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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Ambrose v Kaye [2002] EWCA Civ 91 (17 January 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/91.html Cite as: [2002] 15 EG 134, [2002] EWCA Civ 91

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM WILLESDEN COUNTY COURT
(HIS HONOUR JUDGE SICH)

		Royal Courts of Justice Strand London WC2 Thursday, 17th January 2002

Thursday, 17th January 2002

1. LORD JUSTICE CHADWICK: This is an appeal against an order made on 26th March 2001 by His Honour Judge Sich in the Willesden County Court in proceedings under Part II of the Landlord & Tenant Act 1954.
2. The appellant, Mr Arlington Ambrose, is the tenant of premises known as 11 Craven Park Road, Harlesden, London NW10. He carries on the business of ladies and gentlemen's hairdresser at those premises; and he has done so for many years. He now holds those premises under an underlease from the respondent, Mr Martin Kaye, who is himself the owner of a long leasehold interest in the premises granted in 1928. The underlease is dated 21st March 1986. The contractual term of the underlease is 15 years from 25th December 1985. But, as it is common ground, the underlease is one to which provisions in Part II of the 1954 Act applies. The tenancy can only be determined in accordance with those provisions - see section 24(1) of that Act.
3. On 12th June 2000 Mr Kaye ("the landlord"), served on the tenant, Mr Ambrose, a notice under section 25 of the Landlord & Tenant Act 1954. The date specified for the termination of the tenancy in that notice was 25th December 2000. That, of course, was the date on which, apart from the provisions in Part II of the Act, the tenancy would have come to an end by effluxion of time. The notice stated, as it was required to do by section 25(6), that the landlord would oppose application to the court for the grant of tenancy and that he would rely on ground (g) in section 30(1) of the Act. That ground enables a landlord to oppose an application for a new tenancy if, on the termination of the current tenancy, the landlord intends to occupy the holding for the purposes of a business to be carried on by him therein.
4. The tenant's response to the notice served upon him under section 25 of the Act was to notify the landlord that he was not willing to give up possession of the premises on 25th December 2000; and to apply to the county court for a new tenancy under section 25(1)(a). His application was issued on 5th October 2000. It was fixed for a directions hearing on 21st November 2000.
5. Section 29(1) of the 1954 Act requires that, subject to the provisions of the Act, on an application under section 24(1) for a new tenancy the court shall make an order for the grant of a tenancy compromising such property, at such rent and on such other terms as are provided in the Act. Section 30(1) of the Act sets out the grounds upon which a landlord may oppose an application under section 24(1). Those grounds include ground (g) to which I have already referred. Section 31(1) of the Act provides that if the landlord establishes to the satisfaction of the court a ground upon which he is entitled to oppose an application under section 24(1) the court shall not make an order for the grant of a new tenancy.
6. The first hearing of the tenant's application took place on 21st November 2000 before a deputy district judge. By an order made on that day the claim was allocated to the multitrack; and it was directed that there should be tried as a preliminary issue "whether the defendant can make good (g) under section 30(1) of the Landlord & Tenant Act 1954". Directions were given for the discovery and exchange of witness statements relevant to the preliminary issue.
7. In his witness statement dated 31st January 2001 the landlord explained that 11 Craven Park Road was one of a parade of shops, of which he or his wife, Mrs Alethea Kaye, owned four, Nos. 5, 7, 9 and 11. He said this, at paragraphs 5 and 6 of that statement:

"5. I currently operate the family business 'A & B Kaye Textiles', which is a retail outlet selling curtains and other fabric to the general public, from numbers 5 and 9 Craven Park Road. The business has been in the family for 50 years and has operated from Craven Park Road throughout that period.

6. In between numbers 5 and 9 is number 7 over which I am the freeholder. Number 7 is currently a Thai restaurant and is a currently protected tenancy. The current lease is due for renewal in 2 years time. I currently use number 9 as a storeroom where I store the curtains which we actually sell from number 5."

