Agricultural holding — Notice to quit purporting to be served in accordance with Case E in Schedule 3 to the Agricultural Holdings Act 1986 — Notice to quit found to have been served by the landlord with no honest belief in its grounds — Appeal by landlord from decision of Aldous J holding that the notice was fraudulent and therefore invalid — Judgment confined to this issue — Argument raised in respondent’s notice that tenant had served a valid counternotice not considered in view of court’s decision dismissing landlord’s appeal on issue of fraud
landlord (plaintiff below) was the freehold owner of the Henham Estate in
Suffolk, which included two farms, Valley and Green Farms, of which the
respondent was the tenant — The combined farms included a number of cottages —
There was a covenant in the respondent’s tenancy agreement prohibiting the
tenant from assigning, subletting or parting with possession of the farms or
any part thereof ‘except cottages and gardens to workmen on the farm’ — The
appellant served a notice to quit on the respondent, referring to Case E in
Schedule 3 to the 1986 Act, and stating as the grounds thereof alleged breaches
of the above covenant by letting farm cottages to persons who were not workmen
on the farms — The respondent replied, not, as would have been expected, by
serving a notice requiring arbitration but by a counternotice stating that he
required section 26(1) of the 1986 Act to apply to the notice to quit — Before
Aldous J there was argument as to whether this counternotice could be treated
as a notice demanding arbitration — The argument was unsuccessful and, as
mentioned above, it was not raised in the Court of Appeal
regard to the cottages, examined in great detail both by Aldous J and by the
Court of Appeal, were that at the date of the appellant’s notice to quit the
respondent had not been guilty of the breaches of covenant alleged — If the
respondent’s solicitors had served a notice requiring arbitration, in
accordance with article 9 of the Agricultural Holdings (Arbitration on Notice)
Order 1987, the arbitrator would inevitably have found that the tenant was not
in breach and the notice to quit would have failed — The respondent, however,
had claimed, and Aldous J had decided, that the notice to quit failed for a
different reason, namely, that it contained misrepresentations which were not
only false but fraudulent, being made without any honest belief in their truth
course, for the tenant to make good an allegation of fraud, a serious
allegation — As the defendant below he had established his case to the
satisfaction of Aldous J — The questions now formulated by the Court of Appeal
were the following:
a challenge to the validity of the notice to quit on the ground of fraud?
purpose?
and Schedule 3 to the 1986 Act a document containing representations which, if
false, could amount to fraudulent misrepresentations?
entitle him to find that fraud by recklessness on the part of the appellant was
established?
the first question the court decided that they did have jurisdiction, rejecting
an argument by the appellant that the allegation of fraud raised ‘a question
arising under the provisions of section 26(2) of, and Schedule 3 to, the 1986
Act,’ and thus, because of article 9 of the 1987 order, determinable only by
arbitration — If, as the respondent alleged, the notice was a nullity because
of fraud, it was not a notice to which the 1987 order applied — As regards the
second question, fraud was present when a false representation was made (1)
knowingly or (2) without belief in its truth or (3) recklessly, careless
whether it be true or false — In this connection the court rejected a
submission that the false statement must have actually deceived, or at least
have been capable of deceiving, the person to whom it was addressed — In the
present case the respondent was not deceived; he knew that the allegations in
the notice to quit were unfounded — However, although proof of actual deceit
may be essential in the context of some crimes and torts, it is not an
essential element in the concept of fraud: see eg per Viscount Dilhorne in R v Scott — The
third question was answered by analogy with authorities on the Landlord and
Tenant Act 1954, Betty’s Cafes Ltd v Phillips Furnishing Stores Ltd and Marks v British
Waterways Board — These authorities established that a notice is invalid and of
no effect if a material statement contained in it is false and made
fraudulently by the giver, knowing it to be untrue or reckless as to its truth
or falsity — Finally, in answer to the fourth question, the evidence fully
justified Aldous J in concluding, after a painstaking review, that the false
statements made in the appellant’s notice to quit were made recklessly, without
any belief in their truth
reasons the appeal had to be dismissed
The following
cases are referred to in this report.
Angus v Clifford [1891] 2 Ch 449
Betty’s
Cafes Ltd v Phillips Furnishing Stores Ltd
[1959] AC 20; [1958] 2 WLR 513; [1958] 1 All ER 607; [1958] EGD 92; (1958) 171
EG 319, HL
Chapman v Honig [1963] 2 QB 502; [1963] 3 WLR 19; [1963] 2 All ER
513, CA
Derry v Peek (1889) 14 App Cas 337
Lazarus
Estates Ltd v Beasley [1956] 1 QB 702;
[1956] 2 WLR 502; [1956] 1 All ER 341, CA
London
& Globe Finance Corporation Ltd, Re [1903] 1 Ch
728
Magdalen
College, Oxford v Heritage [1974] 1 WLR 441;
[1974] 1 All ER 1065; (1974) 27 P&CR 169; [1974] EGD 1; 230 EG 219, CA
Marks v British Waterways Board [1963] 1 WLR 1008; [1963] 3 All ER
28, CA
Pyx
Granite Co Ltd v Ministry of Housing and Local
Government [1960] AC 260; [1959] 3 WLR 346; [1959] 3 All ER 1; (1959) 58
LGR 1; 10 P&CR 319, HL
R v Scott [1975] AC 819; [1974] 3 WLR 741; [1974] 3 All ER
1032, HL
Smith v East Elloe Rural District Council [1956] AC 736; [1956] 2
WLR 888; [1956] 1 All ER 855; (1956) 54 LGR 233; 6 P&CR 102, HL
This was an
appeal by the plaintiff landlord, The Rt Hon Robert Keith Rous, sixth Earl of
Stradbroke, from the decision of Aldous J, holding that a notice to quit given
by the plaintiff purporting to terminate the tenancy of two farms held by the
defendant tenant (the present respondent), Matthew Miller Mitchell, was a
nullity because of fraudulent misrepresentations contained in the notice. The
decision of Aldous J was reported at [1989] 2 EGLR 5; [1989] 49 EG 59 and 50 EG
45.
Robert Pryor
QC and Martin Rodger (instructed by Wedlake Saint, agents for Leathes Prior, of
Norwich) appeared on behalf of the appellant; Derek Wood QC and John Male
(instructed by Robbins Olivey & Blake Lapthorn, agents for Burges Salmon,
of Bristol) represented the respondent.
Giving
judgment, GLIDEWELL LJ said: The plaintiff is the freeholder of the
Henham Estate, which includes farms known as Valley and Green Farms, Henham in
Suffolk, The defendant is, and has since 1953 been, the tenant of those
combined farms, which he has farmed since that time. The farms include a
farmhouse, which was erected in about 1956, and a number of cottages. By a
notice dated June 3 1988 the plaintiff required the defendant to quit and
deliver up possession of the farms on October 11 1989. In this action, begun by
writ issued on November 10 1988, the plaintiff claimed that no valid
counternotice requiring arbitration was served by the defendant. The plaintiff,
therefore, claimed a declaration that the defendant’s tenancy would determine
on October 11 1989.
By his defence
the defendant contended that the purported notice to quit was not a valid
notice on three grounds, namely that it was uncertain, that the plaintiff acted
fraudulently in serving the notice and that there was an agreement between the
parties that the plaintiff would not serve a notice to quit for the reasons
relied on in the notice. The defendant also contended that he had served a
valid counternotice, and thus counterclaimed an injunction restraining the
plaintiff from taking any steps to enforce the purported notice to quit and a
declaration that a letter and counternotice dated June 16 1988 served on his
behalf constituted a valid counternotice.
The action
came for trial before Aldous J who, on July 14 1989, gave judgment in favour of
the defendant. The judge found in favour of the plaintiff on three of the
arguments advanced on behalf of the defendant, namely, he found that the notice
was not uncertain, that there was no agreement not to serve a notice to quit,
and that no valid counternotice had been served. However, he concluded that the
plaintiff acted fraudulently in instructing his solicitors to serve the
purported notice to quit, which therefore was invalid and of no effect.
The plaintiff
now appeals against this decision. By a respondent’s notice, the defendant
indicated that he wished to re-argue all the matters on which the judge had
concluded against him. However, at the hearing before us Mr Derek Wood QC, for
the defendant, expressly did not advance any argument against the judge’s
conclusions on uncertainty and on the issue of an agreement not to serve a
notice to quit. He does, however, maintain his argument that a valid
counternotice was served. We have not so far heard submissions on this issue,
which will arise only if we decide to allow the appeal in relation to the issue
of fraud. This judgment is, therefore, confined to that last issue.
The
background facts
These were
carefully set out by the learned judge and for the most part I gratefully adopt
and repeat what he said.
