Inclusive Technology v Williamson

  Judgment Lord Justice Carnwath: This is a claim for compensation under section 37A of the Landlord and Tenant Act 1954, which is headed “Compensation for Possession Obtained by Misrepresentation”. Subsection (2) provides: “Where- (a) the tenant has quit the holding- (i) after making but withdrawing an application under section 24(1) of this Act; or (ii) without making such an application; and   (b) it is made to appear to the court that he did so by reason of misrepresentation or the concealment of material facts,   the court may order the landlord to pay to the tenant such sum as appears sufficient as compensation for damage or loss sustained by the tenant as a result of quitting the holding.”     The section in its current form is derived from a Law Commission recommendation made in 1992 (Law Com 208), but not given effect until 2004 by means of a statutory order under the Regulatory Reform Act 2002. As the Law Commission report explains (see para.2.85 ff), the Act originally provided a remedy where a court order refusing a new tenancy was caused by misrepresentation or concealment, but it did nothing to protect a tenant who preferred not to incur the costs of putting the landlord to proof of his intent in court.  Thus the new protection extends to cases both where the tenant does apply for a new tenancy but withdraws the application, and where, as in the present case, he makes no such application at all.  The Commission’s report gives no guidance as to the interpretation of the words “misrepresentation or concealment”, which are the same as in the original section.   We have been referred to no authorities directly on the point.  I start from the position, therefore, that we should approach them as ordinary English words to be read in context.  I note in parenthesis that the section gives the court a discretion whether to award compensation, but it is not suggested that there are any grounds for refusing compensation in this case if the statutory grounds are otherwise made out. The facts Units 1 and 2 Gateshead Business Park, Delph, were let to the tenant by the landlord on 1 February 2001 for a term of six years ending on 31 January 2007, at a rent which increased from year to year, but by the last year of the term had reached about £35,000 per annum.  Under the 1954 Act the tenancy of business premises continues at the end of the contractual term, and the tenant has the right to a grant of a new lease, except in certain defined circumstances. One is that “on the termination of the current tenancy” the landlord intends to demolish or reconstruct or carry out substantial work of construction, and could not reasonably do so without obtaining possession (section 30(1)(f).  If he wishes to rely on this section, he must serve a notice to that effect under section 25.  The expression “on the termination of the current tenancy” makes clear that it is not enough for the landlord to have some generalised intention in the indeterminate future. He has to show an intention to start to carry out the work on which he relies within a reasonable time after the termination: see Method Developments Ltd v Jones [1971] 1 All ER 1027.   In this case, as the judge found, the landlord had by June 2006 formed a genuine intention to refurbish the units, and he had been advised that the works could not be carried out with the tenant in occupation.  He had previously in February warned the tenant of the possibility that he might require possession for such works.  There is also evidence of a conversation in April or May with the landlord’s agent, Mr Sedgwick, in which he told the tenant that there was to be refurbishment work, and that the paper-work was being prepared.  On 7 June, the landlord served a notice under section 25 in prescribed form terminating the tenancy on 31 January 2007, and stated that he would oppose the grant of a new tenancy under section 30(1)(f).  The covering letter referred to the previous exchanges regarding the future refurbishment of units 1 and 2, and said that it was “…necessary to obtain vacant possession to carry out the intended work.” The judge found that that letter, taken with the notice, meant what it said, which is that the landlord had formed the necessary intention at the time of the letter.  It had been submitted to him that the letter added nothing to the notice, and that the notice by itself implied no present intention, but did no more than indicate an intention to rely on subparagraph (f) in due course at the hearing, as permitted by the well-known case of Betty’s Cafés Ltd v Phillips Furnishing Stores Ltd [1959] AC 20. Betty’s Cafes Ltd v Philips Furnishing Stores Ltd [1959] AC 20; but the judge rejected that limited view.  