Radaich v Smith

Neither party denies that all the terms of the agreement are embodied in their deed. The deed contains ten clauses. In form and matter, it resembles an ordinary lease; it contains, inter alia, a covenant that the "licensors" shall not unreasonably disallow an assignment of the "licence". Another clause, cl. 9, confers an option of renewal. The words "lease", "lessor" and "lessee", however, are entirely excluded from the document, and the term "licence", and its appropriate mutations, are sedulously applied to the rights purported to be created. This fact is, of course, far from conclusive in favour of the respondents. It is the substance of the deed that matters. As Denning L.J. said in Facchini v. Bryson [1] " the parties cannot by the mere words of their contract turn it into something else. Their relationship is determined by the law and not by the label they choose to put on it" [2] . The true test of a supposed lease is whether exclusive possession is conferred upon the putative lessee. The validity of this test is confirmed by the judgment of the Court of Appeal in Addiscombe Garden Estates Ltd. v. Crabbe [3] where Jenkins L.J. states: - "We were also referred by Mr. Blundell to Errington v. Errington and Woods [4] . In that case it was held that in very unusual circumstances a lady was a licensee, and entitled to remain in occupation of premises so long as she paid the instalments on a certain mortgage; and in the course of his judgment, Denning L.J. said: "The test of exclusive possession is by no means decisive". [5] . I think that wide statement must be treated as qualified by his observations in Facchini v. Bryson [6] ; and it seems to me that, save in exceptional cases of the kind mentioned by Denning L.J. in that case, the law remains that the fact of exclusive possession, if not decisive against the view that there is a mere licence, as distinct from a tenancy, is at all events a consideration of the first importance." [7] .

1. (1952) 1 T.L.R. 1386. 2. (1952) 1 T.L.R., at pp. 1389, 1390. 3. (1958) 1 Q.B. 513. 4. (1952) 1 K.B. 290. 5. (1952) 1 K.B., at p. 297. 6. (1952) 1 T.L.R. 1386, at p. 1389. 7. (1958) 1 Q.B., at p. 528.

It certainly appears that the "exclusive possession" test has survived intact the criticism it received in Errington v. Errington and Woods [4] . Parker and Pearce L.J.J. concurred in the judgment of Jenkins L.J., which is cited in part above.

What kind of possession did the present deed confer? Clause 5 is in these terms: "Upon the expiration or sooner determination of this licence the Licensee shall immediately give up possession of the said building occupied by her for the purpose of the said business and will execute and do all such assurances and things as may be requisite for transferring to or vesting in the Licensors or any person whom they may nominate any existing license or licenses in payment only of the proper proportion of the sum or sums paid for same."

The preamble recites that the respondents are "to carry on the business of a milk bar" in the subject premises. I think that such a business could only be carried on in reasonable convenience by persons having the exclusive possession of the premises. Nothing in the deed suggests that the parties did not recognise this as an implication of their agreement embodied therein. The premises, it appears, constituted what is often called a "lock-up shop". On several of the rent receipts given by the respondents, and which are in evidence, is the notation: "All window, door keys, locks, etc., lost or broken, shall be paid for by the tenant". The agreement contemplates that the so-called "licensee" is to have control of the premises, and of the persons entering them, during business hours and, indeed, at all other times.

I am satisfied that what was granted by this deed was an interest in the premises, therein described, which amounts in truth and in substance to a lease. Accordingly, these premises are subject to the determinations of the Fair Rents Board, under the provisions of the Landlord and Tenant (Amendment) Act 1948-1954. The question in the stated case should be answered "No".

The question in this case is whether at the time when an application was made by the appellant for the determination of the "fair" rent of certain premises at Mosman the relationship of lessor and lessee existed between her and the respondents, with respect to those premises. If so, then it was competent for a fair rents board to determine, as it did, the "fair" rent of the subject premises pursuant to the provisions of the Landlord and Tenant (Amendment) Act 1948-1954. Upon appeal to the Supreme Court the respondents succeeded in their contention that the critical relationship was that of licensor and licensee only and this appeal is now brought by special leave from the order which answered the question raised by the case stated in their favour.

