Judgment
Title: | Shirley & ors -v- A. O'Gorman & Co. Ltd & ors |
Neutral Citation: | [2012] IESC 5 |
Supreme Court Record Number: | 292/06 |
High Court Record Number: | 2000 11774 P |
Date of Delivery: | 02/02/2012 |
Court: | Supreme Court |
Composition of Court: | Denham C.J., Murray J., Fennelly J., Macken J., Finnegan J. |
Judgment by: | Fennelly J. |
Status: | Approved |
Result: | Dismiss |
 | |
| Judgments by | Link to Judgment | Concurring | Fennelly J. | | Denham C.J., Murray J., Macken J., Finnegan J. | |
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THE SUPREME COURT
No. 292/2006
Denham C.J.
Murray J.
Fennelly J.
Macken J.
Finnegan J.
Between:
JOHN E SHIRLEY
JES HOLDINGS LIMITED
LUCY SHIRLEY
Plaintiffs/Appellants
-v-
A. O’GORMAN & COMPANY LIMITED,
IRELAND AND THE ATTORNEY GENERAL
Defendants/Respondents
JUDGMENT of Mr. Justice Fennelly delivered the 2nd day of February 2012.
1. This case comes before the Court by way of appeal from the judgment of the High Court (Peart J) delivered on 31st January 2006. In that judgment the learned judge dismissed the challenge of the appellants to the constitutionality of a number of provisions of the legislation which permits lessees compulsorily to acquire the fee simple in tenements from lessors. I will call that the “constitutional action.” In a related proceeding, Peart J had decided, by an earlier judgment of 31st May 2005, on appeal from the Circuit Court, that the first-named respondent had the right to buy the fee simple in property in Carrickmacross from the second-named appellant in accordance with the provisions of Landlord and Tenant (Ground Rents) (no. 2) Act, 1978. These are the ground-rent proceedings.
2. There cannot, of course, be any appeal from the decision of a judge of the High Court on appeal from the Circuit Court. Nonetheless, the two proceedings are inextricably related in a number of ways. An order was made by the High Court that the two proceedings be heard simultaneously. The parties agreed that the evidence given at the hearing of the Circuit Court Appeal would be considered to be evidence in the constitutional action. The learned judge decided that the order in the Circuit Court Appeal would not be made up, pending the decision in these proceedings, in which the compatibility of the legislation with the Constitution is in issue.
3. Furthermore, the learned judge declined, in the course of his judgment in the Circuit Court Appeal, to decide an important issue of interpretation of the legislation in the light of the Constitution, the double-construction rule. He gave as his specific reason that there was a separate challenge to the constitutionality of the legislation. In the event, the question of the interpretation of the legislation in accordance with the presumption of constitutionality and the double-construction rule was not addressed in the course of the constitutional action.
4. The way in which the constitutional action came to be heard in succession to the Circuit Appeal produces an unusual situation. The High Court declined to decide an important issue of interpretation in the Circuit appeal, because of the pending the hearing of the constitutional action, but did not address it at all in the latter proceeding. In the ordinary way, a single judgment of the Court is delivered where the Court decides a question as to the validity of a law having regard to the provisions of the Constitution: see Article 34, section 4.5. That rule does not apply to a decision on a question of interpretation of legislation. For reasons which I will explain, I am delivering my own individual judgment, not on the validity of the laws in question but on their interpretation.
5. In addition, I must make it clear from the outset that no appeal lies from the High Court decision in the Circuit Court Appeal. The consequences, if any, for that proceeding of anything said by this Court is a matter for the parties and for Peart J and not for this Court. I say this, because this Court must interpret the legislation, insofar as that is possible, in a manner which renders it compatible with the Constitution. The Court will decide questions of constitutionality only when it is not reasonably possible to interpret the impugned legislation harmoniously with the Constitution. That may lead the Court to adopt an interpretation which conflicts with that adopted by the High Court, but it does not, by doing so, perform an appellate function insofar as the Circuit Court Appeal is concerned.
The facts
6. The first-named respondent is seeking to acquire the fee simple title to premises on the west side of Main Street, Carrickmacross, County Monaghan. The premises are part of the Shirley Estate, whose title traces back to the early seventeenth century. The landlord’s interest has been vested since 1984 in the second-named appellant, a company registered in the Isle of Man. The first and third named appellants are shareholders in that company and are joined for the purpose of invoking the constitutional provisions concerning the protection of property rights. The learned trial judge accepted that the plaintiffs had standing to bring the action in the light of the judgment of Keane J. (as he then was) in Iarnrod Eireann v. Ireland [1996] 3 IR 321. Nothing now turns on that point and I will refer from now on simply to the appellant, meaning the second-named appellant.
7. The premises formerly consisted of a substantial traditional residence, called Carrick House, in a country town. It was a substantial four-storey end-of-terrace dwelling with attached grounds consisting of gardens. It was totally transformed in the 1970’s and 1980’s by the construction of extensive retail (supermarket) premises on the grounds surrounding the old house. These additions completely absorbed and changed the character of the original premises, though those premises were never demolished.
8. The premises referred to as Carrick House date back to the late eighteenth or early nineteenth century. Peart J described the house, as of the 1930’s, as “a significant and substantial house on the Main Street, in Carrickmacross, with a large garden adjoining same, as well as outhouses of various kinds.” He added: “The main entrance into the house itself was at the southern side of the house in the garden, and took the form of a curved front entrance door. There was an entrance into that part of the garden from the Main Street.” Following examination of valuation records and a number of title deeds, he said that it appeared that “certainly by the end of the 19th century and well into the 20th century this house was the residence of various medical doctors who serviced an adjoining surgery.”
9. Thus, in the early years of the twentieth century, the Shirley Estate had let the premises to a succession of tenants, often medical doctors. The Estate enjoyed the full benefit of fee simple ownership and possession at the end of each term. The lettings which were considered as relevant to the ground rent proceedings commenced in 1919.
