Zafiris & Anor v Liu

LORD JUSTICE PETER GIBSON: In this landlord and tenant dispute the defendant, Mr Wai Lung Liu, appeals against the order made by His Honour Judge Cracknell on 3rd August 2004 in the Sheffield County Court after the trial of a preliminary issue. By that order the judge upheld the claim of the claimants, Mr and Mrs Zafiris, the tenants of 81 High Street, Beighton, Sheffield ("No 81"), to be entitled to a new business tenancy of No 81. Mr Liu, as landlord of No 81, opposed the application on the grounds specified in section 30(1)(g) of the Landlord and Tenant Act 1954 ("the Act"). The preliminary issue was whether Mr Liu satisfied the terms of section 30(1)(g). The judge determined that issue against Mr Liu. The judge refused permission to appeal. Permission was granted by Potter LJ on the papers.

Before I set out the facts it is convenient to summarise the position in law which is relevant to the applicability of section 30(1)(g). This a well-trodden area of the law and the position is not in dispute. Part II of the Act governs security of tenure for a tenant occupying premises for the purposes of a business carried on by him, or for those and other purposes. Although Part II has been amended by the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, those amendments do not apply where a landlord has given notice under section 25 of the Act or a tenant has made a request under section 26 of the Act for a new tenancy, before the order came into force (which it did on 1st June 2004).

By section 24(1) of the Act, a business tenancy shall not come to an end unless terminated in accordance with the provisions of Part II of the Act, and a tenant may apply to the court for a new tenancy if the landlord has given notice under section 25 to terminate the tenancy or if the tenant has requested a new tenancy in accordance with section 26.

Section 25 allows the landlord to give notice terminating a business tenancy if the notice specifies one of the grounds set out in section 30(1). Those grounds include paragraph (g):

Section 26 allows a tenant to make a request for a new tenancy subject to the conditions of that section.

By section 29 of the Act, where a landlord has given notice under section 25 a tenant applying for a new tenancy must notify the landlord that he will not be willing at the date of termination to give up possession.

The landlord has the burden of proving the intention relevant for the purposes of section 30(1)(g). It must be a genuine bona fide intention to occupy the premises for his own purposes, and he must prove that in point of possibility he has a reasonable prospect of being able to bring about this occupation by his own act of volition (see Gregson v Cyril Lord Ltd [1963] 1 WLR 41, at pages 45 and 47). The test is an objective one. That intention must be a firm and settled intention, not likely to change, and it must be shown to exist at the time of the hearing (see Betty's Cafés Ltd v Phillips Furnishing Stores Ltd [1959] AC 20). The relevant intention must be that the landlord will occupy the premises for the specified purposes.

Occupation may be shared with others (Hills (Patents) Ltd v University College Hospital Board of Governors [1956] 1 QB 90, at page 99 per Denning LJ). Thus a landlord occupies the premises for the purposes of a business which he carries on if he is a partner in a partnership in occupation of the premises for the partnership business (see Clift v Taylor [1948] 2 KB 394; In re Crowhurst Park [1974] 1 WLR 583; and Skeet v Powell-Sheddon [1988] 2 EGLR 112, especially at pages 112M to 113A and 113E, per Russell LJ). There may be occupation with the relevant intention, as the facts of Skeet show, even if at the time of the hearing no partnership agreement has been drafted nor other step taken, such as obtaining a licence for the purposes of a hotel business, which would have to be taken before the business could be carried on as intended. In Skeet that was because the trial judge found the requisite genuine intention. There is no case which suggests that the landlord occupies premises for the purposes of a business carried on by him merely because his spouse occupies the premises for his or her own business.

In granting permission to appeal, Potter LJ suggested that there might be points of general interest raised by the appeal as to the degree of involvement required of a husband and wife to take advantage of the statute, and the level of certainty required when planning permission would or might be needed if the landlord was to occupy the premises which require changes needing such permission. But the authorities disclose no real uncertainty on either point. What is clear is that it is for the trial judge to determine, as a question of fact and degree, whether the requisite intention is shown (see Gregson at page 49 per Upjohn LJ).

Mr Liu is the landlord of a number of tenanted properties in the Sheffield area. They include No 81 and the neighbouring property, No 79 High Street ("No 79"). In addition he and his wife are described by the judge as experienced restaurateurs in Chinese food. Mr Liu married Mrs Liu in May 2000. She is much younger than he is. Mrs Liu ran a Chinese takeaway, Wonder Kitchen, at 19-21 Worksop Road. Mr Liu was the landlord. Mrs Liu did all the work at Wonder Kitchen. Mr and Mrs Liu went to separate accountants. Mrs Liu is shown in her Wonder Kitchen accounts, prepared by her own chartered accountant Mr Cheung, as paying substantial sums by way of rent and service charges.

In 1996 Mr and Mrs Zafiris became the tenants by assignment of a lease of No 81 for a term of 15 years from 15th January 1988. They had been operating a fish and chip shop at No 81. About March 2002 there were discussions with Mr Liu about him letting No 79 to Mr and Mrs Zafiris, and a particular rent was discussed. Mr Zafiris then contacted his solicitors and told them that a lease of No 79 was agreed at £55 per week, and he asked those solicitors to get in touch with the landlord's solicitors. However, shortly afterwards, in May 2002, Mr Liu was investigating through his solicitors and chartered surveyors whether there had been breaches by Mr and Mrs Zafiris of the lease of No 81. On 14th June 2002 Mr Liu's solicitors wrote to Mr Zafiris saying that forfeiture proceedings would be instituted. But no such proceedings were commenced, nor was any lease to Mr and Mrs Zafiris of No 79 completed.