As appears from the case the appellants and the respondent became the parties to a deed dated 29th May 1954 which witnessed that the respondents, as licensors, thereby granted to the appellant, as licensee, for a term of five years from the date of the deed, "the sole and exclusive license and privilege to supply refreshments to the public admitted to premises situated at Mosman and to carry on the business of a milk bar therein (hereinafter called the building) in such rooms as are shown in sketch contained in Schedule one annexed hereto." The sketch merely shows the outline of a block of land 18′ × 34′ situated at the corner of Parriwi Street and a lane along which the longer side of the land extends. Perusal of the deed shows that it contains a number of provisions designed to regulate the mutual rights and obligations of the parties and it is desirable that these should be scrutinised in order to see just what rights the appellant obtained under the instrument. Some, at least, of the several provisions of the deed may be said to savour more of a lease than of a licence but the instrument itself consistently avoids the use of the expressions "lease", "lessors", and "lessee" and carefully uses the words "licence", "licensors", and "licensee". But it is readily discoverable upon examination of the deed that it contemplated that the so-called licensee would carry on upon the premises the business of a milk bar and cafe subject to the restriction which is imposed by cl. 7 that she should not serve meals consisting of, or containing, cooked poultry, fish, oysters or prawns. It is also apparent from this same clause that the appellant was to carry on this business on the "premises occupied by her" and, from cl. 3 that she was under an obligation to "keep open her business at all times allowed by law". Obviously it was contemplated that she was to occupy the subject premises and that, subject to her obligations under cl. 3, she was to have the control of the premises in the sense that she was to close them and open them at the appropriate times. We are not told what the precise character of the premises were but it sufficiently appears from the "rent" receipts which are an annexure to the case that the means of closing and opening the premises were to be within the disposition of the appellant. From cl. 2 it is apparent that the appellant was to have the use of the gas, electricity and water service on the premises for the purpose of conducting her business and from cl. 6 that it was contemplated that she should keep her stock-in-trade and other chattels necessary for the conduct of her business upon the premises. Further she undertook upon the expiration or sooner determination of the licence immediately to "give up possession of the said building occupied by her for the purpose of the said business". According to the case it was found as a fact in the course of the proceedings before the Fair Rents Board that the appellant entered into occupation of the premises pursuant to this instrument.

So far I have not referred to the provisions of cl. 10 of the deed and I do so now only for the purpose of dismissing them from consideration. That clause provided that "The licence herein granted shall be deemed to be a lease as defined in the Landlord and Tenant (Amendment) Act 1948-1952 ". Before the Supreme Court it was suggested that the word "not" had been omitted after the word "deemed" in this clause and there was some speculation as to whether this was so. But since the question whether a lease or a licence was granted must be determined having regard to the substance and effect of the instrument itself this is of no consequence and it is unnecessary to make any further reference to this problem.

I have no doubt that the substance and effect of the instrument in question here was to grant to the appellant a right to the exclusive possession of the subject premises upon the specified conditions for the prescribed term. The deed obviously contemplated that the appellant should have the right to occupy the premises for the purposes of her business and the business was to be carried on upon the premises at all times when they might lawfully be kept open. The character of the business was such that it could only be effectively carried on if the appellant had exclusive occupation and it seems clear that, even at times when they could not lawfully be kept open for the purposes of the business, the premises were to remain under her effective control. That being so it is inevitable that we should hold that the instrument created a leasehold interest and that at the material time the relationship of lessor and lessee existed between the parties.

It will be seen that I have treated the question in the case as concluded by the fact that the instrument conferred upon the appellant the right to exclusive possession for the specified term. And, it seems to me, that where, as in cases such as the present, it becomes necessary to identify a particular transaction as either a lease or a licence this factor must be decisive. The instrument either makes a grant of an interest in the land or it does not; if it does a leasehold interest is created and if it does not then nothing more than a licence is given. I do not, of course, overlook that an interest in land - for example, an easement or a profit à prendre - may be created without a grant of possession. Nor do I wish to assert that whenever a legal owner admits another to possession of his land a leasehold interest is necessarily created. For instance, possession given to a builder under the terms of a building contract does not create such an interest. What I have in mind is that where there is a grant of a right for a determinate period in respect of land and the question is posed whether the grant creates a lease or a licence the question may be resolved by considering whether the right in question is a right to exclusive possession.

