CRANCOUR LTD v DA SILVAESA AND ANOTHER ; SAME V MEROLA AND ANOTHER [1986] EWCA Civ 1

Court of Appeal

[1986] EWCA Civ 1

Between

CRANCOUR LTD

DA SILVAESA AND ANOTHER ; SAME V MEROLA AND ANOTHER

Before

Lord Justice PURCHAS

Lord Justice RALPH GIBSON

Lord Justice NICHOLLS

Kenneth Bagnall QC and Miss Linda Pearce (instructed by Brocklesby & Co) appeared on behalf of the appellant Joao M da Silvaesa

T J Gallivan (instructed by Brocklesby & Co) represented the appellants S Merola and A Kader

Michael Mann QC and Francis Tregear (instructed by Richards Butler & Co) appeared for the respondents in both appeals (V G Markou and Crancour Ltd).

Date 26 February 1986

[1]Giving the first judgment at the invitation of Purchas LJ, RALPH GIBSON LJ said: There are two appeals before the court which, with the consent of all parties, have been heard together. In the first appeal Mr J M da Silvaesa appeals against an order for possession of room no 3 in a house at 21 Cranley Gardens, London SW7, made by Hirst J on September 17 1985.

[2]In the second appeal Miss S Merola and Mr A Kader appeal against an order for possession within 28 days of room no 12 in the same house made by Boreham J on November 28 1985.

[3]In each case the order for possession was made under Order 113 of the Rules of the Supreme Court, which makes provision for summary proceedings for possession of land: Where a person claims possession of land which he alleges is occupied solely by a person or persons (not being a tenant or tenants holding over after the termination of a tenancy) who entered into or remained in occupation without his licence or consent . . . Accordingly, if the appellants were originally in occupation as tenants and not as licensees, the use of this summary form of proceedings was misconceived and the orders for possession could not be made. Further, the appeals raise questions as to the appropriateness of this form of proceedings in cases where any dispute of law or fact is raised by those against whom the orders are sought.

[4]The issues in the two appeals are not identical, but one major issue is common to both: the proper construction and meaning of the agreements in writing - both in the same form - made by Mr V G Markou, the then owner of the house, with the appellants. In each case the learned judge held as a matter of construction that the agreement granted a licence to occupy only and not a tenancy and that the agreement was a real agreement between the parties and not a 'sham'. The appellants say that in each case the judge was wrong on the first and, alternatively, on the second point.

[5]In the first appeal Mr da Silvaesa and a Miss Santos signed an agreement in writing dated January 26 1985. It was called a licence and, according to its terms in clause 1, Mr Markou licensed them to use the furnished room no 3 in the house: on each day between the hours of midnight and 10.30 am and between noon and midnight but at no other times for a period of 26 weeks from 26 June 1985 for the purpose of temporary accommodation for the licensees personal use only . . . It is to be noted that this paragraph reserves to the landlord, or building owner, the right to treat the licensee as a trespasser if he remains in the building between 10.30 am and noon and, indeed, to require the licensee to remove his possessions from the room during that period of time each day.

[6]Other clauses of the agreement relevant to the issues raised in the appeals include: 2 The possession, management and control of the flat remains vested in the licensor who is the occupier for all purposes including taxation and rating. The licensor will retain keys to the flat and has an absolute right of entry at all times for the purpose of exercising such management and control and . . . for the purpose of effecting any repairs or cleaning to the flat or building or for the purpose of providing the attendance mentioned in Clause 9 hereof or for the purpose of removing or substituting such articles of furniture from the flat as the licensor may see fit. 3 The licensee shall pay the licensor a licence fee of £ 10 per fortnight for his use of the flat . . . 4 The licensor may for any reason and at any time require the licensee forthwith to vacate the flat and move to any other flat of comparable size in the building which the licensor may offer the licensee provided that in respect of such a flat the licensee shall not be required to make a greater fortnightly payment than the amount payable by Clause 3 . . . 5 This licence agreement confers upon the licensee merely a personal privilege to use the flat . . . 9 The licensor will provide the following attendance for the licensee:(i) Housekeeper;

(ii) Lighting of common parts;

(iii) Cleaning of common parts;

(iv) Window cleaning;

(v) Service to front door;

(vi) Telephone;

(vii) Cleaning of flat;

(viii) Collection of rubbish;

(ix) Provision and laundering of bed linen;

(x) Hot water.

[7]With reference to these provisions it is to be noted that clause 2 on its face appears to permit the landlord not merely to substitute articles of furniture but also to remove any and all of them, although the licensee remains liable to pay for his use of the room for the whole period of 26 weeks. I suspect an error of drafting or typing but that is the effect of the clause.

[8]The right of Mr da Silvaesa and Miss Santos under the agreement expired on July 26 1985. Mrs Liew, the housekeeper, asked them to move out. On September 4 1985 application was made in the High Court in the name of Mr Markou as plaintiff for an order for possession of the room no 3. Various points were taken in the notice of appeal as to the form of the originating summons, which was served on September 9 1985, but these points were abandoned. Notice was given to these appellants by letter dated September 11 and delivered by hand to them at room no 3 to attend before the judge in chambers on Tuesday September 17 1985. An affidavit sworn by Mr da Silvaesa in support of his application for a stay pending appeal states that he received the letter on September 13. An emergency legal aid certificate was issued to Mr da Silvaesa on September 13 1985 limited to representation on the hearing on September 17 1985. On that date these appellants were represented before Hirst J by counsel, Miss Linda Pearce, but no affidavit evidence was tendered. It was submitted on their behalf that the issue - whether they were, on the true construction of the written agreement, licensees or, as they claimed, tenants having exclusive occupation of their room - should not be dealt with summarily but should be remitted to the county court for trial under section 40 of the County Courts Act 1984. In the alternative, Miss Pearce submitted that the summary proceedings should be adjourned to enable these applicants to present evidence that the licence agreement was a 'sham'.

[9]Hirst J refused to transfer the proceedings for trial; and, having heard what he described as extremely well argued submissions on both sides and directing himself by reference to the principles stated in Lord Templeman's speech in Street v Mountford

[1985] AC 809

*, he decided that, upon its true construction, the written agreement created a 'lodger type' licence and not a tenancy. The learned judge then considered the alternative submission that an adjournment should be granted for these appellants to adduce evidence to show that the written agreement was a sham. He had invited Miss Pearce to specify what type of evidence she wished to adduce: the answer was that the agreement was renewed over a number of periods since 1983; that no cleaning was provided, although bed linen was provided, and clause 4 was not implemented. The learned judge concluded that such matters, if proved, would not begin to establish that the agreement was a sham and he accordingly refused to grant an adjournment and made the order for possession.

[10]For these appellants Mr Bagnall submitted that the judge was wrong to refuse an adjournment: the question whether the written agreement did or did not create in the appellants an exclusive right of possession, so as to give them a tenancy of the room, could - said Mr Bagnall - only properly be answered by construing the written terms in the 'matrix of facts' in which the agreement was made; and the appellants should have been given an opportunity of making a full statement of their evidence. He drew attention to the fact that in Street v Mountford it was conceded by the landlord that the agreement granted exclusive possession to Mrs Mountford and the issue determined by the House of Lords was that she was therefore a tenant, notwithstanding express terms to the effect that she had a licence only. The issue, for trial of which the adjournment ought to have been granted in this case, was whether this agreement, construed in its factual context, did or did not create a tenancy by the grant of exclusive possession.

[11]On the issue whether the agreement was to be construed according to its terms or was to be treated as a sham Mr Bagnall acknowledged that, if the only matters to be advanced in demonstration that the agreement was a sham were those stated by counsel to the judge, it was difficult to argue that they would by themselves suffice, but the adjournment should have been granted for that purpose as well, in particular having regard to the indications from the terms of the written agreement itself that the agreement or certain terms in it were apparently 'sham'. I refer to these indications later in this judgment. They do not appear to have been relied upon before Hirst J.

