Disclaimer of lease by liquidator–Period for which landlord entitled to rent in full–Crucial date that on which landlord informed of liquidator’s intention to disclaim, not the date of actual disclaimer
This was an
appeal by the Legal & General Assurance Society Ltd, of Queen Victoria Street,
London EC4, from an order of the registrar giving the respondent, the
liquidator of HH Realisations Ltd, formely Horizon Holidays Ltd, leave to
disclaim a lease of 16-17 Hanover Street, London W1, entered into on December 3
1965 from a term of 99 years from December 1 1965, and declaring that the
appellants were entitled to be paid rent in full under the terms of the lease
down to March 17 1975 but no longer.
Mr J S Colyer
(instructed by Lawrence, Graham & Co) appeared for the appellants, and Mr E
W Hamilton (instructed by D J Freeman & Co) represented the respondent.
Giving
judgment, TEMPLEMAN J said: This is a dispute between landlords and a
liquidator. The landlords claim payment of rent in full between the date when
the liquidator gave notice that he was no longer retaining the lease and the
date when the liquidator, with the leave of the court, in fact disclaimed the
lease. The liquidator resists the landlords’ claim for payment. The landlords
may prove for the amount, but the dividend will in fact be minimal.
By a lease
dated December 3 1965 the property 16-17 Hanover Street was leased by the
landlords, Legal & General Assurance Society Ltd, to the tenants, HH
Realisations Ltd, by their then name of Horizon Holidays Ltd. The term was 99
years from December 1 1965. The rent was £17,265 a year, but clause 3 contained
a rent review provision. On giving notice, the landlords as from October 1 1974
became entitled to 19/20s of the fair rack-rental value of the demised premises
for a term of years equivalent to the then unexpired residue of the 99-year
term. In the events which happened, that fair rack-rent market value was never
fixed, either by agreement or by arbitration, as provided by the lease. It is
common ground that the market rent might have been as little as £50,000 and
might have been as much as £133,000 a year, and so there is an enormous
difference between the rent reserved for the first period of the term and the
revised rent as from October 1 1974. On March 6 1974 the company went into
creditors’ voluntary winding-up. On June 26 1974 a receiver contracted to sell
the leasehold interest of the company to another company. It was possible to
negotiate that contract because, although the lease according to its terms
provided for the rent review I have mentioned, there was in existence at that
time government control which froze the rent at the original £17,000-odd pa. On
December 19 1974 the government announced that the freeze was to end, but by
that time something had gone wrong with the contract for the sale of the lease.
The landlords refused to consent to an assignment to the proposed assignees,
and although another possible assignee had been approached, there was
difficulty with planning permission.
On January 12
1975 the government order was made decontrolling rents on this type of property
as from March 19 1975. The result was that as from March 19 1975 the rent
payable under this lease leapt from £17,265 a year to a figure which was
probably somewhere in the region of £100,000. On February 19 1975 the
liquidator served notice rescinding the original contract for the assignment of
the lease. On February 21 the purchasers themselves informed the landlords of
the fact that the contract had been rescinded, and on March 5 1975 the
liquidator took out an ex parte summons to disclaim the lease. By that
time, of course, the lease was probably unassignable because of the increase in
rent to 19/20ths of a rack-rent. On March 13 the ex parte summons for
leave to disclaim by the liquidator was heard. The registrar directed that the
landlords should be served with notice of the application, and that notice was
given by letter dated March 14 which reached the landlords on the 17th. The
landlords were asked, in the letter of March 14 1975, to state whether it was
their intention to appear by solicitors or council and whether they intended to
file evidence. By March 18 the landlords, in a letter of that date from their
solicitors, showed that they had made up their minds. They said, ‘We do not
propose to file evidence, but it is our present intention to attend at the
hearing to consent to the disclaimer, subject to the protection of the
society’s interest relating to the assessment of rent review,’ and they went on
to debate the amount of rent that should be payable according to the rent
review clause.
