Case No: B2/2006/2335
Neutral Citation Number: [2007] EWCA Civ 863
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT 
(HIS HONOUR JUDGE LEVY QC)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Monday, 16th July 2007

Before:

LORD JUSTICE CHADWICK
LORD JUSTICE WALL
and
MR JUSTICE BLACKBURNE

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Between:

	SANTOS & ANR	
Respondents	
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COMPATRIOT HOLDINGS LIMITED	

Appellant	

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(DAR Transcript of 
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Mr N Grundy (instructed by Messrs Devonshires) appeared on behalf of the Appellant.

Mr J Holbrook (instructed by Messrs Bindman and Partners) appeared on behalf of the Respondents.
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Judgment

Mr Justice Blackburne:

1.	The appellant, Compatriot Holdings Limited, appeals with the permission of Sir Henry Brooke against a decision of HHJ Levy QC sitting in the        Central London County Court on 12 October 2006 granting the respondents to this appeal, Mrs Lolita Santos and Mr Dario Santos -- they are husband and wife -- a declaration that they are regulated tenants under the Rent Act 1977 of room 14, 55 Cleveland Square, London W2 at a weekly rent of £85.  The judge dismissed the appellant’s counterclaim for a declaration that the respondents’ tenancy of room 14 was an assured shorthold tenancy and for possession and arrears of rent calculated at the higher amount of £100 per week.  His order, which was drawn up and entered some days later, dealt with other matters which were consequential upon his conclusion that the respondents enjoyed Rent Act protected status.  

2.	55 Cleveland Square, the freehold of which is owned by the appellant, contains a number of rooms let out as separate dwellings.  Among them is room 14, occupied by the respondents.  They occupy that room under a tenancy granted to them by the appellant on or about 15 February 1996.  Other rooms in the building include room 74 and room 79, both on the fourth floor and a housekeeper’s flat on the ground floor.  The issue which the judge had to decide was whether, notwithstanding that their tenancy of room 14 was granted to them well after the commencement on 15 January 1989 of the Housing Act 1988, with the result that prima facie it was an assured tenancy, the respondents could nevertheless claim to be regulated tenants protected by the Rent Act 1977.

3.	That turned on whether they could take advantage of the transitional protection given by section 34(1) paragraph (b) of the 1988 Housing Act, which so far as material provides as follows:

“A tenancy which is entered into on or after the commencement of this Act cannot be a protected tenancy unless-
          …
(b) it is granted to a person (alone or jointly with others) who, immediately before the tenancy was granted, was a protected or statutory tenant and is so granted by the person who at that time was the landlord (or one of the joint landlords) under the protected or statutory tenancy.”

[The expressions “protected” or “statutory tenement” and “protected or statutory tenancy” are as used in the 1977 Rent Act.]

4.	It is against the judge’s conclusion, reached after a two-day hearing, that the respondents established that they fulfilled the requirements of section 34(1)(b) and therefore that they are regulated tenants under the 1977 Rent Act that the appellant now appeals.  

5.	It was common ground between the parties, at any rate by the time of the trial, that the first respondent had a tenancy of room 74; that shortly after she and the second respondent had married, which was in August 1990, that tenancy ended; that the respondents took up occupation of room 79 and that on or about 15 February 1996 they were granted their tenancy of room 14, which they have since continued to occupy.  The dispute was over the basis upon which the respondents occupied room 79 and how long that occupation lasted.  What gave rise to the dispute over these matters was that room 79 had been let in 1984 to the second respondent’s sister‑in‑law, also a Mrs Santos, who in 1998 or thereabouts was appointed housekeeper of 55 Cleveland Square.  As housekeeper she was entitled to use the housekeeper’s flat on the ground floor.  Indeed, her contract of employment, at any rate that dated 1 August 1992, required her to do so.

6.	The debate before the judge concerned whether Mrs Santos gave up her tenancy of room 79 on or before the time that the claimants went into occupation of it.  The respondents contended that they became the appellant’s tenants of room 79 upon taking up occupation of that room “in about October 1990.”  The appellant by contrast contended that Mrs Santos, the housekeeper, remained the tenant of room 79 until March 1998, which was over two years after the grant to the respondents of their tenancy of room 14 and that the respondents’ occupation of room 79 was as Mrs Santos’s unlawful sub‑tenants, i.e. otherwise than as tenants of the appellant.  

