Landlord and tenant — ‘Without prejudice’ offer of tenancy — Offeree in occupation — Whether offer admissible — Whether offeree granted tenancy
The plaintiff,
the owner of 120 Northchurch Road, London N1, on November 12 1983 entered into
a reciprocal housing agreement with Islington London Borough Council by which
the council agreed to rehouse the basement-flat tenant and the plaintiff agreed
that, on the completion of specified works, the council could nominate a tenant
to occupy the flat who would have a protected tenancy. On completion of the
works in 1986, the defendant was so nominated. On March 14 1986, and without
the plaintiff’s authority, their surveyor gave the defendant the key to the
flat knowing that she would move in and commence her occupation. On March 20
the plaintiff’s solicitor sent two letters to the defendant; one was an open
letter stating that her occupation was unlawful and requiring possession; the
second was marked ‘without prejudice’ offering a shorthold tenancy which upon
grant would be backdated. In a telephone conversation the defendant said she
would enter into the agreement. The defendant did not sign any tenancy
agreement and paid neither the registered fair rent or any rent. In proceedings
for possession the judge decided, at the trial of a preliminary issue, that the
‘without prejudice’ letter and telephone conversation were admissible and later
at trial dismissed the plaintiff’s claim. The plaintiff appealed.
offer relating to a proposed tenancy agreement upon conditions which were never
satisfied. The reference within it to any tenancy relating back did not make
the defendant’s occupation lawful; the plaintiff maintained that until there
was an agreement the defendant was not entitled to remain at all. There was no
separate agreement relating to occupation. It was not possible to impute a
licence resulting from acquiescence in the defendant’s occupation. There was
never a concluded agreement between the parties and therefore it was not
possible to look at the ‘without prejudice’ letter.
The following
cases are referred to in this report.
Bradshaw v Pawley [1980] 1 WLR 10; [1979] 3 All ER 273; (1979) 40
P&CR 496; [1980] EGD 100; 253 EG 693, [1980] 1 EGLR 49
Hagee
(London) Ltd v A B Erikson & Larson
[1976] QB 209; [1975] 3 WLR 272; [1975] 3 All ER 234; [1975] EGD 139; (1975)
236 EG 479, [1975] 2 EGLR 61, CA
Morris v Tarrant [1971] 2 QB 143; [1971] 2 WLR 630; [1971] 2 All ER
920
National
Jazz Centre Ltd, Re [1988] 2 EGLR 57; [1988] 38 EG
142
Rush
& Tompkins Ltd v Greater London Council
[1989] AC 1280
Walker v Wilsher (1889) 23 QBD 335
This was an
appeal by the plaintiff, V G Fraulo & Co Ltd, from a decision of Judge Roger
Cox, who on August 24 1992 dismissed the plaintiff’s claim for possession
against the defendant, Susan Maria Papa.
Martin Rodger
(instructed by Bartletts) appeared for the plaintiff; Robert Latham (instructed
by Harter & Loveless) represented the defendant.
Giving
judgment, PETER GIBSON J said: This is an appeal by the plaintiff, V G
Fraulo & Co Ltd, from a ruling given by Judge Roger Cox in Clerkenwell
County Court on August 20 1992 and from parts of his order made on August 24
1992. By the ruling the judge had held that a ‘without prejudice’ letter from
the plaintiff’s solicitors to the defendant, Susan Papa, and evidence of a
telephone conversation between the solicitors and Miss Papa after that letter
were admissible in evidence. The parts of the order appealed from were the
dismissal of the plaintiffs’ claim for possession of the dwelling-house which
consisted of the basement flat, 120 Northchurch Road, London N1, a declaration
on Miss Papa’s counterclaim that she is a protected tenant of that dwelling-house
for the purposes of the Rent Act 1977 and an order that the plaintiff pay Miss
Papa’s costs of the action. The facts were in essence not in dispute. The
plaintiff is the owner of 120 Northchurch Road. On November 12 1983 the
plaintiff entered into a reciprocal housing agreement with Islington London
Borough Council. The basement flat was at that time let to a tenant. The
plaintiff wanted possession in order to undertake certain building works at 120
Northchurch Road. Under the agreement the council undertook to rehouse the
existing tenant and the plaintiff agreed that, on completion of the works, it
would notify the council and the council would then have the right to nominate
a tenant to occupy the basement flat and the plaintiff would grant a tenancy to
the nominee. By clause 3 of the agreement the tenancy was to be a protected
tenancy within the meaning of the Rent Act 1977 and the plaintiff would apply
for a certificate of fair rent, but, subject to those and other terms, the
terms of any letting should be agreed between the plaintiff and the nominated
tenant or, in default of agreement, determined by the council. The plaintiff
expected to obtain an improvement grant from the council in relation to the
works once those works were completed.
