O’Malley v Seymour

Third Court of Appeal case on question whether transaction was a non-exclusive licence or a protected tenancy–A property owner can order his affairs so as to prevent his property being enmeshed in the Rent Acts, but present case distinguished from Somma v Hazlehurst and Aldrington Garages v Fielder–Evidence of prior oral agreement in terms appropriate to tenancy–‘Licence’ did not reflect parties’ true agreement–Tenancy disguised in trappings of a licence–County court judge justified in deciding that ‘licence’ document was a sham This was an appeal by the plaintiff, John O’Malley, from the dismissal by Judge Dow at Clerkenwell County Court of his action against Colin Michael Seymour for possession of a ground-floor flat at 13 Ribblesdale Road, London N8. This was the third case in chronological order before the Court of Appeal raising the question whether a document constituted a non-exclusive licence excluding the application of the Rent Acts or whether it created a tenancy within the Acts. The fourth case, Demuren v Seal Estates Ltd has already been reported in ESTATES GAZETTE: see (1979) 249 EG 440, [1979] 1 EGLR 102. Miss M T Catterson (instructed by Kingsford, Dorman & Co, agents for Merrill, Skerritt & Co, of Luton) appeared on behalf of the appellant; D Watkinson (instructed by Tyrer, Roxburgh & Dawson) represented the respondent. Giving judgment, STEPHENSON LJ said: This is an appeal from a judgment of His Honour Judge Dow, given on November 4 1977 in the Clerkenwell County Court, dismissing the plaintiff-appellant’s claim for possession of the ground-floor flat, 13 Ribblesdale Road, London N8. The whole issue in this case, as the judge said and as Miss Catterson has submitted on behalf of the unsuccessful plaintiff, is: on what terms did Mr Seymour, the defendant/respondent, enter into occupation of it?  Did he go in under a short-term lease for six months?  Or is he, as the plaintiff alleges, merely a licensee for a fixed term? This is the third attempt which this court has had to consider recently by an owner of property to provide accommodation for somebody desperately in need of it without attracting the restrictions imposed on the rent he can charge and, more particularly, on his powers of eviction by the Rent Act 1974; and once again we have to consider whether the attempt has been successful or whether the judge was right in this case in holding that it failed. That is a problem which has perhaps been recently made clearer than it was at the time Judge Dow gave his judgment that the court ought to approach without any bias in favour of finding that the agreement was a tenancy and a genuine tenancy. What Buckley LJ said in the case of Shell-Mex & BP Ltd v Manchester Garages Ltd [1971] 1 WLR 612 at p 619 has to be borne in mind. He said: It may be that this is a device which has been adopted by the plaintiff company to avoid possible consequences of the Landlord and Tenant Act 1954, which would have affected a transaction being one of landlord and tenant; but, in my judgment, one cannot take that into account in the process of construing such a document to find out what the true nature of the transaction is. One has first to find out what is the true nature of the transaction and then see how the Act operates upon that state of affairs if it bites at all. One should not approach the problem with a tendency to attempt to find a tenancy because unless there is a tenancy the case will escape the effects of the statute. We have here the advantage of a note of the learned judge’s judgment taken by Miss Catterson, who has presented the appellant’s case. By an unfortunate oversight it has not been presented, or at any rate presented in time, to the respondent’s solicitors and counsel for agreement, or to the learned judge for his approval. We agreed to look at it subject to Mr Watkinson’s right, on behalf of the respondent, to challenge its correctness. He does not do so and I am not surprised. It is an admirably clear note; but we have to bear in mind that it has not been seen or approved by the judge when we come to look at the criticisms which are made of it by Miss Catterson. I do not wish it to be thought that in the ordinary way we would look at a judgment of a county court judge in the form of a note which he had not had an opportunity of revising. But I am quite satisfied, from the excellence of the note and what Mr Watkinson has said about it, having compared it with the note of Lord Gifford (who was then counsel for the respondent in the county court) and with a note taken by his solicitor, that we can safely act upon the note; but we must not, of course, attribute every word as it is set out in that note to the judge, because he might have wished to revise or correct it in minor particulars. The questions which arise are, it seems to me: first, what on its true construction is the nature of the written agreement which the plaintiff relied and relies in his claim for possession, against the background of the evidence?  Secondly, does the evidence prove and entitle the judge to hold that the document, on its proper construction, does not truly represent or reproduce the real transaction between the parties?  