Specific performance ordered of landlord’s covenant to provide and maintain lift in small block of flats–Landlord’s financial position no answer to tenant’s claim–No case of frustration made out, or of hardship which might justify refusal of the remedy
This was a
claim by Mrs Kathleen Dorothy Francis, of 9 Nevern Mansions, London SW5,
against her landlords, Cowlcliff Ltd, of Churchill Way, Cardiff, for specific
performance of a covenant in her lease obliging the lessor to provide and maintain
a lift for tenants’ use, alternatively for damages.
Mr G Jaques
(instructed by T Boulton) appeared for the plaintiff, and Mr J J Davis
(instructed by Culross, Lipkin & Co) represented the defendants.
Giving
judgment, JUDGE RUBIN said that the plaintiff had lived in flat no 9 on the
third floor of Nevern Mansions, a block of 12 flats, for 40 years. On October
16 1969 City & West End Properties Ltd, the then landlords, granted her a
new lease of her flat for a term of five years calculated from September 29
1969. By clause 3 (2) of that lease the lessor covenanted to keep the exterior
of the premises and all parts of the building, including the hall, staircase
and passages not the subject of that or any other letting, in good repair.
Further, by clause 3 (4) the lessor covenanted to provide the services set out
in the schedule to the lease. Paragraph 2 of
or lifts for the use of tenants in the building.’ Such facilities did exist in Nevern Mansions,
as the building was provided with a lift operated by hydraulic power. This
continued to operate until February 1972. At that time a company which had
formerly provided a supply of water under pressure to operate the lift ceased
its supply. Also, it was common ground between the parties that by February
1972 the lift was in a very bad state of repair.
On August 13
1972 the reversion in Nevern Mansions was assigned to the defendant company. At
the time of the assignment a number of these flats were let unfurnished. It
appeared from the evidence of Mr Gorman, who was a solicitor and director of
the defendant company, that the intention of that company was to do substantial
works of redevelopment and improvement to the mansions which might have cost
£250,000, and then to let the flats furnished. Two of the tenants were
persuaded by payments of money to go. The company took proceedings against
three other tenants, including Mrs Francis. Their action against Mrs Francis
was heard in the West London County Court on July 13 1973. An order for
possession was made but suspended on terms which Mrs Francis had performed. It
was not disputed that she remained in possession as a protected tenant. By its
original defence to the present action the defendant company did not dispute
that there had been a breach of covenant, but disputed the plaintiff’s right to
have the covenant specifically performed, on the basis that it was unpractical
for the company to provide a lift. At the trial the company sought leave to
amend its defence by raising for the first time the contention that it was
impossible to provide a lift and accordingly that its obligations under the
covenants had been frustrated. He (his Lordship) had granted leave so to amend
on terms that the company paid the whole of the costs of the action up to the
amendment in any event. There were therefore three issues in the action: (1)
whether the defendant company was excused from performing its obligations under
the covenants because performance had been frustrated; (2) if not, whether the
plaintiff was entitled to specific performance of those covenants; and (3) if
not, what measure of damages was appropriate in lieu of specific performance.
There was
little dispute between the parties on the facts. Mrs Francis was a widow of
over 70 years of age. She was cross-examined at some length about her need for
a lift. He (his Lordship) accepted that it was not impossible for her to
continue to live in her flat without the help of a working lift, but in his judgment
that lack of a lift caused her grave inconvenience. Her access to her
third-floor flat had been made less convenient and must be a burden on a person
of her age. She said, and he (his Lordship) accepted, that the lack of a lift
provided great difficulty if she returned with a suitcase or parcel. The
company said that there were two resident porters. However, one of these
porters was employed on duties which would prevent him from being available to
assist a returning tenant, while Mrs Francis said that the other was not
available when she required his services. It was suggested that she did not
make any serious attempt to secure his services when required. It appeared that
the porters’ flats were in the basement, and he (the judge) could well understand
Mrs Francis not searching the basement for a porter. Mrs Francis also said, and
he accepted, that since the lift ceased to operate her friends, and
particularly those who used to visit her for bridge afternoons, had been
reluctant to come to her flat. In his judgment the lack of a working lift had
been a serious inconvenience to Mrs Francis, as indeed to all tenants on the
upper floors of this mansion, and amounted over a period of time to a hardship
which now continued.
The defendant
company, after it purchased this property, instructed Mr M Pearlman, a
chartered architect who was a partner in Pearlman Moiret Associates, to prepare
a scheme for the redevelopment of the mansions including the restoration of the
lift. He very soon reached the conclusion that to repair and restore the
existing lift would be far too costly to be practical. He sought the advice of
a number of firms specialising in lifts, and accepted their advice that a new
lift of a different type should be installed in place of the existing lift. In
co-operation with a firm called Stannah Lifts he prepared a scheme for the
installation of a new lift. He ordered the production of the new lift, which
had in fact been supplied and now rested in the basement of the mansions
waiting to be installed. In May 1974 Mr Pearlman was asked by the company for
estimates of the costs of the proposed works, and in particular the costs of
the lift. His estimate at that time was a sum of £24,646 for all the works in
the lift area, including the cost of supplying and installing the lift and the
lift enclosure. Out of that sum the company had paid a little over £4,000 to
the suppliers of the lift, and Mr Pearlman had been instructed not to proceed
further with the work. He told the court, and he (his Lordship) accepted, that
if he were now instructed to install the lift, then subject to his being
provided with the appropriate finance, there was no reason why the new lift
should not be installed in accordance with the scheme for the works in the lift
area which he had prepared.
