Ashworth Frazer Ltd v Gloucester City Council
| Jurisdiction | UK Non-devolved |
| Judge | LORD BINGHAM OF CORNHILL,LORD BROWNE-WILKINSON,LORD HOFFMANN,LORD SCOTT OF FOSCOTE,LORD RODGER OF EARLSFERRY |
| Judgment Date | 08 November 2001 |
| Neutral Citation | [2001] UKHL 59 |
| Date | 08 November 2001 |
| Court | House of Lords |
[2001] UKHL 59
Lord Bingham of Cornhill
Lord Browne-Wilkinson
Lord Hoffmann
Lord Scott of Foscote
Lord Rodger of Earlsferry
HOUSE OF LORDS
My Lords,
There are before the House an appeal by the Gloucester City Council ("the landlord") and a cross-appeal by Ashworth Frazer Limited ("the tenant"). On the issues arising in both the appeal and the cross-appeal I am in complete agreement with the opinion of my noble and learned friend Lord Rodger of Earlsferry, whose account of the facts and background I gratefully adopt.
The landlord's appeal
The combined effect of clause 2(viii) of the lease and section 1 of the Landlord and Tenant Act 1988 is in my opinion clear. The tenant covenants not to assign the demised land or any part thereof (other than to a subsidiary of the tenant). But the covenant is not absolute. The tenant may assign with the previous consent in writing of the landlord. The landlord's consent is not to be unreasonably withheld in the case of a respectable and responsible assignee being proposed. Where the tenant makes written application for consent the landlord owes the tenant a duty within a reasonable time to give consent, or give consent subject to notified conditions, or refuse consent for notified reasons. If the reasonableness of any condition imposed by the landlord or the reasonableness of the landlord's withholding of consent is questioned, the landlord must show that the condition or the withholding was reasonable.
When a difference is to be resolved between landlord and tenant following the imposition of a condition (an event which need not be separately considered) or a withholding of consent, effect must be given to three overriding principles. The first, as expressed by Balcombe LJ in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 at 520 is that
"a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease."
The same principle was earlier expressed by Sargant LJ in Houlder Brothers & Co Ltd v Gibbs [1925] Ch 575 at 587:
"in a case of this kind the reason must be something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant, and … it must not be something wholly extraneous and completely dissociated from the subject matter of the contract."
While difficult borderline questions are bound to arise, the principle to be applied is clear.
Secondly, in any case where the requirements of the first principle are met, the question whether the landlord's conduct was reasonable or unreasonable will be one of fact to be decided by the tribunal of fact. There are many reported cases. In some the landlord's withholding of consent has been held to be reasonable (as, for example, in Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547 and Bickel v Duke of Westminster [1977] QB 517), in others unreasonable (as, for example, in Bates v Donaldson [1896] 2 QB 241, Houlder Brothers, above, and International Drilling, above). These cases are of illustrative value. But in each the decision rested on the facts of the particular case and care must be taken not to elevate a decision made on the facts of a particular case into a principle of law. The correct approach was very clearly laid down by Lord Denning MR in Bickel v Duke of Westminster, above, at p 524.
Thirdly, the landlord's obligation is to show that his conduct was reasonable, not that it was right or justifiable. As Danckwerts LJ held in Pimms Ltd v Tallow Chandlers Company, above, at p 564:
"it is not necessary for the landlords to prove that the conclusions which led them to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances."
Subject always to the first principle outlined above, I would respectfully endorse the observation of Viscount Dunedin in Viscount Tredegar v Harwood [1929] AC 72 at 78 that one "should read reasonableness in the general sense". There are few expressions more routinely used by British lawyers than "reasonable", and the expression should be given a broad, common sense meaning in this context as in others.