[12]A landlord is entitled to use the summary proceedings under Order 113 if he can demonstrate his right to do so, and the court has no discretion to deny such use merely on the grounds that the proceedings are rapid and summary and that the defendants did not enter as squatters: see GLC v Jenkins

[1975] 1 WLR 155

. The landlord, however, takes a risk of finding that the evidence put forward by the defendant is such that the landlord's claim is not sufficiently clear and straightforward for these summary proceedings and must be remitted for trial: see Shah v Givert (1980) 124 SJ 513. In Henderson v Law

(1985) 17 HLR 237

Griffiths LJ said: There will obviously be cases in which, although proceedings are started by way of a summary procedure it quickly becomes apparent that a substantial issue has to be tried. If it was apparent to the applicant that a serious issue was bound to arise as to whether a tenancy or a holding ever existed, no doubt the judge would regard the use of the summary procedure as inappropriate, or even in an extreme case as an abuse of the process, and dismiss the application; but I would expect such cases to be rare, because I would not anticipate that solicitors would seek to steal a march by using an inappropriate procedure. From time to time there are bound to be cases such as this where, from the applicant's point of view, an unexpected issue surfaces which raises the question of a tenancy or a holding over. In such cases, the judge must exercise his discretion and decide whether it is wiser to continue the summary hearing, or to adjourn it for a further hearing after the parties have had a chance to reconsider the position, or possibly to dismiss the application and leave the applicant to have the issues determined in a subsequent action.

[13]It was, accordingly, for the learned judge to decide firstly whether these appellants had had sufficient time to put forward their case. He decided that they had: they had signed the written agreement; their right to remain according to its terms had expired more than seven weeks before; they had had legal advice available to them from Friday September 13 until the hearing on Tuesday September 17; and all that was required of them was to give instructions as to the circumstances in which they had taken the room and signed the agreement. It is not possible, in my judgment, for this court to say that the judge's conclusion on this point was one which he could not properly reach.

[14]Next, the judge had to decide whether the claim of the plaintiffs was clearly made out on the evidence or whether from the nature of the plaintiffs' claim by itself, or, having regard to evidence which these appellants had put forward, or wished to put forward, it was necessary or appropriate to remit the case for trial or to adjourn the hearing of the summary proceedings for further evidence.

[15]The judge first considered the meaning and effect of the written agreement and concluded that, if it represented the agreement between the parties, it was 'crystal clear' that, within the principles stated in Street v Mountford

[1985] AC 809

, these appellants were lodgers and not tenants. Those principles were stated by Lord Templeman as follows (p 817H): In the case of residential accommodation there is no difficulty in deciding whether the grant confers exclusive possession. An occupier of residential accommodation at a rent for a term is either a lodger or a tenant. The occupier is a lodger if the landlord provides attendance or services which require the landlord or his servants to exercise unrestricted access to and use of the premises. A lodger is entitled to live in the premises but cannot call the place his own. In Allan v Liverpool Overseers (1874) LR 9 QB 180, 191-192 Blackburn J said:

'A lodger in a house, although he has the exclusive use of rooms in the house, in the sense that nobody else is to be there, and though his goods are stowed there, yet he is not in exclusive occupation in that sense, because the landlord is there for the purpose of being able, as landlords commonly do in the case of lodgings, to have his own servants to look after the house and the furniture, and has retained to himself the occupation, though he has agreed to give the exclusive enjoyment of the occupation to the lodger.'

If on the other hand residential accommodation is granted for a term at a rent with exclusive possession, the landlord providing neither attendance nor services, the grant is a tenancy; any express reservation to the landlord of limited rights to enter and view the state of the premises and to repair and maintain the premises only serves to emphasise the fact that the grantee is entitled to exclusive possession and is a tenant. In the present case it is conceded that Mrs Mountford is entitled to exclusive possession and is not a lodger. Mr Street provided neither attendance nor services and only reserved the limited rights of inspection and maintenance and the like set forth in clause 3 of the agreement. On the traditional view of the matter, Mrs Mountford not being a lodger must be a tenant. Later, at p 823D, Lord Templeman said: Exclusive possession is of first importance in considering whether an occupier is a tenant; exclusive possession is not decisive because an occupier who enjoys exclusive possession is not necessarily a tenant. The occupier may be a lodger or service occupier or fall within the other exceptional categories mentioned by Denning LJ in Errington v Errington and Woods

[1952] 1 KB 290

. Then, at p 824G: In Marchant v Charters

[1977] 1 WLR 1181

a bedsitting room was occupied on terms that the landlord cleaned the rooms daily and provided clean linen each week. It was held by the Court of Appeal that the occupier was a licensee and not a tenant. The decision in the case is sustainable on the grounds that the occupier was a lodger and did not enjoy exclusive possession. Finally, Lord Templeman added (p 827F): Henceforth the courts which deal with these problems will, save in exceptional circumstances, only be concerned to inquire whether as a result of an agreement relating to residential accommodation the occupier is a lodger or a tenant.

[16]This agreement requires the landlord to provide attendance and services for the licensee but - and I shall return to this point later in this judgment - the obligation to provide attendance and services is not conclusive that the occupier is a licensee: provision of the attendance or services must, as set out in Lord Templeman's speech, require the landlord or his servants to exercise unrestricted access to and use of the premises. Clause 2 of this agreement as set out above provides that the landlord shall 'retain keys to the flat' for the purpose of exercising such management and control and for providing the attendance mentioned in clause 9 and for the purpose of removing or substituting such articles of furniture from the flat as the landlord may see fit under clause 2. Clause 9 of the agreement does not specify the extent or frequency of the attendance or services to be provided, and this is an aspect of the written agreement upon which all these appellants have relied in submitting that the agreement by itself could not be shown to require 'unrestricted' access to and over the premises. The task of the court in applying the principles laid down in Street v Mountford is not that of applying the words of a statute. I take the meaning of the word 'unrestricted' in this context to be primarily concerned with the landlord's need to go into and out of the lodger's rooms at the convenience of the landlord and without the lodger being there to let the landlord in. The amount and frequency of the attendance and services agreed to be provided are relevant, but the question to be answered is whether, in all the circumstances, having regard to the landlord's obligations, it is clear that the landlord requires unrestricted access and has reserved the right to exercise such access in order to look after the house and the furniture. Where an agreement describes attendance and services, as in this case, without specifying the extent or frequency of them, the court may and, as I think, should treat the agreement as imposing upon the landlord an obligation to provide the attendance and services to an extent and frequency and standard which are in all the circumstances reasonable. Such a standard upon the material before the learned judge in this appeal could not be regarded as either extensive or elaborate; it would be of the order of removing rubbish daily or at least every other day, cleaning once a week and laundering sheets fortnightly. The evidence later put in by Mr da Silvaesa did not show anything different except for the fact that he asserts that these appellants cleaned the flat themselves.

[17]The learned judge, in my opinion, was right in reaching the conclusion that, if the written agreement represented the agreement between the parties, then, upon its true construction, these appellants were lodgers and not tenants. The agreement does require the landlord to provide attendance and services which require the landlord and his servants to exercise unrestricted access to and use of the room. Possession and control of the room are reserved by clause 2 of the agreement to the landlord for the purposes of discharging the obligation to provide attendance and services and that shows, in my judgment, that exclusive possession was not given. The right to require the lodger to move from one room to another could not, as I think, by itself be conclusive to show that there was no grant of exclusive occupation of the room for residential accommodation if the terms otherwise showed that there was such a grant; but the reservation of the right - and I consider it later in this judgment with reference to the submission that the agreement is on its face 'a sham' - seems to me wholly consistent with the status of lodger and of an intention on the part of the landlord to look after the house and furniture by himself or his servants and to retain to himself the occupation.

