Michaels and Another v Harley House (Marylebone) Ltd
| Jurisdiction | England & Wales |
| Judge | Robert Walker LJ |
| Judgment Date | 06 November 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J1106-25 |
| Docket Number | Case No: CHANF 97/0471/CMS3 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 November 1998 |
[1998] EWCA Civ J1106-25
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
MR JUSTICE LLOYD
Royal Courts of Justice
Lord Justice Hirst
Lord Justice Ward
Lord Justice Robert Walker
Case No: CHANF 97/0471/CMS3
John Mowbray QC, and Edward Cousins (instructed by Messrs Merriman White for the appellant)
Kim Lewison QC and Anthony Tanney (instructed by Messrs Titmuss Sainer Dechert for the defendants)
Introductory
This is an appeal from an order of Lloyd J made on 3 March 1997 dismissing the plaintiffs' claims for relief under Part I of the Landlord and Tenant Act 1987 ("the 1987 Act"). The appellants, the plaintiffs below, are Mr & Mrs Michaels, the tenants of Flat 11, Harley House, 28—32 Marylebone Road, London, NW1. The respondent is a company originally named Jaguar Properties Ltd but now named Harley House (Marylebone) Limited ("the company"). The company is now a subsidiary of Frogmore Estates plc ("Frogmore") which was originally the first defendant to the originating summons, the company being the second defendant. But Frogmore has ceased to be a party to the proceedings.
Part I of the 1987 Act operates, as its long title indicates,
"to confer on tenants of flats rights with respect to the acquisition by them of their landlord's reversion".
I hardly need add that the classes of tenants on whom those rights are conferred, the occasions on which the rights are exercisable, and the various procedural requirements, have been spelled out by Parliament in great detail. The 1987 Act has been fully analysed by this court in Mainwaring v Trustees of Henry Smith's Charity 1998 QB 1 and I shall have to refer to several of the detailed provisions. But by way of introduction I can identify s.5 as the key provision which requires a landlord of premises to which the 1987 Act applies, if he is proposing to make a relevant disposal affecting the premises, to give notice to qualifying tenants offering them first refusal. The Act does not apply to a block of flats unless (s. 1(2)(c)) at least half the flats are held by qualifying tenants as defined in s.3. Section 4 defines "relevant disposal" by a wide initial provision (s. 4(1)) subject to numerous exceptions, including (s. 4(2)(l))
"where the landlord is a body corporate, a disposal to an associated company".
Sections 11 and 12 give qualifying tenants rights against the new landlord if a disposal has been made by the former landlord in contravention of his statutory obligations. Section 19 contains procedural provisions relating to applications to the court.
The 1987 Act, as originally enacted, did not impose any direct sanction for a landlord's breach of his statutory duty under s.5. That gap has been closed as part of the extensive amendments to the 1987 Act made by the Housing Act 1996, but not so as to affect the outcome of this case.
The issues
There were five issues (of varying complexity) before the Judge and all five are raised on this appeal either by the notice of appeal or by the respondent's notice. They are as follows :
(1) Was the disposal of the freehold of Harley House to the company a relevant disposal, that issue (which was, as the Judge said, the fundamental issue) depending on whether the company was at the relevant time an associated company of a company called Taylor Woodrow Property Co Ltd ("TWP") ?
(2) Was a notice given on 24 May 1993 by solicitors acting on behalf of qualifying tenants a valid notice under s.11 of the 1987 Act (that point depending essentially on a question of fact arising on s.1(2)(c)) ?
(3) Did the company fail (in a letter dated 26 May 1993) to comply adequately with the notice ?
(4) Were the appellants entitled to relief despite the respondent's contention that they were estopped?
(5) Did the appellants (or can they now) comply adequately with the requirements of s. 19 ?
The appellants must succeed on all these issues if they are to obtain relief of practical utility to them. The Judge resolved almost all the issues against them, although his view on issues (3) and (5) was inconclusive and qualified in a manner which I need not go into for the moment.
The transactions carried out in 1993
In order to explain how those issues have arisen I must summarise the salient facts. I can do so fairly briefly, taking them gratefully from the Judge's careful reserved judgment, to which reference may be made for further detail. Although the proceedings were commenced by originating summons, points of claim and defence were ordered, witness statements were exchanged, and the Judge heard some cross-examination of witnesses. But except on one point (which really turns on the weight to be attached to documentary evidence) no challenge is made to any of the Judge's findings of primary fact.
