Landlord and tenant — Forfeiture of lease — Relief against forfeiture — Section 146(2) of Law of Property Act 1925 — Action by lessees claiming relief — Principles governing exercise of jurisdiction to grant relief — Lord Wilberforce’s speech in Shiloh Spinners Ltd v Harding — Effect of wilful breaches — Relief not confined to exceptional cases — Relief granted on terms — Plaintiff lessees to pay costs on indemnity basis
plaintiffs in this action, Southern Depot Co Ltd (SDC) were lessees of premises
from the defendants, British Rail, for a term of 42 years from January 1 1966 —
The plaintiffs applied for relief against forfeiture pursuant to section 146(2)
of the Law of Property Act 1925 — The lease included a user covenant
restricting use to that for a storage and distribution depot, a covenant
against assigning, underletting, charging or parting with possession without
previous written approval by the lessors, and a covenant to leave with the
lessors for inspection, together with a copy for retention, all assignments,
underleases and other instruments affecting the premises, within a month of
execution — The litigation arose from the desire of a company (BPCC), part of a
large printing and publishing group, to acquire SDC’s lease, as the site had
attractions from its position, including possibilities for car parking — Many
of the difficulties which subsequently arose were due to the desire of BPCC,
for various reasons, to acquire the lease without having to disclose its
identity by applying to the lessors for consent to an assignment — To proceed
with the assignment without consent would, however, risk the forfeiture of the
lease
which was suggested, and adopted, was that, as a temporary measure, instead of
an assignment, the plaintiff lessees should hold the lease and the premises in
trust for BPCC (or, as it happened, a nominee) — This device would not in
itself be a breach of the covenant against assignment — In due course BPCC
became by this means in sole control of the demised premises and used the site
not only for car parking but also for storage and paper deliveries in
connection with the printing and publishing empire of which BPCC was a part —
Eventually, however, the breaches came to light — The lessors served a notice
under section 146 of the 1925 Act on the plaintiffs and later re-entered the
demised premises — The plaintiffs commenced the present action seeking relief
against forfeiture — In the meantime both sides had entered into conditional
arrangements for the future depending on the outcome of the present proceedings
task was simplified to some extent by the plaintiffs’ admission of breaches —
The failure to produce the document containing the declaration of trust for the
inspection of the lessors was a breach of one of the covenants — The
declaration itself was not a breach, but a breach occurred when, in pursuance
of it, BPCC entered into possession of the premises — Some of the uses made of
the site involved breaches of covenant — The plaintiffs accepted that these
various breaches had taken place, leaving as the only question of substance
which the judge had to decide whether to grant relief at all — The court’s
discretion was expressed in wide terms in section 146(2) of the 1925 Act and
this was emphasised by Lord Loreburn LC (referring to the Act’s statutory
predecessor) in Hyman v Rose — The judge rejected
the interests of BPCC as a stranger to the landlord-tenant relationship — In reviewing
the position the judge found that two of the breaches of covenant had been
wilful and one, although not wilful, had resulted in the lessors being misled —
However, although he gave considerable weight to these facts, he was not
precluded by them from granting relief — He did not accept the proposition that
relief could be granted only in exceptional cases — He cited Shiloh Spinners
Ltd v
Harding and Ropemaker Properties Ltd v Noonhaven Ltd — He also pointed out that BPCC
was not the tenant and would not necessarily become the tenant if he granted
relief — There was ‘no’ issue before him about a refusal of consent or its
reasonableness
said that he would paraphrase section 146(2) of the 1925 Act by posing the
questions whether the damage sustained by the defendant lessors was
proportionate to the advantage they would obtain if no relief were granted and,
if not, whether in all the circumstances it was just that the lessors should
retain that advantage — The answer to both questions was ‘no’ — He accordingly
granted the plaintiffs relief on terms which included the payment of all rent
and outgoings due and payments for the unauthorised use of the site as a
marshalling yard, both with interest, and payment of the costs of the action on
an indemnity basis
The following
cases are referred to in this report.
Hyman v Rose [1912] AC 623
Lam Kee
Ying Sdn Bhd v Lam Shes Tong [1975] AC 247;
[1974] 3 WLR 784; [1974] 3 All ER 137, PC
Pincott v Moorstons Ltd [1937] 1 All ER 513; 156 LT 139, CA
Ropemaker
Properties Ltd v Noonhaven Ltd [1989] 2 EGLR
50; [1989] 34 EG 39
Shiloh
Spinners Ltd v Harding [1973] AC 691; [1973]
2 WLR 28; [1973] 1 All ER 90; (1973) 25 P&CR 48, HL
Stening v Abrahams [1931] 1 Ch 470; [1931] All ER Rep 437; 100 LJ Ch
278; 145 LT 18
In this action
the plaintiffs, Southern Depot Co Ltd, lessees of land at Watford to the north
of the A41 and to the west of the railway, sought against the defendant
lessors, British Railways Board and British Rail Property Board, relief under
section 146(2) of the Law of Property Act 1925 against the forfeiture of the
lease.
