COUNSEL:

M. A. B. Burke-Gaffney for the tenant.

Ashley Bramall for the landlord.

 

SOLICITORS: Ridsdale & Son for Crombie, Wilkinson & Robinson, York; Kenneth Brown, Baker, Baker for H. E. Harrowell, Bloor, Fox & Stanley, York.

 

JUDGES: Ormerod Willmer and Danckwerts L.JJ.

 

DATES: 1962 Mar. 9, 23.

 

 

Appeal from His Honour Judge McKee.

 

 

Cur. adv. vult.

[*598]

 

ORMEROD L.J. This appeal, which is from an order of His Honour Judge McKee made at the York County Court on September 26, 1961, raises a novel point on the construction of the Landlord and Tenant Act, 1954, section 30 (1) (g). The county court judge decided that the tenant was not in the circumstances entitled to a new tenancy. [His Lordship stated the facts set out above and continued:] The question before the county court judge, which now comes before this court, is whether the landlord can be said to intend to occupy the premises for the purpose of carrying on a business in accordance with the terms of section 30 (1) (g) of the Act of 1954 when in fact the business is to be carried on by a limited company of which she is virtually the sole shareholder and of which she has complete control.

 

The judge came to the conclusion that such was the intention of the landlord. It was said that it was the intention of the landlord or of the company to combine the shop, the subject of this application, with the shop in which she had previously carried on her business next door and to carry on the business of a pork butcher in the combined shop. The judge found that this was her intention and that in the circumstances the tenant was not entitled to a new tenancy. He said this: “If this lady (the landlord) were going to carry on the business, clearly she would have good ground for succeeding but she is proposing to carry on the business through a company. The Court of Appeal in Pegler v. Craven1 made it clear that a company could be a person’s alter ego. Where a company is in common sense merely the private individual who has complete control of it, that person is going to occupy for the purposes of their business and their business is really the running of the company. The landlord succeeded. Tenant’s application refused.”

 

Pegler v. Craven1 was a decision of this court. It was a case where a business was to be carried on by a company to which the landlord had assigned the goodwill at the request of the tenant but the company paid no rent to the tenant and the shares of the company were held by the tenant and his wife and some relations and friends and he was the managing director. He alone held rather less than half the shares of the company but with his wife’s shares held a majority interest. It was held that the plaintiff was not the occupier of the shop as the business of the shop was the

 

1 [1952] 2 Q.B. 69; [1952] 1 T.L.R. 618; [1952] 1 All E.R. 685, C.A. [*599]

 

business of the company and was not the tenant’s business. He was not, therefore, entitled to the grant of a new lease under the Act. There is a passage, however, in the judgment of Lord Evershed M.R. which reads as follows2: “It may be that in some circumstances it could be said that a company in actual occupation was but the alter ego of the tenant. It is possible that such a conclusion might be arrived at in some cases; but it cannot, in my judgment, be arrived at in this case; for, as my brother has pointed out, the company here cannot be said to be a mere alter ego of the applicant Pegler. Though the company’s right to occupy the premises is in law no doubt precarious, still it is not a wholly controlled company, and I think it is impossible, therefore, to accede to either of the arguments put forward by Mr. Eastham, who does not, I think, substantially dispute the view of the construction of the Act which I have expressed. These arguments are:- (1) that the occupation here of the company is really an occupation for and on behalf of the tenant, and is in truth but an occupation of the tenant; and (2) that the tenant and the company in some sense jointly occupy the shop.”

 

The county court judge appears to have relied upon the first part of that passage as indicating that in a case such as the one under consideration, the court will hold that it is the intention of the landlord or tenant as the case may be to carry on the business notwithstanding that the business has been assigned to a limited company, if the company is so completely under the control of the landlord or tenant respectively as to amount to the alter ego of that party. The passage which has been cited does not appear to me to go anything like as far as that. It is true that the possibility was being considered by the Master of the Rolls in that part of his judgment, and I think it is true to say that he was giving favourable consideration to the contention that the company might be the alter ego of the party in question, but it is clear, I think, from the passage, that the question was being left open by him, and in any event, it was not relevant to the decision of the question then before the court, and for my part I cannot agree that the view taken by the county court judge is the correct one.

