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||Neutral Citation Number:  EWCA Civ 19
||Case No: A3/2010/0455
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Mr Edward Bartley Jones QC sitting as a Deputy High Court Judge
 EWHC 3193 (Ch)
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE SEDLEY
LORD JUSTICE RIMER
LADY JUSTICE BLACK
|| (1) BOH LIMITED
(2) LAYHAWK CONSULTANTS LIMITED
||- and -
||EASTERN POWER NETWORKS Plc (formerly EDF ENERGY NETWORKS (EPN) Plc)
Mr Mark Warwick (instructed by Colman Coyle LLP) for the Appellants
Mr Christopher Stoner QC (instructed by Forsters LLP) for the Respondent
Hearing date: 2 November 2010
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Rimer :
- This appeal, brought with the permission of Mummery LJ, is against an order dated 4 December 2009 made by Mr Edward Bartley Jones QC sitting as a Deputy High Court Judge in the Chancery Division. The appellants (defendants to the claim) are BOH Limited ('BOH') and Layhawk Consultants Limited ('Layhawk'). The respondent (the claimant) is Eastern Power Networks Plc, the public utility supplier. It was formerly known, and sued, as EDF Energy Networks (EPN) Plc and, like counsel in argument, I will call it EDF. Mr Warwick represented the appellants before us but not before the judge. Mr Stoner QC represented EDF both before us and below. The neutral citation number for the judge's judgment is  EWHC 3193 (Ch) and it is reported at  L & TR 14.
- The case concerns an approximately rectangular area of land bounded on the south by Fourth Way, a public highway, on the Wembley Stadium Trading Estate. Each party owns the freehold of part of the land. EDF owns plot 2, upon which it operates an electricity sub-station. Plot 26 (owned by Layhawk) and plot 20 (by BOH) lie between plot 2 and Fourth Way. The issue in the claim was whether EDF has (i) rights of access and egress between plot 2 and Fourth Way over plots 20 and 26; and (ii) a right to maintain in position in plot 20 various underground cables that pass through plot 26 to the plot 2 sub-station. BOH and Layhawk deny that EDF has any such rights and claim, by virtue of their ownership of plots 20 and 26 respectively, to be entitled to prevent EDF's claim to exercise such rights. The reality is that they wish to exploit their plots as ransom strips.
- If EDF does have such rights, it is only by virtue of its title as the tenant of plot 2 under a 1953 lease that created a 42-year tenancy of plots 2, 26 and 31. The critical question before the judge was whether EDF's tenancy of plot 2 was continuing in existence under the provisions of Part II of the Landlord and Tenant Act 1954. That depended on whether or not, as BOH and Layhawk asserted, EDF's plot 2 tenancy had merged in the freehold of plot 2 that EDF acquired in 1993 and had so become extinguished. The judge accepted EDF's submission that it had not and that, as tenant of plot 2, it continued to enjoy the appurtenant rights over plot 20 conferred by the 1953 lease, as well as its rights as tenant of plot 26. He granted a declaration accordingly. By their first ground of appeal, BOH and Layhawk challenge that conclusion.
- By their second ground of appeal, BOH and Layhawk (which have changed their solicitors and counsel since the trial) have raised a new fallback argument not argued below. It arises under the Convention for the Protection of Human Rights and Fundamental Freedoms ('the Convention'). It is said that, if there has been no merger resulting in the extinguishment of EDF's plot 2 tenancy, the effect of the ordinary interpretation of section 44(1A) of the Landlord and Tenant Act 1954 is potentially to disadvantage the appellants in a manner likely to impair their right to the peaceful enjoyment of their possessions under Article 1 of the First Protocol to the Convention. By this ground of appeal the appellants assert that section 3 of the Human Rights Act 1998 requires section 44(1A) so to be read as to avoid any such impairment.
- A fuller account of the facts is as follows. An understanding of them requires the reader to imagine an approximately rectangular area of land comprising four approximately horizontal plots each extending its full width. The northernmost plot is plot 31, a thin strip of just a few feet in depth. Plot 31 abuts plot 2, by far the largest plot and to its immediate south. Plot 2 abuts plot 26 (a strip of about 13 feet in depth), which is to its south and which in turn abuts plot 20, a strip of rhomboid shape. Plot 20 abuts Fourth Way.
- By a lease dated 20 February 1953 ('the lease') the British Transport Commission ('the BTC') leased plots 31, 2 and 26 (not plot 20) to the Eastern Electricity Board ('the EEB', the predecessor of EDF) for a term of 42 years from 24 June 1952 and thus expiring on 23 June 1994. The rent was £25 a year, payable quarterly on the usual quarter days. Clause 2(7) restricted the use of the demised premises to that of an electricity sub-station in connection with the EEB's undertaking. Clause 2(6) prohibited the erection of anything other than an electricity sub-station on the demised premises and required the EEB to fence off the demised premises from the adjoining land. The EEB built an electricity sub-station on plot 2. Once built, the sub-station was enclosed by fencing around plot 2, with plots 31 and 26 remaining outside it (this is not what clause 2(6) required but nothing turns on it). The demised premises were separated from the public highway by plot 20. The lease, however, conferred rights of way over plot 20 and also to lay cables etc under the highway and plot 20 (as they were), such cables passing under plot 26 to the plot 2 sub-station. The cables remain in position to this day. The BTC was the freehold owner of a substantial area of land, including Plot 20 and what is now Fourth Way, and so was able to grant such rights.
- The sub-station is an important one. Without it there would be no power for a radius of about three miles. It serves as a back-up supplier to Wembley Stadium, but EDF's future plans are that the Stadium should be fully supplied from it, a proposal which will involve the installation of more cables to the sub-station and a need for EDF to have a right of immediate access to it.
- The title to the lease is and has been since 1953 a registered one (MX 269363). Subject to the exclusion from it in 2003 of a small, approximately square section in the north-eastern corner of plot 2 (referred to in the judgment below and in this one as 'the "X" land'), EDF has been at all material times, and remains, the registered proprietor with a good leasehold title. The story relating to the "X" land is immaterial to the issues before us.
- In March 1984 Fastiron Limited acquired from the British Railways Board (the BTC's successor) (i) the freehold reversion expectant upon the determination of the lease; and (ii) the freehold of plot 20. Fastiron thus became EDF's landlord, although it did not remain so for long.