In recent years, however, some doubt has been thrown upon the validity of this proposition and in Errington v. Errington and Woods [1] . Denning L.J. (as he then was) expressed the view that the test of exclusive possession is by no means decisive [2] . Immediately before this pronouncement his Lordship had said: "The classic definition of a licence was propounded by Vaughan C.J. in the seventeenth century in Thomas v. Sorrell [3] . "A dispensation or licence properly passeth no interest nor alters or transfers property in any thing, but only makes an action lawful, which without it had been unlawful" [4] . The difference between a tenancy and a licence is, therefore, that, in a tenancy, an interest passes in the land, whereas, in a licence, it does not. In distinguishing between them, a crucial test has sometimes been supposed to be whether the occupier has exclusive possession or not. If he was let into exclusive possession, he was said to be a tenant, albeit only a tenant at will (See Doe v. Chamberlaine [5] , and Lynes v. Snaith [6] ), whereas if he had not exclusive possession he was only a licensee: Peakin v. Peakin [7] . This test has, however, often given rise to misgivings because it may not correspond to realities. A good instance is Howard v. Shaw [8] , where a person was let into exclusive possession under a contract for purchase. Alderson B. said that he was a tenant at will; and Parke B., with some difficulty, agreed with him, but Lord Abinger said that "while the defendant occupied under a valid contract for the sale of the property to him, he could not be considered as a tenant". Now, after the lapse of a hundred years, it has become clear that the view of Lord Abinger was right" [9] . Then he added: "The test of exclusive possession is by no means decisive" [2] . This statement seems to have been reaffirmed in Cobb v. Lane [10] but it was pointed out that it was in conflict with the test applied in older cases though in conformity with the decisions in Foster v. Robinson [1] and Marcroft Waggons Ltd. v. Smith [2] . But Facchini v. Bryson [3] was made the occasion by Denning L.J. to mention that many cases had lately come before the courts where an occupier had been held to be a licensee and not a tenant. In addition to those noted in Errington v. Errington and Woods [1] he mentioned three others, two of which were unreported, and then went on to say that in all the cases where an occupier had been held to be a licensee there had been "something in the circumstances, such as a family arrangement, an act of friendship or generosity, or such like to negative any intention to create a tenancy". Thereafter he added: "In such circumstances it would be obviously unjust to saddle the owner with a tenancy, with all the momentous consequences that that entails nowadays, when there was no intention to create a tenancy at all. In the present case, however, there are no special circumstances. It is a simple case where the employer let a man into occupation of a house in consequence of his employment at a weekly sum payable by him. The occupation has all the features of a service tenancy, and the parties cannot by the mere words of their contract turn it into something else. Their relationship is determined by the law and not by the label which they choose to put on it." [2] . Subsequently, Viscount Simonds in Wheeler v. Mercer [3] denied the validity of the conclusion of Lord Abinger to which Denning L.J. gave his assent in Errington's Case [1] and, finally, in Addiscombe Garden Estates Ltd. v. Crabbe [4] , Jenkins L.J. said: "We were also referred by Mr. Blundell to Errington v. Errington and Woods [1] . In that case it was held that in very unusual circumstances a lady was a licensee, and entitled to remain in occupation of premises so long as she paid the instalments on a certain mortgage; and in the course of his judgment, Denning L.J. said: "The test of exclusive possession is by no means decisive" [5] . I think that wide statement must be treated as qualified by his observations in Facchini v. Bryson [6] ; and it seems to me that, save in exceptional cases of the kind mentioned by Denning L.J. in that case, the law remains that the fact of exclusive possession, if not decisive against the view that there is a mere licence, as distinct from a tenancy, is at all events a consideration of the first importance. In the present case there is not only the indication afforded by the provision which shows that exclusive occupation was intended, but there are all the various other matters which I have mentioned, which appear to me to show that the actual interest taken by the grantees under the document was the interest of tenants, and not the interest of mere licensees." [7] . With the legal propositions involved in this statement Parker and Pearce L.JJ. agreed and it must be taken as beyond doubt that in cases where there is a real contest between the issues of lease and licence the problem may be solved by considering whether the right which is conferred is a right to the exclusive possession of the property in question. This, however, does not deny that exceptional cases may arise in which it will be seen that a right to exclusive occupation or possession has been given without the grant of a leasehold interest. But if, as Denning L.J. himself agreed, the relationship created between the parties by a particular transaction is to be determined by its substance and not by its mere form, I am unable to see that the fact that a particular transaction may have been induced by ties of kinship, or by friendship or generosity could operate to bring it within this exceptional class. Such considerations cannot operate to transmute a lease into a licence or a licence into a lease. Indeed, one might venture to observe that until the effect of the transaction had been determined it would be impossible to appreciate the extent of the grantor's generosity or to know how far the ties of kinship or friendship had carried him. Upon examination it will, I think, be seen that this exceptional category is constituted by cases in which the facts do not give rise to a contest of the character abovementioned. The present case is clearly not such a case and the conclusion is inevitable that the relationship of landlord and tenant existed between the parties at the relevant time. Accordingly, the appeal should be allowed and the order of the Supreme Court set aside.

