The Case of Smith v Irish Rai

The Case of Smith v Irish Rai
Assignment Task

The case of Smith v Irish Rail, heard in the Irish High Court in October 2002, dealt with the question of whether an agreement deemed in writing to be a license, can be determined to be a lease in practice. The issue of whether the Irish Courts can overlook the intentions of the parties involved, has been long debated and as such, a body of case law has resulted in opposing views being applied to almost identical cases. Peart J’s decision in Smith v Irish Rail, reinforces the entitlement of the Courts to disregard the label that the parties had put on their agreement and to focus on the day to day operation of that agreement. Although Peart J’s decision had the intent of protecting the licensee, I believe this decision overstepped the mark by taking the Court’s supervisory duties too far. The approach taken in deciding this case was too paternalistic, and settled this case as if it concerned a residential arrangement. The Court did not respect the written intention of both parties in this case which is problematic because both parties accepted with confidence the agreement to create a licence. The Courts also resisted relying on preceding Irish case law that would have been more appropriate than the English case law primarily confided in throughout this case. The decision in Smith v Irish Rail served to complicate Irish case law on this issue even further by exacerbating the uncertainty and complexity around the lease-licence distinction.

FACTS OF THE CASE


A Licence was created between the defendant, ‘Irish Rail,’ and the applicant, ‘Noel Smith,’ in an agreement dated December 4, 1991. The Licence concerned a small convenience store at Tara Street Station and was to commence on the 1st of July 1991 and end on the 30th of June 2001, for a total of ten years. A ‘Licence fee’ was also to be paid annually, according to the agreement. Mr. Smith sought legal assistance from his solicitors, PJ O’Driscoll & Sons, after inspecting the site where his stall would be located in order to contact Irish Rail’s solicitor regarding legal papers. He said that Irish Rail had refused him a lease on the property. What was on offer was a license, which he accepted based on his legal counsel.


Apart from using the Staff Toilets, Mr. Smith’s shop was completely separate from anything else at Tara Street Station where the property was located. The respondent told the applicant that he was required to depart the premises at the end of the ten-year period, as per the provisions of the agreement. In all but name, Mr. Smith maintained, what had occurred between the two parties was a lease. As a result, he applied for a new lease, claiming that the Landlord and Tenant (Amendment) Act 1980 preserved his stake in the property.


The case was originally heard in the Circuit Court in January 2002, where Linnane J. dismissed the application under s. 21 (2) of the aforementioned Act. Mr. Smith was granted leave to appeal, and the case was heard in the High Court in October 2002. The Court’s verdict was delivered by Peart J., who determined that the two parties’ agreement constituted a lease. As a result, Mr. Smith’s appeal was granted, and he was “entitled to a new tenancy in the premises.”

USE OF THE PATERNALISTIC APPROACH


Although the applicant had originally agreed to a licence agreement with the defendant in 1991, the Court believed that in practice, what Mr. Smith had was a lease with Irish Rail. Peart J concluded that Mr. Smith had exclusive possession because the shop was in all respects a ‘self- contained unit’ and the licence fee paid yearly was equivalent to rent.


Section 3 of Deasy’s Act states that “the relation of landlord and tenant shall be deemed to be founded on the express or implied contract of the parties”. How strictly Section 3 of Deasy’s Act should be interpreted in every circumstance is a point of contention. Judges frequently disregard s. 3 in order to assuage fears that landlords are abusing their superior bargaining power to deprive tenants of their rights. The Courts concluded in Whipp v Mackey that if a label does not fit the agreement’s day-to-day operation, the label will be disregarded by the Courts. Instances where the Court ignore s.3 to protect a tenant are usually seen in residential cases. In O’Siodachain v O’Mahony, the Court used a paternalistic approach to determine the license was held to be a lease in substance. In this case, the Court found that the landlord used undue influence over a vulnerable couple to deny them protection under specific tenancy laws. Courts have the ability to give effect to the true character of an agreement based on how it operates in practice because of situations like these. When it comes to living circumstances, such a judicial attitude is absolutely understandable in my opinion.


However – the matter at hand did not involve a residential arrangement, yet the Court tackled this case as if it did. The Courts should not be as lenient when it comes to business and commercial actors. In the framework of business agreements, the Courts have shown a high level of respect for contractual freedom because most commercial actors either avail of legal advice or are aware of their rights. This is in contrast to residential agreements where this is rarely the case. In the case of Smith v Irish Rail, the applicant was not only an accomplished business man, but he had also been fully advised by the counsel whom he had consulted, and so understood exactly what he was acquiring, namely a license. It is one thing for the Court to treat a commercial agreement like a residential one, but based on the facts of this case that Mr. Smith was a well- informed business man, I believe the Court was reckless and unfounded in their decision.


Perhaps the paternalistic approach being taken for commercial agreements is not always misguided, if licensors are ill-advised or vulnerable. However, the Paternalistic approach being used in this case, is questionable and consequently creates ambiguity for licensors in the future who lawfully enter into arrangements that the Court can overturn.

THE INTENTION OF THE AGREEMENT DISREGARDED


In the final draft of the agreement between Mr.Smith and Irish Rail, there was a section that stated : “nothing in this licence shall be construed as giving the licencee any tenancy in or right to possession of any right or easement over or with respect to any part of the property”. The agreement’s explicit and straightforward language, reveals a clear intention as to the nature of the agreement, that of a license, which Mr. Smith accepted after receiving legal advice. Following this, Mr. Gahan, the solicitor who represented Irish Rail at the time, had encouraged Mr. Smith to surrender his license in 1995 on the grounds that a lease would be given, so that Mr. Smith would be in a better position than he was at the time. However, Mr. Smith declined the offer to exchange his existing license for the proposed lease.


