Brown & Root Technology Ltd & Anor v Sun Alliance & London Assurance Company Ltd [1996] EWCA Civ 1261 (19 December 1996)

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(HIS HONOUR JUDGE PAUL BAKER QC)

Royal Courts of Justice
Strand
London WC2
19 December 1996

B e f o r e :

LORD JUSTICE BUTLER-SLOSS
LORD JUSTICE MUMMERY
SIR RALPH GIBSON

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(1) BROWN & ROOT TECHNOLOGY LIMITED
(2) BROWN & ROOT LIMITED
Plaintiffs/Appellants
– v –
SUN ALLIANCE & LONDON ASSURANCE COMPANY LIMITED
Defendant/Respondent

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(Computer Aided Transcript of the Palantype Notes of
Smith Bernal Reporting Limited, 180 Fleet Street,
London EC4A 2HD
Tel: 0171 831 3183
Official Shorthand Writers to the Court)

____________________MR KIM LEWISON QC (Instructed by Vanderpump & Sykes, Middlesex, EN2 7JB) appeared on behalf of the Appellants
MR NICHOLAS DOWDING (Instructed by Bates & Partners, London, WC2R 3JF) appeared on behalf of the Respondent

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HTML VERSION OF JUDGMENT
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LORD JUSTICE MUMMERY: This is an appeal from an order of His Honour Judge Paul Baker QC (Sitting as a High Court Judge) on the 16th June 1995 in proceedings brought by lessees of office premises against the lessors for a declaration that the lease would determine in consequence of the service of a notice by the lessees pursuant to the provisions of a break clause.

The judge made a declaration that ” on the true construction of the lease dated the 24th July 1989 made between (1) the Defendant (2) the 1st Plaintiff (then known as Brown & Root Vickers Limited) and relating to 150 The Broadway, Wimbledon, London SW19:-

(1) The 1st plaintiff was not entitled to serve the notice of determination dated 19th September 1994;

(2) The lease will not determine pursuant to that notice.”

The lessees served a Notice of Appeal dated the 26th July 1995 on the ground that the judge had erred in law in his construction of the relevant provisions of the lease. The lessors served a respondents’ notice dated the 3rd August 1995 contending that the judge’s decision should be affirmed on an alternative ground of estoppel.

The Background Facts

As appears from the affidavit evidence sworn in support of and in opposition to the lessees’ originating summons, there has never been any dispute about the relevant facts.

On the 24th July 1989 the lessors, Sun Alliance & London Assurance Limited ( Sun Alliance) granted a lease for a term of 25 years from the 24th June 1989 at an initial rent of £1.3m per annum, with 5 yearly reviews, to the 1st appellant,Brown & Root Technology Limited ( Technology ), known as Brown & Root Vickers Limited until a change of name on the 1st June 1993. Technology was, at the time of the grant of the lease, a partly owned subsidiary of the 2nd appellant, Brown & Root Limited (B&R). The appellants are members of a group of engineering companies. The premises consisted of offices at 150 The Broadway, Wimbledon, London SW19. Technology were registered as the proprietors of the lease on the 17th August 1989 and have remained so registered.

Clause 8.1 of the lease entitled the lessees to give notice to terminate the lease by serving not less than 12 months notice expiring at the end of the 7th year. That notice would be effective to determine the term upon what was defined as ” the first determination date”. Technology subsequently purported to serve such a notice, but its effectiveness is disputed by reason of the provisions of clause 8.4 of the lease –

” the provisions contained in this sub clause 8.1 of this clause shall be personal and of benefit only to Brown & Root Vickers Limited and shall not be capable of being assigned or otherwise dealt with by the said Brown & Root Vickers Limited with the intent that the rights vested in the lessee under sub clause 8.1 shall cease to have effect upon the assignment of the lease by the lessee.”

In 1993 Technology became a wholly owned subsidiary of B&R. At the end of May 1993 it was decided that B&R would take a transfer from Technology of their business and assets, including the lease. Sun Alliance granted a licence to assign. The necessary conveyancing documents in proper form were executed on the 10th December 1993. Technology gave up the property on that date. The records of Sun Alliance were altered so that B & R replaced Technology as the recorded tenant. Rent was invoiced to and paid by B & R,who had already started to pay the rent to Sun Alliance. There was an exchange of letters on the 13th December. B&R’s letter to Sun Alliance’s solicitors stated –

” I refer to our previous correspondence in the matter and confirm that completion of the licence and assignment occurred on the 10th December by way of telephone exchange.Please forward to me as soon as possible the tenant’s signed counterpart of the licence to assign.”