Robert Pryor
QC and Miss Erica Foggin (instructed by Titmuss Sainer & Webb) appeared on
behalf of the plaintiffs; David Neuberger QC and Jonathan Ferris (instructed by
Simon Osborn, solicitors’ department, British Railways Board) represented the
defendants.
Giving
judgment, MORRITT J said: In this action I am concerned with the
question whether, and if so on what terms, I should grant to the plaintiff,
Southern Depot Co Ltd (to whom I shall refer as ‘SDC’), relief from forfeiture
pursuant to section 146 of the Law of Property Act 1925. The lease in question
is dated May 3 1984 and was made between the defendant, British Rail, and SDC.
By the lease British Rail demised to SDC land at Watford to the north of the
A41 and to the west of the railway for a term of 42 years from January 1 1966
at an annual rent of £4,140 with an upward rent review from January 1 1988.
The lessee’s
covenants in clause 2 of the lease included the following: Para 8:
not to use
the demised premises for any purpose other than as and for a storage and
distribution depot provided that any things brought on to the demised premises
for distribution shall not, without the consent of the Board such consent not
to be unreasonably withheld, where the traffic would be unsuitable for rail
transport or would be subject to exceptional delay by reason of weather
conditions, strikes or other exceptional circumstances, be carried to the
demised premises otherwise than on the Board’s railway.
Para 16(c):
not at any
time during the term to assign the whole of the demised premises or underlet
charge or part with possession of the whole of the demised premises or any part
thereof without the previous written approval of the Board.
And para 16(e):
from time to
time without any demand by the Board to leave with the Board, together with a
copy for retention by the Board, all permitted assignments, underleases or
other instruments affecting the demised premises within one calendar month of
the execution or making of such assignments underleases or other instruments
respectively.
Clause 3
contained a right of re-entry in favour of British Rail in case of breach of a
lessee’s covenant or of a condition contained in the lease.
On April 15
1988 British Rail served a notice under section 146(1) of the Law of Property
Act 1925 relying on breaches of the covenants contained in clause 2 paras (8)
and (16)(c) and requiring them to be remedied or compensated within five weeks.
The writ in this action was issued the day before that period expired on May 20
1988. Subsequently British Rail discovered a further breach of clause 2(16)(c)
and a breach of clause 2(16)(e). On June 9 1988 British Rail re-entered the
demised premises and forfeited the lease.
Under section
146(2) I am required, among other things, to have regard to all the
circumstances of the case. Thus it is necessary to describe the course of
events in considerably greater detail.
SDC is a
wholly-owned subsidiary of British Coal and used the demised premises as a coal
depot until May 1986. When this use ceased British Coal and SDC were concerned
to get the best price for the lease that they could. By this time British
Printing Communications Corporation Ltd (to which I shall refer as BPCC) had
acquired with Odhams Press Ltd a site immediately to the south of the demised
premises to which access could be obtained under the bridge which takes the A41
across the railway. BPCC had sold part of that site to Asda/MFI and was
carrying out substantial works on the remainder in order to use the Odhams site
for the colour printing of newspapers. The main contractors were Taylor-Woodrow
Ltd, and BPCC was concerned to obtain car-parking space for their contractors
and their own employees.
Accordingly,
on July 14 1987 SDC with the consent of British Rail granted a licence to BPCC
over the eastern part of the demised premises for five months from June 29 1987
for the purpose of car parking. The licence fee was £2,000 per month of which
one half was paid by SDC to British Rail and the licence was terminable on
seven days’ notice in the event of a failure by BPCC to remedy any breach of
the terms thereof. Thus the licence was due to expire on November 29 1987.
On August 24
1987 SDC with the consent of British Rail granted a similar licence to Linc Ltd
in respect of the western part of the demised premises until February 15 1988.
By this time BPCC was aware that SDC wished to sell the lease and had expressed
its interest in acquiring it. On September 14 1987 SDC informed BPCC that it
had agreed terms of sale to a development company for a seven-figure premium.
But British Rail was also concerned that the site should be used as a railhead
in conjunction with a property development.
On October 6
1987 there was a meeting between representatives of British Coal and SDC on the
one hand and representatives of BPCC on the other at which terms were discussed
for the acquisition of the lease by BPCC. One of the terms discussed and agreed
was that BPCC would take the assignment without the consent of British Rail.
There was a
conflict of evidence about which side suggested this term. Mr Birchall, who
attended as one of the British Coal representatives, said it was suggested by
the representatives of BPCC. Both their representatives, Mr Shaw and Mr Jones,
gave evidence. Mr Jones said the suggestion was made by British Coal. Mr Shaw
could not say who suggested it but that it solved both parties’ problems. The
problems referred to were British Coal’s wish to have the purchase price as soon
as possible and BPCC’s concern to get the demised premises.
In my
judgment, the suggestion came from BPCC. It was essential for them to acquire
the lease and they had to make up time on the other prospective purchaser in
order to do so. Moreover, it is quite clear from a subsequent document that on
October 20 1987 Mr Jones instructed BPCC’s solicitors, Titmuss Sainer &
Webb, specifically to ask British Coal’s solicitors not to apply to British
Rail for consent to the assignment. On October 7 1987 SDC invited BPCC and the
other prospective purchaser to submit tenders for the lease by noon on October
15 1987 on terms which included completion without the consent of British Rail
and acceptance by SDC of the highest bid.