8. He went on to explain that, on termination of the tenant's possession of No.11, he (the landlord) intended expanding the business into that shop by combining those premises with No.9 as a single unit. He then planned to use No.5 as a stockroom in place of No.9. As his longer term aim, when the lease of No.7 fell in, was to combine all four shops into a single unit. The witness statement concluded with the following paragraph:

"19. I confirm that in accordance with ground

30G that upon the termination of the current tenancy at number 11 Craven Park Road I intend and undertake to occupy the property for the purpose of expanding my existing business."

9. There is nothing in the landlord's witness statement of 31st January 2001 to indicate that the family business "A & B Kaye Textiles" was carried on by a limited company; although it is reasonably obvious that it might be. That point was clarified, however, by a further witness statement signed by Mr Kaye on 12th February 2001, and by the exhibits to that witness statement. In particular, paragraph 10 of the witness statement signed on 12th February 2001 is in these terms:

"A & B Kaye (Textiles) Ltd has been an incorporated company since 1958. As I explained in my previous statement my business is stagnating due to lack of space, there have been occasions when the shop has been so full that further customers have been deterred from entering."

10. It is, of course, not unusual that a landlord who is an individual intends that (if he can bring the existing tenancy to an end under Part II of the 1954 Act) the business to be carried on at the premises which are subject to the existing tenancy will be carried on by a company which he controls. But, in the absence of some special provision to meet that case, the requirements of paragraph (g) in section 30(1) of the Act would not be met - see Tunstall v Steigmann [1962] 2 QB 593. The decision in that case led to the addition to section 30, by an amendment introduced by section 6 of the Law of Property Act 1969, of subsection (3). Section 30(3) of the 1954 Act is in these terms:

"Where the landlord has a controlling interest in a company any business to be carried on by the company shall be treated for the purposes of subsection (1)(g) of this section as a business to be carried on by him.

For the purposes of this subsection, a person has a controlling interest in a company if and only if either -

(a) he is a member of it and able, without the consent of any other person, to appoint or remove the holders of at least a majority of the directorships;

or

(b) he holds more than one-half of its equity share capital, there being disregarded any shares held by him in a fiduciary capacity or as nominee for another person;

and in this subsection 'company' and 'share' have the meanings assigned to them by section 455(1) of the Companies Act 1948 and 'equity share capital' the meaning assigned to it by section 154(5) of that Act."

11. The preliminary issue came before His Honour Judge Rich for trial on 16th February 2001. The parties gave their evidence during the morning of that day. In the course of the closing submissions on behalf of the tenant, his solicitor advocate took the point that there was no evidence that the landlord had a controlling interest in A & B Kaye (Textiles) Limited, the company by which the business was to be carried on at No.11 Craven Park Road. The position was described by the judge in the judgment which he was to give after an adjourned hearing on 26th March 2001:

"The issue relating to section 30(3) arose during the very able closing submissions of Miss Hutt on behalf of Mr Ambrose, the tenant. She pointed out that there was no evidence that Mr Ambrose (sic) had a controlling interest in A and BK Textiles Ltd, which is the company which owns these premises. There had been some uncertainty by Mr Kaye when he gave evidence as to the exact position in so far as what was carried on in his own name and what was carried on in the name of family companies. But upon the point being perfectly properly raised, it transpired that it was not clear that Mr Kaye had a controlling interest in A & BK Textiles Ltd, and therefore that he could bring himself within Section 30(3)(b).

By this time we reached the luncheon adjournment, and I rose for lunch and allowed further enquiries to be made. When I returned after lunch, it transpired that Mr Kaye had not up to lunchtime had a controlling interest in A & BK Textiles Ltd, but that during the luncheon adjournment arrangements had been made for his wife to transfer to him 255 of the 499 out of 500 shares which she held in the company, thus giving him a controlling interest. The point that naturally arose at that point was whether this is all too late, and whether his application must necessarily fail because of that defect. For the tenant it was vigorously argued by Miss Hutt that the onus of proving the case is on the landlord and that he had failed to do so, and I should not allow him to put his house in order. On behalf of the landlord it was argued that details of the transfer of the shares could be put before the Court that afternoon, and that in the circumstances where we are talking about interests in family companies which have been set up simply for financial and taxation reasons, that some latitude should be allowed to adduce further evidence, even after the close of evidence and after speeches had been embarked on.