10. The first material lease for the purpose of these and, more particularly, the ground-rent proceedings was a lease made on 27th May 1919 whereby Evelyn Charles Shirley granted a lease to Edward Phelan, described as a solicitor. The premises are there described as the “Dwelling House and premises……… lately in the occupation of Doctor McCaul together with the Garden and Office Houses occupied in connection therewith……” As Peart J observed, “clearly the premises were considered to be a suitable residence for a professional person….” The term of the lease was thirty two years from 1st May 1919 at a rent of £50 per annum. It would expire on 30th April 1951. That lease contained a covenant on the part of the lessee to spend a sum of £500 in repairing and improving the premises in accordance with a “Schedule of Improvements and Renovations,” attached to the lease. On completion of these works, the landlord agreed to contribute a sum of £200.
11. On 31st October 1919, Edward Phelan assigned the leasehold interest in the premises to one Ann Jane Daly, "wife of Michael Daly," in consideration of the sum of £2,500, for the residue of the term of years created by the 1919 Lease. The rateable valuation of the property, described in the Valuation Records as “house office and garden,” was £18.10s. between 1894 and 1917. The property was revalued to £25.10s.0d. in 1947 and was then described as “house, office, yard (in common) and garden.” Part of the property was rated separately as a doctor’s surgery in the occupation of Michael Daly M.D. from 1926 to 1946. Thus, it appears that, following a brief occupation by a solicitor, it was used as a residence and a doctor’s surgery until 1946.
12. By an Indenture of Lease dated 11th October 1945 Evelyn Charles Shirley, the lessor who had granted the 1919 lease, granted to Violet Daly, spinster, described as being in occupation and entitled to the lessee’s interest under the 1919 lease, a further lease for the term of fifty years from the expiration of the 1919 lease of Carrick House at the slightly increased yearly rent of £55. That term would, therefore, expire on 30th April 2001. The lease contained a covenant that the premises would be used as a private dwelling and that the lessee would not make any alterations or additions without the consent of the lessor. The premises were described in that lease as:
"ALL THAT dwellinghouse and premises known as Carrick House in the Main Street, Carrickmacross at present in the occupation of the tenant together with the garden and outhouses occupied in connection therewith ………"
13. The appellant makes the point that, during all these years, the rent substantially exceeded the rateable valuation. This and other evidence would suggest that, as was the view of Peart J, the rent was not at that time a ground rent as that term is generally understood.
14. By May 1969 the lessee's interest had been assigned to one Margaret Mary Rennick, and, by a Variation Agreement dated 12th October 1970, John Evelyn Shirley, in consideration of an increase in the yearly rent to the annual sum of seventy five pounds (£75.00) removed “all restrictions on the user of the premises demised by the Lease (other than the restriction on the Lessee using the premises in a manner which would be or cause a nuisance).”
15. By Deed of Assignment dated 16th August 1972, Ms. Rennick assigned the premises to Michael Connolly for the residue of the term of years granted by the Lease of 1945. It was Mr Connolly who commenced the process of transformation of the premises. In 1972, he obtained planning permission to convert "the existing residential property" to a butcher's shop and to erect a supermarket premises. This involved the demolition of an existing small building. A single storey supermarket premises was constructed so as to cover the area thus uncovered as well as what had, up to that time, been the garden adjoining the southern gable of the house. A living room in Carrick House was converted into a butcher's shop with its own street entrance. These works involved the demolition of the original side entrance into Carrick House with its glass porch, which was demolished. In addition to the construction of a large supermarket premises, an extra storey was constructed increasing the height and area of the premises, an apex building was erected to the front and a store area was extended, while part of the store area was converted to retail purposes. All this is described in detail in the judgment of Peart J in the Circuit Court Appeal on the ground-rent application. In effect, on what had been an attractive garden at the south side of Carrick House, there had been constructed a single storey supermarket premises stretching back some distance from the main street. The ground floor windows to the south of the front door of Carrick House had been replaced also with a shop front window and entrance door leading into a butcher's shop.
16. By Indenture dated 1st July 1974 Mr Connolly assigned the premises to A. O'Gorman & Company Limited, the first-named respondent. The first-named respondent made successive extensive alterations in 1979 (a much larger store area and loading bay), in 1982 (conversion of first and second floors into flats), 1985 (extended store facility and car-parking), 1990 (new supermarket front and first-floor façade) 1994 (further alterations to frontage to create an entire new front).
17. The cost of the various developments carried out by the first-named respondent between the years 1979 and 1996 was well in excess of IR£300,000. The area covered by buildings was enlarged from 283 sq. metres to some 1339 sq. metres.
18. Peart J determined that, for the purposes of section 9(2) of the Act of 1978, the original buildings had “lost their identity.” He said:
“The answer to that question as far as I am concerned is quite obviously that it has lost that original identity. By no stretch of anybody's imagination could it be said that this is still the same premises as the rather attractive private residence with garden and outhouses which one can see in the photograph taken in the 1930s.”
19. All of these changes were carried out in breach of covenant and without the consent of the lessor. However, the appellant on 15th February 1991 retrospectively gave its consent in writing and under its seal for all developments carried out up to that time. Insofar as further alterations carried out without lessor’s consent after that date were concerned, Peart J, in his judgment on the Circuit Court appeal, declared pursuant to section 9(5) of the Landlord and Tenant (Ground Rents) (no. 2) Act, 1978 that it would be unreasonable not to declare the first-named respondent a person entitled to enlarge his interest into a fee simple in accordance with section 8 of that Act, principally because of the absence of any prejudice to the lessor, which was aware of the changes, and had apparently been willing to consent to such alterations as had already been made.
20. As a consequence of, firstly, the lessor’s retrospective consent to most of the alterations, and secondly, the determination of Peart J pursuant to section 9(5), the fact of the great majority of the buildings on the land having been erected without the consent of the lessor presented no obstacle to the right of the first-named respondent to acquire the fee simple. It may also be noted that, as the first-named respondent remarks in its written observations, the lessor did not seek any adjustment in the rent as a condition of agreeing to these major alterations.
21. The physical changes to the premises had, however, a major and highly material effect on the rateable valuation, by bringing it above the amount of the rent. The rent, as mentioned above, had been increased to £75 in 1969. After the premises had been developed by Mr Connolly into a butcher's shop on the ground floor of Carrick House and a supermarket to the south thereof, and before any assignment to Mr O'Gorman, the rateable valuation of the entire premises had been increased to £76.50. As of 2nd March 1998, the date of service of the notice of intention to acquire the fee simple, it had been increased to £211.50.
Proceedings for acquisition of fee simple
22. The first-named respondent served notice of intention to purchase the fee simple in the premises on the appellant on 2nd March 1998 pursuant to section 4 of the Landlord & Tenant (Ground Rents) Act, 1967.
