Davy's of London (Wine Merchants) Ltd v City of London Corporation & Anor

Davy’s of London (Wine Merchants) Ltd run a wine bar in the basement and part of the ground floor of 120 Fenchurch Street in the City of London. It is called the “City Flogger”. They held under a lease granted on 31 March 1978 for a term of 25 years from 25 March 1977. On 31 August 2001 they served a request for a new tenancy under section 26 of the Landlord and Tenant Act 1954, specifying 30 August 2002 as the start date for the new tenancy. The competent landlord at the time was the City of London Corporation. It served no counter-notice, and consequently the claim for a new tenancy was unopposed. Davy’s application came before HH Judge Cox in the Mayor’s and City of London County Court in November 2003. It was common ground that the new tenancy should be a term of 14 years. The principal issues on the pleadings were:

Whether the new tenancy should include a redevelopment break clause and

If so, when should it be exercisable and on what terms?

Put shortly, the position as found by the judge was as follows:

The building of which Davy’s holding formed part was at least in need of extensive refurbishment. A major refurbishment could not take place with Davy’s still in occupation. But refurbishment alone did not make economic sense. The best solution was a wholesale redevelopment. The judge found that redevelopment of the site, whether 120 Fenchurch Street alone, or on a wider scale was an obviously reasonable and sensible approach.

The City Corporation did not wish to carry out the redevelopment itself. It had negotiated a sale of the building to a developer, Coronation Land (or more accurately one of its subsidiaries called Wingmast Ltd). However, by the date of the hearing contracts had not been exchanged. But the judge was told both by the City Corporation and by Coronation Land that the acquisition would go ahead at the agreed price irrespective of the outcome of the proceedings. The judge was satisfied that both the City Corporation and Coronation Land were committed to the transaction.

Coronation Land had extensive plans for a comprehensive redevelopment of an island site. In addition to 120 Fenchurch Street itself, the island site consisted of 116, 117 and 118/119 Fenchurch Street, 4/5 Hogarth Court, Excess House, Fen Court and 14 Fenchurch Avenue. One of Coronation Land’s subsidiaries had bought a 49 year leasehold interest in 118/119 Fenchurch Street. But apart from that, the site still had to be assembled. The judge said that the process of site assembly would be extremely complex and protracted. His judgment set out the details of the titles to each part of the island site. Mr Herring, a representative of Coronation Land, had said in his witness statement that the process of site development could take one to two years; but in his oral evidence he revised that upwards to two to three years. However, the judge concluded, on the evidence, that the process of site assembly could take substantially longer than three years. The wholesale redevelopment of the island site was the only evidence of redevelopment placed before the judge. The landlord adduced no evidence of a fallback position. It was not suggested to the judge that 120 Fenchurch Street would be redeveloped on its own.

No planning application had been submitted. Coronation Land had been advised to wait until the island site had been acquired before applying for planning permission.

The judge heard evidence from two expert valuers; Mr Lown for the City Corporation and Mr Taylor for Davy’s. Their evidence was directed to the question whether the development was economically viable. Mr Lown said that it was; Mr Taylor said that it was not. The judge preferred Mr Taylor’s view. The judge concluded:

The judge was not impressed with Davy’s assertion that it intended to spend substantial sums on refurbishing the wine bar for which it would need several years’ security of tenure in order to recoup its investment.

The judge then considered how to exercise his discretion under section 35 of the Landlord and Tenant Act 1954. He referred to a number of authorities. He reminded himself, as was common ground, that the court had the power to order the inclusion of a break clause into the new tenancy, and that it was no part of the policy of the Act to give security of tenure to a business tenant at the expense of preventing redevelopment. In paragraph 40 of his judgment he directed himself that the landlord needed to establish a “real possibility” as opposed to “a probability” that redevelopment would take place during the currency of the new lease. In a later paragraph (paragraph 58) he contrasted this with the greater burden that the landlord would have to assume in the event that the break clause came to be operated. He concluded on the evidence that there was a real possibility of redevelopment during the term of the new tenancy. He rejected an argument advanced on behalf of Davy’s to the effect that the prospect of redevelopment by someone other than the current landlord was irrelevant. He then went on to conduct what he called “a further balancing exercise” in looking at all the relevant considerations. In so doing he reached the following conclusions:

Given time, Coronation Land would succeed in assembling the site well within the term of the new lease;

The time would come in the foreseeable future and certainly well within the term of the new lease when the development would become an economic proposition;

Davy’s would be adequately compensated by the reduced rent that would be payable under a lease containing a break clause.

The judge concluded that, taking all the features into account, a break clause should be inserted into the new tenancy. He then went on to consider the period of notice that would be required to operate the break clause, and the earliest date from which such a notice should operate. The City Corporation had initially sought an eleven month notice period. This was contained in its acknowledgment of service, which constituted the landlord’s pleaded case. The experts had apparently agreed rental figures on the basis of an eleven month notice period. However, in her closing submissions, without any amendment of the landlord’s pleaded case, counsel then appearing for the City Corporation submitted that the period of notice should be six months. The judge also took into account the nature of Davy’s business and the need to relocate it in the City if and when the break clause came to be operated. He concluded that the notice period should be eleven months.

