Case No CCRTF 1998/1177/2
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF HIS HONOUR JUDGE HAGUE QC

Royal Courts of Justice
Strand
London WC2

Date: Thursday, 25th March 1999

B e f o r e:

LORD JUSTICE SWINTON THOMAS

LORD JUSTICE CHADWICK
- - - - - - - - - - - - - - - - - - - -

AMRIK SINGH BHOPAL
AMARJIT KAUR

- v -

GULJIT WALIA
- - - - - - - - - - - - - - - - - - - -
(Computer Aided Transcript of the Palantype Notes of
Smith Bernal Reporting Limited, 180 Fleet Street,
London EC4A 2HD
Tel: 0171 421 4040
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - -

MR DOUGLAS LIVINGSTONE (Instructed by Barrett & Thomson of Slough, Berkshire) appeared on behalf of the Appellant

DR EDWARD MUNIR (Instructed by Hetherington & Co of Slough, Berkshire) appeared on behalf of the Respondent
- - - - - - - - - - - - - - - - - - - -
J U D G M E N T
LORD JUSTICE SWINTON THOMAS:  I will ask Lord Justice Chadwick to give the first judgment.

LORD JUSTICE CHADWICK:  This is an appeal against the order made on 13th August 1998 by His Honour Judge Hague QC, sitting in Slough County Court, in possession proceedings brought by Amrik Singh Bhopal and his wife, Amarjit Kaur, in respect of property known as 567 London Road, Brands Hill, Colnbrook, Slough.

The plaintiffs acquired the property on or about 27th October 1995 by purchase from Manjit Singh Purewal and Kewal Singh Uppal under a contract which provided for vacant possession to be given on completion.  At the date of the contract for purchase the property  was occupied by the defendant, Guljit Walia.  This was known to the plaintiffs, but, without confirmation from the defendant, they appear to have accepted the vendors' assurance that Mr Walia would vacate on completion.  On 25th October 1995, shortly before completion was due to take place, the plaintiffs' solicitors wrote to them in the following terms:
		"I also understand that you are completely satisfied that the property is vacant.  I understand that you personally inspected the  property and are sure that the tenant has vacated the property.  Please sign a copy of this letter to confirm this fact and return it to me."
Notwithstanding that they knew that the defendant was still in occupation, the plaintiffs did as they were asked.  The defendant did not vacate on completion.  Nevertheless, the plaintiffs 
completed the purchase;  and the defendant remained in occupation,  tendering rent at the rate of £250 per month.

Proceedings for possession were commenced against Guljit Walia in 
the Slough County Court on or about 13th December 1996.  The 
particulars of claim allege, in paragraph 2, that the property was  let to the defendant on an assured tenancy at a rent of £450 per month.  The tenancy was said to have commenced on 19th January 1993.  Notice to quit was served on 1st February 1996 on the ground of non-payment of rent;  and possession was claimed under grounds 10 and 11 under Section 8 of the Housing Act 1988.  The rent outstanding was said to be £3,893.28, being rent at £450 per month from 27th October 1995 to 10th December 1996, (£6,323.28) less monies paid on account (£2,430).  Payments at the rate of £250 a month over the period of 12 months or so from the purchase would have amounted to £3,000 or thereabouts.

The tenancy agreement on which the plaintiffs relied was evidenced by a manuscript document, signed by the defendant as tenant and by the vendors, Mr Purewal and Mr Uppal, as landlords and bearing the date 19th January 1993.  It was in these terms:
		"An agreement is made between Mr Manjit Singh Purewal and Mr Kewak Singh Uppal hereafter called the Landlords and Mr Guljit Singh Walia (Tenant) of 98 Torridge Road, Langley to rent the property situated at 567 London Road, Langley, Slough for a rent of £450.00 per calendar month.  The contract is made for a period of twelve months starting from Wednesday 20th January 1993.