23. On 27th October 1998 the County Registrar made an order determining that the first named-respondent was entitled to acquire the fee simple for IR£23,500.
24. On appeal to the Circuit Court, His Honour Judge Hogan, sitting in Monaghan, by Order of 24th July 2000 upheld the entitlement to acquire the fee simple but reduced the purchase price to IR£20,000.
25. The appellant appealed from that determination to the High Court. By order of the High Court dated 12th October 200, the appeal was transferred to the High Court in Dublin and was ordered to be heard simultaneously with the constitutional action. Peart J determined that appeal by his judgment of 31st May 2005. He upheld the entitlement of the first-named respondent to acquire the fee simple, but assessed the purchase price to be €30,000.
26. Peart J ended his judgment with the following:
“As I stated to the parties after submissions had closed last Thursday, these findings which I have made are subject to further arguments which I will be hearing in relation to the constitutional challenge ordered to be heard simultaneously with this Circuit Appeal. Having discussed the logistics of this with Counsel for all parties, it is my understanding that all are agreed that in so far as any final decision on that challenge may impact on what I have decided thus far in the Circuit Appeal, the benefit or detriment, as the case may be, of such ultimate decision will be available to this case, even though my findings in the Appeal have pre-dated the decision in that challenge.”
27. The appellant states, in written submissions that “[h]aving regard to the fact that his decision would be final, it was decided (and in effect agreed) that no order would be perfected in the landlord and tenant action until the constitutional action was determined and that, should the constitutional action be successful, no such order would issue.” Furthermore, the appellant states that it was also agreed that evidence tendered in the Landlord and Tenant action could be considered as having been tendered for the purposes of the Constitutional claim.” The first-named respondent does not appear to dissent from these propositions, which appear consistent with the intention of the High Court order for the simultaneous hearing to the two proceedings.
28. The right to acquire the fee simple was first conferred on tenants or lessees by section 3 of the Landlord and Tenant (Ground Rents) Act, 1967.
29. Firstly, the right was conferred on persons holding under building leases or proprietary leases, as then defined by the Landlord and Tenant (Reversionary Leases) Act, 1958, or such leases which had expired but where the right to a reversionary lease still existed. Section 3(2)(d) extended the right to two further categories. The first, under paragraph (i), was the holder under a lease for not less than ninety-nine years which had at least twenty-five years to run and where the rent was less than the rateable valuation at the commencement of the Act. The second was as follows:
“a person who, or whose predecessors in title, has or have been continuously in occupation of the land as yearly tenants during the whole of the period of twenty-five years next preceding the date of the service by the person of a notice under section 4 of this Act in relation to the land at a yearly rent of an amount that, at the date of the service of the notice aforesaid, is less than the amount of the rateable valuation of the land at that date.”
30. Thus, it was important, in the last two cases, that the rent be less than the rateable valuation. This was generally taken as a useful guide, from the beginning of the ground-rents legislation, for determining whether the rent is a ground rent, in cases where the leases is not a building lease or similar to one.
31. The Landlord and Tenant (Ground Rents) (no. 2) Act, 1978 replaced the substantive provisions of the Act of 1967. That Act significantly enlarged the scope of the right to buy out the fee simple. Section 8 of that Act provides:
“A person to whom this Part applies shall, subject to the provisions of this Part, have the right as incident to his existing interest in land to enlarge that interest into a fee simple, and for that purpose to acquire by purchase the fee simple in the land and any intermediate interests in it and the Act of 1967 shall apply accordingly.”
32. The Act of 1978 contains the provisions successfully invoked by the first-named respondent in the present case. Section 9(1) of the Act provides:
“This Part applies to a person who holds land under a lease, if the following conditions are complied with:
(a) that there are permanent buildings on the land and that the portion of the land not covered by those buildings is subsidiary and ancillary to them;
33. Peart J determined, in relation to the application to purchase the fee simple,: that any land not covered by buildings was subsidiary and ancillary to the buildings, (paragraph (a)); that the buildings were not an improvement as defined (paragraph (b)); and, as already stated, the fact that they were erected in contravention of covenant (paragraph (c)) is no longer material. At this point, therefore, only paragraph (d) of section 9(1) needs to be considered. The first-named respondent has to meet “one of the alternative conditions set out in section 10.”
34. I cite section 10 in its entirety. Although the right of the first-named respondent to acquire the fee simple was upheld solely by reference to condition no. 2, condition no. 1 was also considered by Peart J. His interpretation of that provision casts light on the analysis of section 10.2. Section 10 reads:
“The following are alternative conditions one of which must also be complied with in a case to which section 9 relates:
1. that the permanent buildings were erected by the person who at the time of their erection was entitled to the lessee's interest under the lease or were erected in pursuance of an agreement for the grant of the lease upon the erection of the permanent buildings;
2. that the lease is for a term of not less than fifty years and the yearly amount of the rent or the greatest rent reserved thereunder (whether redeemed at any time or not) is of an amount that is less than the amount of the rateable valuation of the property at the date of service under section 4 of the Act of 1967 of notice of intention to acquire the fee simple or the date of an application under Part III of this Act, as the case may be, and that the permanent buildings on the land demised by the lease were not erected by the lessor or any superior lessor or any of their predecessors in title:
provided that it shall be presumed, until the contrary is proved, that the buildings were not so erected;
3. that the lease was granted by a lessor to the nominee of a person (in this paragraph referred to as the builder) to whom land was demised for the purpose of erecting buildings thereon in pursuance of an agreement between the lessor and the builder that the builder having contracted to sell the buildings would surrender his lease in consideration of the lessor granting new leases to the builder's nominees;
4. that the lease was granted by a lessor to the nominee of a person (in this paragraph referred to as the builder) in pursuance of an agreement between the lessor and the builder that the lessor, upon the erection of the buildings by the builder, would grant leases to the builder's nominees;
5. that the lease was granted, either at the time of the expiration or surrender of a previous lease or subsequent to such expiration or surrender—
(a) at a rent less than the rateable valuation of the property at the date of the grant of the lease, or
(b) to the person entitled to the lessee's interest under the previous lease,
provided that the previous lease expired or was surrendered before the 31st day of March, 1931 and that it would have been a lease to which this Part applied had this Act then been in force and provided that it shall be presumed, until the contrary is proved, that the person to whom the lease was granted was so entitled;
6. that the lease is a reversionary lease granted on or after the 31st day of March, 1931, to a person entitled thereto under Part V of the Act of 1931 or the Act of 1958, whether granted on terms settled by the Court or negotiated between the parties;
7. that the lease, being a lease for a term of not less than fifty years, was made—
(a) partly in consideration of the payment of a sum of money (other than rent) by the lessee to the lessor at or immediately before the grant of the lease and, for this purpose, any money paid in redemption of any part of the rent reserved by the lease (whether the money was paid in pursuance of a covenant in the lease or in pursuance of an agreement made between the lessee and the lessor during the currency of the lease) shall be deemed to be part of the consideration, or
(b) partly in consideration of the expenditure (otherwise than on decoration) of a sum of money by the lessee on the premises demised by the lease, or
(c) partly in consideration of both that payment and that expenditure,
where the sum so paid or expended or the total of those sums was not less than fifteen times the yearly amount of the rent or the greatest rent reserved by the lease, whichever is the less.”