The one undisputed fact in Smith v Irish Rail was that there was no purpose to construct a lease. Peart J definitively said that “it is clear from the licence agreement itself, and indeed from the evidence given by the applicant himself and on behalf of the respondent that the intention of the parties was that a licence would be granted for a period of 10 years at an annual licence fee”. Therefore, I am completely at odds at what Peart J misunderstood about the clear intention and actions of these parties. Is it the case that the Court just simply ignored the intention and the facts of the case?


The Law Reform Commission criticizes Peart J for this in a report in 2003 by arguing that the power of the Court to interfere with commercial agreements was overextended. Paragraph 1.30 of the Law Reform Commission report states ‘“it is one thing to scrutinise the terms of an agreement in order to protect a party from unfair advantage being taken by the other party through a weak bargaining position and to prevent “sham” transactions, but it is quite another to disregard terms which, the evidence confirms, reflect both parties’ intention and understanding”. I agree with the Law Reform Commission that the Court goes far beyond their supervisory duty.


Contractual freedom is a significant aspect of Irish law, and I believe that the Courts should only intervene in assessing the character of a contract in circumstances when one party is being shamelessly exploited. In this case, there is no such risk because Mr. Smith was legally advised to sign a license agreement and, when offered a lease, he flatly rejected. As a result, no such intervention to ignore the agreement’s intent should have been employed. According to the commission, legislative intervention is now required to provide a fair and consistent approach to this crucial issue.

OVER-RELIANCE ON ENGISH CASE LAW


Peart J.’s reasoning was heavily influenced by Street v Mountford [Street], an English case in which a home was let to a destitute individual who may or may not have gotten legal guidance. Given the occupier’s significant disadvantage, the license was considered to be a lease in fact. The argument used in Street is straightforward and in line with the approach taken by Irish Courts when it comes to residential arrangements. Nonetheless, in applying the Street decision to the circumstances of Smith v Irish Rail, Peart J. asserts that Irish Courts provide commercial contracts the same protection as residential arrangements. The facts of the Street v Mountford case are entirely different to the case at hand, because it was not certain if the applicant in Street had received legal advice. Whereas, the Court in Smith v Irish Rail was entirely aware that the applicant had received legal counsel. The decision in Smith v Irish Rail does not justify the use of Street as an authority on this point, as Peart J. failed to recognize the basic differences between the two decisions.


Following this, despite the case of Street being relied so heavily on, Peart J disregards a very important point set out by Lord Templeman in Street. Lord Templeman iterates the sheer importance of intention in an agreement and how it cannot be overlooked. Lord Templeman determined that the landlord in that case had intended to form a lease, and that the title of a licence had just been used to dispel any tenancy-related obligations and rights. The judges were unable to refute the notion that the license was more appropriately defined as a lease due to the clear intent to construct one. Therefore, Street clearly illustrates the role of intent in the lease/licence distinction. However Peart J seems to overlook this principle by disregarding the clear intentions of the parties in Smith v Irish Rail.


The case of Kenny Homes & Co Ltd v Leonard would have been a more appropriate case for reference in my opinion. This case concerned parties entering into an agreement which stated specifically that the contract was not intended to create a landlord-tenant relationship. Later, the defendant maintained that they should have been referred to as tenants rather than licensees, and that as tenants, they were entitled to certain protections and rights under tenancy law. The clauses of the agreement “could not have been clearer in demonstrating the parties’ intention not to form a leasehold arrangement, according to Costello P. in the High Court. This verdict was upheld by the Supreme Court on appeal, which defined the agreement as perfectly clear. There was no evidence that the occupants held a lease.


Despite the case of Kenny Homes & Co Ltd v Leonard standing as a Supreme Court decision, the Court in Smith does not make any reference to it. The Law Reform Commission also explores how Smith interacts with Irish precedent and questions whether Street should be applied instead of leading Irish case law. I believe Kenny Homes & Co Ltd v Leonard would have been more appropriately used as precedent because it stands as a Supreme Court decision and is directly applicable to Smith v Irish Rail.

CONCLUSION


The applicant in the case of Smith v Irish Rail should not have been granted a new tenancy on the property by the High Court. I disagree with this decision reached by Peart J for three main reasons.


Firstly, too paternalistic an approach was used. The agreement in Smith v Irish rail concerned two competent commercial actors yet the court approached this agreement how an ill-advised individual should be treated in a residential arrangement, which was not necessary in this case. As a result, licensors will not know where they stand in the courts eye because commercial agreements can be easily disregarded, if they are to be treated the same way residential agreements are.


Secondly, the Court went beyond the Court’s supervisory authority by blatantly disregarding the intention of the agreement. What was on offer was a license, and Mr. Smith accepted that. The Courts have no jurisdiction to rewrite a contract in this situation. Contractual freedom is a significant principle of Irish law and should not be overlooked by the Courts.


Finally, Peart J’s reluctance to use preceding Irish case law is highly disagreeable. The case at hand and Street v Mountford, the basis on which this entire judgment was based, have fundamental differences. As a result, I believe that applying Street to Mr. Smith’s situation was inappropriate. There was a lot more pertinent case law that should have been taken into account. Such case law would have aided in the establishment of some semblance of consistency in this field, as well as a more gratifying result.


Given the ambiguity and complexity engendered by this decision, I believe that legislative action is the only way to improve this area of tenancy law in light of this dubious ruling.

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