Those are the questions which arise in all these cases. In this case the learned judge has, I think, construed the document as a tenancy rather than a licence because he said that ‘it in fact created a tenancy’ (according to the note); but even if the document is at any rate capable of being construed as a licence, the judge has clearly found that it was a sham and did not embody the real transaction between the parties. He approached the document in this way: I remind myself of the warnings issued over the years in cases dealing with the Rent Act legislation that courts must be astute to see that a coach and horses are not driven through the Rent Acts or, as Lord Denning has put it, that an ‘articulated vehicle’ is not driven through them. Unless I am persuaded to construe the agreement in this case as a licence, it is quite plain that it is otherwise a tenancy and that on the expiry of the six months specified in the agreement which is exhibited Mr Seymour could hold over as a protected tenant. If, on the other hand, it is a licence, then the period has expired and the plaintiff is entitled to the order which he seeks. In my judgment, that passage, if it accurately records the learned judge’s concluded opinion, does indicate an approach too favourable to the defendant; but, for the reasons which I shall try to give, I do not think that the judge would have reached any different conclusion had he modified that language and that approach to accord with the judgments of this court in Somma v Hazlehurst, decided on March 3 of this year, and Aldrington Garages v Fielder, decided on July 7 of this year*. *Somma v Hazlehurst was reported in (1978) 246 EG 311, [1978] 1 EGLR 69 and Aldrington Garages v Fielder at (1978) 247 EG 557. He went on to say that it was ‘essential to look at the background to this matter.’  He stated that the plaintiff had ‘his main home in Eire where he has his family and farm. He has become the owner of more than one property in or around London, and he makes periodic trips to this country to look after the property he owns and to see if the necessary ‘moneys’ payable by the occupants has been received.’ Then he called attention to other facts which were common ground. First of all, among the properties which the plaintiff owned was a property at 88 Cecile Park. Part of that property he advertised in, I think, the Evening Standard as to let–‘a flat to let’ in that property–and it was that advertisement which the defendant, Mr Seymour, saw; it was that advertisement which he answered, and it was as a result of answering that advertisement that he met the plaintiff at that other property. Now that property was let off in five or six bed-sitting rooms, and there was evidence before the learned judge of rent books in respect of two of those; rent books held by occupants117 who were not occupants under licence but were tenants. The learned judge found that the plaintiff was not a resident landlord and quite clearly knew very well that he was, as the learned judge put it, ‘saddled with the people in those bedsitters.’  He rejected the plaintiff’s evidence that he did not know that. He said if the plaintiff had been buying the property on that basis–that is to say the basis that the occupants were licensees–one would expect him to be furnished by the vendor’s solicitors with the relevant licence agreements. At the defendant’s meeting with the plaintiff the plaintiff told the defendant that he did have another flat which might be suitable for the defendant. So both went off to that other flat, which was the ground-floor flat at 13 Ribblesdale Road of which the plaintiff has been refused possession. The defendant was told–and this is all common ground–that he would have to pay a deposit in relation to the condition of the flat and a month’s rent in advance, and he would be allowed into occupation for a period of six months. So far, the background is one of negotiating for a suitable flat to let. The learned judge then went on to deal with the written agreement which the plaintiff told him he got hold of from another property owner; an agreement which was clearly devised–and it is similar to other agreements which this court has looked at–to avoid the consequences of the 1974 Rent Act. That agreement, it was common ground, was presented to the defendant for signature on September 11 1976. But before that agreement was presented to him or signed, the evidence showed an oral agreement which is not in terms, as Miss Catterson rightly pointed out, referred to or found as an agreement by the learned judge. It is, however, in my judgment, the basis of his finding that the written agreement signed on September 11 1976 was a sham, and it emerges clearly from the evidence of the plaintiff in cross-examination. The judge’s note of the plaintiff’s evidence (which we have got) reads in this way: I told him I would want a month’s rent in advance. He did pay this sum. He said he would return next day to give me the deposit money and a month’s rent. He said he wanted to move in that week-end. It was a firm verbal agreement made on the evening. I took him to no 13. I expressed in no uncertain