35. The lease of 1945 was for a term of fifty years from 1st May 1951 and was still in effect on 2nd March 1998. The revised rent, £75, was at that date less than the rateable valuation, namely £211.50. The first-named respondent would, as was indeed held by Peart J, have the right to acquire the fee simple provided that “the permanent buildings on the land demised by the lease were not erected by the lessor or any superior lessor or any of their predecessors in title…” For this purpose, the first-named respondent can invoke the presumption that the permanent buildings were not erected by the lessor (or any superior lessor) or any of their predecessors in title.
36. It is important to have regard, not merely to the scope of the provisions conferring the entitlement to acquire the fee simple, but also the system of valuation of the fee simple interest applied by the legislation. The valuation is imposed by statute and forms part of the scheme of the legislation. The background to the scheme of valuation is the system for fixing the rent on a reversionary lease. That rent is used as the point of reference in fixing the purchase price. Section 48(1)(c) of the Landlord and Tenant Act, 1931 provided that the rent payable by a lessee under a reversionary lease, where fixed by the court, would be one quarter of the gross rent. The “gross rent” was defined by section 48(1)(d) in a manner approximating, with some qualifications, to a market rent. Under section 18(1)(4) of the Landlord and Tenant Act (Reversionary Leases) Act, 1958, the rent payable under a reversionary lease was to be one sixth of the “gross rent,” under a similar definition. Under section 35 of the Landlord and Tenant Act (Amendment) Act, 1980, the rent to be reserved by a reversionary lease where the terms were settled by the Court was to be one-eighth of the gross rent. Section 36 of that Act defines “gross rent,” as:
(b) having regard to the other terms of the reversionary lease and to the letting values of land of a similar character to and situate in the vicinity of the land comprised in the lease or in a comparable area but without having regard to any goodwill which may exist in respect of the land.
37. Sections 35 and 36 of the Landlord and Tenant Act (Amendment) Act, 1980 were adapted to the fixing of the purchase price for the fee simple. The detailed provisions for the settlement of the purchase price by arbitration, which were applied by Peart J (as well as by the County Registrar and Judge Hogan) in the present case, were contained in section 7(4) of the Landlord and Tenant (Amendment) Act, 1984. They are as follows:
(a) Where, at the relevant date, the land is held under a lease that has expired or is held at a rent which, whether under the terms of the lease or by operation of a statute, is subject to a review which is due but has not been made, the purchase price of the fee simple shall, subject to the other provisions of this section, be a sum equal to one-eighth of the amount which, at that date, a willing purchaser would give and a willing vendor would accept for the land in fee simple free of all estates, interests and incumbrances, but having regard to any covenant which continues in force by virtue of section 28 of Act (No. 2) of 1978, and assuming that the lessee has complied with any other covenants or conditions in his lease that could affect the price.
(b) A deduction shall be made from that amount equal to the value of the goodwill, if any, in the premises of the person acquiring the fee simple.
(c) A deduction shall also be made from that amount equal to any addition to the value of the premises resulting from such works as would qualify for the special allowance mentioned in section 35 of the Act of 1980.
(d) In determining the amount referred to in paragraph (a) any addition to value deriving from contemplation of substantial rebuilding or a scheme of development (such as are mentioned in section 33 (1) (b) (i) and (ii) of the Act of 1980) shall be disregarded. (emphasis added).
38. The "special allowance" referred to in (c) above, relates to section 35(2) of the Landlord and Tenant, 1980, which provides as follows:
"The special allowance for the purpose of subsection (1) shall be such proportion of the gross rent as, in the opinion of the Court, is attributable to works of construction, reconstruction or alteration carried out by the lessee or any of his predecessors in title which add to the letting value of the land, other than works carried out wholly or partly in consideration of the grant of the lease or repairs and maintenance during the currency of the lease."
As Peart J explained it, the rationale for the deduction of the special allowance is to protect the lessee from a situation in which he would be paying rent in respect of his own works to the premises, works which he has already paid for. That is certainly its purpose as it appears in the context of the Act of 1980 relating to the fixing of the rent of a reversionary lease.
39. Leaving aside a number of other provisions modifying the concept of a market price, it can be seen that the central provision is that the price is to be set effectively at one eighth of the market value. The apparent legislative justification for that approach is that the Act of 1980 provides that the rent to be reserved by a reversionary lease is to be one eighth of the “gross rent” or, effectively, the market rent.
40. Peart J applied this provision as follows in arriving at a valuation:
“In the present case, this mechanism results in the relevant premises for the purpose of the valuation, being confined effectively to the premises as originally demised, since I am satisfied, as accepted by Mr Freeman,[the lessor’s valuer] that all the additions and alterations made by the lessee since 1971 result in an increase in the rental value of the premises; and therefore, by reason of the fact that such works are within the meaning of the 'special allowance' referred to in s. 35 of the 1980 Act, the amount by which they add value must be deducted.”
