Hammond v Wells (Civil Appeal No. 120 of 1952) [1952] EACA 209 (1 January 1952)

## COURT OF APPEAL FOR EASTERN AFRICA

Before SIR BARCLAY NIHILL (President), SIR NEWNHAM WORLEY (Vice-President) and MAHON, J. (Tanganyika)

MRS. V. HAMMOND, Appellant (Original Defendant)

v

W. WELLS, Respondent (Original Plaintiff) Civil Appeal No. 120 of 1952

(Appeal from decision of H. M. Supreme Court of Kenya—Connell, J.)

Landlord and Tenant—"Banda" on temporary occupation license plot—Section 2 (2) (i) Rent Restriction Ordinance.

The tenant of a *banda* situated on a plot under temporary occupation licence at Mombasa applied to the Coast Rent Control Board for the standard rent to be fixed.

The Board exercised its discretion under section 2 (2) (i) of the Ordinance, to fix a special standard rent based on an economic return to the landlord.

The Supreme Court held, allowing the appeal, that the Board did not make due and sufficient inquiry on the application before it. For the tenant it was conceded section 2 (2) (i) applied, but it was argued that the Board's duty was to find a figure that would render a fair economic return to the landlord and that could be done independently of any ascertainment by the Board of the normal standard rent.

*Held* $(28-11-52)$ .—(1) The house despite its temporary nature was clearly subject to the Ordinance.

(2) (Worley, Vice-President dissenting.) When exercising its powers under section 2 (2) (i) the Board must first ascertain the normal standard rent in order to judge whether the figure arrived at will yield an economic return to the landlord.

Per Worley (Vice-President).—The Board should indicate the basis on which they worked in deciding that the normal standard rent will not give an economic rentalwhether that basis be the original cost on its present value or the last purchase price<br>in order that it may show that there has been a judicial rather than an arbitrary exercise of its discretion.

Appeal allowed. Liberty to respondent to apply to Supreme Court for an order directing the board to re-hear his application if he so wished.

## O'Brien Kelly for appellant.

Shackleton for respondent.

JUDGMENT (delivered by SIR BARCLAY NIHILL (President).—This is an appeal against a judgment of the Supreme Court of Kenya setting aside a decision of the Coast Rent Control Board, by which a standard rent in respect of a dwellinghouse situated at Mombasa was fixed on the application of the tenant. According to the evidence, as recorded by the Board, the house is what is commonly known as a *banda* and is situated on land belonging to the Railway Administration at Mbaraki, which means that the landlord holds the plot under a temporary occupation license, subject to cancellation on one month's notice. I can find no exact evidence as to the date of the construction of the house, but it can be safely assumed that it was in existence on 3rd September, 1939, which in Mombasa is the prescribed date for the ascertainment of standard rent. The tenant described it as "an old house", and Mr. Ogilvie, an architect, said that

he thought the outbuildings had been built before 1931. There was no evidence and the Board does not seem to have inquired as to whether the house was let on 3rd September, 1939. There can be no doubt at all that the premises are subject to the Rent Restriction Ordinance. The appellant, who is the present landlord of the premises, purchased the house for £1,000 on 26th May, 1949, and she obtained an assignment of the occupation licence. On 1st March, 1951, she let the house furnished to the respondent at a rental of £22 per month. Strangely enough neither the Board nor anyone else at any stage of these proceedings has called attention to the provisions of section 8 of the Increase of Rent (Restriction) Ordinance, 1949, which reads as follows:-

"8. (1) It shall be the duty of the landlord of any premises to which this Ordinance applies which are let for the first time after the commencement of this Ordinance to apply to have the rent of such premises determined by the Board.

$(2)$ Any landlord to whom sub-section $(1)$ of this section applies who fails, before the premises are let, to apply to the Board to have the standard rent determined shall be guilty of an offence against this Ordinance and liable to a fine not exceeding two thousand shillings or to a term of imprisonment not exceeding one month or to both such fine and imprisonment."

