Landlord and tenant — Forfeiture — Clubs used for purposes of prostitution — Scale of activities known to all concerned in the running of the clubs — Relief against forfeiture — Reasons why relief given despite breaches ‘of the utmost gravity’ — Possession claimed by owners of West End premises after investigations into conduct of two night clubs occupying parts of the premises, one of them by an underlease and the other by licence granted by the defendants, lessees for a term of 25 years from October 28 1982 at a rent of £75,000 pa with provision for rent review — User clause in the lease, in addition to prohibiting use for any illegal or immoral purpose, forbade the use of the parts underlet ‘for any purpose other than as a high-class restaurant/night club’; and both underlease and licence prohibited use for any illegal or immoral purpose
‘overwhelming evidence’ that both clubs were used for purposes of prostitution
— The hostesses were not paid by the club but were required to negotiate a
‘hostess fee’ with clients, not the usual arrangement at a reputable night club
— Most, if not virtually all, the hostesses were prostitutes — At one of the
clubs, if not at both, a customer was expected or required to buy two bottles
of champagne (at a wholly extortionate price) and a meal in order to enable the
hostess to leave the club with him (‘the two bottle rule’)
clear breaches of the user covenants and the scale of the prostitutes’
activities made it impossible to believe that anyone involved in the actual
day-to-day management and running was unaware of what was going on — The
defendants, the lessees of the premises, were a private company owned and
controlled by the sole director, a man of 64, said to suffer from a serious
heart condition — He strongly denied knowledge of the conduct complained of and
said that he had confidence in his managers, who were experienced night club
operators — The judge’s assessment of him was that if he did not know, for
example, as a fact that the hostesses were engaged in prostitution, it was
because he took
The judge concluded that, whether or not he had actual knowledge of what was
going on, he must be taken to have known of it — That was sufficient to fix the
defendants, as distinct from the managers and staff, with knowledge, so that
breach of the covenants against knowingly permitting immoral user was
established — The managers and staff, of course, had actual knowledge of the
breaches
importance of the decision lies in the reasons given by the judge for granting
relief against forfeiture of the lease, despite the admittedly grave character
of the misconduct disclosed — After reaffirming that it was only in the rarest
and most exceptional circumstances that the court would grant relief in such a
case, he listed the considerations which had influenced him as follows:
proportion to their offence or to any conceivable damage to the plaintiffs;
unlikely to be renewed (the defendants, inter alia, would enter into a deed of
variation banning hostesses from the premises);
be short-lived and might already have disappeared;
to remove any remaining stigma — those who ran the clubs had already gone;
plaintiffs with unacceptable tenants, as in all respects save the one
complained of in this action the defendants had been excellent tenants;
seriously poor health and had been thinking of retiring and disposing of the
lease; he had offered to use his best endeavours to find a purchaser within
some appropriate time-scale if relief were granted (The judge did not require
an undertaking, but was satisfied that the intention to dispose of the lease
was genuine)
The following
cases are referred to in this report.
Central Estates (Belgravia) Ltd v Woolgar (no 2)
[1972] 1 WLR 1048; [1972] 3 All ER 610; (1972) 24 P&CR 103; [1972] EGD 648;
223 EG 1273, CA
Shiloh Spinners Ltd v Harding [1973] AC
691; [1973] 2 WLR 28; [1973] 1 All ER 90; (1973) 25 P&CR 48, HL
In this action
the plaintiffs, Ropemaker Properties Ltd, sought possession of business
premises at 14-16 Bruton Place, London W1, from the lessees, Noonhaven Ltd, on
the ground that the plaintiffs had terminated the lease by forfeiture for
breaches of the user covenants by the defendant lessees.
John Furber
(instructed by Linklaters & Paines) appeared on behalf of the plaintiffs;
John Cherryman QC and Jonathan Gaunt (instructed by Rubinstein Callingham with
Polden Bishop & Gale) represented the defendants.
Giving
judgment, MILLETT J said: In this action the plaintiffs claim possession of
business premises at 14-16 Bruton Place, London W1. The premises are held by
the defendants under a lease dated October 28 1982 granted to them by the
plaintiffs’ predecessors in title for a term of 25 years from the date of the
lease at a rent of £75,000 pa with provision for rent review. They consist of
the ground floor and basement with three upper floors. Under the terms of the
lease the first floor, ground floor and basement must be used as a high-class
restaurant or night club only. At all material times there were two ‘hostess’
clubs on the premises, The Burlesque Club on the ground and first floor and The
Bristol Suite in the basement.
The plaintiffs
claim to have forfeited the lease for breaches of the user covenants. They
allege, inter alia, breach of the covenant against knowingly permitting
the premises to be used for prostitution. The defendants deny breach;
alternatively, they seek relief from forfeiture. The plaintiffs resist the
granting of relief because of the nature of the breaches relied on.
The lease was
originally granted to the defendants by BP Pension Trustees Ltd. In 1986 the
freehold reversion was transferred to the plaintiffs, who are connected parties
and trustees of the same pension fund. The user clause of the lease is clause
3(12). With immaterial parts omitted, it is in the following terms:
(a) Not knowingly to use or permit the demised
premises or any part thereof to be used for any illegal or immoral purpose and
that the demised premises shall be used only in accordance with the provision
of sub-clause (b) of this sub-clause (12) and for no other purpose which use
shall not be construed to be a breach of this clause . . .
(b) Not to use or permit the basement, ground and
first floors of the demised premises or any part thereof to be used for any
purpose other than as a high-class restaurant/night club to include music,
dancing and cabaret and gambling . . .
The lease contains the usual proviso for
re-entry in the event of any breach of covenant on the part of the tenant.
In 1987 the
basement was occupied by Bristol Suite Club Ltd under an underlease the terms
of which had previously been agreed and which was eventually granted by the
defendants with the plaintiffs’ consent on October 14 1987. The underlease was
for a term of three years from September 29 1985 and included a lengthy
schedule of fixtures and fittings. It contained a user clause in substantially
the same terms as that in the defendants’ lease and a proviso for re-entry. The
underlease was guaranteed by a Mr Leslie Conn, who owned the Bristol Suite Club
Ltd. He had been in occupation of the basement for many years, and had carried
on there the business of a ‘hostess’ club known as The Bristol Suite. The
underlease expired on September 29 1988 and was not renewed.