Sun Alliance’s solicitors’ letter stated-

” We now enclose the licence duly dated 10th December last as agreed and have dated our copy of the transfer with the same date. There is accordingly no need to register the transfer as we are now closing our file.” (That was a reference to the requirement in a clause of the lease to register particulars in the lease).

The transfer of the lease, which was registrable, has never in fact been registered at Her Majesty’s Land Registry in the name of B&R. Owing to unresolved stamp duty problems B&R failed to submit the transfer for registration.

On the 19th September 1994 Technology served a notice on Sun Alliance purporting to terminate the lease at the expiry of the 7th year ( 24th June 1996). Sun Alliance refused to accept that Technology’s notice was valid and effective to terminate the lease. The Judge’s Decision

The issue for decision by the judge was whether there was an ” assignment of the lease by the lessee” within the meaning of clause 8.4 of the lease. If there was an assignment, Technology were not entitled to serve the break notice,as the right to serve such a notice under Clause 8.1 ceased to have effect upon an assignment.

The judge upheld the contention of Sun Alliance that the lease was not effectively terminated by service of the notice, as there had been an assignment of the lease by Technology on the 10th December 1993. He accordingly refused to make the declaration sought by Technology and B&R that, on the true construction of the lease, the lease would determine on the 24th June 1996 in accordance with Clause 8.1 and made the order already referred to.

The judge’s reason for finding in favour of Sun Alliance ,as explained in his judgment now reported in [1996] 1 Ch.51, was that the assignment of the lease by Technology to B&R took place when it was completed; and it was completed on the 10th December 1993 when Technology gave up the property subject to the lease and, having done all in their power to vest the lease in B&R, became a bare trustee for B&R of the legal title to the lease. B&R were the assignees of the lease, even though the legal estate had not been effectively transferred by entering the name of B&R in the Land Register as the legal proprietor. The judge referred to the relevant provisions of the Land Registration Act 1925,in particular Section 22(1), which relates to the registration of dispositions of leaseholds-

“A transfer of the registered estate in the land or part thereof shall be completed by the Registrar entering on the register the transferee as proprietor of the estate transferred, but until such entry is made the transferor shall be deemed to remain the proprietor of the registered estate: and where part only of the land is transferred notice thereof shall also be noted on the register.”

After reviewing the authorities, on which the judge commented that none were “directly in point”, he concluded at page 67 H to 68 A

“…………….I accept, in effect, the defendant’s submissions that, where it is necessary to fix a date on which the assignment takes place, that date, in my judgment, is the date on which it is completed. The tenant/assignor gives up the property on that date: he has no control over the stamping of the transfer, or its submission to the Land Registry. He becomes a bare trustee for the assignee as regards the legal title. The landlord, a fortiori, has no such control. There is no ground for suggesting that either the assignor or the landlord could compel the assignee to submit the transfer for registration.”

The judge rejected the submission of Technology and B&R which started from the provisions of the Land Registration Act and was summarised as follows by the judge at page 65 B

” It is said here that the assignment means the assignment of the legal estate and does not occur until the name of the assignee is entered on the register. Until that happens the transferor is deemed to remain the proprietor of the lease. It is that conclusion that I am invited to draw from those authorities and the statutory language.”

Although, in view of that conclusion, it was not necessary for the judge to deal with an argument on estoppel by Sun Alliance, the judge briefly dealt with that point at page 68 D:” I would say that on this issue I would accept that a representation had been made to the landlord that an assignment had taken place, and the landlord could expect that it would be registered in due course quite shortly. But I think the landlord is in a much more difficult position in regard to establishing any reliance to his detriment. What he had actually done is to change his records and collect the rent. That did not amount to very much. It was submitted to me generally that the landlord had changed his overall position and that was sufficient that it accepted the assignment and changed its position by accepting the assignee as the new lessee. The particular instances of rent and records and the general position that the landlord had accepted the assignee are not sufficient in themselves for reliance,and I would not have accepted that the tenant was estopped as against the landlord. I would respectfully associate myself the way that Hoffmann J dealt with it in Banner Industrial & Commercial Properties Ltd -v- Clark Paterson Ltd [1992] EGLR 139. The differences are too trivial to satisfy the test of reliance.” In their respondents’ notice Sun Alliance contend that the judge’s decision should be affirmed on the alternative ground that,in all the circumstances,Technology and B&R are estopped from denying that the lease was assigned by Technology to B&R prior to service of the break notice in September 1994.