1. (1952) 1 K.B. 290. 2. (1952) 1 K.B., at p. 297. 3. (1673) Vaugh. 330 [ 124 E.R. 1098.] 4. (1673) Vaugh. 330, at p. 351 [124 E.R. 108, at p. 1109]. 5. (1839) 5 M. & W. 14, at p. 16 [151 E.R. 7]. 6. (1899) 1 Q.B. 486. 7. (1895) 2 I.R. 359. 8. (1841) 8 M. & W. 118 [151 E.R. 913]. 9. (1952) 1 K.B., at pp. 296, 297. 10. (1952) 1 K.B., at p. 297. 11. (1952) 1 All E.R. 1199. 12. (1950) 2 All E.R. 342. 13. (1951) 2 All E.R. 271. 14. (1952) 1 T.L.R. 1386. 15. (1952) 1 K.B. 290. 16. (1952) 1 T.L.R., at pp. 1389, 1390. 17. (1957) A.C. 416, at p. 425. 18. (1952) 1 K.B. 290. 19. (1958) 1 Q.B. 513. 20. (1952) 1 K.B. 290. 21. (1952) 1 K.B., at p. 297. 22. (1952) 1 T.L.R. 1386, at p. 1389. 23. (1958) 1 Q.B., at p. 528. Menzies J.

The one question raised by this appeal is whether the appellant's occupation of a shop known as and situate at 83 Parriwi Road, Mosman, under and by virtue of a deed dated 29th May 1954 is as a licensee, as Brereton J. decided, or as a tenant of the respondents, as the appellant contends.

The deed is called a "license" (sic) and the parties thereto "licensors" and "licensee", and it was argued that not only did these descriptions in a formal document show the intention of the parties but also that the substance of its provisions justified these descriptions. When looked at as a matter of both form and substance, the deed seems to me to speak with two voices, but what I regard as decisive in favour of its creating the relationship of landlord and tenant is that it gives the "licensee" the right of exclusive possession of the premises for the term granted thereby.

The conclusion that it does this flows from the provisions which require the appellant to conduct a cafe and milk bar in the shop and, upon the expiration or sooner determination of the "license", to "give up possession of the said building occupied by her for the purpose of the said business". It is true that there is room for doubt about the meaning of the phrase "the said building" because, in the grant, the words used are "the sole and exclusive license and privilege to supply refreshments to the public admitted to premises situated at 81-83 Parriwi Road The Spit Mosman aforesaid and to carry on the business of a milk bar therein (hereinafter called the building) in such rooms as are shown in sketch contained in Schedule one annexed hereto", but from the case stated by the Fair Rents Board and the present respondents' notice of appeal to the Supreme Court, it seems clear that the sketch is of 83 Parriwi Road; indeed, in the notice of appeal the present appellant is described as of that address. My conclusion is that it is the premises 83 Parriwi Road which the "licensee" is to occupy during the term in which she is bound to carry on business, and of which at the end of the "license" she is bound to give up possession to the "licensor". These obligations to occupy a shop, to carry on a business there that needs plant and stock, and to give up possession at the end of the term, taken together, seem to me to require the conclusion that the occupier has, during the term, the right of exclusive possession. Counsel for the respondents did press us with the differences between the deed before us and that under consideration in Addiscombe Gardens Estate Ltd. v. Crabbe [1] where the Court of Appeal decided that there was a lease rather than a licence because the grantees were entitled to exclusive occupation. The most significant difference relied upon was that there the grantees were to permit the owners to enter and inspect and it was pointed out that this was inconsistent with a general right to come upon the premises. This was, however, but one of the matters upon which the court relied and I do not think anything is to be gained by a point for point comparison of the deeds because the matters I have referred to satisfy me that it was intended that the appellant here should have the exclusive occupation of 83 Parriwi Road.