7.	In his judgment delivered extempore at around 6.00pm at the end of the second day of the trial, after summarising the background to the dispute the judge set out, in paragraph 11, the issues arising for determination from the pleadings.  There were three in number, which the judge summarised as follows:  

“Whether on the facts the claimants [that is to say, the respondents] did in fact occupy room 79 as tenants of the defendant following surrender of the tenancy they had enjoyed in room 74.  Secondly, whether the tenants took up their tenancy of room 14 immediately following determination of the tenancy of room 79, which had been a tenancy if it was granted by the defendant. Thirdly, whether the tenancy of room 14 is a regulated or assured shorthold tenancy or a tenancy protected by the Rent Act.”  

I have a feeling that that last sentence possibly slightly mis-states the position but nothing turns on that.  

8.	The judge then summarised the evidence and counsels’ submissions before coming in paragraphs 27 and 28 to his conclusions in relation to the respondents’ occupation of room 79.  Those conclusions were as follows:

27. “Essentially, though, the onus of proof is on the claimants to satisfy me that on the balance of probabilities they were the tenants of room 79 following the termination of their tenancy of room 74.  I am satisfied, having listened to all the evidence, and considered the documents, and the submissions that the claimants have satisfied me that that the claimants did become tenants of room 79 and, in the circumstances, that followed the determination of their earlier tenancy of room 74.

28. Notwithstanding the fact that the room had been let to Mrs Santos, I am satisfied on the evidence I have heard that she let it to them having given up the occupation of it by becoming the housekeeper.  Thereafter she was the tenant of the landlord as Mr Holbrook submitted.  I am satisfied that between October 1990 the claimants’ landlord was the defendant and that that room had not been sub‑let to her by them but in some way by the housekeeper.”

I have to say, pausing there, that I have some difficulty in understanding quite what was intended by the second half of that sentence.  But the first half, as it seems to me, is clear.

“I should say that the evidence was that, although the schedule showed the rent payable by the tenant in one sum, it is quite clear from the receipts which were given to the defendant’s officers by the caretaker, that there was a substantial extra sum being pocketed each week by the caretaker.  It is clear that she [that is a reference to the caretaker] was thoroughly dishonest.  The claimants say that they were not party to that dishonesty and they would not have agreed to do anything which would have been irregular such as that.  I accept that evidence and therefore it was more likely than not that she had granted them that tenancy of 79 as I have held.”

Later in his judgment the judge said that he was satisfied that the housekeeper -- that is to say, Mrs Santos -- had express authority to let the rooms in the building.  He gave reasons for that conclusion which are set out in paragraph 33 of his judgment, which are not the subject of any challenge.  

9.	After having stated his findings in relation to the respondents’ occupation of room 79, the judge then referred to section 34(1)(b) of the 1998 Housing Act.  He stated that it applied to the facts of the case before him, that is, that the condition set out in that provision were satisfied as regards the respondents’ tenancy of room 79 so as to entitle them to the transitional protection provided by that provision.  

10.	The judge then went on in paragraphs 30 and following to consider the second of the three issues which he had earlier identified.  This was whether the respondents took up their tenancy of room 14 immediately following termination of their tenancy of room 79; in effect, whether the requirements of section 34(1)(b) were satisfied as regards the subsequent tenancy granted to them in February 1996.  He stated that the answer turned on whether Mrs Santos was the tenant of room 79 between -- and the sentence in the judgment says - October 1998 and March 1998.  The judge then went on to say “I am satisfied that she did not.”  It seems plain that the reference to October 1998 in the judgment must be erroneous.  As I follow the general drift of the issues between the parties, it seems to me very likely that that should be a reference to October 1990.   The judge observed that the outcome of the issue was largely determined by his earlier conclusion, namely that Mrs Santos was not a tenant of room 79 between those dates.  Although the judge did not say so in so many words it seems implicit from his findings that, as Mrs Santos was not the tenant of room 79 between those dates, there could be no basis for thinking that the respondents were tenants of room 79 up to March 1998 either, and therefore no basis for thinking that, as section 34(1)(b) required, they were not regulated tenants of the appellant in respect of room 79 immediately before the grant of them in February 1996 of their tenancy of room 14.  At all events, there is no appeal against that part of the judge’s decision.
  