The ground and
first floors were occupied by Lookpast Ltd under the terms of a licence dated
April 24 1986 and granted by the defendants. The licence was guaranteed by a Mr
Langer, who ran Samantha’s, one of the defendants’ other clubs, as a licensee.
The plaintiffs’ consent was not sought or obtained, on the ground that no
parting with possession of the premises was involved. The licence was of
indefinite duration but was terminable by the defendants by notice forthwith in
the event of any material or persistent breach by the licensee of the terms of
the licence or at any time by one month’s notice in writing given by either
party. By the licence the defendants granted to the licensee the right to carry
on the business of a licensed club and discotheque under the name ‘The
Burlesque Club’ on the premises and to use certain specified chattels for the
purpose of the business. The goodwill of the business and the right to the name
‘The Burlesque Club’ were retained by the defendants. The licence contained the
following terms:
Clause 2:
(ii) Nothing herein is or is to be deemed to
confer upon the licensee an exclusive right of occupation of the premises or
any part thereof.
. . .
(v) The licensee shall not, by himself or itself
or its officers, or by his or its servants or agents, in any way impede the
licensor or its officers servants or agents in the exercise by them of the
licensor’s rights of possession and control of the premises and in particular
will give all reasonable assistance and facilities to such officers, servants
or agents of the licensor for the alteration at any time of the layout
decorations or trade chattels at the premises.
Clause 4:
The licensee
hereby agrees at all times during the subsistence of this agreement to
(b) Comply forthwith with all requirements made
by the licensor as to the proper running of the business
. . .
(e) Purchase only from the licensor or from
whomsoever the licensor shall nominate during the subsistence of this agreement
all wines, spirits and alcoholic beverages sold by the licensee upon the
premises
. . .
(j) Not to use the premises for any purposes
which are illegal or immoral.
Clause 5:
For the
avoidance of doubt (and although implicit in the nature of the rights created
by this agreement) it is hereby declared and agreed that
(a) The licensor, his servant or his agents shall
at all times during the subsistence of this agreement be entitled to enter the
premises without the leave of the licensee and without prejudice to the
generality of the above the licensor, his servants or agents shall at all times
during the subsistence of this agreement have the right to enter the premises
to observe the manner in which the business is being carried out . . .
The licence
fee was £6,000 per week, but in fact half the fee was waived. Clause 4(e) was
not enforced; the defendants did not supply liquor to the licensee.
The defendants
had been lessees or underlessees of the premises
names since that time. Lookpast Ltd was owned by a Mr Michael Ferdenzi, who
owned and ran The Burlesque Club. He had been recommended to the defendants by
Mr Langer, but his assets were insufficient to support a worthwhile guarantee.
The liquor licence was held by Mr Langer and Mr Ferdenzi.
In 1987 the
plaintiffs became suspicious about both clubs, and instructed a firm of private
investigators to ascertain whether they were being used for the purpose of
prostitution. One night in July an operative paid a visit to The Burlesque Club
masquerading as a customer. As a result of what he found, a large-scale
investigation and surveillance operation was mounted in September. On different
nights three operatives each paid a visit to one or other of the clubs, two to
The Burlesque Club and one to The Bristol Suite. On one of those nights and on
three other nights as well an observation post was established in other
premises belonging to the plaintiffs across the street with a clear and
uninterrupted view of the front entrances of the clubs. The observation post
was equipped with a video camera to record the comings and goings of visitors,
and was in radio communication with other operatives in three vehicles, one of
them a London taxi, parked nearby in Berkeley Square. On receiving instructions
from the observation post, these operatives followed suspicious couples when
they left either of the clubs. Following receipt of the evidence obtained by
these methods, the plaintiffs served a notice under section 146 of the Law of
Property Act 1925 on the defendants on October 14 1987.
The notice
alleged (inter alia) the following breaches of covenant on the part of
the defendants:
(2) The above-mentioned covenants have been
broken in that:
(i) In breach of clause 3(12)(a) you have
knowingly used the premises or part of them or permitted the premises or part
of them to be used for an immoral purpose, namely prostitution.
(vi) In breach of clause 3(12)(a) and (b) you have
used or permitted the basement and ground floors of the demised premises to be
used (and/or the basement and ground floors of the demised premises have been
used) for a purpose other than as a high-class restaurant/night club, in that
the primary use of those parts of the premises is for the introduction of men
to women for a fee and for the compulsory sale of champagne to such men at an
exorbitant price, and/or for prostitution.
Service of the
section 146 notice was not preceded by any warning or letter advising the
defendants of what the plaintiffs’ inquiry agents had discovered. In retrospect
this was unfortunate, for it has greatly increased the plaintiffs’ difficulties
in proving knowledge on the part of the defendants of the immoral user which,
where a necessary element in the breach alleged, must be proved as at the date
of the service of the notice. But the omission is understandable, since the
plaintiffs’ solicitors were apparently unaware at this stage of the existence
of the licence. They wrongly assumed that the business of The Burlesque Club
was owned by the defendants and that Mr Ferdenzi was employed by them to manage
it on their behalf. They did not expect that proving knowledge on the part of
the defendants would be a problem.
As soon as
they received the notice, the defendants placed the matter in the hands of
their solicitors. They telephoned the plaintiffs’ solicitors at once and asked
for details of the allegations contained in the notice. This was misguided. The
allegations needed no particularisation to understand. They were not consistent
with isolated and incidental instances of prostitution on the part of hostesses
employed at the clubs — a risk which must be ever present in any night club,
however respectable, where hostesses are employed — but only with the
deliberate carrying on by those operating the clubs of businesses in which
prostitution played an integral part.
On October 22
1987 the defendants’ solicitors wrote to the plaintiffs’ solicitors, stating
that their clients emphatically denied that they had knowingly used the
premises or permitted them to be used for the purposes alleged. They repeated
their request for particulars of the allegations, stating that if they were
supplied their clients ‘can then consider and deal with the allegations in a
full and proper manner and, if any steps are to be taken, they will have the
appropriate information to act upon’.
The
plaintiffs’ solicitors declined to provide any further information. The
defendants forwarded copies of the section 146 notice to the persons operating
the clubs, and routine assurances that there was no substance in the
allegations were duly obtained. On October 31 1987 a private investigator
secretly revisited each of the clubs on behalf of the plaintiffs in order to
see whether the situation that had been found there previously still obtained.