He said at paragraph 50:(chec   That finding has been challenged in a Respondent’s Notice on various grounds, but for my part I think it is unassailable, and I would have reached exactly the same view on the material we have been shown. Returning to the story, in a conversation on 16 August, which the tenant recorded in a note which the judge accepted as accurate, the landlord confirmed that:  “… he was still serious about wishing the tenant to move out, and still intended to carry out the works previously mentioned.” The tenant offered to pay an increased rent equivalent to £45,000 if he could stay in occupation, but apparently the landlord was looking for a rent of at least £54,000 per annum after refurbishment.  The judge found that by the end of September, the landlord had decided to “hold fire”, although:  “He still intended to carry out the works… in the future when the circumstances were right.” He added (paras 36 and 37):  “I find that various factors led to the defendant’s decision.  He was concerned with the cost implications of the more extensive work suggested by his architect, Mr Barnes.  Mr Sedgwick by about autumn of 2006 was sounding a note of caution, having regard to the fact that prospective enquiries for premises were with a view to purchase rather than rent.  In any event, I accept the defendant’s evidence that whilst in September 2006 he had decided to hold firehe still intended to carry out the works of re-cladding in the future, when the circumstances were right.  The following month, he instructed Mr Sedgwick to market the premises, and I am satisfied that when those instructions were given, the defendant, as appears from what is stated in paragraph, no longer intended to carry out the re-cladding works either forthwith on the termination of the tenancy or, indeed, with what could properly be considered a reasonable time thereafter.” Those latter words I take to be a reference to the interpretation of the section to which I have referred.   The effect of that finding as to the change of the landlord’s position was that he was no longer in a position to rely on an intention to carry out the works at the end of the tenancy within the terms of the section.  The tenant was not informed of this change in position by the landlord.  At the end of November, the tenant signed a lease for other premises in a nearby building called Riverside Court.  Mr Littler, the Director of the tenant company, gave evidence of this state of mind is important, which the judge accepted (para 38):: (checked to audio as no bundle available) “On 29 November 2006, the claimant signed a lease for part of the ground floor at Riverside Court, obtaining a lease for part of the first floor in the following year.  Mr Littler accepts that these are substantially better premises than units 1 and 2.  His evidence, which I accept, is that he believed the claimant had no option but to vacate the premises because he believed, as he had been informed, that the defendant intended to carry out the works referred to in the letter dated 5 June 2006.  On the receipt of the section 25 notice and letter, he had undertaken some research, although he did not seek legal advice, and reached the understanding that if a landlord intended to refurbish the premises, and if the works in question required the vacating of the premises, then a new lease would not be granted.” He vacated the units on 15 December 2006.  Subsequently, Mr Littler, , became aware that the refurbishment works had not been carried out.  He carried out his own investigations between April and July of the following year, and that led to him starting the present proceedings for compensation.  That is, I think, all the facts one needs to provide the background to the discussion.  The judge held that there had been neither misrepresentation nor concealment.  His essential reasoning can be found in three paragraphs of his judgment, which I should read.  The first is at paragraph 51(b), where he said this: “The statute plainly extends the remedies previously available to a tenant in the event of misrepresentation or concealment of a material fact.  Prior to its enactment, the tenant would have had a claim if possession had been obtained by fraud or misrepresentation, but would have had no remedy if it had been obtained by innocent or, absent a duty of care, negligent misrepresentation.  Furthermore, the contract not being one of uberrimae fidei no duty in general would arise to disclose material facts, although a failure to disclose in certain circumstances might render a positive representation false.  However, it seems to me that for there to be a concealment within the meaning of the Act, there must be found to be some obligation to speak.  In addition, whilst the Act does not use the term ‘wilful concealment’, it seems to me that the use of the word ‘concealment’, as contrasted with a term such as ‘non-disclosure’, indicates that there must be some deliberate conduct on the part of the landlord.” The judge then discussed the application of the concept of misrepresentation in analogous contexts such as contract and deceit, but evidently did not find much assistance in those.  He noted that the notice correctly stated the defendant’s state of mind as at the date of the notice, and that it did not misrepresent his intention at that time regarding his opposition to an application for the grant of a new tenancy.  