The judge then went on to consider the date from which the break clause should operate. The City Corporation contended for a break clause effective from September 2005 (some 18 months into the new tenancy); Davy’s contended for a break clause operable after ten years or, at the very worst, after seven years. The judge considered the time scale for site assembly and found that even if Coronation Land’s prognosis were correct (and he thought that it was overoptimistic), the development would not be a serious economic prospect for “some years”. He took into account the fact that the new tenancy would itself be protected under Part II of the Landlord and Tenant Act 1954 with the consequence that the landlord would have to prove a ground of opposition under that Act in order to bring the new tenancy to an end, and he also took into account the time that proceedings for that purpose would take. He was satisfied that it would not be fair for the landlords to wait for ten years in order to redevelop. On the other hand, he concluded that it would not be fair to the tenant to expect it to take a lease that could be terminated almost immediately. He concluded that having particular regard to the evidence of Mr Taylor and to that of Mr Edwards, the manager of the wine bar, the appropriate period would be five years. He therefore ordered the grant of a new tenancy for fourteen years containing a rolling break clause operable after five years on eleven months’ notice. The experts had agreed that, on that basis, the appropriate rent was £50,000 per annum, and the judge so ordered.

With the permission of Peter Smith J both sides appealed. The appeal was due for hearing in July 2004. Shortly before the appeals were due to be heard, matters took a surprising turn. Contrary to the assurances given to the judge, the transaction between the City Corporation and Coronation Land fell through. Instead, the City Corporation sold 120 Fenchurch Street to a Dutch development company called Saxon Land BV. The sale was completed on 22 June 2004. However, Coronation Land remains the owner of its leasehold interest in 118/119 Fenchurch Street.

On 2 July 2004 the City Corporation applied to the court for permission to adduce further evidence on the appeal, relating to matters that had occurred after the trial date. On the basis of that evidence the City Corporation asked for no order on the two appeals, and for the question of the terms of the break clause to be remitted to the county court. In its Application Notice, the City Corporation stated:

The new evidence, on which the City Corporation relied was contained in three witness statements, namely a witness statement dated 29 June 2004 made by James Stewart; one dated 29 June 2004 and made by Stephen Scott and a third dated 1 July 2004 and made by Teresa Pugsley. Ms Pugsley gave evidence of the sale to Saxon Land. Mr Stewart said that although Saxon Land was engaged in discussions to buy other property adjoining 120 Fenchurch Street, its “starting position” was that 120 Fenchurch Street was “capable of being redeveloped as a stand alone new development”. He said that Saxon Land’s intention was therefore “to redevelop 120 Fenchurch Street as soon as possible”. He exhibited two financial appraisals which he said showed that the development of 120 Fenchurch Street was economically viable. He said that, based on advice from Saxon Land’s architects, planning permission would be applied for by the end of 2004 and that consent was expected to be granted by September 2005. He expressed the view that the development would be delivered “as the City office development cycle is once again rising” and that, if the start of the development were delayed beyond March 2006, Saxon Land could miss the top of the development cycle. On the basis of this evidence, it appeared that Saxon Land contemplated a development which was radically different to that contemplated by Coronation Land and which the judge had considered in great detail.

The application came before the Vice-Chancellor on 6 July. He recorded in para. 9 of his judgment:

In the course of his judgment, the Vice-Chancellor said at paras. 20 and 21

The Vice Chancellor made an order which included the following:

confirmation, by way of evidence of fact, of its position in the circumstances of which evidence has been admitted by (1) above; and

any consequential evidence from an expert valuation surveyor, in respect to levels of rent needed by reason of the amendment to the acknowledgment of service permitted in (3) above

He adjourned the appeals and ordered that at the resumed hearing both parties were at liberty to argue the relevance of the fresh evidence.

On 26 August Davy’s abandoned its own appeal. So the only live appeal is that of the City Corporation and Saxon Land. Mr Harper QC, who appears on behalf of both, presented that appeal in two stages. First he advanced a ground of appeal to the effect that the judge had applied the wrong legal test to determine the terms of the break clause. This part of the appeal did not depend on any of the fresh evidence that the Vice Chancellor had admitted. Mr Harper submitted that once the judge had found that 120 Fenchurch Street was “ripe for redevelopment” on its own he should simply have acceded to the landlord’s request for a break clause operable after September 2005; and should not have gone on to consider the particular scheme that the landlord or its developer had in mind. Although Mr Harper accepted that in the course of his judgment the judge had referred to the correct authorities, and had summarised them accurately, he said that when the judge came to apply the law to the facts he adopted a different and more onerous test. Second, Mr Harper submitted that, on the basis of the fresh evidence, the judge’s order relating to the break clause should be set aside, and that the court should order the inclusion of a break clause, exercisable on six months’ notice at any time after September 2005.

Part II of the Landlord and Tenant Act 1954 entitles a business tenant to the grant of a new tenancy unless the landlord establishes one of the statutory grounds of opposition. Where the procedure is initiated by a request for a new tenancy made by a tenant, the landlord must state his grounds of opposition in a counter-notice given under section 26 (6) of the Act. If he does not give such a counter-notice within two months after the tenant makes his request, he cannot oppose the grant of a new tenancy. Thus the question “whether there should be the grant of a new tenancy” is not open to the landlord, irrespective of the relevance of the new evidence. There will be a new tenancy. The only questions are: whether it should contain a break clause and if so, what the terms of that clause should be.

The terms of the new tenancy are governed by sections 32 to 35 of the Act. In the present case the section 26 request was made before the coming into force of the amendments made by the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, so the Act applies in its unamended form. Section 32 deals with the property to be comprised in the new tenancy; and section 34 deals with rent. Neither is directly relevant to this appeal.