- In November 1985 Fastiron transferred its freehold estate in plot 2 to Racal Properties Limited, and Racal became registered as proprietor with title absolute (NGL 541578). On 11 August 1987 Racal transferred that estate to Leonard Dormer, who became the registered proprietor.
- Also in November 1985 Fastiron transferred to Racal its freehold estate in plot 26, and Racal became the registered proprietor with title absolute (NGL 541577). In March 1988, following two further transactions, Electrical Distributing Company Limited ('EDC') became the registered proprietor.
- The position by the spring of 1988 was therefore that the title to the freehold reversion expectant upon the determination of the lease was as follows: (i) Fastiron owned plot 31 (and plot 20, which was not demised by the lease but was subject to the appurtenant rights it created); (ii) Mr Dormer owned plot 2; and (iii) EDC owned plot 26. EDF remained the tenant.
- The property comprised in the tenancy created by the lease was or included premises occupied by EDF for the purposes of a business carried on by it. The tenancy was therefore one to which Part II of the Landlord and Tenant Act 1954 Act applied (section 23). Although the tenancy was, by its terms, due to expire by effluxion of time on 23 June 1994, the effect of section 24(1) was that (subject to section 24(2)) it would not then come to an end but would only do so if terminated in accordance with Part II.
- In 1992 EDF commenced negotiations with Mr Dormer for a consensual renewal of the tenancy (or perhaps of just that part of it comprising plot 2: the explanatory material is not before us and the position was not explained). On 27 August 1993 he served a notice on EDF purportedly under section 25 of the Act. It related to 'BEE Primary Substation and land' (the judge perhaps regarded it as uncertain whether it purported to relate just to plot 2 or also to plots 31 and 26: see paragraph  of his judgment) and it purported to terminate the tenancy on 24 June 1994. It notified EDF that any application by it to the court for the grant of a new tenancy would be opposed on the grounds specified in section 30(1)(f) and (g) of the Act. EDF gave Mr Dormer a counter-notice on 3 September 1993 that, upon the termination of the tenancy, it was not willing to give up possession of the premises referred to in the section 25 notice.
- The negotiations between EDF and Mr Dormer continued, resulting on 23 December 1993 in the purchase by EDF for £237,500, and the transfer to it by Mr Dormer, of his freehold estate in plot 2. EDF became, and has since remained, the registered proprietor of that estate (save, since 2003, for the "X" land). Thus, as from 23 December 1993, the freehold reversion immediately expectant upon the determination of the tenancy created by the lease was split between: (i) Fastiron, which owned plot 31 (and also plot 20); (ii) EDF, which owned plot 2; and (iii) EDC, which owned plot 26. EDF was therefore in the relatively unusual position of having become the freehold owner of part of the land – plot 2 – of which it was also the tenant under the lease. 23 June 1994 – the date specified in the lease for the termination of the tenancy – came and went. EDF had in the meantime made no application to the court for the grant of a new tenancy.
- Further dealings with the freehold title followed. In March 1999 Containerised Storage Company Limited ('Containerised Storage') acquired plots 20 and 31 from Fastiron and became registered as proprietor of both plots (NGL 770835). On 30 June 2002 it transferred that interest to BOH, which on 24 December 2002 became the registered proprietor under a new title number, NGL 816821), having paid £750 for its acquisition.
- As for plot 26, in March 2002 EDC transferred it to Commercial Rental Limited ('Commercial Rentals'), which became registered as proprietor on 24 March 2002 (NGL 514577). Plot 26 was then transferred to Layhawk, which on 19 January 2005 became its registered proprietor.
- In paragraph  of his judgment, the judge described how trouble started for EDF with the March 1999 sale, with a Mr Todd engaging in increasingly aggressive correspondence. He was the sole witness at the trial for BOH and Layhawk. As I explain in paragraph  below, he is said to have been an agent for Containerised Storage and Commercial Rentals; and they, BOH and Layhawk were or are apparently all connected in one way or another. In paragraph  the judge explained the plot 31 story, which resulted in Mr Avanzato also being joined as a defendant. He is not concerned with the issues before this court and was not represented before us. In paragraph  the judge explained the position with regard to the "X" land.
The issues before the judge
- The judge had before him more issues than we do. It was common ground at the trial that none of the rights of access or of cabling that EDF requires over and in respect of plots 26 and 20 is appurtenant to its freehold estate in plot 2. The only case that EDF sought to make was that, despite its acquisition in 1993 of the freehold of plot 2, its tenancy of (at least) plots 2 and 26 created by the lease was still continuing under section 24 in Part II of the 1954 Act: that was because it had never been terminated in accordance with Part II. If that was correct, EDF would continue to enjoy the like appurtenant rights in respect of plot 2 as it had always done. As the judge explained, it did not matter to EDF whether its tenancy also continued in respect of plot 31; and leading counsel who appeared at the trial for BOH and Layhawk concentrated in particular on his submission that the tenancy in respect of plot 2 had terminated, to which end he argued that the section 25 notice that Mr Dormer had served in August 1993 had brought the tenancy of plot 2 to an end on 24 June 1994. That was the date specified in it for the termination of the tenancy and EDF had made no application to the court for the grant of a new tenancy. If the argument was right, it would hole EDF's case below the waterline.
- The judge, however, rejected it. He explained that the severance into three separate ownerships of the reversion did not create three separate tenancies: despite such severance, there remained but one tenancy (Jelly v. Buckman  1 QB 488; Nevill Long & Co (Boards) Ltd v. Firmenich & Co (1984) 47 P & CR 59). He explained further that, in order to be valid, a section 25 notice had to be given in respect of the whole of the property comprised in the tenancy (Dodson Bull Carpet Co Ltd v. City of London Corporation  1 WLR 781; Southport Old Link Ltd v. Naylor  1 EGLR 66). Yet further, he pointed out that the conventional view had always been that, in the case of a split reversion, all the reversioners must join in the giving of a section 25 notice if it is to be valid, a principle now expressly affirmed with effect from 1 June 2004 by section 44(1A) of the 1954 Act. In this case, however, the notice had been given by Mr Dormer alone. The judge's conclusion, in paragraph , was that the section 25 notice he had served was invalid because (i) it related only to plot 2, and not also to plots 31 and 26; and (ii) it was given by only one of the three separate reversioners. There is no appeal against those conclusions. (They were alternative conclusions, each fatal, and I have mentioned that in paragraph  the judge perhaps evinced some uncertainty as to the extent of the land to which the notice purported to relate).