41. The result was that the value of £30,000 was arrived at by effectively “having to imagine or pretend that all the works whether by way of demolition of part of the original buildings, alterations/extensions to the original buildings on the site, or the erection of new structures on the site by the tenant or Mr Connolly, had never taken place, and attempt to arrive at an estimate of what such premises, in their unaltered state as originally demised in 1945, would have fetched on the 2nd March 1998.” The valuers on each side had provided estimates based on that hypothesis and then dividing by eight. In other words, for the purposes of valuation, all the works carried out by successive lessees in erecting the supermarket and transforming the original premises were excluded from consideration in compliance with section 35(2) of the Act of 1980. In addition, having done all that and arriving at a valuation of the lessor’s original buildings the value was, in addition, divided by eight. The final result is that the lessee is fully protected from having to pay for the capital value of any buildings erected by himself or his predecessors in title, but the lessor, even after all such adjustments, receives only one eighth of the value of the land, including the value of any buildings erected by himself or his predecessors.
The constitutional challenge
42. The appellant claims that the legislation which has the effect that it must transfer its fee simple interest in the premises to the first-named respondent is incompatible with the Constitution for a number of reasons. Some of these are broad and general and some are very specific to the appellant’s circumstances. The principal arguments can be summarised very briefly as follows:
1. Article 43 of the Constitution recognises that the exercise of property rights ought to be “regulated by the principles of social justice.” The exercise of property rights may, in the language of Article 43.2.2 “accordingly” be delimited by law “with a view to reconciling their exercise with the exigencies of the common good.” Provision for the compulsory sale by the owner of the fee simple in property such as the premises to a purely commercial lessee serves no discernible public interest, common good or social policy;
2. The combined effect of section 7, subsections 3 and 4 is to limit arbitrarily the amount of the purchase price payable to the lessor inter alia by providing for a maximum 1/8th of an imaginary market value having disallowed development value (section 7(3)) and any – special allowance under the 1980 Act, which represents additions and improvements made by the lessee and to prevent proper assessment of the deprivation of interest from being made.
3. Depending on the choice of valuations made, the difference between the price fixed on appeal by Peart J at €30,000 as the price of purchase of the fee simple and a wide range of possible valuations if the appellant was not entitled to purchase the fee simple was very large. The lowest possible comparable open-market value was, at a minimum, 100% more the figure of €30,000 fixed by Peart J.
4. The presumption in section 10.2 combined with the requirement that the lessor “prove” that he or his predecessors in title “erected” the building even when he can show that he owned the building outright (in this case, on the grant of the lease in 1919) is inflexible, arbitrary and unjust;
5. the criterion that the rent be less than the rateable valuation is arbitrary and capricious and unconnected to the purpose of the scheme, particularly having regard to the evidence as to the operation of rateable valuations in practice
43. Peart J considered all these arguments in a comprehensive judgment in the constitutional action. It is from that judgment that the present appeal is taken. Having regard to Article 34.4.5 of the Constitution a decision of this Court on the validity of any law must be pronounced in a judgment of the Court.
44. That provision does not apply to a judgment concerning the interpretation, as distinct from the validity of a law. Every Act of the Oireachtas must, so far as is possible, be interpreted, in a manner which renders it compatible with the Constitution. Walsh J explained this principle, known as the “double-construction” rule, in his judgment in McDonald v Bord na gCon (N0. 2) [1965] I.R. 217 at 239 as follows:
“The Greyhound Industry Act of 1958, being an Act of the Oireachtas, is presumed to be constitutional until the contrary is clearly established. One practical effect of this presumption is that, if in respect of any provision or provisions of the Act two or more constructions are reasonably open, one of which is constitutional and the other or others are unconstitutional, it must be presumed that the Oireachtas intended only the constitutional construction and a Court called upon to adjudicate upon the constitutionality of the statutory provision should uphold the constitutional construction. It is only when there is no construction reasonably open which is not repugnant to the Constitution that the provision should be held to be repugnant.”
45. The same learned judge recalled that passage and elucidated the matter further in his judgment in East Donegal Co-operative v Attorney General [1970] I.R. 317 at 341:
“Therefore, an Act of the Oireachtas, or any provision thereof, will not be declared to be invalid where it is possible to construe it in accordance with the Constitution; and it is not only a question of preferring a constitutional construction to one which would be unconstitutional where they both may appear to be open but it also means that an interpretation favouring the validity of an Act should be given in cases of doubt. It must be added, of course, that interpretation or construction of an Act or any provision thereof in conformity with the Constitution cannot be pushed to the point where the interpetation would result in the substitution of the legislative provision by another provision with a different context, as that would be to usurp the functions of the Oireachtas. In seeking to reach an interpretation or construction in accordance with the Constitution, a statutory provision which is clear and unambiguous cannot be given an opposite meaning.”
46. The standing of the appellant to challenge the constitutionality of provisions of the ground rents legislation depends entirely on its being affected by the impugned provisions. Section 10.2 of the Act of 1978 is the only provision which has been successfully invoked with the consequence that the appellant is compelled to convey the fee simple in its property to the first-named respondent. The application of the first-named respondent for an order entitling him to compel the appellant to convey the fee simple to him succeeded only because it was held to be able to meet the conditions of section 10.2.
47. The appellant complains that section 10.2, insofar as it compels it to sell the fee simple in the property to the first-named respondent is arbitrary and unjust. The appellant accepted that it could be logical for the Oireachtas to provide for the payment to the lessor of a fraction of the market value in the case of a building lease where the lessee had constructed and paid for the building and the landlord had merely provided the site. It was submitted that that logic broke down when what was in issue was not a building lease or anything akin to it. The effect of section 10.2 was to take into the net, for the first time, leases such as that for Carrick House, which were not building leases and where the landlord had provided the buildings to the tenant. The evidence on this aspect of the case was summarised by Peart J as follows:
“There was some evidence that various tenants, such as doctors and a solicitor occupied Carrick House for relatively short periods from time to time, and that when these tenancies came to an end the lessor resumed possession and then re-let same. In this way while it was never proved that the original buildings were erected by the lessor, it is the case that upon the granting of the lease the buildings were "provided" (as [counsel] referred to it) by the lessor in 1945. That being the case, one could not say that the lease in this case was ever to be regarded as having been a building lease in the sense well understood and to which a ground rent would attach.”