11.	Having reached the conclusion that in respect of their tenancy of room 14, the respondents enjoyed the transitional protection conferred by section 34(1)(b),  the judge concluded that the claimants were entitled to a declaration that they were regulated tenants under the 1977 Rent Act.  The judge then went on to deal with consequential matters.  

12.	That brings me to the grounds of appeal upon which the appellant relies.  Although there are three grounds of appeal, in the event, as Mr Grundy appearing for the appellant has pointed out, in fact only the first and second grounds are pursued.  The first ground is that:

“The learned judge misdirected himself in law by failing to take into account evidence on the surrender date of the tenancy in respect of room 74 and the start of occupation of the new premises at room 79.  He compounded his misdirection by rejecting submissions on the point as not being permissible because the point had not been pleaded.”

13.	This ground concerns the requirement, if the transitional protection conferred by section 34(10(b) of the 1988 Act is to apply, that the new tenancy is granted to a person who immediately before the grant of a tenancy was a protected or statutory tenant with the same landlord.  The new tenancy must therefore follow on immediately after the old tenancy.  This will not be the case if there is a gap between the termination of the old tenancy and the grant of the new tenancy.  

14.	The appellant’s complaint is essentially twofold.  The first is that the judge wrongly refused to entertain submissions on whether there was a gap in time between the termination of the respondents’ tenancy of room 74 and the start of their occupation of room 79.  The second is the judge’s failure, wrongly as the appellant would say to find on the facts that there was such a gap.  

15.	For the appellant, Mr Grundy made what are in effect the following submissions.  First, it was open to the appellant on the pleadings to raise at the trial that there was such a gap with the result that the requirements of section 34(10(b) were not made out.  In support of this Mr Grundy relies on the fact that, by its defence, the appellant denied that the respondents were Rent Act tenants, so that they needed to make out their case to be entitled to the transitional protection provided by section 34(1)(b).  He also relies on the fact that the respondents alleged, and the appellant admitted, that the respondents only took up occupation of room 79 in October 1990, coupled with a plea in the appellant’s defence that the earlier tenancy of room 74 was terminated “on or about 14 September 1990.”  The judge therefore was wrong, says Mr Grundy, to refuse to entertain submissions as to the existence of a gap.  Second, even if the point had not been expressly pleaded, the judge needed to find that there was no such gap if he was to include, as he did, that the requirements of section 34(1)(b) were fulfilled in relation to the tenancy of room 79.  Wrongly, however, he failed to find that the respondents’ tenancy of room 74 ended immediately before the grant to them of their tenancy of room 79.  Third, having been provided with evidence going to the point, the judge should have dealt with the matter but wrongly did not.  Fourth, and in any event, the judge found as a fact (see paragraph seven of his judgment) that the respondents’ tenancy of room 74 ended on 14 September 1990.  This, it was said, was consistent with the respondents’ pleaded case and with their evidence that they moved into room 79 in or in about October 1990.  In the light of those findings and that evidence, the judge, so it is submitted, could only have found that there was a gap and therefore the requirement of section 34(1)(b) in this respect was not satisfied.  Wrongfully, it is submitted, the judge failed to do so.  

16.	It is important in my view to set those submissions in context, and in particular to understand what the issues were, according to the pleadings and other pre‑trial documentation, which the judge was being asked to decide.  The submission of the appellant, as articulated in Mr Holbrook’s skeleton argument, is that an allegation that there was a gap in time between the termination of the tenancy of room 74, and the grant of the tenancy of room 79 was an allegation that needed to be raised in advance of the trial for two reasons.  First, because it would have been of crucial importance since if made out it would have defeated the respondents’ ability to rely upon the transition protection of section 34(1)(b); and second, because it would have significantly affected the evidence that the respondents would have marshalled at the trial.  Mr Holbrook’s skeleton argument goes on to submit that the respondents did not have notice that a gap point was being taken until at the earliest when Mr McCafferty, who represented the appellant at the court below, began his closing submissions.  By then, says the skeleton argument, it was too late for the point to be taken.  Indeed, so far from it having been an error of law for the judge to rule, as he did, that he was not going to consider the allegation when the point was only raised in Mr McCafferty’s closing submissions, it would have been extraordinary if the judge had ruled otherwise.  