- It was next argued that, as EDF had served a counter-notice in response to the section 25 notice indicating that it was not willing to give up possession of the premises referred to in the notice, it became estopped, by representation or convention, from denying the validity of the section 25 notice. The judge dealt with that submission between paragraphs  and  and rejected it. There is no appeal against his decision in that respect either.
- The next issue argued before the judge was that upon EDF's acquisition in 1993 of the freehold estate in plot 2, its tenancy in respect of plot 2 (although not in respect of plots 31 and 26) must be regarded as having merged in the freehold estate and so have come to an end. If so, even though its leasehold estate in plot 26 may have continued, EDF would not, as the freehold owner of plot 2, have continued to enjoy the rights over plot 20 that were formerly appurtenant to its tenancy interest in plot 2; nor could it use its rights as a tenant in respect of plot 26 to gain access to plot 2.
- As to that argument, the judge rejected EDF's submission that a merger as to merely a part of a leasehold estate was not possible as a matter of law, and held that it was possible, including in a case where, as here, the reversion had become severed. As to the merits of the argument, he explained that at common law a merger occurred automatically, reflecting the principle that one person cannot be both landlord and tenant of the same premises, whereas in equity (which, by section 185 of the Law of Property Act 1925, now prevails) the position was different. In equity regard must be had to the intention of the parties. The judge referred to Cozens-Hardy LJ's observations in Capital and Counties Bank Ltd v. Rhodes  1 Ch 631, at 652, that the courts of equity mitigated the rigours of the common law and:
'… had regard to the intention of the parties, and, in the absence of any direct evidence of intention, they presumed that merger was not intended, if it was to the interest of the party, or only consistent with the duty of the party that merger should not take place.'
- The judge's conclusion was that there had been no merger. As that conclusion is challenged by the first ground of appeal, I will set out his reasoning. Having held that there was in principle no reason why there could not be a merger in respect of part of the premises comprised in a lease, he continued:
'66. Out of this submission developed, however, a more sophisticated argument. Is it possible to merge as to part where the reversion is severed? The Lease might contain covenants which benefit ("touch and concern") other parts of the land comprised within the Lease. A lease may be granted of Plots 1, 2 and 3 (all of which are dwellinghouses) and contain a covenant, say, against keeping pigs on any part of the demised premises. The reversion then becomes severed so that there are individual reversions to Plots 1, 2 and 3. Following acquisition of the freehold reversion on Plot 1 by the tenant of Plot 1, the freehold reversioners to Plots 2 and 3 might well be concerned by merger on Plot 1 for, thereby, Plot 1 would be freed from the restraint against keeping pigs (to the detriment of the reversions on Plots 2 and 3). Equally the right to distrain for rent might be adversely affected. Thus, and taking the above example, if there be merger as to part in respect of Plot 1 the right of the severed reversioners of Plots 2 and 3 to distrain over Plot 1 would appear to be lost on merger in respect of Plot 1. And rent, (absent formal apportionment on severance of the reversion) issues out of each and every part of the demised land. Ultimately, however, I could detect no rule of law or rule of equity that the existence of a severed reversion of itself prevents merger as to part. Rather it seems to me that if the other severed reversioners do have a genuine interest in the issue of merger then their interest has to be taken into account in ascertaining whether the equitable presumption against merger is rebutted. It may, perhaps, be that in an appropriate case the absence of the actual consent of the other severed reversioners to the merger as to part will be sufficient so as to conclusively prevent rebuttal of the presumption against merger. In other cases, perhaps, the absence of such consent may (because the interest of the other severed reversioners in opposing merger is, effectively, de minimis) not inform at all the issue as to whether the presumption against merger is rebutted. That there should be no absolute rule of law or equity that absence of the express or implied consent of the other severed reversioners prevents merger as to part seems to me to be in accord with the equitable principles which apply to merger (namely that the same is a matter of intent).
67. I must at this stage comment on surrender as to part where there is [a] severed reversion. Can surrender as to part occur without the consent (express or implied) of all the severed reversioners? And does the answer to this question inform the issues which arise on merger as to part where there is a severed reversion? If, as EDF contend, the Lease has continued under Part II there has been a surrender of the "X" land without the consent of the severed reversioners. By such surrender the severed reversioners lost the right to distrain upon the "X" land and, perhaps more importantly, to enforce as to the "X" land the user restriction contained in clause 2(7) of the Lease. Although this issue was raised in submissions, no authority was cited to me which would assist on this question. As far as I am aware it is not considered in any textbook, indeed it may never have been considered at all. It may have no practical relevance on the facts of this case. Masterdent Ltd has the benefit of being registered under Title Number NGL 8273728 as Proprietor with Title Absolute of the freehold estate in the "X" land (entirely free of the Lease). It is difficult to see how the user covenant in clause 2(7) of the Lease confers any meaningful benefit on either Plot 31 or 26. The annual rent due under the Lease which should be apportionable to Plots 31 and 26 cannot be a matter of, at the most, a few pence or pounds and, in any event, the sub-station offers the ideal subject matter for distraint. But I do incline to the view that where there is a severed reversion a surrender as to part requires the consent (express or implied) of all the severed reversioners (save, perhaps, in a case where there has both been a formal apportionment of the rent and none of the covenants in the lease "touch and concern" the reversion of the other severed reversioners). To this extent, therefore, there may be a subtle difference between the principles applying on merger (as I have analysed them above) and surrender.
68. Against this background I turn to consider whether, in respect of Plot 2, the presumption against merger is rebutted. I do not intend to deal with this matter simply on the basis of the location of the burden of proof but it does seem to me that the burden of proof on this point is borne by [leading counsel for BOH and Layhawk]. Were it relevant I would have held that BOH and Layhawk had failed to discharge that burden (since, quite understandably, they were unable to advance any evidence whatsoever of any positive intent on the part of EDF to effect merger).