The reason,
and the only reason, advanced by the defendant company for not proceeding with
this work was that it did not have adequate finance. From the balance sheet the
share capital of the company was £100 only. The company paid a sum of £76,500
to purchase the property, the price having been raised by a loan of £120,000
from a subsidiary of an insurance company, the loan being secured by a mortgage
on the freehold property and by personal guarantees from directors and
shareholders. Mr Gorman explained that the difference between the purchase
price together with costs on the one hand, and the amount borrowed on the
other, which was nearly £43,000, was raised not to provide finance for the
redevelopment or repairs, but to provide a fund from which outgoings including
mortgage repayments and tax deductible from mortgage interest could be paid
until such time as the redevelopment could be completed. Mr Gorman explained
that it never was the intention of the company to pay for the scheme of redevelopment
out of its own resources, but that it meant to borrow further moneys for that
purpose. Discussion had taken place with the mortgagee. Mr Gorman had hoped,
when the property was bought, that a sum in the region of £250,000 might be
raised from that source to cover the costs of redevelopment. There was no
binding agreement with the mortgagee, however, and in the early summer of 1974
Mr Gorman discovered that the mortgagee had changed its mind and was not
prepared to make any further advance. Counsel for the company argued that the
reason no further finance was forthcoming was due to the collapse in the
property market, and Mr Gorman advanced this theory as his explanation for the
change in the mortgagee’s intention. Even if he (his Lordship) could take judicial
notice, which he doubted, of the claim that in the summer of 1974 something
like a collapse in the property market took place, it would not necessarily
follow that such collapse was the reason for the mortgagee’s change of mind. It
could equally well have been caused by a dislike of the plans for development,
or in part by both causes. In the absence of a proper officer from the
mortgagee to explain the reasons for its decision, the only conclusion he (the
judge) could reach was that it declined to make any further advances.
It was now
said on behalf of the defendant company that this refusal of the mortgagee to
make further advances had released the company from further performance of the
covenants because it had not and could not raise the money required for the
completion of the lift scheme. He (his
in a lease so long as it created a continuing or future obligation. In the
course of argument counsel for the defendant company had referred him to the
decision of the House of Lords in Davis Contractors Ltd v Fareham
Urban District Council [1956] AC 696, and in particular to the speeches of
Lord Reid and Lord Radcliffe. Lord Reid, after considering the conflicting
theories that frustration should be regarded as depending on the addition to
the contract of an implied term or as depending on the construction of the
contract as it stood, said at p 720:
It appears to
me that frustration depends, at least in most cases, not on adding any implied
term, but on the true construction of the terms which are in the contract read
in light of the nature of the contract and of the relevant surrounding
circumstances when the contract was made.
Then, after
considering certain cases, Lord Reid expressed his conclusion on p 721 in these
words:
On this view
there is no need to consider what the parties thought or how they or reasonable
men in their shoes would have dealt with the new situation if they had foreseen
it. The question is whether the contract which they did make is, on its true
construction, wide enough to apply to the new situation: if it is not, then it
is at an end.
There were
also two passages in the speech of Lord Radcliffe which seemed of great
assistance in the present case. After considering the implied term theory, Lord
Radcliffe said at p 728:
So perhaps it
would be simpler to say at the outset that frustration occurs whenever the law
recognises that without default of either party a contractual obligation has
become incapable of being performed because the circumstances in which
performance is called for would render it a thing radically different from that
which was undertaken by the contract: it was not this that I promised to do.
And then on p
729:
But, even so,
it is not hardship or inconvenience or material loss itself which calls the
principle of frustration into play. There must be as well such a change in the
significance of the obligation that the thing undertaken would, if performed,
be a different thing from that contracted for.
If that was
the law, it seemed that the defendants’ case was a long way from frustration.
If the defendants undertook their own architect’s scheme they would be
performing precisely what they contracted to do, that was, to provide a lift
for the use of a tenant in the building. The fact, if it were a fact, that it
could not at the moment raise the necessary money to pay for the work did not
make the thing to be done different from that contracted for. If on the other
hand one applied the test suggested by Lord Reid, it seemed that the same
conclusion was reached, since the covenant was wide enough to apply to the
present situation, namely the provision of a lift. In his (Judge Rubin’s)
judgment, therefore, the defence of frustration failed.
