof of evidence of William, which
was put in under the Civil Evidence Act, there was a passage describing the
arrangement. The proof had been taken from William for submission of a case to
counsel in September 1979 when it was William’s purpose, if he could, to buy
the farm for £92,000 and sell it with vacant possession.
The relevant
passages read:
I decided to
stop active participation in the farming business and specially in view of my
age. I therefore came to agreement with Rodney that I would allow him to buy
the live and dead stock on the farm. . . . we produced an agreed valuation of
£16,485 . . . we deducted from this undrawn profits and my son’s capital in the
firm leaving owing to me the sum of £4,426. Rodney agreed to pay this off . . .
I approached my landlords requesting them to permit me to sublet the farm to my
son. They refused permission. They indicated however that they would have no
objection to me remaining as tenant and to my son paying me the rent which I
would then pay to them. This arrangement was then adopted from April 1978
onwards . . .
(iii) Those extracts showed, it was submitted, that
William was willing to sublet and, if he did so, he would have no right in law
to enter on the farm whatever he may have expected would be permitted to him as
between father and son.
(iv) William did not in fact go on to the farm
until about a year later, in April 1979, when the farm was inspected by a
valuer sent on behalf of the landlords. It was then that buying the farm
appeared as a possibility.
(v) From September 1979, when the family dispute
became apparent, Rodney adopted the position that he had a right to remain upon
the farm.
(vi) From the making of the arrangement, Rodney
ran the farm and spent money upon it and upon the plant of the farm and carried
out items of repair.
(vii) Lionel’s evidence was that, before he and
William went to see Mr Everett, William had told him that he wanted to come out
of the farm and that Rodney should take it over. They went to see Mr Everett
with reference to ‘the transfer of the tenancy from himself to Rodney’. Lionel
explained the situation to Mr Everett, namely that ‘the only solution was for
Rodney to take over the farm’. Mr Everett, according to Lionel, saw no reason
why Rodney should not go on farming the farm as he was, with William paying the
rent to the landlords and Rodney paying the rent to William. The carrying out
of the valuation by Lionel followed that discussion.
Mr Evans
referred to the passage in the speech of Lord Diplock in Bahamas
International Trust Co Ltd v Threadgold [1974] 1 WLR 1514 at p 1527
G:
To come
within section 2(1) of the Agricultural Holdings Act 1948 the licence granted
under an agreement must be a ‘licence to occupy land for use as agricultural
land’. To satisfy this requirement the right of occupation for agricultural
purposes must be an exclusive right under which the grantee is entitled to
prevent the grantor and any other person authorised by the grantor from making
any use of the land, at any rate for agricultural purposes, during the period
of the grant. The application of section 2(1) of the Act to licences to occupy
land for use as agricultural land was, in my view, correctly stated by Davis LJ
in Harrison-Broadly v Smith [1964] 1 WLR 456, 470 where he said:
. . . ‘there cannot be such a licence without a right of exclusive occupation
during the currency of the licence in the licensee as against the licensor for
that purpose’.
Mr Evans
pointed out that Judge Da Cunha did not expressly deal in his judgment with the
submissions made to him on behalf of Mr Sparkes upon this issue. The judge’s
conclusion on the exclusive nature of the licence granted was expressed to be
based upon his ‘assessment of the overall effect of the evidence given over a period
of some seven days’. He noted Mr Evans’ submission that the licence did not
give exclusive possession and said that his conclusion, that it did, was
strengthened by the opinions, expressed in documents before the judge, by Mr
Henty, counsel, by Mr Hoddell, the land agent, and by Mr Densham, a solicitor
and the learned editor of Scammell and Densham on Agricultural Holdings.
I think that to an extent this criticism of the judgment is justified. It was
permissible, of course, to look to the documents disclosed in which
instructions were given to legal advisers, and opinions were expressed by those
advisers, to show knowledge of facts against any party and to prove any facts
by admission. The expert opinions, however, on the mixed question of fact and
law which was for determination by the court, namely whether the facts show a
grant of exclusive possession, were not, I think, admissible as such, but no
separate point was made by Mr Evans on that. For my part, I think that the
learned judge did not deal further or in any detail with the evidence or the
submissions made to him because he regarded the answer to the question as being
very clear.