17.	In support of those submissions the skeleton argument of the appellant refers first to the pleadings.  In the respondents’ Particulars of Claim the following pleas appear:

“4. In about October 1990 the first and second claimants became joint tenants of room 79 in the building (‘the second tenancy’).

“5. The second tenancy was protected under section 1 of the Rent Act 1977 because the first claimant was able to rely upon the transitional protection of the Housing Act 1988 section 34(1)(b) namely the second tenancy was granted to a person (alone or jointly with others) who, immediately before the tenancy was granted, was a protected or statutory tenant and was so granted by the person who at that time was the landlord under  the protected or statutory tenancy.”

By paragraph 2(iii) of its defence the appellant alleges that the tenancy of room 74 was terminated on or about 14 September 1990.  Then, in reply to paragraphs 4 and 5 of the Particulars of Claim, the appellant pleaded:

“Paragraph 4 of the Particulars of Claim is denied.  It is the Defendant’s case that the Defendant’s then housekeeper, Mrs Santos (believed to be the sister‑in‑law of the Second Claimant) was granted a service occupancy in respect of Room 79 from 17 August 1984 until March 1998.  Further, it is the Defendant’s case that if, which is not admitted, the Claimants were occupying the said Room 79 from October 1990 then they did so as the unlawful sub‑tenants of the Defendant’s housekeeper, Mrs Santos, who did not have the Defendant’s authority or consent either to sub‑let or otherwise to allow occupation of Room 79 by persons other than herself, her husband and her children.  

“Accordingly, if, which is not admitted, the Claimants took up occupation of Room 79 in October 1990, they did so without the authority, knowledge or consent of the Defendant and, in so far as they have claimed a tenancy for the said room 79 (which is not admitted), that tenancy was an unlawful sub‑tenancy (as against the Defendant) and not a tenancy binding on the Defendant.  

“In these circumstances, paragraphs 5and 6 of the Particulars of Claim are denied.”

18.	It is evident therefore that the particular matters which the appellant was advancing in response to the respondents’ pleas were, first, that it was the housekeeper, Mrs Santos, rather than the respondents who was in occupation of room 79.  This was a plea which if made out would have meant that there could be no question of section 34(1)(b) applying since the respondents simply would not have been tenants of that room.  Second, that if the respondents were in occupation of room 79, they were there as Mrs Santos’ unlawful sub‑tenants, with the result that they were not there as lawful tenants of the appellant.  What the appellant was not asserting was that if the respondents were in occupation of room 79 as the appellant’s tenants, there was a gap in time between the termination of their tenancy of room 74 and the grant to them of the tenancy of room 79.  Nor did the appellant put the respondents to proof that they fulfilled the requirements of section 34.  The fact that paragraph 2(3) of the defence refers to the tenancy of room 74 having terminated “on or about 14 September 1990”, when set against the plea in the Particulars of Claim that the respondents became the tenants of room 79 in about October 1990, shows that the precise date when the form of tenancy ended and the new tenancy, if such it was, began was simply not a material issue.  This strong impression from the pleading is supported by the fact that in none of the statements of the appellant’s witnesses was it suggested that there was a gap between the surrender of the old tenancy and the grant of a new one.  Rather, the witnesses focused on the appellant’s contention that the respondents did not occupy room 79 at all, but that, if they did, they did so as unlawful tenants of Mrs Santos, the housekeeper.  Nor was there any suggestion of a gap in the respondents’ evidence.  

19.	On 22 September 2006, which was just about three weeks before the trial, the appellant’s solicitors wrote to abandon the defense that the respondents did not occupy room 79.  The solicitors said this:

“Our clients are prepared to agree as a matter of fact that your clients were in occupation of Room 79 for the period they claim in the Particulars of Claim.  Needless to say, we continue to maintain and rely on all other defences raised in the Defence.  

“This does mean that we will not require any of the witnesses listed in your letter of 8 September, other than the Claimants, to attend trial.”