In 1953 the
defendant took a tenancy of Valley Farm, Henham, from the fourth Earl of
Stradbroke, who then owned the Henham Estate. A farmhouse was built for the
defendant in or about 1956, and Green Farm was added to his tenancy. The
holding now comprises some 647 acres. On August 9 1958, the defendant entered
into a tenancy agreement granting him a tenancy of the combined farms. The
agreement includes a covenant not to assign, let or part with possession of the
farms or any part thereof, except cottages and gardens let to workmen on the
farms. As I have said, the tenancy includes a number of cottages. From time to
time cottages have been added to and deleted from the holding.
In about 1980
the fourth Earl granted a tenancy of that part of the Henham Estate which was
not already tenanted to a company. The fourth Earl’s brother, who was the
plaintiff’s father, objected to the grant of the lease. In 1981 the plaintiff
started proceedings in his father’s name and on his instructions seeking to set
aside that tenancy. That litigation was settled in 1984, with the result that
the tenancy was set aside; and from October 1984 the plaintiff became
responsible for running the estate and for the farming of the non-tenanted
part.
On July 14
1983 the fourth Earl of Stradbroke died, leaving no son, and four days later
his brother died. The plaintiff, as his eldest son, inherited the title and the
estate and therefore became the freehold owner of Valley and Green Farms.
The plaintiff
has lived in Australia for 32 years and is resident there. He has a number of
business interests in Australia. Prior to July 1983 he visited England on a
number of occasions, but most of his time was spent in Australia with his family.
In December
1983 the plaintiff came to England and it was made clear to him that he would
have to pay a considerable amount of capital transfer tax. He paid about
£300,000 and was advised that he would have to make further payments of about
£66,000 per annum. Towards the end of 1984 it became clear that he would obtain
possession of the land which had been in-hand prior to the grant of the tenancy
to the company, and therefore had to make arrangements for it to be managed and
farmed. He met the defendant, liked him and his family and was impressed by the
way that he farmed. The plaintiff and the defendant discussed the idea that
they would farm the in-hand land in partnership, with the plaintiff having
first call on the profits to enable him to make the CTT payments. While this
was being considered, arrangements were made for the defendant to manage the
farming of the in-hand land; this agreement was recorded in a letter of October
2 1984 written by the plaintiff to the defendant. Under that agreement the
defendant was to act as farm manager for £2,000 a month; he would provide all
the necessary machinery and labour for which he would be paid normal contract
rates; he would supply all the materials which the plaintiff would pay for at
cost, and as it was an interim arrangement either party could give seven days’
notice to determine the agreement. This appeared to be a satisfactory
arrangement for both parties, as the plaintiff contemplated that the profit
would enable him to meet the CTT payments, and they appeared to be in complete
agreement as to what they hoped could be achieved.
About this
time the plaintiff started to exploit certain ideas by which further revenue
would be forthcoming from the estate, and was also advised not to enter into a
partnership agreement with the defendant. The matter was discussed with the
defendant and in a letter dated June 26 1985 the terms they agreed were
recorded. The defendant was to manage the estate and would receive £2,000 a
month and 10% of all income from new projects, such as caravans, steam rallies
and a skeet-shooting club. The defendant was to make any decision he saw fit as
regards the farm, lands, wood, shoot and all items on the estate, except for
tenanted cottages and houses, which the plaintiff would control from Sydney. To
enable this to be done the plaintiff made arrangements for banking facilities
at Barclays Bank with an overdraft limited to £500,000.
In accordance
with those arrangements the defendant managed the estate with the support of
the plaintiff from June 1985. However, the profit anticipated by the plaintiff
did not materialise and by December 1985 the full overdraft facility had been
taken up. The plaintiff, in January 1986, considered a number of ways to
prevent more money being spent on the estate and to achieve a satisfactory
return. In March he terminated his arrangement with the defendant for managing
the estate, but continued to use him as the contractor. Soon after, upon advice
which he seems to have obtained from a Mr Rod Jones [an independent
agricultural contractor], he came to the conclusion that the defendant’s
charges for contracting were too high. By harvest time of 1986 the relationship
between the plaintiff and the defendant had broken down. The defendant’s
services were dispensed with and he ceased to have any dealings with the
in-hand land. The plaintiff refused to pay the defendant his contracting
charges and issued proceedings, claiming over £100,000 because of alleged
overcharging. The defendant counterclaimed for the amount he alleged that he
was owed for his contracting charges. This action has now been settled by
agreement between the parties.
In August 1986
the plaintiff instructed William H Brown, a firm of chartered surveyors and
land agents, to seek from the defendant an increase of rent in respect of his
holding. William H Brown served on
effect from October 11 1987 be referred to arbitration. From July 1987 onwards
Mr Nigel Wild [FRICS] of William H Brown was in charge of these negotiations on
behalf of the plaintiff. An arbitrator was appointed, but the arbitration was
deferred while negotiations took place. By May 1988 the negotiations had
resulted in the basis of an agreement being reached, but at that stage the
plaintiff’s solicitors on his instructions served the notice to quit upon which
this action is based and also, as an alternative, a notice to remedy. Both
notices relate to alleged breaches of his tenancy agreement by the defendant
consisting of the subletting of five cottages allegedly in breach of the
covenant against subletting to which I have referred. I must, therefore,
consider the facts relating to these alleged breaches and the notices in more
detail, but before I do it is convenient to set out the relevant legal
provisions.
The law
applicable
Lettings of
agricultural holdings have for many years been controlled by statute. The Act
in force in relation to these proceedings is the Agricultural Holdings Act
1986. Section 2 of that Act provides, in general, that a letting of an
agricultural holding may not be for a lesser interest than a tenancy from year
to year. By section 25(1) of the Act, the normal rule that a tenancy from year
to year may be terminated by at least six months’ notice is amended so that an
agricultural tenancy requires at least 12 months’ notice terminating at the end
of a year of the tenancy.
Section 26 of
the 1986 Act places restrictions on the operation of notices to quit, which in
effect divides such notices into two classes. The difference between the two
classes is that notices to quit in the first class need not state or be based
upon the reason why the landlord seeks to recover possession of the holding,
whereas a notice to quit in the second class must be based upon such a reason
and must state the reason in the notice itself. If a notice of the first class
is served, then section 26(1) of the Act provides that if, within one month
after the service of the notice to quit,
the tenant
serves on the landlord a counter-notice in writing requiring that this
subsection shall apply to the notice to quit, then . . . the notice to quit
shall not have effect unless, on an application by the landlord, the
[Agricultural Land] Tribunal consent to its operation.
By section 27(1)
the tribunal may consent only if:
(i) they are satisfied that one of the matters
set out in section 27(3) is proved and [even if they are so satisfied]
(ii) the tribunal shall withhold consent under
section 26 above to the operation of the notice to quit if in all the
circumstances it appears to them that a fair and reasonable landlord would not
insist on possession.
Obtaining the
consent of the tribunal to the operation of a notice to quit is not often an
easy task.
The second
class of notice to quit is governed by section 26(2) of the 1986 Act, which
provides in effect that the consent of the agricultural land tribunal to the
operation of the notice is not necessary ‘in any of the cases set out in Part I
of Schedule 3 to this Act’. Those cases relate to a number of disparate
situations. For instance, Case B applies where the land is required for a use
other than agriculture for which planning permission has been granted. In each
case the facts which satisfy the provisions of the particular case, ie the
landlord’s reason for seeking possession, must be stated in the notice to quit
itself.
In this action
Cases D and E are relevant and I therefore set them out.
CASE D
At the date of
the giving of the notice to quit the tenant had failed to comply with a notice
in writing served on him by the landlord, being either —
(a) a notice requiring him within two months
from the service of the notice to pay any rent due in respect of the
agricultural holding to which the notice to quit relates, or
(b) a notice requiring him within a reasonable
period specified in the notice to remedy any breach by the tenant that was
capable of being remedied of any term or condition of his tenancy which was not
inconsistent with his responsibilities to farm in accordance with the rules of
good husbandry
and it is
stated in the notice to quit that it is given by reason of the said matter.
CASE E
At the date
of the giving of the notice to quit the interest of the landlord in the
agricultural holding had been materially prejudiced by the commission by the
tenant of a breach, which was not capable of being remedied, of any term or
condition of the tenancy that was not inconsistent with the tenant’s responsibilities
to farm in accordance with the rules of good husbandry, and it is stated in the
notice that it is given by reason of the said matter.
It will be
seen that if a breach is capable of being remedied, the landlord may claim
possession under Case D only if he has first served a notice requiring the
tenant to remedy the breach and the tenant has failed to do so within a
reasonable period. If, however, the breach is not capable of remedy, and the
landlord’s interest has been materially prejudiced, the landlord may serve
notice to quit under Case E.