He continued:  “I am satisfied that the defendant is not guilty within the meaning of the Act of concealment of any material facts regarding his intentions concerning opposition to an application for a new tenancy.  Indeed, I am sure the defendant at no stage gave any consideration to the implications as regards his entitlement to oppose and application for a new tenancy, or of his change of mind regarding the works of refurbishment.  When he was asked in cross-examination why he had not informed the claimant of this change of mind, he said: ‘The notice had been served.  The machinery of termination was in place.  I assumed that the notice was not retractable.’  I accept that evidence, and regard his answer as a perfectly satisfactory response to the question that he was asked.” I should also refer to paragraph 54, when the judge dealt with the effect of the covering letter.  He said:  “I now turn to the question of whether the covering letter affects the position.  Again, I find that it does not.  I do not accept that the defendant’s failure to inform the claimant of his decision to defer the execution of the works renders him guilty of misrepresentation or concealment of material facts in relation to the statement set out in the covering letter.  That letter accurately stated the defendant’s intention as at its date, and the reason for the service of the section 25 notice.  In my judgment, the defendant did not thereby impliedly represent that he would not change his mind in the future, nor did he state expressly or by implication that he would inform the claimant if he did change his mind.  Again, as stated previously, it was always open for the claimant to enquire of the defendant following the service of the notice as to his present intention, and I do not accept there was any obligation on the defendant to inform the claimant of his changed intention.  Furthermore, the defendant had not abandoned his intention to do the works at some indeterminate time in the future, and in no way acted dishonestly, nor did he make a deliberate decision to conceal facts from the claimant.” There are in effect two aspects to that reasoning.  First there is the idea that the original representation made in June did not amount to a representation that he would not change his mind.  It was not a “continuing representation”, as one finds referred to in the context of contract law.  Secondly, there is the idea that concealment requires something deliberate, in the sense of something conscious; and in this case, the landlord had simply not given any consideration to the point. Before coming back to that, I should comment briefly on the authorities.  A certain amount was made in argument of the case of Betty’s café to which I have been referred.  That certainly establishes that a landlord does not need to establish the relevant state of mind at the time of the notice, or indeed even to have it; the notice is to be taken as indicating his intention to rely on that ground at a hearing, if it comes to that.  However, to my mind, that is nothing in point in this case, for two reasons.  First, in this case there is a finding that the landlord did have the relevant intention at the date of the notice, and so that particular issue simply does not arise.  Secondly, that was in a quite different context, at a time when the Act did not contain a provision which focuses attention on what happens outside the court.  It is implicit in the new section 37A that there may be misrepresentation or concealment resulting from the conduct of the landlord, even when no application for a new tenancy is made, and the tenant simply takes the landlord’s representations at face value and acts on them.   Of the other cases, I think one does get some assistance from the contractual analogy.  In Chitty on Contracts, Vol 1, chapter 6 at 6.006 ffthere is a discussion of the circumstances in which a statement of intention can amount to a statement of fact. Paragraph 6.18, headed “Representation Ceases to be True”, reads as follows: “A statement may be made which is true at the time, but which subsequently ceases to be true to the knowledge of the representor before the contract is entered into.  In such circumstances, a failure to inform the representee of the change in circumstances will itself amount to a misrepresentation, unless in the context it is quite clear to the reasonable recipient of the information that the party who gives it accepts no responsibility for its accuracy or for reviewing it.” The footnote refers to Traill v Baring (1864) 33 LJ Ch 521, and With v O’Flanagan [1936] Ch 575 in particular, but also notes a reference to Wales v Wadham [1977] 1 WLR 199, to which I shall come.  At 6.019 a paragraph headed “Continuity of Representations” says: “Representations are treated for many purposes as continuing in their effect until the contract between the parties is actually concluded.  