It did. Following the receipt of the reports, the plaintiffs issued the writ on
November 12 1987. The defendants then instructed inquiry agents of their own to
enter the clubs and report on what they found. Two operatives visited The
Bristol Suite on December 3 1987. They gave it a clean bill of health. Two
other operatives, however, visited The Burlesque Club on the defendants’ behalf
on December 16 1987 and found clear evidence of prostitution. Their report was
dated December 21. Following its receipt, the defendants caused the barman and
two of the hostesses at The Burlesque Club to be dismissed.
On April 9
1988 the defendants gave Lookpast Ltd four weeks’ notice determining the
licence of The Burlesque Club as from May 7. This had nothing to do with the
allegations made by the plaintiffs or the discoveries made by the defendants’
inquiry agents. Mr Ferdenzi had got into trouble with the authorities over his
VAT returns and some of his cheques in payment of the licence fee to the
defendants had been dishonoured. On April 21, before he left, two of the
plaintiffs’ inquiry agents paid a further secret visit to The Burlesque Club and
The Bristol Suite, and another surveillance operation was undertaken.
During the
summer The Burlesque Club was carried on on a temporary basis by various
licensees. On September 9 a licence was granted to Farmdene Ltd, a company
owned by a Mr Gerard Djoughdem, and he took over the management of the club.
The licence was in substantially the same terms as that previously granted to
Lookpast Ltd.
On September
29 1988 The Bristol Suite closed. On the following day, with the date fixed for
the trial of the action less than eight weeks away, the plaintiffs’ solicitors
supplied the proofs of evidence of their inquiry agents, together with the logs
of their surveillance team, dealing with their investigations in July,
September and October 1987. The defendants, who claimed to be astonished and
horrified by what they read, wrote to Mr Djoughdem on October 10 and asked him
to bar six of the hostesses from the premises.
The hostesses,
who were self-employed, were a shifting population, and it is not clear whether
any of the hostesses named in the defendants’ letter were in fact still working
at the club. A few days later, one of the plaintiffs’ inquiry agents revisited
the club. As a result of an incident which took place on that occasion and
which came to their notice, the defendants came to the conclusion that it was
impossible in practice to control the hostesses. They agreed with Mr Djoughdem
to close the club and reopen it under another name without hostesses. It closed
on October 28. Over the next three weeks the premises were extensively
refurbished; the basement was incorporated in the club premises; and the new
club opened on November 17 under the name ‘Wall Street’. A fresh licence was
granted to Farmdene Ltd. It covered both ground floor and basement and prohibited
the presence of hostesses. Meanwhile, on November 4 the plaintiffs’ solicitors
had supplied copies of the proofs of evidence of their inquiry agents
describing what they had found in the course of their visits in April and
October 1988.
The defendants
The defendants
are a private company owned and controlled by a Mr Leonard Bloom, the company’s
sole director. He is now 64 years of age and suffers from a serious heart
condition. For the last 30 years he has been a prominent figure in the world of
late-night entertainment in London. He built up a successful chain of
discotheques in the West End, and by the late 1960s had become one of the
larger private operators in the country. In the early 1970s he gave up the
actual running of the clubs and adopted instead a system of licensing under
which the various club premises were licensed to club operators. They took over
the management and operation of the clubs, which were fitted out by Mr Bloom
with the appropriate decor and equipment and in many cases enjoyed an existing
goodwill. Mr Bloom was not involved in the employment or dismissal of staff,
the licensee’s accounts, or his tax or VAT obligations. His functions were
confined to ensuring that the music and dancing and liquor licences were
obtained and were protected by complying with the requirements of the licensing
authorities. The system proved successful, and soon all Mr Bloom’s clubs were
licensed to independent operators in this way.
At about this
time Mr Bloom caused the defendants to be formed and they continued to operate
the licensing system which he had devised. They currently own other
establishments in the West End in addition to the clubs at 14-16 Bruton Place.
These consist of six late-
Hostesses are to be found only at the last-mentioned. Mr Bloom told me that
over the years he had been involved with some 30 night clubs or other places of
late-night entertainment and that he had never been faced with allegations of
the kind now made against him. This statement, however, has diminished force
when it is appreciated that hostesses were not available in any of his clubs
apart from the three which I have mentioned.
At one time Mr
Bloom had intended to establish a liquor wholesaling business, and this was the
reason for requiring the operator to purchase all his liquor from the
defendants. But Mr Bloom never did so, and this requirement was not enforced.
Despite the
defendants’ financial success, they remain a small company behind which Mr
Bloom acknowledges himself to be the driving force and employing a staff of
four. These consist of two maintenance men, a Miss Helen Messer, Mr Bloom’s
secretary and bookkeeper who has been with him for 10 years, and a Miss Jackie
McDonald-Smith, his general manager, who has been with him for 16 years. Mr
Bloom told me that the defendants’ responsibilities were confined to checking
that the various club premises were being properly looked after and that the
conditions of the fire and safety certificates and the music and dancing and
liquor licences were observed. However, he said, he often visited the premises
while they were open in order to see for himself that everything was in order.
As it happens,
the defendants had run into difficulties with Mr Conn in relation to the tenure
of The Bristol Suite. They had granted a licence in the usual way, but Mr Conn
claimed to be a tenant. This resulted in the initiation of High Court
proceedings in 1982, in the course of which an interlocutory injunction was
granted restraining the defendants from interfering with Mr Conn’s enjoyment of
the premises pending the trial of the action. Wisely, Mr Bloom’s solicitor
advised him that it would be prudent for him to refrain from entering the club
at all while the injunction remained in force, and he did not visit it.
Eventually the proceedings were compromised on the terms that Mr Conn’s company
should be granted an underlease of the premises for three years from September
1985, and that the provisions of Part II of the Landlord and Tenant Act 1954
should be excluded. It is not clear when this compromise was agreed upon, but I
infer that it was in or about September 1985. That was the genesis of the
underlease of The Bristol Suite. No formal termination of the proceedings was
obtained and in theory the injunction appears to be still running.
Surprisingly, Mr Bloom told me that he had still felt constrained to keep away
from The Bristol Suite while Mr Conn’s company remained in occupation, and he
and his staff seldom visited the club.
The
defendants’ other clubs, however, continued to be operated under licence
arrangements as before. Because of the problem that had been encountered with
Mr Conn, Mr Bloom was advised to insist upon his right to enter the clubs, to
exercise that right frequently, and to keep a detailed written record of his
visits. He did so. Diaries were kept by Miss Messer and Miss McDonald-Smith.