BPCC then
sought the advice of its solicitors, Titmuss Sainer & Webb. On October 12
1987 they advised that completion of the assignment without the consent of
British Rail would enable British Rail to forfeit the lease and suggested as a
short-term arrangement that SDC should hold the lease in trust for BPCC until
British Rail’s
proposed use of the demised premises would be a breach of the covenant
entitling British Rail to forfeit the lease.
BPCC then
tried to obtain SDC’s approval to the submission of a tender subject to
contract. SDC would not agree but did accept that its solicitors should
co-operate with Titmuss Sainer & Webb in dealing with the assignment in
such a way as would minimise the chance of British Rail’s forfeiting the lease.
The matter was
then referred to Mr Robert Maxwell, whose authority was required for the
submission of the tender. Mr Maxwell gave his authority and on October 15 BPCC
submitted its tender at £1.3m. This was £300,000 higher than the tender from
the other prospective purchaser, Asda/MFI, and was accepted by SDC on October
16.
Thus at this
stage BPCC had contracted to acquire the lease, which if completed in
accordance with its terms would involve a breach of covenant, for a use which
would also involve a breach of covenant if British Rail did not agree in due
course to a variation of clause 2(8).
When BPCC was
informed of SDC’s acceptance it requested SDC to give no publicity to the
contract and not to inform British Rail at that stage.
On October 20
1987 Titmuss Sainer & Webb repeated their advice about assignment without
the consent of British Rail and expressed their opinion that in the
circumstances of the case the court would not give relief if the lease were
forfeited on this ground. Titmuss Sainer & Webb repeated their advice
originally given on October 12 1987 that this situation could be avoided if
instead of executing an assignment in favour of BPCC SDC declared itself to be
a trustee of the lease and the demised premises for BPCC. This advice was
accepted. On October 27 1987 BPCC decided that SDC should hold the lease and
the demised premises in trust for a shelf company it would acquire for the
purpose until British Rail’s consent to an assignment of the lease to that
company should be forthcoming. It is evident from the documents that BPCC
considered a number of alternative company structures which would have enabled
that company to seek the consent of British Rail to an assignment without
revealing that company’s connection with BPCC.
The
declaration of trust was executed on November 6 1987. In consideration of £1.3m
SDC declared itself to be a trustee of the lease for the shelf company,
Cyproheath Ltd, and covenanted to deal with the lease and the demised premises
in accordance only with the directions of Cyproheath. It gave the covenants for
title appropriate to an assignment by a beneficial owner. British Coal joined
in the deed to assign the benefit of certain easements in so far as it legally
could.
By clause
2(16)(e) of the lease this declaration of trust should have been left with
British Rail for their information on or before December 6 1987. It was not.
Instead, on numerous occasions after October 16 BPCC insisted that SDC and
British Coal should not disclose the interest of BPCC or the existence of the
declaration of trust to British Rail or anyone else.
The reason why
BPCC was so anxious to obtain the benefit of the lease without the delay
involved in seeking and obtaining the consent of British Rail was to preclude
any third party obtaining it and being in a position to terminate or not renew
the car-parking licence. This car-parking facility was essential to the
completion of the conversion of Odhams Press in which BPCC had invested a lot
of money. But the reason for the requirement for secrecy was never adequately
explained. The decision to impose it was made by Mr Shaw. He said that his
overriding concern was to preserve the car parking which he thought disclosure
of the declaration of trust might jeopardise. But he never explained how it
could. What is clear is that this condition inevitably led SDC and BPCC into a
thoroughly deceptive course of conduct towards British Rail. Mr Shaw also
stated in his evidence that it had been his intention to disclose the
declaration of trust to British Rail and seek their consent to an assignment
within a short space of time and that his failure to do so was an oversight on
his part. I cannot accept this evidence. Between November 1987 and May 20 1988
there were several occasions when Mr Shaw was negotiating with British Rail
through British Coal or their agents. He must have known that he needed to
negotiate in that way only because the declaration of trust had not been
disclosed. On November 9 1987 British Rail wrote to British Coal seeking their
confirmation that British Coal would not dispose of the lease without giving
British Rail an opportunity to take it back. On November 10 the addressee, Mr
Birchall, telephoned British Rail and told the writer of the letter that
British Coal were currently seeking offers above £1m but would consider any
offer British Rail chose to make. Mr Birchall did not then know that the
transaction with BPCC had been completed by the execution of the declaration of
trust but he did know about the contract and BPCC’s request that their interest
should not be revealed. He was in a difficult position, but that cannot excuse
this deliberate deception of British Rail.
On November 10
1987 SDC at the direction of BPCC wrote to British Rail seeking its consent to
an extension of the licence from SDC to BPCC for a further three months. In
fact such consent was unnecessary because the original consent had been given
until February 28 1988. But this application was thoroughly tricky because the
rights of BPCC through Cyproheath Ltd to the use and occupation of the land
rendered a licence between SDC and BPCC quite unnecessary. No new licence was
granted. There was no need to because under the terms of the declaration of
trust SDC was precluded from objecting.