The works were
carried out, though they had not quite been completed by March 14 1986. Miss
Papa was, at that time, about to be evicted from other premises on which she
was the tenant and she was in urgent need of alternative accommodation, as the
council accepted. They nominated her to become the tenant of the basement flat.
The plaintiff employed a surveyor in relation to the works. On March 14 he
handed Miss Papa the keys to the premises, ostensibly to enable her to measure
up for curtains and carpets, but the surveyor was well aware that Miss Papa
would in fact move into and commence her occupation of the premises. As the
learned judge held, there is no doubt that the surveyor was acting without the
plaintiff’s authority in giving her the keys and, indeed, Miss Papa was aware
of that and she has at all times accepted that her occupation consequent on the
keys being handed to her was at that time unlawful. An improvement officer of
the council, Mr Mark Adams, informed the plaintiff immediately that Miss Papa had
gone into occupation.
On March 20
Miss Janice Bartlett, the plaintiff’s solicitor, on the plaintiff’s
instructions, wrote two letters to Miss Papa. The first letter was an open
letter in which Miss Bartlett pointed out that neither the council nor the surveyor
had authority to allow Miss Papa into occupation of the flat and she continued:
In the
circumstances your occupation is unlawful and unless you vacate the same
forthwith our instructions are to commence proceedings against you for
possession.
The second
letter was headed ‘Without prejudice’ and it reads as follows:
Further to our
open letter to you today our clients are prepared to offer you a shorthold
tenancy of the flat and we enclose herewith a draft agreement for your
consideration.
We understand
from Mark Adams of the London Borough of Islington that he has explained to you
the effect of the tenancy being shorthold.
In order for
the provisions of the Rent Act to be complied with it is necessary before the
tenancy is granted for us to serve upon you a notice of the shorthold tenancy.
This notice requires to have inserted in it the certified rent for the
property.
Application
has been made to the Rent Officer for this and as soon as the same is received
it will be possible for us to serve the notice upon you and complete the
formalities of the tenancy agreement.
Until such
time the notice is served upon you and you sign the tenancy agreement our
clients consider you to be in unlawful occupation of the property and no rent
will be accepted. The agreement will in due course be backdated to the date you
took occupation.
We look
forward to hearing whether this proposal is acceptable to you.
The draft
agreement that was enclosed was one for a protected shorthold tenancy for five
years from an unspecified commencement date at the fair rent registered for the
dwelling, such fair rent to be applied for by the plaintiff.
Shortly after
receipt of Miss Bartlett’s letter, Miss Papa telephoned Miss Bartlett and
indicated that she (Miss Papa) was prepared to sign the tenancy agreement. She
also offered to pay rent, but was told by Miss Bartlett not to bother, but to
wait until the rent had been assessed.
In May 1986 a
fair rent was registered by the rent officer, but that was appealed against by
the plaintiff and on September 4 1986 the fair rent for the flat was registered
by the rent assessment committee as £27 per week, though on a footing
inconsistent with the draft tenancy agreement in that it was on the basis that
the sole use of the garden of the premises went with the flat, whereas that was
not in the draft of the tenancy agreement. Miss Papa never paid that or any
other rent, though she was willing to do so, because the tenancy agreement was
never completed.
On June 16
1986 Miss Papa wrote to Miss Bartlett to say that she would be away for two
weeks. On June 25 Miss Bartlett replied, repeating the plaintiff’s claim that
Miss Papa was still in unlawful occupation of the premises so far as the
plaintiff was concerned, and that she had no rights in respect of the premises.
On October 24 1986 summary proceedings for possession were brought under Ord 24
of the County Court Rules, with an affidavit in support on behalf of the
plaintiff. But Miss Papa filed affidavit evidence opposing the application,
which was not then proceeded with for some time. The plaintiff did not receive
the expected improvement grant from the council. Miss Bartlett’s evidence at
the trial was that the plaintiff regarded the tenancy to Miss Papa as
conditional on the payment of the improvement grant. The plaintiff learnt in
1988 that the grant would not be paid, but the proceedings were not pursued
until June 3 1991 when an order was made that the proceedings should continue
as if begun by summons. Only after that were pleadings served.
By the
plaintiff’s particulars of claim it claimed possession, alleging that Miss
Papa’s occupation was unlawful, and it sought mesne profits at the rate of the
registered rent. Miss Papa in her defence denied that the occupation was
unlawful and counterclaimed for damages and for a declaration that she is a
protected tenant.
At the trial
the learned judge tried as a preliminary issue the question whether the without
prejudice letter of March 20 1986 and the evidence of the subsequent telephone
conversation between Miss Papa and Miss Bartlett were admissible in evidence.