The combined
effect of section 29 of and Schedule 4, para 1, to the 1986 Act is that the
Lord Chancellor may make an order ‘requiring any question arising under the
provisions of section 26(2) of, and Schedule 3(2) to, this Act to be determined
by arbitration under this Act’.
In exercise of
that power the Lord Chancellor made the Agricultural Holdings (Arbitration on
Notice) Order 1987. Article 9 of that order provides:
Where it is
stated in a notice to quit an agricultural holding or part thereof that the
notice is given for one or more of the reasons specified in Case A, B, D or E
and the tenant wishes to contest any question arising under the provisions of
section 26(2) of, and Schedule 3 to, the 1986 Act relating to any of the
reasons so stated, he shall within one month after the service of the notice
serve on the landlord notice in writing requiring the question to be determined
by arbitration under the 1986 Act.
It will thus
be seen that if a tenant wishes to contest any part of a reason stated in a
notice to quit served on him under Case E of Schedule 3, he must, within one
month of the service of that notice, serve a counternotice requiring the
question to be determined, not by the agricultural land tribunal but by
arbitration.
The
notices
Solicitors
acting for the plaintiff served on the defendant a notice dated June 2 1988
which required him
to remedy
within two months from the date of service of this notice the breaches set out
below of the terms and conditions of your tenancy, being breaches which are
capable of being remedied . . .
The breach
alleged was a breach of clause 4(13) of the tenancy agreement, the covenant to
which I have referred, against assigning or underletting any part of the farm
except cottages let to workmen on the farm. The particulars of breach were:
That you let
or entered into agreement to let to tenants who are not workmen on the farm (1)
the pair of cottages Nos 20 and 21 King’s Lane, Sotherton (2) the pair of
cottages which make up what was once the Old Valley Farmhouse known as Nos 2
and 3 Old Valley Farm Cottages, Henham and (3) 24 Green Farm, Sotherton.
The
plaintiff’s solicitors also served on the defendant a notice to quit dated June
3 1988. This required him to quit
and deliver
up possession of the holding of which you are my tenant at the expiration of
the year of your tenancy which shall expire next after the end of 12 months
from the service of this notice.
That, if it
were effective, would bring the tenancy to an end, as the statement of claim
alleges, on October 11 1989.
The notice
stated that it was given in accordance with section 26(2) of, and Case E in
Schedule 3 to, the Agricultural Holdings Act 1986. The reason stated in the
notice was a breach of clause 4(13) of the tenancy agreement, and the details
of the alleged breach were the same as those set out in the notice to remedy of
June 2 1988, ie the letting in alleged breach of agreement of the five cottages
specified in that notice and again described in the notice to quit.
On June 16
1988, solicitors acting for the defendant served on the plaintiff a
counternotice in the following terms:
I hereby give
you a counternotice that I require subsection (1) of section 26 of the
Agricultural Holdings, Act, 1986, to apply to the Notice to Quit the farm, land
and premises situate at Henham in the County of Suffolk, known as Valley and
Green Farms, which I hold as Tenant thereof, and which Notice to Quit is dated
the 3rd June, 1988.
It will be
seen that the counternotice was expressed to apply section 26(1) and was not in
terms a notice under the 1987 order requiring reference to arbitration of the
matters challenged in the landlord’s notice to quit.
The
subletting of the cottages
At one time
there were 13 cottages on the defendant’s holding, but by June 1988 four, at
Sotherton Corner, had been surrendered to the landlord. There were thus nine
cottages remaining in the tenancy. Confusingly, some of these are referred to
by two different names. Despite this, the judge held that the notice was
sufficiently clear to enable the defendant to know to which cottages the notice
to quit was intended to relate.
On October 1
1981 agents acting for the fourth Earl wrote to the defendant telling him that
it was ‘in order for you to let the Old Valley Farmhouse as a holiday cottage’.
However, it is accepted that the plaintiff did not know of this letter and
nothing therefore turns upon it.
However, on
March 16 1984 the plaintiff himself wrote to the defendant a brief letter which
said:
Re SUBLETTING
We hereby
agree to you subletting the below mentioned properties:
20 Valley Farm
Cottages, King’s Lane
24 Henham
Green, Henham
Moreover, on
November 1 1985, the plaintiff wrote to the defendant a letter confirming the
defendant’s readiness to surrender the cottages at Sotherton Corner and to
waive claims in respect of improvements he had made to those cottages. In
return the letter allowed him the use of one alternative cottage without
increase of rent. The letter continued:
I note it was
further agreed that you may sublet all or any of your cottages for holiday let
situations as and when required and no extra rent from you is required.
The facts of
the occupation of the cottages referred to in the notice to quit at the date of
the service of that notice, and at material times beforehand, were not in
dispute and were found by the judge as follows.
(i) 20 King’s Lane, Sotherton. This is the
cottage otherwise called 20 Valley Farm Cottages, King’s Lane, Henham, for
which the plaintiff had given consent to sublet in the letter of March 16 1984.
Following the giving of that consent the cottage had been sublet to three
tenants in turn, each on protected shorthold tenancies. At the date of the
notice to quit it was occupied by a Mr Warren under a two year shorthold
tenancy dated March 18 1988.
(ii) 21 King’s Lane, Sotherton, otherwise known as
21 Valley Farm Cottages, King’s Lane, Henham. At all material times this was
occupied by a Mr Briggs, who was a semi-retired farm worker working for the
defendant. It is agreed that his tenancy was not a breach of the covenant in
the lease.
(iii) 1 Old Valley Farmhouse. Permission had been
granted to let this as a holiday cottage in the letter of November 1 1985.
However, on September 14 1986 it was let by the defendant on a two-year
protected shorthold tenancy to a Mr Marsham. Mr Marsham gave notice to
terminate that tenancy and it duly terminated at the end of May 1986. The
cottage was vacant at the date of service of the notice to quit.
(iv) 2 Old Valley Farmhouse. This also was the
subject of the permission of November 1 1985 to let as a holiday cottage. It
had been so sublet, but not let in any other way. It was also vacant at the
date of the service of the notice to quit.
(v) The cottage described in the notice to quit
as 24 Green Farm should properly have been described as 24 Henham Green,
Henham. This is the second cottage in respect of which the plaintiff had given
to the defendant consent to sublet without restriction in his letter of March
16 1984. It also had been sublet by the defendant on a series of shorthold
tenancies, the latest of which was a two-year protected shorthold tenancy
granted on October 1 1985 to a Mr Willard.
It is accepted
by Mr Pryor, for the plaintiff, that the subletting to Mr Briggs of 21 Valley
Farm Cottages was not a breach of the covenant in the tenancy agreement; that
the sublettings of 20 Valley Farm Cottages and 24 Henham Green were not
breaches, since they were permitted by the letter of March 16 1984; and that
the holiday lettings of 2 Old Valley Farmhouse were also not breaches, since
they were permitted by the letter of November 1 1985. The only apparent breach
was the shorthold subletting to Mr Marsham of 1 Old Valley Farmhouse but, as I
have said, this had come to an end at the date of the service of the notice to
quit. It follows, in my view, that this breach was clearly remediable (though
Mr Pryor argues somewhat faintly to the contrary) and thus could not properly
be the subject of a Case E notice to quit.
It thus also
follows on the facts that if the defendant’s solicitors had served a
counternotice requiring arbitration in accordance with the 1987 order and
section 26(2), the arbitrator would inevitably have found that the defendant
was not in breach as alleged in the notice to quit, and thus would not have
upheld the notice.
The issues
The argument
on behalf of the defendant is that the notice to quit dated June 3 1988 was
invalid and of no effect because it contained misrepresentations which were not
only untrue but fraudulent. It was, of course, for the defendant to establish
this case before Aldous J. In order to decide whether the defendant had made
out his case of fraud the judge was required, and this court is now required,
to answer four questions. These are:
1 Does the court have jurisdiction to entertain
a challenge by the defendant to the validity of the notice to quit on the
ground of fraud?
2 If so, what constitutes fraud of this
purpose?
3 Is a notice to quit under section 26(2) and
Schedule 3 to the 1986 Act a document which contains representations which, if
false, may amount to a fraudulent misrepresentation?
4 If so, did the evidence before the judge
entitle him to find that fraud by recklessness on the part of the plaintiff was
established?
I will
consider each of these matters in turn.
1 The court’s jurisdiction
Mr Pryor
submits that an allegation that a notice to quit given under section 26(2) of
and Schedule 3 to the 1986 Act contains fraudulent misrepresentations raises a
‘question arising under the provisions of section 26(2) of, and Schedule 3(2)
to, the 1986 Act relating to any of the reasons so stated’. Thus, in accordance
with article 9 of the 1987 order, this question can be determined only by
arbitration. The court has no jurisdiction to determine the question.