In March 1988
British Rail refused to consent to any further licence to BPCC. From November 6
1987, when the declaration of trust was executed, to re-entry on the demised
premises by British Rail on June 9 1988 BPCC was in sole control of the demised
premises. Physically they had engaged security guards and certainly from March
1 1988, if not before, no one was allowed to enter the demised premises unless
authorised by BPCC. By March 1988 the site was used not only for car parking
but also as a site for building materials in connection with the works to
Odhams Press. Legally SDC referred all matters relating to the demised premises
to BPCC and did as they were told, including not renewing the licence to Linc
Ltd. Mr Shaw knew that the use of the site for building materials and, from
March 1 1988, for car parking was a breach of the user covenant.
On March 4
1988 British Rail refused to consent to any further use for car parking. They
required BPCC to clear the site. The use for building materials ceased but the
car parking did not. Moreover, at about this time the unauthorised use actually
increased. The printing of newspapers at Odhams Press had started and the
demised premises were used as a marshalling yard for lorries required to
deliver the papers from the presses to the wholesalers. On Saturdays part of
the loading of papers on the lorries was also done on the site. Because this
use took place in the evening, mostly after dark, it did not come to the
attention of British Rail until June.
On April 15
1988 the notice under section 146 of the Law of Property Act 1925 was served by
British Rail on SDC. The breaches relied on were:
You have
assigned, alternatively sublet, alternatively parted with possession of the
demised premises or part thereof without the previous written approval of the
Board to Linc Limited and/or British Printing Communications Corporation and/or
Taylor-Woodrow Construction Limited; the premises are being used as a building
contractor’s site and for car parking.
Compliance with
the lease and compensation was required within five weeks. The notice was sent
on by SDC to BPCC on April 21 1988 and in due course brought to the attention
of Mr Maxwell.
On May 20
1988, the day after the writ in this action seeking relief from forfeiture had
been issued, Mr Maxwell wrote to the chairman of British Rail seeking his
personal assistance. After describing the history and purpose of the licence
and the reason for and acquisition of the lease by means of the declaration of
trust, Mr Maxwell wrote:
The result —
and this is what I regret most — is that notice has been served on SDC alleging
a breach of covenant and stating that British Rail may seek to forfeit the
lease if the situation is not remedied by May 19. We have been advised by
leading counsel that SDC as lessee would be entitled to claim relief from
forfeiture on terms. However this would involve litigation with which I do not
wish to get involved. From my point of view the best solution would be for
Pergamon to take an outright assignment of SDC’s lease provided that British
Rail would be prepared, as before, to permit car parking on the site. If that
were acceptable in principle then I have no doubt that detailed arrangements
could be negotiated quite easily. I very much hope that a solution along these
lines will be possible. It seems very unlikely that the land will ever be
needed again as a storage and distribution depot and it must make sense to
explore other possibilities. In the short term we would certainly wish to continue
the car parking use on the same terms as before and this could be easily
achieved in the interim by an extension of the licence for car parking use
without prejudicing British Rail’s position.
Mr Maxwell’s
stated concern to continue to be able to use the site for car parking has been
criticised. He said nothing about use as a marshalling yard, though that was
the basis on which the subsequent application for an injunction was made. His
letter was in this respect less than frank.
A reply from
the chairman of British Rail was drafted but, owing to his unavailability, was
not sent before British Rail re-entered the demised premises on June 9 1988.
At 10 pm on
that day Mr Brown, who was responsible for the re-entry on behalf of British
Rail, met representatives of BPCC. British Rail had foreseen the short-term
problems re-entry might cause to BPCC but, being unaware of the issue of the
writ on May 19, considered that relief from forfeiture was probably not
available to BPCC.
To alleviate
the problems in the short term, written proposals were put to BPCC to enable
the continued use of the site for parking for a period not exceeding two years,
terminable on 28 days’ notice, provided that no relief from forfeiture was
sought and no claim in respect of the re-entry made. BPCC refused to negotiate
on the basis of those terms. On the following day, June 10, a further meeting
took place. The same proposals were put by British Rail and refused by BPCC and
the writ was served by BPCC. That evening Millett J granted an injunction ex
parte to restrain British Rail from interfering with BPCC’s use of the
demised premises relating to the collection, loading and distribution of
newspapers. This injunction was continued until June 22, when BPCC’s
application for the continuation of the injunction until trial was refused by
Harman J. For a month or so BPCC made temporary arrangements to enable the
distribution of papers from Odhams Press. Thereafter the Odhams Press site was
reorganised so as to avoid the need for any extra space for use as a
marshalling yard.
