[1946] EACA 2

## COURT OF APPEAL FOR EASTERN AFRICA

Before SIR JOSEPH SHERIDAN, C. J. (Kenya), SIR NORMAN WHITLEY, C. J. (Uganda), and SIR JOHN GRAY, C. J. (Zanzibar)

## FAZAL VALJI VIRANI, Appellant (Original Plaintiff)

## υ

## KEHAR SINGH and AJIT SINGH, Respondents (Original Defendants) Civil Appeal No. 4 of 1945

(Appeal from decision of H. M. Supreme Court of Kenya)

Vendor and Purchaser—Breach of contract—Uncertainty—Vacant possession— Liquidated damages—The Increase of Rent and of Mortgage Interest (Restrictions) Ordinance—"Rent".

By an agreement in writing dated 27th November, 1943, the respondents agreed to sell to the appellant certain premises in Nairobi and the sale was duly completed on 3rd January, 1944. The premises comprised 14 rooms. On both dates above five of the rooms were vacant, two were occupied by the respondents and seven by tenants.

The sale agreement contained the following clause:-

"Vacant possession of five rooms in the premises is to be given to the purchaser on the date of completion as hereinafter shown, and the vendors will use their best endeavour to obtain vacant possession of the rest of the premises and until such vacant possession is obtained the vendors will pay to the purchasers Sh. 70 per room per month beginning from the date of completion: Provided that the rent for any such room will cease immediately after the same is offered vacant to the purchaser."

On the respondents failure to give vacant possession of the nine rooms as agreed the appellant instituted proceedings before the Supreme Court for vacant possession of the nine rooms or alternatively for damages.

*Held* $(24-9-45)$ .—(1) The agreement is not void for uncertainty.

(2) It does not constitute an agreement to create a tenancy but an agreement by a vendor to pay liquidated damages on failure to give vacant possession and consequently<br>does not contravene the provisions of the Increase of Rent and of Mortgage Interest (Restrictions) Ordinance.

(3) The use of the word "rent" in the clause is not conclusive as to the intention of the parties to create a tenancy which intention must be collected from the agreement as a whole.

Appeal allowed.

Cases referred to: Francis Jackson Developments Ltd. v. Stemp (1943) 2 A. E. L. R.<br>601; Teed v. Jones (1844) 153 E. R. 5; Daly v. Edwards (1901) 83 L. T. 548; Clydebank<br>Engineering and Shipbuilding Co. v. Yzouieredo Castanada ( $L. J. K. B. 864.$

Modera for appellant.

Khanna for respondents.

SIR'JOSEPH SHERIDAN, C. J.—The parties in this case entered into the following agreement:

"Memorandum of Agreement re Plot No. 209/1610, Bishen Singh Road, Nairobi.

Vendors: Kehar Singh and Ajit Singh, Nairobi.

Purchaser: Fazal Valji Verani, Nairobi.

Purchase price: Shillings Eighty-seven thousand net only (Sh., 87,000), free from encumbrances.

Deposit: Sh. 10,000, balance against transfer.

The Vendors at their own expense will paint with water paint only the veranda and rooms (two coatings only) with all convenient speed, and (if necessary) the Purchaser on taking possession will permit the Vendors to enter the premises for this purpose and allow the Vendors the necessary facilities. Vacant possession of five rooms in the premises is to be given to the purchaser on date of completion as hereinafter shown, and the Vendors will use their best endeavour to obtain vacant possession of the rest of the premises and until such vacant possession is obtained the Vendors will pay to the Purchaser Shillings Seventy per room per month beginning from the date of completion PROVIDED THAT the rent for any such room will cease immediately after the same is offered vacant to the Purchaser.

Completion by 15th December, 1943, at the offices of Messrs. Madan and Shah, advocates, Nairobi.

Costs of Transfer to be borne by the Purchaser. No charges for approval to the Vendors will be paid.

All taxes up to end of 1943 shall be paid and discharged by the Vendors.

The Vendors acknowledge receipt of the above sum of Shillings Ten thousand in part payment.

