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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Esselte AB & Anor v Pearl Assurance Plc [1996] EWCA Civ 911 (8th November, 1996)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/1996/911.html
Cite as: [1997] WLR 891, [1996] EWCA Civ 911, [1997] 1 WLR 891

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ESSELTE AB and BRITISH SUGAR PLC v. PEARL ASSURANCE PLC [1996] EWCA Civ 911 (8th November, 1996)

IN THE SUPREME COURT OF JUDICATURE CHANF 95/0816/B
IN THE COURT OF APPEAL (CIVIL DIVISION )
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(HIS HONOUR JUDGE COLYER QC )
Sitting as a Judge of the High Court
Royal Courts of Justice
Strand
London W2A 2LL

Friday 8th November 1996
B e f o r e

LORD JUSTICE STUART-SMITH
LORD JUSTICE MORRITT
SIR JOHN MAY


(1) ESSELTE AB
(2) BRITISH SUGAR PLC Respondents

v.

PEARL ASSURANCE PLC Appellant


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


MR PAUL MORGAN QC and MR WAYNE CLARK (instructed by Messrs Geoffrey Delany, Peterborough) appeared on behalf of the Appellant (Defendant).

MR JONATHAN BROCK (instructed by Messrs Theodore Goddard, London EC1A 4EJ) appeared on behalf of the Respondents (Plaintiffs).


J U D G M E N T
(As approved by the court)

©Crown Copyright

LORD JUSTICE MORRITT: The question for decision on this appeal is whether a tenancy for a term certain to which Part II Landlord and Tenant Act 1954 once applied of property which the tenant, Pearl Assurance PLC ("Pearl"), had ceased to occupy for the purpose of its business before the expiration of that term determined at the expiration of the contractual term or only on the later expiration of a notice given by Pearl to its immediate landlords, Esselte AB and British Sugar PLC ("the Landlords"), pursuant to s.27 of that Act. By his order made on 9th May 1995 HH Judge Colyer QC, sitting as a deputy judge of the High Court, declared that the tenancy determined on 24th June 1993 at the expiration of the notice given by Pearl Assurance PLC to the Landlords on 15th January 1993 pursuant to s.27 Landlord and Tenant Act 1954. This is an appeal of Pearl. Pearl contends that the judge should have declared that the tenancy determined on the earlier expiration of the term on 15th February 1993.

On 18th September 1989 Esselte AB as the tenant of part and British Sugar as subtenant of another part of Guild House, Oundle Road, Peterborough executed a lease and an underlease respectively demising those parts to Pearl Assurance PLC for a term of five years commencing on 15th February 1989 and expiring on 14th February 1993. In each case the substantial rent payable by Pearl was payable in advance. By notices in writing given to each of the Landlords on 16th November and 24th December 1992 Pearl purported to terminate the lease or underlease as the case might be on 14th February and 31st March 1993 respectively. It is common ground that all such notices were ineffective. The judge held, and there is no appeal from such finding, that by 6th December 1992 Pearl ceased to occupy Guild House for the purposes of its business within s.23 Landlord and Tenant Act 1954. Thereafter three notices were served. The first was a notice under s.25(1) served by British Sugar on Pearl on 6th January 1993 to determine the sub-tenancy created by the sub-underlease from British Sugar on 3rd January 1994. The second and third were notices under s.27 served by Pearl on each of the Landlords on 16th January 1993 to determine both tenancies on 24th June 1993. It is common ground that the second and third were effective if, contrary to the submissions of Pearl, the tenancies had not determined earlier.

Pearl paid the rent due up to 14th February 1993. The Landlords claimed that it should also pay rent up to 24th June 1993 and on 25th June 1993 commenced proceedings for the purpose of enforcing such a liability. On 20th June 1994 Master Moncaster ordered the trial of a preliminary issue whether the tenancies terminated on 15th February 1993, 24th June 1993 or on some other and if so what date.

The answer to that question depends on the true construction of the relevant provisions of Landlord and Tenant Act 1954 as amended by Law of Property Act 1969. They are as follows:

"23. Tenancies to which Part II applies

(1) Subject to the provisions of this Act, this Part of the Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes.

(2) In this part of the Act the expression 'business' includes a trade, profession or employment and includes any activity carried on by a body of persons, whether corporate or unincorporate.

(3) In the following provisions of this Part of this Act the expression 'the holding', in relation to a tenancy to which this Part of this Act applies, means the property comprised in the tenancy, there being excluded any part thereof which is occupied neither by the tenant nor by person employed by the tenant and so employed for the purposes of a business by reason of which the tenancy is one to which this Part of this Act applies.

......