This is one reason why a statement which is true when made but which ceases to be true to the knowledge of the representor before the contract is concluded is treated as a misrepresentation unless the representor informs the representee of a change in circumstances.”  (The footnote refers back to para 6.018 above) Mr Lander says that the present situation is case is analogous to that, because the representation is made in a particular statutory context, where there is a specific transaction, a specific purpose and a specific timeframe.  In that context, the representation here was not simply a statement of what was in the mind of the landlord at that time, but was directly referable to a statutory process designed in due course to enable the landlord to obtain possession; and therefore that either it should be regarded as a continuing representation which became false, and therefore a misrepresentation, or it gave rise to a duty or at least an expectation that the landlord would inform the tenant if he changed his mind, and his failure to do so should be regarded as concealment. That, to my mind, is a wholly convincing analysis of the position.  Mr Elleray relied by way of contrast on the case of Wales v Wadham, but the context was wholly different.  That concerned the question whether a wife who had stated, in the course of discussions about a separation settlement, that she was not intending to remarry, was bound by that statement. It was held (as I take it from the headnote)  that the statement “was an honest representation of her intent, and since it was neither a statement of fact nor a dishonest expression of intent, she was under no duty under the law of contract to inform her husband that she had changed her mind;  that the representation was made with a view to saving her marriage, and not in contemplation of a contract, and in the circumstances, her statement that she did not intend to remarry could not be taken as a representation that she would never change her mind and it amounted merely to an expression of opinion”.  The judge, Tudor Evans J did, it is fair to note, refer to the analogy of cases such With v O’Flanagan, but he also made clear that he was deciding the matter on the facts of the case (see page 211F). That was also the basis on which, as I understand it, his reasoning was approved by the House of Lords in Livesey v Jenkins [1985] AC 424.  To my mind, that is such a different context that it really is of no assistance in the present case.  Mr Lander also sought assistance in a case called Slough Estates v Welwyn Hatfield District Council [1996] 2 PLR 50.  That was a decision of May J on the rather complex facts of that particular case; and like the judge, I do not see it as providing any assistance.  As I have said, it seems to me that the approach that Mr Lander urges on us is entirely appropriate, at least on the facts of this case.  I certainly accept that not every case in which a section 30(1)(f) notice is served will give rise to such a continuing obligation on the part of the landlord. However, in this case, the pre-notice exchanges show that the landlord, very fairly, was being entirely open with the tenant as to his plans.  The letter of June which accompanied the notice, as the judge found, was as clear as possible a statement of present intention, and the letter indicated that it was that intention which gave rise to the service of the notice.  I agree with Mr Lander’s submission that it amounted to a continuing representation, which does bring into play the section.  That approach seems to me consistent with what I understand to be the purpose of the provision, which is to encourage fair dealing between the parties.  The Act puts a landlord in a special position, in that the disposition of legal rights is determined at least partly by reference to his subjective intentions. Such a formula is obviously open to abuse unless the landlord acts responsibly and in good faith.  I accept that the landlord is entitled under the Act not to say anything at all; and if he takes that position,.  the tenant will have to do his best to make his dispositions on the basis of what he knows, and he may be forced to apply to the court.  But section 37A recognises that it is desirable to encourage the parties not to invoke the jurisdiction of the court, and to settle matters outside it. In my view, in that context it is no misuse of language to say that here there was either misrepresentation or concealment which led the tenant to give up possession.  I should mention some other points made by the respondent.  First, it is said that the letter was, in effect, no more than restating what was in the section 25 notice.  As I have said, the judge found otherwise, and in my view he was wholly right so to find.    Secondly, it was said that the letter said nothing about the timing of the works.  That is true, but in the context of section 30(1)(f) and pf the notice which was served at the same time, the whole tenor of the letter was to direct attention to what was going to happen at the end of the tenancy.  Thirdly, it was said that no details of the work were given.   