Section 33 says:

Section 35 (1) says:

Section 64 of the Act deals with the interim continuation of tenancies. In essence it says that where a notice has been served terminating a tenancy, but the tenant applies to court for a new one, the notice has effect to terminate the tenancy at the expiry of three months from the date on which the proceedings are “finally disposed of”. Section 64 (2) says that the reference to the date on which the proceedings are finally disposed of means the earliest date by which any proceedings on the application (including any proceedings on or in consequence of any appeal) have been determined and any time for appealing or further appealing has expired.

It follows that, although Davy’s section 26 request asked for a new tenancy beginning on 30 August 2002, the current tenancy has still not come to an end more than two years later. As I have said, the judge ordered that there should be a rolling break clause operable after five years on eleven months’ notice. The parties agreed that to give effect to the judge’s judgment the new tenancy should run from 8 March 2004 and that the break notice should be capable of being served no earlier than 8 March 2009. Thus the tenancy cannot be terminated earlier than 8 February 2010.

The case was presented to the judge, and the appeal was presented to me, on the basis that the court was exercising a discretion under section 35 of the Act, rather than reaching a decision under section 33. The difference between the two is that the former requires the court, in reaching its decision, to have regard to the terms of the current tenancy. The latter does not, and leaves the question of reasonableness at large. I do not have to decide which of the two is the applicable section; but it is fair to say that the cases do not speak with one voice.

In deciding whether a new tenancy should or should not include a break clause, the usual starting point is the statement of Stamp LJ in Adams v. Green [1978] 2 EGLR 46 that:

I emphasise the word “preventing”, which is not the same as “delaying”. In that case the landlord had no plans for redevelopment but wished to have the flexibility to sell to a developer. The Court of Appeal, reversing the trial judge, ordered the inclusion in the new tenancy of a break clause operable on two years’ notice. In other words, the tenant had guaranteed security of tenure of two years.

In JH Edwards & Sons Ltd v. Central London Commercial Estates Ltd [1984] 2 EGLR 103 the landlord again had no formulated plans for redevelopment. The Court of Appeal held that the trial judge had been wrong to have ordered the grant of a new lease for as long as ten years. In exercising their own discretion, Fox LJ said:

Bearing in mind that the landlord had no formulated redevelopment plans, the Court of Appeal held that the break clause should be exercisable after the first five years of the new tenancy. There is no indication in the formulation of the legal test that the landlord’s desire to redevelop necessarily trumps the tenant’s desire for security of tenure. On the contrary, Fox LJ expressly says that the function of the court is to strike a fair balance between the two competing aspirations. This necessarily presupposes that the landlord may have to wait for some time (though not so long as to prevent redevelopment) before being able to regain possession. Moreover, the new lease should not prevent redevelopment “so far as reasonable”. Mr Harper’s submission that, in effect, the landlord can have a break clause for the asking, exercisable at a time of his choosing, seems to me to be inconsistent with this.

There are other cases in which the tenant has been given security of tenure even though the landlord was ready to redevelop. In Amika Motors Ltd v. Colebrook Holdings Ltd [1981] 2 EGLR 62 the tenant motor dealer had invested heavily in adjoining property at a time when the landlord had served a section 25 notice not opposing the grant of a new tenancy. For various reasons, by the time the tenant’s application for a new tenancy came to trial, the landlord was in a position to redevelop immediately. The effect of a redevelopment would be that much of the tenant’s investment would be wasted. The Court of Appeal, upholding the trial judge, ordered the grant of a new tenancy containing a break clause operable after three years. Thus the landlords were compelled to wait for three years after they had become ready to redevelop. In Becker v. Hill Street Properties Ltd [1990] 2 EGLR 78 the trial judge found that the landlord would be ready to redevelop about one year after the beginning of the new tenancy. Nevertheless, he ordered the grant of a new tenancy for four and a half years, which coincided with the date on which the tenant intended to retire. Although, the Court of Appeal held that the judge had misdirected himself, they nevertheless upheld his decision. Dillon LJ went so far as to say that it was “unthinkable” that the tenant should have less than three years’ security of tenure. The landlord was therefore compelled to wait for some three and a half years after it had become ready to develop.

Similarly, in Wig Creations Ltd v. Colour Film Services Ltd (1969) 20 P & CR 870, a landlord asked for a break clause on the ground that he wished to occupy the holding for the purposes of his own business. He was unable to oppose the grant of a new tenancy because he had purchased the reversion less than five years before the termination of the tenancy: Landlord and Tenant Act 1954 s. 30 (2). Lord Denning MR said:

Judge Cox expressed his conclusion on the time at which the break clause should be operable as follows:

He concluded:

In selecting this figure, the judge clearly had in mind the likely timescale for the redevelopment, and selected a period that, in his estimation, would not prevent the development from taking place or unreasonably delay it. He also had regard to the need to give the tenants a reasonable degree of security of tenure. Those are the two predominant considerations that Fox LJ said should guide the court.

Mr Harper submitted that having found that 120 Fenchurch Street was ripe for redevelopment, the judge failed to follow through the logic of that conclusion. The logic of that conclusion, he said, was that there should have been a break clause capable of terminating the tenancy in or after March 2006. But the only scheme of development presented to the judge was the island site scheme. He considered the likely timing of that scheme in detail. I do not consider that the judge can fairly be criticised for not having considered what might happen if the scheme presented to him could not be implemented. It was not suggested that any alternative scheme existed. It was not suggested that the landlords were flexible in their planning. The case was presented to him on the basis that Coronation Land was committed to the island site scheme, and that alone. It was not for the judge to make a case for the landlord that it had not presented. He had regard to the particular scheme that the landlord said was the scheme intended to be carried out, and tailored the break clause to that. Mr Harper said that the judge’s order had given the tenant not merely a saleable asset (which it was not the policy of the Act to do) but an asset which could command a ransom price. But the question of ransom would only arise if the judge was wrong in his assessment of the likely timescale of the island site development. Mr Harper’s argument did not assail the judge’s conclusion on that point.