24. Continuation of tenancies to which Part II applies and grant of new tenancies

(1) A tenancy to which this Part of this Act applies shall not come to an end unless terminated in accordance with the provisions of this Part of this Act; and, subject to the provisions of twenty-nine of this Act the tenant under such a tenancy may apply to the court for a new tenancy -

(a) if the landlord has given notice under section 25 of this Act to terminate the tenancy, or

(b) if the tenant has made a request for a new tenancy in accordance with section twenty-six of this Act.

(2) The last foregoing subsection shall not prevent the coming to an end of a tenancy by notice to quit given by the tenant, by surrender or forfeiture, or by the forfeiture of a superior tenancy unless -

(a) in the case of a notice to quit, the notice was given before the tenant has been in occupation in right of the tenancy for one month; or

(b) in the case of an instrument for surrender, the instrument was executed before, or was executed in pursuance of an agreement made before, the tenant had been in occupation in right of the tenancy for one month.

(3) Notwithstanding anything in subsection (1) of this section, -

(a) where a tenancy to which this Part of this Act applies ceases to be such a tenancy, it shall not come to an end by reason of the cesser, but if it was granted for a term of years certain and has been continued by subsection (1) of this section then (without prejudice to the termination thereof in accordance with any terms of the tenancy) it may be terminated by not less than three nor more than six months' notice in writing given by the landlord to the tenant;

(b) where, at a time when a tenancy is not one to which this Part of this Act applies, the landlord gives notice to quit, the operation of the notice shall not be affected by reason that the tenancy becomes one to which this Part of this Act applies after the giving of the notice.

......

25. Termination of tenancy by the landlord

(1) The landlord may terminate a tenancy to which this Part of the Act applies by a notice given to the tenant in the prescribed form specifying the date at which the tenancy is to come to an end (hereinafter referred to as 'the date of termination'):

Provided that this subsection has effect subject to the provisions of Part IV of this Act as to the interim continuation of tenancies pending the disposal of applications to the court.

......

26. Tenant's request for a new tenancy

(1) A tenant's request for a new tenancy may be made where the tenancy under which he holds for the time being (hereinafter referred to as the "current tenancy") is a tenancy granted for a term of years certain exceeding one year, whether or not continued by section twenty-four of this Act, or granted for a term of years certain and thereinafter from year to year.

(2) A tenant's request for a new tenancy shall be for a tenancy beginning with such date, not more than twelve nor less than six months after the making of the request, as may be specified therein:

Provided that the said date shall not be earlier than the date on which apart from this Act the current tenancy would come to an end by effluxion of time or could be brought to an end by notice to quit given by the tenant.

......

27. Termination by tenant of tenancy for fixed term

(1) Where the tenant under a tenancy to which this Part of this Act applies, being a tenancy granted for a term of years certain, gives to the immediate landlord, not later than three months before the date on which apart from this Act the tenancy would come to an end by effluxion of time, a notice in writing that the tenant does not desire the tenancy to be continued, section twenty-four of this Act shall not have effect in relation to the tenancy unless the notice is given before the tenant has been in occupation in right of the tenancy for one month.

(2) A tenancy granted for a term of years, certain which is continuing by virtue of section twenty-four of this Act may be brought to an end on any quarter day by not less than three months' notice in writing given by the tenant to the immediate landlord, whether the notice is given...after the date on which apart from this Act the tenancy would come to an end or before that date, but not before that tenant has been in occupation in right of the tenancy for one month.

......

44. Meaning of 'the landlord' in Part II, and provisions as to mesne landlords, etc

(1) Subject to the next following subsection, in this Part of this Act the expression 'the landlord', in relation to a tenancy (in this section referred to as the 'relevant tenancy'), means the person (whether or not he is the immediate landlord) who is the owner of that interest in the property comprised in the relevant tenancy which for the time being fulfils the following conditions, that is to say -

(a) that it is an interest in reversion expectant (whether immediately or not) on the termination of the relevant tenancy, and

(b) that it is either the fee simple or a tenancy which will not come to an end within fourteen months by effluxion of time and, if it is such a tenancy, that no notice has been given by virtue of which will come to an end within fourteen months or any further time by which it may be continued under section 36(2) or section 64 of this Act.

and which is not itself in reversion expectant (whether immediately or not) of an interest which fulfils those conditions.
......
64. Interim continuation of tenancies pending determination by court

(1) In any case where

(a) A notice to terminate has been given under Part I or Part II of this Act or a request for a new tenancy has been made under Part II thereof, and

(b) an application to the court has been made under the said Part I or the said Part II, as the case may be, and

(c) apart from this section the effect of the notice or request would be to terminate the tenancy before the expiration of the period of three months beginning with the date on which the application is finally disposed of,

the effect of the notice or request shall be to terminate the tenancy at the expiration of the said period of three months and not at any other time."

