King v Earl Cadogan
[1915] 3 K.B. 485(Judgment by: Lord Cozens-Hardy MR (including background))
Between: King
And: Earl Cadogan
Judges:
Lord Cozens-Hardy MRPickford LJ
Warrington LJ
Subject References:
LANDLORD AND TENANT
Licensed Premises
Lease made before Finance (1909-10) Act, 1910
Increased Licence Duty
Liability of Grantor of Lease to pay Proportion of Increase
'Premium' payable by Lessee
Cost of rebuilding Premises by Lessee pursuant to Agreement for Lease
Surrender Value of prior Unexpired Lease
Legislative References:
Finance Act, 1912 (2 & 3 Geo. 5, c. 8) - s. 2
Judgment date: 7 July 1915
Judgment by:
Lord Cozens-Hardy MR (including background)
Where, in pursuance of an agreement for a lease of licensed premises made before 1910, the lessee has expended a large sum in rebuilding the premises and has surrendered an unexpired lease of the premises, and the lessor has then granted the lease, neither the sum so expended nor the surrender value of the prior lease is a "premium" payable by the lessee within s. 2 of the Finance Act, 1912, to be taken into account in determining what proportion, if any, of the increased duty can be recovered by the lessee from the lessor under s. 2.
Decision of the Divisional Court [1915] 1 K.B. 821 affirmed.
Appeal from the Divisional Court [F1] reversing a decision of the Brompton County Court in an action by the plaintiff King to determine what proportion (if any) of the increased licence duty of a public-house he was entitled to recover from the defendant, his landlord, under s. 2 of the Finance Act, 1912.
The plaintiff was the lessee and licensed occupier of the "King's Arms" public-house, Sloane Square, under a lease dated October 16, 1900, of which the defendant was the grantor, for the term of ninety-nine years from March 25, 1897, at the yearly rent of 300l. That lease had been granted in pursuance of an agreement made in August, 1898, between the defendant and one Lillies, who was the holder, as assignee, of a lease of the public-house for a term of sixty years from November 14, 1853, at the yearly rent of 66l. 10s. In 1898 the lease of 1853, and the agreement and the benefit thereof, had become vested in the plaintiff by assignment.
By the agreement it was provided (inter alia) that Lillies should at his own expense remove the buildings known as the "King's Arms" public-house and should in lieu thereof, at his own expense, build a new public-house on the site so cleared, expending in erecting such public-house a sum of not less than 4000l. It further provided that Lillies should surrender to the defendant, at his own expense, the lease of 1853; and that, subject to the provisions thereof, as soon as Lillies should have erected the public-house in accordance with the terms of the agreement the defendant would grant to him a lease in the form scheduled to the agreement.
The plaintiff having so rebuilt the public-house, and surrendered the lease of 1853, the defendant duly granted to him the lease of 1900, which was expressed to be so granted in consideration (inter alia) of the expense incurred by him in rebuilding the premises.
The plaintiff contended that the sum expended by him in rebuilding and the surrender value of the lease of 1853 were each a "premium" within the meaning of the Finance Act, 1912, s. 2. [F2]
The duty payable in respect of the licence of the premises previous to the Finance (1909-10) Act, 1910, was 60l., but had since been increased by 116l. 10s. to 176l. 10s. After August 7, 1912, the plaintiff neither deducted nor recovered any sum from the defendant in respect of the increased duty, nor was the proportion agreed between them.
By this action the plaintiff claimed a determination by the Court of how much of the increase of duty he was entitled to recover as a debt due from the defendant to him, or to deduct from any sum due from him to the defendant, and claimed to recover or deduct in respect of the said increase the duty paid by him.
The county court judge found that the plaintiff, in complying with the terms of the agreement, had expended 5000l. upon the premises, and that the surrender value of the lease of 1853 was the sum of 2530l.; and he held that each sum was a "premium" within the meaning of s. 2, and that the defendant was bound to pay a proportionate part of the increased licence duty amounting to 65l. a year.
From this decision the defendant appealed, and the Divisional Court reversed the decision of the county court judge, being of opinion that neither the sum so expended nor the surrender value of the earlier lease was a "premium" payable by the lessee within the meaning of s. 2 of the Finance Act, 1912.
The plaintiff appealed.
Disturnal, K.C., and A. F. W. Wootten, for the appellant. Both the surrender value of the old lease and the expenditure of 5000l. upon rebuilding in consideration of which the new lease was granted are covered by the word "premium" in s. 2 of the Act of 1912. The tenant has a property, consisting of the unexpired lease, of the value of 2530l., which if spread over the term would amount to 128l. per annum. That property he hands over to the landlord, who thereupon grants him a fresh lease at an increased rent. The landlord in the result gets the benefit of the surrender. It is the same thing in effect as if the tenant had paid the landlord that sum and taken a long lease at a rent of 300l. per annum. There is nothing in, or to be gathered from, the Act which requires the tenant to give or pay the landlord money or money's value. It was suggested by the Divisional Court that on the true construction of the Act the words "payable by the tenant to the landlord" must be read into the section, and that for that reason the decision in Camden v. Inland Revenue Commissioners [F3] did not govern this case, as it is submitted that it does.