Witness. C. MADAN, Advocate, Nairobi.

KEHAR SINGH. AJIT SINGH (Vendors). FAZAL VALJI VIRANI (Purchaser)."

In a suit before the Supreme Court for vacant possession of nine rooms, or alternatively for damages, it was held that the agreement was void in respect of two rooms as the defendants were tenants and the landlord, the plaintiff, would be committing an offence by receiving a rent in each case in excess of the standard rent contrary to the Increase of Rent and of Mortgage Interest Restrictions Ordinance, and in respect of seven rooms, the agreement was held to be void $(1)$ for uncertainty, and $(2)$ as an attempt to evade the Ordinance referred to.

Leaving aside for the moment the effect the Ordinance may have on the case, I am unable to perceive any uncertainty in the agreement or any difficulty in giving effect to it. The plaintiff agreed to purchase and did purchase and pay for the building containing the rooms in question, and I am satisfied that what he wanted was vacant possession. In fact, one of the defendants, Kehar Singh, said in his evidence that the plaintiff wanted vacant possession. The plaintiff's evidence is to the same effect and the agreement is clear on the point. I am further satisfied that both parties realized the existence of the Ordinance and the difficulties there might be experienced in obtaining and giving vacant possession. Bearing that in mind, provision was made in the agreement for the payment of a sum of Sh. 70 per room per month by the vendor until such time as vacant possession could be given. I fail to see anything uncertain in such an arrangement.

As to whether the agreement contravenes the provisions of the Ordinance, I do not consider that it does. In so far as the tenants of seven of the rooms are concerned, there was no question of charging them a rent in excess of the standard rent and the position with regard to the rooms which the defendants continued to occupy after the sale to the plaintiff, is not affected by the Ordinance,

in my opinion. The occupation of the rooms, different from that of the defendant in Francis Jackson Developments, Ltd., v. Stemp (1943) 2 A. E. L. R. 601, was against the spirit and letter of the agreement and against the wishes of the plaintiff to whom the property had been sold. In the present case, the Sh. 70 per month charged in respect of each of the two rooms occupied by the defendants was an agreed contractual payment under the agreement for failure to give vacant possession, whereas in the English case it was agreed that the payment was in respect of occupation and use, and a tenancy at will was thus created. I would allow this appeal with costs in this Court and the Supreme Court and declare that the plaintiff is entitled to the sum of Sh. 70 per month per room for each of the nine rooms of which vacant possession has not been given until such time as such rooms are respectively vacated by the present occupants and possession given to the plaintiff. I wish to make it clear that Sh. 70 is all that was claimed and all that was contemplated by the agreement and that the appellant is not entitled to receive the rents over and above that amount. If they are paid to him as landlord he must set them off in favour of the defendants against the Sh. 70 due under the agreement.

SIR NORMAN WHITLEY, C. J.—This appeal turns largely upon the construction of an agreement made on 27th November, 1943, between the plaintiff appellant and the defendants respondents, whereby the defendants, as vendors, agreed to sell certain premises to the plaintiff as purchaser for Sh. 87,000. The agreement contains the following clause:-

"Vacant possession of five rooms in the premises is to be given to the purchaser on date of completion as hereinafter shown, and the vendors will use their best endeavour to obtain vacant possession of the rest of the premises and until such vacant possession is obtained the vendors will pay to the purchaser Shillings Seventy per room per month beginning from the date of completion: PROVIDED THAT the rent for any such room will cease immediately after the same is offered vacant to the purchaser."

The plaintiff has not been able to obtain possession of nine of the rooms and in his plaint he claimed possession or, in default, damages at the agreed rate of Sh. 70 per room per month so long as he is unable to obtain possession. Two of the nine rooms are occupied by the defendants themselves. The remaining seven are occupied by tenants who, apparently, cannot be dispossessed.