The judge concluded that the decision of this Court in Longacre Securities Ltd v Electro Acoustic Industries Ltd [1990] 1 E.G.L.R. 91 was binding authority for the conclusion that the tenancy did not determine until the expiration on 24th June 1993 of the notice given pursuant to s.27 by Pearl on 15th January 1993. On the footing that, as submitted for Pearl, that decision was distinguishable and therefore not binding he then considered whether the reasoning of that decision was inconsistent with the relevant sections of the Act or with certain earlier decisions in respect of them. The cases to which he was referred were Cornish v Brook Green Laundry Ltd [1959] 1 Q.B. 394; I & H Caplan Ltd v Caplan (No.2) [1963] 1 W.L.R. 1247; Green v Bowes-Lyon [1963] A.C. 420 and Cheryl Investments v Saldanha [1978] 1 W.L.R. 1329. He determined that there was no such inconsistency. In his view [transcript p.22 B to D]
"Once one sees that the critical provision of the whole of Part II of the Act is that in s.24(1) that 'a tenancy to which this Part of the Act applies shall not come to an end unless terminated in accordance with the provisions of the Act, once one sees that and once the tenancy has been a business tenancy, that is to say once it has in the past satisfied s.23, then s.24(1) has caught it'."
He concluded [transcript p.30 B to 31 B]
"In the circumstances therefore of this case this tenancy continued until determined pursuant to the provisions of the Act, that is pursuant to section 27 (2) upon 24th June 1993. So to hold imposes the very minimal obligation upon tenants of serving notice on their landlords if they intend to vacate. Ex hypothesi , they are business tenants and since the giving of such notice by a business tenant does not involve the use of prescribed forms or involve undue complications or ceremony. It is not surprising in a business relationship that this minimal burden of having to take the initiative should rest upon the party in whose knowledge are all the relevant facts and whose decision it is or will be whether the tenant purposes to carry on its business use or to resume it before the contractual expiry date. To hold the contrary would leave the landlord a sitting duck, powerless to do everything save in respect of periodic tenancies, since it is common ground and emphasised by Mr. Clark that a section 25 notice can only be served when the tenancy remains one to which the Act applies, that is which still at the date of the giving of that notice satisfies section 23.

I therefore answer the question directed to be tried by declaring that the date upon which the tenancy created by the Pearl underlease as defined by paragraph 3 of the amended Statement of Claim and the Pearl sub-underlease as defined by paragraph 5 thereof was determined on 24th June 1993."

Pearl submits that the judge was wrong. They rely on the terms of the Act and earlier authorities as demonstrating that the tenancies determined by effluxion of time on 14th February. They submit that the decision of this court in Longacre Securities Ltd v Electro Acoustic Industries Ltd [1990] 1 E.G.L.R. 91 is distinguishable or arrived at per incuriam and is wrong; either way they contend that neither the judge nor this court is bound by that decision and that the judge was wrong to have thought that he was.

With regard to the terms of the Act they rely on the fact that the headings to and wording of ss.23(1) and 24(1) are in the present tense. They submit that the provisions of s. 23(3) envisage that what constitutes the holding may vary from time to time and those of s.24(3)(b) recognise that the application of the Act depends on the statutory conditions being satisfied at a particular point in time. They contend that the latter point is reinforced by ss. 25(1) and 27 which require that the tenancy is one to which the Act applies when the notice is served and suggest that the same requirement is implicit in s.26. With regard to the earlier authorities they rely, in addition to those to which the judge was referred, on Morrison Holdings Ltd v Manders Ltd [1976] 1 W.L.R. 533; Hancock & Willis v GMS Syndicate Ltd [1983] 1 E.G.L.R. 70; Demetriou v Poolaction Ltd [1991] 1 E.G.L.R. 100. They also rely on a passage in the speech of Lord Nicholls of Birkenhead in the subsequent decision of the House of Lords in Graysim Holdings Ltd v P & O Property Holdings Ltd [1995] 3 W.L.R. 854.

The Landlords support the decision of the judge for the reasons he gave. They emphasise the importance of s.27 rather than of s.24 on which Pearl placed greater weight in the argument in this court than they appear to have done before the judge. In addition they rely on the subsequent decision of Lightman J in Provident Mutual Life Assurance Association v Greater London Employers' Association Ltd (1996) 23 E.G. 129 to the effect that Longacre Securities Ltd v Electro Acoustic Industries Ltd is binding and not distinguishable.

In these circumstances I propose to consider first the proper construction of the relevant provisions of the Act without regard to authority. If the result of that process is to arrive at a prima facie conclusion contrary to that reached by this court in Longacre Securities Ltd v Electro Acoustic Industries Ltd it will then be necessary to consider the basis on which this court would be entitled not to follow it. Finally it will be necessary to decide whether the suggested grounds of distinction or the prior authorities relied on by Pearl should cause this court to refuse so to do.