The reply from
the chairman of British Rail to Mr Maxwell was sent on June 10. In his letter
he stated:
Thank you for
your letter dated May 20, from which I have noted all your comments regarding
the site which is leased to Southern Depot Company Limited. I do agree with you
that the present situation is far from satisfactory. However, I have
investigated this matter with our property board and it would seem that they
have received no approach whatever from SDC seeking an assignment of their
lease. Moreover, given that the licence that was granted to SDC has now expired
and that a number of breaches of the terms of SDC’s lease have been committed,
it is imperative I feel that this unsatisfactory legal situation is properly
resolved. I am not unsympathetic to your situation and indeed would be very
happy to assist, but you should also know that I am concerned that future
opportunities for rail freight traffic are safeguarded. In fact you will know
that all our land holdings, particularly in the south-east, are under very
great pressure and it would be quite wrong if the Property Board were to commit
the Board to any course of action which could prejudice that very essential
part of the Board’s business.
Since then
each side has sought to improve its prospects of success in these proceedings.
British Rail has investigated with two public companies the possibility of
using the demised premises as an aggregate batching plant whereby aggregates
are transported by rail to the demised premises and then sold on in batches.
Plans were laid for train loads to be delivered for a week or so prior to the
commencement of the hearing. This latter proposal was accurately described in a
marginal note to a letter made by a British Rail manager as ‘a transparent
game’. The fact is that British Rail have not decided what to do with the site
if I refuse relief, though use in conjunction with the railways is one of the
possibilities under consideration.
On its side
BPCC has been considering the use of the demised premises, if relief is
granted, for the storage and distribution of newsprint transported to the
demised premises by rail. I shall consider this suggestion in more detail
later. But, in addition, on March 1 1990, five days before the hearing
commenced, a contract was entered into between SDC, BPCC under its current name
of Maxwell Communications Corporation plc, Cyproheath Ltd and British Coal. By
clause 12 the contract is conditional on inter alia the grant of relief
against forfeiture and the consent by British Rail to an assignment of the
lease to Maxwell Communications Corporation or its nominee, or a declaration
that such consent is being unreasonably withheld.
Subject to
those conditions, the benefit of the lease is revested in SDC but without any
liability to refund the £1.3m. By clause 5 SDC agrees to assign the lease to
Maxwell Communications Corporation or its nominee for no consideration. Pending
completion SDC is to grant a licence to MCC or its nominee for any use
permitted by the lease. If the conditions are not satisfied within two years
MCC may determine the contract and on any sale by SDC which would require the
consent of MCC SDC is required to pay to MCC the net proceeds thereof. By these
arrangements the parties have sought to remedy the effect of the declaration of
trust.
In this action
BPCC admits that, first, the declaration of trust and the subsequent conduct of
SDC and BPCC and Cyproheath constituted a parting with possession of the
demised premises without the consent of British Rail contrary to clause
2(16)(c) of the lease; second, the failure of SDC/BPCC to produce to British
Rail the declaration of trust on or before December 6 1987 was a breach of
clause 2(16)(e) of the lease; third, the use of the demised premises for
builders’ materials, as a marshalling yard and, after February 28 1988, for car
parking, was in breach of clause 2(8) of the lease; fourth, none of such
breaches was waived by the acceptance of rent as pleaded in the statement of
claim; fifth, in considering whether to grant relief from forfeiture and if so
on what terms, I should consider all the breaches of covenant and not only
those alleged in the section 146 notice. BPCC also accepts that if I grant
relief it should be on the conditions referred to in para 14A of British Rail’s
defence. In addition they offer to pay interest on the rent due at the rate of
15% from the due dates of payment. But they do not agree to pay indemnity
costs; only the costs taxed on such basis as I may order. However, though not
pursued before me, they seek to keep open a point for future argument that that
part of clause 2(8) of the lease which requires that the materials stored on
the demised premises shall be brought there by rail is void as being in
unreasonable restraint of trade and contrary to Article 85 of the Treaty of
Rome.
Thus the only
dispute of substance is whether I should grant relief at all. The power to do
so is conferred by section 146(2) of the Law of Property Act 1925 in the
following terms:
. . . the court
may grant or refuse relief, as the court, having regard to the proceedings and
conduct of the parties under the foregoing provisions of this section, and to
all the other circumstances, thinks fit; and in case of relief may grant it on
such terms, if any, as to costs, expenses, damages, compensation, penalty, or
otherwise, including the granting of an injunction to restrain any like breach
in the future, as the court, in the circumstances of each case, thinks fit.
The width of
this discretion under the statutory predecessor of section 146(2) was
emphasised by the Lord Chancellor, Earl Loreburn, in Hyman v Rose
[1912] AC 623. At p 631 he said:
I desire in
the first instance to point out that the discretion given by the section is
very wide. The court is to consider all the circumstances and the conduct of
the parties. Now it seems to me that when the Act is so express to provide a
wide discretion, meaning, no doubt, to prevent one man from forfeiting what in
fair dealing belongs to someone else, by taking advantage of a breach from
which he is not commensurately and irreparably damaged, it is not advisable to
lay down any rigid rules for guiding that discretion. I do not doubt that the
rules enunciated by the Master of the Rolls in the present case are useful
maxims in general, and that in general they reflect the point of view from
which judges would regard an application for relief. But I think it ought to be
distinctly understood that there may be cases in which any or all of them may
be disregarded. If it were otherwise the free discretion given by the statute
would be fettered by limitations which have nowhere been enacted. It is one
thing to decide what is the true meaning of the language contained in an Act of
Parliament. It is quite a different thing to place conditions upon a free
discretion entrusted by statute to the court where the conditions are not based
upon statutory enactment at all. It is not safe, I think, to say that the court
must and will always insist upon certain things when the Act does not require
them, and the facts of some unforeseen case may make the court wish it had kept
a free hand.