The Appellants’ Submissions

A striking feature of the rival submissions before the judge and on this appeal is that they start from different points.

As the judge observed at page 65 B of his judgment, the argument for Sun Alliance starts from Clause 8.4 itself and concentrates on what is meant, in the provisions of that clause, by “an assignment of the lease by the lessee.” In contrast, the submissions of Technology and B&R start, as the judge observed at page 61 G, from the provisions of the Land Registration Act concerning effective dispositions of registered leasehold interests. Those submissions, repeated and elaborated on this appeal, are that Technology were not prevented from exercising their right to terminate the lease by service of a notice on the ground that the lease had been assigned within the meaning of clause 8.4. On the true construction of Section 22 of the Land Registration Act an assignment of the legal estate in the registered lease was not effective,as B&R was not registered as proprietor. The legal estate in the lease therefore remained at all times vested in Technology. B&R had an equitable interest at most. Clause 8.4 only caused the right conferred by clause 8.1 to cease to have effect if there was an assignment of the lease by Technology. In the absence of registration of B&R as proprietor, there had been no assignment of the lease.Reliance was placed on Gentle -v- Faulkner [1900] 2QB 267, a case on the construction of a covenant against assignment.It was submitted that,contrary to the view of the judge,the case was indistinguishable from the present case. In brief,the essential point is that the assignment referred to in clause 8.4 must be an assignment of the legal estate, which, in the absence of registration, remained with Technology.

The absence of control by Technology over the stamping of the transfer and the submission of it to the Land Registry were irrelevant considerations. Contrary to the view of the judge, there was in fact a duty on Technology to register imposed by the terms of Section 22 (1) that the transfer of a registered lease ” shall be completed.”

The judge’s reliance on authorities relating to bequests and inter vivos gifts of shares was criticised. The judge cited from Re Rose [1949] Ch.78 and [1952] Ch.449 which, in the view of the judge, showed that (page 67G)

” in a case where the transfers were handed over and the relevant share certificates (that is a point that is made in both cases, that the relevant share certificates were handed over), and the registration then occurred after the critical date, death in the one case and the turning point for tax in the other, in such circumstances the documents took effect from the date of handing over and not subsequent registration.”

The judge observed at page 67 H that the cases were” not directly in point”. It is submitted on behalf of Technology and B&R that those cases are irrelevant, as they were concerned with the transfer of shares in the context of the construction of a will or of an inter vivos gift. This case is concerned with the legal rights of the parties to a lease:Technology are the lessees. Have they made an assignment of the lease? In that context the relevant estate is not the equitable interest, which may have passed to the assignee as a matter of contract, but the legal estate and its effect on third parties, such as the lessors, who are concerned with the location of the legal estate. It is the owners of the legal estate to whom the lessors look for the payment of rent and performance of the lessees’ covenants.

On the estoppel question, it was contended that the judge was right and that Technology were not estopped,as against Sun Alliance,from asserting that there had been no assignment and that clause 8.4 did not apply. The essence of the argument of Technology and B&R on this point was that, even assuming that there was a representation on their behalf that the assignment had been completed, no estoppel would arise, because no detriment had been suffered by Sun Alliance as a result of reliance and a change of position, such as might make it unconscionable or inequitable to allow Technology and B&R to go back on their representation. The most that Sun Alliance could say in relation to change of position was in connection with the records and invoicing for rent. That was not detrimental reliance sufficient to raise an estoppel.

Submissions of Sun Alliance

Sun Alliance’s answer to those submissions is short and simple: this is not a case about the technical rules relating to Land Registration. It is question of the true construction of a particular provision (Clause 8.4) in a lease and of the intention of the parties. The fact was that, as far as Technology and Sun Alliance were concerned, there had been an effective assignment of the lease. Technology had done all in their power to divest themselves of their interest in the lease. As far as Sun Alliance were concerned that had been done and they had acted accordingly. Mr Dowding supported the decision of the Judge by citation of the same authorities (and the further case of R v.Edwards [1947] 1K.B.392),and by detailed reference to other provisions of the lease (clauses 3.15,3.16 and 3.17,in particular).