They were produced in evidence. They contain some gaps where, for one reason or
another, they were not kept up. They record very frequent visits to the various
clubs in 1986, 1987 and 1988 by Miss Messer or Miss McDonald-Smith and, except
for long periods in 1987 totalling some 151 days when he was out of the
country, by Mr Bloom. There are 72 recorded visits to The Burlesque Club during
1986, and there were probably more in fact, because there are gaps in the diary
and because there are at least 20 entries to the effect that ‘all the clubs’ or
‘the clubs’ were visited on a particular night. There are, however, only three
recorded visits to The Burlesque Club during 1987 and, significantly, none at
all between October 14 1987, when the section 146 notice was served, and the
start of a gap in the diary on November 6, although Mr Bloom was in London and
one or more of the other clubs was visited every night. Recorded visits to The
Burlesque Club begin again in January 1988 and increase in frequency as the
year progresses. There are 13 recorded visits between January 7 and April 9,
when notice to determine his licence was given to Mr Ferdenzi.
In January
1987 Mr Ferdenzi, in addition to running The Burlesque Club, had taken over the
management of Jacqueline’s, another of the defendants’ clubs, and Mr Bloom
explained that thereafter he had no occasion to visit The Burlesque Club, since
he could discuss its affairs with Mr Ferdenzi at Jacqueline’s. This is a
surprising explanation for his failure to visit The Burlesque Club, given the
reason for the advice he had received to do so; but in any event it does not
explain his failure to visit The Burlesque Club at all in the period
immediately following the service of the section 146 notice. Mr Ferdenzi gave
up running Jacqueline’s on October 10, and returned to The Burlesque Club. Mr
Bloom claimed that he had ‘undoubtedly’ made visits to The Burlesque Club which
are not recorded in the diaries, and this was confirmed by Miss McDonald-Smith.
But in an affidavit sworn by him and intended to stand as his evidence-in-chief
in this action he confirmed that ‘most of our visits to the clubs are recorded’
in the diaries, and while some may have gone unrecorded from time to time if
nothing of moment was discussed, I cannot accept this as an explanation for the
complete absence from the diaries of any recorded reaction to the service of the
section 146 notice.
In his
affidavit Mr Bloom accepted that he made relatively few visits to The Burlesque
Club. This, he said, was because the club had been in existence for many years
with experienced proprietors and few difficulties were encountered. The
clientele was smaller, more respectable and better behaved than that at the
discotheques, where the clientele was younger, and these other clubs needed
more supervision. It is, however, noticeable that very few visits were made to
The Office, the only other establishment with which the defendants were
involved where hostesses were available.
When Mr Bloom
or his staff visited The Burlesque Club, they did so relatively early in the
evening, and were gone before midnight. Their visits usually lasted for 15-20
minutes. Miss Messer said that she occasionally returned later, but her visits
almost all took place in 1988. Mr Bloom explained that he visited The Burlesque
Club before midnight because this was its busiest time, whereas the
discotheques did not become busy until later. This was not, however, borne out
by the evidence of the inquiry agents. The defendants’ own investigators, for
example, reported that the busiest time at The Burlesque Club was between 1.30
am and 2.30 am, and this is confirmed by the logs maintained by the plaintiffs’
surveillance team.
The clubs
The Bristol
Suite was smaller and more intimate than The Burlesque Club and had only a
small cabaret, but in other respects the two clubs were run on similar lines.
Each had a doorman and a receptionist and charged a modest entrance fee of £6
or £7. Each made its money from the sale of alcohol, mainly champagne, at
inflated prices. Each had a bar and a small dance floor surrounded by tables
and comfortable chairs or couches. Each was opulently and expensively fitted
out; the decor was reminiscent of a Parisian bordello of the 1890s, all red
plush and ornate gilded mirrors. The Burlesque Club had a small raised stage
and boasted the longest bar in Mayfair. One witness whose evidence is worthy of
respect rated it as among the top 10% of night clubs in London.
Each of the
clubs served drinks until about 3.30 am when it closed, and a variety of meals
were available, though in view of the lateness of the hour most customers were
content with simple snacks. The Burlesque Club had a floor show consisting
mainly of a variety of dance routines of an erotic nature. The dancers were
self-employed artistes on the night club circuit who performed at several clubs
during the course of the night. The music was recorded. Champagne was sold at
exorbitant prices. The cheapest champagne available at The Burlesque Club was
the ‘house champagne’ (otherwise unidentified) at £58 a bottle; the Dom
Perignon (I suspect rather better value) was £109 a bottle. To these a service
charge of 15% was added, but since change was seldom proffered the cheapest
champagne worked out at £70 a bottle.
The clubs
appealed primarily to wealthy, middle-aged businessmen or professional men
visiting London who found themselves alone in the capital in the evening and
felt the need of female company in luxurious surroundings; and to groups of
younger men who had dined together and wanted to ‘make an evening of it’. Part
of the attraction of each club lay in the availability of hostesses, attractive
young women who would, if asked, join a customer and be his companion for the
evening. The hostesses were self-employed. They received no pay or commission
from the club. They were expected to entertain a customer in return for a
‘hostess fee’ to be negotiated between herself and the customer and paid
directly to her by him. At The Burlesque Club each table bore a card inscribed:
Dear Customer,
We would like to point out that our
hostesses rely totally on their hostess fee, we do not pay any form of commission
to them. We would therefore like to
enjoyable evening.
The Management
There was
evidence that these are not the usual arrangements under which hostesses are
engaged at reputable night clubs. They carry obvious dangers, since they compel
the girls to negotiate the amount of the ‘hostess fee’ directly with the
customer. Moreover, the economics of the arrangements meant that the
recommended fee of £25 was far too low. At the end of the evening, most of the
girls took a taxi home. Few lived in central London, and taxi fares at 3.00 am
to the suburbs would have absorbed much of the £25. Moreover, a girl could
expect that there would be evenings when she would earn nothing. The agents’
evidence showed that, even when a customer did not require sex, the hostesses
demanded far more than £25. There must have been considerable temptation for
the girls to offer to be ‘nice’ to their companions.
The Burlesque
Club had a list of rules and regulations governing the hostesses’ conduct. They
included the following:
Rule 9. No arranging to meet or meeting
with customers outside of the premises or of exchanging telephone numbers with
a view to making a meeting outside of working hours.