69. There is no direct evidence (either way) of the intent of EDF (or of the other two severed reversioners) in respect of merger following the acquisition of the freehold of Plot 2 by EDF on 23 December 1993. The reality, on the balance of probabilities, is that neither EDF (nor the other two severed reversioners who in all probability knew nothing whatsoever about the acquisition of the freehold of Plot 2) ever directed their minds to the question of merger. Whilst it is true that following the acquisition of the freehold of Plot 2 EDF stopped paying any of the rent due under the Lease I do not think that this evidences any intent to merge. On the contrary, it seems to me to be entirely neutral since EDF (absent any formal apportionment of the rent due under the Lease following initial severance of the reversion) could have paid the whole £25 rent as reserved by the Lease to itself (a pointless circular transaction). But if any evidence of intent to merge could be derived from the non-payment of rent this is more than balanced out by the fact that no application to merge was made by EDF when it became registered as proprietor of the freehold land comprised in Title Number NGL 541578. Thus Title Number MX 269363 continued in existence (without Plot 2 being taken out). This could not have occurred if there had been an express application for merger to HM Land Registry. On 6 November 2000 HM Land Registry wrote to EDF's solicitors indicating that, having inspected their files, HM Land Registry could not find any clear evidence as to merger one way or the other. This would clearly indicate that these files do not disclose any express application by EDF for merger. Over and above this, there is no further evidence on the issue of merger but merger was clearly to EDF's detriment granted the fact that the freehold carried no easements over Plot 20 whatsoever and that merger in respect of Plot 2 would give rise to the Harris v. Flower problem over Plot 26 (so far as use of Plot 26 for access to Plot 2 was concerned). That of itself, on the authorities, is sufficient to support the presumption against merger. Indeed it seems astounding, objectively analysed, that EDF should have paid £237,500 to Mr Dormer to acquire the freehold of Plot 2 if, thereby, it was going to lose its access and cabling rights over Plot 26 and Plot 20. To impute such an intention (absent direct evidence of intention) to EDF is absurd. When there is added into the equation the fact that the other severed reversioners in all probability knew nothing about what had occurred and, most certainly, did not give express or implied consent to merger the presumption against merger is only strengthened.
70. I can, therefore, find nothing which rebuts the presumption against merger and, so, merger did not occur.'
- Given that conclusion, the judge held that the tenancy created by the lease was statutorily continued by Part II of the 1954 Act after the termination date of 23 June 1994 provided by the lease, which continuation applied equally to that part of the demised premises comprising plot 2. He rejected an argument that the lease had been forfeited so far as it related to plots 26 or 31. He also rejected an argument that the lease in respect of plot 26 had been surrendered, although he accepted that it had been surrendered in respect of plot 31. The result of that holding was that the lease was continuing solely in respect of plots 2 and 26. That conclusion was and is sufficient for EDF's purposes.
The first ground of appeal
- The judge held that in a case in which the reversion becomes split between more than one reversioner, with the tenant becoming one such reversioner in respect of part of the premises, there can in principle be a merger (and consequential extinguishment) in his reversionary estate of his tenancy in that part. There is no cross-appeal by EDF against that conclusion. Mr Warwick's submission for the appellants was that where the judge fell into error was in finding on the facts that there had been no merger.
- For the purposes of this argument, Mr Warwick accepted, indeed asserted, that in the case of a split reversion of a business tenancy protected by Part II of the 1954 Act it will be necessary for all the reversioners to join in the giving of a section 25 notice directed at terminating the business tenancy in respect of the entirety of the tenanted premises; and that the refusal of any of the reversioners to co-operate in giving such a notice will prevent its being given. The need for all reversioners to join in the giving of a section 25 notice is apparent from section 44(1A) of the 1954 Act, which has been in force since 1 June 2004 and which further explains the definition of 'the landlord' in section 44(1). Section 44(1A) provides:
'The reference in subsection (1) above to a person who is the owner of an interest such as is mentioned in that subsection is to be construed, where different persons own such interests in different parts of the property, as a reference to all those persons collectively.'
- In a case, however, in which there are, say, three reversioners of different parts of the demised premises, say R, S and T, with T also being the tenant of the whole, it is obvious that R's and S's commercial interests in giving a notice under section 25 may not be shared by T. The tenancy may, for example, be continuing under section 24 at a rent below the market rent, with the only prospect of the achieving of an increased rent being by the giving of a section 25 notice terminating the tenancy. If T then wishes to preserve his security of tenure, he will have to apply to the court for the grant of a new tenancy at a market rent. T will or may, however, have no incentive to join in the giving of a section 25 notice that will bring his advantageous status to an end. He will, in practice, be able to block its giving and thereby protect himself from ordinary market forces. Whilst it is the purpose of Part II to confer security of tenure on business tenants, it is not its purpose to provide them with protection of that nature.
- The issue raised by this first ground of appeal turns, therefore, on whether the potential for tension between the respective interests of, in my example, R and S on the one hand and T on the other provides a basis for a conclusion that (i) upon the acquisition by T of his separate reversionary estate in respect of part of the demised premises, and (ii) in the absence of any evidence of an intention on T's part to effect a merger, there is (iii) a presumption of a merger in T's reversionary estate of his tenancy in the relevant part. If yes, it would follow that the tenancy of that part would determine and that R and S would become the sole remaining landlords in respect of T's tenancy of the other two parts and could alone combine in giving a section 25 notice in respect of such parts. They might of course then find that the market rent for such parts was no more, or less, than it had been for the whole. They might also wish to avoid the grant of a new tenancy of those parts by relying on one or more of the grounds in section 30(1). They may of course anyway have divergent views as to the steps to be taken with regard to the tenancy: the possibility of conflict is not exclusively the preserve of situations in which one of the reversioners is also the tenant.
- In order to assess this issue it is necessary to consider the principles as to when a merger of a lesser interest in a greater one will take place. Where the lesser interest is a tenancy, the greater interest is the reversion immediately expectant upon its determination and both estates become vested in the same person, the judge observed that at common law a merger would be regarded as occurring automatically. That is, I consider, correct, at any rate in cases in which the two estates become vested in the same person in the same right. The approach of the common law does not, however, provide a solution to the present case because a different principle applies in equity and the equitable rule now prevails. The rule in equity was that there would only be a merger if the party in whom the two estates vested intended a merger. Section 185 of the Law of Property Act 1925, headed 'Merger', (and substantially re-enacting section 25(4) of the Judicature Act 1873) provides that:
'There is no merger by operation of law only of any estate the beneficial interest in which would not be deemed to be merged or extinguished in equity.'