In support of
her claim for specific performance the plaintiff, in respect of the repairing
covenant in clause 3 (2), relied on section 125 of the Housing Act 1974. The
defendants said only that their default was not a breach of clause 3 (2) as the
lift was not a part of the building not subject to any lease. The argument was
that not being fixed it could not be part of the building. It seemed to him
(his Lordship) that in fact it was as much part of a building as a door which
swung on its hinges. As far as the other covenant was concerned, clause 3 (4)
and paragraph 2 of the schedule, the plaintiff relied upon the general
principle that in an appropriate case the court would decree specific
performance of an agreement to build if certain conditions were satisfied. In Jeune
v Queens Cross Properties [1974] Ch 97 Pennycuick V-C adopted the
statement of these conditions now to be found in Snell’s Principles of
Equity 27th ed on p 581:
The rule has
now become settled that the court will order specific performance of an
agreement to build if (i) the building work is sufficiently defined by the
contract, eg by reference to detailed plans; (ii) the plaintiff has a
substantial interest in the performance of the contract of such a nature that
damages would not compensate him for the defendant’s failure to build; and
(iii) the defendant is in possession of the land so that the plaintiff cannot
employ another person to build without committing a trespass.
The defendant
company did not dispute that the first and third conditions were satisfied. In
his (Judge Rubin’s) judgment, on his finding of fact, the second condition was
also satisfied. Prima facie, therefore, the plaintiff was entitled to
specific performance, but as the remedy was equitable and discretionary the
court would not grant it where it would inflict great hardship on a defendant. Snell
at p 598 put the matter in this way:
To constitute
a defence, however, the hardship must have existed at the date of the contract;
specific performance will not be refused merely because, owing to events which
have happened since the contract was made, the completion of the contract will
cause hardship. Financial inability to complete is not hardship.
This last
proposition received support from Nicholas v Ingram, a decision
of the Supreme Court in New Zealand reported in [1958] NZLR 972. In Fry on
Specific Performance 6th ed para 426 the proposition was stated as follows:
The cases
which have been already quoted as showing that the hardship must be judged of
at the time of the contract also illustrate another obvious principle, namely
that where the hardship has been brought upon the defendant by himself, it
shall not be allowed to furnish any defence against the specific performance of
the contract.
In this case
there was no hardship at all at the time of the contract. If ever there was a
case in which the defendants had brought the hardship on themselves, this must
be it. They chose to purchase and embark upon an expensive scheme for
development of the property without any or any adequate finance and without
making any but the most speculative arrangements for such finance. Accordingly
he (his Lordship) proposed to make the order for specific performance which the
plaintiff sought. It was said that this would inevitably result in the company
being wound up. Even if that were so, it did not seem to him to be any reason
why the plaintiff should not have her order. In any event he was far from
satisfied that the guarantors of the mortgage loan and others interested in the
company would not provide the necessary money to do the requisite works and
stave off the creditors of the company. In reaching his conclusion he had not
overlooked the fact that in an action brought by the defendants against another
tenant, Mr Piddock, that tenant had counterclaimed for relief in respect of the
same lift, and though in the county court he was awarded damages for breach of
covenant he was refused specific performance. He (his Lordship) had not been
told the reasons for that refusal. The defendants appealed against the damages
awarded for breach of covenant, but Mr Piddock made no cross-appeal against the
refusal of specific performance. Accordingly there was nothing in the judgments
of the Court of Appeal to show why specific performance was refused.
Mrs Francis
did not seek an award of damages in addition to the order for specific
performance. However, in case he (his Lordship) was wrong in granting specific
performance, he thought it might assist the parties if he expressed shortly the
measure of damages he would have awarded in lieu. The period to be counted was
from August 13 1972 to the trial. Until September 24 1975 the plaintiff was
paying the rent recoverable under the lease but was deprived of the benefit of
the service of the lift to which she was entitled under the terms of her lease.
It was always difficult to translate such a loss into pecuniary terms. In the
case of Mr Piddock, who was a fourth-floor tenant, the county court judge
assessed the loss
between the harm suffered by Mr Piddock and the harm suffered by the plaintiff
in this case, so he also proposed to base his calculation on a weekly rate of
£2, which for a period of three years and one month produced a figure of about
£320. To this he had to add an appropriate sum for the period from September 24
1975 to date. In that period the circumstances had changed because by an award
of the rent officer on November 28 1975 a fair rent became recoverable. It was
common ground between the parties that the rent officer in assessing the rent
took into account the actual services which were being provided by the
landlord. Both parties said that the rent officer indicated that if there had
been a lift service he would have fixed a slightly higher rent. They did not
agree, however, on what figure was indicated by the rent officer. The plaintiff
put it at £1 a week while the defendant company said it would have been only
75p a week. For this period of six months, he (Judge Rubin) thought he ought to
make an allowance for the fact that Mrs Francis had been paying a somewhat
lower rent than she would have been paying if the defendants had performed
their covenants. For this period at £2 a week the aggregate loss would have
been about £50. He proposed to discount that sum to £30 which, when added to
the figure of £320, would make a global sum of £350, and that, in his judgment,
would have been the appropriate measure of damages in lieu of specific
performance. However, for the reasons he had already given, he would grant the
plaintiff the order she sought, together with the costs of the action.
An order was
made accordingly. A stay of execution pending a possible appeal was granted on
condition that notice of appeal was served, and the appeal pursued, with due
diligence.