I have reached
the conclusion that the learned judge was entitled to make the finding he did
and there is no ground upon which this court could properly interfere with it.
As Stuart-Smith LJ observed during the course of argument, William had, upon
the evidence, decided to get out of the farm entirely. William had left the
farmhouse; he ceased taking any part in the conduct of the farm; he formally
terminated his partnership with Rodney and left Rodney to run the farm wholly
on his own account; and he had taken his money out of the farm as far as he
could. The arrangement, therefore, contemplated that Rodney would be in sole
charge of the farm for his own purposes. There was, I think, material, having
regard to the rest of the evidence, upon which the learned judge could properly
draw the inference that William, although unable to assign or sublet, did
intend to let Rodney have exclusive possession of the farm upon payment to
William of the amount of the rent which William had to pay to the landlords.
For drawing such an inference there ought, in my judgment, to be clear and
compelling demonstration of the intention. It seems to me that the judge was
entitled to conclude that, if William was to get out of the farm completely,
and leave Rodney in sole charge, it was a necessary part of that arrangement
that Rodney should have exclusive possession of the farm. The right, of course,
to exclude his father and all others did not mean that, as son, he would expect
or intend to refuse all access to William to the land.
I would,
therefore, uphold the decision of the learned judge upon this essential issue.
On the remaining issues relevant to the validity of Rodney’s tenancy against Mr
Sparkes, that is to say waiver by acceptance of rent with knowledge of the
circumstances by Mr Everett, and the issue of collusion, I have no doubt that
the judge’s findings were open to him on the evidence and could not properly be
disturbed by this court.
I rest my
decision, therefore, upon those grounds and I would dismiss the appeal.
As to the
alternative case advanced for Rodney, based upon constructive trust, I express
no final opinion. There are, I think, difficulties in the way of finding a
constructive trust. Whereas, for the reasons which I have given, I would uphold
the finding of a grant of an exclusive licence to occupy, while the arrangement
subsisted, I have doubts about holding that there was any express or implied
promise by William that he was to preserve the tenancy which he held until his
own death so that Rodney should succeed him, or that any contractual promise
made by William with reference to Rodney’s
obligation in William.
I think it
right to add, further, that while Mr Sparkes clearly had notice of the
instructions given to the legal advisers, who had given advice to the family,
and of the terms of that advice, I do not accept that, as submitted by Mr
Gosland, Mr Sparkes is to be regarded, for the purposes of imposing a
constructive trust, as someone who has taken part in or helped to carry out or
instigated a dishonest design: reference was made to Underhill and Hayton on
Trusts (14th ed) p 350. The learned judge made no finding to that effect.
He accepted that the arrangement between William and Rodney gave rise to a
constructive trust; that Mr Sparkes had notice of it; that by giving notice to
quit to William with the intention of depriving Rodney of the farm he was
acting in a manner inconsistent with the trust; and that by acting in collusion
with William his breach was all the more unconscionable. It is not necessary to
decide, as I have said, whether the first step in that chain of reasoning is
correct, ie the existence of the constructive trust obligation in William.
Mr Sparkes, in
my judgment, knew that the family were advised that, whether in their own name
or by a company formed for the purpose, they could not hope to sell with vacant
possession by arranging with William not to resist the operation of a notice to
quit so that Rodney could be evicted. Mr Sparkes decided to try it himself
although he was advised that he was taking a risk. He told Rodney at once that
he had bought the land. Rodney knew that a notice to quit would be served but
he was not given notice of the serving of it upon William. If the law had
allowed Mr Sparkes to get vacant possession against Rodney and to sell the land
at a profit, it would then have been Mr Sparkes’ responsibility to decide what
to do with the profit made. He had offered Rodney £20,000 to get out on January
28 1980, the day before he exchanged contracts to buy the land. On my view of
the facts of this case, Mr Sparkes has lost the case because William had
granted an exclusive licence to Rodney, which the law converts into a
subtenancy from year to year, and which the law protects against collusive
termination by the combination of the landlord, Mr Sparkes, and the tenant,
William. Mr Sparkes had been warned by the advice of the legal advisers of the
existence of that subtenancy and of the operation in law of the principle of
collusion between landlord and tenant. He decided to take a commercial risk and
he has lost. He was not, in my judgment, dishonest in buying the property or in
acting in reliance upon William’s known willingness to see the tenancy
terminated.