Counsel for
British Rail submitted that in exercising my discretion I should take no
account of the interests of BPCC at all because they are strangers to the
landlord and tenant relationship, not a party to these proceedings, and their
interest arises from the very transaction which constitutes the breach of
covenant from the consequences of which relief is sought. I do not accept this
submission. First, though it may be strictly accurate to say that BPCC are
strangers to the landlord and tenant relationship under the terms of the
delaration of trust and the contract, they were the absolute beneficial owners
and are now purchasers under a conditional contract. Counsel for British Rail
accepted that in the case of a trust or contract promptly and frankly disclosed
the position and interest of the beneficiary or purchaser may be considered.
Thus his complaint was the concealment of the declaration of trust from
November 6 1987 to May 20 1988. But this, it seems to me, is a factor which may
be relevant in the exercise of my discretion but is not a reason for ignoring
the interests of BPCC altogether.
Second, in the
straightforward case of an assignment without consent the assignee becomes the
tenant but liable to forfeiture. If the lease is forfeited the assignee may
apply for relief. It cannot be suggested that in considering whether or not to
grant relief his
of which complaint is made.
Third, the
words in the subsection ‘all the other circumstances’ follow and are in
addition to the conduct of the parties under subsection (1). This plainly can
include the relevant conduct and interests of non-parties.
Accordingly,
in my judgment, I am entitled to consider the interests and conduct of BPCC as
well as of SDC. I will consider the interests of SDC first. Commercially SDC
has no interest, only obligations under the contract. It is not under any
obligation to refund the £1.3m paid by BPCC and is entitled to an indemnity
from BPCC in carrying out its obligations under the contract. Any money
received by way of rent or on the sale of the lease must be paid by SDC to
BPCC.
Thus
commercially the only interest in the lease belongs to BPCC. They paid £1.3m in
November 1987, but they were in the position of a special purchaser concerned
to acquire the lease in competition with another special purchaser at the time,
Asda/MFI. There is no evidence that there is any special purchaser interested
in acquiring the lease now. The parties agree that depending on the level
established for the reviewed rent, in the absence of a special purchaser, if I
grant relief from forfeiture the lease is worth between nil and £250,000 on the
open market.
BPCC’s
interest in the lease if relief is granted will depend on whether British Rail
consents to an assignment pursuant to the contract or reasonably refuses its
consent. In the former case, if relief is granted BPCC will obtain the benefit
of the lease for whatever its value may then be. But in addition they will have
the opportunity to put the demised premises to profitable use and to recoup
their original investment of £1.3m. But if British Rail reasonably refuses its
consent then in March 1992 BPCC would be entitled to determine the contract and
receive from SDC the net proceeds of sale of the lease from a purchaser
approved by BPCC.
The parties
were unable to agree the value of the freehold in the hands of British Rail
with vacant possession or subject to the lease if relief is granted. Each party
put forward a range. The valuations put forward by BPCC as at March 1990 valued
the benefit to British Rail if relief were not granted as being within the
range of £4.2m to £6.5m. The values put forward by British Rail were £1.4m to
£1.75m.
I will now
consider the financial effect of the breaches of covenant against that
financial background. British Rail accepted that none of the breaches gave rise
to any lasting damage. There was no suggestion that the breaches of covenant
gave rise to any stigma attaching to the land. BPCC profited from its use of
the demised premises by the unauthorised use from March 1 to June 22 1988, but
this can be dealt with by the imposition of terms if relief is granted. In the
end of the day the principal opposition to the claim for relief was based on
the conduct of BPCC, which was described forcefully as wilful and deceitful.
I should
consider those submissions in some detail. It is plain that both SDC and BPCC
were originally prepared to enter into an assignment of the lease without
consent. They did not do so because of the advice of Titmuss Sainer & Webb
to BPCC. On that advice the transaction was dealt with on the basis of the
declaration of trust. It seems clear from the decisions in Stening v Abrahams
[1931] 1 Ch 470, Pincott v Moorstons Ltd [1937] 1 All ER 513 and Lam
Kee Ying Sdn Bhd v Lam Shes Tong [1975] AC 247 that the declaration
of trust on its own did not constitute a breach of covenant. Indeed I did not
understand counsel for British Rail to be contending otherwise. Nor was the
declaration of trust a sham. The breach as conceded by SDC arose at the latest
on March 1 1988 when BPCC, pursuant to the arrangements they made for admission
to the site, effectively excluded SDC. SDC could not object because of the
terms of the declaration of trust. It seems plain from the evidence of Mr Shaw
that he realised that SDC had parted with possession. Equally it seemed clear
from the section 146 notice that British Rail thought so too from what they
could observe from inspection of the land, though they did not know then of the
declaration of trust.