So far as the period of notice was concerned, the judge followed the landlord’s pleaded case. Had the landlord attempted to amend the pleading, Davy’s might well have objected on the ground that it would have called evidence to demonstrate that a period of six months’ notice was not enough to allow it to make an orderly withdrawal from the property and to relocate. In my judgment, the judge was fully justified in deciding that an eleven month notice period was reasonable.

An appeal court will only allow an appeal where the decision of the lower court was “wrong”. In Tanfern Ltd v. Cameron MacDonald [2000] 1 WLR 1311 Brooke LJ commended the words of Lord Fraser in G v. G [1985] 1 WLR 647:

What is reasonable in the circumstances of a particular case is a value judgment on which reasonable people may differ. Since judges are people, their views may differ, but some degree of diversity is an acceptable price to pay for the flexibility enshrined in the statute: see Piglowska v. Piglowski [1999] 1 WLR 1360.

So the question is not whether I would have reached the same conclusion as Judge Cox. Nor is the question whether the facts found by the judge are the same as (or similar to) the facts found by a different judge in a different case, for different judges may reasonably come to different conclusions on the same set of facts. It is whether his decision exhibits some error of principle, or goes beyond the permissible band of decisions which reasonable people could arrive at.

In my judgment Judge Cox directed himself in accordance with the correct legal test. When he came to apply that test to the facts he found, although he may have been at the borders of his discretion in selecting the period of five years, he did not in my judgment exceed it.

I therefore decided not to allow the appeal on the first ground that Mr Harper advanced, and I gave short oral reasons for my decision at the conclusion of the argument.

The second stage of Mr Harper’s appeal depends on the fresh evidence. Although the City Corporation’s Appellant’s Notice asked for the case to be remitted to the county court in the light of the fresh evidence, both parties agreed that I should hear the fresh evidence. There is ample precedent for this: Hutchinson v. Lamberth [1984] 1 EGLR 75. This part of the appeal raises a threshold question: to what ends can the fresh evidence be deployed? As I have indicated, the Vice Chancellor left this point open in giving permission for the fresh evidence to be admitted.

Section 33 requires the court to determine what is “reasonable in all the circumstances”. Section 35 requires the court to have regard to “all relevant circumstances”. The landlords take these phrases as their starting point. They say that “all” the circumstances (or “all the relevant” circumstances) include circumstances which have arisen after the trial date, where evidence of those circumstances is before the court. If those circumstances, about which the landlords have been permitted to adduce evidence, are excluded from consideration, then the court will be making a decision based on some of the circumstances; not all of them. That would be contrary to the plain terms of the statute. In addition, the new tenancy will not begin until the current tenancy comes to an end. The current tenancy will not come to an end until three months after the appeal (and any proceedings consequent upon it) have been disposed of. Permission to appeal having been given (before any question of fresh evidence arose), the tenancy is still continuing. It cannot, therefore, be right to exclude from consideration matters which have arisen during the current tenancy itself.

Mr Fancourt QC, appearing for the tenant, approaches the question from a quite different direction. He starts with procedure. He says that the appeal court can only interfere with the decision of the trial judge if the decision of the lower court was:

Wrong or

Unjust because of a serious procedural or other irregularity in the proceedings in the lower court. (CPR 52.11 (3))

It is not suggested that there was any irregularity (procedural or otherwise) in the proceedings below. Mr Fancourt says that one cannot describe the judge’s decision as “wrong” if he came to a permissible conclusion based on the evidence before him. I have already held that, on the evidence before him, the judge came to such a decision. The judge’s decision, says Mr Fancourt, cannot be characterised as “wrong” merely because the judge could not foresee the change in factual circumstances that in fact occurred, and which were flatly contrary to the assurances that had been given to the judge and which he accepted.

If the tenant’s submission is right, then it would follow that the admission of fresh evidence on appeal would never serve any useful purpose unless the appellant can demonstrate an error in the judgment appealed against independent of the fresh evidence. But the cases in which fresh evidence is admitted on appeal do not seem to me to depend on establishing an unconnected error in the lower court’s judgment. In Ladd v. Marshall [1954] 1 WLR 1489 Denning LJ laid down the familiar (pre-CPR) test:

The second criterion itself suggests that it is the fresh evidence itself which will have an important influence on the result of the case. There is no trace of any requirement that the judge should be independently shown to have been wrong. Although these criteria are no longer strict requirements, they remain relevant to the question whether fresh evidence should be admitted on appeal: Hertfordshire Investments Ltd v. Bubb [2000] 1 WLR 2318. These criteria were developed in relation to questions of past events on which the trial judge had to make factual findings. They did not apply to evidence of events occurring after trial, as to which the pre-CPR rules were more lax. In Mulholland v. Michell [1971] AC 666 Lord Wilberforce summarised them as follows:

Having summarised the changes in the plaintiff’s position that had taken place since trial, he concluded:

Thus in personal injury cases where the courts have admitted fresh evidence about changes of circumstances since the trial date, that fresh evidence has been deployed in varying the judge’s decision even though it appeared to be correct on the basis of the case as presented at trial. The “affront to justice” test was that which the Vice Chancellor applied when allowing the fresh evidence to be admitted. Mr Fancourt submitted that personal injury cases were a class apart. I do not accept this submission. Indeed the test for the reception of fresh evidence about events taking place after trial, is itself derived from personal injury cases: Hughes v. Singh [1989] The Times, April 21, itself building on Mulholland v. Michell.

