Mathew and another v Bobbins

Rent Act–Flat let by employers to tenant in consequence of his employment–Tenant protected subject to possibility of Case 8 in Schedule 15 to the Rent Act 1977 applying–Very small rent of £1.50 per week and some liability for repairs–On a take-over of the employers’ business by new management tenant was persuaded to exchange his Rent Act protected tenancy for a licence free of rent and rates–He thus agreed to give up security in return for the financial advantage of freedom from rent and from any liability to repair–He remained in the flat on these conditions for a further five years at the end of which he was made redundant and the licence to occupy the flat was terminated–In possession proceedings the deputy county court judge accepted a submission that in view of the relationship between the parties, the plaintiffs being both landlords and employers, there was a presumption of undue influence and he set the licence aside, thus restoring the protection of the Rent Act–Held by Court of Appeal that the judge was wrong in setting the licence aside–There was no presumption of undue influence from the relationship of master and servant or landlord and tenant or both, whatever might have been the case in the 19th century–There was no abuse of the employers’ dominant position and the bargain was not manifestly unfair–Appeal allowed This was an appeal by Vera Irene Mathew and Richard Henry Mackie, the owners, against a decision of Deputy Judge Holden at Uxbridge County Court in favour of John James Bobbins, the occupier of a flat in a block called Trout Villas, Trout Lane, Yiewsley. S Furst (instructed by Bower, Cotton & Bower) appeared on behalf of the appellants; D Milton (instructed by H Ellins & Co) represented the respondent. Giving judgment, LORD DENNING MR said: We have here to consider the new principles on the inequality of bargaining power. Mr Bobbins was a good engineer and fitter. From April 1963 he had been employed by a firm called F Squire & Sons Ltd. For a year or two he was in another flat, which was within walking distance of the factory. But in 1965 the employers allowed him to have a flat in a block called Trout Villas, Trout Lane, Yiewsley. It had three bedrooms, a bathroom, a lounge and a kitchen. The rent was £1.50 a week. He paid the rates and did the decorative repair. That was a very low rent even in 1965. I will read a few words of what Mr Bobbins said in evidence: I took the flat because it helped my job. I had been with the firm about two years at the time and it was because of my connection with the firm that I got the flat. It had previously been occupied by the Squires family. I thought I could have the flat as long as I worked there. So this flat was let to him in consequence of his employment. During the next eight years all went well. Mr Bobbins worked for the company and occupied the flat. Then in 1973 F Squire & Sons was the subject of a take-over. The new management had a new policy of their own about houses. They wanted to get rid of rent-protected tenants and put in their place bare licensees, for they would have no rights under the Rent Acts. They got the previous managing director, Mr Squire, to see the men who were employed, tell them of the new policy and get them to sign a form of licence, which had been prepared by solicitors. Mr Squire saw three of the employees. He explained the new policy. He told them they would have to sign a licence. He handed each a copy. They took it away to study. A Mr Hall and a Mr Williams signed it two days later. But Mr Bobbins did not sign. He was afraid that, if he signed the form, he would not be secure in the tenancy of his flat. So, after a few days, Mr Squire went to see him at the flat. He gave this evidence: I asked him what was the hold-up, and he said he was concerned about the future of his flat. I then assured him that as long as he worked for the firm he would never be turned out. He then signed it. . . . I think he was concerned about the protection of his rent book. I suppose he had no choice but to sign. I agree he had no option I think he would have had to be tough to stand firm. In those circumstances, Mr Bobbins signed. He signed a form of licence between F Squire & Sons Ltd and John J Bobbins. It said that the company would permit Mr Bobbins to occupy the premises as a licensee: . . . it being expressly agreed by both parties hereto that no tenancy of any nature shall be created hereby or arise herefrom. Mr Bobbins was to pay for gas and electricity, but there was no provision for him to pay either rent or rates. He was to keep the flat clean. Then there was this clause: The Company shall be at liberty to determine this Licence at any time and this Licence shall in any event automatically be determined on Mr Bobbins ceasing to be employed by the company. That agreement was signed on September 14 1973 by Mr Squire for the company and by Mr Bobbins himself. There it is. After signing that form, in a way Mr Bobbins was better off financially. He had not to pay any rent. He had not to pay the rates–which were between £60 and £65 a year. He had the flat free from that time onwards. Thereafter Mr Bobbins was continuously employed for the next five years until 1978. Then in 1978 the new management of the company decided to make Mr Bobbins redundant–I expect it was through lack of work, or something of that kind. No doubt he would receive compensation under the Redundancy Payments Act 1965. Also, on May 26 1978 the company wrote to Mr Bobbins saying that his licence to occupy the premises was to be determined on July 31 1978. So his work came to an end. His licence came to an end. The employers took proceedings under the special quick procedure of Order 113 in the High Court for possession on the ground that he was a mere licensee, and his licence had been determined. On behalf of Mr Bobbins it was submitted that undue pressure had been brought to bear on Mr Bobbins; that on that account the licence was invalid; and that he was still protected by the Rent Acts. The judge accepted this submission. He set out the facts, and said: I accept Mr Squire’s evidence to the effect that the defendant had no option but to sign the agreement and it was then ‘company policy.’ I am satisfied that the defendant only signed the Licence because he thought it might lead to the loss of the job if he refused . . . I have reached the conclusion that the relationships that existed in the particular circumstances of this case were special. Not only were the plaintiffs the employers but they were the landlords. He added that their particular relationship did ‘give rise to what I consider to be an unfair bargaining situation. I consider that the employers here were in a dominant situation. . . . On these facts I consider the presumption of undue influence did apply at the material time. I do not consider that this was a good bargain.’ So he set aside the licence. He held that Mr Bobbins was entitled to the protection of the Rent Acts. He did not make an order for possession. The company have since surrendered the house to the freeholders. They have been substituted as plaintiffs and claim that the judge was wrong, and that they are entitled to possession. The debate before us is as to whether the judge was right in holding that this licence was invalid because it was obtained by undue pressure. We have been referred to many cases. Reading through them all again, I think that we are tending towards a general principle similar to that contained in Article 86 of the Treaty of Rome (which incidentally is now part of our law) and section 138 of the Consumer Credit Act 1974. It does seem sensible nowadays to hold that any abuse of a dominant position (which one person has in relation to another) is contrary to law if and in so far as it grossly contravenes ordinary principles of fair dealing. A dominant position may be created by a relationship of the parties (as mother superior and novice, Allcard v Skinner (1887) 36 Ch D 145), or by a relationship of confidentiality (as banker and customer, Lloyds Bank v Bundy [1975] 1 QB 326 at p 341), or by the relative bargaining power of the parties (as publisher and song composer, A Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308, Clifford Davis Management Ltd v WEA Records Ltd [1975] 1 WLR 61): or the facts of the case as in Re The Estate of Brocklehurst, decd [1978] 1 Ch 14 at p 31. I am inclined to agree with the judge that, on the facts of this case, the employers were in a dominant position. Mr Bobbins was not only their servant. He was their tenant in one of their houses. But the real question is: Did the employers abuse it?  Were these dealings grossly unfair? On this point I venture to quote my words in Lloyds Bank v Bundy [1975] 1 QB 326 at p 339: . . . the English law gives relief to one who, without independent advice, enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate,98 when his bargaining power is grievously impaired by reason of his needs or desires. I will assume that, in the circumstances, Mr Bobbins’ bargaining power was impaired by reason of his position, his desire to live in the flat and to keep his job. But the question is: Was it very unfair?  Was the consideration grossly inadequate? First, consider the pros and cons at the time when the licensing agreement was made. On the one hand, although Mr Bobbins had the protection of the Rent Act, he was not at all secure. The premises had been let to him in consequence of his employment. On his ceasing to be employed, the landlords would be entitled to get possession if they reasonably required the flat for another person in their own employment. That is Case 8 of Schedule 15 to the Rent Act 1977. Also, although the rent was very small (£1.50 in 1973), it was open to the employers to have increased it very considerably. I should not be at all surprised if, in 1973, the landlords could have raised it to £8, £9 or £10 a week. On the other hand, by entering into this licence, Mr Bobbins was allowed to stay in the flat rent free and rates free–that is a saving of at least £1.50 plus over £1 a week for rates–and, under the formal arrangement, he was allowed to stay there as long as he worked for the employers. So he had the very considerable benefit of being able to stay in this very good flat indefinitely, paying no rent or rates at all. Taking that into consideration, followed by the fact that he remained in the flat for another five years rent and rates free, it seems to me that the terms of this licence were fair. At any rate not grossly unfair. So the licence cannot be set aside on the ground of inequality of bargaining power. But I must add a word of caution. Let no one think that this decision can be used as a device for getting round the Rent Acts. Suppose that the employers had, shortly after the agreement, given Mr Bobbins notice terminating his employment and also a notice terminating his employment and also a notice terminating the licence. Let us say a month or two after he signed the agreement. In those circumstances I would have thought that their conduct would have been so unfair that it would operate retrospectively so as to invalidate the licence agreement or at any rate to prevent the employers from relying on it. They would have been guilty of an abuse of their dominant position. Either in the making of the licence agreement or in the implementation of it. The only reason why I