Under the
terms of the lease the declaration of trust should have been disclosed to
British Rail by December 6 1987 at the latest. Titmuss Sainer & Webb had
not spotted this provision and in consequence had not brought it to the
attention of BPCC. Thus the breach in this respect was not deliberate in the
sense of purposely not complying with an obligation of which BPCC was aware.
But it seems to me not only was this breach not wilful but it did not have the
result of concealing by deceit the breach of covenant by parting with
possession.
The breach of
the user covenant was wilful. Mr Shaw knew full well that neither the car
parking after February 28 1988 nor the use as a marshalling yard was authorised
and no steps were taken to stop either use either before or after the service
of the section 146 notice. But those breaches were not deceitfully concealed.
While the
breaches were not deceitfully concealed, the decision made by Mr Shaw that the
declaration of trust should not be revealed did give rise to occasions when, as
I have recorded, British Rail was deliberately given the wrong impression by
SDC and BPCC. The question is what weight I should attach to two of the
breaches being wilful and the third which, while not wilful, resulted in
British Rail’s being misled.
In opening his
case, counsel for BPCC referred me to Shiloh Spinners Ltd v Harding
[1973] AC 691. That case concerned the equitable jurisdiction to grant relief
from forfeiture. At p 723 Lord Wilberforce said:
. . . it
remains true today that equity expects men to carry out their bargains and will
not let them buy their way out by uncovenanted payment. But it is consistent
with these principles that we should reaffirm the right of courts of equity in
appropriate and limited cases to relieve against forfeiture for breach of
covenant or condition where the primary object of the bargain is to secure a
stated result which can effectively be attained when the matter comes before
the court, and where the forfeiture provision is added by way of security for
the production of that result. The word ‘appropriate’ involves consideration of
the conduct of the applicant for relief, in particular whether his default was
wilful, of the gravity of the breaches, and of the disparity between the value
of the property of which forfeiture is claimed as compared with the damage
caused by the breach.
Later he said
at p 725:
The power of
re-entry was inserted by way of reinforcement of the contractual obligation
which it must have been perceived might cease to be enforceable as such.
Failures to observe the covenants having occurred, it would be right to
consider whether the assignor should be allowed to exercise his legal rights if
the essentials of the bargain could be secured and if it was fair and just to
prevent him from doing so. It would be necessary, as stated above, to consider
the conduct of the assignee, the nature and gravity of the breach, and its
relation to the value of the property which might be forfeited. Established
and, in my opinion, sound principle requires that wilful breaches should not,
or at least should only in exceptional cases, be relieved against, if only for
the reason that the assignor should not be compelled to remain in a relation of
neighbourhood with a person in deliberate breach of his obligations.
In his
submissions, counsel for British Rail drew my attention to an intervening
passage at p 724, where Lord Wilberforce said:
Secondly, a
point of more difficulty arises from the intervention of Parliament in
providing specific machinery for the granting of relief against forfeiture of
leases
— and his
lordship then referred to a number of statutory provisions. He then continued:
This, it is
said, negatives an intention that any corresponding jurisdiction should exist
outside the case of leases. I do not accept this argument. In my opinion where
the courts have established a general principle of law or equity, and the
legislature steps in with particular legislation in a particular area, it must,
unless showing a contrary intention, be taken to have left cases outside that
area where they were under the influence of the general law. To suppose otherwise
involves the conclusion that an existing jurisdiction has been cut down by
implication, by an enactment moreover which is positive in character (for it
amplifies the jurisdiction in cases of leases) rather than negative.
Accordingly,
in his reply counsel for BPCC resiled from the position he accepted in opening
and submitted that it did not require an exceptional case to grant relief from
forfeiture under section 146(2) for wilful breaches. He submitted that the
jurisdiction under section 146 required the service of a notice so as to enable
the tenant to stop the breaches which were capable of remedy and to make
compensation for those which were not before there could be any forfeiture at
all. Thus when relief is sought under section 146(2) in many cases the breach
will by then be wilful. But, as he submitted, relief is commonly granted in
cases which could not be described as exceptional.
In Ropemaker
Properties Ltd v Noonhaven Ltd [1989] 2 EGLR 50 Millett J applied
the principles referred to by Lord Wilberforce in a case under section 146(2)
but found that on its facts that case was exceptional.
There can be
no doubt that the wilfulness of the breach is a relevant consideration and that
the court should not in exercising its discretion encourage a belief that
parties to a lease can ignore their obligations and buy their way out of any
consequential forfeiture.
only in an exceptional case seems to me to be seeking to lay down a rule for
the exercise of the court’s discretion which the decision of the House of Lords
in Hyman v Rose [1912] AC 623 said should not be done. Certainly
Lord Wilberforce in Shiloh Spinners Ltd v Harding did not purport
to do so in cases under the statute.
Accordingly,
in my judgment, although I should give considerable weight to the fact that two
out of the three breaches were wilful, I am not required to find an exceptional
case before granting relief from forfeiture.