[18]As to matters which the appellants asserted that they wished to prove to show that the agreement was a sham, the judge was of opinion, as I have said, that proof of those matters would not begin to establish that the agreement was a sham. The length of time that a lodger remains could not, he said, convert the agreement to a tenancy if the terms of it constituted a lodging. The fact that services, which the landlord is contractually obliged to provide, are not taken or used by the lodger does not render the agreement a sham, since the lodger was entitled to call for them. The fact that the landlord had not exercised his right to require the lodger to move to another room also, in the view of the learned judge, could not show the agreement to be a sham. The judge was right, in my opinion, that these matters considered by themselves would not demonstrate that the written agreement was a sham agreement. It has been argued in this court, however, with reference to both appeals that, apart from any evidence which the applicants could give to show that the agreement was sham, the terms of the written agreement themselves provide evidence that it was 'a sham' in that the parties cannot be supposed to have intended the agreement to operate between the parties. Emphasis was placed upon all the terms, including those which I have mentioned, in particular the denial of the right in the occupier to use the room from 10.30 to noon, and the right of the landlord to remove furniture. It was submitted that, if the written agreement is shown to have contained terms which, upon the evidence before the court, are arguably sham - in the sense that the parties did not intend that the terms should express the legal rights between the parties - that fact is relevant to the decision of the court as to whether the status of the appellants as licensees, remaining in the premises without consent, is shown with sufficient clarity to justify the making of an order under the summary procedure.

[19]It is necessary, in my view, for the court, when faced with this plea of 'sham agreement', to require a clear statement of what is said to be 'sham' and what the consequence of any finding to that effect is said to be. In Snook v London & West Riding Investments Ltd

[1967] 1 All ER 518

, the Court of Appeal was concerned with the title of a hire purchase company to a motor vehicle. Diplock LJ (as he then was) said this (at p 528): As regards the contention of the plaintiff that the transactions between himself, Auto-Finance Ltd and the defendants were a 'sham', it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. One thing I think, however, is clear in legal principle, morality and the authorities . . . that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a 'shammer' affect the rights of a party whom he deceived.

[20]In Street v Mountford Lord Templeman (at p 825D) referred to Somma v Hazelhurst

[1978] 1 WLR 1014

. In that case a landlord 'licensed' a couple to use a furnished room: the written agreement expressly provided that they were not to have exclusive possession and that the landlord could license another person to share the room. It was contended in the Court of Appeal that the clauses with reference to shared occupancy were illegal and void as contrary to public policy and that, in considering questions arising under the Rent Acts, the court must look at the substance and reality of the situation: if, upon examining the surrounding circumstances, the court finds that a written agreement disguises the reality of the transaction, that disguise should be disregarded even if it cannot be shown that the agreement is fraudulent or such as to attract the label of a mere sham. Cumming-Bruce LJ rejected the argument: he said (at p 1025A): If that is what both he and the licensee intend and if they can frame any written agreement in such a way as to demonstrate that it is not really an agreement for a lease masquerading as a licence, we can see no reason in law or justice why they should be prevented from achieving that object. Nor can we see why their common intentions should be categorised as bogus or unreal or as sham merely on the ground that the court disapproves of the bargain. This matter was expressed most happily by Buckley LJ in Shellmex & BP Ltd v Manchester Garages Ltd

[1971] 1 WLR 612

, 619 as follows:

'It may be that this is a device which has been adopted by the plaintiff company to avoid possible consequences of the Landlord and Tenant Act 1954, which would have affected a transaction being one of landlord and tenant; but, in my judgment, one cannot take that into account in the process of construing such a document to find out what the true nature of the transaction is. One has first to find out what is the true nature of the transaction and then see how the Act operates upon that state of affairs, if it bites at all. One should not approach the problem with a tendency to attempt to find a tenancy because unless there is a tenancy the case will escape the effects of the statute.'

The court held that the agreement created a licence and not a tenancy. In Street v Mountford Lord Templeman's comment upon Somma's case was as follows (at p 825D): But the Court of Appeal did not ask themselves whether H and S were lodgers or tenants and did not draw the correct conclusion from the fact that H and S enjoyed exclusive possession. The Court of Appeal were diverted from the correct inquiries by the fact that the landlord obliged H and S to enter into separate agreements and reserved power to determine each agreement separately. The landlord also insisted that the room should not in form be let to either H or S or to both H and S but that each should sign an agreement to share the room in common with such other persons as the landlord might from time to time nominate. The sham nature of this obligation would have been only slightly more obvious if H and S had been married or if the room had been furnished with a double bed instead of two single beds . . . The room was let and taken as residential accommodation with exclusive possession in order that H and S might live together in undisturbed quasi-connubial bliss making weekly payments. The agreements signed by H and S constituted the grant to H and S jointly of exclusive possession at a rent for a term for the purposes for which the room was taken and the agreement therefore created a tenancy. Although the Rent Acts must not be allowed to alter or influence the construction of an agreement, the court should, in my opinion, be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts. I would disapprove of the decision in this case that H and S were only licensees and for the same reason would disapprove of the decision in this case that H and S were only licensees and for the same reason would disapprove of the decision in Aldrington Garages Ltd v Fielder

(1978) 37 P & CR 461

and Sturolson & Co v Weniz (1984) 272 EG 326 ,

[1984] 2 EGLR 121

[21]As I understand the reference to the 'sham nature of the obligation', namely that of sharing the room in common with other persons nominated by the landlord, the House of Lords is there saying, first, that the agreement in that case constituted the grant of exclusive possession; second, that the written obligation to share the room was not effective to alter the true nature of the grant; and, third, that, on the facts of the case, it should have been clear to the Court of Appeal that that landlord cannot have intended the term as to sharing occupation to be a true statement of the nature of the possession intended to be enjoyed by the 'licensees'. The principle that the Rent Acts must not be allowed to influence the construction of an agreement, which was re-asserted in Street v Mountford , means, of course, that it is not open to the court to dismiss as 'sham' a term in an agreement merely because it is either effective in demonstrating that the agreement does not grant exclusive occupation or, taken with other terms, contributes to that result. Further, the presence of a term in an agreement, like that which required the 'licensee' to share the room in Somma's case, and which is seen to be 'sham' in the sense described above, is not of itself illegal or contrary to public policy: the term itself is merely ineffective.

[22]As to the denial in the agreement signed by these appellants of the right in them as occupiers to use the room from 10.30 to noon, I agree that this clause has the appearance of one which might well be 'sham' in the sense that the landlord might be shown not to have intended the term to be a true statement of the nature of the occupation to be enjoyed by the licensees. I do not regard it as a clause which must obviously and unarguably be of that nature in all circumstances but, in this case, it appears never to have been enforced and it is astonishingly extreme in apparently extending to the licensee's property as well as his personal presence. The court might be persuaded on the facts that the landlord never intended that clause in the terms used to describe the nature of the possession intended to be enjoyed by the licensee.

[23]Next, the right to remove, as opposed to the right to substitute, furniture appears to me to fall into the same class. It might well be that the actual intention was to reserve only the right to 'remove and substitute', but no explanation of the clause has been offered and it must be construed as it stands. It is not necessary to work out what rights the licensee might have if the landlord had claimed to remove, for example, the bed without replacement. This clause was referred to in argument by Mr Gallivan as 'bizarre': in the absence of any explanation I agree with his submission in that it is not consistent with an ordinary agreement with a lodger for a furnished room to which the lodger is tied for six months.

[24]Lastly, on the apparently 'sham' nature of the agreement, reference was made to clause 4: the right to require the licensee to move from one room in the building to another of comparable size without increase of rent: this was also described by Mr Gallivan as 'bizarre'. I do not accept that submission. It seems to me of its nature to be a term which the landlord of a lodging house, providing temporary accommodation, could both sensibly and reasonably impose for the better running of the house. He may want to redecorate a room; or to enable two applicants for rooms to be near to each other; or to separate occupants who have been in dispute.