48. The learned judge proceeded to comment on the way in which a rent, which in 1945 could not be considered a “ground rent,” had, by falling below the rateable valuation permitted the lessee to qualify for purchase of the fee simple. He said:
“It is because of these factors that [counsel] has submitted that the rent in the 1945lease is not what is usually referred to as a ground rent - in other words a rent which is so low that it cannot be seen as being a rack rent or rent one would expect to see in an occupational lease or tenancy. The rent reserved in the 1945 lease was £55 per annum, and there is uncontroverted evidence that rents after the Second World war were significantly low, the implication being that £55 per annum can be seen as being not a bad rent at that time from the landlord's point of view, and representing far more than it would have been if it were to be simply a ground rent in the accepted sense of that term. I must say that I agree that there is little question but that this rent was not a ground rent in the sense we have come to use that term. I note that Prof. Wylie in his evidence stated that in fact the term "ground rent" is not a term of art, and that it is not defined in the legislation. He stated that "it is used generally speaking to mean a rent that is reserved on a long term lease which is relatively low because all that is being leased is the ground - in other words it does not reflect any buildings because it is contemplatde those buildings will be added later.
“I would not be satisfied by any evidence which I have heard that this rent was in 1945 so low as to amount to a ground rent in that sense. Nevertheless, by the way in which the scheme operates, this rent, by becoming over the years lower than the rateable valuation applicable on the date of service of the notice of application to acquire the fee simple, has achieved the very same significance, as far as assisting the tenant's eligibility to so acquire that interest, as a classical ground rent. In so far as the scheme might be seen as not having been intended to benefit tenants who were not tenants under building leases or proprietary leases, this is certainly an anomaly in my view, and produces a purely fortuitous situation for the tenant in this case. Nevertheless the legislation says what it says and the tenant is entitled to avail of its provisions if he comes within them and I have found that he does.”
49. It was not, of course, the fact, taken on its own, that the rent was less than the rateable valuation on 2nd March 1998, which enabled the first-named respondent to satisfy the requirements of section 10.2, although Peart J observed at another point that the “increases in valuation resulted in a premises creeping by chance, as it were, into the grasp of s. 10(2) of the Act.” It also had to satisfy, with the benefit of the presumption in its favour, the requirement that “the permanent buildings ……were not erected by the lessor or any superior lessor or any of their predecessors in title.”
50. The application of section 10.2 requires, in the first instance that there be a lease of at least fifty years and that the rent be below the amount of the rateable valuation at the date of service of notice of intention to acquire the fee simple, namely 2nd March 1998. There was no difficulty about compliance with these requirements. The major controversy, certainly in the course of the Circuit Court Appeal was concentrated on compliance by the lessee with the condition that “that the permanent buildings on the land demised by the lease were not erected by the lessor or any superior lessor or any of their predecessors in title.”
51. Before embarking on an analysis of that provision and how it should be interpreted, I must again advert to the fact that this matter has been decided by Peart J in his judgment in the Circuit Court appeal. It is impossible, therefore, to ignore the treatment of the issue by the learned judge. Insofar as I discuss them, it cannot be in the sense that this is an appeal from that decision. It is not and it cannot be. This Court may not encroach into the question of the determination of an appeal from the Circuit Court. It is, however, inevitable that the views expressed by the learned judge become the point of reference on the question of interpretation of the provisions of the legislation, because it was that interpretation that formed the basis on which the appellant mounted its challenge to the constitutionality of the legislation.
52. It does not appear to have been in dispute that proof that “the permanent buildings on the land demised by the lease were not erected by the lessor or any superior lessor or any of their predecessors in title” refers to all the buildings and not merely a part. While I will return to the point, I would emphasise that the term, permanent buildings means all the permanent buildings. Counsel for the appellant submitted to Peart J, in the Circuit Court appeal, that the alternative provision, section 10.1, refers to "the permanent buildings" being erected by the lessee, and not to just some of the permanent buildings. Peart J appears to have accepted this proposition. When he was considering the alternative submission on the part of the first-named respondent in reliance on Condition number 1, he said that he did “not take the view that [Condition Number 1] can be satisfied in the present case by establishing or at least satisfying the Court that the works carried out to Carrick House by the tenant are of such a nature as to have caused Carrick House to have lost its original identity, and that in that sense the present Carrick House structure has been erected by the lessee.”
53. Clearly, the learned judge was taking account of the evidence of the transformation of the permanent buildings which, nonetheless, left standing significant parts of the original Carrick House. For instance, the internal staircase remained and the upstairs rooms had been converted into flats.
54. To put the matter beyond doubt, the learned judge clarified the position in his judgment on the constitutional issue by saying that it had been indeed his intention that his judgment would be clear and that in his view the reference to "permanent buildings" means all permanent buildings on the land.
55. The onus is, of course, on the lessee to satisfy the condition in section 10.1, which contains no presumption on which it can rely, but this passage does not depend on that. It addresses the substance of the condition, namely that the condition refers to the erection of all the permanent buildings. It deals with the fact, not proof of the fact.
56. Furthermore, when he turned to section 10.2, the learned judge appears to confirm that he considered that the proof related to all the buildings. He said:
“Under the latter part of condition 2 the onus is clearly on the landlord to rebut the presumption that the permanent buildings, and for this purpose this must mean the original Carrick House and its outhouses as demised in the 1945 lease, were not erected by the lessor or any superior lessor or any of their predecessors in title.”
In other words, it was common case that the lessee or its predecessors had erected all the permanent buildings which transformed the original Carrick House after the assignment to Mr Michael Connolly in 1972. The problem related to Carrick House. So far as the judge was concerned there was a presumption that the lessee or its predecessors had erected Carrick House and the appellant had to rebut it if it was to resist the application to acquire the fee simple.
57. The passage which I have just cited from the judgment of Peart J is of considerable importance, when considering the interpretation, in the light of the Constitution, of section 10.2. Although he does not spell it out, I believe the learned judge was saying that the term the permanent buildings meant all the permanent buildings on the land. At this point, it is the substance of the condition that needs to be discerned. I will consider the burden of proof and the presumption later. In order for the lessee to be entitled compulsorily to acquire the fee simple, it must be established
“that the permanent buildings on the land demised by the lease were not erected by the lessor or any superior lessor or any of their predecessors in title...”
Confusingly, the condition is negative in form. Expressed in positive language, and leaving aside the interpretation of “predecessors in title” for the moment, it means that to satisfy this condition it must be the fact that none of the buildings were erected by the lessor.
