Ashburn Anstalt (Plaintiff/Appellant) v Walter John Arnold and Another

JurisdictionEngland & Wales
Judgment Date27 October 1987
Judgment citation (vLex)[1987] EWCA Civ J1027-1
CourtCourt of Appeal (Civil Division)
Docket Number87/1036
Date27 October 1987

[1987] EWCA Civ J1027-1





(MR EVANS-LOMBE, Q.C. Sitting as a Deputy High Court Judge)

Royal Courts of Justice,


Lord Justice Fox

Lord Justice Neill

Lord Justice Bingham


1986 A. No. 4387

Ashburn Anstalt
Walter John Arnold & Anor

MR WILLIAM GOODHART. Q.C. and MR P. COWELL (instructed by Messrs. Fox & Gibbons) appeared on behalf of the Appellant.

MR ROBERT PRYOR, Q.C. and MISS ERICA FOGGIN (instructed by Messrs. Pritchard Englefield & Tobin) appeared on behalf of the Respondents.


This is an appeal by the plaintiffs from a decision of Mr E.C. Evans-Lombe, Q.C., sitting as a Deputy Judge of the Chancery Division. The account of the facts which we set out below follows that in the judgment; we set it out here for convenience of reference.


The case is concerned with premises known as numbers 122, 124 and 126 Gloucester Road in Kensington. Nos. 122 and 126 are ground floor shops with basements underneath. Between nos. 122 and 127 there is a doorway giving access from the street and leading to a staircase to the first or higher floors above nos. 122 and 126. Those floors (i.e. those above nos. 122 and 126) comprise the premises known as No. 124 Gloucester Road.


Nos. 122, 124 and 126 were demised by a lease of 31st December 1945 ("the Headlease") to one Rogers for a term of 52 1/2years. That demise was registered at H.M. Land Registry under Title No. 51519.


On 11th July 1969 the Headlease was transferred to the first defendant, Walter John Arnold ("Mr Arnold"). At some time thereafter on a date which was not given in evidence, the second defendant ("Arnold and Co.") entered into possession of No. 126 and part of No. 124 (to which we will refer as "the premises") under what the Judge described as an informal sub-lease from Mr Arnold (the only established provision of which was that the term was to expire on 29th September 1973). We refer to this as "the sublease".


Early in 1973 Cavendish Land Co. Limited ("Cavendish") acquired the freehold reversion expectant upon the Headlease together with other adjacent land.


On 28th February 1973 Mr Arnold entered into an agreement with Matlodge Limited ("Matlodge") for the sale of the Headlease for £205,000. On the same date Arnold and Co. entered into an agreement with Matlodge for the sale of the sublease.


By Clause 5 of the Agreement between Arnold and Co. and Matlodge it was provided as follows:


"From and after completion Arnold shall be at liberty to remain at the property as Licensee and to trade therefrom until 29th September 1973 without payment of rent or any other fee to Matlodge save that Arnold shall pay all outgoings so long as it is in occupation of the property. From and after 29th September 1973 Arnold shall be entitled as Licensee to remain at the property and trade therefrom on the like terms save that it can be required by Matlodge Limited to give possession on not less than one quarter's notice in writing upon Matlodge certifying that it is ready at the expiration of such notice forth with to proceed with the development of the property and the neighbouring property involving inter alia the demolition of the property".


By Clause 6 of the Agreement it was provided:


"Matlodge hereby warrant that it intends either itself or its successor in title to redevelop the property and the neighbouring property by the erection inter alia of shops and hereby undertakes that in consideration of the disturbance to be suffered by Arnold it or its successor in title will grant to Arnold on completion of the development a lease of a shop in a prime position at the development with an area available for trading of approximately 1000 square feet and with carparking facilities within development for a term of twenty-one years and the rent in respect of such lease shall for the first seven years be 25 per cent. less than the market rent and thereafter shall be at the market rent subject only to the rent being reviewed to the then market rent at the expiration of the seventh and fourteenth years from the date of its grant Arnold shall within fifty-six days of being offered the grant of such lease elect in writing to Matlodge or its successor whether or not it will take up the lease and if it shall not so elect or if it shall elect not to take up the lease then the provisions of this clause shall lapse. In the event of Arnold taking up the lease then the lease shall be capable of assignment for seven years from the commencement of the term except at the full market rent. The market rent shall be such rent as may be agreed between the parties in accordance with the criteria laid down in the Landlord and Tenant Act 1954 (as amended) and in the event of the parties failing to agree such market rent then either party may upon giving notice to the other have the question of the market rent determined by a Chartered Surveyor acting as an expert and not as an arbitrator and to be appointed on the application of either party by the President for the time being of the Royal Institution of Chartered Surveyors whose decision shall be final and binding on the parties and whose fees shall be borne as directed by such expert. This provision for fixing the market rent shall apply to the initial market rent and to the market rent at the seventh and fourteenth years".