The Court of Appeal held itself to be precluded by Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658 from holding on the facts of this case that the belief of the landlord, however reasonable, that the proposed assignee intended to use the demised premises for a purpose which would give rise to a breach of the user covenant was of itself a ground for withholding consent to assignment: see (1999) 80 P & CR 11 at 23, per Chadwick LJ. Lord Rodger has fully analysed that decision. I would myself criticise it on three grounds. First, it purported to treat as a question of law what was in truth a question of fact. Secondly, in holding that the landlord's withholding of consent was unreasonable because the outcome which he wished to avoid was not a necessary consequence of the assignment (which was, it seems clear, based on the landlord's contention: see pp 660, 661) the court accepted much too high a test. A reasonable landlord may seek to avoid not only an undesirable outcome which must occur but also one which he reasonably fears may well occur, not least where that involves the prospect of unwelcome litigation. Thirdly, the decision as expressed gave quite inadequate weight to the user covenant in a lease. The lease is, after all, the contract between landlord and tenant, a contract with special characteristics and subject to special rules but a contract all the same. It records what the parties respectively agree to do and not to do. Unless a term is discharged or consensually varied or revoked, a party is ordinarily bound by what he has agreed, even if (with the benefit of hindsight) he regrets his bargain. The contract is, as civil lawyers put it, the law between the parties, and it would rarely be right to hold that a landlord was unreasonable in withholding consent to an assignment which in his reasonable judgment would or might well lead to a breach of covenant. Killick should no longer be treated as authoritative.
The reasoning of the deputy judge was in my view correct on this issue. The Court of Appeal's decision was vitiated by its reliance on Killick. I would restore the decision of the judge.
The tenant's cross-appeal
The tenant's cross-appeal turns on a short question of construction: are the words "for uses within Use Classes III IV or X of the Town and Country (Use Classes) Order 1963" in clause 2(iii)(a) of the lease to be understood as restricting the uses to which the building development described by the clause might be put? On this question I have the misfortune to disagree with the majority of the House but the consolation of agreeing with the deputy judge, both members of the Court of Appeal and my noble and learned friend Lord Rodger.
By clause 2(iii)(a) the tenant covenants to commence and complete a building development. Such building development must among other things be "in conformity with all licences permissions and consents required by bye-laws regulations planning provisions orders and statutes and in conformity with detailed plans elevations sections and specifications as shall previously be approved by the City Architect." Since the landlord is the local planning authority, it thus has full control over the physical design, size, appearance, layout and location of the development. The use classes in the 1963 order do not describe buildings. They describe uses. There can have been no conceivable purpose in making reference to those use classes other than for the purpose of restricting the permitted user to those classes, expressed as they are in terms which will be as readily intelligible at the end of the lease as at the beginning. It is idle to speculate what use might be made of buildings other than those comprised in the development to which clause 2 (iii)(a) applies in the absence of evidence to suggest that the site will accommodate any significant buildings once the building development described in clause 2(iii)(a) has been completed. The inclusion and terms of clause 2(vi) have been fully explained by the landlord's earlier grant of leases to tenants carrying on the miscellaneous activities there specified and its desire to protect those tenants against competition. Clause 2(xiii) does not in my opinion throw light on the construction of clause 2(iii)(a). If the reference to the use classes in clause 2(iii)(a) does not apply to the user of the building development it is entirely otiose.
I would for my part dismiss the tenant's cross-appeal.
My Lords,
For the reasons given in the speeches to be delivered by my noble and learned friends, Lord Hoffmann and Lord Scott of Foscote that the cross-appeal should be allowed.
As to the appeal, I agree with the speeches of all your Lordships that if, contrary to my view, clause 2(iii)(a) of the lease contains a restriction on user, the city council would not necessarily have acted unreasonably in refusing their consent to a proposed assignment on the grounds that the assignee proposed to commit a breach of such restriction.
My Lords,
There are two issues in this appeal. The first is whether the use of the premises for metal recycling would be a breach of covenant. The second question is whether a refusal of consent on that ground would be unreasonable.
Since the first question turns entirely upon the construction of the...
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