If this house was let for the first time either furnished or unfurnished after 6th September, 1949, which is the date of the commencement of the 1949 Ordinance, a statutory duty lay upon the landlord to apply to the Board to have the standard rent determined before letting the premises. Possibly the house was let by a previous owner prior to 6th September, 1949, in which case it would seem that the present appellant committed no offence by failing to apply to the Board. I think, however, that to escape penalty she would have to show a previous furnished letting. Be this as it may, I have thought it right to call attention to the matter because it seems to me to underline the correctness of the conclusion I have come to, which, in substance, is the same as the learned Judge in the Court below, that the Board did not make due and sufficient inquiry on the application before it. This brings me to the real issue in this appeal. I agree that there was material before the Board on which it could find, as it did, that this was a proper case for exercising discretion under section 2 (2) (i) of the Ordinance, which reads as follows:-

$(2)$ Notwithstanding anything contained in the definition of 'standard' rent<sup>2</sup>—

(i) in any case in which the Board is satisfied having regard to the temporary nature of the construction of the premises concerned or to the temporary nature of the lease or licence under which land on which the premises are situate is held, or to the fact that the premises can be expected to be let only during a certain period of the year, that the standard rent as defined in sub-section (1) of this section would yield an uneconomic return to the landlord, the Board may fix the standard rent at such figure, as the Board shall, in all circumstances of the case, consider reasonable."

The house itself, being of the banda type, needed periodic repair, particularly in respect of the roof, and the right to occupation of the said site, was in law a very temporary one.

At the hearing before the Board, the tenant's counsel agreed, no doubt with these facts in mind, that section 2 (2) (i) had application, and the point has been taken on appeal by the appellant that the learned Judge in the Court below

failed to appreciate the significance of this admission. Briefly the argument is this: that once the Board is satisfied that a case exists for fixing what can be termed a special standard rent under the provisions of section 2 $(2)$ , its duty is then to find a figure that will yield a fair economic return to the landlord, and that this can be done independently of any ascertainment by the Board of the normal standard rent. If this is correct in law, then the admission by the tenant's counsel puts his client out of court. In my opinion, however, it is incorrect, for I put the same construction on the section as did the learned Judge in the Court below. I consider that paragraph (1) of sub-section 2 read as a whole can only mean this, that the Board must first ascertain the normal standard rent in order to judge whether the figure arrived at will yield an economic return to the landlord. Mr. O'Brien Kelly has urged us not to assume that the Board did not do this, but from the terms of the written decision by the Chairman, I think it is clearly evident that the Board did not. As the learned Judge has pointed out, the decision contains no detail as to the particular facts and reasons as to how and upon what basis the Board arrived at its conclusion that the normal standard rent would yield an uneconomic return to the landlord.

As there was no evidence that the house was let on 3rd September, 1939, the ascertainment of the normal standard rent was something which had to be worked out and the question of any permitted increase under section 13 possibly also taken into account. Until all this was done, how could the Board judicially exercise its discretionary power to increase the normal standard rent? I appreciate that had the Board thought that the evidence before it was insufficient to enable it to ascertain the normal standard rent it could have determined a figure having regard to the standard rent of similar premises in the neighbourhood: (see section 2 (2) (ii)). Incidentally, the fact that this sub-paragraph immediately follows sub-paragraph (1) of sub-section (2) supports, I consider, the construction I put on sub-paragraph (1), for the wording in sub-paragraph (ii) leaves no doubt in my mind that the standard rent therein referred to means a standard rent worked out according to the formula set out in paragraph A of the definition of "standard rent". In any case the Board did not attempt to apply subparagraph (ii), for the Chairman, in his decision, observed "that the evidence with regard to rents of neighbouring buildings is too vague to be of value". There was some evidence given by Mr. Ogilvie which was not referred to in the decision, from which I think it can safely be inferred that the normal standard rent of the premises if let unfurnished would be about £50 per annum. Certainly this figure would not yield an economic return to the present landlord, but it must be assumed that when she paid £1,000 in 1949 for an old house that may have originally cost about £425 to construct (see Mr. Ogilvie's evidence) she had notice that the premises were subject to rent control. Is she entitled to a fair economic yield on an inflated purchase price? Perhaps the answer is "yes" if she succeeds, as she has done, in persuading the Board to bring the premises within the ambit of section 2 (2) (i), but if this be so the legislature has in effect conferred on the Board the power to take a house, subject to rent restriction, and put it into a class where the normal principles of rent economics can be applied. Rent Restriction legislation is beset with difficulties and absurdities, but I find it hard to believe that in fixing a special standard rent under section 2 (2) (i) the only factor that need be taken into consideration is the capital outlay of the last landlord at the time of the application. The result, in this case, of what I consider was the erroneous approach taken by the Board to the tenant's application was to increase the standard rent at least fourfold. I do not say that this big addition to the normal standard rent would necessarily have amounted to a wrong assessment by the Board, had it been arrived at by the right method. As, however, in my opinion the Board failed to observe the provisions inherent in the provisions of section 2 (2) (i) it follows that I consider: that the learned Judge was right in allowing the tenant's appeal. The Board also went wrong on the evidence in its valuation of the furniture, but this is a small matter which if it stood by itself could have been adjusted.