In support of
this submission, Mr Pryor relies principally on the decision of this court in Magdalen
College, Oxford v Heritage [1974] 1 WLR 441. In that case the
defendant, who was tenant of a farm, fell into arrears with her rent. The
plaintiff, her landlord, served on her a notice requiring her to pay the rent,
which did not specify any time within which the rent must be paid. On her
failure to pay the arrears, after five months the landlord served a notice to
quit under Case D. The defendant did not serve a counternotice requiring
arbitration. In an action for possession of the farm the defendant argued that,
as the notice to pay the rent was defective, the subsequent notice to quit was
invalid. This court held that the issue was one which, under article 9 of the
1987 order, could be determined only by arbitration and that the court had no
jurisdiction to decide it. Megaw LJ, in a judgment with which Buckley and
Roskill LJJ agreed, summarised his conclusion in the following words at p 448:
To my mind,
the construction of article 9 is clear, and is conclusive against the defendant
on the main point put forward on her behalf. Where the tenant wishes to object
to the notice to quit by reason of an objection in relation to the form of the
notice to pay, such as the objection here, the tenant is given his opportunity
of raising it to be dealt with by arbitration under the article 9 procedure,
within the time limit therein provided. That remedy is exclusive of any other
remedy, such as the remedy upon which the defendant now seeks to rely; the
raising of the issue as a defence in an action for possession.
However, early
in his judgment, at p 446, Megaw LJ said:
There is no
suggestion in this case of any fraud or dishonesty or misrepresentation on the
part of the plaintiffs. Nothing that I say is to be taken as having any
necessary application in any case where any such factor exists.
Mr Pryor also
reminds us that the decision in Smith v East Elloe Rural District
Council [1956] AC 736 shows that Parliament can by appropriate language
deprive the court of jurisdiction even when fraud is alleged. In that case the
council made a compulsory purchase order relating to land owned by Mrs Smith.
After a public inquiry the order was confirmed by the minister. By para 15 of
Schedule 1 to the Acquisition of Land (Authorisation Procedure) Act 1946, Mrs
Smith was entitled to make an application to the High Court within six weeks of
the confirmation of the order challenging its validity. She did not do so. By
para 16 of Schedule 1:
Subject to
the provisions of the last foregoing paragraph, a compulsory purchase order . .
. shall not . . . be questioned in any legal proceedings whatsoever . . .
Mrs Smith
sought to bring an action against the council for trespass, alleging that the
CPO was made in bad faith and claiming a declaration to that effect. The House
of Lords held that the clear words of article 16 precluded her from challenging
the validity of the CPO in this way, even though she was alleging bad faith.
It follows, in
my view, that Smith v East Elloe Rural District Council does
establish Mr Pryor’s proposition, but subject to the qualification that the
words of the Act which are said to exclude the jurisdiction of the court to
determine an allegation of fraud will have this effect only if that is clearly
their meaning. In Pyx Granite Co Ltd v Ministry of Housing and Local
Government [1960] AC 260, Viscount Simonds said at p 286:
It is a
principle not by any means to be whittled down that the subject’s recourse to
Her Majesty’s courts for the determination of his rights is not to be excluded
except by clear words. That is, as McNair J called it in Francis v Yiewsley
and West Drayton UDC, a ‘fundamental rule’ from which I would not for my
part sanction any departure.
This court in Magdalen
College, Oxford v Heritage held that the words of article 9 were
clear enough to exclude the power of the court to decide the issue in that
case, but expressly reserved the determination of an allegation of fraud.
In Lazarus
Estates Ltd v Beasley [1956] 1 QB 702 a landlord had served on the
tenant of a rent-controlled dwelling-house a notice of increase of rent
allegedly justified by the carrying out of work of repair to the house.
Schedule 2, para 4 to the Housing Repairs and Rents Act 1954 entitled the
tenant to apply to the county court within 28 days to determine whether the
work of repair had been carried out and, if so, its value, but she made no
application. She did not pay the increase in rent. In an action claiming the
unpaid increase as arrears the tenant in her defence alleged that the
landlord’s declaration that the work had been carried out was fraudulent as
only about half of the alleged work had been done. Para 5 of the Schedule
provided that, subject to the right to apply to the court under para 4, the
validity of the landlord’s declaration ‘shall not be questioned’. This court
nevertheless held that the court had jurisdiction to determine the allegation
of fraud. Denning LJ said at p 712:
We are in
this case concerned only with this point: can the declaration be challenged on
the ground that it was false and fraudulent?
It can clearly be challenged in the criminal courts. The landlord can be
taken before the magistrate and fined £30: see Second Schedule (paragraph 6);
or he can be prosecuted on indictment, and (if he is an individual) sent to
prison: see section 5 of the Perjury Act, 1911. But the landlords argue before
us that the declaration cannot be challenged in the civil courts at all even
though it was false and fraudulent; and that the landlords can recover and keep
the increased rent even though it was obtained by fraud. If this argument is
correct, the landlords would profit greatly from their fraud. The increase in
rent would pay the fine many times over. I cannot accede to this argument for a
moment. No court in this land will allow a person to keep an advantage which he
has obtained by fraud. No judgment of a court, no order of a minister, can be
allowed to stand if it has been obtained by fraud. Fraud unravels everything.
The court is careful not to find fraud unless it is distinctly pleaded and
proved; but once it is proved, it vitiates judgments, contracts and all
transactions whatsoever: see as to deeds, Collins v Blantern, as
to judgments, Duchess of Kingston’s case, and as to contracts, Mater
v Miller. So here I am of opinion that if this declaration is proved to
have been false and fraudulent, it is a nullity and void and the landlords
cannot recover any increase of rent by virtue of it.
Parker LJ said
at p 721:
Accordingly,
the question here is whether the tenant is seeking to challenge the validity on
some ground other than that repairs had not been carried out during the period
specified to a value not less than that specified. That the tenant is seeking
to challenge the validity on that ground is clear, but is she also seeking to
challenge it on another ground? The
contention on her behalf is that should she succeed in proving fraud on the
part of the landlords the declaration would be a nullity, whereas mere proof
that repairs had not been done to the value specified would not make the
declaration a nullity but would merely make it cease to have effect. Therefore,
it is said, the tenant is seeking to do something more than challenge the
validity of the declaration on the ground that repairs had not been done to the
value specified. I think that this contention is correct. No doubt it can be
said that the real question in any case is whether repairs to the value
specified have in fact been done, and that proof of fraud in the making of the
declaration is merely proof of the quality of the act or its motive.
Nevertheless, that quality, if proved, vitiates all transactions known to the
law of however high a degree of solemnity. Suppose that on an application under
paragraph 4 of the Second Schedule the landlord by fraud persuades the county
court to uphold a declaration and that months later the tenant discovers this
and is in a position to prove that fraud. Surely the tenant could refuse to pay
the increase in rent, and when sued could allege that the decision of the
county court was obtained by fraud. If that be the true position, why cannot a
tenant who has not adopted the procedure of paragraph 4 equally claim that on
proof of fraud the declaration is not satisfactory evidence for the purpose of
section 23?
Mr Wood, for
the defendant, submits:
(i) that the question whether the landlord’s
notice to quit contained fraudulent misrepresentations is not a ‘question
arising under the provisions of section 26(2) of, and Schedule 3(2) to, the
1986 Act relating to any of the reasons . . .’, and thus is not a question to
be referred to arbitration under article 9 of the 1987 order;
(ii) that the wording of article 9 is certainly
not sufficiently clear and explicit to exclude the jurisdiction of the court to
decide the allegation of fraud; and
(iii) that the alleged misrepresentations in the
notice to quit were statements of the same nature as those in the notice of
increase of rent in Lazarus Estates v Beasley, and therefore we
should follow that decision and the passages from the judgments in this court
which I have set out.
In my view,
all these submissions by Mr Wood are correct. I therefore conclude that Aldous
J was right to hold that he had jurisdiction to decide the issue. I agree with
the words in which he expressed this conclusion*:
There does
not appear to me to be any provision in the Agricultural Holdings Act 1986 or
the order of 1987 which would prevent a tenant asserting in the High Court that
a notice to quit was a nullity. It is only if he accepts that the notice is a
notice that his right to challenge it is confined to arbitration. I therefore
hold that the defendant is not precluded from challenging the notice on the
ground of fraud and in particular to contend that the notice is a nullity and
should not be given effect to.
*Editor’s
note: See [1989] 2 EGLR 5 at p 10M.