Having heard arguments about that, I allowed a short adjournment. I did not favour the suggestion that documents should be faxed to the court that afternoon. I took the view that since this problem had arisen, it was better that Mr Kaye should produce details of the various family companies so that we were sure that we did have the full and true picture in the light of his uncertainties earlier that morning. So I allowed a short adjournment, and evidence has now been put before the Court of the transfer of shares on 16th February, as I have already indicated, and that Mr Kaye does now have a controlling interest, and that is not disputed. What is disputed and strenuously disputed is that I should take that transfer into account, and it is urged upon me that I should decide the preliminary issue on the evidence as it stood at the close of the evidence, and that it would be wrong and unjust to allow the case to be reopened for the purposes of adducing further evidence and to fill the hole in the landlord's case."

12. It should be noted that, although the judge refers in that passage of his judgment to the company, A & B Kaye (Textiles) Limited, as the owner of the premises, there is no dispute that the landlord, for the purposes of the application before him, was Mr Kaye personally. The problem was not that the company owned the reversion to the underlease - in which case the section 25 notice would have been given by the wrong person - but that the business which Mr Kaye, as landlord, intended should be carried on there was the company's business. That gave rise to no difficulty if Mr Kaye had a controlling interest in the company, A & B (Textiles) Limited; but it gave rise to an insuperable difficulty if he did not control the company.
13. It is clear from the passage in the judgment which I have set out - and it is not in dispute - that the factual position may be summarised as follows:(a) the landlord did not have a controlling interest in the company by which he intended that the business would be carried on on the termination of the existing tenancy either (i) on 12th June 2000, when the landlord served the notice under section 25 of the Act, or (ii) on 5th October 2000, when the tenant made his application for a new tenancy, or (iii) on the morning of 16th February 2000, when the parties had completed their oral evidence; but (b) that the landlord did have a controlling interest in the company (i) by the afternoon of 16th February 2001 - that is to say, before the parties had completed their closing submissions - and (ii) on 26th March 2001 when the judge made the order which is the subject of this appeal.
14. The judge held, on 26th March 2001, that the landlord had established the ground of opposition under section 30(1) of the 1954 Act upon which he relied. In particular he held that the landlord had viable plans for the expansion of the company's business into No.11 Craven Park Road and a genuine intention to pursue those plans if and when the existing tenancy was terminated. In those circumstances the judge held that he could not make an order for the grant of a new tenancy to Mr Ambrose - see section 31(1) of the Act. The order which he made on 26th March 2001 reflects that conclusion. He declared that the landlord was entitled to possession of the premises based on section 30(1)(g) of the Act and that the tenant was entitled to statutory compensation. He granted permission to appeal.
15. The grounds of appeal, as set out in the appellant's notice filed on behalf of the tenant and amplified both in the skeleton argument prepared for the purpose of this hearing and in oral submissions, really come down to the single point that the judge out ought not to have adjourned the hearing on 16th February 2001 so as to enable the landlord to put in evidence that he had taken a transfer from his wife of a sufficient number of shares in the company to give him a controlling interest. It is accepted that, if the judge was entitled to take that course, he was correct to hold, on 26th March 2001, that the ground under section 30(1)(g) of the Act had been made out. In particular, it is accepted that he was bound to have regard to the position as it was on the date when he made his order - see Betty's Cafe Ltd v Phillips Furnishing Stores Ltd [1959] AC 20.
16. In his judgment of 26th March 2001 the judge gave reasons for his decision to allow further evidence as to the share transfer, and to adjourn for that purpose. They appear at pages 8 and 9 of the transcript:

"I accept, of course, that the onus of proving the case is on the landlord. I accept that it is for him to present his case at the hearing. I accept that it is the intention at the time of the hearing that is the relevant date for intention. I accept that, generally speaking, both in the criminal jurisdiction and in the civil jurisdiction it is not right to allow parties to adduce further evidence after the evidence has been closed.

