P & A Swift Investments v Combined English Stores Group Plc [1988] UKHL 3

House of Lords
Between
P & A Swift InvestmentsAppellantCombined English Stores Group PlcRespondent
Before
Lord Keith of Kinkel
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of His Honour Judge Oddie (sitting as a High Court Judge) of the 29th day of January 1988 .complained of in the said Appeal be, and the same is hereby, Affirmed and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay or cause to be paid to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties.Cler: Asst. Parliamentor:

Judgment: 7.7.88

HOUSE OF LORDS

P. & A. SWIFT INVESTMENTS (A FIRM) (RESPONDENTS)

v.

COMBINED ENGLISH STORES GROUP PLC

(APPELLANTS)

(ON APPEAL FROM THE QUEEN'S BENCH DIVISION OF

THE HIGH COURT)

Lord Keith of Kinkel Lord Roskill Lord Templeman Lord Ackner Lord Oliver of Aylmerton

LORD KEITH OF KINKEL

My Lords,I have had the opportunity of considering in draft the speeches to be delivered by my noble and learned friends Lord Templeman and Lord Oliver of Aylmerton. I agree with them and for the reasons they give would dismiss the appeal .

LORD ROSKILL

My Lords,I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Templeman and Lord Oliver of Aylmerton. I agree with them and would dismiss this appeal for the reasons they give as well as for those given by the Sir Nicolas Brown-Wilkinson V.-C. in Kumar v. Dunning [1987] 3 W.L.R. 1167.

LORD TEMPLEMAN

My Lords,The appellant, the surety, joined in a lease to guarantee the performance and observance of the covenants by the tenant contained in the lease. A covenant by a tenant which touches and concerns the land runs with the reversion; the benefit of such a covenant vests in the successors in title of the landlord; the successors in title of the landlord may sue upon the covenantsalthough the benefit of the covenants may not have been expressly assigned. For this purpose a successor in title of the landlord is the person who, at the date of the breach of covenant, is entitled to the reversion expectant on the expiration or sooner determination of the term demised by the lease. In the present case the original landlord assigned the reversion to the respondent landlord; there was no express assignment of the benefit of the tenant's covenants or of the benefit of the surety's covenant. The tenant defaulted in payment of the rent reserved by the lease and thereby committed a breach of a covenant which touched and concerned the land. The respondent landlord, failing to recover the rent from the tenant, brings these present proceedings against the surety to recover the amount of the unpaid rent. The surety denies liability, pleading that the surety's covenant does not touch and concern the land and does not run with the reversion so as to be enforceable by the respondent landlord. The respondent landlord replies that a covenant by a surety, in whatever form or expression the surety covenant may take, is a covenant that the tenant's covenants shall be performed and observed. A covenant by a surety that a tenant's covenant which touches and concerns the land shall be performed and observed must itself be a covenant which touches and concerns the land; the benefit of that surety's covenant will run with the reversion, and the covenant is therefore enforceable without express assignment. I agree. A surety for a tenant is a quasi tenant who volunteers to be a substitute or twelfth man for the tenant's team and is subject to the same rules and regulations as the player he replaces. A covenant which runs with the reversion against the tenant runs with the reversion against the surety. For these reasons and for the reasons to be given by my noble and learned friend, Lord Oliver of Aylmerton, I would dismiss the appeal.

LORD ACKNER

My Lords,I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Templeman and Lord Oliver of Aylmerton. I agree with them and for the reasons they give I too would dismiss this appeal.