2 What constitutes fraud?
Aldous J in
his judgment† cited two passages from
the speech of Lord Herschell in Derry v Peek (1889) 14 App Cas
337, which he rightly described as the ‘classic statement’ of what constitutes
fraud. Lord Herschell said at p 374:
Secondly,
fraud is proved when it is shown that a false representation has been made (1)
knowingly, or (2) without belief in its truth, or (3) recklessly, careless
whether it be true or false. Although I have treated the second and third as
distinct cases, I think the third is but an instance of the second, for one who
makes the statement under such circumstances can have no real belief in the
truth of what he states. To prevent a false statement being fraudulent, there
must, I think, always be an honest belief in its truth. And this probably
covers the whole ground, for one who knowingly alleges that which is false, has
obviously no such honest belief.
† Editor’s
note: See [1989] 2 EGLR 5 at p 11B.
On p 375 Lord
Herschell went on to state:
At the same time
I desire to say distinctly that when a false statement has been made the
questions whether there were reasonable grounds for believing it, and what were
the means of knowledge in the possession of the person making it, are most
weighty matters for consideration. The ground upon which an alleged belief was
founded is a most important test of its reality. I can conceive many cases
where the fact that an alleged belief was destitute of all reasonable
foundation would suffice of itself to convince the court that it was not really
entertained, and that the representation was a fraudulent one. So, too,
although means of knowledge are, as was pointed out by Lord Blackburn in Brownlie
v Campbell, a very different thing from knowledge, if I thought that a
person making a false statement had shut his eyes to the facts, or purposely
abstained from inquiring into them, I should hold that honest belief was
absent, and that he was just as fraudulent as if he had knowingly stated that
which was false.
Aldous J also
quoted a passage from the judgment of Bowen LJ in Angus v Clifford
[1891] 2 Ch 449 at pp 471-2, from which I think it necessary to quote only a
short extract:
Now whether
you take the enquiry in the one order or in the other, whether you regard it
from the point of view which is indicated in the expressions which are well
known to the common law, and which have been used by Lord Herschell and Lord
Bramwell, that a man is bound to have some honest belief in a statement if he
makes it, or whether you treat the matter in the inverse order, with regard to
the necessity of finding at least some recklessness to truth, that is to say
some indifference to truth which amounts to dishonesty, in either view it seems
to me the result is the same. A man ought to have a belief that what he is
saying is true.
Mr Pryor
accepts that a statement which is made recklessly, without an honest belief in
its truth, is made fraudulently, but he submits that, in order to render the
document in which the statement is made invalid and of no effect, the statement
must deceive, or at least be capable of deceiving, the person to whom it is
addressed. Here, he submits, Mr Mitchell was not deceived. He knew that he had
been granted consent to sublet the cottages, and thus that the allegations in
the notice to quit were unfounded. All he had to do was to serve an appropriate
counternotice under article 9 requiring the issue to be referred to
arbitration, and he would have suffered no loss. The risk that he, or his
solicitors, might serve the wrong counternotice can be disregarded. Thus the
essential requirement of deceit is not made out.
In support of
this proposition Mr Pryor relies, I believe, on the well-known passage from the
judgment of Buckley J in London & Globe Finance Corporation Ltd, Re
[1903] 1 Ch 728 at p 732:
To deceive
is, I apprehend, to induce a man to believe that a thing is true which is
false, and which the person practising the deceit knows or believes to be
false. To defraud is to deprive by deceit: it is by deceit to induce a man to
act to his injury. More tersely it may be put, that to deceive is by falsehood
to induce a state of mind; to defraud is by deceit to induce a course of
action.
R v Scott [1975] AC 819 was an appeal against a conviction of
conspiracy to defraud. One of the arguments for the appellant was that there
could not be a conspiracy to defraud without deceit. Viscount Dilhorne, in a
speech with which all their lordships agreed, quoted the passage from the
judgment of Buckley J set out above, and said of it at p 836B:
In a great
many and it may be the vast majority of fraud cases the fraud has been
perpetrated by deceit and in many cases Buckley J’s dicta have been quoted in
charges to juries. It does not, however, follow that it is an exhaustive
definition of what is meant by ‘defraud’. Buckley J had to decide when a prima
facie case had been shown ‘of doing some or one of the acts’ mentioned in
sections 83 and 84 of the Larceny Act 1861 ‘with intent to deceive or defraud’.
He did not have to make or have to attempt to make an exhaustive definition of
what was meant by ‘defraud’.
Later,
Viscount Dilhorne said at p 838:
In Welham
v Director of Public Prosecutions [1961] AC 103 this House had to
consider the meaning of ‘intent to defraud’ in relation to forgery. In the
course of his speech Lord Radcliffe said, at pp 123, 124:
‘Now, I think
that there are one or two things that can be said with confidence about the
meaning of this word ‘defraud’. It requires a person as its object: that is,
defrauding involves doing something to someone. Although in the nature of
things it is almost invariably associated with the obtaining of an advantage
for the person who commits the fraud, it is the effect upon the person who is
the object of the fraud that ultimately determines its meaning. . . .
‘Secondly,
popular speech does not give, and I do not think ever has given, any sure guide
as to the limits of what is meant by ‘to defraud’. It may mean to cheat
someone. It may mean to practise a fraud upon someone. It may mean to deprive
someone by deceit of something which is regarded as belonging to him or, though
not belonging to him, is due to him or his right’.
Later, Lord
Radcliffe said, at p 126, that he was unable to accept Buckley J’s observations
in In re London & Globe Finance Corporation Ltd [1903] 1 Ch 728,
which he said were obiter, as an authoritative exposition of words employed in
subsequent statutes.
While the
meaning to be given to words may be affected by their context and Lord
Radcliffe was only considering the meaning of intent to defraud in section 4 of
the Forgery Act 1913, the passages which I have cited from his speech are, I
think, of general application; and certainly those passages and his speech lend
no support to the contention that there cannot be a conspiracy to defraud which
does not involve deceit.
In the course
of delivering the judgment of the Court of Appeal in Reg v Sinclair
[1968] WLR 1246, where the defendants had been convicted of conspiracy to cheat
and defraud a company, its shareholders and creditors by fraudulently using its
assets for purposes other than those of the company and by fraudulently
concealing such use, James J said, at p 1250: ‘To cheat and defraud is to act
with deliberate dishonesty to the prejudice of another person’s proprietary right’.
Again, one finds in this case no support for the view that in order to defraud
a person that person must be deceived.
The learned
judge’s conclusion on this aspect of the case was expressed in the following
words*:
Mr Pryor,
although accepting the principle in the speech of Lord Herschell which I have
just cited, submitted that before fraud could be found the court must also hold
that the dishonest and false representation was calculated to deceive and did
deceive the recipient. That may be necessary in actions in which a party seeks
to recover damages based on fraudulent statements, but in a case where the
party committing the fraud seeks to rely upon his fraudulent conduct a court
will not give effect to that conduct whether or not it deceives the recipient.
In practice all fraudulent statements and notices to quit under Schedule E are
calculated to deceive in that they are assertions that the landlord honestly
believes that he has a good ground of complaint, honestly believes the facts
stated as reasons for the notice and honestly believes that he has a reasonable
case to terminate the tenancy because his interest has been materially
prejudiced. But the fact that the tenant is not deceived is irrelevant. The
notice if fraudulent is a nullity and the court will refuse to give it effect.
*Editor’s
note: See [1989] 2 EGLR 5 at p 10M.
Subject to the
answer to the third question, to which I now turn, I entirely agree with Aldous
J’s conclusion on the second issue.
3 Can the statement of reasons in a Schedule 3
notice to quit constitute a fraudulent misrepresentation?
Mr Pryor
submits that the answer to this question is ‘no’. He argues that the effective
part of the document is the notice of termination of the tenancy, which is
simply a notice to quit at common law; the statement of reasons included in the
notice in order to satisfy Case E of Schedule 3 is no more than an indication
of the facts which the landlord will seek to prove if the tenant serves a
counternotice requiring arbitration; the truth or falsity of that statement is
irrelevant to the validity of the notice.
In support of
this submission Mr Pryor relies on the decision of this court in Chapman
v Honig [1963] 2 QB 502. I mean no discourtesy to him when I say that in
my view this authority does not support his argument. Indeed, there is a short
passage in the judgment of Lord Denning MR at p 513 which runs counter to Mr
Pryor’s argument.