Now it may be that a more inquisitive tenant might have asked more questions, but that does not mean that it was unreasonable for this tenant to rely on what he had been told by the landlord, who was well-known to him, and to act upon it.  Then it was said that there was no finding of reliance on the letter as such.  I do not, with respect, understand that, because the passage I have quoted from paragraph 38 is a clear finding that there was reliance.  It is not a surprising finding.  Why else would the tenant have moved out, since there was no doubt that he wanted to stay if he could?  Finally, it is said that the tenant could have asked for an up-to-date review from the landlord before he left.  No doubt he could have done, but that does not, to my mind, excuse the landlord, having made a continuing representation which had become false, from disclosing that fact.  In fact, the tenant did ask the landlord what his position was in August.  The terms of that request, including his request for a speedy decision, should have put the landlord on notice that he was looking for somewhere else and that, if there was to be a change of heart, he needed to know about it quickly. So for those reasons, and with respect to the judge, I would allow the appeal on the main ground. I turn to the other ground, which concerns the amount of compensation.  The judge dealt with the matter relatively briefly because, on his conclusion on the main point, it did not arise.  The part of the claim with which we are concerned is that related to the difference in rent.  The claim was put at some £90,000, representing six times the difference between the rent at Riverside Court, which was £53,000, and the assumed market rent of units 1 and 2 in their unrefurbished state, which was £38,000.  That latter figure was taken from the expert report of Mr Sedgwick, the landlord’s surveyor.  The judge accepted that the tenant acted reasonably in moving to Riverside Court, no other suitable premises being available.  The only dispute concerned the assumed rent for the former premises.  The judge said this at paragraph 59:  “The question remains whether the claimant has proved that he would have obtained a tenancy of units 1 and 2 at Mr Sedgwick’s valuation, had the defendant disclosed his changed intention regarding the execution of the works.  In this regard, I am not satisfied on a balance of probabilities that a tenancy at that rental would have been obtained, nor am I satisfied that the claimant would have made an application for a new tenancy had such disclosure been made.  To my mind, it is at least as likely that there would have been negotiations between the parties, and a new tenancy agreed without any need for an application.  It is clear that the claimant was willing to pay a rent of £45,000, and my conclusion is that the most probable outcome of disclosure would have been the agreement of a tenancy at or about that rental figure, resulting in a loss of £8,000 per year for six years, a total of £48,000.  That figure must be discounted for immediate receipt, but I do not think it necessary for me to undertake that exercise now.” The tenant, through Mr Lander, argues that that was the wrong approach. He argues that the court should have taken as the basis the market rent, which was not, at least by the time of the trial, in dispute.  He says that the learned judge failed to consider that when the offer of £45,000 was made, the tenant had been told by the landlord that he intended to redevelop, and he believed that he had no security of tenure, and therefore no bargaining position.  Accordingly, his statement of what he was prepared to pay then, under in effect duress, was not a proper basis for the decision. I do not, with respect, accept the criticism of the judge’s reasoning.  One has to consider the position where in September the landlord has told the tenant that he has put his proposal on hold for the moment, and is prepared to consider a new tenancy.  The judge was entitled to form the view that the parties would have sought a negotiated solution rather than going to court.  That seems entirely consistent with what one knows of their business dealings.  There appears to be no evidence that the tenant knew at that stage that the landlord surveyor had , or was going to, put the market rent at £38,000.  Nor could he assume that the plans for refurbishment had been abandoned altogether.  On the other hand, the landlord knew that the tenant was willing to pay £45,000.  That, as I read the judgment, was not regarded by the tenant as a “shotgun” or ransom rent.  It was a realistic proposal, in the circumstances that the only other premises available, as we know, were the Riverside Court premises at a substantially higher figure.  It seems to me, as did to the judge, that there is no obvious reason why the landlord should have been expected to settle for less. In any event, I see no valid criticism at the appellate level of the judge’s conclusion that that was the right figure.  