Rule 10. Not to pressurise customers to
pay over the recommended hostess fee.
Neither rule was observed. The rules were
at some stage supplemented by the following:
To all hostesses. Rule number 9 of the
Burlesque’s rules and regulations which you have already read and signed have
been amended to the following:
‘Any hostess found meeting or making
arrangements to meet any customer off the club’s premises outside working hours
whether by the giving or exchanging of telephone numbers or addresses or
otherwise will be subject to instant dismissal’.
It is noticeable that, although there was
a rule requiring the hostesses to arrive punctually, there was no rule
forbidding them to leave before the club closed and the customers had gone.
Mr Bloom told
me that it is ‘a time-honoured practice’ for a customer who wants the
companionship of a hostess to buy a bottle of champagne, and that this was well
understood. I accept this. A man would have to be very naive to think that he
could enjoy the company of a young woman provided by the establishment and
watch a floor show in luxurious surroundings late at night in the West End of
London for the modest price of the entrance fee. The huge mark-up on the
champagne is well understood to include the club’s charge for allowing the
hostess to sit with the customer. As one of the defendants’ witnesses aptly put
it: ‘It is unrealistic to fragment the price . . . a man expects to pay £200 for
an evening’s entertainment in the company of an attractive young woman.’ I have no doubt that a customer who failed to
buy a bottle of champagne would swiftly be deserted by his escort. In fact, he
would probably be unable to avoid buying a bottle, since if he were foolish
enough to try the hostess would herself order a bottle of an even more
expensive marque. At The Bristol Suite and The Burlesque Club, however, as the
plaintiffs’ inquiry agents repeatedly found, the traditional obligation to buy
a bottle of champagne in order to enjoy the company of a hostess was made
absolutely explicit.
In his
affidavit, sworn to stand as his evidence-in-chief in the action, Mr Bloom
said:
The clubs at 14-16 Bruton Place were not
‘hostess clubs’. By this I mean that they were not clubs at which clients had
to sit with hostesses or to which they came principally to meet the hostesses.
Indeed by far the majority of clients at those clubs either came as couples or
arrived and remained alone. The primary attractions of the clubs were good
food, drink and entertainment by way of a continuous cabaret. The hostesses
constituted just a small part of the overall composition of the clubs. There
are of course many underground ‘clip joints’ where the sole reason for clients
visiting is to ‘pick up’ a hostess and which are little short of brothels. Such
clubs tend to have short lives and should be entirely distinguished from
establishments like the Burlesque and Bristol Suite which have been established
since 1972.
The idea of a night club with hostesses
however is not a new one. Such clubs have been in existence for as long as I
can remember not only in London but in most major cities around the world. The
idea is a simple one in that hostesses attend the club premises and are available
to customers who want some company and/or a dance partner. This makes an
evening at the club more enjoyable for some clients if they have arrived alone
and it assists the club as the client will spend more on food and drink than if
he remained alone. The hostesses charge a fee, normally approximately £25 for
providing this service. The majority of hostesses are honest and
straightforward young women who are often married with children and who have
other jobs during the day. They are regularly collected at the end of the
evening by their husbands or boyfriends. There is nothing seedy or unsavoury
about such an arrangement.
I cannot accept this as an accurate
description of either club. The evidence shows that all or virtually all the
customers were men who came alone or in all-male groups. In no fewer than nine
separate visits not one of the inquiry agents employed by either party saw a
female present other than the hostesses and members of the staff. The evidence
also shows that the number of hostesses greatly exceeded that of the other
staff; and that except when the club was busy it exceeded that of the
customers.
Even at the
busiest time the ratio of hostesses to customers was well over 50%. Thus, the
defendants’ inquiry agents reported:
The staff, excluding those in the foyer,
consisted of some 15 to 20 hostesses, a barman/waiter . . . a barmaid and three
waitresses . . .
There were about a dozen men present when
we arrived, and at the busiest time, 1.30 am to 2.30 am, there were perhaps 20
to 25. Several of the male customers remained at the bar counter instead of
taking a seat at the tables, and in this manner perhaps some five or six
hostesses were left on their own all evening.
The logs maintained by the plaintiffs’
surveillance team showed that, taking the two clubs together, some 50 to 60 men
visited them in the course of a single night. They were not all there at the
same time, of course, yet the total number of hostesses on duty at the two
clubs, though never established exactly, must have been between 30 and 40. It
is quite untrue to say, as Mr Bloom repeatedly told me, that the hostesses were
just a small or incidental part of the entertainment provided. Certainly, many
men declined the company of a hostess, but there can be no doubt that the presence
of hostesses was a major, and to many of the customers the main, attraction of
both establishments.
Prostitution
There is
overwhelming evidence that both clubs were used for the purposes of
prostitution. Most, and probably virtually all, of the hostesses employed there
were prostitutes. Including the visit by the defendants’ inquiry agents to The
Bristol Suite in December 1987, when they found no evidence of prostitution,
but leaving aside the last visit by an agent employed by the plaintiffs to The
Burlesque Club on October 14 1988, when the club was under Mr Djoughdem’s
management, four operatives made a total of four visits between them to The
Bristol Suite, met six different hostesses and were offered sex for money by
four of them; and five operatives made a total of six visits between them to
The Burlesque Club, met a total of seven hostesses (one of them twice) and were
offered sex for money by all of them (by one of them twice).
There was
clear evidence from two of the plaintiffs’ inquiry agents that at The Burlesque
Club a customer was required to buy two bottles of champagne and a meal in
order for the hostess to leave the club with him. One of the operatives was
told this on two separate visits and by no fewer than three of the hostesses as
well as by the manageress; another was told by a different hostess on a
different occasion that she could not leave the premises with him for sex
because he had not yet bought a second bottle. There was some evidence from a
third operative that the same practice obtained at The Bristol Suite, but the
evidence of this is less clear. There the operatives were told that to leave
the club with a hostess it was necessary to tip the doorman and the
receptionist £5 each. In both clubs the hostesses were seen to leave during the
evening with customers and not to return. This was reported by two of the three
operatives, who said that it was done quite openly.