20.	Not only did that statement amount to an abandonment of the appellant’s contention that the respondents did not occupy room 79 as they alleged, but it also amounted to a concession that it accepted the respondents’ claim to have resided in room 79 since about October 1990, as pleaded in paragraph 4 of the particulars of claim.  What it did not alert the respondents to was that there was any dispute over the continuity of the respondents’ occupation; that is to say, to suggest that there had been some gap between the old and the new tenancies.  I will assume in the appellant’s favour that the latter did not do so precisely because there was no dispute over the point.  The contrary possibility, that the appellant’s solicitors were alert to the gap point, deliberately did not mention it, but instead suggested that the respondents’ witnesses other than themselves should be stood down, intending however to raise the point at the trial, would amount, as it seems to me, to litigation by ambush, which of course would have been wholly improper.

21.	But the matter goes further than that because it is clear from the skeleton argument prepared by Mr McCafferty for use at the trial that the one case that was being advanced in relation to the application of section 34(1)(b) to the respondents’ occupation of room 79 was that the respondents’ occupation was otherwise than under a tenancy granted by the appellant because, throughout the period between August 1984 and March 1998, the room was let by the appellant to Mrs Santos, the housekeeper.  There was no suggestion in the skeleton argument that a gap existed or that the respondents were being put to proof that there was no gap.  Nor when the respondents came to be cross‑examined at trial was it suggested to them that there was any kind of gap between moving out of room 74 and moving into room 79.  Instead it was put in cross‑examination to the second respondent, that he was asserting that he lived in room 79 between 1990 and 1996, to which he agreed.  The question of any gap and the identification of the precise time when he and the first respondent moved into room 79 was simply not raised.  

22.	It was, as I have mentioned, only at the start of his closing submissions that Mr McCafferty raised the gap point for the first time.  

23.	Mr Holbrook, appearing then as now for the respondents, objected.  Mr McCafferty accepted that the gap point had not been expressly pleaded but submitted that it was evident from what he referred to as “the face of the evidence” that there was such a gap and accordingly that the judge was entitled so to find.  The judge, however, declined to allow the point to be run and, not surprisingly having so ruled, did not deal with the matter in his judgment.  In the course of post‑judgment exchanges, Mr McCafferty raised the gap issue as a reason for the appellant being granted permission to appeal.  The judge made it clear that since it was not pleaded it had not been part of the case with which the respondents had had to deal.  He refused permission to appeal.  

24.	In my judgment there is no basis for criticising the judge’s refusal after the close of all the evidence to allow the appellant to run the gap point.  To allow the point to be raised at such a late stage would have necessitated an adjournment of the hearing to enable the respondents to call evidence on the point.  Such evidence would have included that of friends and neighbours, some of whom had already provided witness statements (and they are in the appeal bundle) to rebut the appellant’s contention that the respondents did not live in room 79 at all.  Those witnesses, as I have mentioned, had been stood down before trial as a result of the letter from the appellant’s solicitors stating in terms that the respondents did not need to call any of them.  The kind of obvious question which the gap point raises, and which the respondents and their other witnesses would have needed to deal with, is where, if not in room 74 or room 79, the respondents were residing during the very short period of the gap, and not least why they would have moved out of room 74 without immediately moving into room 79.  Nor, it is to be noted, did Mr McCafferty suggest to the judge that the trial should be adjourned to enable the gap points to be pleaded and to afford the respondents an opportunity to lead evidence on the matter.

25.	If, as I consider, it was well within the ambit of the judge’s discretion to refuse to allow the gap point to be raised in the course of Mr McAffrey’s closing submissions, it follows that there is no basis for contending that on the evidence before him the judge should have found that there was a gap.  

26.	In any event, the evidence on the point was at best exceedingly slender.  The only matters set out in the appellant’s notice are first, what may be deduced from the rent ledgers compiled by the housekeeper and which are suggestive of, at the most, a three-week period in which the respondents were not liable for any rent.  Second, what is to be inferred from the respondents’ assertion that their occupancy of room 79 began “in about October 1990”, coupled with the judge’s finding that their tenancy of room 74 ended on 14 September 1990.  