So I would reject that part of the appeal. I note, however, that the resulting figure will need to be adjusted, as the judge indicated, for immediate receipt of rent which would have been due over six years. Lady Justice Smith:   I agree. Lord Justice Hughes: I agree that the appeal is to be allowed to the extent that my Lord, Lord Justice Carnwath, indicated.  As it seems to me, there are three principal questions which arise in relation to the application of section 37A.  The first is, was there in this case a representation?   It is clear in law that a statement of intent is capable of being a representation.  In the context of Part III of the Landlord and Tenant Act 1954, the important starting point is that service of a section 25 notice indicating a reliance upon ground (f) within section 30(1) cannot, by itself, as it seems to me, be capable of amounting to a representation of intention.  That follows from Betty’s Cafes Ltd v Philips Furnishing Stores Ltd [1959] AC 20.  The section 25 notice is no more than a warning to the tenant of the ground upon which the landlord may seek to rely.  It must, of course, be given in good faith; but it does not constitute a representation of intention as to works.  The landlord’s best point, as it seems to me in this case, is the contention that the covering letter does not constitute a representation either, because it is in effect no more than an enclosure of the section 25 notice.  However, as it seems to me, on the particular facts of this case, the judge was entitled to find that the letter did constitute a representation of intention.  The letter needed to be read in the context of the landlord having given a friendly warning in February of the possibility of refurbishment such as to require vacant possession, and of a subsequent conversation in April or May, when his representative told the tenant that that refurbishment was going ahead and would require vacant possession.  In that context the letter, with its accompanying section 25 notice, between them said that what had previously been left open was now a statement of the landlord’s intention.  The judge was, as it seems to me, perfectly entitled and indeed right so to find.  The making of a representation with intention, in other words, requires clear evidence beyond the mere service of a section 25 notice. The second question is whether the representation was a continuing one or whether it was no more than a statement of the intention held as at the time of the letter in June 2006.  A statement of intention is not by any means always a statement of continuing intention.  A good example is the statement of the wife in Wales v Wadham that she did not intend to remarry.  Nobody could properly take that as an indication of a continuing representation into the future.  In the present context, however, a statement of intention to refurbish a tenanted property in the context of a possible tenant’s application for a fresh tenancy only has meaning if it is a continuing representation.  A statement of intention as at the date of the letter is of no relevance whatever, as indeed Betty’s Cafes itself demonstrates. The third question is, did the statement of the continuing representation become false to the landlord’s knowledge?  If it did, then on general principles of the law of representation, there arises in effect a duty to correct it.  One need look no further than the well-known classic example of With v O’Flanagan [1936] Ch 575. It is, I think, important to say in a case of this kind that a continuing representation of the kind given here, of an intention to renovate or refurbish, would not be rendered false simply because the landlord explored other commercial options; that is almost inevitably going to happen in a large number of cases.  Accordingly, there is no question that there arises a duty upon the landlord to make periodic, or indeed continuous, fresh, informative statements to the tenant as to the progress of such other options as he may be exploring, the progress of any planning application, negotiations for finance, or for anything of that kind. However, in the present case the judge’s finding was absolutely clear.  By October 2006, the landlord: (checked to audio as no bundle available)   “… no longer intended to carry out the replanning works either forthwith on the determination of the tenancy or, indeed, within what could properly be considered a reasonable time thereafter.” In other words, the landlord knew that he could not and would not oppose the grant of a new tenancy upon ground (f). In those circumstances I respectfully agree that the representation, which was a continuing one, had indeed become false, and the landlord’s duty was to say so.  It does not mean that the landlord is not free to change his mind — he has not promised to redevelop or refurbish the premises — but if he has made the representation which this landlord did, then he must correct it when it becomes, to his knowledge, false.  Fair dealing, and for that matter section 37A, require nothing less. In those circumstances, I too would allow to the appeal to the extent which my Lord has indicated. Order: Appeal allowed in part.