He held that Miss Papa, by accepting in that conversation the terms on which
the tenancy was being offered to her, in effect concluded negotiations
initiated by the letter. In his first judgment on the preliminary issue he held
that, by the letter, the essence of the offer which was being made to Miss Papa
was:
You may
remain there. We will see to it that an agreement is drawn up. In due course it
will be executed and, when it is, it will be so executed that your
original occupation of the premises shall then become lawful;
And he held
that it was that to which Miss Papa agreed. Accordingly, he held that, as the
negotiations on that matter thereby came to an end, the letter of March 20 1986
and the evidence of the telephone conversation were admissible.
When giving
the main judgment, the judge described the issues in the proceedings as
twofold. First, as the plaintiff claimed, had it established that Miss Papa’s
occupation at all material times was unlawful?
On this he referred to his earlier conclusion that by reason of the
letter of March 20 1986, and in particular because of the sentence, ‘The
agreement will in due course be backdated to the date you took occupation’, the
plaintiff was acknowledging Miss Papa’s right to remain in possession and the
learned judge held that there was agreement on this point when Miss Papa
accepted the terms of the letter in the subsequent telephone conversation.
The second
issue which the learned judge identified was that raised by the counterclaim.
Had Miss Papa established that she was a tenant of some sort and, if so, that
she was entitled to the protection of the Rent Act 1977? He held that there was no concluded agreement
for a protected shorthold tenancy. There is no cross-appeal by Miss Papa on
this point. But he held, again on the basis of the letter of March 20, that
there was a tenancy at will and that there was a rent payable. Accordingly, he
held that the tenancy at will was a protected tenancy within the Rent Act 1977.
The first issue argued before us was the admissibility of the letter of March
20 1986 and the evidence of the subsequent telephone conversation, as all the
judge’s conclusions, favourable to Miss Papa, depended on the admission of that
evidence.
There is a
good deal of common ground between the parties on the principles of without
prejudice negotiations. In Rush & Tompkins Ltd v Greater London
Council [1989] AC 1280, in the leading opinion given in the House of Lords,
Lord Griffiths said at p1299:
The ‘without
prejudice’ rule is a rule governing the admissibility of evidence and is
founded upon the public policy of encouraging litigants to settle their
differences rather than litigate them to a finish.
Then a little
later on the same page:
The rule
applies to exclude all negotiations genuinely aimed at settlement whether oral
or in writing from being given in evidence. A competent solicitor will always
head any negotiating correspondence ‘without prejudice’ to make clear beyond
doubt that in the event of the negotiations being unsuccessful they are not to
be referred to at the subsequent trial.
He stated, at
p1300, what the underlying purpose of the rule was, namely, ‘. . . to protect a
litigant from being embarrassed by any admission made purely in an attempt to
achieve a settlement’. He then referred to the exception for the admission of
independent facts in no way connected with the merits and said:
I regard this
as an exceptional case and it should not be allowed to whittle down the protection
given to the parties to speak freely about all issues in the litigation both
factual and legal when seeking compromise and, for the purpose of establishing
a basis of compromise, admitting certain facts. If the compromise fails the
admission of the facts made for the purpose of the compromise should not be
held against the maker of the admission and should therefore not be received in
evidence.
There is no
doubt that evidence of negotiations expressed to be without prejudice will
cease to be inadmissible once there is a settlement which concludes the
negotiations (see Walker v Wilsher (1889) 23 QBD 335), but there
must be a complete agreement and not one which is conditional on further steps
being taken. Further, in my judgment, it cannot in general be right to admit
evidence of without prejudice negotiations to prove some collateral matter (cf Re
National Jazz Centre Ltd [1988] 2 EGLR 57), though the fact of such
negotiations may be admissible, for example, to prove laches or otherwise to
explain a delay. I cannot think that it would be right as a matter of policy to
encourage the extraction of material from without prejudice negotiations on the
grounds that such material may constitute an admission or a separate agreement,
unless it can clearly be demonstrated that the admission is a truly independent
fact so as to come within the narrow exception, or the agreement is truly
separate from the other, unconcluded, negotiations.
Mr Martin
Rodger, appearing for the plaintiff before us as he did in the court below,
submitted that the offer contained in the letter was not capable of giving rise
to an enforceable agreement between the parties because it contemplated further
formal steps being taken, including the execution of a protected shorthold
tenancy agreement, and was in any event written by the plaintiff’s solicitor
who had no authority to make a contract. Mr Robert Latham, for Miss Papa,
accepts that the offer of a grant of a protected shorthold tenancy was not
capable of forming a binding agreement. But he submitted that the relevant
offer was that Miss Papa was to be permitted to occupy the premises pending the
conclusion of negotiations as to the terms of the protected shorthold tenancy
and that she would be liable to pay for her occupation from the date of her
entry into occupation. He submitted that the learned judge had to have regard
to what Mr Latham called the substance and reality of the situation and he said
that that substance and reality led to the judge’s conclusion that there was an
agreement permitting Miss Papa to occupy the premises pending the signing of
the tenancy agreement.