 

It becomes necessary to consider section 30 (1) of the Landlord and Tenant Act, 1954. The subsection in question sets out the grounds upon which a landlord may oppose an application for a new tenancy, and paragraphs (f) and (g) of that subsection deal with the grounds which a landlord may put forward as showing

 

2 [1952] 2 Q.B. 69. 79. [*600]

 

his intention with regard to the property. Paragraph (f) deals with the landlord’s intention at the termination of the current tenancy to demolish or reconstruct the premises comprised in the holding and is not relevant in this appeal. Paragraph (g) is the one which was relied upon by the landlord in this case and is as follows: “Subject as hereinafter provided, that on the termination of the current tenancy the landlord intends to occupy the holding for the purposes, or partly for the purposes, of a business to be carried on by him therein, or as his residence.” There is no question, of course, of the premises being required here as a residence for the landlord, and the only question to be considered is whether it was the intention of the landlord to occupy the holding for the purposes of a business to be carried on by her therein. I have formed the view that in these circumstances it cannot be said that it is the intention of the landlord to carry on the business. It was decided in Salomon v. Salomon & Co. Ltd.3 that a company and the individual or individuals forming a company were separate legal entities, however complete the control might be by one or more of those individuals over the company. That is the whole principle of the formation of limited liability companies and it would be contrary to the scheme of the Companies Acts to depart from that principle. It has been contended in this case that a realistic view should be taken of the circumstances. It is submitted that any person in the street would say that the business was the landlord’s business, notwithstanding that it was being carried on by a limited company, and that in those circumstances it should be held that the provisions of paragraph (g), to which I have referred, should be considered to be satisfied. That, I think, is a dangerous doctrine. It may be that in practice the landlord will continue to carry on the business as it has been carried on in the past when she was undoubtedly the proprietor of it. It may be that she will derive a profit or otherwise from the business as she has done in the past. But the fact remains that she has disposed of her business to a limited company. It is the limited company which will carry on the business in the future, and if she acts as the manager of the business, it is for and on behalf of the limited company. In my judgment the fact that she holds virtually the whole of the shares in the limited company and has complete control of its affairs makes no difference to this proposition. The object of a limited liability company, as I understand it, is that the shareholders shall have some protection and

 

3 [1897] A.C. 22; 13 T.L.R. 46, H.L. [*601]

 

some limit to the liability which they may incur in the event of the company being unsuccessful. It is to be assumed that the landlord in this case assigned her business to the limited company for some good reason which she considered to be of an advantage to her. She cannot say that in a case of this kind she is entitled to take the benefit of any advantages that the formation of a company gave to her, without at the same time accepting the liabilities arising therefrom. She cannot say that she is carrying on the business or intends to carry on the business in the sense intended by paragraph (g) of the subsection and at the same time say that her liability is limited as provided by the Companies Acts.

 

It has been argued in the course of this case that there have been a number of departures from the principle of Salomon v. Salomon & Co. Ltd.4 in order that the courts may give effect to what has been described as the reality of the situation, and it is submitted in these circumstances that the court should look at the realities of the situation and that those realities are that the business will in future be carried on by the landlord as it has been carried on in the past. We were referred to In re Yenidje Tobacco Co. Ltd.,5 where the Master of the Rolls dealt with a point in his judgment,6 the effect of which was that the court would look behind the fact of incorporation if the incorporation was in reality the incorporation of a partnership and would treat the matter for the purposes of winding-up as though it were a partnership. We were also referred to a number of cases arising under the Trading with the Enemy legislation of the 1914-18 war, where unquestionably companies registered in this country were treated as enemy aliens, particularly were we referred to Daimler Co. Ltd. v. Continental Tyre & Rubber (Great Britain) Ltd.7 That was a case of a company registered in this country, the whole of the shares of which were owned by enemy aliens, and it was decided that to trade with that company would be trading with the enemy under the then current legislation. In addition it was submitted that in applying the Rent Restriction Acts the court has always looked to the reality of the transaction and would not allow the purpose of the Acts to be defeated by the use of the Companies Acts. In support of this contention we were referred to Samrose Properties Ltd. v. Gibbard.8

 

Whilst it may be argued that in the above circumstances

 

4 [1897] A.C. 22.

 

5 [1916] 2 Ch. 426; 32 T.L.R. 709, C.A.

 

6 [1916] 2 Ch. 426, 429.

 

7 [1916] 2 A.C. 307; 32 T.L.R. 624, H.L.