The distinction between a lease and a licence is clear. "A dispensation or licence properly passeth no interest, nor alters or transfers property in anything but only makes an action lawful which without it had been unlawful": Thomas v. Sorrell [2] . Whether when one man is allowed to enter upon the land of another pursuant to a contract he does so as licensee or as tenant must, it has been said, "be in the last resort a question of intention", per Lord Greene M.R. in Booker v. Palmer [1] . But intention to do what? - Not to give the transaction one label rather than another. - Not to escape the legal consequences of one relationship by professing that it is another. Whether the transaction creates a lease or a licence depends upon intention, only in the sense that it depends upon the nature of the right which the parties intend the person entering upon the land shall have in relation to the land. When they have put their transaction in writing this intention is to be ascertained by seeing what, in accordance with ordinary principles of interpretation, are the rights that the instrument creates. If those rights be the rights of a tenant, it does not avail either party to say that a tenancy was not intended. And conversely if a man be given only the rights of a licensee, it does not matter that he be called a tenant; he is a licensee. What then is the fundamental right which a tenant has that distinguishes his position from that of a licensee? It is an interest in land as distinct from a personal permission to enter the land and use it for some stipulated purpose or purposes. And how is it to be ascertained whether such an interest in land has been given? By seeing whether the grantee was given a legal right of exclusive possession of the land for a term or from year to year or for a life or lives. If he was, he is a tenant. And he cannot be other than a tenant, because a legal right of exclusive possession is a tenancy and the creation of such a right is a demise. To say that a man who has, by agreement with a landlord, a right of exclusive possession of land for a term is not a tenant is simply to contradict the first proposition by the second. A right of exclusive possession is secured by the right of a lessee to maintain ejectment and, after his entry, trespass. A reservation to the landlord, either by contract or statute, of a limited right of entry, as for example to view or repair, is, of course, not inconsistent with a grant of exclusive possession. Subject to such reservations, a tenant for a term or from year to year or for a life or lives can exclude his landlord as well as strangers from the demised premises. All this is long-established law: see Cole on Ejectment (1857) pp. 72, 73, 287, 458.

1. (1673) Vaugh. 330 [ 124 E.R. 1098]. 2. (1942) 2 All E.R. 674, at p. 676.