[25]In the light of these considerations, it seems to me that the question whether, in the first appeal, the terms of the written agreement themselves provide evidence that the agreement was a sham is to be decided, first, by asking whether the presence of clause 1, no right to use the room from 10.30 to noon, and of clause 2, the right to remove furniture, provide any basis for contending that the agreement itself and as a whole must be regarded as a sham. It is plain to me that they do not. In the first appeal the written agreement was the only agreement between the parties and no other is alleged. The house was being run on the basis of service and attendance being provided to the occupants of the several rooms in it. A housekeeper was employed to provide them. The agreement as a whole is not shown to have been arguably a sham.

[26]Second, the agreement must be considered on the basis that these clauses which can fairly be regarded as possibly sham - the terms in clauses 1 and 2 (no right between 10.30 and noon and removal of furniture) - are treated as ineffective. If the written agreement is considered in this light, was it right for the judge to be satisfied that the case was sufficiently clear for him to make an order for possession in summary proceedings, having regard to the request by these appellants for an adjournment to offer evidence on the matters stated by their counsel?

[27]I have reached the conclusion, despite the submissions of Mr Mann for the respondents to which I shall refer later, that, as the case has been argued in this court, it was not right for the order to be made in the summary proceedings, because the claim of the landlord was not sufficiently clear and straightforward for the following reasons. First, clause 1 of the agreement, which defines the right of use and possession of the room or flat, is shown to be arguably not a true statement of the rights intended to be granted, and clause 2, which states the control retained by the landlord and the reasons for retaining it, is shown arguably to contain a term as to removal of furniture of a similar character. The presence of such a term, in the absence of an allegation of an intent to deceive or deliberately to take unfair advantage of the occupier - and none is made - does not, in my opinion, by any process of infection spread some debilitating weakness to other terms of which the genuineness is not in doubt, either on the face of the agreement or according to evidence available or sought to be tendered. The court could, in my opinion, be satisfied that a claim was clearly made out under Order 113 against the lodger who had remained without consent even if there is shown to be in the agreement a term which the court considers should be treated as ineffective because arguably sham. A draftsman might insert such a term out of misguided zeal in an agreement which is clearly a genuine agreement for the grant of accommodation to a lodger. Nevertheless, the presence of arguably sham terms in the agreement is a factor which the court must take into account in considering whether the claim is sufficiently clear for the purposes of these summary proceedings. If clauses of such importance are self-evidently of doubtful effectiveness, the court must consider the possibility that the clauses which impose the obligation to provide attendance and reserve the right of control and access for the purpose of providing it may not accurately reflect the legal relationship intended by the parties with reference to those matters.

[28]Second, the evidence which these appellants wanted to put before the court included, in the note of the judgment of Hirst J, assertions that 'no cleaning was provided although bed linen was provided'. If it should appear to the court, after consideration of all the evidence, that, from the making of the agreement, and with reference to an earlier agreement in similar terms between Mr da Silvaesa and the landlord, no cleaning of the flat by the landlord had been carried out or offered, and that the laundering of bed linen and removal of rubbish had been carried out without exercise of or need for any right of access to the room, then it might be open to the court to conclude that the true agreement between the parties did not require unrestricted access to and use of the premises by the landlord so as to cause these appellants to be lodgers and not tenants. I do not suggest that that is a probable or likely conclusion. I do not know what the outcome of the testing of the evidence will be. It is sufficient for the purposes of this appeal that these appellants have shown that the claim of the landlord is on the evidence not so clear and straightforward that an order for possession should be made in proceedings under Order 113.

[29]Mr Mann, for the respondents, submitted that the essential test to determine whether an occupier was a tenant with exclusive occupation or a lodger, and hence a licensee only, was whether the landlord had reserved control or 'dominion' over the room; and that, even if these appellants were able to raise any point upon separate terms of the agreement, so as to suggest that those terms may not have represented the true relationship intended by the parties to operate between them, nevertheless clause 2, or the essential force of it, clearly remained unimpaired and by itself demonstrated that the appellants did not have exclusive possession and were not lodgers.

[30]He referred to Bradley v Baylis

(1881) 8 QBD 195

, heard in the Court of Appeal before Sir George Jessel MR and Baggallay, Brett, Cotton and Lindley LJJ. The case arose under the Parliamentary and Municipal Registration Act 1878 and the Representation of the People Act 1867. It was held that, although, by the 1878 Act, the term 'dwelling-house' in the Act of 1867 is provided to mean part of a house separately occupied, yet, in order to be entitled to the borough franchise as the occupier of a dwelling-house, the person must have an occupation in respect of which he can be rated to the relief of the poor and, therefore, he is not entitled to such a dwelling-house franchise by reason of the occupation of part of a house if he occupies such part as a lodger. The tenant of two rooms, which he took unfurnished at a weekly rent, had the exclusive use of such rooms and a key of the outer door of the house. His landlord had also a key of the outer door, and resided in all the rest of the house, but supplied no attendance or service to the tenant. The court held that such a tenant occupied the rooms as a lodger. Mr Mann referred to a passage in the judgment of Sir George Jessel MR at p 218: . . . it remains to consider when a man who occupies a rateable tenement is an occupying tenant, and when he occupies or uses it as a lodger only. There is, probably, no question on which there has been a greater variety of judicial opinion than this . . . I think it wiser and safer to say that the question whether a man is a lodger, or whether he is an occupying tenant, must depend on the circumstances of each case. . . . 'First of all, take the case of a lodger . It seems to me, as to unfurnished lodgings . . . where the owner of the house does not let the whole of it, but retains a part for his own residence, and resides there, and where he does not let out the passages, staircase and outer door, but gives to the 'inmates' . . . merely a right of ingress and egress, and retains to himself the general control, with the right of interfering - I do not mean an actual interference, but a right to interfere, a right to turn out trespassers, and so on; there I consider that such owner is the occupying tenant of the house, and the inmate, whether he has or has not the exclusive use of the room, is a lodger . That is one extreme case. . . . There will be an immense number of intermediate cases . . . Does it make any difference that the inmates have latch-keys to the outer door and also keys to the inner door? I think not. I think they are still lodgers notwithstanding. Does it make any difference that the landlord does not reside there personally, but has resident servants, who occupy, on his behalf, part of the house? I think not. I think that the inmates are still lodgers . Does it make any difference that the landlord does or does not repair? I think not; they are still lodgers .

[31]Mr Mann contended that upon this authority - which was apparently not cited to the House of Lords in Street v Mountford - it is clear that a landlord may retain such control over rooms of which the use for residential accommodation has been granted by agreement, that the user is a lodger only, and not a tenant, even though the rooms are not furnished by the landlord and a landlord provides no attendance or service and the user has exclusive use of the rooms. He pointed to clause 2 in this agreement signed by these appellants, which is set out above, as the most important clause. The landlord here had reserved possession and control and he had a servant in the house to exercise it: therefore, the appellants did not have exclusive possession and could not be tenants. In effect, this submission contends that a clause of this nature can effectively prevent the grant of exclusive possession even where the use of rooms is given for residential accommodation to be enjoyed in the way in which such accommodation is ordinarily enjoyed, that is to say with no interruption or interference apart from occasions when the landlord has need to enter the room for his legitimate purposes as landlord, and even though the occasions upon which the landlord would have such need are infrequent because he provides no attendance or services. It is true that, in the passage cited from Lord Templeman's speech at p 818A: The occupier (at a rent for a term) is a lodger if the landlord provides attendance or services which require . . . unrestricted access . . . his lordship did not say that the occupier is a lodger if, and only if, such circumstances are proved. Lord Templeman also cited the passage from Blackburn J in Allan v Liverpool Overseers which refers to the landlord retaining: to himself the occupation, though he has agreed to give the exclusive enjoyment of the occupation to the lodger.