However, I have come to the conclusion that this is one of the exceptional cases which do arise in both criminal jurisdiction and civil jurisdiction, where the justice of the case does require that further evidence be adduced, and my reasons for that are twofold. First, in the circumstances of this particular case the shareholding and setting up of the family companies is something that has been done purely within the family and for the benefit of family members. The evidence before me is that in the companies the shareholdings are all in the names of the husband and wife and in the names of trustees for the four children. They are family companies within this immediate family, and the shareholdings are no doubt determined more on accountancy advice rather than for any other particular purpose.

In those circumstances, it does seem to me that the argument in relation to subsection (3) is a rather technical one, and one without any very great intrinsic merits. It is not the sort of situation of a public company or a company with a lot of different shareholders, who might have different views about things. Here I am entitled to assume that the family's intention is really all one, and that this is something of a technical point.

My second reason is that this point has come to the fore very late in the day. It has been pointed out to me that a party in civil litigation has no duty to point out potential defects in their opponent's case, but it is a fact and a factor that up until the closing speeches in this case no point had been made in any of the documents or statements in the case indicating that this was an issue that was to be relied on. In looking at the ethos of the present Civil Procedure Rules, which favour the issues between the parties being set out in advance and for cards to be placed face downwards on the table at an early stage in the proceedings, although I do not in any way criticise the tenant or the arguments in relation to this point, which are perfectly properly taken, I think I am entitled to bear in mind that this is not an issue that was raised at an earlier stage. It may be said that it is a matter of law and not a matter of evidence, but of course it is based on evidence, in the sense of who holds what shares, and one might have expected the point to have been raised at an earlier stage.

For those two reasons, I have decided, despite my overall sympathy for Mr Ambrose's situation in this case, that by a fairly narrow margin justice does require that the evidence be adduced."