It is, therefore, upon the equitable principles relating to merger that attention must be focussed. Mr Warwick's submissions raised an issue as to the equitable solution that the court should apply to the facts of the present case in circumstances in which there was (as the judge found) no evidence as to EDF's intention in relation to merger when the two estates became vested in it.
- We were referred to just two authorities on merger. The first was Ingle v. Vaughan Jenkins  2 Ch 368, a decision of Farwell J. The point there was whether an equitable lease created by an uncompleted agreement for the grant of a lease became merged in the legal estate in the land that the equitable lessee later acquired; or whether it remained unmerged so as to be enforceable by his executor. Farwell J held that there was no merger. He described the applicable principles thus, at 370:
'Whatever might have been the case at common law, as to which it is unnecessary that I should express an opinion, it is, in my opinion, clear that it was not merged or extinguished in equity. I think the proposition in Lewin on Trusts, 10th ed. P.889, is correct – namely, that "The principle by which the Court is guided is the intention; and in the absence of express intention, either in the instrument or by parol, the Court looks to the benefit of the person in whom the two estates become vested." The author goes on to point out that the chief importance of the doctrine of merger is with reference to charges, and the cases he cites are confined to charges.
The defendants contended that a different principle applied in the case of a lease, but I am unable to follow that distinction. The principle being that the Court looks to the benefit of the person in whom the interests coalesce, I cannot see why there should be any distinction in this respect between a beneficial lease and a term to secure a charge. In either case the term is taken as an equivalent for money expended. Nor do I think it makes any difference whether the coalescence of the interests is brought about by operation of law or the acts of the parties. The principle of Grice v. Shaw 10 Hare 76 is applicable to the present case. The head-note is as follows: "Where the tenant in fee or in tail of an estate becomes entitled to a charge upon the same estate, the general rule is, that the charge merges, unless it be kept alive by the party entitled to it; and where the merger of the charge would have let in other charges in priority, thereby rendering it the interest of the owner of the estate to keep alive his charge, the Court presumed that such was his intention, notwithstanding the absence of any other indication of such intention.' (Emphasis as in the original)
- Farwell J cited from Turner VC's judgment in Grice. That showed that, in that case, there was no evidence of any express intention to keep the charge alive and that the question was what intention should be presumed with regard to it. As it was in the chargee's interest to keep it alive, the court presumed that that was his intention. Farwell J applied that principle to the case before him.
- The second authority was Capital and Counties Bank, Limited v. Rhodes  1 Ch 631, a decision of this court. It is necessary to understand the material facts. In 1871 L granted T a 99-year lease of Whiteacre at an annual rent of £100. By May 1897 the first defendant, Rhodes, had acquired the lease. In that month, by way of mortgage to secure the payment of £16,700, he granted Flower & Sons (the third defendant) a sub-lease of Whiteacre for the residue of the lease less one day, such sub-lease not reserving any rent. The mortgage empowered Flower to dispose of the residue of the 1871 lease if it became necessary to enforce the security. In June 1899 Rhodes agreed to buy the freehold of Whiteacre for £3,650, the sale particulars describing it as a freehold ground rent of £100 and making clear that the sale was subject to and with the benefit of the 1871 lease. In seeking to obtain, as he did, a mortgage loan of £3,000 from the plaintiff bank in order to assist his purchase, Rhodes presented the sale particulars to the bank. Rhodes's purchase and subsequent mortgage to the bank were completed by successive instruments executed on the same day in July 1899: first, a conveyance of the freehold to Rhodes subject to and with the benefit of the 1871 lease; second, an instrument (by way of mortgage) conveying the freehold to the bank and also demising to it the unexpired residue of the 1871 lease less the last day. Those instruments made no reference to the prior 1897 mortgage to Flower although the bank had actual knowledge of it. In April 1901 Rhodes executed a deed of arrangement transferring all his property to Mason (the second defendant) in trust for his creditors. The bank, to which the whole £3,000 was due, was not a party to the deed. By June 1901 Flower had taken possession of Whiteacre and contended that the 1871 lease had merged in the freehold upon Rhodes's acquisition of it in 1899 so that it was entitled to remain in possession under its mortgage security without paying any rent. By its claim, the bank challenged that there had been a merger and claimed to be entitled to take possession of Whiteacre under the proviso for re-entry in the 1871 lease following the non-payment of rent. Kekewich J doubted, without deciding, that there had been a merger but held that, if there had, the bank's mortgage interest would not take priority over Flower's and dismissed the claim against Flower. The bank appealed.
- Sir Richard Henn Collins MR summarised the issue succinctly, at 646:
'The principal question is whether on the purchase by Rhodes of the fee his term was merged in the reversion, the result of which would be that [Flower] would hold directly under the owner of the fee … without any obligation to pay rent, while, the term held by Rhodes being extinguished, the rent of £100 a year would be no longer payable, and the security held by the bank would be land subject to a term not expiring until 1968, during which no rent could be received.'
Collins MR observed, at 647, that it seemed to him 'quite clear that, if the intention of the parties is that which determines this question, they certainly did not intend that a merger should take place.' He regarded 'the parties' as being Rhodes and the bank, his point being that it was the essence of Rhodes's wish to borrow from the bank on mortgage that he should be able to offer it the security of a freehold yielding a ground rent of £100 a year. He referred to that as supported by the July 1899 documents and said, at 648, that:
'… the transaction could not have been carried out at all unless the term was kept alive, and it was clearly for the benefit of both parties to the transaction that it should be kept alive.'
He rejected the argument that 'the rule of equity that the question of merger must be decided by the intention of the parties was limited to the question of the merger of charges only, and did not apply to the merger of estates', and referred to Farwell J's decision in Ingle as deciding the contrary. He then held that there had been no merger, saying at 651:
'It remains to consider whether the evidence of intention, as well as of benefit to Rhodes and the bank if the term were kept in existence, is not such as to prevent a merger as the law now stands. The law to be deduced from the previous authorities was summed up by Lord Macnaghten in the well-known passage in Thorne v. Cann  AC 18, 19, and was applied to the case of leases by Fry J and Farwell J in the cases which I have already mentioned. I think those authorities clearly establish that in the present case, neither on the sale to Rhodes or on the mortgage by him to the bank, would "the beneficial interest in" the term have been "deemed to be merged or extinguished in equity," and that therefore the transaction falls within [what is now section 185 of the Law of Property Act 1925], and there is no merger at law.'