[32]It is not necessary, in my opinion, for this court to decide for the purposes of this appeal whether the principles laid down in Street v Mountford mean that, as a matter of law, premises made available for a term at a rent for residential accommodation must imply a grant of exclusive possession, whatever the terms and circumstances of the agreement, unless the landlord provides attendance or services which require the landlord or his servants to exercise unrestricted access to and use of the premises. I incline to the view that Street v Mountford does lay down such a rule where the accommodation is intended for use as ordinary separate and private residential accommodation and in the absence of any exceptional circumstances. I understand the basis of the rule to be that possession of rooms for occupation as ordinary residential accommodation must, from its nature, be intended by both parties to be exclusive except where, as stated, the landlord requires unrestricted access for the provision of services or attendance. Whatever be the right answer to that question, it is clear to me that clause 2 in this agreement, and the submission founded upon it, cannot prevail so as to justify by itself the making of an order for possession in summary proceedings on the facts of the first appeal. It will be for the court at trial to decide whether, in the light of the effective terms of the agreement as they are found to be, exclusive possession of the room was granted to these appellants. In the event that it is not shown that the landlord: provide attendance or services which require the landlord or his servants to exercise unrestricted access to and use of the premises the court would have to consider then whether any term of the agreement, and, in particular, clause 2 to the extent that it survives, is effective to prevent the grant of exclusive possession to these appellants, having regard to the disapproval by the House of Lords in Street v Mountford of Somma's case. In that case also there were terms which, on their face, denied exclusive possession to the licensees but which should have been treated as ineffective to achieve that purpose. As to the second appeal, the written agreement in the same form was signed by Miss Merola and Mr Kader on April 12 1985 for 26 weeks. It expired on October 11 1985. It was alleged that these appellants failed to pay after August 30 1985. Before the judge there was an issue as to whether these appellants had, by failure to pay, repudiated the agreement as the landlord alleged. That issue has disappeared from the appeal because the application was made on November 11 1985 and the terms of the licence - if such it be - had by then expired.

[33]The application came before Boreham J on November 28 1985. The plaintiffs are Crancour Ltd - successors to Mr Markou. The application was supported by an affidavit by Mrs J E Sandy, managing agent for the plaintiffs. It provided evidence of the making of the agreement, the failure to pay rent and the failure to vacate. These appellants also obtained legal aid - on November 21 1985 - and in this case a joint affidavit was put before the judge sworn by these appellants. It provided evidence of an uncertain nature of an alleged oral agreement preceding the signing of the written agreement and of the provision of services different from those set out in the agreement. The oral agreement was alleged to have been made by Carina, the housekeeper. The plaintiffs put before the judge an affidavit in reply sworn by Mrs Sandy in which it was asserted that Carina had no authority to make any agreement other than in the form of the written agreement signed. Mrs Sandy also described in detail the services rendered by the housekeeper. She acknowledged that the landlord did not enforce clause 1 by insisting that 'licensees' vacate the building from 10.30 to 12.00 each day.

[34]On behalf of these appellants Miss Pearce before the learned judge argued a number of points, but the only points now relevant were put thus: first, it was not so clear that the agreement granted a licence, only that it was appropriate to make an order for possession in summary proceedings; second, there was evidence of a collateral agreement which overrode or varied the written agreement; and, third, that the agreement was a sham. The learned judge rejected the submissions. He found that the written agreement was the only agreement between the parties and that, for reasons like those which Hirst J had expressed, this agreement provided for a licence to lodgers to occupy the room.

[35]It is not necessary to deal in detail with the arguments before this court by Mr Gallivan upon the construction of the agreement. I have already referred to some of his submissions in dealing with the first appeal. So far as the second appeal turns upon the construction of the written agreement, in my opinion, for reasons which I have already given, the learned judge is not shown to have been in error.

[36]The indications on the face of the agreement that clauses 1 and 2 contain provisions which are arguably sham, which have been considered above, were relied upon also in the second appeal by Mr Gallivan. For reasons set out above it is clear to me that, in this case also, the right of the landlords to an order for possession was not so clear that an order should be made in summary proceedings.

[37]Further, there was in this appeal evidence on affidavit which alleged an oral agreement made with the landlord's housekeeper before or at the time of the signing of the form of written agreement. I have reached the conclusion that, in any event, this evidence was such that it raised issues which could not be properly resolved without the process of trial, in particular the cross-examination of the witnesses. Having formed that view, it is better that I say as little as possible in this court as to the nature and apparent quality of the evidence on either side: the issues of fact will have to be tried and resolved in the county court. I must, however, say, out of respect for the learned judge, that I do not find it surprising that he formed the view that the alleged conversations preceding the signing of the agreement could not have been intended upon objective assessment of the actions of the parties to constitute or to survive as legally binding contractual terms. Mr Mann, for the respondents, contended that the question whether any terms were agreed which could vary or affect the written agreement was a matter to be decided according to the probabilities upon the evidence before the court and that the decision of the learned judge upon that issue could not be faulted. In the light of the more extended arguments which this court has heard upon the various clauses of the agreement, and upon the issue of the alleged oral agreement, I have come to the conclusion, however, that it is not possible on the evidence to say that the issue as to what constituted the agreement between the parties was so clear that it is right to make an order for possession under Order 113. On that ground also I would allow the second appeal.

[38]Accordingly, and for these reasons, I would allow both appeals and set aside the possession orders. It would be necessary for directions to be given for the remission of both sets of proceedings to the county court. The court would, of course, hear the submissions of counsel.

[39]Agreeing that the appeals should be allowed, NICHOLLS LJ said: The feature common to these two appeals is the form of the written agreements. Shortly stated, by an agreement dated January 26 1985, Mr V G Markou granted to Miss Santos and Mr da Silvaesa licence to use a furnished room, called Flat 3, in 21 Cranley Gardens, London SW7, intermittently over a period of 26 weeks from that date, for a fortnightly fee of £ 110. By an agreement in the same form, dated April 12 1985, Mr V G Markou granted to Miss Merola and Mr Kader licence to use another furnished room, Flat 12, in the same building, again intermittently, over a period of 26 weeks from that date, for a fortnightly fee of £ 108. Both agreements have expired by effluxion of time, and in both sets of proceedings the issue is whether the respective pairs of occupants are in law licensees or, despite the terms of the licence agreements, tenants. If they are tenants, it is not disputed that they have a good defence to the claim for possession made by Crancour Ltd (which has become the leasehold owner of the flats, in succession to Mr Markou). Conversely, if they are licensees, it is common ground that they have no defence to the possession claim. The appeals are from possession orders made respectively by Hirst J on September 17 1985 regarding Room 3 (which I shall call 'the first appeal') and by Boreham J on November 28 1985 regarding Room 12 ('the second appeal'). In each case the orders were made on summonses issued under RSC Order 113.

[40]It will be convenient first to consider whether, assuming that the agreements are genuine and took effect according to their tenor, they gave rise to what the law classifies as a tenancy as distinct from a licence. In Street v Mountford

[1985] AC 809

Lord Templeman concluded his speech by saying: Henceforth the courts which deal with these problems will, save in exceptional circumstances, only be concerned to inquire whether as a result of an agreement relating to residential accommodation the occupier is a lodger or a tenant. The problems referred to by Lord Templeman were problems such as arise on these appeals. Earlier, he gave the following guidance (at p 817): In the case of residential accommodation there is no difficulty in deciding whether the grant confers exclusive possession. An occupier of residential accommodation at a rent for a term is either a lodger or a tenant. The occupier is a lodger if the landlord provides attendance or services which require the landlord or his servants to exercise unrestricted access to and use of the premises. A lodger is entitled to live in the premises but cannot call the place his own. In Allan v Liverpool Overseers (1874) LR 9 QB 180, 191-192 Blackburn J said:

'A lodger in a house, although he has the exclusive use of rooms in the house, in the sense that nobody else is to be there, and though his goods are stowed there, yet he is not in exclusive occupation in that sense, because the landlord is there for the purpose of being able, as landlords commonly do in the case of lodgings, to have his own servants to look after the house and the furniture, and has retained to himself the occupation, though he has agreed to give the exclusive enjoyment of the occupation to the lodger.'