Mr Wood has
referred us to a number of cases in which the problem was similar to that which
I am now discussing. These include Betty’s Cafes Ltd v Phillips
Furnishing Stores Ltd [1959] AC 20 and Marks v British Waterways
Board [1963] 1 WLR 1008. Both decisions related to proceedings under Part
II of the Landlord and Tenant Act 1954. In Betty’s Cafes a landlord
opposed the tenant’s application for a new lease of a cafe in Bradford on the
ground provided by section 30(1)(f) of the 1954 Act, namely that on
termination of the current tenancy the landlord intended to reconstruct the
premises, and could not reasonably do so without obtaining possession. That
ground was, as required by section 26(6) of the Act, stated in the landlord’s
notice of opposition to the grant of the new tenancy. The question at issue was
whether the landlord was required to have formed that intention at the date of
giving notice of opposition or whether, as this court and the House of Lords
held, the landlord could succeed in his opposition if he proved that he held
the intention at the date of the hearing. However, though agreeing with this
conclusion, Lord Denning expressed the view that the landlord’s statement of
his grounds of opposition in his notice must be honest and truthful. He said at
pp 50-51:
Such being the
true interpretation of these notices, I am of opinion that they must be given
honestly and truthfully. They are not to be regarded merely as pleadings
preparatory to a trial — in which parties, I regret to say, sometimes deny the
truth, or refuse to admit it, if it suits their plan of campaign. These notices
are intended to be acted upon before there is a trial at all. On the receipt of
such a notice, the tenant has to decide his course of action — for instance,
whether to accept the alternative accommodation that is offered, or whether to
accept the landlord’s word that he intends to occupy the premises himself, or
as the case may be. In every case he has to decide whether to apply for a new
lease or not. It would be deplorable if a landlord could be allowed to get an
advantage by misrepresenting his state of mind or any other fact. Suppose he
said in his notice: ‘I intend to reconstruct the premises’, or ‘I intend to
occupy for the purpose of my own business’, when he, in fact, had no such
intention at all. On the faith of such a statement, the tenant might be induced
to abstain from applying to the court for a new tenancy, because he would think
it no use to do so. He would know that he would have to pay the costs if he
lost. Just imagine the tenant’s consternation if at the end of the tenancy,
after he had left, the landlord did not reconstruct the premises or occupy them
himself, but straightaway let in someone else. Would the tenant have no
redress? I should have thought it clear
that the notice would be bad — voidable — liable to be set aside for fraudulent
misrepresentation: see Lazarus Estates Ltd v Beasley. If it was
avoided, the original tenancy would continue. The landlord would get no
advantage from his misrepresentation — which is as it ought to be. If it was
too late to avoid the notice, the landlord would be liable at common law in
damages for fraud: just as he would be under section 55 if the
misrepresentation was made to the court.
Provided,
however, that the notice is a good and honest notice when it is given, then it
is clear to my mind that the ground stated therein must be established to exist
at the time of the hearing.
At p 52 he
repeated the point shortly:
What is the
result of this? If the notice had been a
dishonest notice in which the landlords had fraudulently misrepresented their
intention — or, I would add, if there had been a material misrepresentation in
it — I should have thought it would be a bad notice.
In Marks
v British Waterways Board Mr Marks, the tenant, held a sublease of business
premises, of which the British Waterways Board was the freeholder. Mr Marks
served notice on his lessor requesting a new tenancy under the 1954 Act. At
that time, the sublessor had agreed to surrender his lease to British Waterways
Board. The board wished to obtain possession of the premises in order to
demolish and reconstruct. The sublessor served a counternotice stating that
this was the intention of ‘the landlords’.
By the time of
the hearing, the surrender had been effected, and British Waterways Board was
Mr Mark’s landlord. This court held that the counternotice was valid and
effective.
In his
judgment Lord Denning (by then MR) said:
. . . the
notice opposing the new tenancy, a landlord’s notice, is to be regarded as in
the nature of a pleading. . . . It is sufficient as long as it gives notice to
the tenant of the case he has to meet. So long as it is not deceptive or
misleading, it avails the subsequent owner of the property who is the landlord
at the date of the hearing.
Harman LJ said
at p 1018:
The only
object, as Lord Simons said in the Betty’s Cafes Ltd case, of a
counternotice is to inform the tenant of the case which will be made against
him when the hearing comes on, and providing it does that, it is, I think, a
good counternotice. I think that is the effect of the Betty’s Cafes
case. If I may say so with the greatest respect, you can look on my Lord’s, the
present Master of the Rolls, observations in that case as going rather further;
but I do not think they were intended to and, with respect to him, I do not
think they should do. You must not mislead the tenant: you must not say
anything which is fraudulent, but if your notice is given in good faith and the
facts about reconstruction can be substantiated by the person who is the landlord
when the hearing comes on, I think the counternotice really has served the
purpose which the legislature can be said to have required of it.
Pearson LJ
made the same point at p 1020:
What one has
to inquire into in regard to the notice given under section 26 is whether it
was given bona fide; whether it was an honest notice. It may be that there are
some further requirements with regard to it. It may be that it would be void if
it were deceptive or misleading or if it contained some material misrepresentation.
In my view,
these authorities establish the proposition that a landlord’s counternotice
under section 26(6) of the 1954 Act is invalid and of no effect if the
statement contained in it of the landlord’s intention is fraudulent, not
honestly made. The notice with which we are here concerned is a notice of the
same sort as a notice under section 26(6). It is not a mere notice to quit. In
my view, a notice to quit which states that it is given for one of the reasons
set out in the various cases in Schedule 3 to the 1986 Act is invalid and of no
effect if it contains a statement which is false and made fraudulently by the
giver of the notice, ie knowing the statement to be untrue, or reckless whether
it is true or false.
4 Did the evidence establish that the plaintiff
had been recklessly fraudulent?
In order to
answer this question, it is necessary to recapitulate the events which led up
to the service of the notice to quit.
In his
judgment Aldous J summarised the steps the plaintiff had taken after he inherited
the Henman Estate to familiarise himself with the estate, including visiting
the defendant’s farms and the cottages in the summer and early autumn of 1984.
. . . Clearly
the plaintiff was correct when he stated in his evidence that during 1984 he was
becoming more and more familiar with details of the estate and who was living
in the cottages. He certainly knew that Mr Briggs was living at 21 Valley Farm
Cottage and must have known that 24 Henham Green had been sublet to a person
who was not a farmworker . . . .
. . . when he
agreed in November 1985 to allow the defendant to sublet all the cottages as
holiday lets he was the person in charge and was fully aware of the names of
the cottages, and, as he said in cross-examination, was taking a day-to-day
interest in them.
Mr Prior did
not challenge this conclusion of the learned judge.
I have
referred earlier to the notice served on the defendant by William H Brown in
September 1986 requiring that the rent for the farms from October 1987 should
be referred to arbitration. That notice was served following instructions given
by the plaintiff to Mr Derek Turnbull [FRICS] of William H Brown in a letter
dated September 11 1986. In that letter the plaintiff referred to the fact that
some of the cottages were let and said:
I may have
written him a letter allowing him to lease his cottages out as holiday lets —
this was when he told me what a super job he was going to do on the land in
hand.
The judge
commented:
Thus at that
time he did recollect the letter he had written in 1985.
The judge also
referred to a letter written by the plaintiff to Mr Turnbull on January 21
1987, in which he said:
He is said to
have three or four of his cottages rented out at around £40 a week to non-ag
workers — I may have written him allowing this three or four years ago — please
revoke it immediately or bring it to his notice he appears to be in breach.
The judge
commented:
Again this
letter shows that the plaintiff had a recollection of a written permission he
had given to the defendant to sublet.
It seems that
in the summer of 1987 Mr N R Wild [FRICS], a partner in William H Brown, took
over from Mr Turnbull the conduct of the negotiations relating to the rent of
the defendant’s farms. On Monday July 20 1987, Mr Wild visited Valley and Green
Farms and was shown round by the defendant. He inspected the farms and the
cottages and produced a report for his own benefit in which each of the
cottages was accurately recorded, together with the nature of the tenancy where
the cottage was sublet. The defendant showed Mr Wild a copy of the 1984 letter
from the plaintiff giving him permission to sublet two of the cottages.
In a letter to
the defendant dated September 9 1987, written on the plaintiff’s instructions,
Mr Wild put forward proposals for a new agreement between the plaintiff and the
defendant. These included the defendant giving up all the residential
properties with the exception of his own farmhouse and the two cottages at
Henham Green, surrendering some of the buildings at the farms in return for the
provision by the plaintiff of a new modern building, and entering into a full
repairing lease, with a reduction in his rent to around £20,000 pa. To this the
defendant replied in a letter dated September 16 1987 that:
The cottages
need not be too much of a problem, but the ideas you’ve put forward regarding
the buildings need to be gone into in much more detail.
Early in
October 1987 Mr Wild met the defendant and the agents acting on his behalf, and
an agreement was reached in principle that the defendant would surrender the
cottages with the exception of the two at Henham Green and some of the farm
buildings, and that the plaintiff would provide the defendant with a new farm
building. A tentative agreement as to a reduction of rent to around £20,000 pa
was also reached. However, when Mr Wild obtained a quotation for the cost of
erecting the new building, this proved unacceptable to the plaintiff, who
instructed Mr Wild to proceed with the arbitration.