- Romer LJ agreed both with Collins MR's judgment and that of Cozens-Hardy LJ, and did not add a substantive judgment of his own. Cozens-Hardy LJ explained that the first issue in the appeal was whether the 1871 lease had merged in the freehold. He said, at 652, that the rigid rule at common law was that if a term and its freehold reversion vested in the same person in his own right, the term merged in the freehold 'whatever may have been the intention of the parties to the transaction which resulted in the union'. He continued:
'The Courts of Equity, on the other hand, in many cases treated the interest which merged at law as being still subsisting in equity. They had regard to the intention of the parties, and, in the absence of any direct evidence of intention, they presumed that merger was not intended, if it was to the interest of the party, or only consistent with the duty of the party, that the merger should not take place.'
He explained that the commonest application of the principle had been in relation to cases where a life tenant paid off a charge upon the inheritance, but said that the principles applied equally to the merger of estates in land as to merger of charges on land. He said, at 653:
'It was well established that, according to the strict rules of the common law, there would be merger, notwithstanding that one of the two estates might be held in trust, and the other beneficially, by the same person, or one might be held on one set of trusts and the other on another set of trusts. But it was equally well established that equity would interfere, and would, if necessary, decree the execution of such deeds as would replace the parties in their proper position: see Saunders v. Bournford (1679) Finchm 424, where Lord Nottingham LC decreed that, notwithstanding the merger of a term, the plaintiff should hold possession of the premises during the remainder of the term, and that the defendant should make a further assurance of the remainder of the term. The merger was treated as an accident prejudicial to the real beneficial interests of the parties: see also Attorney-General v. Kerr (1840) 2 Beav. 420, a remarkable instance of the application of the equitable doctrine. I think the decision of Farwell J, or rather his dictum to this effect, in Ingle v. Vaughan Jenkins  2 Ch 368 is consistent with principle and is supported by authority. A Court of Equity had regard to the intention of the parties, to the duty of the parties, and to the contract of the parties, in determining whether a term was to be treated as merged in the freehold.'
- He explained, at 654, that it was obvious that it was the parties' intention that the bank should have a security on the freehold ground rent of Whiteacre so that no merger which would destroy that ground rent ought to be allowed. 'The intention of the parties was clear that there should not be a merger.' He too plainly regarded 'the parties' as being Rhodes and the bank.
- Mr Warwick, in his submissions in opening and reply, adopted a perhaps slightly inconsistent stance in relation to Rhodes. I understood him in his opening to disavow the suggestion that it established a principle providing direct support for the appellants' argument that there was a merger in the present case. His point was rather that Rhodes was not a case in which the court was concerned to take into account any third party interests comparable to those of EDF's co-reversioners in the present case and so it was not directly in point by way of guidance for its disposition. He said that EDF's claim that there had been no merger was one that was aimed at putting itself in a position to be able to abuse the legislative scheme of Part II of the 1954 Act, a position directly injurious to the interests of the co-reversioners. He said it would be contrary to the latters' interests that EDF should maintain an unmerged interest in a tenancy interest of plot 2 because that would prevent the co-reversioners from serving a section 25 notice in respect of the demised premises without the co-operation of EDF, whereas in all likelihood EDF's interests would be against giving such a notice. The possible consequence of that would or might be that the tenancy could continue indefinitely. It followed that it could not therefore have been the intention of the co-reversioners that EDF's tenancy interest in plot 2 should survive unmerged. Had they been consulted as to whether there should or should not be a merger upon EDF's acquisition of the freehold of plot 2, they would have responded with a resounding yes, since that would enable them to bypass any reference to EDF when considering their interests as landlords.
- Mr Warwick's further submission was that a court of equity faced with this type of situation ought, therefore, to invoke its traditional flexibility and meet the potential for injustice by finding that the competing 'pro-merger' interests of the co-reversioners must trump (his word) the different 'no-merger' interest of EDF. The essence of his submission was that the present case involved circumstances quite different from any that had arisen in the reported authorities and that the court should therefore not feel constrained in developing the 'merger' principles so as to meet such circumstances.
- In his reply, Mr Warwick focussed on the last sentence of the passage from Cozens-Hardy LJ's judgment cited in paragraph  above, which he described as the ratio of the decision, and said that it supported the approach he was urging. He sought to apply it to this case by submitting that here 'the contract' is the 1953 lease; and that by 1993, when EDF acquired the freehold reversion in respect of plot 2, it had an obligation to consider the interests of its two co-reversioners as to the other two parts of such premises, plots 26 and 31. Mr Warwick submitted that in paragraph  of his judgment, the judge had directed himself correctly as to the need, in considering the merger argument, to take account of the interests of the co-reversioners. By paragraph , however, the judge had, he said, forgotten such self-direction and had decided the question by applying the principle that, absent any evidence pointing to a different intention, it should be presumed that EDF intended no merger if, as he found, it was contrary to its interest that there should be a merger.
- With respect to Mr Warwick's careful submissions, both in opening and reply, I regard them as mistaken at every point and would not accept them. The starting point is that whereas the ordinary rule at law was that the coalescence of a lease and its reversion in the same person ('A') in the same right would result in a merger and extinguishment of the lease, in equity it was open to A to form an intention, and declare accordingly, that there should be no such merger and extinguishment. Equity further developed the principle that in any case in which A did not expressly evince such an intention, or in which there was no other evidence of such an intention on his part, there was a presumption against any intention for a merger if such would be against his interest. In a case in which there was no express declaration or other evidence as to A's intentions, the focus of equity's inquiry was therefore exclusively on his interests: and if a merger would be against his interests, he is presumed to have intended against any merger. That is the principle that was applied in Ingle and this court in Rhodes made it clear that it regarded Ingle as having been correctly decided. The equitable principles now prevail over the principles applicable at law.