17. The more usual analogy between the ethos of the Civil Procedure Rules and games of skill or chance played with cards is that the rules now require the cards to be placed face upwards on the table, rather than face downwards as the judge suggested. Although that analogy provides a vivid illustration of the relevant concept, and may have become irretrievably entrenched in legal vocabulary, I think there are dangers in any analogy which may encourage the view that civil litigation is a game of skill and chance. Those dangers are evident in some of the submissions made to us on behalf of the appellant. But it is clear enough, I think, what the judge had in mind.
18. It is not in doubt that the judge had power to adjourn the hearing on 16th February 2001; nor that he had power to admit further evidence at the adjourned hearing on 26th March 2001. The powers are conferred by CPR 3.1(2) - see, in particular, paragraphs (b) and (m).
19. The appellant submits that, in exercising those powers, the judge erred in a number of respects, as set out in paragraph 11 of the grounds of appeal. In short, it is said that the judge was wrong in holding that the tenant was under a duty to alert the landlord to the evidential flaws in his case; was wrong in failing to have regard to the fact that the necessary evidence could with reasonable diligence have been obtained prior to the hearing on 16th February 2001; was wrong to allow the landlord to adduce further evidence after the oral evidence had been completed and closing submissions had been made; and was wrong in that he made a decision which no reasonable judge could have made.
20. The powers conferred by the Civil Procedure Rules are discretionary powers. The discretion is entrusted to the judge by whom they are to be exercised. It is, of course, not in doubt that if, when exercising those powers, the judge erred in principle; if he took into account matters which he should not have taken into account, or failed to take into account matters which he should have taken into account; or if he reached a decision which no reasonable judge could have reached - so that he can be said to have been plainly wrong - this court must treat the judge's exercise of the discretion entrusted to him as flawed, and must set it aside. In those circumstances this court may, in an appropriate case, substitute its own discretion for that of the judge.
21. Whatever may have been the practice in the past as to the adjournment of a hearing to enable a party to meet a point raised for the first time in submissions - and, for my part, I doubt whether it was ever as rigid as the appellant would have us accept - the position now has to be viewed in the light of the provisions contained in the Civil Procedure Rules. The powers conferred by those rules are to be exercised so as to give effect to the overriding objective - see CPR 1.2. The overriding objective is to deal with cases justly - see CPR 1.1. The parties are required to help the court further the overriding objective - see CPR 1.3. The court is required to further the overriding objective by actively managing cases. Active case management includes identifying the issues at an early stage - see paragraph (b) in CPR 1.4(2).
22. The problems in the present case stem, in part at least, from the requirement, then in Section A of the Practice Direction supplementing CPR Part 8, that applications under section 24 of the Landlord & Tenant Act 1954 (formerly brought under Order 97 rule 15(3) of the Rules of the Supreme Court 1965) must be brought under the Part 8 procedure. That requirement is reflected in the order of 21st November 2000 in this case, which gave directions for the trial of a preliminary issue without providing any formal method for identifying what the opposing contentions were in relation to that issue. No doubt the Deputy District Judge thought that the opposing contentions would emerge from disclosure and the exchange of witness statements. In the event, what I may describe as the Tunstall v Steigmann point - that is to say, the point that the business which the landlord intended should be carried on at the premises after the termination of the existing tenancy was not his business but the business of a company - did not emerge until the tenant's solicitor made her closing submissions.
23. The point was there to be taken from receipt by the tenant's solicitors of Mr Kaye's second witness statement, dated 12th February 2001. It was that statement which disclosed, unequivocally, that the business was that of the company; although, as I have said, an indication that that might be the case had appeared in Mr Kaye's earlier witness statement dated 31st January 2001. A search at Companies House prior to the hearing on 16th February 2001 would have disclosed that, although Mr Kaye was a director of the company, he was not a member of it. So, from the information provided by the company on its annual return, it appeared that the landlord was not a person with a controlling interest in the company. If that remained the position, it followed, necessarily, that the landlord could not rely on section 30(3) of the 1954 Act to establish the ground under paragraph (g) of section 30(1). But it also appeared, from the information provided by the company on its annual return, that Alethea Alexis Kaye, whose address was the same as that of Mr Kaye, was the holder of 499 out of the 500 issue shares; and it had been pointed out by Mr Kaye from his earlier affidavit that Alethea Alexis Kaye was his wife. It would have been obvious, therefore, that if the point were taken it could easily be overcome - prima facie, at least - by a transfer of shares from Mrs Kaye to her husband.
24. I make no assumption that the tenant's solicitors had identified the point before the hearing on 16th February 2001. Nor do I think that they can be criticised, in this case, if they had not done so. After all, the point seems to have escaped the notice of the landlord's solicitors who could more easily have identified it. But it is, I think, useful as a tool of analysis to consider what the position would have been if the tenant's solicitors had identified the point in advance of the hearing of 16th February 2001. That hypothesis provides a useful tool of analysis because the position at the hearing cannot, I think, depend on whether the point had or had not been identified in advance.
25. If the tenant's solicitors had identified the point in advance they might have decided that there was no point in taking it because it could lead nowhere. The defect could easily be remedied by the landlord. Or they might
26. have drawn it to the attention of the landlord's solicitors, with an indication that the tenant intended to contend at the hearing that the landlord was not in a position to rely on section 30(3) of the 1954 Act. If they did intend to advance such a contention they would have appreciated that, until that point had been dealt with, there was no purpose in the court going on to consider what was Mr Kaye's own intention in relation to the future use of the premises.