There is no dispute that the issue is whether a tenant who has ceased to occupy the demised premises before the end of a fixed term tenancy nonetheless continues to be the tenant under the Landlord and Tenant Act 1954 Part II until either the landlord or the tenant gives to the other a statutory notice to determine the tenancy. But for the intervention of the legislative scheme introduced by the Act the answer would be in the negative. Pearl submits that the answer is in the negative notwithstanding that scheme because there is nothing in s.24 to continue the tenancy beyond its fixed term and s.24(3)(a) assumes that it will not. The Landlords contend that the answer is in the affirmative because s.27, in particular sub-section (2), is drafted on the assumption that the tenancy will continue unless brought to an end by service of the notice which it authorises. The root of the difference between the two approaches lies in whether the statutory formula "a tenancy to which this Part of this Act applies" refers only to the present or whether it may in all or some contexts embrace the past so that it should be construed as "a tenancy to which this Part of this Act applies or has applied".

The phrase "a tenancy to which this Part of this Act applies" appears in all the relevant sections except s.26. It appears to me to be an abbreviated reference to the provisions of s.23 which set out the conditions for the application of Part II. That section shows that occupation for the statutory purposes is essential; it recognises that such occupation is likely to change from time to time whilst the tenancy endures and provides that the identity of the holding shall change with it. That section is expressed in the present tense and, consistently with the purpose of the legislation, cannot be construed so as to include the past.

The introductory words of s.24 are also expressed in the present tense. The stipulation that "a tenancy to which this Part of this Act applies shall not come to an end unless terminated in accordance with the provisions of this Act" has no effect on a tenancy to which the Act does not apply at the time of its termination. The point is emphasised when reference is made to the provisions of s.25(1) for the method of determination provided for in that section requires that the tenancy should be one "to which this Part of this Act applies".

In my view s.24(3)(a) is of particular significance for it assumes that a fixed term tenancy, to which the Act has ceased to apply, will come to an end unless continued by sub-section (1). This could not have been the case if the formula "a tenancy to which this Part of this Act applies" should be read as including a tenancy to which this Act has applied. Thus the cases in which the tenancy has been continued by sub-section (1) must be confined to those in which the Act ceased to apply after they had been so continued. In those cases the paragraph prescribes how the continuing tenancy may subsequently be determined. It makes no reference to the termination of a tenancy which has not been so continued; but there is no reason why it should for, by definition, such a tenancy has come to an end by effluxion of time. Likewise subsection (3)(b) deals with the converse case where the tenancy becomes one to which the Act applies after the landlord has given a notice to determine it. All these references are to the present and are not in my view susceptible of including references to the past.

The landlords relied on s.24(2), 25(1), 26(5) and 27 as providing a code for the determination of tenancies. It was submitted that the code did not include the case of the tenant vacating the premises at or before the term date and the recognition of determination in such a case would be contrary to s.24(1). But this carries the point no further unless the phrase "tenancy to which this Part of this Act applies" can be construed as including tenancies to which the Act formerly applied for it is a condition for the application of the code that the Act does apply.

In truth the validity or otherwise of the argument for the Landlords depends, as their Counsel realised, on whether s.27 necessarily assumes that a tenancy to which the Act formerly applied is included. Subsection (1) is of no assistance because it repeats the same formula without throwing any further light on its meaning. If the Act applies to the tenancy at the time the tenant gives his notice then it enables a tenant to ensure that his liabilities cease at the term date. But no obligation is cast upon him to do so. It has no bearing on the question whether if, the tenant vacates the premises after the notice is served (which may be many months before the term date) but before the term date, the tenancy is continued by sub-section (1).

It was submitted that subsection (2) envisages that a fixed term tenancy is capable of being continued before its termination for otherwise it would not be possible to serve a notice before that time for the purpose of bringing it to an end on the quarter day following that time. For my part I do not accept that s.27(2) can be given that construction so as to override the emphatic use of the present tense in the formula "a tenancy to which this Part of this Act applies". In my view subsection (2) is looking to the point in time when the notice which it enables takes effect. At that time the tenancy is by definition continuing. But it does not follow that it is also "continuing" when the notice is given before the term date. Indeed it is manifest that though the tenancy will be continuing at that time it does so not by virtue of s.24 but because the term date has not arrived. In my judgment it is placing more weight on s.27(2) than it will bear to find in it justification for construing the formula as including "a tenancy to which this Part of this Act has applied".