The learned trial Judge, in dismissing the claim, observed as follows: —

"In my opinion the defendants, as owners of the premises, by remaining in occupation of two rooms after the transfer of the premises had been effected and by agreeing to pay Sh. 70 per month rent for each room occupied until they gave vacant possession of these rooms, became tenants of the plaintiff in respect of these two rooms. The duration of the term of the tenancy being uncertain, in my opinion, a tenancy at will was created, certainly until rent was paid, but in any case a tenancy. This being so, the agreement to pay rent in excess of the standard rent is void as the landlord would be committing an offence in accepting that rent.

The position as regards the other rooms presents greater difficulty. On the transfer being made on 3rd January, 1944, the plaintiff became entitled to all rents accruing after the transfer. The agreement may have been intended to express a contrary intention, but the agreement is very vague in this respect. What the intention was with regard to these other occupied rooms it is very difficult to understand. Either the parties intended that the plaintiff should be considered to have leased the seven occupied rooms to the defendants at a rent of Sh. 70 per room and that the defendants were there fore tenants of all those rooms or else it was intended that the defer

should pay Sh. 70 per month for the room with liberty to try and collect the rents from the tenants without having any means of enforcing payment of those rents.

After due consideration I have come to the conclusion that the agreement with regard to those seven rooms is void for uncertainty. Alternatively, I am of the view that the agreement was an attempt to evade the provisions of the Increase of Rent and Mortgage Interest Restrictions Ordinance and was void on the grounds of illegality."

Mr. Modera, for the appellant, contends that the agreement is perfectly clear and capable of enforcement and that there was no attempt to evade the Rent Restriction Ordinance. In my opinion both contentions are well-founded. The intention of the parties, as expressed in the agreement, is, I think, not open to doubt. The plaintiff, hoping for vacant possession, but not being sure of getting it, was prepared to pay and did pay a certain price for the property. He wanted, if possible, vacant possession of all the rooms. Failing that, he wanted vacant possession of as many rooms as was possible. Both parties appreciated the difficulties due to the Rent Restriction Ordinance, and, accordingly, they envisaged and provided against the eventuality that some or all of the rooms might not become available to the plaintiff. In such case they agreed that a fair measure of damage, in view of the purchase price paid and all the circumstances, would be Sh. 70 per month for each room which he could not occupy. In the case of any room of which the plaintiff was unable to obtain possession the defendants would have to pay Sh. 70 per month damages, or, as Mr. Modera put it, "liquidated satisfaction", but they, the defendants, would, of course, be entitled to whatever rent was paid by the existing tenant.

This seems to me a reasonable, fair and business-like agreement, which provides for all eventualities and I can see no reason why the defendants should not be made to carry it out. There is no attempt to evade the Rent Restriction Ordinances as regards the seven rooms in as much as the tenants are not paying any increase in rent. As regards the two rooms occupied by the defendants, the Sh. 70 is not really rent at all. It represents rather compensation or damages payable by them as their part of a bargain in which they have received as consideration a handsome lump sum by way of purchase price.

Mr. Khanna referred us to a very large number of cases, but in my opinion none of them have any bearing on the point in issue. At first glance the case of Francis Jackson v. Stemp, 1943, A. E. L. R. 601, seemed to be in his favour on the illegality point, but when the facts in that case are examined, they are clearly distinguishable. The editor's note stresses that "this case may be said to be a decision on its own facts", and one fact there was that the purchaser went into possession, whereas in the present case that is precisely what he has not been able to do and would like to do.

As regards Mr. Khanna's argument that Sh. 70 is in excess of the standard rent for these rooms, I repeat what must be apparent from what I have said earlier as to the relationship between the parties, namely, that as between the plaintiff and defendants this is not the ordinary case of landlord and tenant. The defendants were perfectly free agents. They were owners of the property and occupying two rooms there themselves. The plaintiff was prepared to pay them a price which gave them a handsome profit and if they chose to take the risk of agreeing to give vacant possession and of further agreeing to pay certain compensation in respect of each room of which the purchaser could not get possession, I agree with Mr. Modera that even though the word "rent" is used, it is not used in the sense of the word which is contemplated in the Rent Restriction legislation. The mere use of the word "rent" in a document is not conclusive. The Court has to examine all the circumstances of the case and

the view which I take of the present case is that the defendants, having received a large sum of money from the plaintiff on the understanding that in return for it there should be given to him either possession or an agreed monthly sum in default of possession, that sum should be regarded as liquidated damages and be in no way subject to the limitations imposed by the Rent Restriction Ordinance.