On October 20
1987 Mr Wild wrote to the plaintiff a letter in which he said:
We cannot
force MM to give up the cottages. He is allowed to occupy them with his own
employees and I have seen a letter from you giving MM permission to let out two
of the properties. He maintains this permission is not rescinded by the
termination of your joint farming arrangements and certainly your letter does
not contain any conditions. The whole question of what letting arrangements are
permitted is fundamental to the rent arbitration and I do need more information
from you.
On November 17
1987 the plaintiff, while in Australia, wrote a letter to Mr Wild saying that
he had found the original file and would be sending it to Mr Wild as soon as he
could. The letter contained a postscript in which the plaintiff said:
See my letter
dated 3/84 — 20 Valley Farm cottages, King’s Lane, and 24 Henham Green. Two
cottages only agreed to be rented out.
The judge
commented here:
It is quite
clear that the plaintiff looked into the file and read the letter of March 1984
in which he agreed that the defendant could sublet 20 Valley Farm and 24 Henham
Green.
On January 25
1988 Mr Wild wrote to the plaintiff saying that he was able to reach agreement
with the defendant on the terms previously discussed. He estimated that the new
building would cost approximately £65,000. He said that he had not reached
final agreement on the rent but believed that the defendant would not agree to
pay more than £22,000 pa. He asked for further instructions.
Meanwhile the
arbitration was stayed pending the outcome of the negotiations, and the
plaintiff instructed Mr Wild to defer it further until he came to England in
May 1988, which was done.
In May 1988
the plaintiff consulted Mr Chadd, a partner in Leathes Prior, solicitors of
Norwich. In a memorandum to Mr Chadd dated May 4 1988 the plaintiff said:
Please check
the lease and see if there is any reason why Mitchell should let out six of his
eight cottages/houses to people outside farm labourers. Each cottage needs
about £20,000 minimum spending on it and I want them back. Please note I did
give him permission to do what he liked re letting them out whilst he was
manager for THKPL, but not afterwards ie August 1986. Even if we made him keep
them empty it would save repairs etc. And cost him rates.
On this Aldous
J commented that the plaintiff
. . . did not
record the fact that permission had been given in writing in 1984 and 1985 and
this is particularly surprising as on 17th November 1987 the plaintiff had sent
to Mr Wild the letter containing the 1984 permission to sublet and draw his
attention to it.
The plaintiff
in his evidence said that at this stage he had forgotten the two letters of
1984 and 1985.
Following his
instructions from the plaintiff, Mr Chadd sent instructions to counsel to
advise. In those instructions he said:
The tenant is
at present in breach of the terms of the lease in that he has sublet a number
of cottages on the farms to tenants who are not agricultural workmen. From them
he is receiving a market rent but the landlord is still responsible for the
repairs. From October 1984 to May 1986 the tenant acted as the landlord’s
manager in respect of the land in hand on the estate. During that time the
landlord orally indicated to him that he could do as he wished so far as the
cottages were concerned, so long as he remained manager of the
contained in clause 4.13 of the lease would provide the tenant with grounds for
resisting successfully a notice to remedy the breach.
The assertion
in these instructions that the tenant was in breach of the terms of his lease
was, of course, incorrect, but it was based upon the instructions which the
plaintiff had given to Mr Chadd in his memorandum of May 4 1988. Mr Chadd
appears not to have obtained any more detailed instructions from the plaintiff
before sending his instructions to counsel. It is noticeable, however, that
counsel was asked to advise about the possibility of serving a notice to remedy
the breach, not a notice to quit.
Counsel duly
advised Mr Chadd in a telephone conference on May 20 1988 and the advice was
conveyed to the plaintiff by Mr Chadd in a letter dated May 23 1988. I think it
necessary to set out the relevant part of this letter in full, as did Aldous J
in his judgment. This read as follows:
The
Cottages
6.1 Under the terms of the lease Mr Mitchell is
not allowed to assign or part with possession of any part of the farm (except
cottages and gardens to workmen on the farm). If he is renting the cottages out
to tenants who are not workmen on the farm then he is in breach of the terms of
the lease. The prohibition in the lease is absolute and is not subject to his
obtaining your approval.
6.2 A difficulty may arise, however, in the event
of your having given him permission to sub-let them. I understand that such
permission was given orally to him and was limited to the period during which
he was managing the estate on your behalf under the contractorship arrangement.
If he acted upon your consent to non-workmen occupying the cottages and allowed
them into occupation he may now find it difficult to remove them. He may,
therefore, plead estoppel ie that you cannot now say that the tenants should
not be there. In addition, we may have some evidential difficulties in
establishing exactly what the ambit of the permission given to him was in the
absence of anything in writing. He, of course, has the same difficulty but the
point is that it gives scope for argument which means delay and, inevitably,
expense.
6.3 The first step would be to establish exactly
what the position is in respect of the tenancies of the various cottages which
he has let to non-agricultural workmen. If he is offering to hand them back to
you as part of the settlement in respect of the rent review currently under
arbitration then it suggests that he is able to recover possession of them at
any time he wants. If this is so, then his breach is capable of remedy. This is
important because the procedure which would need to be adopted if you wish
action to be taken on this item would be for notices to be served on Mr
Mitchell and those notices must either specify (under Case D of Schedule 3 to
the 1986 Act) that the breach be remedied or under Case E where the breach
cannot be remedied. If we are in any doubt about the exact nature of the
tenancies of the cottages we should serve notices under both cases in respect
of all of them.
6.4 The tenant in any event has a right to serve
counter-notice requiring arbitration and it would be necessary for you to
establish damage and prejudice from the breaches which have occurred. It would
be possible to establish damage to your reversionary interest in those cottages
if the tenants cannot be removed and have obtained statutory or protected
tenancies.
Aldous J said:
I draw
attention to the fact that the plaintiff was advised that the first step was to
find out what the position was in respect of the tenancies and if the defendant
was able to recover possession his breach was capable of remedy and only if
there was doubt should a Case E notice be served. He was also advised that it
would be necessary to establish damage and prejudice from the breaches.
In a note
written by the plaintiff on May 25 1988 on Mr Chadd’s letter of May 23 he
instructed Mr Chadd to get the cottages back. On May 31 1988 the plaintiff
spoke to Mr Chadd on the telephone and gave him details of who was living in
the cottages. Mr Chadd recorded this information in a note, which he used in
order to prepare the notices to remedy and to quit. The note reads:
Mitchell’s
tenancies: No 2 Uggeshall. Mr Hartshorn genuine agric. 23 Green Farm Cottage,
empty. 24 Green Farm Green, Sotherton Mr Willard non-agric. 20 King’s Lane,
Sotherton Mr Briggs ret. agric. OK. 21 King’s Lane, Mr Warren out. Old
Valley Farm Cottages, Nos 2 and 3 (both empty, let for holidays).
The notices to
remedy the alleged breach and to quit were then served on the defendant by
Leathes Prior on June 2 and 3 1988 respectively.
The judge
found that the plaintiff did not see the notice to quit before it was served
but that it did go to him shortly thereafter. He said:
On the
plaintiff’s evidence it seems clear that he read it soon after it was served
and must be taken to have affirmed its contents, as it was signed on his
behalf. He took no action to draw any mistake in it to anybody’s attention.
Aldous J in
his judgment then said:
One of the
issues I have to decide is whether or not the plaintiff had by May 1988
forgotten that he had given written permission for the defendant to sublet
cottages. If he had not, then the information given by him to Mr Chadd upon
which counsel’s advice was sought was so incomplete as to be false and known to
be false and the whole basis of the notice to quit was also false in that 20
Valley Farm Cottage was sublet pursuant to the 1984 permission, as was 24
Henham Green, and all the cottages were covered by the 1985 permission to let
for holiday situations.
The written
permissions to sublet were made in 1984 and 1985. The plaintiff remembered that
something had been put into writing on September 11 1986 and again on January
21 1987, and saw the 1984 letter of permission on November 17 1987 when he sent
it to Mr Wild. It is therefore very surprising that by May 1988 he had
forgotten. Despite this the plaintiff was clear in his evidence that he had
forgotten. His excuse was that he had a bad memory. Mr Wood submitted that I
should not accept this evidence, on the basis that the plaintiff should not be
believed.
I do not
believe that the plaintiff deliberately sought to mislead me by giving false
evidence. He said that he had a bad memory and this I accept. He also struck me
as a person who did not bother himself with details which did not coincide with
that which he considered important. At the time when the question of the
notices was being considered the defendant was irritating the plaintiff by not
paying his rent. Also the plaintiff was irritated by the fact that Valley and
Green Farms were (as he put it) a weak link in the chain for Heritage relief.