		The rent is to be paid in advance on a monthly basis.  The first instalment of rent to be paid on 20th January 1993 and thereafter on 20th of every month.  Water, gas and electricity bills to be paid by the tenant.  Signed on 19th January 1993."
On the face of that document, which the plaintiffs appear to have obtained from their vendors after completion, they were entitled to take the view that the defendant was an assured tenant in the terms set out in the particulars of claim.  The benefit of the tenant's covenants in whatever tenancy the defendant might have had would have passed with the reversion to the plaintiffs pursuant to Section 141 (1) of the Law of Property Act 1925.

A defence and counterclaim was served on 14th March 1997.  Paragraph 2 is in these terms:
		"Save that the stated rent of £450 on the face of the tenancy agreement dated 19th January 1993 was not the agreed rent between the parties to that agreement, paragraph 2 of the particulars of claim is admitted.  In fact, by express oral agreement with Mr Purewal and Mr Uppal, the initial rent payable under the tenancy agreement was £300.00 per month.  It is averred that the rent is stated to be £450 in the tenancy agreement dated 19th January 1993 to satisfy Mr Purewal and Mr Uppal's bank that the property would be producing income."
In context, what is admitted in that paragraph is the allegation in paragraph 2 of the particulars of claim that the property was let to the defendant under an assured tenancy agreement which began on 19th January 1993.  A tenancy at a rent of £450 per month is not admitted.  The arrears of rent were denied;  and it was denied that the plaintiffs were entitled to possession on grounds 10 or 11 of the Housing Act 1988.  By paragraphs 7 and 8 of the counterclaim it was alleged:
		"7 It was an express oral term of the tenancy agreement dated 19th January 1993 that the landlords would pay and discharge the council  tax liability in respect of the property.

		8  In breach of the said covenant, the plaintiffs have failed to pay or discharge the council tax liability and the defendant has paid the said liability since September 1995 of £1,105.24."
When asked for particulars of the alleged oral agreement, the defendant was unable to provide any further information.

The action was tried before His Honour Judge Hague QC on 2nd and 3rd April 1998.  He heard evidence from Mr Bhopal, from Mr Purewal and Mr Uppal, from Mr Walia, from Bakshish Singh Bahia, a business colleague of Mr Walia who had been present when the tenancy was  discussed, and from two employees.  He rejected the evidence of Mr Purewel and Mr Uppal, describing them as witnesses who were neither satisfactory or credible.  He accepted Mr Bahia's evidence as convincing and truthful.  He found the following facts:
(1) The agreed rent was £300 per month, not £450,
(2) the written tenancy agreement was brought into existence, with  the figure of £450 per month for rent, solely for the purpose of misleading the bank,
(3) Mr Walia knew that that was the purpose of the written agreement,
(4) Mr Walia paid £300 per month as rent up to the date of sale to the plaintiffs,
(5) There was no agreement that Mr Purewal and Mr Uppal should pay the council tax or rates.

On the evidence of Mr Walia and Mr Bahia - which ,clearly, the     judge accepted (although he made no specific finding on the point) - Mr Walia went into possession as tenant in January 1993, at the agreed rent £300 and the written agreement came into existence some time after the tenancy had commenced.  Mr Walia gave evidence that it was signed in or about August 1993.  The written agreement was, of course, back-dated to 19th January 1993.

On the facts found by the judge it is plain that the written agreement was a sham, in the sense described by Lord Justice Diplock in Snook v London and West Riding Investments Limited [1967] 2 QB 786 at page 802D:  that is to say, it was a document executed by the parties to the "sham" which was intended by them to give to third parties or to the court an appearance of creating 
between the parties legal rights and obligations different from the  actual legal rights and obligations (if any) which the parties intended to create.  The written agreement had the appearance of creating an obligation on the tenant to pay rent at the rate of £450 per month.  But that was not an obligation which Mr Walia intended to assume;  mor was it an obligation which Mr Purewal and Mr Uppal intended to impose.  It was a sham obligation introduced into the written agreement solely for the purpose of deception.