It is contended that the construction which I favour leaves a landlord at the mercy of his tenant for he cannot be sure whether at the term date he will be able to relet the property or not. I do not accept that a landlord must find himself in that position. If the tenant is in occupation for the statutory purposes the landlord may serve a notice under s.25(1) to determine the tenancy at the term date. If the landlord is doubtful whether or not the tenant is in occupation for the statutory purposes then I see no reason why, as counsel for Pearl submitted, he should not serve a notice under s.25(1) without prejudice to his principal contention that as the tenant is not in occupation no such notice is required. In any event the argument for the landlords would, if accepted, lead to a comparable problem. If the formula had to be applied as if it stated "a tenancy to which this Part of this Act applies or has applied" then landlords seeking to exercise a break clause after say fifty years of a ninety nine year lease would have to investigate the use to which the property had been put at all times in the past as well as by the current tenant at the time.

There is no doubt that this conclusion as to the true construction of the Act, which I favour, would be contrary to that reached by this court (Dillon, Lloyd, and Farquarson LJJ) in Longacre Securities Ltd v Electro Acoustic Industries Ltd [1990] 1 E.G.L.R. 91. In that case the tenants occupied the property under a lease for a term expiring on 25th March 1988. The landlord served notice under s.25(1) to determine the tenancy on 1st March 1989 to which the tenants responded with a notice under s.27(2) to determine the tenancy on 24th June 1988. In fact the tenants vacated the property on or immediately before 25th March 1988 and refused to pay rent for any subsequent period. The landlords sued in the County Court for unpaid rent. The County Court judge determined that the tenants were not liable. The Court of Appeal disagreed. The leading judgment was given by Dillon LJ with which the other Lord Justices agreed. After setting out the facts and quoting the relevant sections Dillon LJ proceeded, at page 92, to give his reasons, which, in view of the submission that we should depart from his conclusion, I should quote in full. They were:
"It is quite plain therefore, under subsection (1) [of s.27], that the tenant for a fixed term who does not want to continue his tenancy under the Act and will be ceasing to carry on business in the premises on the expiration of the fixed term is expected to give notice to his landlord not later than three months before the date on which, apart from the Act, the tenancy would come to an end by effluxion of time. That is in line with the need for a landlord to have reasonable notice of his tenant's departure, which one can find recognised in other provisions in the Act, such as section 24(3)(a) to which I have already referred. It is inconsistent, in my judgment, with the view adopted by the judge that if the tenant ceased carrying on business on the contractual date and left the premises he could do so without any notice at all because the provisions of the Act would automatically fall away.

To my mind the key provision is that section 24(1) which provides that 'a tenancy to which this Part of this Act applies shall not come to an end unless terminated in accordance with the provisions of this Part of this Act'. It follows that the tenancy, which was a business tenancy that the tenant took under the compromise agreement of December 1987, was a tenancy which could be terminated only in accordance with the provisions of the Act, even during its fixed term. When one comes to section 27(2) one has the opening phrase 'A tenancy granted for a term of years certain which is continuing by virtue of section twenty-four of this Act'. It is submitted that that, in the present case, could apply only after March 25 1988 if the tenant was still in occupation, but the tenancy by virtue of section 24 is continued by the Act and is from the outset a continuing tenancy. Moreover, section 27(2) envisages a notice under the subsection being given before, as well as after, the date on which apart from the Act the tenancy would have come to an end; that is to say, in the present case, before March 25 1988. That necessarily shows that you cannot look at the tenancy as merely continuing by virtue of the Act after the date on which apart from the Act the tenancy would have come to an end. Subsection (2) envisages the notice given before that date, yet the tenancy is still a tenancy which is said to be continuing by virtue of section 24. That to my mind picks up the opening words of section 24, to which I have already referred, in the manner which I have mentioned.

In the present case, therefore, my conclusion is that it was open to the tenant to serve the notice under section 27(2). The tenant was not bound to await the expiration of the landlord's much longer notice. There is no reason why the tenant should be regarded as locked in by the duration of the landlord's notice. But the tenant was not entitled to bring its liability to pay rent to an immediate end just by quitting the premises on the original contractual term date. That term date is subject to the provisions of section 24(1)."

As is well known the general rule is that the Court of Appeal is bound by decisions of the House of Lords and by its own previous decisions. In each case the principle is applied to the essential reasoning behind the decisions of the respective courts and not to statements which go beyond and are not necessary to the decision itself. The first submission for Pearl is that the decision in Longacre Securities Ltd v Electro Acoustic Industries Ltd is distinguishable because of the s.25 notice which had been served by the landlord to determine the tenancy on 1st March 1989 before the service by the tenant of his notice under s.27. I do not accept that submission. The existence of the prior notice served by the landlord forms no part of the reasoning of Dillon LJ. This was the view of Lightman J in Provident Mutual Life Assurance Association v Greater London Employers Association Ltd [1996] 1 E.G.L.R. 106 and I agree with him.