Further, the 5000l. expended on the rebuilding was in fact a premium and falls directly within the example given by the Master of the Rolls in Camden v. Inland Revenue Commissioners. [F4] Whether the tenant in complying with his obligation to rebuild spends the 5000l., or the landlord spends it and is recouped that amount by the tenant, as consideration for the grant of the lease, amounts to the same thing, and in either case the money expended by the tenant is a premium or in the nature of a premium and comes within s. 2.
Ryde, K.C., and G. C. Whiteley, for the respondent. This statute applies only to existing contracts and must be construed strictly. "Premium" is an inapt word to apply to the present case, and the 5000l. spent on the buildings is not of the same nature as a premium paid to the landlord which he could have put in his own pocket or spent how he liked. Non constat that he could not have obtained a rent of 300l. for the old buildings, or that having regard to the neighbourhood a good shop on the site might not be worth more than a public-house.
The tenant, and not the landlord, has obtained the benefit of the surrender because the landlord has taken a lower rent for the whole of the new term instead of getting a low rent for the unexpired residue of the old lease and a much higher rent than 300l. afterwards. The surrender of a lease is not a payment: per Rowlatt J. in Inland Revenue Commissioners v. St. John's College, Oxford. [F5] The decision of the Divisional Court was right.
Disturnal, K.C., in reply.
Judgment of Lord Cozens-Hardy M.R. -
This is an appeal from a judgment of the Divisional Court, reversing the judgment of the county court judge, holding that the plaintiff, a lessee of a public-house, is not entitled to any payment from Lord Cadogan under the provisions of s. 2 of the Finance Act, 1912.
There is no general principle, contribution or otherwise, upon which the plaintiff can base his claim. All that may be said is,
"I am suing you, Lord Cadogan, by reason of an obligation which is imposed upon you by s. 2"
- which I shall read in a minute -
"an obligation which did not exist before. It is a new obligation which I seek to enforce in this action."
That being so, it is to my mind quite clear that no larger or wider obligation can rest upon Lord Cadogan than is found in the express language of the section itself. I see no justification for proceeding by way of analogy or extension, or for saying that Parliament obviously must have meant something which is not expressly said. That is an argument which does not appeal to me at all, and I think we ought not to listen to it. I want to consider in a very few sentences what is the meaning and the effect of this section and to see whether the plaintiff has made out his case.
The public-house in question is a valuable public-house. It was held under a long lease from 1853 for sixty years at a rent of 66l. a year. That lease was surrendered in 1898 upon the footing of an agreement that the tenant, who had fifteen or sixteen years more to run of his old lease, would surrender that lease and spend 4000l. at least in pulling down and rebuilding the premises, and then, when that work was done, the landlord would grant, as he did grant, a lease for ninety-nine years from 1897 at a rent of 300l. odd. That being the state of things, we come now to the consideration of the Act.
Certain licence duties were payable under the old Act. Those duties were greatly increased by the Act of 1910. It was thought necessary to give, not a general protection to all persons interested in licensed houses, but to certain defined persons only. I will read it now:
"Where the licensed premises are held under a lease or agreement for lease made before the passing of the Finance (1909-10) Act, 1910, which does not contain or import any covenant, agreement, or undertaking on the part of the lessee under such lease, or agreement for lease to obtain a supply of intoxicating liquor from the grantor of the lease or agreement for lease, the lessee under such lease or agreement for lease shall be entitled, notwithstanding any agreement to the contrary, to recover as a debt due from, or deduct from any sum due to, the grantor of such lease or agreement for lease"
- I pause there for a moment to say that it only refers to a grantor and does not apply to a grantee -
"so much of any increase of the duty payable in respect of the licence under the provisions of the Finance (1909-10) Act, 1910, as may be agreed upon as proportionate to any increased rent or premium payable in respect of the premises being let as licensed premises, and, in default of agreement, the amount proportionate to such increased rent or premium shall be determined in manner directed by rules of Court by a county court in England or Ireland."
It is contended that the 5000l. spent by the lessee in 1897 and 1898 is a premium payable in respect of the premises. "Premium" is a word of art. It seems to me to be unreasonable to say that the expenditure in pulling down the old buildings and rebuilding them was a premium in any sense in which that word of art can be used. I agree that it is not necessary that a premium, in its true sense, should be paid in that sense - it may be not payable to the lessor but to the trustees of the settlement; but you must have that which in its nature and true sense is a premium payable. In my opinion there is no justification for saying that the expenditure of 5000l. in any sense of the word was a premium payable in respect of the licensed premises.
Then it was argued that the surrender of the lease was something which ought to be taken into consideration, and it was said that the surrender value of the old lease was 2530l., or, if that is spread over the whole ninety-nine years, that amounted to 128l. a year. I think I cannot do better than adopt the language used by Rowlatt J. in the St. John's College Case, [F6] to which our attention has been called. The surrender of the lease is not a payment, although it is desired to call it so.
In my opinion the decision of the learned judges in the Divisional Court was quite right, and this appeal must be dismissed with the usual consequences.