LORD OLIVER OF AYLMERTON

My Lords,This is an appeal from an Order made on the 29 January 1988 in an action in the Queen's Bench Division of the High Court whereby the plaintiff, the respondent firm, recovered judgment against the appellant in a sum of £4,250 together with interest and costs, that sum being the amount of the arrears of rent due to the respondent as the landlord of certain premises under a lease to which the appellant was a party not as tenant but solely as guarantor. The judge, His Honour Judge Oddie (sitting as a judge

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of the High Court), granted a certificate pursuant to section 12 of the Administration of Justice Act 1969 and on 24 March 1988 leave was granted by your Lordships to appeal direct to your Lordships' House. The appeal raises the much debated question whether the benefit of a covenant by a surety for the performance of the tenant's obligations under a lease is one which is capable of running with the reversion so as to be available without express assignment to the successor in title of the original landlord. The point had been decided in favour of the landlord by the Court of Appeal in Kumar v. Dunning [1987] 3 WLR 1167 at the time of the hearing before Judge Oddie and his order was accordingly made without hearing full argument since he was, in any event,bound by that decision.The relevant facts can be shortly stated. Two individuals, Paul and Annie Swift, were the lessees of premises at 58-60, Lime Street, Liverpool, for a term of 99 years from 1 December 1950. In 1959 they assigned their leasehold interest to a company, P. &. A. Swift (Investments) Ltd. At that time they were carrying on business at the premises but in July 1967 they ceased to trade there and sold their business to a subsidiary company of the appellant. By an underlease dated 26 July 1967 P. & A. Swift (Investments) Ltd. demised the premises to a subsidiary of the appellant, P. & A. Swift Ltd., which company subsequently changed its name to Dubarry (Liverpool) Ltd. ("Dubarry"). The underlease was for a term of 35 years at a substantial rent and the undertenant's obligations were guaranteed by the appellant, which joined in the underlease as surety only. In July 1968 P. & A. Swift (Investments) Ltd. was wound-up voluntarily and by a conveyance dated 18 August 1969 the leasehold reversion expectant upon the underlease was assigned by the company and its liquidator to the respondent firm. That conveyance did not contain any specific assignment of the benefit of the surety's covenant entered into by the appellant in the underlease. P. £ A. Swift (Investments) Ltd. has since been dissolved. Dubarry failed to pay the rent due under the underlease for the quarter commencing on 29 September 1984 and subsequent quarters and on 18 November 1986 went into creditors' voluntary winding-up. On 31 July 1987 the liquidator of Dubarry disclaimed all interest in the underlease. The appellant has not paid the outstanding rent although called upon to do so.The underlease was a full repairing and insuring underlease containing standard covenants on the part of the tenant. The only clause which matters for present purposes is clause 5 which, so far as material, is in the following terms:
"5. THE SURETY in consideration of the demise hereinbefore contained having been made at its request HEREBY COVENANTS with the lessor that the tenant shall pay the rent hereby reserved on the days and in manner aforesaid and shall duly perform and observe all the covenants hereinbefore on the tenant's part contained and that in case of default in such payment of rent or performance or observance of any of the covenants as aforesaid during the currency of the said term and also thereafter during such period as the tenant remains in occupation of the demise premises the surety will pay and make good to the lessor on demand all loss damages costs