differ from the judge in this case is because Mr Bobbins has remained in the flat now for 6½  years, rent free and rates free. Now that he has ceased to be in their employment, it is consistent with fairness on all sides that the present owners should be entitled to possession. So, differing from the judge in this case, I would allow the appeal and make an order for possession. Agreeing, WALLER LJ said: The learned deputy circuit judge who tried this case, obviously with great care both in hearing the case and in preparing his judgment, held this at the end of his judgment: On these facts I consider the presumption of undue pressure did apply at the material time. I do not consider that this was a good bargain. Subjectively the defendant did not think so, nor do I think it was objectively. In my view the plaintiffs have to discharge an onus which arises by reason of this presumption, and in my judgment they have not done so. The defendant was not advised to take independent advice when he was confronted with a typed licence. I do not think proper explanation was given to him as to the relevance of the licence and its significance. Counsel on behalf of the appellants argued that there was no presumption in the circumstances of this case, and said that the proper test in those circumstances was to look at the transaction and see whether the consideration was grossly inadequate or so unreasonable that one would be surprised at anybody going into such a bargain. The first question that I consider is whether or not there was a presumption of undue influence. It is suggested that such a presumption arises in this case either from the relationship of master and servant, or from the relationship of landlord and tenant, or from a combination of those two. If one considers first of all, the question of master and servant, we have been referred to no case where such a relationship has been held to give rise to such an inference. Like my Lord the Master of the Rolls, I could understand such an inference being drawn between master and servant in the 19th century, when an employee could be forcibly put out of his house without warning for breach of contract, and sometimes was by unscrupulous employers. But today there is all the protection of the Employment Acts, and the opportunity to go to an industrial tribunal. So, in my judgment, such a presumption does not arise from the relationship of master and servant: nor indeed does it arise from the relationship of landlord and tenant; nor, as I have just suggested might have been the case in the 19th century, from a combination of the two. So the next question is: Do the facts of this case indicate that there was undue influence asserted?  Can such an inference be drawn from a mere statement of the facts?  Mr Squire, who was the managing director at the time, admittedly persuaded Mr Bobbins to change his contract from that of a tenancy to one of a licence. Mr Bobbins used the word ‘insist’ to describe the way that Mr Squire spoke to him; and Mr Squire himself explained that he did try to persuade him, and in cross-examination did say that he thought that he would have to be tough to stand firm against his persuasion. But the fact is that Mr Squire knew nothing about the Rent Act. He assured Mr Bobbins that as long as he Mr Squire worked with the firm Mr Bobbins would never be turned out, and thereupon he signed the agreement. The result was that Mr Bobbins had the flat rent free. Up to that time he had been protected by the Rent Acts, in so far as there is a protection when there is a probability of Case 8 being raised. Clearly it was greater protection than he would have had as a licensee. Mr Bobbins had time to think about this before he agreed to it. He did not sign after two days as two other similar employees did but he did sign a day or so later. I do not suggest that he was better off as a result of signing. He had lost the protection of the Rent Act, even though the protection might not have been so great because of the Case 8 position. But he had obtained a financial advantage. He had no longer to pay rent or rates; nor did he have to bear the cost of repairs to the flat. It was no way near the case such as was postulated by Mr Furst, namely, the case where one would say, ‘Good heavens: how could a man enter into this contract?’  It was the kind of case where a fully-instructed person might well say, ‘I think the advantages of that are greater than the disadvantages.’  He might well say, ‘I am taking a chance perhaps; but, having regard to all the circumstances, I am willing to take it.’ Accordingly, in my judgment, it is not possible to draw an inference that the agreement was entered into as a result of undue influence. It was not manifestly unfair. It was shown to have been entered into bona fide because, having been promised by Mr Squire that he could have the flat as long as he continued to work there, he did in fact have it for five years rent free. It was not a device; and I agree with my Lord, the Master of the Rolls, that, if it had been a device to enable quick possession to be obtained, different considerations might well arise. But I come to the conclusion that the suggestion of undue influence is not made out. This view is reinforced by the five years I have mentioned–the time which has gone by. It is not a question simply of doing nothing, but in this case Mr Bobbins was enjoying the benefits of this arrangement in that he was living rent and rates free with no responsibility for repairs. I would allow this appeal in those circumstances and order possession of the flat. DUNN LJ also agreed. The appeal was allowed with costs in the Court of Appeal and below. Possession was ordered within two months.