It is to be noted that the learned Judge made no order remitting the matter to the Board for reconsideration. We have been informed by counsel that the tenant has moved out of the premises and that the landlord is now living there himself. It may be therefore that the tenant has no longer any interest in getting the standard rent fixed unless he hopes to recover from the landlord excess rent paid to her over and above the agreed rent. Possibly it was on account of this that the learned Judge made no consequential order.

I would dismiss this appeal with costs and allow the respondent liberty to apply to the learned Judge in the Court below for an order directing the Coast Rent Control Board to re-hear his application is he so wishes. The appellant must also refund to the respondent the difference between the agreement rent and the standard rent fixed by the Board in its decision which has been set aside, namely Sh. 10 per month, if this has been paid.

WORLEY (Vice-President).-I have had considerable difficulty in coming to a decision on the question raised in this appeal, largely because I find difficulty in understanding the relevant provisions of the Increase of Rent (Restriction) Ordinance (No. 22 of 1949), namely paragraph (i) of sub-section (2) of section 2. The paragraph empowers the Board, where any of the prescribed circumstances exist, to fix a special standard rent, such as it considers reasonable, provided that it is satisfied that the normal standard rent "would yield an uneconomic return to the landlord".

$\mathbf{L}$

I regret that I am unable to agree with the learned trial Judge that the section requires as a condition precedent to the exercise of the discretionary power under this section that the Board must set out in writing the normal standard rent. If that is the rent at which the premises were let on "the prescribed date" I should have thought it almost beyond argument that such rent is not to-day an "economic rent". Likewise, if the standard rent is calculated on the 10 per cent per annum formula provided in paragraph A (ii) of the definition and apparently considered by the Legislature a sufficient "economic rent" for the normal type of house, then I should have thought it almost equally beyond argument that that formula would not provide an economic return on a house which comes within the special circumstances contemplated in the paragraph.

If therefore the only valid criticism of the Board's decision were that they had failed to make a note of the normal standard rent, I should be disposed to allow this appeal.

I am, however, myself of opinion that there is a more substantial objection to their decision. The Board is given a discretion to fix a "reasonable" standard rent if they are satisfied that the normal standard rent would not give the landlord an economic return. I think the Board must ask itself and answer the question, an economic return on what? Is it to be calculated on the original cost of the house, or on its present-day value, or, if it has changed hands (as had the house in suit) on the latest price paid for it, or on what other factors? The Legislature has given no inkling of its intention and it may well be that as the Board has to assess a reasonable standard rent having regard to all the circumstances of the case, the answer to the question may be different in different cases. The power given to the Board is discretionary and a Court will not lightly interfere with its exercise provided it is satisfied that the power has been used judicially. But this does I think entail that there should be sufficient material

upon the record to show that there has been a judicial and not an arbitrary exercise of discretion. In plainer words I think the Board should indicate the basis upon which they are working in deciding that the normal standard rent will not give an economic rental, whether that basis be the original cost, or present value, or anything else, and thus enable the Court to satisfy itself that the problem has been approached judicially. I do not think the task imposed on the Board is an easy one, for the section in effect enables them to override all the normal provisions restricting rent, but it is therefore all the more necessary to take care in exercising the power.

In the instant case, it is not possible to gather from the Board's decision the basis on which they worked. For this reason, I cannot regard the decision as satisfactory and think the decision of the Court below should stand. I therefore agree with the order proposed by my Lord the President.

MAHON, J. (Tanganyika).—I have had the benefit of reading the two judgments which have just been delivered and after some hesitation respectfully agree with the view expressed by the learned President that sub-section (2) (i) of section 2 of the Ordinance when read as a whole must mean that the Board should first ascertain the normal standard rent in order to judge whether or not the figure arrived at will yield an economic return to the landlord. The Board did not do so in this case and I, therefore, agree that the learned Judge was right in allowing the tenant's appeal.

I agree with the order proposed.