Mr Fancourt next submits that an appeal is limited to a review of the decision of the lower court. He says that unless the judge can be shown to have been wrong without any consideration of the new evidence, that evidence is irrelevant to the appeal. It is only if the appeal court is itself exercising a discretion which the judge wrongly exercised, that the evidence becomes relevant. However, the appeal court can conduct a rehearing if justice requires that. Mr Fancourt was disposed to accept that on a rehearing (as opposed to a review) the appeal court should take into account the new evidence. In a case in which the court has already decided that fresh evidence should be admitted on appeal it would, in my judgment, be unjust for the appeal court not to consider that evidence. After all, if it would be an affront to justice not to admit the evidence at all, it would be a double affront to admit it and then studiously to ignore it. And if consideration of that evidence shows that, through no fault of his own, the judge below has approached the case on a false basis, then it seems to me that the judge’s judgment has been shown (with the benefit of hindsight) to have been “wrong”. Once it has been decided that fresh evidence is to be admitted on appeal, the appeal court must surely take that evidence into account. As Lord Macnaghten said in Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v. Pontypridd Waterworks Co [1903] AC 426:

There is also precedent in cases arising under Part II of the Landlord and Tenant Act 1954 in which the Court of Appeal has admitted fresh evidence on appeal relating to post-trial events; and on the basis of that evidence varied the judgment of the trial judge. In Accountancy Personnel Ltd v. Salters’ Company [1972] EGD 461 the landlord opposed the grant of a new tenancy on redevelopment grounds. The judge found that the landlord had not established the requisite intention at the hearing date, but held that the intention would be established six months later. He made a declaration to that effect under section 31 (2) of the Act, which had the effect of terminating the tenant’s tenancy on that date. The tenant appealed. By the date of the hearing the landlord’s plans had been delayed. The Court of Appeal took into account the evidence of delay and extended the termination date by a further three months. In Gatwick Parking Services Ltd v. Sargant [2000] 2 EGLR 45 the landlord opposed the grant of a new tenancy on the ground that he intended to occupy the holding for the purposes of his own business. The trial judge found that planning permission would not be granted and ordered the grant of a new tenancy. By the time of the landlord’s appeal, planning permission had in fact been granted. The Court of Appeal admitted evidence of the grant and allowed the appeal. In so doing they expressly took account of the fresh evidence. Mr Fancourt explains this case by pointing out that Laws LJ first considered whether the trial judge was wrong, and then only after having decided that he was, did Laws LJ turn to the fresh evidence. I accept that that is what Laws LJ did; but his judgment does not limit the use of the fresh evidence to that. Moreover, Mr Fancourt was unable to explain Accountancy Personnel in the same way; and Laws LJ relied on Accountancy Personnel in Gatwick Parking. If he had meant to qualify the broad statements in Accountancy Personnel, he would surely have done so.

Unlike the position in most civil cases, the judge in an application for a new tenancy is not deciding what happened in the past, but what terms should govern the future. This, perhaps, explains why the court is more ready to admit evidence of post-trial events in such cases. The point is all the stronger in a case in which, as here, the dispute turns on an evaluation of future events.

The fact that the tenant’s current tenancy continues during the pendency of an appeal (and for three months thereafter) also militates in favour of determining those terms in the light of everything that has happened during the current tenancy. Mr Fancourt objects that to allow an appeal simply on the basis of event that have taken place since trial would have the most harmful consequences for landlords and tenants. He says that there would be no end to litigation, since changes in circumstances since the appeal or any rehearing on the appeal would also be admitted into evidence. However, it seems to me that the question whether to admit new evidence a second time is a discretionary matter for the court. As the Vice Chancellor said in his judgment, the evidence will only be admitted where it would be an affront to justice not to admit it. It is unlikely that justice would be affronted twice by two dramatic changes in circumstances. But if it is: so be it. Justice must be done.

In my judgment, therefore, it having been decided that the fresh evidence should be admitted, it would be unjust not to take it into account. However this does not necessarily led to the conclusion that the appeal must be a rehearing, rather than a review of the judge’s decision. In Asiansky Television Ltd v. Bayer-Rosin [2001] EWCA Civ. 1792 Clarke LJ said:

In the same case, Dyson LJ said:

In Asiansky the Court of Appeal decided, partly in reliance on evidence that had not been before the Master, that his decision to strike out a claim on the ground of delay and non-compliance with directions was flawed. That, therefore, was a case in which even on a review of the first instance judgment, the new evidence was highly material to the question whether the discretionary decision was “wrong”.

Although the Court of Appeal in Audergon v. La Baguette Ltd [2002] EWCA Civ. 10 said that it was undesirable to formulate criteria to be applied by the appeal court in deciding whether to hold a rehearing, I do not read the judgment of Jonathan Parker LJ (with whom Pill and Tuckey LJJ agreed) as having disapproved of what was said by Clarke and Dyson LJJ in Asiansky.

In the present case, not only did I receive the evidence that the Vice Chancellor ordered should be admitted, I heard it challenged by Mr Fancourt. Mr Stewart, who was the only “live” witness, was skilfully cross-examined at length. In the light of the Vice Chancellor’s order, Saxon Land also gave disclosure of a number of documents, which Mr Fancourt put to Mr Stewart.