[41]Applying those principles to these two cases, I respectfully agree with both Hirst J and Boreham J that this form of agreement did not grant exclusive possession to the occupants, and accordingly that they were lodgers and not tenants. In clause 1, to which I shall return, the occupants were authorised and permitted to use the room in question, not for a period of 26 weeks, but for 22 1/2 hours only in each 24 hours over the 26-week period. By clause 2 the possession, management and control of the room were expressed to remain vested in the licensor, who was the occupier for all purposes. He retained keys to the room and had 'absolute right of entry at all times for the purposes of exercising such management and control', and, in particular, for repairs, cleaning, providing the attendance mentioned in clause 9, or 'for the purpose of removing or substituting such articles of furniture from the flat as the licensor may see fit'. Under clause 4 the licensor might for any reason and at any time require the licensee forthwith to vacate the flat and move to any other flat of comparable size in the building, but not at an increased licence fee. By clause 9 the licensor was to provide the following services, among others, to the individual flat: window cleaning, cleaning, collection of rubbish, and provision and laundering of bed linen. To my mind, an agreement in that form is firmly on the lodger side of the line drawn by Lord Templeman.

[42]However, it is at this point that difficulties arise. I can best explain these difficulties by considering first the position regarding the second appeal. The originating summons was issued on November 11 1985 with a return date of November 28. It was supported by a brief affidavit made by a Mrs Sandy, who is the managing agent of Crancour. In answer Miss Merola and Mr Kader made an affidavit. They described 21 Cranley Gardens as a terraced house on five floors, including the basement. The basement was occupied by a housekeeper named Carina (Mrs Liew) and the rest of the house let out as bedsitting rooms. In April 1985 they met Carina and discussed accommodation. They then stated in their affidavit: We were entitled to have our room cleaned as Carina offered to do it. We declined. We were entitled to have the rubbish removed from outside our door. We were entitled to have our bed linen laundered on Mondays. We were entitled to the exclusive occupation of our room and the right to share the common parts with others. The common facilities included bathroom and we and a payphone with three extensions for receiving calls. All of this was made clear in our conversation. Neither of us could make head nor tail of the document but believed it to put into effect the oral agreement which we had made. We did not meet Mr Markou until later although we had been told he was the landlord. He lived elsewhere. We were given to understand that the agreement would be renewed each time. All of this accorded with what we had learned from friends to be the arrangement at the house. They also stated that their time in the house was uneventful and that 'things went much as we believed we had agreed'. Their sheets were laundered when they put them outside their room door, and their rubbish was removed by Carina. They cleaned their own room and they were left undisturbed in their room. On one occasion Mr Markou entered, coming in to measure up for insurance purposes. In their affidavit they also stated this: We now learn that there the written agreement provides that we were to leave our room between 10.30 am and noon each day. This certainly was never proposed nor discussed at any time. It certainly never happened. We would have objected most strongly if it were demanded and would not have taken the room on any such condition. Finally, they stated that in August 1985 the housekeeper told them that the house had been sold and that they were to pay their rent to Mrs Sandy. Mrs Sandy refused to accept it, saying that they would be getting a letter telling them to leave.

[43]In reply Crancour produced a further affidavit from Mrs Sandy. She said that the resident housekeeper had no authority to enter into any agreement other than the written, standard form agreement. Mrs Sandy explained that the housekeeper had keys to every room in the house for the purposes of the agreements. Each room was cleaned twice per week, rubbish was collected daily from inside each room, and the housekeeper entered each room weekly to change the bed linen. If the occupants did not avail themselves of these services that was a matter for them, but it did not alter the licensor's obligation to provide them. She said that she knew that the right to compel a licensee to change rooms had been exercised during the currency of the licence agreement when necessary. As to clause 1 of the standard form, she said that 'it is right the licensor does not insist that the licensees vacate the building during the hours set out in clause 1 of this agreement'.

[44]At the hearing on November 28 1985 Boreham J decided that the submission of counsel for the occupants that there was a collateral agreement which overrode the written agreement was not sustainable and that there was no substance in counsel's submission that the agreement was a sham. He said, according to the notes we have of his judgment, 'there is really no ground upon which one could say this was a sham'.

[45]For my part, with the greatest respect to the learned judge, I have difficulty in accepting these conclusions. It is trite law that the court will be astute to detect a sham where it appears that a provision has been inserted into an agreement for the purpose of depriving the occupant of protection under the Rent Acts which he might otherwise enjoy. By a sham in this context I mean, adopting the well-known words of Diplock LJ in Snook v West Riding Investments Ltd

[1967] 1 All ER 518

at p528, a document which was intended by the parties thereto to give to third parties or the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations which the parties intended to create. Lord Templeman adverted to this in Street v Mountford in these terms (at p 825): Although the Rent Acts must not be allowed to alter or influence the construction of an agreement, the court should, in my opinion, be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts. When one looks at this form of agreement, one finds that the first clause, granting the basic right of occupation, is in these terms: Subject as is hereinafter provided the Licensor licenses authorises and permits the Licensee to use that furnished flat known as Flat No 12 (hereinafter 'The Flat') on the 3rd floor of the building at and known as 21 Cranley Gardens SW7 (hereinafter 'The Building') on each day between the hours of midnight and 10.30 am and between noon and midnight, but at no other times, for a period of 26 weeks from the 12th April 1985 for the purpose of temporary accommodation for the Licensee's personal use only and for no other purpose whatsoever, and for so long as the Licensee is entitled to use the Flat as aforesaid the Licensee shall also be entitled to use, in common with all other persons having a like right, the common parts of the Building. To my mind, that clause is so extraordinary in a grant of a right to use residential accommodation for a period of six months that it calls for an explanation. Was it genuinely intended by Mr Markou that each day over the six-month period the occupants should be unable to use their room for any purpose? Were the occupants intended to remove all their belongings each day by 10.30 am and return them after noon (because, under clause 1, the occupants had no right to use their room at all for any purpose for that period of one and a half hours each day)? That this was ever really intended by the original licensor (and the licensees' evidence is that it was not intended by them) strains my credulity too far, in the absence of some reasonable explanation. Here there is no explanation at all. There is no evidence from Mr Markou, and Mrs Sandy does not suggest that she ever acted for him. She seems to have become concerned with the property only after Crancour acquired the building, which apparently was at the end of October 1985. Moreover, her evidence supports, rather than negatives, the view that clause 1, in so far as it purports to grant a licence which extended only to 22 1/2 hours each day, may not be a genuine record of the transaction being entered into, but that this was a contrivance, a pretence, a sham, inserted to strengthen the landlord's case that the agreement did not create a tenancy.

[46]Thus, I consider that the very terms of the basic clause of the agreement furnish a foundation for the defence of 'sham'. Of course, even if the omission from the written document of the grant of a licence to use the room each day between 10.30 am and noon is a sham, it does not follow that in law the true agreement between the parties amounted to a tenancy. I have already referred to other clauses in the form which support the landlord's claim that in law the character of the agreement was, as labelled, a 'licence agreement'. But, with such a dubious starting point as clause 1, I think that the court has to view the remaining clauses with particular circumspection. When, therefore, on top of this there is uncontradicted evidence (for no evidence from the housekeeper has been produced) to the effect that I have mentioned, I, for my part, do not see how that evidence can be rejected out of hand, and with it the occupants' case that a collateral oral agreement was entered into which had the effect of modifying the written agreement and giving the occupants exclusive occupation of their room as they claim was made clear in their conversation with the housekeeper.