Also agreeing,
STUART-SMITH LJ said: The first ground upon which the judge found in
favour of the defendant was as follows:
(1) That the arrangement between William Smart
and his son Rodney made in the early part of 1978 involved the grant of an
exclusive licence to occupy the land and buildings at Halfway Farm and in
return to pay his father the rent demanded in the lease.
(2) That this amounted to a licence to which
section 2 of the Agricultural Holdings Act 1948 applied (the Act of 1948), so
that it was treated as the grant of a subtenancy by virtue of that section.
(3) That in so far as this amounted to a breach
by the tenant of the covenant in the lease not to part with possession of the
demised premises, it was waived or acquiesced in by Mr Everett, who was the
authorised agent of the landlords.
(4) That William Smart’s failure to serve a
counternotice in accordance with the provisions of section 24 of the Act of
1948 within one month of the receipt of the notice to quit was the result of a
collusive agreement between the plaintiff and William Smart designed to bring
an end to Rodney’s subtenancy.
Mr Evans
challenged each of these conclusions; it is therefore necessary to examine them
in turn.
(1) Did William Smart grant an exclusive licence
to Rodney to occupy the land and buildings of Halfway Farm? This depends upon what was agreed at the
time, which in turn must be derived from the presumed intention of the parties,
based upon what they said and did. Mr Evans’ principal submission is that such
a licence is inconsistent with the stated intention that Rodney should succeed
to the tenancy on his father’s death under the provisions of section 18 of the
Agriculture (Miscellaneous Provisions) Act 1976 (the Act of 1976), if the
tenancy had not previously been assigned by father to son with the landlord’s
consent. Mr Evans submits that for this to have been their intention it was
necessary for the father to continue to farm the holding, and he could not have
intended to part with possession and thereby disqualify himself from coming
within the provisions of section 18 of the Act of 1976. While I see the force of
this submission, in my judgment, it attributes to both father and son a
detailed knowledge of the 1976 Act, which there is no evidence that they
possessed. In the absence of such evidence, it is at best a factor to be
considered and is certainly not conclusive.
Second, Mr
Evans submitted that the defendant’s knowledge that the landlord would not
consent to subletting or assignment and that his father must remain the tenant
is fatal to the existence of a licence with exclusive possession sufficient for
section 2 of the Act of 1948. No party can be deemed to have intended or given
effect to an arrangement that is known to be in breach of the tenancy. But
there is no reason in law why William Smart could not grant a licence with
exclusive possession or subtenancy of the farm. It is true that this would be a
dangerous thing to do unless the landlords consented or acquiesced; but it is
said that this is what occurred and in effect this was apparent to William
Smart at the meeting with Mr Everett.
The judge
expressed his conclusion in this way:
That in turn
meant from the request he had come to make (and not for the first time), to
have his tenancy assigned to Rodney or to be allowed to sublet to him, together
with the reality of the situation, that was that the son living in the
farmhouse and working the farm, that he had or was about to give Rodney
everything short of a subtenancy, namely a licence to occupy the land and
buildings exclusively and in return to pay his father the rent the lease
demanded. And this is exactly what the father did.
In my judgment,
there was ample evidence to support this conclusion. The father was anxious if
he could to grant a subtenancy or assign his tenancy to his son; it is plain,
therefore, that he did not wish to exercise any control over the land or the
farming operations. He wanted to have nothing more to do with the farm and hand
it over to Rodney. He and his wife had already moved out of the farmhouse, and
the bungalow they lived in formed no part of the holding. As a result of the
agreement, the live and dead stock was sold to Rodney. The father took no
further part in the management of the farm and he had no financial interest in
it other than receipt of the rent for onward transmission to the landlord. It
was plainly implicit in the agreement that Rodney would be responsible for
complying with the tenant’s covenants in the lease relating to repairs and
other outgoings. William had no capital investment in the farm; he held the
bare tenancy, which carried with it the possibility that if the landlord
changed his mind he might at some time be able to purchase the freehold
reversion at a favourable price. It is difficult to know what more he could
have done, short of a formal assignment or grant of a subtenancy, to part with
possession of the land or grant exclusive occupation to his son.
(2) Was the licence granted to the defendant one
to which section 2 of the Act of 1948 applied?