That was the
approach of the learned judge who referred to the surrounding circumstances
including the agreement with the council. He referred to the opening paragraph
of the without prejudice letter to the effect that the plaintiff was prepared
to offer a shorthold tenancy, but he placed particular reliance on the sentence
relating to backdating. The learned judge said at p8 of the transcript of the
judgment on August 24:
I am
perfectly satisfied that when the letter was written on March 20 1986 the
plaintiff was thereby acknowledging the defendant’s right, albeit possibly
temporary and possibly subject to review, to remain in the premises. That is
really concluded by the passage in that letter to which I have previously
referred wherein the plaintiff makes it perfectly clear that the tenancy
agreement when signed will be backdated to the date upon which Miss Papa took
up occupation of the premises.
He went on to
hold, as I have indicated, that there was a tenancy at will, relying for that
on the authority of Scarman LJ’s dictum in Hagee (London) Ltd v A B
Erikson & Larson [1976] QB 209* at p217A, to the effect that a classic
circumstance for the arising of a tenancy at will is when a person holds
premises pending the outcome of negotiations.
*Editor’s
note: Also reported at (1975) 236 EG 479, [1975] 2 EGLR 61.
I am not able
to accept this approach. In my judgment, the matter turns primarily on the
meaning of the letter of March 20 1986 and in particular of the sentence
relating to backdating. The letter seems to me to constitute an offer (or an
invitation to treat) relating to a proposed tenancy agreement and the whole of
that letter is directed to that point and that point alone. The passage
relating to backdating is merely the expression of the consequence of what will
occur if the agreement is ever entered into. It may well be that one could say,
as a result of that sentence, that the plaintiff was not contemplating that
Miss Papa would move out and give up occupation pending the signing of a
tenancy agreement. But, in my judgment, it is quite impossible to say that
thereby the plaintiff was permitting Miss Papa to remain in occupation. The
previous sentence relating to backdating makes that abundantly clear. I repeat
it:
Until such
time the notice is served upon you and you sign the tenancy agreement, our
clients consider you to be in unlawful occupation of the property and no rent
will be accepted.
It is quite
clear, to my mind, that the plaintiff was therefore maintaining the stance
that, until there was an agreement, Miss Papa was not entitled to remain at
all.
I cannot see
that there was any separate agreement relating to occupation. Moreover, I
cannot see any evidence that either of the parties regarded an agreement as
having been reached in the sense now contended for by Miss Papa and accepted by
the learned judge.
The plaintiff
certainly was consistent in stating that the occupation was unlawful not only
because of what was said in the letter of March 20 but also because of what was
said in the letter of June 25 1986 and when the plaintiff commenced proceedings
for possession. Turning to Miss Papa herself, there is this passage in her
cross-examination on August 20 1992 at the trial:
Q. You
assumed that you would become a lawful tenant when the documents were signed?
A. Yes.
Q. If you had
said to Miss Bartlett on the telephone that you were happy with the document,
you knew that that did not transform you from an unlawful occupier to a lawful
occupier?
A. Sort of
going in the right direction.
Q. You had
not got there yet?
A. No.
Q. There was
still more to be done?
A. Yes.
Even if the
plaintiff acquiesced in Miss Papa’s occupation, in my judgment it is not
permissible to impute a licence resulting from that acquiescence: see Morris
v Tarrant [1971] 2 QB 143 at pp159-160. The reference to backdating may
have confused the learned judge. In my judgment, it is quite clear that any
backdating which would have occurred if the agreement had been entered into, as
was then contemplated, would have had the limited effect of making the term of
the tenancy measurable from a date earlier than that of the execution of the
agreement. It could not in law have had the effect of making lawful Miss Papa’s
occupation of the premises prior to that agreement being executed: see Bradshaw
v Pawley [1980] 1 WLR 10* at p14.
*Editor’s
note: Also reported at (1979) 253 EG 693, [1980] 1 EGLR 49.
In the result,
in my judgment, it is not permissible to look at the letter marked as it was
‘without prejudice’, because the negotiations which were thereby instituted for
the grant of a protected shorthold tenancy never fructified and became a
concluded agreement. This is therefore the ordinary case of without prejudice
negotiations being held not to be capable of being the subject of evidence at
the trial. Mr Latham accepts that, if that conclusion is reached, the plaintiff
is entitled to succeed on this appeal.
For my part,
therefore, I would allow this appeal.
SIMON BROWN and BALCOMBE LJJ agreed and did not add anything.
Appeal
allowed.