58. The interpretation I propose in the preceding paragraph is, in my view, necessary in order to arrive at a constitutional interpretation. If the term, permanent buildings, means that it is sufficient if the lessee has erected merely part of the buildings, however small, the right compulsorily to acquire the fee simple would be conferred on such a lessee regardless of the fact that it was the lessor that had erected and was the owner of the major part of the buildings. Moreover, the consideration for the purchase would be fixed pursuant to section 7(4) by reference to a rent which is one eighth of the market rent. In an extreme case, the lessee would be entitled to purchase the fee simple compulsorily even if he had taken a lease at very favourable rent, where the landlord had erected all the buildings, except for a small extension. It may, of course, be said that this is an unlikely scenario, because the rent would, in all likelihood, be greater than the rateable valuation. Nonetheless, this remains the correct interpretation of the term permanent buildings.
59. Without an interpretation to the effect that permanent buildings means all the permanent buildings, section 10.2 could, therefore, have the effect of entitling a lessee to acquire the fee simple calculated by reference to one eighth of the market rent even where the lessor had erected most or nearly all the buildings. The effect of the approach whereby the lessee may acquire the fee simple even if he has erected only part of the permanent buildings is graphically illustrated by the result reached in the present case, which I have described at paragraphs 39 and 40. The lessor is to receive only one eighth of the market value of the original Carrick House and lands.
60. Peart J was correct, therefore, to say that the issue of the presumption, in the present case, related to Carrick House and its outhouses.
61. The question, therefore, became essentially whether the appellant could rebut the presumption contained in section 10.2 that the permanent buildings, insofar as they consisted of the remaining elements of Carrick House “were not erected by the lessor or any superior lessor or any of their predecessors in title...”
62. The evidence before the High Court related to the entire period of the ownership of the property by the appellant and its predecessors in title. Peart J traced the history back to a grant to the 1st Earl of Essex in about 1576 by Queen Elizabeth I of England. He said that certain of that granted property, including property situated on the west side of Main Street, passed by inheritance to the ancestors of the present Shirley family in about 1646 and had remained in the ownership of that family in the broad sense ever since. He cited the evidence, in the form of reports of Mr.David Semple, Consulting Engineer and Architect, who assigned to Carrick House a date between 1790 and 1810 and of Mr. David Freeman, Chartered Valuation Surveyor, who dated it in the late 18th or early 19th century.
63. He noted evidence of some very interesting work undertaken by the appellant in assembling estate records from the late 18th century onwards in order to try to satisfy the Court that the probability was that these buildings on the land were erected by the landlord. He traced in particular detail the leases from 1919, all granted by members of the Shirley family, who were the predecessors in title of the first-named respondent.
64. In his judgment in the constitutional case, he noted, in particular, the significance of the evidence regarding the level of rent, £55 per annum, reserved under the extension to the1919 lease. He accepted that there was “uncontroverted evidence that rents after the Second World war were significantly low, the implication being that £55 per annum can be seen as being not a bad rent at that time from the landlord's point of view, and representing far more than it would have been if it were to be simply a ground rent in the accepted sense of that term.” He added that, in his view, “there is little question but that this rent was not a ground rent in the sense we have come to use that term.”
65. Nonetheless, when he came, in his judgment on the Circuit Court Appeal, to assess this evidence in the light of the presumption contained in section 10.2, he took the following view:
“In my view, given the wording of s.10(2) of the 1978 Act, and of the proviso, it would be necessary for the landlord to show conclusively, and certainly as a matter of almost inescapable probability, that the lessor or his predecessors in title erected the building, given that the proviso is clearly intended to be in ease of the tenant who has no manner or means of establishing the situation one way or another in relation to buildings which are so old.”
66. In his judgment in the constitutional case, the learned judge noted a submission made on the part of the appellant that this was an unreasonable and unfair burden to impose on a landlord. This was a reference to the burden of proof which the learned judge had adopted and applied in the ground-rents appeal. Counsel for the appellant had there submitted that the lessor was, thereby, required to prove, as opposed to satisfy, the Court as a matter of probability, that the lessor or a predecessor in title, erected the permanent buildings, which was an almost impossible task in most cases.
67. I also mentioned at the outset that the learned judge had declined to decide an important issue of interpretation of the legislation in the light of the Constitution. He took note of a submission made by counsel for the appellant that a wide interpretation should be given to the term "predecessor in title" appearing in section 10.2 so that the term would embrace also lessees whose leases expired resulting in the lessor regaining possession of Carrick House before creating a new lease or tenancy in favour of another tenant. He noted that, on such an interpretation, if it could be shown that, at any stage prior to the erection of the new buildings, Carrick House had come back into the possession of the Shirley estate, then it would not matter whether it was the Shirley estate or any lessee who erected Carrick House, since such a lessee whose lease expired would come within the wider definition of a “predecessor in title.”
68. The substance of the submission was that if a narrow and literal rather than a broad interpretation were to be accorded to the term “predecessor in title” this would involve an arbitrary transfer of benefit from the lessor to the lessee. The learned judge, however, expressed the view that it was “undesirable that he express any view on these particular submissions,” given the existence of the constitutional challenge to the legislation. He took the view that it was unnecessary [that he express any view] for the purpose of his determination of the issues on the facts of the Circuit Court Appeal. Consequently, he did not consider whether the double-construction rule should be applied. He appears simply to have adopted what he considered to be the literal construction. While he did not say so, it seems implicit that he was reserving the question of the interpretation to be considered in the constitutional action. Consequently, the learned judge made no decision, in the ground-rent proceedings, on whether the term “predecessors in title” should be given a broad interpretation, as proposed on behalf of the appellant.
69. The effect of the decision by the learned judge, on the interpretation of the Act in the Circuit Court Appeal, was, of course, that the matter had effectively been decided before the hearing of the constitutional claim. It was never reopened. The learned judge, in his judgment in the latter action, merely referred to the manner in which he had referred to this presumption in his earlier judgment. There does not appear to have been any question of reconsidering it in the light of the fact that this was now the constitutional action and that he had declined to consider a broader interpretation in his earlier judgment. He continued:
“Certainly it might have been possible to conclude from the evidence adduced by the plaintiffs that it was, as a matter of probability, the landlord rather than any lessee who erected Carrick House, but that was in my view an insufficient level of proof given the way in which the presumption is couched in the section.”
