Regent Oil Company Ltd v J. A. Gregory (Hatch End) Ltd

I have asked Lord Justice Harman to deliver the first judgment.

The history of this matter starts with a lease of the 15th May 1956 whereby the property in question, being a garage known as Nos.377 and 379, Uxbridge Road, was let by the freeholder to a company called Cornwall Garage (Hatch End 1946) Limited for a term of twenty-one years from March 1956.

In September 1956, Cornwall (as I shall call them) borrowed a sum of £4,000 from the plaintiffs and entered into a document under seal, described outside as a sales charge and inside as a legal charge, whereby Cornwall promised to repay the capital sum without interest by twenty instalments of £200 half-yearly, and agreed not to repay at any other rate.By clause 4, Cornwall charged the property by way of legal mortgage with payment of the principal money covenanted to be paid by instalments at the times and in manner thereby provided. By clause 1, Cornwall entered into various covenants, and in particular at all times during the continuance of the security to carry on a garage and petrol filling station on the property, and at all times to supply the company's brands of motor fuel and lubricating oil and no others. Further, not to sell or advertise any other brand of petrol or oil, but to permit the plaintiffs to maintain their globes on the petrol pumps. These covenants are set out at length in the learned' judge's judgment, and I shall not further repeat them. The plaintiffs further covenanted with Cornwall to pay six monthly during the continuance of the security an allowance not exceeding £200 as there described. By clause 6 of the document Cornwall attorned tenant to the plaintiffs of such part of the property as should be its occupation "at the yearly rent of a peppercorn if demanded" with a proviso that the plaintiffs might at any time after the power of sale had become exerciseable reenter the property after giving seven days notice to quit.

This is a peculiar document. No Interest is charged on the £4,000 lent, nor if things go normally will capital over be repayable as it will disappear in the course of ten years by the instalments of £200, each of which will be repaid by set-off against the so-called allowances. It is a fair inference from it that the object of the plaintiffs is to find an outlet for their products rather than a security for their money. Nevertheless, it does contain in normal terms a charge by way of legal mortgage on the property within the meaning of section 87 of the Law of Property Act 1925.

In the year 1961 Cornwall surrendered the 1956 lease and took a new lease of the same promises with some additions for a term of twenty-one years from 1960, and by a document (styled a deed of substitution) of the same date charged the new lease to the Plaintiffs, the whole of the terms of the original charge being transferred.

On the 10th May 1962 Cornwall assigned the lease to the defendants under their then name of Enterprising Garages Limited. No mention was made in the document of assignment of the legal charge, but the assignment was, of course, made subject to it, and this is alleged in paragraph 9 of the statement of claim in these terms: "The term of years became vested in the defendants subject to the principal and other moneys due to the plaintiffs under the mortgage and the covenants and conditions therein contained", and this allegation is admitted in the defence.

Until February 1964, matters wont smoothly. The defendants continued to take their supplies exclusively from the plaintiffs, and £200 was knocked off the mortgage each half year. By February 1964 the amount remaining due was £1,000. At this juncture the defendants declined further to accept the plaintiffs as suppliers, and claimed to be free of the covenants so to do; hence this action.

The learned judge has held the covenants binding on the defendants and has granted injunctions accordingly, and the defendants appeal.

There is no question but that the defendants took an assignment of the lease with notice of the restrictive covenants, and the plaintiffs' case against them is that these are covenants running with the land, and that the relationship of landlord and tenant exists between the plaintiffs and the defendants either by virtue of the attornment clause in the mortgage or by section 87 of the Law of Property Act 1925. The judge held the plaintiffs right on both these points. There is, however, a third point taken by the plaintiffs, but not decided by the judge, namely, that these covenants are binding on the defendants, so long as the relationship of landlord and tenant exists, as assigns with notice. It is said that this point rests on the authority of Tulk v. Moxhay, (1848) 2 Phillips' Reports, page 774.

It may be as well to deal with the points as they were argued before us and before the judge. First, as to the attornment clause. It was argued for the defendants that this created a merepersonal relationship between the original mortgagor and mortgagee, and did not bind the defendants as assigns. This may well be right if the relationship created by the clause be merely a tenancy at will. In the case of Scobie v. Collins, (1895 1 Queen's Bench, page 375) such an attornment clause was held to create a mere tenancy at will notwithstanding the fact that the rent was described as a yearly rent. Mr Justice Vaughan Williams said this at page 377: "Thu defendants cannot, strictly speaking, rely on this attornment and consequent tenancy because the original mortgagor who attorned is dead, and the tenancy at will founded upon the attornment clause came to an end with his death", and he cites Turner v. Barnes, (2 Best & Smith, page 435). If that were the right construction of the clause I would agree with the conclusion, but I do not think that it is right, nor that the case cited is authority for it. In Turner v. Barnes the attornment clause was expressed to be "during their will", and (as is not surprising) that was construed as creating a tenancy at will. The attornment clause in re Threlfall, ( 16 Chancery Division, page 274) was construed as creating a tenancy from year to year because it was expressed so to be, and notwithstanding the fact that the mortgagees could re-enter without notice.

The more recent case of Hinckley Building Society v. Henny, (1953 1 Weekly Law Reports, page 352) shows that an attornment clause is effective to create the relationship of landlord and tenant, at any rate on a weekly basis, where re-entry can be effected, as here, only by a week's notice. It seems to me, therefore, that there is no warrant for saying that the attornment clause in the present case comas to an end on death or assignment. That it is not a mere personal covenant is, I think, implicit in the case of re Voisey, ( 21 Chancery Division, page 442), where it was held binding against the trustee in bankruptcy who was, of course, the assign by statute of the bankrupt mortgagor who had attorned tenant. Lord Justice Brett held that the attornment clause there created not a mere tenancy at will, and that it passed to the trustee in the bankruptcy, for which see page 459 of the report.

It is next argued that this charge, being a mere charge by flay of legal mortgage, does not in law create any term of years in the mortgagee out of which can rise the term said to subsist under the attornment clause. It is said that this is a mere matter of estoppel, and the judge has so hold; and it is further argued that the estoppel that existed between the original mortgagor and mortgagee does not pass on the assignment of the lease. I do not follow this argument. I do not think that estoppel comes into it. The chargee by way of legal mortgage under section 87 of the Law of Property Act has by virtue of the statute the same powers and remedies as if in a case of leaseholds there was a term less by one day than the term of the lease vested in the mortgagee. This has effect by virtue of the Act of Parliament, not of an estoppel So too does the attornment clause have effect by virtue of the statute, for I do not see why the tenancy created by the attornment clause does not pass on the assignment of the lease as one of the conditions contained in the mortgage subject to which the assignment was admittedly made.

Next it is said that an attornment clause does not really create a tenancy, at any rate not one assignable without express mention. It is true that there have bean disparaging remarks made recently about attornment clauses; see, for instance, per Mr Justice Danckwerts (as he then was) in Steyning Building Society v. Wilson, (1951 Chancery Division at page 1018). In that case it was held that an attornment clause did not create such a relationship of landlord and tenant as to attract the effect of the Agricultural Holdings Acts. Similarly Portland Building Society v. Young, (1951 1 All England Law Reports, page 191) shows that the presence of an attornment clause does not attract the Rent Restriction Acts so as to prevail over the relationship of mortgagor and mortgagee; compare too Alliance Building Society v. Pinwill, (1958 Chancery Division, page 788). I cannot see that those cases do anything to show that an attornment clause does not survive an assignment, or that the relationship of landlord and tenant did...