I agree with Mr Harper that this course of events necessarily means that this appeal is an appeal by way of rehearing. I have “heard” the fresh evidence in the fullest sense of the word. But even if this appeal is a review, it is clear from Asiansky (and inconsistent with Mr Fancourt’s sharp distinction between a review and a rehearing) that if fresh evidence is admitted the reviewing court must take it into account. Whether the appeal is a review or a rehearing, the question is still the same: was Judge Cox’s decision “wrong”? And either way, in considering that question, I must, as it seems to me, take into account the new evidence, and apply the facts I find to have been proved.

I add that the particular question that the Vice Chancellor left open; namely, what is the relevant date for the purpose of determining the terms of the new tenancy, was not a question that was argued. It was, I think, common ground that, as a matter of substantive law, the relevant date is the date of the hearing before me, because of the effect of section 64 of the Act.

Based on the evidence I heard, I find the following facts:

Mr Stewart first became involved with the site in about 2001. At the time he was acting on behalf of Assicurazioni Generali S.p.A (“Generali”), the owner of 117 Fenchurch Street. Generali was keen to realise as much value from its building as possible. Mr Stewart also acted for Coronation Land when 118/119 Fenchurch Street came onto the market. Coronation Land acquired a leasehold interest in that building, which it still retains. Both buildings are part of the potential island site. One of the major attractions of the island site is that it can support a building with very large floor plates, which are keenly in demand, and which the City Corporation is keen to promote, in order to stem the flow of major companies to Canary Wharf.

Saxon Land is, at the moment, a wholly-subsidiary of Babcock & Brown, an international investment and advisory firm, and private bank. The decision makers in relation to this project are Messrs Dawson and Carter, although neither is a director of Saxon Land. Neither of these gentlemen chose to give evidence (either written or oral) and the only director of Saxon Land who did give evidence (M. Pascal Marty) gave largely formal and anodyne evidence. M. Marty does not appear to have been copied in on any of the internal documents of any importance.

From about January 2004 Generali and Babcock & Brown have been engaged in discussions about the development of the island site. The basic idea was that Saxon Land would become a joint venture company for the purpose of developing the island site. The project of developing the island site was called “Project Saxon”. A draft business plan, dated March 2004 described it as follows:

On 29 March 2004 the UK Real Estate Team (“UKRE”) of Babcock & Brown sought internal approval for the purchase of 120 Fenchurch Street. The report summarised the transaction as follows:

The report continued by saying that negotiations with Generali to form a joint venture were progressing; that UKRE were in negotiations to acquire 120 Fenchurch street, which it described as a “key property” to begin the process of site assembly.

The report went on to consider 120 Fenchurch Street as a stand alone investment, and concluded that it was a good one. Apart from a discussion of turning the ground floor into a retail unit (which would not affect Davy’s Holding), the report did not consider or discuss the redevelopment of 120 as a stand alone development.

Under the heading “Exit Strategy” the report said:

Dispose of the site with the benefit of planning permission or

Carry out the Development itself.”

The acquisition was authorised on the basis of this report. Contracts were exchanged in early June 2004 and completion took place on 22 June 2004. Generali were kept informed of progress, and shortly after exchange Mr Dawson sent them a draft of the key terms of the joint venture. They recited that:

On 28 June UKRE sought approval for the acquisition of 116 Fenchurch Street. The report summarised the transaction as follows:

The report went on to say that UKRE was “finalising” negotiations with Generali to form a joint venture to acquire the six buildings forming part of the island site. It outlined the opportunities for Babcock & Brown that the transaction offered. These included the advantage that it:

The exit strategy was the same as that for 120 Fenchurch Street, namely, a disposal within two to four years if the joint venture did not take place, or (if the Island Site were assembled) either to dispose of the site with planning permission or to carry out the development itself. There is no mention in the report of a development consisting only of 116 and 120 Fenchurch Street or of 116 Fenchurch Street alone. On the contrary, the thrust of the report is the importance of the building as controlling access to the Island Site.

On the following day, Mr Stewart made his witness statement in which he said:

He exhibited to his witness statement a massing study of a stand alone building on the site of 120 Fenchurch Street, prepared by Saxon Land’s architects, dated 28 June 2004, and a development appraisal, prepared by himself, dated 29 June 2004. This was the evidence before the Vice Chancellor.

On 1 July 2004 Generali sent Babcock & Brown an amended letter of intent. The document, according to Mr Stewart, originated with Babcock & Brown, but carried amendments made by Generali. On 5 July Generali faxed through to Babcock & Brown a signed version of the letter of intent. The objectives of the joint venture included the acquisition, management and development of the entire island site. Although Babcock & Brown have not themselves signed the letter, they have proceeded on the basis that it is agreed. The letter is however, expressed not to be legally binding (apart from some unimportant clauses). The mechanism for constituting the joint venture was to take the form of Generali acquiring shares in Saxon Land.

On 9 July 2004 Mr Stewart thanked the architects for the massing study of 120 Fenchurch Street which he described as “very interesting and useful for the immediate purpose of exploring the viability of this as a stand alone development site.”

In August 2004 Nabarro Nathanson, the solicitors for Babcock & Brown and for Saxon Land, produced a draft joint venture agreement to cover the agreement with Generali.

Mr Stewart has continued to produce development appraisals on the basis of a development of the whole island site.