The wilfulness
of the breaches, the letter from Mr Maxwell and the failure to reveal the
declaration of trust which, while not deceitfully concealing the other
breaches, involved misleading British Rail founded the submission that relief
from forfeiture should be refused because BPCC had shown itself to be
unsuitable as a tenant. But it is necessary to remember that BPCC is not the
tenant and will not necessarily become the tenant if I grant relief. No
application for consent to an assignment has yet been made to British Rail and
thus there has been no refusal to consent. There is no issue before me whether
any such refusal would be reasonable or not. If consent is refused in due
course, the question of whether such refusal is reasonable or not will have to
be considered at that time in the light of the reasons given by British Rail.
Thus if it would be reasonable to refuse consent, then that is not of itself a
reason to refuse relief from forfeiture now because British Rail would not
thereby be saddled with an unsuitable tenant.
In his evidence
Mr Maxwell was asked what he would do with the demised premises if relief were
granted. He gave three uses of which two would amount to a breach of the user
covenant. The third, which British Rail accepts would not give rise to a
breach, is to use it as a storage depot for newsprint transported by rail. This
was criticised on the basis that the only documents produced showed a study
based on rail transport charges of £5 per metric tonne and the evidence of
British Rail was that their minimum charge would be £14.42 per metric tonne. It
was suggested that this proposed use was not genuine. But again this seems to
me to be a point more relevant to whether consent to an assignment can be
reasonably withheld. Provided that use in accordance with the lease is properly
secured by injunctions or undertakings, it seems to me to be a question for the
tenant whether it is worth his while to obtain relief from forfeiture.
The question
of consent to an assignment raises another issue. If consent had been sought
shortly after the declaration of trust, as BPCC accepted it should have been,
the provisions of the Landlord and Tenant Act 1988 would not have applied. If
consent is sought hereafter, they will. If it were the case that British Rail
would be deprived of a legitimate advantage if consent is sought after relief
is given, which they would have enjoyed if consent had been sought when it
should have been, then that would have been a factor against granting relief.
But that Act has not changed the basis on which the reasonableness of a refusal
is tested. It requires a landlord to give his reasons for a refusal and limits
him to those reasons in justifying his refusal. It also imposes on him a
liability for breach of statutory duty if he unreasonably refuses his consent.
Thus if British Rail reasonably refuses its consent it will be in no worse
position. If its refusal is unreasonable it will be, but then in those
circumstances the advantage British Rail has lost can hardly be described as
legitimate. Accordingly, in my judgment, this change in the law is immaterial
to the question I have to decide.
With this
perhaps over-lengthy consideration of the circumstances, I return to the words
of the Lord Chancellor in Hyman v Rose [1912] AC 623 at p 631,
which describe the purpose of section 146(2). I would paraphrase it by posing
the questions whether the damage sustained by British Rail is proportionate to
the advantage it will obtain if no relief is granted and, if not, whether in
all the circumstances it is just that British Rail should retain that
advantage. I answer both questions in the negative.
If no relief
is granted then British Rail will obtain an advantage worth not less than £1.4m
from breaches which have caused it no lasting damage. Conditions for relief can
secure for British Rail compensation for the unauthorised advantages BPCC
obtained in the past and due performance of the covenants in the future. If
British Rail are justified in not wanting BPCC as a tenant then all it has to
do is to refuse its consent to an assignment in due course.
If such
consent cannot, when sought, be unreasonably withheld then to deny BPCC the
opportunity to recoup its investment of £1.3m would seem to me to be out of all
proportion to the gravity of the breaches and the conduct of BPCC. If such
consent can be reasonably withheld then BPCC will not become British Rail’s
tenant, but on the agreed current valuations of the lease BPCC will make a
substantial loss on the whole transaction even if relief is granted.
It does not
appear to me to be just that such loss should be increased by the refusal of
relief.
Accordingly, I
will grant relief from forfeiture on the following terms:
(1) SDC must pay the rent and other outgoings due
under the lease since June 9 1988 including the reviewed rent when agreed or
ascertained with interest thereon at the rate of 15% per annum from the
respective due dates of payment until payment.
(2) SDC must pay British Rail’s costs of this
action and counterclaim taxed on an indemnity basis.
(3) SDC must pay the sum of £44,644 referred to
in para 14A(ii) of the defence together with interest thereon at the rate of
15% from December 1 1988 to payment.
(4) The rent figure takes no account of the
unauthorised use from March 1 1988 to June 22 1988. British Rail were prepared
to allow car parking for £12,500 per month, but there was no figure for the
unauthorised use as a marshalling yard as well. At the time that use was
equally crucial to BPCC. Accordingly, I assess its value at the same figure.
Thus it will be a further condition that, in addition to the rent payable for
the authorised use, SDC shall pay £93,750, that is £25,000 per month for three
and three quarter months with interest at 15% from June 22 1988 to payment.
(5) I shall require undertakings from SDC and
BPCC and its subsidiary companies to perform and observe clauses 2(8), 16(c)
and 16(e) of the lease.
I will hear
counsel further on the form of my order.
Counsel to
agree terms of order. SDC were ordered to pay British Rail’s costs on an
indemnity basis.