 

8 [1958] 1 W.L.R. 235; [1958] 1 All E.R. 502, C.A. [*602]

 

the courts have departed from a strict observance of the principle laid down in Salomon v. Salomon & Co. Ltd.,9 it is true to say that any departure, if indeed any of the instances given can be treated as a departure, has been made to deal with special circumstances when a limited company might well be a facade concealing the real facts. Counsel was unable to point to any special circumstances in this case other than that the landlord has complete control of the company. In my judgment that is not enough. I see no reason to depart from well-established principles, and I would allow the appeal.

 

 

WILLMER L.J. The problem which has arisen in this case is one of engaging simplicity, but I do not find it at all easy of solution. The question is whether under section 30 (1) (g) of the Landlord and Tenant Act, 1954, a landlord can successfully oppose the tenant’s application for a new tenancy upon proof that she intends to occupy the holding for the purposes of a business to be carried on by a company of which she holds all but two of the shares and over which she exercises complete control. Can the landlord in such circumstances show that the business is to be carried on by him (or her) so as to come within the words of the subsection?

 

The judge decided that the landlord was entitled to succeed. He took the view that in common sense where an individual is in such complete control of the company it can truthfully be said that the intention is to occupy for the purposes of his or her business, such business being the running of the company. In reaching this conclusion he was clearly influenced by some observations made obiter by members of this court in Pegler v. Craven.10 The actual question at issue in that case was not quite the same as here. The matter arose under the Leasehold Property (Temporary Provisions) Act, 1951, and it was the occupation of the tenant, and not that of the landlord, that was in question. These differences, however, do not affect the question how far, if at all, occupation by a company can be equated with occupation by the individual who controls the company. The significant difference between Pegler v. Craven10 and the present case is that in the former case the tenant who was claiming had no more than a majority shareholding, and had not the same measure of control over the company as the landlord in the present case. This court held that in the circumstances of that

 

9 [1897] A.C. 22.

 

10 [1952] 2 Q.B. 69. [*603]

 

case the occupation by the company could not be said to be occupation by the tenant so as to bring the tenant within the Act. But the members of the court expressly reserved for future consideration what would be the right of a tenant (and equally, it would seem, of a landlord) who was in fact beneficial owner of all or substantially all the issued shares of such a company. It was suggested by Lord Evershed M.R.11 that there might be some circumstances in which it could be said that the company in occupation would be but the alter ego of the individual concerned. The judge here has based his decision on the view that the present is just such a case, that the company is but the alter ego of the landlord and that, accordingly, occupation by the company for the purposes of its business would amount to the same as occupation by the landlord for the purposes of her business.

 

Mr. Bramall, in an attractive and forceful argument, has sought to support the judge’s view on a number of grounds. First, he says that construing the language of the subsection in accordance with the ordinary meaning of the words used, the landlord here did intend to occupy the holding for the purposes of a business to be carried on by her. The business was in substance her business, the company being a mere piece of mechanism to enable the landlord’s business to be carried on. This, it is said, was the reality; and we were invited to look at the reality and substance of the proposed occupation rather than at its form. As relevant to this argument I ventured to direct attention to Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd.,12 and some reliance was placed on what was said by Lord Haldane in that case. He described the managing director of the appellant company as one who was13 “really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.” In that case the question was whether a casualty which had occurred to a ship was “without the actual fault or privity” of her owners, who were a limited company; and the answer given was that in such a case the fault or privity must, in the words of Lord Haldane,14 be that “of somebody who is not merely a servant or agent for whom the company is liable upon the footing respondeat superior, but somebody for whom the company is liable because his action is the very action of the company itself.” This phrase

 

11 [1952] 2 Q.B. 69, 79.

 

12 [1915] A.C. 705; 31 T.L.R. 294, H.L.

 

13 Ibid. 705, 713.

 

14 Ibid. [*604]

 

has been relied on as showing that in the view of Lord Haldane - with whom the other members of the House concurred - there are cases in which an individual may be so identified with the company he controls that he can, for some purposes at any rate, be regarded as the alter ego of the company. It is suggested that this concept should be applied in relation to section 30 (1) (g) of the Landlord and Tenant Act, 1954, at least to any case in which it can truly be said that the landlord is the alter ego of the company.