Saxon Land has recently let (or is on the point of letting) some of the upper office floors of 120 Fenchurch Street. The leases exclude the operation of sections 24 to 28 of the Landlord and Tenant Act 1954. The leases contain a landlord’s break clause under which the landlord can terminate the lease in question by serving six months’ notice expiring on or after 1 March 2006. But if notice is served before 1 March 2007 (i.e. terminating the lease before 1 September 2007) the landlord will make the tenant a compensation payment.

In my judgment it is plain that the basis on which the application was made to the Vice Chancellor, namely that Saxon Land did not then intend to pursue the development of the island site but instead intended to redevelop the building as a stand alone development, was false. It is clear from the documents that the primary purpose of the acquisition of both 120 and 116 Fenchurch Street was the assembly of the island site. It is equally plain that the negotiations with Generali were directed to the same end; and that those negotiations are still progressing, and have reached an advanced stage.

Mr Stewart’s witness statement, on which the Vice Chancellor based his appreciation of the evidence was, in my judgment, misleading. His statement that Saxon Land’s starting position that 120 Fenchurch Street is “capable” of being developed on its own may be literally true; but in conjunction with the assertion that “therefore” it is Saxon Land’s intention to redevelop 120 Fenchurch Street as soon as possible, it asserts a connection which does not exist. In the course of his cross-examination Mr Stewart accepted that Saxon land had not formed any definite intention; and that it was continuing “to assess the viability” of developing 120 Fenchurch Street either in isolation or in conjunction with other buildings, or as part of the island site. The last of these pieces of evidence falsifies the assertion in the Application Notice that Saxon Land has no intention of pursuing the comprehensive redevelopment scheme. It is plain from the documents that the comprehensive redevelopment of the island site is Saxon Land’s primary objective; and that it will, if possible, enter into a joint venture agreement to that end with Generali. None of this was mentioned by Mr Stewart in his witness statement. There is simply a vague reference to “discussions” with adjoining owners. Mr Stewart said that when Saxon Land bought 120 Fenchurch Street it was “assessed as a stand alone development.” There is not a shred of documentary evidence to corroborate this assertion; and the report on the basis of which approval for the acquisition was sought contradicts it. The only document which even contemplates a redevelopment of 120 Fenchurch Street alone (apart from the appraisals produced by Mr Stewart) is the massing study, produced the day before Mr Stewart made his witness statement in support of the application. Although Mr Stewart said that that study was the culmination of 6 months of discussion, it is remarkable that these discussions (if they took place) have left no documentary trail, and are not even hinted at in the report (prepared some three months earlier) seeking authorisation for the acquisition. I am driven to the conclusion that, as Mr Fancourt submitted, the massing study was a colourable document generated to support the application to adduce fresh evidence.

Mr Stewart’s oral evidence was also unimpressive. He was unable or unwilling to answer questions directly. Many of his assertions were contradicted by the documents. His repeated assertions that proposals by Babcock & Brown to acquire parts of the island site were “opportunistic stand alone investments” were simply incredible. In my judgment Mr Stewart came to court to argue a case.

There is no document that suggests that Saxon Land has altered the exit strategy that it had in mind when it acquired 120 Fenchurch Street. That exit strategy is twofold:

Dispose of the property in two to four years (i.e. between June 2006 and June 2008) with the opportunity of redevelopment or

Assemble the island site through the joint venture and then either dispose of the site with planning permission or carry out the development.

Indeed if Babcock & Brown were to enter into a joint venture agreement with Generali along the lines of the draft agreement prepared by their own solicitors as late as August 2004, they would be in breach of the agreement in redeveloping 120 Fenchurch Street as a stand alone development. It is true that the proposed joint venture arrangement includes an option for Babcock & Brown to buy out Generali. However, not only would it be expensive to exercise, but if exercised, it would result in Babcock & Brown acquiring another key part of the island site. Mr Stewart’s appraisals for 120 Fenchurch Street alone indicate a development profit of between £5 and £7.6 million. His appraisals for the island site show a development profit of £83 and £210 million. You do not need to be a rocket scientist to see which of the two development options is the preferable one.

Mr Stewart said in his evidence that Saxon Land would have to make a decision to develop in March 2006 with a view to the completion of redevelopment by the end of 2007. If the redevelopment can be completed by then, it will enable Saxon Land to “deliver” the building as the City office development cycle is once again rising. He says that if Saxon Land begins redevelopment later than March 2006 it could miss the top of the development cycle. The flavour of his evidence was that this was an absolute deadline, irrespective of the state of the planning process or the assembly of the island site. Saxon Land would simply have to do the best it could in whatever turned out to be the prevailing circumstances in March 2006. There is nothing in the joint venture arrangement which suggests this. On the contrary, the letter of intent contemplates that Babcock & Brown’s option to buy out Generali will subsist for five years after the signing of the joint venture agreement (i.e autumn 2009 at the earliest). The appraisals for the island site include appraisals where the pre-practical-completion interest costs cover a period of 53 months, which implies a start on site in mid-2007. I am unable to accept Mr Stewart’s evidence that March 2006 is a key and immovable date. To be fair, he did accept, in response to some questions from me, that March 2006 was not written in stone, and that some small delay would be acceptable if the prize of the island site seemed to be within reach. However, the exit strategy consisting of the sale of the building as it stands to a developer within two to four years (i.e. between June 2006 and June 2008) points to a very different view of the best time to develop. I might also add that Mr Stewart said that the currently retained architects were not considered by Saxon Land as being suitable for the planning of the island site redevelopment. Saxon Land will shortly begin interviewing “major architects” with a view to making a planning application by June 2005. Mr Stewart said that this could result in the grant of planning permission by March 2006. However, the currently retained architects say that the City Corporation (which is the planning authority) can take 12 months to complete all the required consultations, so that this timescale is optimistic. June 2006 is more realistic.