- This court in Rhodes explained the principles but I would not regard it as having developed them. Rhodes differed in kind from Ingle in that it was not a case in which the court had to consider whether there was any presumption that Rhodes did not intend a merger. On the contrary, it was one in which the court considered that there was clear evidence as to what Rhodes (and the bank) intended as regards a merger or otherwise; and the evidence showed that neither of them can have intended a merger. Both Rhodes and the bank were closely bound up in Rhodes's acquisition of the freehold. Rhodes needed the bank's loan in order to finance the acquisition, and the documents showed that his deal with the bank was that its security was intended to be the freehold with the benefit of the rent yielded by the 1871 lease. It is those considerations that explain the references by Collins MR and Cozens-Hardy LJ to 'the intention of the parties' and they pointed solidly against there having been any intention on the part of Rhodes to merge and extinguish the lease. It is perhaps worth citing the passage from the speech of Lord Macnaghten in Thorne v. Cann  AC 11, at 18/19, to which Collins MR referred ( 1 Ch 631, at 651: see paragraph  above) as summing up the applicable law. Lord Macnaghten said:
'Nothing, I think, is better settled than this, that when the owner of an estate pays charges on the estate which he is not personally liable to pay, the question whether those charges are to be considered as extinguished or as kept alive for his benefit is simply a question of intention. You may find the intention in the deed, or you may find it in the circumstances attending the transaction, or you may presume an intention from considering whether it is or not for his benefit that the charge should be kept on foot. Here, I think, the intention appears plainly on the face of the deed by which Miss Arnold purported to transfer her mortgage.'
Ingle was a case in which the court presumed an intention that there should be no merger because that would have been against interest. Rhodes was a case in which the court found positive evidence of an intention that there should be no merger.
- I disagree with Mr Warwick that the 1953 lease can or should be regarded as an example of the type of 'contract' to which Cozens-Hardy LJ was referring in the last sentence of the passage quoted in paragraph  above. It is not. In making that reference, I presume that Cozens-Hardy LJ had in mind the mortgage contract between Rhodes and the bank, a transaction which made it self-evident that no merger was intended since otherwise the security that Rhodes purported to give would have been substantially worthless. The present case is miles away from Rhodes. The 1953 lease did not constitute a contract between the three co-reversioners who were in existence by December 1993. It imposed no contractual obligations or other duties upon any reversioner towards his co-reversioners. When EDF acquired the freehold reversion in plot 2 it was under no obligation to do other than consider its own interests.
- Mr Warwick's submission amounted ultimately to the proposition that, because a merger is said to have been in the interests of the co-reversioners, EDF should be presumed to have intended a merger even though its own interest would be directly against it. That way of putting the case is not to invite a development of the principles that have so far been established by the courts of equity. It is to invite a departure from them and the adoption of quite contrary principles: namely, that in the absence of evidence proving an intention one way or the other (and the judge found there was none, as to which there is no challenge), the court should presume an intention by EDF to merge when to do so would be directly adverse to its interests but would or may be of advantage to third parties with whom it is in no commercial relationship and to whom it owes no duties. For the court so to presume in such circumstances appears to me to be contrary to the principles explained in the authorities and wrong. Mr Warwick did not go the further distance of submitting that, had EDF (as it might have done) made an express declaration of merger, the co-reversioners could have asked the court to set it aside, and any such submission would, I consider, have been hopeless. It is only, apparently, in the circumstance in which there is no evidence as to EDF's intention that the interests of the co-reversioners must be held to prevail. The argument appears to me to be an unprincipled one.
- In my judgment the task for the judge in relation to this issue was to consider whether there was any evidence of any intention on the part of EDF as to whether there should be a merger. He found, in paragraph , that there was none. Having so found, he had next to consider whether it was or was not in EDF's interests that there should be a merger. He found that it was not and that finding led him, correctly in my judgment, to the conclusion that he should presume that no merger was intended. That was the approach that Ingle (endorsed by Rhodes) required him to adopt and he was correct to do so. That it may perhaps have been, or might turn out to be, contrary to the interests of the co-reversioners that there should be no merger is irrelevant.
- I would dismiss the appellant's first ground of appeal.
The second ground of appeal
- This is a new ground of appeal that was not advanced to the judge. It is a fallback argument that arises only if the 'merger' ground of appeal were to fail, as in my view it should. The essence of the point as originally advanced in the grounds of appeal was that, on the footing (i) that plot 2 remains part of the premises demised by the 1953 lease and that the tenancy thereby created is continuing in respect of (inter alia) plot 2, and (ii) that EDF is a necessary party, together with BOH and Layhawk, to (for example) the giving of a section 25 notice in respect of the demised premises, then (iii) 'the 1954 Act must be read so that the "tenancy" held by EDF to which the 1954 Act applies does not include Plot 2.'
- The claim that the 1954 Act should be so read was said to be required by section 3 of the Human Rights Act 1998, namely that:
'So far as it is possible to do so primary legislation and subordinate legislation must be read and given effect in a way which is compatible with the Convention rights.'
The need for a compatible reading of the 1954 Act was advanced on the basis that otherwise BOH's and Layhawk's enjoyment of their freehold interests in plots 31 and 26 respectively would be interfered with in a manner contrary to their rights under Article 1 of the First Protocol to the Convention, which provides:
'Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.'
- In his written and oral argument Mr Warwick materially qualified and refined this ground of appeal by confining the focus of his argument to the proposition that section 44(1A) of the 1954 Act should be read as excluding from such definition any person who is also the tenant of the relevant tenancy. Thus, applied to this case, a section 25 notice in respect of plots 2, 26 and 31 (and ignoring the judge's finding that the tenancy of plot 31 had been surrendered) could validly be given by the freehold owners of just plots 26 and 31. Such notice would, however, have to be given not just in respect of plots 26 and 31, but also in respect of plot 2.
- Mr Warwick fully developed this argument at the hearing but the court did not at that stage call upon Mr Stoner to answer it. That was because it was provisionally unconvinced that it ought to entertain this ground of appeal at all. In forming that view, the court had not overlooked that Mummery LJ had given permission for this ground of appeal to be argued as well as the merger ground. He expressed the view, when giving permission, that the 'proposed appeal against [the judge's order] has a real prospect of success on the basis of the grounds of appeal and the skeleton argument …'. Mummery LJ may, however, have overlooked that success on this ground of appeal could not justify any reversal or variation of the judge's order, as EDF pointed out in its skeleton argument and as Mr Warwick expressly conceded.