On 15th January 2003 Mr Liu gave six months' written notice under section 25 terminating the lease of No 81, and indicating that if Mr and Mrs Zafiris applied for a new tenancy he would oppose it on the ground of section 30(1)(g). Mr and Mrs Zafiris were not willing to give up possession and they applied on 12th May 2003 to the Sheffield County Court for a new tenancy. In the meantime, by an agreement dated 6th April 2003, Mr Liu sold what was said in that document to be the business carried on by him at the Wonder Kitchen to a Mr Lam for £30,000. That sale was completed on 29th October 2003.

At the trial on 3rd August 2004 the judge heard oral evidence for Mr Liu from Mr and Mrs Liu, his accountant, Mr Jonathan Liu, and Mr Lam; and for Mr and Mrs Zafiris, Mr Zafiris and his solicitor, Mr Senior.

The judge in his judgment accepted the evidence of Mr and Mrs Liu that they intended to occupy No 81, but recognised that the burden was on Mr Liu to prove that, as he claimed, he intended to occupy No 81 for the purposes, or partly for the purposes, of a business to be carried on by Mr Liu in No 81. The judge found that Mr and Mrs Liu:

The judge said that the last arrangement they had was at Wonder Kitchen, but he found that that was the business of Mrs Liu alone. The judge noted the evidence of Mr Lam that his understanding was that Wonder Kitchen was perhaps going to relocate at No 81, and the evidence of Mr and Mrs Liu about going to No 81. They told the judge that they had thought about doing so from 2001, but the judge found that that was only a broad idea rather than a settled intention. He said that that plan had never been mentioned to Mr and Mrs Zafiris, and that there were probably two conversations between Mr Liu and Mr Zafiris (or someone acting for him) about letting No 79. The judge noted that Mr Liu had had a chat in November 2002 with Mr Jonathan Liu, which included the feasibility of Mr Liu setting up a restaurant in No 79 and No 81. Mr and Mrs Liu said that they were intending to break through the wall between the two properties and to obtain a licence to sell alcohol at the restaurant. But the judge noted that nothing had been done by way of making enquiry of the planning and licensing authorities to see whether this was feasible.

The judge found that Mr and Mrs Liu were telling him the truth as they perceived it, but said that he found it hard to accept some matters as being indicative of a clear and settled intention to occupy No 81 for the purposes of section 30(1)(g). The judge then said this of Mr Liu:

On this appeal Mr Harry appears for Mr Liu, although he did not appear below. Rightly he does not challenge the judge's finding that Mr Liu was intended to be the landlord of Mrs Liu at No 81. His only challenge is as to the judge's finding that the intention to occupy was for the purposes of the business of Mrs Liu alone. He submits that the judge should have found an intention to occupy No 81 for the purposes of a partnership business of Mr and Mrs Liu. He points to Mr Liu's assertion in his witness statement that since the sale of Wonder Kitchen Mr Liu had nothing to do. That does not take the matter very far, as even before the Wonder Kitchen sale Mr Liu was not doing work at that takeaway.

Mr Harry also points to certain passages in the oral evidence of Mr Liu when being cross-examined. That evidence was given through an interpreter, and allowance has to be made for what is at least the possibility that the translation did not do full justice to what Mr Liu was saying. However, it is all that we have of his oral evidence and it is all that Mr Harry can rely on.

Mr Harry first draws attention to these exchanges:

In my judgment, the judge was justified in giving this evidence, as it appears, no weight. Further, in a later passage to which Mr Harry referred us Mr Liu makes tolerably plain that the partnership which was to be operated at No 81 was of the same type as that which operated at Wonder Kitchen. These exchanges occurred at page 20 of the transcript:

Mr Harry stresses the last answer and suggests that Mr Liu was saying that there would be a partnership at No 81 different from the partnership which had, according to Mr Liu, applied before. I am not able to agree. In between the two passages which I have cited, Mr Liu had said (at page 19 of the transcript):

Mr Harry accepts, as he must, that the judge was entitled to conclude that Mr Liu did not own the Wonder Kitchen business and that there was no partnership in the only relevant sense (that is to say one recognised by law) which operated the Wonder Kitchen business. In my judgment, on the evidence the judge was fully entitled to find that Mr Liu intended the same arrangement to apply at No 81, and that Mr Liu failed to discharge the burden of proving an intention to occupy for the purposes of a business to be carried on by him, rather than by his wife.

, the judge was also entitled to find on the evidence that there was no settled intention to occupy No 81 for the purposes of a restaurant business. I will not go through the evidence which showed that the judge was fully entitled to come to that conclusion, as that aspect has not been challenged by Mr Harry.

I add that I would not have been prepared to interfere with the judge's conclusions based, as they were, on his findings of primary fact and the inferences which he drew therefrom. The fact that we have the witness statements and the transcript of the oral evidence does not mean that this court is in as good a position as the trial judge, who has had the advantage we do not have of having seen and heard the witnesses and observed their demeanour. It is evident that the judge's decision to a significant degree depended on his evaluation of Mr Liu as a witness, and it is not open to an appellate court to interfere with the trial judge's findings in those circumstances.

To the extent that the judge was drawing inferences, in my judgment an appellate court should also be cautious before it disagrees with what the judge has found. In Biogen Inc v Medeva Plc [1997] RPC 1 at page 45, Lord Hoffmann cautioned against reversing the trial judge's evaluation of the facts. He explained:

On this appeal Mr Harry has had to make bricks without straw. For the reasons which I have given, I would dismiss this appeal.

LORD JUSTICE CARNWATH: I agree.

MR JUSTICE BLACKBURNE: I also agree.