The learned Judge held the agreement to be void for uncertainty because nothing is said as to what is to happen to the rent due from the existing tenants, but, as I have already indicated, even though in law the plaintiff became, upon completion of the transfer the landlord of those tenants, there would, of course, be a constructive trust as regards those rentals in favour of the defendants. conditional upon the defendants paying to the plaintiff the Sh. 70 per room under the terms of the agreement. If one of the existing tenants of one of the seven rooms pays his rent of Sh. 25 or whatever it is to the plaintiff as his new landlord, the Sh. 70 due from the defendants to the plaintiff under the agreement will be reduced to that extent. Sh. 70 is what he bargained for in the agreement and that is all he can get and, indeed, it is all that he has ever asked for.

This seems to be yet another case of persons who have, with their eyes open, freely entered into a bargain, seeking to take advantage of some technicality in order to get out of their just obligations and to make a bigger profit made possible by the rise in property values. I would allow the appeal and I agree with the order proposed by the learned President.

SIR JOHN GRAY, C. J.—On 27th November, 1943, the defendants, as vendors, agreed to sell to the plaintiff, as purchaser, certain residential quarters at Nairobi. Completion took place on 3rd January, 1944, when the property was transferred to the purchaser by a duly registered instrument. The premises in question comprised 14 rooms. Both at the date of the agreement and at the date of completion five of these rooms were vacant, two were in the occupation of the vendors and the remaining seven were occupied by tenants who enjoyed the protection afforded to tenants by the Rent Restriction Ordinance.

The sale agreement had the following clause inserted therein:

"Vacant possession of five rooms in the premises is to be given to the purchaser on the date of completion as hereinafter shown, and the vendors will use their best endeavour to obtain vacant possession of the rest of the premises, and until such vacant possession is obtained the vendors will pay to the purchasers Sh. 70 per room per month beginning from the date of completion: Provided that the rent for any such room will cease immediately after the same is offered vacant to the purchaser."

With respect to the learned trial Judge, I find myself unable to discover any uncertainty about such an agreement. In their context there is no particular significance to be attached to the words "use their best endeavour". What the vendors have contracted to do is to give vacant possession on a certain date or to pay certain periodical sums of money in default. Neither can I see anything in the Rent Restriction Ordinance which renders such a contract illegal. That Ordinance limits the right of a landlord to obtain an order from the court for the ejectment of his tenant, but there is nothing in the Ordinance which prohibits a landlord from obtaining the vacation of his premises by any other lawful means.

The purchaser now claims the sums contracted to be paid under the agreement in respect of January and February, 1944. It is contended on his behalf that those sums represent liquidated damages. On behalf of the vendor it is contended that those sums are rent and that the agreement to pay rent makes their continued occupation of the two rooms a tenancy which entitles them to the protection of the Rent Restriction Ordinance.

It is, I think, desirable to examine the position as it would have been if the clause in dispute had never been inserted in the sale agreement. As regards the seven rooms in the occupation of the tenants, section 55 (6) of the Indian Transfer of Property Act makes the position perfectly clear. The purchaser became entitled to the rents and profits of the property passed to him and the tenants therefore became his tenants. The insertion of the clause in the agreement does not alter that position. In the absence of any contract to the contrary the purchaser is still entitled to the rents and profits. In other words, according to the terms of the agreement, the purchaser is prima facie entitled to two payments, namely, the standard rents payable by the tenants in accordance with the Rent Restriction Ordinance, and Sh. 70 per room per month payable by the vendors under the agreement. To call this latter payment "rent" would therefore appear to me clearly to be a misnomer.

In the absence of any such clause in the agreement as the clause under discussion, the legal relations of the vendors and purchaser in regard to the other two rooms would have been distinctly different. A vendor, who remains in possession after completion, is not in the same position as a purchaser who is let into possession before completion. In the absence of any evidence of a holding by permission of the purchaser, the vendor remains in possession adversely. He may be turned out in an action for ejectment and is liable in trespass for the mesne profits (*Teed v. Jones* (1844), 153 E. R. 5).