 

Next, we were referred to a number of cases in which the court has thought it proper to look behind the outward form of a transaction or of an organisation in order to ascertain the reality of the matter. Thus in war time it was held permissible, for the purpose of the Trading with the Enemy Act, to look behind the facade of an English limited company in order to ascertain the enemy character of those who controlled it: see Daimler Co. Ltd. v. Continental Tyre Co. Ltd.15 A similar approach was made in the Prize Court, e.g., in The Tommi and The Rothersand16; The St. Tudno.17 Similarly in the application of the Rent Acts the court has always looked to the reality of the matter, and has not allowed a transaction within the Acts to be dressed up in such a way as to evade them: Samrose Properties v. Gibbard18 was cited as an illustration of this. The present case, it is said, is eminently one in which regard should be had to the reality rather than the form of the business on which the landlord seeks to rely.

 

Lastly, we were referred to Hills (Patents) Ltd. v. U. C. H. Board of Governors,19 where the hospital governors were held entitled to invoke section 30 (1) (g) of the Act, i.e., to rely on an intention to occupy the holding for the purposes of a business to be carried on by them, notwithstanding that they were under a statutory duty to manage and control the hospital on behalf of the Minister, and notwithstanding that the Minister might also be in occupation through them. The facts of the case were very special, and except in so far as it suggests that in some circumstances occupation may be shared between more than one legal entity, I do not find it very helpful or relevant to the problem of the present case.

 

I have certainly felt the force of the argument on behalf of

 

15 [1916] 2 A.C. 307.

 

16 [1914] P. 251; 31 T.L.R. 15.

 

17 [1916] P. 291.

 

18 [1958] 1 W.L.R. 235.

 

19 [1956] 1 Q.B. 90; [1955] 3 W.L.R. 523; [1955] 3 All E.R. 365, C.A. [*605]

 

the landlord; but in the end I am satisfied that it cannot prevail. There is no escape from the fact that a company is a legal entity entirely separate from its corporators - see Salomon v. Salomon & Co.20 Here the landlord and her company are entirely separate entities. This is no matter of form; it is a matter of substance and reality. Each can sue and be sued in its own right; indeed, there is nothing to prevent the one from suing the other. Even the holder of 100 per cent. of the shares in a company does not by such holding become so identified with the company that he or she can be said to carry on the business of the company. This clearly appears from Gramophone & Typewriter Co. Ltd. v. Stanley,21 a decision of this court which seems to me, on due consideration, to be destructive of the argument for the landlord. As was pointed out by Fletcher Moulton L.J.,22 control of a company by a corporator is wholly different in fact and law from carrying on the business himself. “The individual corporator does not carry on the business of the corporation.” This being so, I do not see how it is possible for the landlord in the present case to assert that she intends to occupy the holding for the purpose of a business to be carried on by her. Her intention, as has been made plain, is that the company which she controls shall carry on its business on the holding. But that, unfortunately for her, is something for which the Act makes no provision. In this connection it is not without significance that the Act does make provision (by section 41) for the case where the landlord’s interest is held in trust, in which case references in section 30 (1) (g) to the landlord are to be construed as including references to the beneficiaries under the trust; special provision is also made (by section 42) for the case where the landlord’s interest is held by a member of a group of companies, in which case the reference in section 30 (1) (g) to intended occupation is to be construed as including intended occupation by any member of the group. No similar provision has been made to cover the case where an individual landlord intends that the occupation shall be by a company which he controls.

 

For these reasons I feel driven to the conclusion that the judge’s decision cannot be supported in law. I do not think that the landlord here brings herself within section 30 (1) (g) by proving an intention to occupy through the medium of the

 

20 [1897] A.C. 22.

 

21 [1908] 2 K.B. 89; 24 T.L.R. 480, C.A.

 

22 Ibid. 89, 98. [*606]

 

company which she controls. She cannot, therefore, successfully oppose the grant of a new tenancy.

 

I have reached this conclusion with some reluctance, for it seems to me that the construction of section 30 (1) (g), which I have felt compelled to adopt, may well lead to some very bizarre results. Thus it will be possible for an absentee landlord, living in idleness away from the holding, to resist the grant of a new tenancy upon proof of an intention to occupy, through his agent or manager, for the purpose of carrying on his business through such agent or manager. On the other hand, a hard-working landlord, who has transferred his business to a company of which he retains complete control, and who genuinely needs to obtain possession of the holding so that his company’s business may be carried on there with the aid of his own labour, will nevertheless apparently be without any right to oppose an application for a new tenancy by a tenant however undeserving. It seems, however, impossible to escape the conclusion that this is the effect of what Parliament has enacted. If the results are thought undesirable, only Parliament can put that right.