At that time the negotiations had reached the stage when the defendant was
prepared to return certain buildings, and all but two of the cottages, but the
plaintiff would have to pay for a new building and for repairs to the two
cottages left in the tenancy. He saw the opportunity based on the advice of Mr
Chadd to exert pressure upon the defendant by way of the notices to remedy and
quit. His motive was to use any means that occurred to him to get what he
wanted, namely the cottages and the buildings, without paying anything.
The judge
expressed his overall conclusion on this part of the case in the following
words:
As I have
said, I do not believe that the plaintiff deliberately set out to mislead me by
giving false evidence. However, I cannot accept his evidence as to what
happened and what was in his mind as his recollection cannot be relied on,
particularly where it did not accord with the documents and was contrary to
reasonable explanation. Clearly Mr Chadd was under the impression that the
permission that the plaintiff had given to sublet was oral and I see no reason
why the plaintiff would have deliberately given him false information. The
conclusion must be that either the plaintiff did not remember that written
permission had been granted or that the information he gave Mr Chadd was
imprecise, which led Mr Chadd to conclude that the permission had been given
orally. I do not believe that Mr Chadd’s recollection can be relied on as to
what was said unless recorded in a document, as I came to the firm conclusion
from his evidence that his recollection of what happened was a reconstruction
of what he believed happened on the basis of documents and what he did.
I suspect
that what did happen was that the plaintiff gave to Mr Chadd information
similar to that recorded in his note of May 4 1988, namely that he had given
the defendant permission to do what he liked about letting the cottages out
while he was manager but not afterwards. From that Mr Chadd assumed it was an
oral permission. However, I believe that the plaintiff’s mind was fixed on his
objective of getting the cottages back by pressure and that if he had paused to
think about it he would have remembered that something had been put into writing.
He never bothered to think; he impulsively went ahead with an intention to
achieve his aims. He was indifferent as to whether his instructions on this
point were properly understood and whether written permission had been given.
He was sent the instructions to counsel and did not bother to read them
carefully enough or think about what was said to form a view that they were
correct.
Mr Pryor
submits that the judge’s conclusion in the last paragraph I have quoted was
inconsistent with his finding that the plaintiff did not deliberately give
false evidence to him. Moreover, submits Mr Pryor, even if the plaintiff had
given thought to the matter and had remembered putting some permission in
writing, it does not follow that he would have remembered the exact extent of
the permissions he had given to the defendant.
I am not
persuaded by these arguments. The conclusion to which the judge came that in
May 1988 the plaintiff’s mind was so fixed on his objective of getting the
cottages back by pressure that he was oblivious to any other consideration, and
thus did not pause to consider whether he had given consent in writing to the
subletting, is not inconsistent with a finding that at the time of the trial in
July 1989 the plaintiff was not lying when he said in evidence that in May 1988
he had not remembered the two letters of 1984 and 1985. Moreover, if he had
remembered the letters, it would have been inevitable that he would have told
Mr Chadd of their existence. Mr Chadd in turn would then have required to have
copies of the letters, and once he saw them he would have known the true
position. It is inconceivable that Mr Chadd would have served the notice to
quit in the form in which he did serve it if he had seen the two letters.
Accordingly, I am
which I have sought to summarise, to reach the conclusion to which he came in
the passage I have set out.
The judge then
turned to consider the statements made in the notices to quit. The first two
properties referred to in the notice are the two cottages which are properly
known as 20 and 21 King’s Lane, Henham. No 21 was the cottage occupied by Mr
Briggs, the agricultural worker. It is accepted that there was no breach of the
tenancy agreement in the defendant’s subletting this cottage to Mr Briggs. The
judge recorded the plaintiff as giving evidence that:
. . . he
never authorised Mr Chadd to serve a notice in relation to the cottage occupied
by Mr Briggs . . . . The only conclusion that I can draw is that the plaintiff
had no honest belief that the defendant was in breach of the tenancy in letting
the cottage to Mr Briggs. In fact he believed to the contrary. Despite that, he
took no step to correct the position when he saw the notice. He was not
interested in seeing that the notice was correct but only in achieving his
aims. I hold that the statement that the defendant was in breach of his lease
by subletting 21 Valley Farm Cottages was false, was known to the plaintiff to
be false and was approved by him. It therefore was a fraudulent statement.
This is the
sole point on which I disagree with the learned judge. It is clear from Mr
Chadd’s note of his conversation on May 31 1988 with the plaintiff that he was
instructed that one of the King’s Lane cottages was occupied by Mr Briggs who
was a retired agricultural worker. I apprehend that the expression ‘OK’ was
intended to mean that the plaintiff had in effect said to Mr Chadd that there
was no breach in this case. Mr Chadd seems, when he came to have read his own
note, to have misunderstood the position. It is correct, as the judge said,
that the plaintiff never made any attempt to correct this misstatement when he
saw the notice to quit, but that cannot make him guilty of fraud in my view. It
is the plaintiff’s state of mind at the time he gave the instructions to Mr
Chadd, ie on and before May 31 1988, which is vital. If he gave correct
instructions then, his failure to correct a mistake in the notice thereafter
does not amount to a deliberate intention to mislead. On the other hand, it is
a very relevant piece of evidence as to the plaintiff’s general state of mind
and amply justifies the judge’s conclusion in relation both to this and to the
other properties that the plaintiff had shut his mind to the true position and
was indifferent, ie reckless, as to whether he had given consent to the
defendant to sublet.
As to 20
Valley Farm Cottage, this was let pursuant to the 1984 written permission to a
Mr Warren under a protected shorthold tenancy. The judge said in relation to
this:
I accept that
the plaintiff, if he had bothered to remember that written permission had been
given, would not have remembered the details of the permission and would have
needed to consult the document to find out that 20 Valley Farm Cottage was
within the permission. However, I believe that the statement in the notice
relating to 20 Valley Farm Cottage was based on the understanding of Mr Chadd
that the permission was oral and that the plaintiff knew as he read the instructions.
The plaintiff did not have any honest belief that it was true in the sense that
he did not care whether it was true or false. The statement in the notice was
based on a fraudulent statement. It would probably not have been made except
for that statement. In such circumstances it seems to me that the whole basis
for the statement was fraudulent.
No 24 Henham
Green was the other cottage covered by the 1984 permission. In May 1985 this
was let on a protected shorthold tenancy to a Mr Willard. The judge reached
exactly the same conclusion in relation to this cottage as he had in relation
to 20 Valley Farm Cottage. In my view, on the evidence before him, Aldous J was
perfectly entitled to reach the decision that the statements in the notice to
quit about these two cottages were false and that their falsity was the result
of the plaintiff’s recklessness which amounted to fraud.
The other two
cottages referred to in the notice to quit were nos 1 and 2 Old Valley
Farmhouse. They were both covered by the 1985 permission to let for holiday
purposes. The evidence establishes that no 1 had been let on a protected
shorthold tenancy to a Mr Marsham, which was on the face of it a breach of the
tenancy agreement. However, this tenancy had terminated before the end of May
1988, at which date the cottage was vacant. Thus there was no breach that could
properly be the subject of a notice to quit. No 2 had been let for holiday
purposes only, in accordance with the 1985 permission, and thus in this case
there was no breach. In my view, the judge might well have reached the same
conclusion with regard to these two cottages as he did in relation to the
cottages covered by the 1984 permission.
However, he
dealt with the Old Valley Farmhouse cottages in a different way. He quoted the
plaintiff as saying in his evidence that he did not believe that he could
suffer material prejudice provided the cottages were vacant. The judge held
that it was clear that the plaintiff had no belief that these cottages were
let, nor that it was right to serve a notice to quit in respect of cottages
that were vacant. He found that the plaintiff was fraudulent in relation to
these two cottages because
He just did
not bother to consider whether the statements made in the notice to quit in
relation to those cottages were true or false.
He therefore
held that the notice to quit in respect of these two cottages was fraudulent in
this respect. In my view, on the evidence, this was a perfectly proper
conclusion and one that cannot in any way be faulted.
Conclusion
The statement
in the notice to quit that the defendant was in breach of his tenancy agreement
in subletting the five cottages referred to was false in relation to each of
the cottages. In relation to four of the cottages, the inclusion in the notice
to quit of the false statements was the result of the instructions given by the
plaintiff to Mr Chadd being inaccurate. The judge’s conclusion that the inaccuracy
in the instructions was the result of the plaintiff’s reckless fraud was one
which was amply justified by the evidence before him. For these reasons I would
dismiss the appeal.