terms that the tenancy was for six months only. The agreement itself is in these terms: This agreement is made the 11th day of September 1976 between John O’Malley (hereinafter called ‘the owner’) of the one part and Colin Michael Seymour (hereinafter called ‘the licensee’) of the other part, and a curious feature, not referred to by the judge in the note which we have of his judgment, is that the agreement is signed in the top right-hand corner by Mr Seymour, the defendant, against the words which I have just read. The agreement goes on: Whereby it is agreed as follows: (1) In consideration of the sum of £520 payable by the licensee to the owner as hereinafter mentioned, the owner grants to the licensee the right to use in common with others who have been granted or will be granted the like right the premises known as and then filled in in manuscript ground-floor back flat, 13 Ribblesdale Road, Crouch End, London N8, together with the fixtures furniture furnishings and effects now in the said premises for six months from the date hereof. (2)  The licensee agrees with the owner as follows: (i) to pay the said sum of £520 by equal instalments of £86.66 per month on the first day of each month, the first of such payments to be made on the signing hereof; (ii) not to damage or cause any damage to the walls or floors of the said premises or any part thereof and to preserve the fixtures furniture and furnishings and effects from being destroyed or damaged in any way and to replace all broken glass; (iii) upon the termination of this licence (whether by effluxion of time or otherwise) to pay to the owner a sum equal to £7.50 of the cost of washing and cleaning all counterpanes, blankets and curtains soiled, whether or not by the licensee, during the period of this licence; (iv) not to impede the use of the said premises or any part of it not nor [sic] upon the terms that each shares the cost of gas electricity and telephone services to impede the use of any services supplied to the said premises or any part of it by such other persons not exceeding three in number to whom the owner shall grant licence I think the ‘not’ is probably right, although it might more readily have been ‘nor.’ (v)  not to assign this agreement nor to permit any other person, except as licensed by the owner, to sleep reside in or share occupation of the said premises or any part of it at any time; (vi) not to do or suffer to be done in or upon the said premises any act or thing which may be a nuisance damage or annoyance to the owner or to the occupiers of any adjoining property or which may vitiate any insurance on the premises against fire or otherwise or increase the ordinary premium thereon; (3)  Provided as follows: (i) if the said instalments or any of them or any part thereof shall be in arrear or unpaid for at least seven days after the same shall have become due, or (ii) in the event of any breach by the licensee of the agreements herein contained, then the owner may terminate this agreement and the licensee’s rights hereunder shall absolutely determine but without prejudice to any other remedies of the owner hereunder. (4)  The owner agrees with the licensee to pay all general and water rates payable in respect of the premises but not any charges for the supply of gas or electricity or for the use of the telephone. (5)  The licensee shall pay the sum of and that is left blank which shall be retained by the owner until the termination of this agreement as a deposit to secure to the owner the performance by the licensee of the agreements on the part of the licensee herein contained, but without prejudice to the owner’s rights under and in respect of this agreement. At the termination of this agreement and on the licensee vacating the said premises and subject to the proper performance by the licensee of his obligations herein contained, the owner will refund the said deposit to the licensee. (6)  It is hereby agreed and declared that possession of the premises vests in and is retained by the owner subject to the right of the licensee to use of the premises given by this licence. In fact a deposit was paid by the defendant by cheque dated September 9 for £50, and the learned judge also saw a receipt undated for £86, which it was accepted was paid before the defendant went into occupation. The plaintiff sought to persuade the judge that before the agreement was signed he handed to the defendant a letter–a letter, I think, in the same form as was in evidence in the Aldrington Garages case and there subjected to some criticism. Nothing more need be said about that letter in this case, or what (if any) its effect could be on the transaction as a whole, because the defendant denied ever having received the document which the plaintiff swore he had given him and the learned judge accepted the defendant’s denial. The learned judge said of the defendant: ‘I am not dealing with an illiterate or an unsophisticated person. Mr Seymour has a good job and I found him an honest and straightforward witness.’  