 

This certainly does appear to me to be a case in which the Act causes some degree of hardship to the landlord. Although, for the reasons I have given, it is not possible for her to oppose the granting of a new tenancy, it does seem to me that the fact of the hardship to her may be a material circumstance to take into consideration when fixing the duration and terms of the new tenancy under sections 33-35 of the Act.

 

I agree that the appeal should be allowed and that the matter should be remitted to the county court for the purpose of fixing the terms of the new tenancy to be granted.

 

 

DANCKWERTS L.J. stated the facts, referred to section 30 (1) (g) of the Act of 1954, and continued: A somewhat similar question arose in Pegler v. Craven,23 in which Pegler was the tenant but the property was occupied by a company in which Pegler held just under half the share capital and obtained a majority shareholding only with the help of 10 shares held by his wife. The decision of the Court of Appeal was adverse in that case, but the position of a company in which all or so great an amount of the share capital was held by one person that the company could be said to be the alter ego of that person, was left open. If the strict position in company law, exemplified by Salomon

 

23 [1952] 2 Q.B. 69. [*607]

 

v. Salomon & Co. Ltd.24 and The Gramophone & Typewriter Co. Ltd. v. Stanley,25 be applied, the landlord’s contention must fail, for a company is not the same legal entity as the corporators who compose it. It was, however, urged on behalf of the landlord that regard should be had to realities and to the fact, in particular, that for practical purposes the landlord and the company are the same thing: she owns the company in the fullest sense and in fact will be herself running the business. I feel some sympathy with this contention, for the control of businesses through a limited company has become a commonplace in present-day business life. The interdependence of companies through holding of shares has been recognised for limited purposes by section 42 of the Act, but the fact that the legislature has provided to that extent for company cases can also be an argument against giving a wider construction to section 30 (1) (g).

 

It has also been urged that the court has not hesitated to have regard to the position of persons who control a company or its shares in other cases; e.g., where there is a deadlock between equal shareholders in the case of a private company, and winding up (i.e. dissolution) is ordered as though it were a partnership (In re Yenidje Tobacco Co. Ltd.26 and where a shipping company is really run by one individual, for the purpose of section 502 of the Merchant Shipping Act, 1894 (Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co Ltd.27 or for the purposes of trading with the enemy (Daimler Co. Ltd. v. Continental Tyre & Rubber Company (Great Britain) Ltd.28. But when the careful analysis of Lord Parker of Waddington in the Daimler case29 is read, it is, I think, apparent that the personality of those in control of the company was only to be regarded as material in special circumstances, such as a state of war, and only as indicating the nature of the company without really departing from the principle that a limited company incorporated under the Companies Acts is a distinct legal entity, differing from the individuals who hold the shares in the company or control it through the mechanism of the Companies Acts. As Ormerod L.J. pointed out, if persons choose to conduct their operations through the medium of a limited company with the advantages in respect of responsibility for debts thereby conferred, they cannot really complain if they have to face some disadvantages also.

 

I have, therefore, reached the conclusion that Mrs. Steigmann,

 

24 [1897] A.C. 22.

 

25 [1908] 2 K.B. 89.

 

26 [1916] 2 Ch. 426.

 

27 [1915] A.C. 705.

 

28 [1916] 2 A.C. 307.

 

29 Ibid. 337, 338. [*608]

 

being the present landlord, the requirements of section 30 (1) (g) will not be satisfied if the property is to be occupied by the company or the business therein is to be carried on as the business of the company. I reach this result with some reluctance, because it is from a common sense point of view an artificial result (though the conception of a limited company, it must be said, is a legalistic and artificial conception); and also because I have a feeling that if the landlord’s business affairs had been suitably arranged, the requirements of the Act might have been satisfied (provided, of course, that any such arrangements were genuine and not a mere sham: Teasdale v. Walker30.

 

Consequently, my conclusion is that the appeal must be allowed.

 

 

Appeal allowed with costs.

 

Case remitted to county court judge to determine the duration and terms of the lease.

 

30 [1958] 1 W.L.R. 1076; [1958] 3 All E.R. 307, C.A.