Pearl then submitted (to this court but not to the judge) that this case came within one or both of two exceptions to the principle that this court is bound by its own decisions and those of the House of Lords. The first is that the Court of Appeal is not only entitled but bound to choose between two conflicting decisions of the Court of Appeal; the second is that the Court of Appeal is not bound to follow a previous decision of the Court of Appeal if it is satisfied that the decision was given per incuriam. Young v Bristol Aeroplane Co.Ltd [1944] 1 K.B. 718. The circumstances in which the Court of Appeal is entitled to regard its own previous decision as given per incuriam are:
"not only where that decision is given in ignorance or forgetfulness of some inconsistent statutory provision or some authority binding upon it, but also, in rare and exceptional cases, if it is satisfied that the decision involved a manifest slip or error." Rickards v Rickards [1990] Fam.194, 203.

The Court of Appeal has been careful not to define further what might be regarded as the rare and exceptional case, leaving it to be recognised when seen.

Pearl relies on the decision of this court in Morrison Holdings Ltd v Manders Ltd [1976] 1 W.L.R. 533 as the previous decision of this court which should be followed in this case in preference to that of this court in Longacre Securities Ltd v Electro Acoustic Industries Ltd . Pearl also relies on what it describes as a series of dicta of the highest persuasive authority as constituting the rare and exceptional case. It is clear that neither Morrison Holdings Ltd v Manders Ltd nor any of the dicta relied on was brought to the attention of the Court of Appeal in Longacre Securities Ltd v Electro Acoustic Industries Ltd . None of them is referred to in the report or in the skeleton argument of Counsel for the appellant and counsel concerned had no recollection to the contrary. In the light of the submissions for Pearl it is necessary to consider all those cases in order to ascertain whether this court is entitled to depart from the decision on Longacre. If it is then they are also of relevance in deciding what decision this court should reach.

The first is Green v Bowes-Lyon [1961] 1 W.L.R. 503 CA; [1963] A.C. 420 HL. The facts are complicated but it is sufficient for present purposes to record that Mrs Green had a tenancy of the ground floor and basement of the property in question expiring on 1st April 1959. She occupied the basement for the purposes of her business. Mrs Green sublet the ground floor to Mrs Bowes-Lyon, which she occupied for the purposes of her business, for a term due to expire on 31st March 1959. The landlord of Mrs Green, a Mr Wells, had a tenancy of the whole building expiring on 4th April 1959. His landlord, a Mr Rye, granted a reversionary lease of the ground floor to Mrs Bowes-Lyon for a term commencing on 5th April 1959. The question was to whom Mrs Bowes-Lyon was bound to pay the rent for the quarter ended 24th June 1959. In analysing the position of the various parties in the Court of Appeal Holroyd-Pearce LJ said of the tenancy of Mr Wells ([1961] 1 W.L.R. 506):
"It expired on that date [4th April 1959] because the representatives of Mr. Wells were not using any part of the premises for business purposes, and therefore there was no continuance of the tenancy by the Landlord and Tenant Act."



In the House of Lords, [1963] A.C. 434, Lord Reid's analysis of the position was that:
"the common law tenancy subsists with a statutory variation of the mode of determination or continuance by way of statutory extension. When the words [in s.44] have to be applied to an unprotected tenancy - in the present case to the tenancy of Wells - then the tenancy does come to an end at the end of the contractual term. But when they have to be applied to a protected tenancy - in the present case to the tenancy of the respondent - then the tenancy does not come to an end at the end of the contractual term but remains in existence as the same tenancy for an indefinite time until terminated in one of the ways provided by the Act."
A statement to the like effect appears in the speech of Lord Hodson at page 447. It is not suggested by Pearl that these statements formed any part of the ratio decidendi but they are relied on as dicta of high persuasive value.

The next case, in chronological order, is that of I & H Caplan v Caplan [1963] 1 W.L.R. 1247. In that case the tenant had claimed to be entitled to a new tenancy under Part II of the Landlord and Tenant Act 1954 and on 14th April 1959 commenced proceedings to enforce that entitlement. On 9th April 1960 the tenant ceased to trade and its occupation of the premises was confined to the quantity of stock in trade it left there. The question for determination was whether in those circumstances the tenant was entitled to maintain the proceedings in which it sought to compel the grant of a new tenancy. Cross J held that it was a continuing condition of the tenant's right to a new tenancy that he should throughout the proceedings remain a tenant under a tenancy to which the Act applied but that in the circumstances the tenant had not ceased to occupy the premises for the purpose of its business. At page 1253 he said:
"The only sort of tenant who is given by section 24(1) a right to apply for a new tenancy is a tenant under a tenancy to which the Act applies. And if the tenant ceased to occupy the property for business purposes after the service by the landlords of a statutory notice but before he himself issued a summons asking for a new tenancy, then, as it seems to me, the landlord could clearly apply to have the summons dismissed on the ground that the tenant had not locus standi to apply to the court."
He concluded at page 1255
"As I see it, it really is a continuing condition of the tenant's right to a new tenancy that he should be throughout the proceedings tenant under a tenancy to which the Act applies. If this condition ceases to be fulfilled at any time, then I think that the landlord can apply to have the tenant's summons dismissed just as he could if the tenancy was not protected by the Act when the application was made."
I consider that the statement as to the rights conferred by s.24(1) are part of the decision and not obiter dictum only. In relation to that decision the distinction does not matter because it was a decision at first instance and would not of itself entitle this court to depart from the decision in Longacre. But it is relevant in the consideration of the decision of this Court in Morrison Holdings Ltd v Manders Ltd [1976] 1 W.L.R. 533 which followed it.