On 28th February 1973 the benefit of the two Agreements of that date to which we have referred was assigned by Matlodge to Cavendish.


It was common ground, at any rate for the purposes of these proceedings, that by an Agreement of 26th March 1973 (only a draft of which was before the Court) the provisions of Clauses 5 and 6, which we have set out, were novated between Cavendish and Arnold and Co. It was also common ground that the effect of the assignment of the benefit of the two Agreements of 28th February 1973 to Cavendish was that the Headlease and the sublease merged in the freehold.


In October 1979, in circumstances and pursuant to arrangements of which there was no evidence before the Court, Cavendish transferred the freehold to the Legal and General Assurance Society ("Legal and General"). This, the Judge supposed, was the consequence of the acquisition of Cavendish by Legal and General.


On 17th January 1985 Messrs. Pritchard Englefield (the solicitors for the defendants) wrote to Messrs. Slaughter & May (the solicitors to Legal and General) as follows:


"You are probably aware that our clients have certain rights under their Agreement dated the 28th February 1973 made with Matlodge Limited under which inter alia they will be entitled on completion of the development to 'a Lease of a shop in a prime position at the development with an area available for trading of approximately 1,000 sq.ft. and with car parking facilities within the development for a term of 21 years and the rent in respect of such Lease shall for the first 7 years be 25% less than the market rent and thereafter shall be at the market rent subject only to the rent being reviewed to the then market rent at the expiration of the seventh and fourteenth years from the grant of the Lease…'


"Our clients are entitled to full details where the shop will he and that it is in a prime position and we shall be pleased to hear from you with the details or alternatively referring us to the Department of your clients who can deal with the matter".


On 7th February 1985 Legal & General wrote to Messrs. Pritchard Englefield as follows:


"We are aware of the Agreement dated 28th February 1973 and we will, of course, be in touch with you and your clients regarding our plans for the site in due course".


In an agreement of 9th August 1985, Legal & General agreed to sell the freehold to the plaintiffs, Ashburn Anstalt, which is a company registered in Lichtenstein. Clause 6 of that Agreement provided:


"The Vendor sells with vacant possession except where such is subject to those matters revealed in the Second Schedule hereto".


Clause 7 of that Agreement provides:


"Unless otherwise stipulated in this contract the property is sold subject to and (as the case may be with the benefit of):


…. (d) The provisions of Clause 6 of the Agreement numbered 9 in the Second Schedule so far as the same are enforceable against the Vendor".


The Agreement numbered 9 is the Agreement between Arnold and Co. and Matlodge dated 28th February 1973, and is described as "Agreement determinable on a quarter's notice—no rent".


On 11th October 1985, Legal & General wrote to Mr Arnold as follows:


"Re 126 Gloucester Road, London, S.W.7. W.N. Arnold, Esq. We have today sold our interest in the property to Ashburn Anstalt and hereby authorise and request you to pay all future rent to Messrs. Fox & Gibbons, 2 Old Burlington Street, London, W1X 20A, or to whom they may direct".


No rent was in fact payable by the defendants in respect of the occupation of the premises.


On the same day as that letter (11th October 1985) the freehold was transferred from Legal & General to the plaintiffs (Ashburn Anstalt). Subsequently, on 21st October 1985, Messrs. Fzox & Gibbons wrote to Mr Arnold as follows:


"Dear Sir,






As you may be aware, our client purchased, on 11th October, the property of which the premises that you occupy form part.


We understand that you are in occupation of premises at 126 Gloucester Road under some kind of arrangement with Legal & General Assurance Society Limited under which no rent...

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