That section provides:
(1) Subject to the provisions of this section,
where under an agreement made on or after the first day of March nineteen
hundred and forty-eight, any land is let to a person for use as agricultural
land for an interest less than a tenancy from year to year, or a person is
granted a licence to occupy land for use as agricultural land, and the
circumstances are such that if his interest were a tenancy from year to year he
would in respect of that land be the tenant of an agricultural holding, then,
unless the letting or grant was approved by the Minister before the agreement
was entered into, the agreement shall take effect, with the necessary
modifications, as if it were an agreement for the letting of the land for a
tenancy from year to year.
It is common
ground that to come within the section the licence must be exclusive, that is
to say that the licensee has the right to exclude the licensor and that it must
not be gratuitous. Mr Evans submits that it fails on both scores. It was, he
submits, a bare licence merely giving him a personal right to farm the land for
his own living. He relies on the following passage in cross-examination:
Q. And the
time might have come when your father would have said: ‘Well, things are a
little easier,’ for whatever reason, ‘maybe I want to keep a few sheep.’ You could have no objection to him keeping
something on the land?
A. I do not
think my father ever kept a sheep on the farm all his life.
Q. Whatever.
If your father had said: ‘I want to come back on the land to do a little thing
just to keep me occupied,’ you could not have objected.
A. No, not if
he wanted to. I never objected to anything my father asked me.
To my mind,
this is a slender basis for the submission. Indeed the whole concept of
excluding the father from farming the land is unreal in a situation where it is
quite clear that the father had no intention of doing so again and in the
context of a happy and loving relationship in which, in the unlikely event of
the father wanting to run a few sheep, Rodney would have no objection.
In the highly
improbable event of his father wanting to resume farming on a substantial part
of the land, in a manner which seriously interfered with Rodney’s farming
operations and his profit, I have no
a proposal would have been quite inconsistent with Rodney taking all the profit
from the farm and being responsible for the rent and other outgoings.
While it may
not be a decisive test, it is helpful, in my judgment, to ask the question, on
whose account was Rodney farming the land?
Was it on behalf of his father, in whole or in part, which would mean
that he was in law the father’s servant or agent? Or was it on his own account? It seems to me to be plain, that after the
dissolution of the partnership which had existed since 1972, the answer is that
it was solely on his own account. If one asked the question ‘who controlled the
operations on the land?’, which is the crucial test as to who is the occupier,
again the answer can only be that it was Rodney. William Smart would have been
astonished if he had been told that he was jointly liable under the Occupiers’
Liability Act 1957 for injury to visitors through defects in the premises. In
my judgment, there was ample evidence to support the judge’s conclusion that
the licence was exclusive and I agree with it.
Second, Mr
Evans submitted that the licence was gratuitous. I cannot accept this. Rodney
paid a sum equivalent to the rent for the use of the land. The fact that in Isaac
v Hotel de Paris Ltd [1960] 1 All ER 348 the court regarded the payment
of a sum equivalent to the rent not as rent payable by a subtenant but as a
disbursement is not in point. Whether the payment by Rodney to his father is to
be classified as rent or not does not alter the fact that it is the
consideration, for the use of the land. The court does not consider the
sufficiency of the consideration, and the fact that William Smart made no
profit on the transaction is immaterial. Mr Evans sought to liken the situation
to that when the freehold owner of land allows his son to farm the land without
payment. But the analogy is false. In the latter case the freehold owner
forgoes the rents and profits on the land which he might otherwise get and the
son pays nothing. In the present case William Smart loses nothing and Rodney
pays the economic rent.
The judge
found support for his conclusion in the opinions expressed at the time by the
lawyers consulted by William Smart and members of the family other than Rodney.