[47]The case sought to be advanced by the occupants is open to criticisms: for example, the account of the conversation with the housekeeper in the affidavit evidence is lacking in particularity; it is unlikely that the housekeeper would have, or be thought to have, authority to vary the form of written agreement; and the genuineness of important clauses such as clause 4 has not been challenged by the occupants in their evidence. But, weighing all these matters, I am satisfied that, in the case of the second appeal, the balance comes down on the side of this being a case where there is an issue in dispute which ought to be tried and which cannot be resolved satisfactorily on the evidence as it stands.

[48]I turn to the first appeal. The course which this matter took is as follows. The summons, with no return date specified therein, was supported by a formal affidavit by the plaintiff Mr Markou (Crancour being substituted as plaintiff on December 10 1985, subsequent to the hearing before Hirst J). The summons and the affidavit were served on September 9 1985. On September 11 the plaintiff's solicitors notified the occupants of Room 3, Miss Santos and Mr da Silvaesa, that the summons was to be heard on Tuesday September 17. A legal aid certificate was issued on Friday September 13. On September 17 the first defendant's counsel argued that the question of whether the agreement created a tenancy or a licence should not be dealt with summarily but should go for trial. Alternatively, counsel sought an adjournment to enable evidence to be produced that the agreement was a sham. The second defendant appeared in person and adopted the first defendant's arguments. The learned judge considered various clauses of the form of agreement and, applying the law as laid down in Street v Mountford , concluded that it was 'crystal clear' that this was a lodger type agreement and not a tenancy. On the request for an adjournment, when asked to state what type of evidence she wished to adduce, counsel indicated that this was that the agreement had been renewed over a number of periods since 1983, that no cleaning was provided (although bed linen was), and that clause 4 was not implemented. Hirst J considered that those matters did not begin to establish that the agreement was a sham, and concluded: I do not consider that there is any potential material to undermine the agreement to show that it is a sham and he therefore refused to grant any adjournment.

[49]Subsequently, on October 28 Mr da Silvaesa made an affidavit in support of an application for a stay of execution pending an appeal by him (Miss Santos has not appealed). By then, on any view of the matter, he and his advisers had had ample opportunity to consider what evidence they wished to place before the court. The affidavit set out the history of the occupation of himself and Miss Santos of various rooms in the building from 1983. With regard to the agreement dated January 26 1985, he deposed that, as with the previous rooms, they cleaned the room themselves, but that the housekeeper laundered the bed sheets once a fortnight and took the rubbish down when she cleaned the stairs.

[50]It seems to me that the occupants' case in this appeal is much weaker than the occupants' case in the second appeal. In particular, Mr da Silvaesa does not suggest that any oral arrangement was made with the housekeeper varying the terms of the form of written agreement, or that he understood or intended his position to be other than as provided for in the written agreement. But the sham point was taken in the court below, although (to judge from the absence of any reference to clause 1 in the notes of his judgment) the learned judge's attention does not seem to have been drawn to clause 1 in this context. I have already expressed my view that clause 1 calls for an explanation. Not without some hesitation, I have reached the conclusion that, in the first appeal also, there is an issue needing to be tried with oral evidence. I think that it would be unsatisfactory for summary judgment to be given in favour of a landlord on the strength of a form of written agreement when prima facie the basic clause in that agreement is an artificial contrivance intended to mislead and thereby to create or strengthen a claim by the landlord that the agreement was outside the Rent Acts. I think that this consideration outweighs the force of the argument that, even if clause 1 is a sham and, in reality, the licence granted was for 24 hours each day, the other terms of the written agreement still put the agreement on the lodger side of the line. That may be so, but I think it is right that there should be a proper investigation to see indeed if that is the correct conclusion.

[51]Accordingly, I agree that both appeals should be allowed, the possession orders set aside and directions given for the further conduct of both sets of proceedings.

[52]I add this. I do not consider that this approach to these two appeals is calculated to open the door to landlords' claims against lodgers for summary possession orders being defeated simply by the defendants swearing affidavits alleging 'sham'. The court is well able to deal with such situations should they arise. What makes this case a special one is the terms of clause 1. If a landlord includes in his standard form a basic clause which prima facie is a sham, and offers no explanation of it in his evidence, he cannot be surprised if he finds that the shortcut summary procedures do not assist him but that he has to prove his case at a trial.

[53]Also agreeing that the appeals should be allowed, PURCHAS LJ said: The relevant history and surrounding circumstances of these appeals have been set out in the judgments of Ralph Gibson and Nicholls LJJ and need not be repeated here. Each appeal raises important issues concerning the status and effect of a document called 'Licence Agreement' which is common to each. To a considerable extent, the appeals involve philosophical questions of social policy which may be said to lie within the especial province of the legislature and are, therefore, an area in which it behoves the court to walk with circumspection. I refer to the balance to be held between a person's right to contract freely as he will and the need for intervention by Parliament in order to protect a person whose bargaining power is handicapped by his personal circumstances. Well-known examples of such intervention are to be found in the Employment Protection Act 1975, section 118(1)(a) and the Matrimonial Causes Act 1973, section 34(2).

[54]Although a tenant cannot contract out of the protection given to him under the landlord and tenant legislation, Parliament has not seen fit to intervene so as to inhibit the freedom to enter into contracts for the use by one person of another person's premises so long as the use provided for in the contract falls short of creating a tenancy. This is recognised by Lord Templeman in his speech in Street v Mountford

[1985] AC 809

at p 819: In the present case, the agreement dated 7th March 1983 professed an intention by both parties to create a licence and their belief that they had in fact created a licence. It was submitted on behalf of Mr Street that the court cannot in these circumstances decide that the agreement created a tenancy without interfering with the freedom of contract enjoyed by both parties. My Lords, Mr Street enjoyed freedom to offer Mrs Mountford the right to occupy the rooms comprised in the agreement on such lawful terms as Mr Street pleased. Mrs Mountford enjoyed freedom to negotiate with Mr Street to obtain different terms. Both parties enjoyed freedom to contract or not to contract and both parties exercised that freedom by contracting on the terms set forth in the written agreement and on no other terms. But the consequences in law of the agreement, once concluded, can only be determined by consideration of the effect of the agreement. If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence. The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade. It was also submitted that in deciding whether the agreement created a tenancy or a licence, the court should ignore the Rent Acts. If Mr Street has succeeded, where owners have failed these past 70 years, in driving a coach and horses through the Rent Acts, he must be left to enjoy the benefit of his ingenuity unless and until Parliament intervenes. I accept that the Rent Acts are irrelevant to the problem of determining the legal effect of the rights granted by the agreement. Like the professed intention of the parties, the Rent Acts cannot alter the effect of the agreement. However, in considering the exercise of construction of the agreement, Lord Templeman referred to the judgment of Jenkins LJ in Addiscombe Garden Estates Ltd v Crabbe

[1958] 1 QB 513

at p 522: The whole of the document must be looked at; and if, after it has been examined, the right conclusion appears to be that, whatever label may have been attached to it, it in fact conferred and imposed on the grantee in substance the rights and obligations of a tenant, and on the grantor in substance the rights and obligations of a landlord, then it must be given the appropriate effect, that is to say, it must be treated as a tenancy agreement as distinct from a mere licence. and (after referring to the observations of Denning LJ in Errington v Errington

[1952] 1 KB 290

, 'The test of exclusive possession is not decisive') at p 823D: I think that wide statement must be treated as qualified by his observations in Facchini v Bryson

[1952] 1 TLR 1386

, 1389; and it seems to me that, save in exceptional cases of the kind mentioned by Denning LJ in that case, the law remains that the fact of exclusive possession, if not decisive against the view that there is a mere licence, as distinct from a tenancy, is at all events a consideration of the first importance. After further considering the preceding authorities leading up to the judgment of Lord Denning MR in Marchant v Charters

[1977] 1 WLR 1181

'What is the test to see whether the occupier of one room in a house is a tenant or a licensee? It does not depend on whether he or she has exclusive possession or not. It does not depend on whether the room is furnished or not. It does not depend on whether the occupation is permanent or temporary. It does not depend on the label which the parties put upon it. All these are factors which may influence the decision but none of them is conclusive. All the circumstances have to be worked out. Eventually the answer depends on the nature and quality of the occupancy. Was it intended that the occupier should have a stake in the room or did he have only permission for himself personally to occupy the room, whether under a contract or not? In which case he is a licensee.'