The defendant conceded that he had read through the agreement which I have read before he signed it, so there was no doubt about that; this agreement was signed by a sophisticated and literate person. The learned judge added that he did ‘not think for a moment that he’ (the defendant) ‘appreciated the legal effect of the term ‘licensee.’  He was bothered about the limitation of the period to six months because he was reluctant to take the place with that limitation, but in the event he was so anxious for accommodation that he accepted it.’ The learned judge then went on to consider the written agreement. He referred to the opening provision for the payment of £520 by instalments and said ‘the crux of the case is to be found immediately in clause 1 of the agreement . . .’, that is in the opening words which stamp the agreement with the attempt, at any rate, to make the grant a grant of a right to use in common with others, a grant to a licensee to share with others, not a right of exclusive possession granted to a tenant. Of that the learned judge said: ‘I am convinced that that wording was designed to try and defeat one of the tests used to distinguish between a licence and a tenancy, that is to118 say whether there is exclusive possession. Mr O’Malley’ (the plaintiff) ‘was honest enough to admit that he never contemplated for a moment foisting any other persons on the defendant. He knew that Mr Seymour wanted exclusive occupation for his own purposes. There was no suggestion ever made in the six months that Mr Seymour should accept any other person.’ The learned judge went on: ‘Because he,’ that is the defendant, ‘signed a document referring to him as a licensee, the court is asked to infer that he does not have a tenancy under the Rent Act and that the plaintiff is entitled to the order he seeks.’  That might be criticised as an over-simplification of the plaintiff’s case, but the judge went on: ‘The defendant says that this is not a genuine licence agreement but in effect a sham to avoid the Rent Acts, and that he is therefore entitled to remain.’ The learned judge’s opinion was that ‘Both parties here intended that Mr Seymour should occupy the flat for the payment of a periodic sum; Mr O’Malley intended that to be so and that Mr Seymour would not be disturbed in his occupation of the premises.’ Then the learned judge went through the rest of the agreement part by part. One must remember, looking at his comments on the clauses, that they follow his initial comment on the first part of clause 1, which was that that was, as I understand his judgment, a device, and an unsuccessful device, to impart to the agreement between the parties a fundamental characteristic which it did not have. I do not think it necessary to refer to the learned judge’s comments on the individual clauses. Miss Catterson does not quarrel substantially with any of them. Apart from the constant references to ‘licensee’ and ‘licence,’ a label which may or may not be a true description of the nature of the agreement and the relationship between the two parties to it, there are clauses which are consistent, perhaps only consistent, with a licence; there are clauses which are consistent–perhaps more consistent, though none I think only consistent–with a tenancy; and there are clauses which are in my judgment, neutral and ambiguous. But I would accept Miss Catterson’s submission that to turn this written agreement into a tenancy would require the court to rewrite substantial parts of it and that it is itself a licence and would by itself create a licence. The learned judge went on to say that he had watched both the parties in the witness box and that he accepted the defendant’s denial that he had ever seen this letter, as I have already stated. He came ‘unhesitatingly to the conclusion’–and I quote from the note–‘that this is an attempt by the plaintiff to avoid the provisions of the Rent Acts. To set up this agreement as a licence is a sham; it in fact created a tenancy and I find that Mr Seymour is holding over as a protected tenant’ and so he gave judgment for the defendant. Miss Catterson, in what; in my judgment, was a model argument, has challenged that conclusion of the learned judge. She submits that the written agreement is appropriate to, indeed is, a licence, not a tenancy. She accepts that the learned judge was fully entitled to look at the background in order to see what the real transaction between the parties was. She does not challenge the right, and the duty, of the judge to find that the written agreement was a sham if that finding is justified on the primary facts which he finds, but she submits that his conclusion that this agreement was a sham is an inference which he ought not to have drawn from the facts he found. She concedes that the learned judge was right in recording a fact (which is not in his note of the evidence) that the plaintiff did concede–and I had better repeat the actual words, ‘that he never contemplated for a moment foisting any other persons on the defendant. He knew that Mr Seymour wanted exclusive occupation for his own purposes. There was no suggestion ever made in the six months that Mr Seymour should accept any other person.’  