It is common ground that the property at 567 London Road, Langley,  is a dwelling house and that the defendant has been in occupation of the property since January 1993 under an assured tenancy, as defined by Section 1 (1) of the Housing Act 1988.  Section 7 of that Act requires that the court shall not make an order for possession of a dwelling house let on an assured tenancy except on one or more of the grounds set out in Schedule 2 to the Act.  The grounds relied upon must be specified in a notice given under Section 8 of the Act.  In the present case the relevant grounds were grounds 10 and 11 in schedule 2.  Ground 10 is in these terms:
		"Some rent lawfully due from the tenant - 

		(a) is unpaid on the date on which the proceedings for possession are begun;  and

		(b) except where subsection (1) (b) of section 8 of this Act applies, was in arrears at the date of the service of the notice under that section relating to those proceedings."
Ground 11 is in these terms -
		"Whether or not any rent is in arrears on the date on which proceedings for possession are begun, the tenant has persistently delayed paying rent which has become lawfully due."

It was necessary, therefore, for the judge to decide what rent was payable in respect of the tenancy under which the tenant occupied the property.  It followed from his findings of fact that the only possible answer to that question was that rent was payable in respect of the tenancy at the rate of £300 per month.  That was the only agreement in respect of that that was made between Mr Walia 
and his landlord.  The subsequently written agreement was a sham 

and created no obligations between them because it was not intended to do so.

Nevertheless, the judge held that as from the date of completion of the purchase of the property by the plaintiffs, but not before, the defendant had been liable to pay rent at a rate of £450 per month.  He reached that conclusion in reliance on observations of Lord Browne Wilkinson in Tinsley v Milligan [1994] 1 AC 340, at page 376 C.  After referring to that passage, the judge said:
		"In my judgment, a similar principle should be applied in this case.  On the face of it, the plaintiffs can sue on the tenancy agreement.  On the face of it, that is a straightforward legal agreement and they are not parties to any illegality.  Mr Walia can only defeat that claim by setting up the illegality to which he himself was a party, although, it is true, not a beneficiary of the illegality.  But, as he was a party to the illegal agreement, in my judgment he is not entitled to set up that illegality."

In my view, that is a false analysis of the position.  It overlooks the fact that the tenancy on which Mr Walia relies arose as a result of an oral agreement in or about January 1993 at the time 
when he entered into possession.  That agreement creted a tenancy at the rate of £300 per month.  The written agreement, being a sham document, gave rise to no legal rights or obligations.  In  particular it did not have the effect of varying the existing tenancy agreement.  That being the position as between the parties to the tenancy as created, prima facie a successor in title, taking the benefit of the tenant's covenants with the landlords under Section 141 of the Law of Property Act, 1925 can be in no better position than the landlord through whom he claims.

The true question is whether Mr Walia is in some way estopped as against the plaintiffs from asserting that the tenancy agreement on which he relies is other than that set out in the written agreement which he has signed.  In that context it is material to have in mind, first, that the plaintiffs purchased with vacant possession.  Second, that they did not rely on the terms of the written agreement at the time when they purchased.  Indeed, they did not even know those terms.  Thirdly, that they made no inquiry of the defendant who was in occupation as to the terms on which he occupied the property.  The written agreement was not brought into existence in order to mislead the plaintiffs as purchaser.  The defendant said nothing to the plaintiffs which would have had the effect of misleading them as to the terms on which he occupied the property.  They made no inquiries as to those terms before completing the purchase;  and they were in fact not misled.  In those circumstances there is no basis for an estoppel which would prevent the tenant from relying on the agreement which he actually made with the original landlords to occupy the property at the rate of £300 per month.

For those reasons I have reached the conclusion that the judge was wrong to hold that the defendant was liable to pay rent at the rate of £450 per month from the date of completion.

The tenant challenges the judge's decision as to the landlord's 
liability to pay council tax.  As to that, the judge - having heard the witnesses - reached the conclusion that there had been no arrangement under which Mr Purewal and Mr Uppal should pay the council tax or rates.  There is no material upon which this court could be asked to disturb that conclusion of fact.

On the basis that the defendant was liable to pay the full rent of £300 per month without any set off or allowance for council tax, we are told that there are now no arrears of rent.

Accordingly, I would allow this appeal and vary the judge's order.  
LORD JUSTICE SWINTON THOMAS:  I agree.

Order:  Appeal allowed with the respondent to pay three-quarters of costs here and below