27. But, if the tenant's solicitors had done that, there was the obvious possibility that the point would be met by a transfer in advance of the hearing, so depriving the tenant of the opportunity to take it. Or the tenant's solicitors might have taken the deliberate decision not to draw the point to the attention of the landlord's solicitors in the hope that the landlord's solicitors would not see the point in time to meet it before the hearing. The latter course could have no sensible purpose unless the court would be obliged, or could be relied upon, to refuse the landlord an adjournment in the course of the hearing.
28. It was submitted on behalf of the tenant that, whatever may have been the actual state of knowledge of the tenant's solicitors before the hearing, they were entitled - indeed, it is said, required in the interests of their client - to adopt the latter course. They were entitled to decide not to draw the point to the attention of the landlord's solicitors with the object of taking it at the hearing in circumstances in which it was too late for the landlord to meet it by a transfer of shares. Further, it is said that the court should have recognised that by refusing an adjournment. To grant an adjournment, it is said, was to deprive the tenant of the advantage to which he was entitled.
29. I would be sorry if that were the position under the Civil Procedure Rules. If it were, the courts could, I think, be criticised for treating civil litigation as though it were indeed a game of skill and chance. The courts could be criticised for losing sight of the overriding objective, which is to deal with cases justly.
30. I find it impossible to reconcile the course which, on the basis of the appellant's contentions, it is said that the court should have adopted in this case with the overriding objective. It is said that the court should have told the landlord on 16th February 2001 that, although it recognised that the point was one which could easily be met by a share transfer from his wife - and, indeed, had been met by the execution of such a transfer during the luncheon adjournment on that day - the law required the judge to hold that it was too late for that to be done, indeed, that the law required him to refuse to take into account what had, in fact, been done. The landlord must look to his solicitors for a remedy. Had the court taken that course I cannot believe that the landlord would have left the court with the feeling that his case had been dealt with justly. Nor do I think that anyone else in the court would have thought that his case had been dealt with justly. It is obvious that that would not have been a just result in this case. Nor would it have been a result which is compatible with the overriding objective to which I have referred.
31. The parties are required to assist the court to further this overriding objective by identifying the issues at an early stage. If the section 30(3) point was a good point and not capable of remedy, then it needed to be identified at an early stage because the hearing as to the landlord's intention to develop would then have been shorter and less expensive than it was. It would have been unnecessary for the court to go into the question whether the company had a viable business plan and what prospects there were of actually carrying the intention into effect. The company's plans and intentions would have been irrelevant. If the point was a good point, it should have been taken in advance of the hearing; if it was not a point to be taken - because it could be easily remedied - then, if the tenant required it to be remedied in a case like the present, the landlord should have had the opportunity to do that. If the landlord had been given the opportunity and had not taken it, of course the position would have been quite different.
32. The appellant submits that, although that may seem to be a sensible and just approach in most cases, the scheme under the Landlord & Tenant Act 1954 - and in particular under paragraphs (f) and (g) of section 30(3) of that Act - requires a different result. Indeed, the submission goes further. It is linked to a more general submission that the law of landlord and tenant is, as counsel described it, such a technical minefield that parties who venture into that minefield must not be surprised or aggrieved if they lose a foot or other limb though lack of skill or experience.
33. I reject that submission. I can see no reason for any difference between the landlord and tenant cases and other cases in relation to the application of the Civil Procedure Rules. There will obviously be landlord and tenant cases in which statute, or a contractual provision in a lease, require a step to be taken by a particular date. Nothing in this judgment is intended to suggest that either party is required to point out to the other that the date is imminent and that adverse consequences will flow if the requirement is not met. But this is not a case where there has been a failure to serve an effective notice in time. This is a case in which the parties have complied with the requirements under the statute as to notices and have submitted the issue between them to the decision of the court as the statute requires. The court is required to act in accordance with the general law; and that includes the provisions of the Civil Procedure Rules.
34. It is said on behalf of the landlord that the effect of the provisions section 30(1) (f) and (g) of the 1954 Act - read in the light of the House of Lords' judgment in Betty's Cafe's Ltd v Phillps Furnishings Stores Ltd - is that nothing is certain until the date of the hearing. The landlord has only to establish the relevant intention under those paragraphs at the date of the hearing, and the tenant can wait to see whether he does so. If the landlord does not bring forward the evidence that he needs at the date of the hearing the tenant is entitled to take advantage of the landlord's failure to do so. But, again, that does not describe the position in this case. The position in this case is that the tenant wished to take a point of law - namely the point identified in Tunstall v Steigmann - in opposition to the landlord's attempt to establish ground (g). If the tenant wished to take that point then, in my view, he was required to identify it, if possible in advance of the hearing, so that the court could deal with the matter in an appropriate way; if necessary, by directing a preliminary hearing to address that point of law.
35. For the reasons that I have sought to give I take the view that the judge's exercise of his discretion on 16th February 2001 and, the subsequent order which he made on 26th March 2001, cannot be criticised. I would dismiss this appeal.
36. SIR MURRAY STUART-SMITH: I agree.
(Appeal dismissed; appellant to pay respondent's costs of the appeal; costs summarily assessed at £4,500 including VAT; permission to appeal to the House of Lords refused).