It is common
ground that the landlords ought to be allowed rent in full from the date of the
company’s going into voluntary winding-up on March 6 1974 down to March 17
1975. What is at the moment in dispute is whether the landlords are entitled to
payment in full of the rent after March 17 1975 and until actual disclaimer. On
April 25 1975 the registrar gave leave to disclaim and decided that the
landlords were entitled to rent in full down to March 17 1975 but not thereafter.
On May 5 1975 the landlords gave notice of appeal against the registrar’s
order, and on May 8 1975 the company, by the liquidator, formally disclaimed
the lease pursuant to the leave given by the registrar. The rent between March
17 1975 and the actual disclaimer on May 8 1975 is in dispute. By reason of the
fact, which was coincidental, that the rents were unfrozen on March 19 1975,
there is quite a sum of money at stake. If the landlords are right, then for
the period between March 17 1975 and May 8 1975 there may be something like
£17,000 payable to the landlords in full. If the landlords are wrong, then the
landlords will only be entitled to prove in the liquidation for £17,000 and
will not receive very much. So there is a good deal to play for.
The problem
arises under section 323 of the Companies Act 1948, subsection (1) of which
provides:
Where any
part of the property of a company which is being wound up consists of land of
any tenure burdened with onerous
saleable, by reason of its binding the possessor thereof to the performance of
any onerous act or to the payment of any sum of money, the liquidator of the
company, notwithstanding that he has endeavoured to sell or has taken
possession of the property or exercised any act of ownership in relation
thereto, may, with the leave of the court and subject to the provisions of this
section, by writing signed by him, at any time within 12 months after the
commencement of the winding-up, or such extended period as may be allowed by
the court, disclaim the property.
In the present
case the initial 12 months’ period had elapsed, but the registrar gave an
extension of time sufficient to enable the disclaimer of May 8 1975 to take effect,
and no question or argument arises as a result of that. Subsection (3) of
section 323 provides:
The court,
before or on granting leave to disclaim, may require such notices to be given
to persons interested and impose such terms as a condition of granting leave
and make such other order in the matter as the court thinks just.
As I have
already said, notice was given to the landlords. This is an application to
impose terms, or to revise the terms imposed by the registrar, by requiring
that the liquidator shall pay the rent in full between the two dates I have
mentioned, namely March 17 and May 8, under the general discretion which is
given by subsection (3). Although that is in terms a general discretion, it is
of course a discretion which must be exercised in accordance with judicial
principles and in accordance with the authorities which show upon what grounds,
and for what purposes, the discretion ought to be exercised. Mr Colyer, who
appeared for the landlords, took me through all the cases in which the
discretion has been exercised and the principles have been explored, beginning
with Re Lundy Granite Co (1871) 6 Ch App 462, then going to Re North
Yorkshire Iron Co (1878) 7 Ch D 661, thence to Re Oak Pits Colliery Co
(1882) 21 Ch D 322, and finally to two modern cases, ABC Coupler and
Engineering Co Ltd (No 3) [1970] 1 WLR 702 and Re Downer Enterprises Ltd
[1974] 1 WLR 1460.
The earlier
authorities were cited in the ABC Coupler case, in which there were two
relevant periods. The first was the period between the date when the company in
question went into liquidation and the date when the liquidator determined that
he would retain possession of the leasehold property with the idea of making
use of it for the purposes of the company. The second was the period
thereafter, while the liquidator retained the property, until the date when he
found he no longer had any use for the property and disclaimed the lease. As
regards the first period, that is to say while the liquidator was still making
up his mind, the landlord was allowed to prove but was refused payment in full.
The remedy of a landlord who is in that position is either to attempt to
forfeit the lease, to hurry up the liquidator, or under subsection (4) of
section 323 to serve a notice requiring the liquidator to elect whether to
disclaim or not, within a period of 28 days. If the liquidator does not comply
with that notice within the 28 days or such further period as the court may
allow, then the company is deemed to have adopted the lease and can no longer
disclaim. As regards the second period, that is to say the period between the
date when the liquidator made up his mind to try and do something with the
property for the benefit of the creditors, and down to the date when he ceased
to have any further use for the property, the landlord was allowed the rent in
full. The reason for the distinction between the two periods appears from the
passage in Buckley’s Companies Acts 13th ed p 483 cited with approval by
Plowman J in the ABC Coupler case at p 707, namely that ‘rent accrued
due after winding-up, in respect of premises retained for the convenience of
the winding-up, will be treated as an obligation incurred for the benefit of
the estate, payable therefor in full.’