In the light of the evidence I have read and heard, and in the light of the disclosed documents, I conclude that Saxon Land’s intention is to assemble the island site, backed by a joint venture between Babcock & Brown and Generali. Once the site has been assembled, it is Saxon Land’s intention either to sell it to a developer with the benefit of planning permission or to carry out the development itself. If, for some reason, that cannot be achieved Saxon Land’s fall back position is that it will sell the building, as it stands, to another developer within two to four years. A stand alone development of 120 Fenchurch Street by Saxon Land is not, at the moment, on the cards. The appraisals of the redevelopment of 120 Fenchurch Street alone are no more than a theoretical exercise, and do not represent Saxon Land’s real intention at all. Had the Vice Chancellor been made aware of Saxon Land’s true position, it is highly questionable whether he would have permitted the fresh evidence to be admitted.

Although there is a temptation to dismiss the appeal on that ground alone, I think that that temptation must be resisted. Once the decision to admit the fresh evidence has been taken, the appeal court must consider it.

So in the light of these additional findings I return to the question I have to decide: was Judge Cox’s decision “wrong”? Mr Fancourt submits that at the end of the evidence the case for Saxon Land was essentially the same as the case for Coronation Land. The redevelopment of the island site was the prize, and anything else was a fall-back. Thus he submitted that as I have held that Judge Cox’s decision was not “wrong” on the evidence led before him, I must conclude that even with the benefit of the additional evidence, he was not “wrong”. Mr Harper, on the other hand, submits, that one of the main reasons why I held that Judge Cox was not “wrong” was because the landlord presented no fall-back case. Mr Harper submitted that the relevant fall-back was a stand alone development of 120 Fenchurch Street by Saxon Land. I have already said that I do not accept that such a development is part of Saxon Land’s intention. However, I do accept that Saxon Land has a fall-back exit strategy, which is to sell the building to another developer within two to four years (i.e. between June 2006 and June 2008). This fall-back strategy was not one that was presented to Judge Cox. I also accept that it was an important part of my reasoning that it was not for Judge Cox to make a case for the landlord that the landlord had not chosen to present. However, I do not accept that Saxon Land will adopt this exit strategy until it has become clear that the island site redevelopment has become impossible. In my judgment this is likely to be towards the end of the contemplated period of two to four years. No alternative developer has been identified, and no development scheme for 120 Fenchurch Street alone has been formulated.

The effect of Judge Cox’s decision is that the tenancy cannot be terminated earlier than February 2010 (eleven months’ notice given not earlier than 8 March 2009). I do not consider that the additional findings relating to the island site should lead me to the conclusion that Judge Cox was “wrong” in his decision in relation to that. Saxon Land did not adduce additional evidence relating to the timing of the island site development. That is not surprising, since the primary case it advanced was a stand alone development of 120 Fenchurch Street; a case I have rejected. But in my judgment a fixed term of the length ordered by Judge Cox would impede the fall-back exit strategy of a sale to a developer within two to four years. If there is a sale to a developer, that developer will want a building capable of redevelopment in the short term; and in my judgment a fixed term until February 2010 will not allow for that to happen. Accordingly, either Saxon Land will not be able to sell within its contemplated timescale, or it will have to accept a very reduced price. I conclude, therefore, that whether this appeal is a review or a rehearing, Judge Cox’ decision was “wrong”, but only in the light of the fresh evidence.

I must of course balance the redevelopment aspirations of the landlord against the business interests of the tenant; not allowing the latter to frustrate the former. Any tenant running a serious business needs to plan ahead. It is not much consolation to a businessman to be told that if the landlord is not ready to redevelop, the break clause will not be exercised. The uncertainty paralyses business planning. Of course, when the break clause comes to be exercised, Davy’s will be entitled to put the landlord to proof of its intention. But changes both to the substantive provisions of the Landlord and Tenant Act 1954 and to the procedure of the court should mean that proceedings for the grant of a new tenancy (or for termination of a tenancy without renewal) will be less protracted than in the past. Saxon Land’s contemplated fall-back position envisages a sale as late as June 2008. An earlier sale is, in my view, unlikely. Even if Saxon Land sell with the benefit of planning permission for a stand alone development, it is very uncommon for a developer to adopt a scheme prepared by his predecessor lock, stock and barrel. So even if an earlier sale does take place, it is not, in my judgment unreasonable for the developer to wait for a year or two before regaining possession. In effect, this gives Davy’s three and a half years’ guaranteed security. Such a period is about the same as that ordered in Becker (where the landlord was ready to redevelop), and less than that ordered in Edwards (where he was not). I propose, therefore, to vary Judge Cox’s order by ordering the inclusion in the new tenancy of a clause enabling the landlord to terminate the tenancy on or after 1 June 2008.

There was no additional evidence directed to the length of the notice required to be given under such a clause. There is therefore no material on which I can say that Judge Cox was “wrong” on that point. In any case the length of the notice is a very secondary consideration. What matters is when the notice can expire. In addition a lengthy notice period gives ample time for court proceedings to be far advanced (or even concluded) by the time the notice expires. I do not therefore propose to vary Judge Cox’s decision that 11 months is the appropriate period. The upshot is that I will delete that part of the schedule to Judge Cox’s order relating to the break clause and substitute:

To that extent, I allow the appeal.