But she says, first of all, that there are in this agreement clear, genuine provisions relating to sharing: in clause 1, which I have read; in clause 2(iv), which the judge called an obscure clause, about not impeding the use of the premises or services supplied to them by others; and in clause 6, agreeing and declaring that the possession of the premises was, among other things, retained by the owner. She relies strongly on the fact found by the learned judge, and indeed admitted by the defendant, that he had read this agreement before he signed it, and the finding of the judge that he was not illiterate or unsophisticated. Though she cannot challenge the judge’s finding that the defendant did not understand the legal consequences of the label ‘licence’ and ‘licensee’ the only part of the agreement which he was really interested in was the limitation of his occupation to six months. She said it was clear from his evidence that he did not regard himself as entitled under the agreement to stay on beyond the six months’ period, and that evidence is quite inconsistent with his believing that he had a right to stay on given him by the law; he knew that that right was entirely dependent upon the will of the plaintiff, and that could only be true of a licence and not of a protected or regulated tenancy. ‘I read the document,’ said the defendant, ‘I noticed the limitation to six months’ period. I told the plaintiff that I wanted accommodation for a period longer than six months. The plaintiff gave me to understand that the agreement could be renewed,’ and in cross-examination: ‘I do accept that I read through the whole of the agreement before I put my signature on it. The only query I raised was as to the six months’ period. The plaintiff told me that it was his custom not to give an agreement for longer than six months’ and then the plaintiff said he did not envisage any difficulty about renewing the agreement after six months. ‘I did notice the terms about people not exceeding three being nominated to share the flat with me. I thought I would be able to pay the rent myself and therefore no question would arise of bringing in other people to share in the payment of the rent.’ Miss Catterson correctly submits that if there is no exclusive possession there cannot be a tenancy, although the converse is not true, and here, she says, are provisions in this agreement which show that possession is not to be exclusive; there is a right in the owner, the plaintiff, to share it with the defendant, and there is provision for others, not more than three, to share it. She submits that not only is that the position demonstrated by the written agreement, but that is what the judge should have found the oral agreement between the parties to have been when it was made firmly on the previous evening. She submits that the statement of both parties that there was no intention of sharing at the time the agreement was entered into is not really relevant, because an agreement may give you a right to share even if you do not intend to exercise it. The great difficulty in the way of her submissions is the finding of the learned judge that all these so-called rights to share, or references to sharing, were bogus, they were all part of the sham. If the ‘rights’ really existed, if they were really agreed upon between the parties, they would take this groundfloor flat out of the Rent Act 1974 and enable the plaintiff to turn the defendant out at the end of six months. But the learned judge has found that that was not the agreement between the parties. The real transaction between the parties was the grant of a six months’ tenancy with all the legal consequences that flow under the Rent Act 1974 from that fact. Miss Catterson summarised her contentions as well as she had made them. She said that the learned judge was wrong to give the weight he did to the evasion of the Rent Act. I have already indicated the extent of my agreement with that submission, but my opinion is that it did not alter the judgment which he would have come to had he had later decisions of this court before him. Then she submits that the plaintiff knew that the defendant wanted exclusive occupation and would not contemplate putting anybody else in, but that is not inconsistent with his119 having an agreed right to do so. I have already dealt with that. But in connection with that submission it is relevant to point out, as was pointed out by my Lord, Geoffrey Lane LJ, in the course of the argument, that this case differs very materially from the two other cases, the Somma case and the Aldrington Garages case, not only that in one of those cases there was evidence about the possible use of that right which would have entitled the court to regard the provision of it as genuinely agreed and not a dead letter or a sham, but in each of those cases there was a contemporaneous agreement signed by a person wishing to share the same accommodation and granting exactly the same rights on the same terms, and those two agreements had to be read together. So there was absent from those cases the striking feature of this case that there was, in fact, no one to share this flat with the defendant and no intention of there being anyone to share this flat with the defendant during the period of his occupation. Finally, Miss