In the ABC Coupler case, for the period while the liquidator was
making up his mind, the landlord could not show that the premises were retained
for the convenience of the winding-up, and therefore was limited to proof. For
the period after the liquidator had made up his mind, and while he was still
retaining the property for the convenience and profit of the creditors
generally, then the landlord was entitled to be paid the rent in full.
Applying that
to the present case, the liquidator agrees that ab initio the lease was
retained for the benefit of the creditors and for the convenience of the
winding-up. It was no doubt hoped that the contract which had been arranged for
£225,000 would produce something, and that hope was retained right down until
March 5 1975, when the liquidator issued his summons for leave to disclaim. So
there is no doubt about that. But from then on, from March 5 1975, the lease
was no longer being retained for the benefit of the creditors generally, and
therefore there is no reason why the landlords should obtain priority over
other creditors by being paid in full rent which is apportionable as from that
date. It is conceded that it would be quite unfair to put an end to the
landlords’ right to rent in full as from the date of the summons itself: that
entitlement only ends when the landlord is told of the fact that the liquidator
has determined and is applying for leave to disclaim. That is why the date in
the present case for the ending of payment of rent in full is not earlier than
March 17 1975. In my judgment, if it is fair and reasonable that the landlords
should not be entitled to rent in full while the liquidator is making up his
mind and before he determines to retain the property, it must necessarily
follow that it is equally fair that the landlords should not be entitled to
rent in full from the date they receive notice of the fact that the liquidator
has determined to disclaim. Indeed, in a good many respects the landlords are
better off, once they receive that notice, than they could be at the beginning
of a winding-up. In the present instance, for example, once the landlords
received the letter of March 14 saying that an ex parte application had
been made for leave to disclaim, the landlords were then in a position to ask
for possession of the property or to start advertising for a new tenant;
whereas in the first period, that is to say, the period during which the
liquidator, unless he is prodded by an application under section 323 (4), is
dallying to see whether he wants to retain the property or not, the landlords
have no such certainty.
In the ABC
Coupler case the landlord only received rent in full for the actual period
during which the liquidator was retaining the property for the benefit of the
creditors in the hope of making money out of it. In Downer Enterprises Ltd
[1974] 1 WLR 1460 the company went into a creditors’ voluntary winding-up on
November 8 1971. The liquidator gave instructions to find a purchaser about
April 30 1972 and the lease was finally assigned on January 5 1973. For the
first period, namely from November 8 1971, when the company went into
liquidation, until April 30 1972, when the liquidator at last made up his mind
that he would like to do something about realising the property, the landlord
could only prove. For the period between April 1972 and January 1973, when the
liquidator was retaining the property for the benefit of the creditors in
general, the landlord was allowed payment in full. It seems to me, by parity of
reasoning, that when in the present case the liquidator changed his mind and
decided to disclaim, there was no reason why the landlords should be allowed
priority over the other creditors for the period after the liquidator changed
his mind and the landlords received notice of that fact. There was no delay on
the part of either party in taking the steps necessary to achieve the actual
disclaimer. It follows, in my judgment, that in accordance with the
authorities, the only period during which it is equitable for the landlords to
claim rent in full, as opposed to proving for a dividend, is the period
during which the property was actually being retained by the liquidator for the
benefit of the creditors in general. In the present case that period began when
the voluntary liquidation started, and it ended on March 17 1975, when the
landlords received notice from the liquidator of the ex parte summons
asking for leave to disclaim. I had the benefit of a very full note by the
registrar of the facts, contentions and his conclusions and reasons, and I
agree entirely with the registrar’s approach, his decision and the reasons
which he gave.