But, as said by Rolfe B. in *Teed v. Jones (supra)*, "if a vendor remains in possession by agreement, the terms of that agreement will speak for themselves". Here, we find the word "rent" in the proviso to the clause under discussion, but the use of that word does not conclusively prove that the intentions of the parties was to create a tenancy. As said by Lord Alverstone, C. J., in Daly v. Edwards (1901), 83 L. T. 548 at p. 550, one must not regard the word from the strict conveyancer's point of view, but must consider the real substance of the agreement. Here, as already said, in so far as the payment in respect of the seven rooms is concerned, the use of the word "rent" would appear inappropriate.

The intention of the parties is to be collected from the agreement as a whole. It is clear that the purchaser wanted vacant possession of the property and was ready to pay an exceptional price, if he could obtain such possession. But there was the possibility that vacant possession could not be given at the time fixed for completion. The parties clearly realized that vacant possession would give the property an enhanced value and that, if vacant possession could not be given at the time of completion, the purchaser was entitled to something by way of compensation. The assessment of such compensation as a lump sum obviously presented a number of difficulties. Amongst other things to be borne in mind were the unascertainable dates at which the various occupants were likely to vacate their rooms. Therefore the only satisfactory way of making a preestimate of the compensation, to which the purchaser would be entitled, was by making a specific agreement that sums of money, graduated according to time, should be paid in respect of failure to give possession of each room. This was precisely what was done in the case of the contracts in Clydebank Engineering and Shipbuilding Co. v. Yzquieredo Castanada (1905), A. C. 5, where the House of Lords held that the payments stipulated under the contract were to be regarded as liquidated damages and not as a penalty, notwithstanding that the contracts themselves described each such payment as a "penalty". Similar reasoning appears to me clearly to apply to a case in which the parties describe the payment as "rent" instead of as a "penalty". If at the time of the agreement, the parties arrive at a genuine pre-estimate as to the purchaser's probable or possible interest in the due performance by the vendor of his obligation to give vacant possession, it seems to me to be immaterial whether they call that pre-estimated sum "rent"

or "penalty" or "liquidated damages". If the payments are made proportionate to the extent to which the vendor may fail in his obligation and are adjusted to the actual damage likely to be suffered by the purchaser's failure to obtain vacant possession, the court ought to hold that the agreement constitutes one to pay liquidated damages (Lord Elphinstone v. Monkland Iron & Coal Co. (1886), $A. C.$ 352).

I am consequently satisfied that the agreement in question does not constitute an agreement to create a tenancy, but does constitute an agreement by a vendor to pay liquidated damages on failure to give vacant possession.

As the vendors have endeavoured to invoke the protection of the Rent Restriction Ordinance, I feel it is not entirely out of place to quote the observations of Bray, J., in Wilcock v. Booth (1920), 89 L. J. K. B. 864 in regard to the corresponding legislation: —

"In construing these emergency statutes regard must, of course, as in other statutes, first be had to the plain meaning of the statutes themselves as a matter of construction, but we think that, restricting as they do the ordinary rights of individuals arising from mutual contracts and relationships, the Acts should not be needlessly extended beyond the particular mischief which they are designed to avoid or remedy."

The present case is one of vendors, who are shown to be selling at a very handsome profit and who have contracted to give vacant possession or to pay compensation in default of so doing. If one holds that their agreement comes within the purview of the Rent Restriction Ordinance, one must hold not only that they are not bound by their contractual obligation to give vacant possession, but also that they are entitled to evade their contractual obligation to pay. compensation in default. Unless the plain language of the Ordinance absolutely drove it to such a conclusion, I feel that that is a proposition to which no court ought to subscribe. I am satisfied that there is nothing in the Ordinance which compels one to reach such a conclusion and that in this case the vendors are fully bound by their contractual obligation to pay liquidated damages.

I would therefore allow this appeal with costs.