70. In the result, the appellant was driven to submit that the presumption, at least as it had been interpreted, was arbitrary and punitive, in as much as it appropriated to a lessee, and without proper compensation to the landlord, a benefit which that lessee does not deserve.
71. It is only right to say that the learned judge delivered two very thorough and considered judgments covering the two cases. Nonetheless, it seems clear that a consequence of the necessary segregation of the two issues, one being decided by way of appeal from the Circuit Court and the other in a plenary High Court action, was that the learned judge did not consider or decide upon the question of the correct interpretation of section 10.2 in the light of the presumption of constitutionality and the double-construction rule in either case.
72. As was made clear by Walsh J in the passage from the East Donegal case, cited above, a law “will not be declared to be invalid where it is possible to construe it in accordance with the Constitution…” In McDaid v Sheehy 1991] 1 I.R. 1 at page 19, Finlay C.J. referred to what he described as the “settled jurisprudence of this Court” as being against deciding an issue of constitutional validity in circumstances where the party making the challenge had not been prejudiceed or damaged by the impugned provision.
73. It is regrettable that, for the reasons I have described, the High Court did not, in either of its judgments decide the issue of the correct interpretation, in the light of the double construction rule, of the crucial provision of section 10.2 of the Landlord and Tenant (Ground Rents) (no. 2) Act, 1978. It is also true that, when the matter was raised on the hearing of the appeal, counsel for the appellant appeared reluctant to accept the invitation to argue it.
74. None of the foregoing dispenses this Court from its obligation to respect the constitutional principles which it has laid down affecting constitutional litigation. It must, to the extent that it is reasonably possible, examine impugned laws with a view to discerning whether a construction is open which renders the legislation compatible with the Constitution and only when confronted with a negative result embark on consideration of its compatibility with the Constitution.
75. I turn now to consider what should be the correct interpretation of the presumption expressed in section 10.2. It seems to me that two questions arise regarding the interpretation of the expression, “erected by the lessor or any superior lessor or any of their predecessors in title:
76. These questions are posed in a context where the lessee is seeking to avail of a statutory procedure enabling it to acquire compulsorily from the landlord the latter’s interest in the land the subject of the lease. What is at issue is whether the lessor should be compulsorily deprived of his property. Furthermore, as is clear from the evidence heard in the High Court, that acquisition will be at a price which is set by the legislation at a level very significantly below the value which the lessor would be able to obtain on the open market. What is at issue is the acquisition of the landlord’s property at a price fixed by the legislation so as to favour the purchaser and to the disadvantage of the seller.
77. In those circumstances, it must follow that the principle of the presumption of constitutionality comes into operation and, with it, the principle of double construction. If section 10.2 is reasonably open to an interpretation which is consistent with the appellant’s constitutionally protected property rights and, in that context less unfair and burdensome, that interpretation should be applied.
78. Two separate aspects of section 10.2 need to be examined: firstly, what meaning is to be attributed to the expression, “erected by the lessor or any superior lessor or any of their predecessors in title...?” secondly, what is the standard of proof?
79. In order to be consistent with the rights of the landlord, I believe a broad, indeed a commonsense, construction needs to be given to section 10.2.
80. It is easiest to address the issue by reference to the evidence. The predecessors in title of the appellant include Evelyn Charles Shirley and his predecessors in title. It is common case that, in the period from 1919 to some years after 1951 the premises consisted of the old Carrick House, a substantial residence in a country town. At the time of the grant of the lease of 1919, the lessor was the owner of the fee simple interest in the property. Carrick House had been built many years before, on the evidence probably about the year 1800. Carrick House necessarily had to have been built by some predecessor in title of Evelyn Charles Shirley, the lessor who granted that lease. Of course, at this interval of time, it is not possible to “prove” who built Carrick House and certainly not according to the standard of “almost inescapable probability” required by the learned trial judge in the Circuit Court Appeal. However, the predecessors in title of Evelyn Charles Shirley, as of 1919, must necessarily encompass all previous owners, whether lessors or lessees, since Evelyn Charles Shirley owned all interests in the property at that time. This is a conclusion reached as a matter of inference: there is no direct proof, but the logic seems to me to be so compelling as to inescapable.
81. This brings me to the second point. The word, “prove” in section 10.2 does not introduce any requirement above and beyond what is normally required to discharge a burden to prove on the balance of probabilities. Section 10.2 does not demand eyewitness or physical evidence. It does not preclude the use of inference. The learned trial judge, in his Circuit Appeal judgment, used the expressions, “conclusively,” and “almost inescapable probability,” in setting the standard of proof. Nonetheless, in the constitutional judgment, he acknowledged that it “might have been possible to conclude from the evidence adduced by the plaintiffs that it was, as a matter of probability, the landlord rather than any lessee …erected Carrick House…” The words of section 10.2 certainly impose a burden of proof on the landlord, the appellant in this appeal, to rebut a presumption. But there is nothing in the provision which goes beyond the normal test of balance of probabilities. Very clear words would be required to reach that result. If that were indeed the test, it would be difficult to resist the appellant’s argument that the test would be unfair and unduly burdensome.
82. In my view, it follows that the section, when interpreted in the light of the presumption of constitutionality, and the double-construction rule, would have enabled the appellant to point to the fact that, as of the date of grant of the leases of 1919 and 1945, its predecessor in title had gathered into their ownership all prior rights whether of lessor or lessee. It would thus have been able to rebut the presumption in section 10.2 of the Act of 1978 that the permanent buildings had not been erected by the lessor or its predecessor in title and defeat the application of the first-named respondent for the purchase of the fee simple in the property. The section, properly construed, would not, therefore, have affected the appellant, and it would not have any standing to challenge the section as being repugnant to the Constitution.
83. While the High Court considered the issue of the validity of the impugned sections, and this Court has heard the appeal against its judgment, the High Court did not decide the question of interpretation of the term predecessors in title, on which I have expressed my views. On the interpretation I have adopted, the appellant would not have been affected by section 10.2 and would not have been compelled to sell the fee simple in the property. For this reason, I would dismiss the appeal from the High Court but for the very different reason that the appellant would not have any standing to challenge the section as being repugnant to the Constitution.
84. I must end by emphasising that this conclusion has no effect on the decision of the learned trial judge on the Circuit Court Appeal. It is a matter for the parties and for the learned trial judge to consider what effect it has, if any.