The hostesses
were self-employed and mercenary, and their remarks cannot be taken at face
value; nevertheless, several of them made remarks which indicated that all the
girls ‘were on the game’. As they were freelance, their opening prices for sex
varied, but there appears to have been a standard minimum which was the same at
both clubs and in which the ‘hostess fee’ could if necessary be absorbed. The
hostesses were prepared to ‘moonlight’ by supplying their telephone numbers
with a view to meeting their customers later, thereby avoiding some expense to
the customer and possibly depriving the club of potential source of future
profit, but they were at pains to conceal what they were doing from the
management. It was suggested that this was because they were strictly forbidden
to leave the premises with a customer on pain of instant dismissal. I am
satisfied that this was not the case. What the girls were strictly forbidden to
do was to disclose their telephone numbers, since this
premises, and there was no profit in this for the club.
I am quite
satisfied that in the case of both clubs everyone on the staff from the
proprietor down knew perfectly well what was going on. Mr Conn was present on
most evenings at The Bristol Suite and kept a close eye on affairs. At both
clubs the manageresses and other staff made it quite clear to customers that
the hostesses were available for sex, but that the arrangements had to be made
with them privately. Often hostesses left the club quite openly with customers.
At other times they indulged in a little subterfuge. The doorman would call a
taxi for a customer, who would leave the club alone; the taxi would move off
but stop 20 yards down the street; a few moments later a hostess would emerge
from the club and get in. While this was going on the doorman made himself
scarce. It was suggested that this showed that the hostesses were trying to
conceal what they were doing from the club management, but I do not accept
this.
I have no
doubt that the management knew what was going on and insisted only that it was
done discreetly. They did not object, but could not afford it to be brought too
obviously to their attention.
In fact, there
is a considerable body of evidence that the club staff, including the
manageresses and even Mr Conn himself, not only knew what was going on and
encouraged it but were themselves directly implicated. The ‘two bottle rule’,
for example, if true, would directly involve the management of The Burlesque
Club. It was submitted that there was no such rule; it was a device fabricated
by the hostesses in order to sell champagne which, after all, was their main
(legitimate) function. I reject this explanation. Too many different hostesses
on too many occasions stated it to be the rule for it to be without foundation;
moreover on one occasion it was mentioned by the manageress. The management
must have known that this was what the customers were being told. It must be
remembered that the hostesses had no direct incentive to sell champagne; they
received no commission from the club. Their interest lay in earning as much as
they could as quickly as they could so that they could go home. I have little
doubt that the true rule was that a hostess was not allowed to leave the club,
with or without a customer, until she had caused him to spend sufficient money
within the club; that in practice this was the price of two bottles of
champagne; and that once she had done so she was free to go home, with or
without a customer.
The scale of
these activities is demonstrated by the logs kept by the plaintiffs’ surveillance
team. Over five nights a total of 15 couples were followed from one or other of
the clubs to hotels or flats in the West End, and sufficient observation was
maintained thereafter to leave no reasonable doubt that sexual activity
occurred. It was submitted that this shows that, out of some 50-60 men visiting
the two clubs on an average night, only three or four were leaving with
hostesses. More than 90%, it was said, were going home alone; so prostitution
was an insignificant part of the night’s activities. But not all suspicious
couples were followed when they left the premises and these figures give a
false impression. On September 10 1987, for example, only two couples were
actually followed, but a total of 15 men were seen leaving in the company of a
total of 14 girls. Not all these, of course, may have been intending to indulge
in illicit sex, but many of them certainly were.
Significantly,
neither Mr Conn nor Mr Ferdenzi nor any of their staff were called to give
evidence to rebut that of the plaintiffs’ inquiry agents, whose evidence I
accept.
Breach
The plaintiffs
allege (1) breach of the user covenant which prohibits the use of the relevant
parts of the premises otherwise than as ‘a high class restaurant/night club’
and (2) breach of the covenant against knowingly permitting the premises or
part thereof to be used for immoral purposes. Use of the premises for the
purpose of prostitution has been established beyond all possibility of dispute;
but this alone is not enough to entitle the plaintiffs to succeed under either
head. Under the first, they must show that the activities complained of were of
such a nature or on such a scale as not merely to be an unacceptable manner of
carrying on a high-class restaurant or night club, but to constitute a distinct
use of the premises; under the second, they must prove that the defendants were
aware of the immoral use and knowingly permitted it to continue. Since the
defendants had the means to bring it swiftly to an end by taking appropriate
steps to terminate the occupation of the premises by the club operators,
especially in the case of The Burlesque Club, tacit permission is readily to be
inferred if knowledge is established.
The user covenant
The evidence
satisfies me that a ‘hostess club’ is merely a particular kind of night club,
so that use of the premises as a hostess club does not by itself constitute a
breach of the covenant. This is confirmed by the conveyancing history of the
premises; the original underlease to the defendants required the premises to be
used as a high-class restaurant or night club, but expressly prohibited use as
a hostess club. The restriction was never observed in practice and was
subsequently deleted. Its former presence, however, shows that the parties
recognised that, in the absence of a specific prohibition, use as a hostess
club was within the permitted use as a night club.
There was
evidence that customers were grossly overcharged for drinks and food, and this
was relied on by the plaintiffs in support of a submission that The Bristol
Suite and The Burlesque Club were not ‘high class night clubs’ but what in
common parlance might be called ‘clip joints’. I am not sure that the two terms
are mutually exclusive, or that it is possible to distinguish between the
extortionate and the merely exorbitant; but even if this be assumed in the
plaintiffs’ favour, the evidence was not nearly strong enough to support the
conclusion for which they contended. Prostitution apart, I find that the
plaintiffs have failed to establish breach of the user covenant.
In my
judgment, the term ‘high class’, at least when used in a legal document,
carries a connotation not merely of luxury and expensiveness but of some degree
of respectability. A ‘high-class night club’ is one thing; a meeting place for
prostitutes and their clients is another. But to amount to a breach of a user
covenant in a lease, the use complained of must, in my view, be that of some
person or persons in occupation of the premises; casual and occasional activities
by other persons present on the premises are not enough. The mere fact that
some of the hostesses at a night club are prostitutes who, unknown to the
management and contrary to the terms of their employment, resort to the
premises to ply their trade cannot by itself affect the use of the premises as
a night club. But that is not the present case. The scale and extent of the
activities of the prostitutes at these two clubs, and the overt manner in which
their trade was conducted, make it impossible to believe that anyone involved
in the actual running of the clubs was unaware of them. The system under which
the hostesses where employed positively encouraged vice; no steps were taken to
prevent it; and the management stood to gain financially from it. I do not
believe that Mr Conn and Mr Ferdenzi merely shut their eyes to the behaviour of
the hostesses in their clubs. I am satisfied that they knew perfectly well what
was going on and connived at it.