Recently some transactions from which in the past tenancies at will would have been inferred have been somewhat readily treated as creating only licences. And it has been said - especially in connection with family relationships, charity or hospitality - that allowing a person to have the exclusive possession of premises does not necessarily indicate a tenancy as distinct from a licence. These decisions are largely a by-product of rent restriction statutes and other legislation here and in England. They are all explicable if they mean, as I think they all do, that persons who are allowed to enjoy sole occupation in fact are not necessarily to be taken to have been given a right of exclusive possession in law. If there be any decision which goes further and states positively that a person legally entitled to exclusive possession for a term is a licensee and not a tenant, it should be disregarded, for it is self-contradictory and meaningless. We are not here concerned with the way in which a court of equity would control the parties in the exercise of legal rights, but with the simple question whether at law this document created a lease or a licence. And the proper touchstone still is: did it give the so-called licensee a legal right to the exclusive possession of the premises during the term? The question must of course, be resolved by considering the terms of the deed. But they are to be read in relation to the relevant surrounding circumstances, in particular the nature of the premises; for this deed, like any other instrument, is to be interpreted having regard to its subject matter. Here the subject premises are in fact a lock-up shop at The Spit, Mosman. It was said that the stated case does not expressly state this to be so. This is true, and the learned judge who heard the appeal in the Supreme Court may have been somewhat hampered because the case stated by the magistrate did not fully describe the subject premises. But it is stated that they are No. 83 Parriwi Road, Mosman; and from the deed itself it appears that this is a separate part of a larger holding held by the respondents - the so-called licensors - under a special lease from the Crown, a form of tenure under the Crown Lands Acts of New South Wales. From the deed itself it is also a reasonable inference that the subject premises are a lock-up shop used as a refreshment room and milk bar and adjacent to another shop where fish foods are sold. And the notice of appeal to this court referred, as one of the grounds of appeal, to matter stated in the affidavit sworn on the application for special leave to appeal. So far as that affidavit sought to explain why the document took the form it does it must be entirely disregarded; for the parties have reduced their agreement to writing and cannot by parol evidence explain their deed. But the fact stated in the affidavit that the subject premises are a lock-up shop is clearly relevant; and so I think is the fact that the appellant had bought from the respondents the business carried on upon the premises and that it was in connection with this transaction that the deed in question was executed. Turning then to its terms: its opening operative clause is expressed to be a grant for a five-year term of "the sole and exclusive license and privilege to supply refreshment to the public admitted to premises situate at 81-83 Parriwi Road, The Spit, Mosman, and to carry on the business of a milk bar therein in such rooms as are shown in the sketch contained in Schedule one annexed hereto and the right to use of toilet at rear and passage thereto." These words, standing by themselves, would create only an exclusive licence to supply refreshments, which is essentially different from an exclusive right to possession. But these opening words are not at all appropriate to the actual circumstances - and they do not stand by themselves. To describe the lock-up shop as "such rooms as are shown in sketch" is inapt, for one room, the shop, is what is shown by the sketch. And it is inapt to speak of a right to supply refreshments "to the public admitted to premises 81-83". And several of the later provisions are not only not appropriate to a mere licence to sell refreshments on the landlord's premises, but clearly suppose a grant of possession of specific premises to the appellant so that she can carry on a business there. It was argued that the deed follows an accepted precedent for the grant of a licence, having been taken from the form given in Evatt and Beckenham's Conveyancing Precedents, 2nd ed. (1938) p. 542, which in turn is taken from a form in The Conveyancer vol. 10, p. 485. We have to decide what is the result of the words used by the parties, not what is the result which the draftsman of a form thought they would have. But what has happened is simply that the form has been used in circumstances for which it was never intended. In The Conveyancer it is described as a "Licence for the Exclusive Right of Supplying Refreshments within a Railway Station or Building"; and in Evatt and Beckenham's Precedents as "Licence for the Exclusive Right of Supplying Refreshments within a Building". Whether all its clauses are really appropriate to a licence to sell refreshments at a stall on a railway station or in the foyer of a theatre to persons admitted to such premises need not be considered. It is inapt to create a licence of a lock-up milk bar at The Spit. References in the deed to the licensee "giving up possession of the said building occupied by her", and to "that part of the premises occupied by her", are consistent with a tenancy, and in their setting are not really consistent with the supposed licence. The appellant is required to keep her business open during business hours. Clearly she could shut it at other times. I imagine all concerned would have been astounded if they had been told that the appellant had no right to exclude persons from her shop; that the respondent might, if he wished, license other people to carry on any activity there other than the sale of refreshments, provided their presence did not prevent her selling refreshments or conducting the milk bar; and that, although she might lock the shop up at night and on holidays, the respondents could not only enter it themselves whenever they wished but could admit as many persons as they chose, provide them with keys and license them to use the premises in the absence of the appellant for any purpose of pleasure or business they liked, provided only that they did not sell refreshments. If the matter is to be tested by the apparent intention of the parties arising from the circumstances, that clearly was not their intention. If it is to be tested, as I consider it is, by their intention as reflected in the words of their deed with knowledge of the nature of the subject premises, then, in the words of Blackburn J. (as he then was) in Roads v. Overseers of Trumpington [1] "the whole nature of the agreement shews that the appellant was intended to have exclusive possession of the land" [2] . The use in what purports to be the principal provision of the deed of words taken from a precedent designed for another purpose cannot outweigh its total effect.

1. (1870) L.R. 6 Q.B. 56. 2. (1870) L.R. 6 Q.B., at p. 63.

The final clause of the deed may, I think, be ignored. In the Supreme Court the learned judge thought that the word "not" must have been dropped out. But whether the clause be read with "not" in or out, makes, I think, no difference. Such a provision could not make the deed a lease if it were not one, and it cannot prevent it being a lease if it be one.

The magistrate was right. The deed created a lease of the part of the building shown in the sketch annexed to it, that is the shop, and a licence in relation to the part described as "the toilet at rear and passage thereto". The question in the stated case should be answered accordingly.