Catterson submitted that the defendant having read this agreement before he signed it, the court can look at the agreement and discern in it the true nature of the relationship between the parties. Of course it must look at the agreement, but the question whether it discerns there the true relationship between the parties has, in my judgment, already been decided for us by the learned county court judge. There was, in my opinion, clearly evidence on which he could have found that this agreement was a sham. I would go further and say on the evidence that was before him, if I had taken the same view of the witnesses as he did–as no doubt I should–I should have reached the same conclusion as he did, that it was a sham. For those reasons, in spite of the excellent argument of Miss Catterson, I would affirm the judgment of the learned judge and dismiss the appeal. Agreeing, LAWTON LJ said: A property owner is entitled to arrange his affairs so as not to get his property enmeshed in the Rent Acts. What he is not entitled to do is to arrange his affairs in one way, which brings his property within the Rent Acts, and then to dress them up in another way so as to give the impression that it is outside the Rent Acts. The fact that he gets someone else to co-operate with him in that dressing-up does not affect the fact that he has done some dressing-up. What he has done is a sham. The learned judge in this case decided that the plaintiff had been party to a sham. He had dressed up what was a letting for six months to look like a licence. If there was evidence to support such a finding, the learned judge was entitled to make it. In my judgment, the evidence was overwhelming that that was what the plaintiff had done. It was particularly convincing evidence because most of it came out of his own mouth. Mr Seymour met the plaintiff on September 9 1976. The meeting had come about because the plaintiff had inserted an advertisement in the Evening Standard that he had a flat to let. At the meeting the plaintiff and the defendant discussed the letting of a flat. In the end there was no letting of the flat which had been advertised, but the pair of them went to the flat which is the subject-matter of this appeal. The plaintiff, as my Lord has pointed out, never at any time suggested to the defendant that he was to have anything other than exclusive possession of the flat. In the course of the discussion with the defendant on September 9 1976 the plaintiff used the language of letting. I read from the judge’s notes of evidence: ‘I told him I would want a month’s rent in advance. . . . He said he wanted to move in that week-end. It was a firm verbal agreement. . . . I expressed in no uncertain terms that the tenancy was for six months only.’  As a result of that meeting and before the agreement was produced and signed the defendant paid the plaintiff no less than £80 or thereabouts, being a month’s rent in advance as asked for by the plaintiff, and had also paid the sum of £50 by way of deposit to protect the plaintiff from what he might well have called dilapidations. It was only after the money had been paid and after, in the plaintiff’s own words, a firm verbal agreement had been made that this document dated September 11 came into existence. That document did not reflect the agreement which had been made. Nevertheless he put it forward as an agreement which had been made. In my judgment, the county court judge was entitled to find–indeed I would have found–that the licence agreement was a sham. I agree with my Lord that this appeal should be dismissed. Also agreeing, GEOFFREY LANE LJ said: This appeal demonstrates how much each case of this sort must depend upon its own particular facts. The owner of the premises here was trying to put forward the same sort of arguments as did the owners in Somma’s case, decided in March of this year, and the Aldrington Garages’ case, decided on July 7. Here, however, the basic, if not the only, problem which had to be decided was whether the written document which was proffered by the plaintiff and signed by the defendant purporting to record the agreement already reached between the parties was a genuine attempt to record the agreed terms or whether it was a sham. In other words, was it an attempt to disguise what was truly a tenancy in the trappings of a licence?  The document itself, which was signed by the defendant, bore many similarities to the equivalent documents in the two cases which I have mentioned, but here there was, to say the very least of it, ample evidence that the document was indeed a sham. The plaintiff’s own answers in cross-examination to which my Lords have already referred really concluded the matter against him, because he effectively conceded that the prior oral agreement was firmly concluded and, secondly, that it was in the terms of a tenancy and not in the terms of a licence. The opposite contention was, on the evidence, scarcely arguable. There was plainly a tenancy here and not a licence. I would dismiss the appeal accordingly and would only add my tribute to the excellence of Miss Catterson’s approach and argument in this appeal. The appeal was dismissed with costs.