In Morrison Holdings Ltd v Manders Ltd [1976] 1 W.L.R. 533 the tenants' lease was due to expire on 24th December 1977 subject to a break clause exerciseable by the landlord should the demised and other neighbouring premises be substantially destroyed by fire. Such a fire occurred on 20th May 1974 doing such damage to the demised premises as to render them unfit for the occupation of the tenants for the purposes of their business. Two days later, on 22nd May 1974, the landlord served notice to operate the break clause and on the 17th June 1974 demolished the premises to which the tenants had not returned. On 1st July 1974 the landlord served a notice under s.25 to determine the tenancy. On 17th October 1974 the tenants applied to the court for the grant of a new tenancy. The landlord took the preliminary objection that the tenants had no locus standi to apply for the grant of a new tenancy since before they made their application they had ceased to occupy the demised premises for the purposes of their business. The county court judge upheld the objection of the landlord on the basis that it was to be inferred that the tenants' absence from the premises was permanent. The tenants appealed.

In the Court of Appeal Scarman LJ posed the question to be determined as whether the tenants had locus standi to make an application for a new tenancy under Part II of the Act. After setting out the facts of the case, at page 539 he stated that:
"the point turns on the construction of sections 23 and 24 of the Landlord and Tenant Act 1954 and from the proper inference to be drawn as to the relationship of the tenants towards the property after the devastating fire".
He considered the terms of ss.23 and 24 and passages in the judgment of Cross J in I & H Caplan v Caplan (No.2) [1963] 1 W.L.R. 1247 including the first of the passages from that judgment which I have quoted. Then, at page 540, he said:
"I respectfully agree with the view of the law expressed by Cross J. in the two passages to which I have referred. I would put it in my own words as follows: in order to apply for a new tenancy under the Act a tenant must show either that he is continuing in occupation of the premises for the purposes of a business carried on by him, or, if events over which he has no control have led him to absent himself from the premises, if he continues to exert and claim his right to occupancy. This is a question which did not arise in terms in Caplan (I. & H.) Ltd. v. Caplan (No.2.), where there was a temporary absence of the tenant which the judge held did not interrupt the continuity of his occupation in the circumstances of that case. However, the temporary absence in Caplan (I. & H.) Ltd. v. Caplan (No. 2) which did not destroy the continuity of occupation was absence at the volition of the tenant."
Later, at page 540, he said:
"Of course, if the tenants were out of occupation or had abandoned their right of occupation at the time the notice was served, it would determine the contract of tenancy, since the tenancy would no longer be one to which Part II of the Act applied. But if the tenants still occupied or claimed their right of occupation at the time the notice was served, then the notice would not avail because it was not a notice as required by the Act."
Scarman LJ then considered the facts and came to the conclusion that it was not to be inferred that the tenants' cesser of occupation amounted to its abandonment so as to preclude any locus standi to apply for the new tenancy. Sir Gordon Willmer reached the same conclusion and Stephenson LJ agreed with both judgments.

It is true, as Counsel for the Landlords submitted, that the decision related to the locus standi of a tenant not in occupation to bring proceedings under s.24(1) seeking the grant of a new tenancy rather than the effect on the termination of the contractual tenancy of ceasing to occupy the demised premises. In my judgment this feature cannot alter the fact that it was an essential part of the reasoning of the Court of Appeal in arriving at that conclusion that if a tenant ceased to occupy the premises for the purposes of his business then the protection which the Act would otherwise afford would be lost. It must follow from this proposition that a tenancy for a term which would determine by effluxion of time if it were not one to which the Act applies will so determine if at the expiration of the term the tenant has ceased to occupy it for the purposes of any business. It is also true, as Counsel for the Landlords observed, that there was no argument addressed to the Court based on the provisions of s.27. In my view this is not material to the question whether the decision is binding but is relevant in the consideration whether, if free to do so, this Court should follow the decision of the Court of Appeal in Morrison in preference to the decision of the Court of Appeal in Longacre. In my judgment the decision in Morrison covered exactly the same point as the Court decided in Longacre and was a decision which the Court in Longacre would have been bound to follow had they been referred to it.