27.	Much emphasis has been placed in the course of argument by Mr Grundy on what is to be derived from the rent ledgers.  I would merely observe first, that the rent ledgers were compiled by the housekeeper, second, that they are not agreed by the parties to be an accurate record, third, that the housekeeper did not give evidence, fourth, that the judge considered that the housekeeper behaved deceptively towards the appellant her employer, and fifth, as emerged from the evidence, that the appellant dismissed the housekeeper for dishonesty.  In my judgment, it is really very difficult therefore to place much if any reliance on the rent ledgers.

28.	But in any event I take the view that it would be quite wrong to make any finding based upon slight discrepancies in rent entries and dates, of the kind to which I have referred, when nobody had focused on the point.  To be set against those very slight indications is the absence of any suggestion in the evidence that the respondents moved out of the building and lived elsewhere during the very short gap period, if such it was.  

29.	In my judgment, the appellant fails to establish its first ground of appeal.  

30.	That brings me to the second ground of appeal, which is that the judge misdirected himself in being satisfied that the respondents’ landlord was the appellant and that the property had not been sub‑let by the housekeeper.  

31.	There are, as it seems to me, three elements to this ground of appeal.  The first is that the rent receipts and rent ledgers in evidence suggested that what the respondents paid for their occupation of room 79 was less than what was paid over by the housekeeper to the appellant.  The second is that, as the judge recorded in his judgment at paragraph 6, the housekeeper had been the appellant’s tenant of room 79 and continued to be after her appointment as housekeeper in 1988, even though as housekeeper she was entitled to a service occupancy of the housekeeper’s flat on the ground floor.   The third is that the judge did not explain just how the housekeeper ceased to be the tenant of room 79 and when.  

32.	Mr Grundy submitted that to be satisfied that the respondents were granted a tenancy of room 79 by the appellant, the judge would have had to have found that the housekeeper’s tenancy of that room had first ended since, as he correctly submitted, the appellant could not have granted the respondents a tenancy of that room so long as the housekeeper’s tenancy continued.  He submitted that the judge did not make the findings necessary to support his conclusion.

33.	In my view, this attack on the judge’s decision is a straight challenge to his findings of fact contained in paragraph 28 of his judgment, which I have already set out, and for good measure repeated in paragraph 30 that, although the housekeeper had previously been the tenant of room 79, she ceased to be from October 1990.  I am of the view that despite certain infelicities in the judgment as approved by the judge, the judge’s conclusion on this was one to which he was entitled to come on the evidence.  It was accepted by the appellant that the respondents were occupants of room 79 from October 1990.  There was ample evidence to indicate that the respondents paid rent for their occupation of that room.  What is more, the respondents received receipts for the rent they paid from Mrs Santos, the housekeeper, on behalf of the appellant.  The question for my mind is whether, on that evidence and on the further evidence indicating that the housekeeper and her husband continued to appear on the rent records as tenants of room 79 and for a smaller rent, the only conclusion properly open to the judge was that the respondents were in occupation as unlawful sub‑tenants.  

34.	The judge’s view, as he explained in paragraph 28 of his judgment, was that the housekeeper was charging the respondents one amount for room 79 but dishonestly accounting to the appellant for a lesser sum.  He accepted that the respondents were unaware of this and would not have been party to any such arrangement.  In my judgment, the judge was entitled to find that the arrangement entered into was a direct letting by the appellant to the respondents, which had seen lawfully entered into by the housekeeper acting under the authority which she had from the appellant to grant lettings on its behalf, and that it was not some kind of sub‑letting for which she had no authority from the appellant to enter into.

35.	The fact that the judge did not explain precisely how the housekeeper ceased to be the appellant’s tenant in room 79 in my view is immaterial.  If, as the judge held, the housekeeper gave up occupation of that room and let it instead to the respondents, as on the respondents’ behalf she had authority to do, it is obvious, even if the judge did not say so in so many words, that the housekeeper had impliedly surrendered her own tenancy, if she had not already done so at some earlier time.  It is no less obvious that her authority, as the appellant’s agent, extended also to accepting surrenders on the appellant’s behalf.  

36.	In my judgment there is nothing in the second ground of appeal.  

37.	I, for my part, would dismiss the appeal.

Lord Justice Chadwick: 
38.	I agree.

Lord Justice Wall: 
39.	I also agree.

Order:  Appeal dismissed.