Harley House is a large block of flats in central London. From 1965 until 1993 the registered freehold proprietor was TWP, a company in the Taylor Woodrow group. But by the end of 1992 TWP had agreed to sell the freehold to another company which was undoubtedly TWP's subsidiary (on any definition of that term), namely Taylor Woodrow Development Ltd ("TWD"). The purchase price (apparently about £1m) was paid and TWP became beneficial owner, but TWP remained registered proprietor and so was in the position of a nominee for TWD.
I have already set out s. 4(2)(l) of the 1987 Act, which makes an exception for a disposal to an associated company. That expression is defined (in s. 20(1)) by reference to s. 736 of the Companies Act 1985 which, when the 1987 Act came into force, referred (in subs. (4)) to "any shares held or power exercisable by the other [company] in a fiduciary capacity"). The definition in the Companies Act 1985 was amended by the Companies Act 1989 to meet the requirements of the Seventh Company Law Directive, and the corresponding provision in the new s. 736A(5) provides in apparently simple (but perhaps deceptively simple) terms,
"Rights held by a person in a fiduciary capacity shall be treated as not held by him".
It is common ground that it is the new definition that must be read into the 1987 Act for the purpose of applying s. 4(2)(l) to the facts of this case.
It is also common ground that persons within the Taylor Woodrow group and the Frogmore group and their respective legal advisers set about producing a scheme under which they could achieve the commercial substance of a sale of the freehold of Harley House while in form and in law (as they hoped) avoiding triggering any relevant disposal for the purposes of the 1987 Act. That was to be achieved by selling, not Harley House itself, but all the shares in a specially-formed company—that is, the company—which would first have become owner of Harley House. There was nothing illegal about the scheme, whatever the tenants may have thought about its ingenuity, and it is entitled to a fair, if not particularly benevolent, consideration by the court (see Lord Wilberforce in IRC v Plummer 1980 AC 896, 907).
The scheme had basically three elements. I refer to them as elements rather than steps because what happened was not a simple sequence of discrete steps, one after the other. The elements were interdependent and overlapping. Nevertheless it is possible to discern three basic elements.
(1) TWD formed the company (it was actually incorporated on 12 October 1992) with an issued share capital of £2 and agreed to sell the freehold to the company for £15.75m. The company's obvious inability to pay that price was made good by TWD's agreeing to lend £15.75m to the company on the terms of loan notes. This was agreed by a contract dated 26 February 1993 together with a side letter dated the previous day. Completion of the sale was to be on 25 March 1993.
(2) TWD agreed with Frogmore (by another contract also dated 26 February 1993) to sell to Frogmore for £15,750,002 the issued shares in the company and the loan notes representing TWD's right to receive £15.75m from the company. Completion was to be on 25 March 1993. The contract was expressed to be conditional on completion of the property sale. The sense in which the share sale was conditional, and the implications of that, are an important issue in this case.
(3) The share sale agreement provided that Frogmore could if it thought fit satisfy any part of the consideration due from it to TWD by allotment to TWD of new shares in itself (Frogmore). These were to be sold on behalf of TWD by S.G.Warburg Securities Ltd ("Warburg"). That could not happen unless and until the new shares had been admitted to official listing by the Stock Exchange. In the event just over £10m of the consideration was satisfied in that way.
On 23 March the parties' solicitors confirmed the placing arrangements with Warburg. On 24 March the two firms of solicitors held what was called a "pre-completion" meeting at which a number of documents were executed in escrow and a so-called "escrow memorandum" was signed. The most important documents signed in escrow were (i) the loan note documentation (ii) the Land Registry transfer of the freehold from TWP to the company, in which TWD joined to acknowledge receipt of the consideration; (iii) a deed of indemnity by the company in favour of TWD, primarily in respect of liability under landlord's covenants: and (iv) transfers by TWD to Frogmore of its shares in the company and the loan notes. The escrow memorandum set out in detail what was to happen on that day and on the following day, Thursday 25 March 1993. I will set out the whole memorandum (except for an introductory paragraph).
"On Wednesday 24th March 1993, or such...
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