It follows that in my view this Court is entitled and bound to decide whether to follow Morrison in preference to Longacre. In those circumstances it is unnecessary to consider the alternative argument of the Landlords to the effect that this is one of the rare and exceptional cases in which the Court of Appeal is entitled to depart from one of its previous decisions. Nevertheless it is necessary to refer to the other decisions and dicta relied on by Pearl on the question which of the two decisions to follow.

Morrison Holdings Ltd v Manders Ltd was followed in two subsequent decisions of the Court of Appeal, namely Hancock & Willis v GMS Syndicate Ltd [1983] 1 E.G.L.R. 70 and Demetriou v Poolaction Ltd [1991] 1 E.G.L.R. 100. It is unnecessary to refer to the judgments in either of them. But reference should be made to Cheryl Investments Ltd v Saldanha [1978] 1 W.L.R. 1329. The case concerned whether the Act applied where the relevant occupation was partly residential and partly for the purposes of a business. It is common ground that it was not a decision on the point so as to be binding in this case. At page 1338 Geoffrey Lane LJ said:
"If the tenant continues the 'business occupation' (if it may be called that) thereafter, no further difficulty arises. What is the situation, however, if between the end of the contractual tenancy and the service of notice of determination by the landlord the business occupation ceases? Section 25(1) provides that the landlord

'may terminate a tenancy to which this Part of this Act applies by a notice given to the tenant in the prescribed form specifying the date at which the tenancy is to come to an end...'

If at the time the notice is served the business occupation has ceased, there is no 'tenancy to which this Part of this Act applies,' and nothing on which a section 25 notice by the landlord can bite. It seems therefore that the business occupation must exist both at the time, the contractual tenancy comes to an end and at the date of service of the notice of determination. It is necessary to point out, however, that in neither of the two cases with which we are concerned was there any change of purpose between the term date and the service of notice of determination. In each case the question is, was there or was there not a section 23(1) business occupation at the time the contractual tenancy ended?"

These observations are entirely in line with those of Lord Reid in Green, Cross J in Caplan and Scarman LJ in Morrison. Finally there is the passage in the speech of Lord Nicholls of Birkenhead in Graysim Holdings Ltd v P & O Property Holdings Ltd [1996] 1 A.C. 329. The case was concerned with the question whether the tenant occupied the demised premises for the purposes of his business when the premises were occupied by stall-holders under licence from the tenant. At page Lord Nicholls of Birkenhead observed:
"The Act seeks to protect the tenant in his continuing use of the property for the purposes of that activity. Thus the word [occupied] carries a connotation of some physical use of the property by the tenant for the purposes of his business."
In my view this dictum is consistent with all the others to which I have referred but does not carry the argument any further than those others do.

It was submitted by counsel for the Landlords that this court should follow the decision in Longacre, whatever its views as to its correctness, on the basis that it is a decision of some standing in the field of property and conveyancing matters on the faith of which many arrangements are likely to have been made. Such a principle is well established and was most recently referred to in this court in Phillips v Mobil Oil Co. Ltd [1989] 1 W.L.R. 888, 893/4. For my part I do not think that weight should be given in this case to any such considerations. The decision is relatively recent and these proceedings were commenced only three years after it had been decided. But, of more importance, the decision in Longacre was not received without criticism. Thus the editors of Woodfall's Law of Landlord and Tenant wrote in paragraph 22.046 that "it would seem that a tenancy for a fixed term cannot be continued under s.24(1) unless, immediately before the term would at common law expire by effluxion of time, the tenancy is one to which the Act applies". In a footnote they commented "this point appears to have been overlooked by the Court of Appeal in" Longacre.

In all these circumstances in my judgment the decision of this court in Morrison should be preferred to its decision in Longacre because, in my respectful opinion, it is more consistent with the wording of the legislation and accords with dicta of the most persuasive sort to be found in other cases decided both before and after Morrison. It is most unfortunate that the Court of Appeal in Longacre was not referred to any of the cases which I have mentioned; I cannot believe that their decision would have been the same if they had been. The consequence is that on the true construction of the Act s.24(1) did not apply to the tenancies of Pearl on 14th February 1993 when, in accordance with the common law, they expired by effluxion of time.

I would allow this appeal.

SIR JOHN MAY: I agree.
LORD JUSTICE STUART-SMITH: I also agree.


Order: Appeal allowed with costs here and below;
declaration that appellant's underlease and
sub-underlease be determined from 15.2.93;
respondents' claim below be dismissed;
appellant's counterclaim adjourned to the
Master for directions; application for leave
to appeal to the House of Lords refused.


© 1996 Crown Copyright


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