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and expenses thereby arising or incurred by the lessor . . . [there follows an immaterial proviso] PROVIDED FURTHER and it is hereby further agreed that in the event of this lease being disclaimed by the tenant or on behalf of the tenant under any statutory or other power the surety will take from the lessor but only if so required by the lessor by written notice to the surety within three months after such disclaimer a grant of another lease of the demised premises for the residue of the said term unexpired at the date of such disclaimer at the same several rents as those hereinbefore reserved and subject to the like covenants and provisoes as are herein contained and the surety on the execution of such further lease shall pay the costs thereof and shall execute and deliver to the lessor a counterpart thereof."The only other observation which requires to be made about the terms of the lease is that in the usual way the expression "the lessor" is expressed to include the reversioner for the time being immediately expectant on the term thereby created.The relationship between the landlord and a surety in a case such as the present is, of course, contractual only. The surety has no interest in the land the subject-matter of the demise and there is thus no privity of estate. In seeking, therefore, to enforce the surety's covenant, an assignee of the reversion cannot rely upon the Grantees of Reversions Act 1540, the provisions of which were substantially re-enacted in section 141 of the Law of Property Act 1925 and which apply only to covenants between landlord and tenant. His claim to enforce rests upon the common law rule, under which the benefit of the covenant would run with the land if, but only if, the assignee had the legal estate in the land and the covenant was one which "touched and concerned" the land. There is no question but that the first of these conditions is complied with in the instant case, but it is said, first, that a reversion on a lease is not "land" for the purposes of the application of the common law rule and, secondly, and in any event, that the covenant of a surety is no more than a covenant to pay a sum of money which is entirely collateral and does not therefore touch and concern the land.As to the first point, Mr. Barnes has argued with his usual persuasiveness that although there is no specific authority on the point the reversion of a lease clearly could not have been treated as "land" under the old common law rule since, if it had, the Grantees of Reversion Act 1540 would have been unnecessary. Certainly that seems to have been so as regards covenants between the tenant and his landlord, but, of course, the tenant's covenants ordinarily endure only during the term of the lease and this may, therefore, have been peculiar to that particular relationship. There seems to be no logical reason in the case of a third party covenant why the mere fact that the land is let, either at the time of the covenant or of its transfer to a successor, should prevent the benefit from running with the land. Certainly it appears that some incorporeal hereditaments (for instance an easement) rank as "land" for this purpose: see Gaw v. Coras Iompair Eireann [1953] I.R. 232. As was pointed out by Romer L.J. in Grant v. Edmundson [1931] 1 Ch. 1 at p. 28, it is impossible in this area of the law to argue safely either by reason

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or by analogy for "the established rules concerning it are purely arbitrary, and the distinctions, for the most part, quite illogical." We are, in any event, concerned with what is the position in 1988 and not in 1539 and there being no direct decision upon the point I am, for my part, not prepared to assume that the common law has not developed in the four centuries which have elapsed since the Act of 1540 nor that "land" for the purposes of the common law rule has not, over this period, come to bear the same meaning as it does in the context of landlord and tenant.In my opinion the question of whether a surety's covenant in a lease touches and concerns the land falls to be determined by the same test as that applicable to the tenant's covenant. That test was formulated by Bayley J. in Congleton Corporation v. Pattison (1808) 10 East 130 and adopted by Farwell J. in Rogers v. Hosegood [1900] 2 Ch 388 at 395:
"the covenant must either affect land as regards mode of occupation, or it must be such as per se, and not merely from collateral circumstances, affect the value of the land."
The meaning of those words "per se, and not merely from collateral circumstances" has been the subject matter of a certain amount of judicial consideration and the judgment of Sir Nicolas Browne-Wilkinson V.-C. in Kumar v. Dunning [1987] 3 WLR 1167 , (where the problem was identical to that in the instant case save that the covenant was giving on an assignment and not on the grant of the lease) contains a careful and helpful review of the authorities. No useful purpose would be served by repeating this here and I am both grateful for and content to accept both his analysis and his conclusion that the correct principle was that pronounced by Best J. in Vyvyan v. Arthur (1823) 1 B. & C. 410, 417, and approved by this House in Dyson v. Foster [1909] A.C. 98:
"The general principle is, that if the performance of the covenant be beneficial to the reversion, in respect of the lessor's demand, and to no other person, his assignee may sue upon it; but if it be beneficial to the lessor, without regard to his continuing owner of the estate, it is a mere collateral covenant, upon which the assignee cannot sue."
The Vice-Chancellor stated his conclusion at p. 1177:
"From these authorities I collect two things. First, that the acid test whether or not a benefit is collateral is that laid down by Best J., namely, is the covenant beneficial to the owner for the time being of the covenantee's land, and to no one else? Secondly, a covenant simply to pay a sum of money, whether by way of insurance premium, compensation or damages, is a covenant capable of touching and concerning the land provided that the existence of the covenant, and the right to payment thereunder, affects the value of the land in whomsoever it is vested for the time being."
It is objected that this states the matter too broadly because, for example, it is said that it would involve the conclusion that a simple covenant to pay an annuity of £x per annum to the owner