On the estoppel point, Mr Dowding cited Rodenhurst Estates Ltd v.W.H.Barnes[1936]2 All E.R.3 at 14 in support of a claim of estoppel by representation. Sun Alliance were informed that the assignment had been completed and, in reliance on that statement,had altered their records,demanded rent from B&R and treated B&R as the tenants occupying the premises in their own right. By being kept in the dark about the true position,Sun Alliance had lost the opportunity to consider their position.A similar submission was made on estoppel by convention:both parties acted on the common,but mistaken,assumption engendered by Technology and B&R that there was an assignment of the lease by Technology on 10 December 1993. Sun Alliance had been misled into thinking that they had a new tenant and had acted accordingly. It would be wrong to allow Technology and B&R to depart from the common assumption which they themselves had engendered: for example, by allowing B&R to raise the absence of registration as a defence to a direct claim for rent by Sun Alliance. Conclusion

In my judgment, Technology were entitled,on the correct construction of clause 8.4 of the lease, to serve the notice terminating the lease. I am persuaded by the excellent submissions of Mr Kim Lewison Q.C. that the Judge adopted an approach which, though sound in its analysis of the position in equity as between Technology and B&R, was inappropriate to determine the respective rights in law of Sun Alliance,as lessors, and Technology,as lessees,under the lease. I would allow the appeal and, subject to further argument on the precise form of order, would make a declaration that the lease determined on the 24 June 1996 in accordance with clause 8.1 of the lease. My reasons are :-

(1) Clause 8.4 had two purposes: first, that the right to terminate should be unassignable:secondly,that,if there was an assignment of the lease, the personal right to terminate conferred on Technology should cease to have effect.The second purpose is relevant to the resolution of this appeal, which turns on the identification of the precise event occasioning Technology’s cesser of the right to invoke the break clause.The critical question is:has there been an assignment of the lease by the lessee and,if so, when did that event occur?

(2) It is common ground that there has been no transfer (and therefore no assignment) of the legal title to the lease; that, as between Technology and B&R, the equitable title to the lease was capable of passing by virtue of a specifically enforceable contract to assign the lease; that,if this were unregistered land, the assignment would occur on the execution of the deed of assignment and the conveyance of the legal estate thereby, and not on the conclusion of the contract to assign;and that, depending on the context,the passing of the equitable or beneficial interest may amount to a transfer or assignment of the property in question,even though there has been no registration of the transfer,as required by statute, to perfect the legal title.The Judge referred to the cases of Re Rose [1949]Ch.78 and Re Rose [1952]Ch.499 as instances of a bequest of shares and an inter vivos gift of shares which took effect as between donor and donee and in accordance with donative intent before the registration of the transfers of the shares pursuant to the provisions of the Companies Act. Until registration there was no transfer so far as the company was concerned, but that did not prevent the gift from being effective as between others.

(3) This case is not a matter of beneficial ownership between parties to the transfer of the lease: the issue of assignment or no assignment affects the legal position of a third party, the lessors, who have given their licence to assign but are not a party to the transfer. As was observed by Jenkins L.J. in Re Rose [1952] Ch. at 508 it is necessary to keep clear and distinct the position between the transferor and the transferee and the position of a third party. Transfer of the beneficial title is not,in this context, relevant to the legal relationship between the lessees and the lessors. The issue is not what rights Technology and B&R have against each other,but what rights Technology and Sun Alliance have against each other. That is a question of legal, not equitable, rights.

(4) As between lessors and lessees, there is binding Court of Appeal authority in Gentle v.Faulkner (supra) for the proposition that “assignment” means,in the absence of a context showing an extended meaning,an assignment of the legal estate,and not of the beneficial interest e.g. by declaration of trust of the lease.It is not a matter of intention to assign, a point highly relevant to the passing of beneficial title, but of whether a defined event has occurred.That event is not “completion”, as Mr Dowding contended; it is the transfer of the legal title to the lease, so as to create the legal relationship of lessor and lessee between B&R and Sun Alliance.

On the estoppel point, I agree with the Judge that there has been no detrimental reliance by Sun Alliance such as to make it inequitable for Technology to assert,contrary to any representation or shared assumption, that there had been no assignment of the lease within the meaning of clause 8.4. For these reasons I would allow the appeal.

SIR RALPH GIBSON: I agree that the appeal should be allowed for the reasons given by Mummery LJ.

LADY JUSTICE BUTLER-SLOSS: I also agree.

Order: appellant’s appeal against the Order of His Honour Judge Baker QC dated 16th June 1995 be allowed; the declarations contained in the said Order be set aside; declaration that upon the true construction of the Lease dated 24th July 1989 made between (1) the Respondent and (2) the First Appellant (then known as Brown & Root Vickers Limited) and relating to 150 The Broadway London SW19 the First Appellant was entitled to serve the notice of determination dated 19th September 1994; Respondent do pay the Appellants’ costs here and below to be taxed on the standard basis if not agreed; leave to appeal to the House of Lords refused.Source: www.bailii.org