All three
agents who visited the clubs on behalf of the plaintiffs were unanimous in
their view that they were not places to which a man could take his wife or girl
friend. They appealed to men only, and to a significant extent to men for whom
the presence of prostitutes was a major attraction. The plaintiffs pleaded that
‘the primary use’ of the premises was for prostitution. I think that this puts
the case somewhat too high, but I am satisfied that the fact that these clubs
provided a place where they could meet prostitutes was a major attraction for
many of their customers. The club owners knew it, encouraged it, connived at
it, and profited by it. This was not a casual or occasional lapse; it was
integral to the business they carried on. They were willing to make prostitutes
available to customers who spent enough money on champagne. It was part of
their business to do so. That is no part of the business of a ‘high class’
night club. I conclude that the use of the premises by the club owners was to
carry on a business which was not, or not exclusively, that of ‘a high class
night club’. I find breach of the user covenant proved.
The defendants’ knowledge
Mr Bloom
strongly denied that he had been aware of what was going on. He admitted that
he was not so naive as not to realise that there was a risk that hostesses
might be tempted to engage in prostitution but, he said, he thought that there
was little or no risk that it was happening in his clubs. He had, he said,
every confidence in Mr Conn and Mr Ferdenzi. They were experienced night club
operators who would be quick to spot and stamp out such activities. Even now,
he told me, he believed that it had happened without their knowledge, though he
did not put his belief to the test by calling them as witnesses.
Mr Bloom gave
no convincing reasons for the confidence he claimed he had felt. He said that
the clubs ‘were not seedy’, as though that affected anything but the price the
girls might charge; and that the hostesses were ‘high-class young ladies’,
although in fact he knew nothing about them and did not know what precautions,
if any, were taken in selecting them. He said that he relied on the experience
of Mr Conn and Mr Ferdenzi, although Mr Ferdenzi was not physically present at
The Burlesque Club during most of 1987, and it is noticeable that Mr Bloom took
no special steps to supervise its management while Mr Ferdenzi was absent. His
reliance on Mr Conn and Mr Ferdenzi to control the activities of the hostesses
is in marked contrast with the assiduity with which he busied himself to ensure
compliance with the licensing conditions and fire regulations. He also relied
on the absence of any complaint from the police despite the frequency of their
visits to the premises; although he must have realised that there could be more
than one reason for this. Above all, he relied on the damage which would be
caused to his business and reputation if prostitutes were found on his
premises. In effect, he was saying, the game would not have been worth the
candle.
There is no
direct evidence of Mr Bloom’s knowledge. He was never present when an incident
occurred. There is no evidence that, prior to the service of the section 146
notice, any incident was reported to him. The police never made any complaint
or objected to the renewal of any of the licences.
If the
defendants were absentee landlords, there would be nothing from which knowledge
could be inferred. But they were not. They ran a ‘hands on’ operation. They
paid regular visits to their clubs, and less numerous but still frequent visits
to The Burlesque Club. They took a close interest in what was going on. They
knew that hostesses were available. They knew the terms on which they were
engaged. They knew the risks. They must have realised that it was virtually
certain that sooner or later one or more of the hostesses would engage in
prostitution. Yet so far as they were aware neither Mr Conn nor Mr Ferdenzi had
ever had occasion to dismiss a girl for doing so. This alone should have given
ground for suspecting either the operators’ competence or their respectability.
Despite this
recognition of the risks, and in contrast to the close interest he took in
other aspects of the businesses of the clubs, Mr Bloom never displayed the
slightest interest in the hostesses. He never asked how they were recruited or
inquired what precautions were taken to ensure that they were of good character
or to prevent their leaving the premises with customers. Significantly, neither
he nor his staff visited The Burlesque Club after midnight, and they gave an
unsatisfactory explanation for their failure to do so. I am satisfied that it
was deliberate. I think that Mr Bloom knew perfectly well what would probably
be taking place in the early hours of the morning. He just did not want to be
there when it happened.
Having seen Mr
Bloom at some length in the witness box, I am satisfied that he is very far
from naive. He is a very sophisticated and astute operator. I do not think that
much escapes his notice which it is in his interest to know. I do not doubt
that he is careful not to know that which it is expedient for him not to know.
I think that he was well aware of the risks inherent in the presence of
hostesses and appreciated that they were virtually certain to be realised
unless positive steps where taken to prevent it. I am satisfied that if he did
not know for a fact that the hostesses were engaging in prostitution (and he
may well have done) it was because he was at pains not to know.
My assessment
of Mr Bloom’s state of mind is supported by his failure to react at all
strongly to the service of the section 146 notice. There was a ritual request
for and supply of ‘comfort’ letters, but nothing more. The correspondence might
be appropriate in the case of an absentee landlord, but not one who is a
regular visitor to the premises. The diaries disclose no reaction; no urgent
visits to the clubs; no discussion with the proprietors; no reference to the
section 146 notice. Mr Bloom sought to explain his failure to react by saying
that he thought that the section 146 notice was a ‘ploy’. The plaintiffs had
been trying to buy out the lease. They had offered £250,000; Mr Bloom had asked
for £1m. He thought that they were trying it on in order to acquire the
premises cheaply. But the negotiations had ceased to be active 10 months
previously. Moreover, the plaintiffs were a responsible organisation; their
solicitors were a highly respected, leading firm; they would hardly act without
evidence; and Mr Bloom knew of the risks. Even if he thought it was a ploy, he
must surely have realised that he had to take it seriously. To some extent, of
course, he did. He instructed solicitors and he commissioned inquiry agents.
His reaction when he received their reports is illuminating. He caused the two
girls who had been caught to be dismissed. He did nothing else. But he cannot
have thought that his agents had stumbled upon the only girls involved. The
report of his own agents recorded the hostesses in question as saying: ‘The
management had strict rules about their liaison with customers and any hostess
who contravened them would be out’, which Mr Bloom said was reassuring despite
the fact that it had not stopped the two girls from soliciting the agents. But
he appears to have ignored the remark made to the operatives by one of the same
two hostesses, also recorded in their report: ‘Most of the girls here are on
£250, but I’m on for £200′. Neither remark, of course, was to be taken at its
face value; but there was no reason for Mr Bloom to take comfort from one and
disregard the other. Further investigation and action was plainly called for.