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for the time being of Black acre would then be treated as a covenant touching and concerning the land because it would enhance the value of the land. This is, I think, to read the Vice- Chancellor's words too literally, for it is, as it seems to me, implicit in them that he is referring to a monetary obligation related to something which issues out of or is to be done on or to the land. His approach to the problem, (which, again, I respectfully adopt) emerges from the following passage from his judgment at p. 1174:
"The surety covenant is given as a support or buttress to covenants given by a tenant to a landlord. The covenants by the tenant relate not only to the payment of rent, but also to repair, insurance and user of the premises. All such covenants by a tenant in favour of the landlord touch and concern the land, i.e., the reversion of the landlord. The performance of some covenants by tenants relate to things done on the land itself (e.g. repair and user covenants). Other tenants' covenants (e.g. payment of rent and insurance) require nothing to be done on the land itself. They are mere covenants for the payment of money. The covenant to pay rent is the major cause of the landlord's reversion having any value during the continuance of the term. Where there is privity of estate the tenant's covenant to pay rent touches and concerns the land: Parker v. Webb (1822) 3 Salk. 4. As it seems to me, in principle, a covenant by a third party guaranteeing the performance by the tenant of his obligations should touch and concern the reversion as much as do the tenants' covenants themselves. This view accords with what, to my mind, is the commercial common sense and justice of the case. When, as in the present case, the lease has been assigned on the terms that the sureties will guarantee performance by the assignee of the lease, justice and common sense ought to require the sureties, not the original tenant, to be primarily liable in the event of default by the assignee. So long as the reversion is not assigned, that will be the position. Why should the position between the original tenant and the surety be rendered completely different just because the reversion has been assigned, a transaction wholly outside the control of the original tenant and the sureties?"
I entirely agree and would add only this. It has been said that the surety's obligation is simply that of paying money and, of course, in a sense that is true if one looks only at the remedy which the landlord has against him in the event of default by the tenant. But for my part I do not think that this is a complete analysis. The tenant covenants that he will do or refrain from doing certain things which undoubtedly touch and concern the land. A surety covenants that those things shall be done or not done as the case may be. Now it is true that the remedy for breach will sound in damages only, but the primary obligation is the same, namely that that which is covenanted to be done will be done. Take for instance the tenant's covenant to repair. There is nothing here requiring personal performance by the tenant. The effect of the covenant is that the tenant must procure the premises to be kept in repair. Equally, a guarantee by the surety of the repairing covenant is no more than a covenant or warranty

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that the guarantor will procure that the tenant, in turn, procures the premises to be kept in repair. The content of the primary obligation is, as it seems to me, exactly the same and if that of the tenant touches and concerns the land that of the surety must, as it seems to me, equally do so.Formulations of definitive tests are always dangerous, but it seems to me that, without claiming to expound an exhaustive guide, the following provides a satisfactory working test for whether, in any given case, a covenant touches and concerns the land:The covenant benefits only the reversioner for time being, and if separated from the reversion ceases to be of benefit to the covenantee.The covenant affects the nature, quality, mode of user or value of the land of the reversioner.The covenant is not expressed to be personal (that is to say neither being given only to a specific reversioner nor in respect of the obligations only of a specific tenant).(4) The fact that a covenant is to pay a sum of money will not prevent it from touching and concerning the land so long as the three foregoing conditions are satisfied and the covenant is connected with something to be done on, to or in relation to the land.For my part, I am entirely satisfied that the decision of the Court of Appeal in Kumar v. Dunning; [1987] 3 WLR 1167 was correct and was reached for the correct reasons. The instant case is indistinguishable in any material respect. Nothing I think turns upon the precise terms of the covenant in either case. It follows that I would dismiss this appeal.

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Cited in 1 later judgment