They took the view, on the facts presented to them, that William had created a
subtenancy, since a licence within section 2 of the 1948 Act is treated as a
tenancy. I do not think those advisers are concerned to draw a distinction
between them. And I would add that since the decision in Street v Mountford
[1985] AC 809 it is very doubtful if there is any distinction. These opinions
would not, of course, bind the judge or this court. But it is significant, in
my view, that nowhere does William Smart say either in the facts, recorded in
the opinions or in answer to those opinions: ‘I never intended Rodney to have
exclusive occupation’ or relate facts that add up to that. Moreover when the
notice to quit was served on William at the behest of the plaintiff, the ground
upon which it was alleged that the plaintiff was entitled to possession was
that William had parted with possession of the land to Rodney. On the facts of
this case, this allegation does not give rise to any estoppel against the
plaintiff. But it is indicative of a highly cynical attitude on the part of the
plaintiff, that he is prepared to assert one thing for the purpose of the
notice to quit and the contrary before the judge and this court. The plaintiff
was as familiar as anyone with what had actually happened; I cannot see why,
when in 1980 in causing the notice to quit to be served on the grounds alleged,
we should assume that he asserted a ground that he knew to be false. And I do
not find it a convincing explanation that by the time the notice to quit was
served Rodney was asserting that he was a subtenant. If the known facts did not
support that conclusion there was no need for the plaintiff to take the
opportunistic course of adopting it.
For these
reasons can I find no error in the judge’s conclusion that William Smart
granted a licence to his son which fell within section 2 of the 1948 Act.
(3) Was the breach of covenant on the part of
William in parting with possession of the land waived or acquiesced in by Mr
Everett?
The finding of
the judge on this matter is:
. . . On his
part, I am satisfied at the relevant time Mr Everett did understand what was
happening but probably felt that so long as he did not formally consent to an
assignment or the creation of a subtenancy for Rodney and the rent continued to
be paid by William Smart then it was not in anyone’s interest that he looked
into the matter more closely.
However, no
matter what he may now recollect, and I have considerable sympathy for him for
it was many years ago and he was very actively engaged in his partnership
practice, he must surely have realised that this comparatively elderly farmer
with an ailing wife was anxious to finish with practical farming and to devote
his remaining time and energy to her daily care.
That is a
primary finding of fact based upon the judge’s assessment of the witnesses,
including Mr Everett and Lionel Smart, as well as the evidence they gave.
Nevertheless Mr Evans submits that it is contrary to the evidence. He contends
that it is contrary to Mr Everett’s repeated refusals to consent on behalf of
the landlord to any assignment or subletting and contrary to Mr Everett’s
settled practice. And he further submitted that what Mr Everett knew was
consistent with Rodney farming on behalf of his father. But there is a
difference between consent and acquiescence. The judge was justified in finding
that Mr Everett knew exactly what was happening; if what was happening amounted
to a parting with possession of the land, as in my view it did, by accepting
rent in the knowledge of those facts, Mr Everett waived the breach and
acquiesced in it.
(4) Was there a collusive agreement between the
plaintiff and William Smart whereby it was agreed that the latter would not
serve a counternotice to the notice to quit?
Mr Evans criticises the judge’s finding of collusion because he ignored
certain evidence in relation to land at Publow. This land was owned by the
Smart family trust of which Lionel Smart was a trustee. William had the
agricultural tenancy. The same arrangement pertained between William and Rodney
in relation to that land as it did with Halfway Farm. At about the time the
plaintiff bought Halfway Farm, Lionel on behalf of the trustees served a notice
to quit alleging that William had parted with possession of the Publow land;
William served no counternotice. In the event it appears that a new tenancy was
granted to Rodney and in due course Rodney exchanged with Lionel this land for
a similar acreage of land which adjoined Halfway Farm. For my part I cannot see
that the fact that there was or was not a similar collusive agreement between
William and Rodney in relation to the Publow land or that William may have
omitted to serve a counternotice by oversight has any bearing on the question
whether there was a collusive arrangement between the plaintiff and William in
relation to Halfway Farm. In my judgment, there was overwhelming evidence of
collusion. The transaction made no sort of economic sense unless vacant
possession could be obtained. On the basis of the advice then being given and
the belief that the plaintiff had that there was a subtenancy or section 2
licence, it is inconceivable that he would have paid £92,000 for land subject
to a sitting tenant at a rent which gave a return of less than 1%. It required
the co-operation of William not to serve a counternotice for there to be a
prospect of obtaining vacant possession. That co-operation was forthcoming. In
my judgment, the judge was fully justified in holding that there was a
collusive agreement.
I would,
therefore, dismiss the appeal on this ground. That means that it is unnecessary
to decide whether the judge was also right on the alternative basis that there
was a constructive trust. Although we heard argument upon it, in my opinion it
raises difficult questions which it is unnecessary to decide.
The appeal
was dismissed with costs; order given for legal aid taxation for the
respondent.