But in my opinion in order to ascertain the nature and quality of the occupancy and to see whether the occupier has or has not a stake in the room or only permission for himself personally to occupy, the court must decide whether upon its true construction the agreement confers on the occupier exclusive possession. If exclusive possession at a rent for a term does not constitute a tenancy then the distinction between a contractual tenancy and a contractual licence of land becomes wholly unidentifiable.

[55]In considering the case of Somma v Hazelhurst

[1978] 1 WLR 1014

, Lord Templeman was able to construe a written agreement under which a young unmarried couple occupied a double bed-sitting room for which they paid a weekly rent as 'a sham' or, in other words, a device to avoid the provisions of the Rent Acts in the case of an agreement otherwise providing for the occupier exclusive possession in consideration for a weekly payment: In Somma v Hazelhurst

[1978] 1 WLR 1014

, a young unmarried couple H and S occupied a double bed-sitting room for which they paid a weekly rent. The landlord did not provide services or attendance and the couple were not lodgers but tenants enjoying exclusive possession. But the Court of Appeal did not ask themselves whether H and S were lodgers or tenants and did not draw the correct conclusion from the fact that H and S enjoyed exclusive possession. The Court of Appeal were diverted from the correct inquiries by the fact that the landlord obliged H and S to enter into separate agreements and reserved power to determine each agreement separately. The landlord also insisted that the room should not in form be let to either H or S or to both H and S but that each should sign an agreement to share the room in common with such other persons as the landlord might from time to time nominate. The sham nature of this obligation would have been only slightly more obvious if H and S had been married or if the room had been furnished with a double bed instead of two single beds. If the landlord had served notice on H to leave and had required S to share the room with a strange man, the notice would only have been a disguised notice to quit on both H and S. The room was let and taken as residential accommodation with exclusive possession in order that H and S might live together in undisturbed quasi-connubial bliss making weekly payments. The agreements signed by H and S constituted the grant to H and S jointly of exclusive possession at a rent for a term for the purposes for which the room was taken and the agreement therefore created a tenancy.

[56]In my judgment, the approach which the court should take is to construe the document as a whole in order to determine the nature and quality of the occupancy under the terms of the agreement reached between the parties. To this end the use of the words such as licence or lease in the agreement is not definitive, nor indeed is the de facto intention of either or both of the parties. Subject to the agreement on its face appearing to be a sham, the effect in law of the agreement must depend upon its construction in accordance with the normal rules in the context of its factual matrix and genesis.

[57]Being purely a matter of legal construction, it must be rare that triable issues of fact will arise unless these involve the possible existence of another agreement and/or that the agreement under consideration is a sham. Process under Order 113 would, subject to these qualifications, therefore, appear to be appropriate, and the occasions upon which it would be necessary for a judge to remit the matter for trial, unless satisfied that a tenancy had been created, would be rare.

[58]Faced with the exercise of construing the agreement common to both appeals, for what signals should the court look in order to decide whether the occupier thereby achieved the status of tenant or whether he was merely a lodger? The speech of Lord Templeman, with which all the other noble and learned lords concurred, gives helpful indications as to those criteria which the court should ignore or, alternatively, which should not be treated as decisive. These include:(a) the description of the agreement chosen by the parties, eg 'lease' or 'licence' - see per Lord Templeman at p 822B-C;

(b) the actual subjective intention of the parties, even if they are ad idem , see p 819F, unless they do not intend to enter into the agreement at all - see Isaac v Hotel de Paris

[1960] 1 WLR 239

, referred to at p 823E;

(d) the exercise or failure to exercise rights provided by the agreement by one, other or both the parties to the agreement is not of decisive importance;

(e) the court should not draw up a 'shopping list' of clauses;

(f) the court should not award marks for drafting - see p 826F.

[59]On the other hand, so long as owner and occupier are permitted by law to reach an agreement under which the latter has the use of the premises merely as a lodger without the protection granted to a tenant, the courts must accept and enforce an agreement which achieves this objective. This proposition merely recognises that a skilful draftsman must, in appropriate circumstances, be allowed to succeed. For my part, I find difficulty in excluding the respective positions of the parties from an analysis of the genesis and factual matrix of the agreement - see Reardon Smith Line Ltd v Yngvar Hansen-Tangen

[1976] 1 WLR 989

. I accept Mr Bagnall's submission that this inquiry requires a trial of the issues and is, therefore, inappropriate to process under Order 113. Clearly, it would be no more sufficient for an occupier to cry 'sham' than for a landlord to say 'bare licence'. It is to the document itself that the court will look in the first instance. Where it contains terms which ex facie give the appearance of being a 'sham', then the court must inquire further and should not make an order under Order 113.

[60]Before Hirst J and Boreham J the appellants each sought to rely upon an allegation that the agreement was a 'sham'. This defence was based on the views expressed by Lord Templeman of the judgment in the Court of Appeal in Somma v Hazelhurst , which I have already set out in this judgment. The provisions of the two agreements made with 'H' and 'S' ex facie give rise to such bizarre results that Lord Templeman had little difficulty in stating that both agreements were a sham. When, however, the provisions of the agreement ex facie provide for a licence to occupy premises as a lodger, the mere fact that they do this cannot of themselves make the agreement a 'sham'. The exercise of construction must be carried out on the basis that the provisions of the agreement are genuine unless, from their very terms, they appear to be consistent with a sham agreement as defined in the speech of Lord Diplock in Snook v London & West Riding Investments Ltd

[1967] 1 All ER 518

, to which reference has already been made by Ralph Gibson and Nicholls LJJ.

[61]In the present agreement there are two provisions which can be said to invite inquiry: the daily restriction in the use of the premises between 10.30 am and noon and the right to remove furniture at will. On working days there is nothing ex facie unacceptable in the first restriction, although on non-working days it would clearly be onerous to enforce such a provision. If the second provision were limited to substitution or to a habitable minimum, there might be no objection. Although these clauses were not relied upon before Hirst J or Boreham J, in my judgment they do provide an indication of the existence of a position in relation to sham which would merit investigation by the court. In the absence of argument upon these points, I can well understand, and sympathise with, the decisions to make the possession orders against which these appeals have been brought.

[62]In the appeal brought by Merola and Kader the appellants go further and allege that they occupied the premises in pursuance of an oral agreement made between them and the caretaker. This is a somewhat different proposition. The appellants seek to place evidence before the court which would establish that, quite apart from its written terms, the agreement was never intended, as a subjective matter, to represent a contract between the parties. It is always open to the party to adduce external evidence to this effect; and this is not a question of construing the document. I agree that, in this appeal, the affidavits disclose the existence of a triable issue of this kind and that, for this reason alone, Boreham J should not have made an order under Order 113.

[63]For these reasons and for the reasons already given in the judgments of Ralph Gibson and Nicholls LJJ I agree that both these appeals should be allowed. The appeals were allowed with costs in the Court of Appeal and below. Legal aid taxation of both appellants' costs ordered. The electronic text of this judgment was provided by Estates Gazette , whose assistance is gratefully acknowledged.

CRANCOUR LTD v DA SILVAESA AND ANOTHER ; SAME V MEROLA AND ANOTHER [1986] EWCA Civ 1

Cited in 2 later judgments