- The reason for that is simple. The statements of case before the judge put in issue the validity of the section 25 notice purportedly given by Mr Dormer in August 1993. That was apparently the only such notice in issue at the trial. At the time it was given, there were three separate co-reversioners, none of whom or which was also the tenant of the demised premises. The judge held the notice to be invalid and the appellants do not challenge that decision. The point that they now want to make is not merely a point that was not advanced before the judge; it was one in respect of which no factual case was or, so far as I am aware, could have been made. It is a point that comes before this court entirely afresh and unsupported by any factual basis. Mr Warwick accepted that no section 25 notice had been served that purported to raise the issue. The court is therefore being asked to answer a question, and presumably to make some form of declaration, based on a hypothetical set of circumstances. In my judgment, this court should not do that. The point raised by this ground of appeal is potentially of some general importance. If it is ever to be considered by this court it should only be after a concrete set of facts raising it as a real issue has first been considered by a trial judge who has then made findings on the facts and on the law applicable to them.
- The court reserved its judgment at the conclusion of the hearing. The following day it received an email purporting to have been composed by BOH and Layhawk. The identity of the human agent who was in fact its author was not disclosed but the inference is that he was present in court at the hearing. He referred to the court's expressed unwillingness to deal with this ground of appeal in default of any section 25 notice having been served that could be said to have raised the issue. He continued:
'The Respondents [i.e. EDF] failed to bring the attention of the Court the fact that they had indeed been served with Section 25 Notices. The Section 25 Notices were served by the appellants predecessors to the title, the appellants were given vacant possession and accepted the same in reliance on the said Section 25 notices and there was no requirement to provide the Respondents with a further opportunity as regards the Section 25 Notices.
We do feel that the three Lord Justices would have wanted to have their attention drawn to the three Section 25 Notices in order to provide clarity. The Judgment has yet to be delivered and we would therefore ask that you put the three attached notices before their lordships and Lady Black to enable them to address the issues.
The Respondent has been notified of our concerns regarding their decision to permit those representing the appellants, and the Court, to proceed without reference to these matters where the Court has decided there is a Human Rights element to the same. It remains open to the appellants to serve further Section 25 Notices but given these facts and matters the Court would wish to consider the same.
The three notices were acknowledged by the Respondent.'
- The first attached notice was one on which the typed date of 2 April 2002 was changed in manuscript to 29 April 2002. It was from Commercial Rentals Limited, as landlord, to the EEB, as tenant (see paragraph  above). Paul Todd was described in it as the landlord's agent. The notice purported to terminate the tenancy on 11 November 2002. It was expressed as relating to:
'Any part of the land included in freehold title NGL541577 in respect of which the Tenant asserts the registered title MX269363 should be included excluding any part of MX269363 where the Tenant has given up the protection of the Act and the landlord relied upon. [sic] of which you the tenant.'
The second notice had the same manuscript date change and was from The Containerised Storage Company Limited, as landlord, to the EEB (see paragraph  above). Mr Todd was again described as the landlord's agent. That notice was also expressed to terminate on 11 November 2002. It was expressed as relating to:
'Any part of the land included in freehold title NGL770835 in respect of which the Tenant asserts the registered title MX269363 should be included excluding any part of MX269363 where the Tenant has given up the protection of the Act and the Landlord relied upon. [sic] of which you are the tenant.'
The third notice was dated 29 April 2002. It was given jointly by Commercial Rentals and Containerised Storage as landlords, with Mr Todd being again named as the agent. It was addressed to the EEB and purported to terminate its tenancy on 11 November 2002. It was expressed as relating to:
'Any parts of the land included in freehold title NGL541577 and NGL770835 in respect of which the Tenant asserts the registered leasehold title MX269363 should be included excluding that part of MX269363 in respect of which the Tenant is estopped by conduct and or merger and or the failure to commence proceedings after the service of a Section 25 notice dated 27th August 1993 and acceptance of the validity thereof by a Counternotice dated 3rd September 1993 which exchange and correspondence the Landlord has acted upon to its prejudice. [sic] of which you are the tenant.'
- I interpret the notice separately given by Commercial Rentals as directed exclusively to (at most) plot 26 (the title to which was registered under Title No NGL 541577); and the notice separately given by Containerised Storage as directed exclusively to (at most) plot 31 (Title No NGL 770835 comprising plots 20 and 31). As neither notice appears to be directed to Plot 2, I do not understand how they can severally or collectively satisfy the interpretation of section 44(1A) for which Mr Warwick argued. The notice served jointly by Commercial Rentals and Containerised Storage suffers from the same flaw.
- My view is, therefore, that these notices are irrelevant. They do not satisfy Mr Warwick's submission as to what section 44(1A) requires if read in the way he suggests would be compatible with the appellants' Convention rights. Even if my interpretation of them in this respect is incorrect, they were not pleaded in the statements of case before the judge, nor were they apparently the subject of any argument before him, let alone any findings by him. Had they been the subject of argument, it is inconceivable that he would not have dealt with them in the course of what was, if I may say so, a judgment of conspicuous meticulousness. It is not surprising that Mr Warwick did not refer us to them; and the suggestion by the email's author that it was Mr Stoner's duty to do so is astonishing. It is BOH and Layhawk who are the appellants and it was up to them to consider whether they wished to draw the court's attention to any new evidence that might be thought to assist their appeal and, if so, to seek (as would be necessary) permission to rely on it, explaining why permission ought to be given. Since the author was apparently present in court during Mr Warwick's submissions, it is surprising that he did not adopt the conventional course of instructing Mr Warwick about the notices at a convenient moment during the hearing. As it is, and having decided to assume the mantle of advocate on the appellants' behalf, he has provided no explanation as to why this court – whose function is to sit as a court of appeal, not as a court of first instance – should have regard to material which appears to have played no part at the trial, whereas had the appellants chosen to deploy it there they could have done so. I would disregard the representations made by the email.
- For reasons given, I would decline to express any view on the correctness or otherwise of the point argued under the second ground of appeal. As I would dismiss the first ground of appeal, it follows that I would dismiss the appeal.
Lady Justice Black :
- I agree.
Lord Justice Sedley :
- I also agree.
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