Drummond v Austin Brown
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE FOX |
| Judgment Date | 06 April 1984 |
| Judgment citation (vLex) | [1984] EWCA Civ J0406-2 |
| Docket Number | 84/0145 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 April 1984 |
[1984] EWCA Civ J0406-2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (REVENUE LIST)
(MR. JUSTICE WALTON)
Royal Courts of Justice.
The Master of the Rolls
(Sir John Donaldson) (Not Present)
Lord Justice Fox and
Lord Justice Stephen Brown
84/0145
MR. JOHN KNOX, Q.C. and MR. ROBERT CARNWATH (instructed by the Solicitor of Inland Revenue) appeared on behalf of the Appellant.
MR. PETER MILLETT, Q.C. and MR. DAVID MILNE (instructed by Messrs. Hunters) appeared on behalf of the Respondent.
This is the judgment of the court.
In this case the Inland Revenue claim that compensation payable to an outgoing tenant of business premises under section 37 of the Landlord and Tenant Act 1954 is assessable to capital gains tax.
In 1959 the respondent, Mr. Austin Brown, was practising as a solicitor in London, in partnership with Mr. A.G. Clerk, under the name of Murray Hutchins & Co. On the 31st August, 1959 the Union of London & Smith's Bank Ltd. granted to Mr. Austin Brown and Mr. Clerk as joint tenants a lease of a suite of rooms on the first floor of 49/50 Cornhill, London, for 14 years from the 29th September, 1959; and on the 24th October, 1960 the Union of London & Smith's Bank Ltd. granted to Mr. Austin Brown and Mr. Clerk as joint tenants a lease of rooms on the second and third floors of the same building for 14 years from the 29th September, 1959.
Mr. Clerk died in 1968. On the 30th January, 1973 the National Westminster Bank, which had acquired the reversions immediately expectant on the leases, granted to Mr. Austin Brown a further lease of the same premises for two years from the 29th September, 1973; and on the 27th January, 1975 the National Westminster Bank granted to Mr. Austin Brown a further lease of the same premises for 15 months from the 29th September, 1974 to the 25th December, 1976. No further leases were granted after the 26th December, 1976 but Mr. Austin Brown continued to occupy the premises.
In September 1977 the National Westminster Bank served on Mr. Austin Brown a notice under section 25 of the Landlord and Tenant Act 1954 terminating the tenancy as from the 1st April, 1978. The notice stated that National Westminster would oppose an application to the court for a new tenancy of the premises under Part II of the Landlord and Tenant Act 1954 on the ground that it intended to occupy the premises for its own business.
Mr. Austin Brown did not challenge the National Westminster's assertion that it required the premises for the purposes of its own business and, therefore, he had no grounds for contesting the notice. He had no choice but to give up possession.
Accordingly, Mr. Austin Brown gave up possession of the premises on the 31st March or the 1st April, 1978 and, on the same day, he received from National Westminster £31,384 in respect of his right to compensation under the Landlord and Tenant Act 1954.
The material provisions of the Landlord and Tenant Act 1954 are as follows:
Section 23(1)
Part II of the Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes.
Section 24(1)
A tenancy to which Part II of the Act applies shall not come to an end unless terminated in accordance with the provisions of the Act; and the tenant may apply for a new tenancy if
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(a) the landlord has given notice under the Act to terminate the tenancy, or
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(b) the tenant has made a request under the Act for a new tenancy.
Section 29(1)
On an application for a new tenancy and subject to sections 30 and 31 "the court shall make an order for the grant of a tenancy comprising such property at such rent and on such terms" as are provided by the Act.
Section 30
This sets out the grounds upon which the landlord may oppose the application for a new tenancy. These are broadly as follows:
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(a), (b) and (c) are disrepair of premises, rent unpaid and substantial breaches of covenant by the tenant respectively;
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(d) the landlord has offered and can provide suitable alternative accommodation;
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(e) premises are part of larger premises which the landlord could let at a higher rent as a whole;
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(f) demolition or reconstruction;
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(g) that 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."
It was because ground (g) was applicable that Mr. Austin Brown accepted that he must vacate the premises.
Section 31(1)
This forbids the grant of a new tenancy by the court if the tenant establishes any of the grounds on which he is entitled to oppose the application under section 30.
Section 37
This deals with compensation and, so far as material, in relation to the relevant date in this case, provides as follows:
"(1) Where on the making of an application under section 24 of this Act the court is precluded…from making an order for the grant of a new tenancy by reason of any of the grounds specified in paragraphs (e), (f) and (g) of subsection (1) of section 30 of this Act…or where no other ground is specified in the landlord's notice under section 25 of this Act…and either no application under the said section is made or such application is withdrawn, then, subject to the provisions of this Act, the tenant shall be entitled on quitting the holding to recover from the landlord by way of compensation an amount determined in accordance with the following provisions of this section.
(2) The said amount shall be as follows, that is to say—
(a) where the conditions specified in the next following subsection are satisfied it shall be twice the rateable value of the holding;
(b) in any other case it shall be the rateable value of the holding.
(3) The said conditions are—
(a) that, during the whole of the fourteen years immediately preceding the termination of the current tenancy, premises being or comprised in the holding have been occupied for the purposes of a business carried on by the occupier or for those and other purposes;
(b) that, if during those fourteen years there was a change in the occupier of the premises, the person who was the occupier immediately after the change was the successor to the business carried on by the person who was the occupier immediately before the change."
The sum of £31,384 paid to Mr. Austin Brown by the National Westminster was twice the rateable value of the premises and was the sum payable pursuant to section 37(2) (a).
Mr. Austin Brown was assessed to capital gains tax on the £31,384. He appealed to the special commissioners who allowed the appeal. The Revenue's appeal to the High Court was dismissed by Mr. Justice Walton, and from that decision the Revenue now appeal.
The matter is governed by the Finance Act 1965. Section 22(1) provides that "All forms of property shall be assets for the purposes of this Part of this Act…" Section 22(3) is as follows:
"(3) Subject to subsection (6) of this section, and to the exceptions in this Part of this Act, there is for the purposes of this Part of this Act a disposal of assets by their owner where any capital sum is derived from assets notwithstanding that no asset is acquired by the person paying the capital sum, and this subsection applies in particular to—
(a) capital sums received by way of compensation for any kind of damage or injury to assets or for the loss, destruction or dissipation of assets or for...
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