Yet he did not even ask the plaintiffs’ solicitors to confirm that their
allegations were confined to The Burlesque Club. Despite the plaintiffs’
allegations and the fact that they were now known to be not entirely without
foundation in relation to The Burlesque Club, he neither sought confirmation
that The Bristol Suite was in the clear nor took steps to ascertain the extent
of the problem, let alone deal with it, at The Burlesque Club.
I am driven to
the conclusion that Mr Bloom was convinced that he was safe, not because he
thought that the clubs were free from vice, nor because he thought that the
plaintiffs were trying it on, but because he thought that he had successfully
distanced himself from the actual running of the clubs and could plead
ignorance.
In my
judgment, whether or not Mr Bloom actually knew what was going on (and he
probably did), he must be taken to have known of it. That is sufficient to fix
the defendants with the necessary knowledge. I find breach of the covenant against
knowingly permitting immoral user proved.
Relief from forfeiture
There has been
no attack on the form of the section 146 notice, and no defence of remedy
before action brought. Accordingly, the question whether the breaches of
covenant were capable of remedy within the section does not arise for decision.
It is not directly material on the question of relief from forfeiture. Of
course, the same facts which characterise a breach as incapable of remedy may
lead the court to declare relief, but this is not inevitable.
The mere fact
that the breach in question involves immoral user does not in itself preclude
the court from granting relief: see Central Estates (Belgravia) Ltd v
Woolgar (no 2) [1972] 1 WLR 1048 (CA). It will, however, be in only the
rarest and most exceptional circumstances that the court will grant relief in
such a case, particularly where the breach of covenant has been both wilful and
serious. The defendants’ breaches in the present case were of the utmost
gravity; they represented a deliberate and continuing disregard of their
obligations under the lease. Despite the weighty considerations which tell
against the granting of relief, however, I have come to the conclusion that
this is an exceptional case in which relief should be granted. The
considerations which have led me to this conclusion are as follows:
(1) On the plaintiffs’ own evidence, the
defendants’ lease is of substantial value, even though it is at a full market
rent and a rent review is overdue. The plaintiffs were willing to pay £250,000
for it two years ago. Mr Bloom wanted £1m and the negotiations broke down. In
the witness box, one of the defendants’ witnesses, whose evidence was
over-enthusiastic, rashly offered to buy the lease for £1m then and there. I am
not impressed by his evidence, but I am satisfied that the lease was worth at
least £250,000 two years ago and is probably worth substantially more today.
(2) Forfeiture would result in substantial
financial loss to the defendants out of all proportion to their offence or to
any conceivable damage caused to the plaintiffs, and an adventitious profit to
the plaintiffs, who would be in a position to seek to redevelop the site (as
they wish to do) without having to pay anything for the lease.
(3) The immoral use has been brought to an end
and is unlikely to be renewed. The defendants are willing to enter into a deed
of variation of the lease which would prohibit the presence of hostesses on the
premises. This would be effective to prevent repetition of the breaches and easy
to enforce.
(4) On the plaintiffs’ own evidence, any ‘stigma’
attaching to the premises by reason of the activities formerly carried on there
is likely to be short lived. It may already have disappeared, for hostesses
have
have learnt to go elsewhere to obtain the services they require. This is not a
case of a prostitute’s flat, where new tenants are likely to be pestered by
unwelcome telephone inquiries for a considerable period. In my judgment,
continuing damage is not established.
(5) Getting rid of the defendants will not help
to remove any stigma that may remain. They did not run the clubs. Mr Conn and
Mr Ferdenzi did; but they have already left.
(6) Granting relief will not saddle the
plaintiffs with an unacceptable tenant. In all respects save the one complained
of in this action, the defendants have been excellent tenants.
(7) Mr Bloom, though not elderly, is in seriously
poor health. He has been looking for some time to retire from business. He has
been seeking to dispose of the lease. One prospective purchaser, who wished to
convert the premises into a restaurant, was prepared to offer £1m for the lease
but withdrew the offer when the cost of conversion became apparent. Mr Bloom
has offered an undertaking to use his best endeavours to find a purchaser
within some appropriate time-scale if relief is granted. I do not find it
necessary to require such an undertaking or to make it a condition of granting
relief that such a purchaser should be found; but I am satisfied that Mr
Bloom’s intention to dispose of the lease is genuine.
In Shiloh
Spinners Ltd v Harding [1973] AC 691 Lord Wilberforce said at p
723G:
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 obtained 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.
For reasons I
have endeavoured to state, I have concluded that, on the defendants’ submitting
to a variation of the lease which will exclude hostesses from the premises,
this is a case in which relief can and ought properly to be granted.
After a
discussion with counsel the judge continued as follows: I will declare that the lease was duly forfeited. I will give the
plaintiffs liberty to apply for judgment for the appropriate sum which will
represent the amount of rent which was due on the issue of the writ, which I
understand to be £18,750 less whatever has been paid since, together with
interest thereon at a rate which I shall mention in a moment. I will give
judgment to the plaintiffs for £2 damages for breach of contract. I will grant
relief to the defendants from the forfeiture on terms. Those terms will be,
first, that the defendants enter into a deed of variation in a form to be
prepared by the plaintiffs’ solicitors and submitted to the defendants’
solicitors for approval within 21 days of the engrossment of the deed of
variation, which should be engrossed by the plaintiffs’ solicitors.
The second
condition of relief will be that the defendants pay within 28 days of today’s
date the full amount of the arrears of rent which is due as at today’s date,
together with interest at the same rate from the respective quarter days on
which the rent was payable to the date of actual payment.
Rate of
interest in both cases will be the rate from time to time available on
overnight deposit at Lloyd’s Bank.
There remains
only the question of costs. Had there been no offer made by the defendants, of
a kind which I shall come to in a moment, I would have given the plaintiffs the
whole of their costs of the action. I would have directed those costs to be
taxed on a standard basis, not an indemnity basis. I would not have disallowed
any costs or made a contrary order to costs on the grounds that any costs had
been thrown away by the plaintiffs’ unsuccessful attempt to resist relief from
forfeiture, because the amount of such costs thrown away seems to me to be
really very, very trifling indeed; virtually the whole of the evidence —
certainly the whole of the oral evidence and the documentary evidence — was
related to the claim for forfeiture, and the extent of the breaches was, of
course, an essential matter to be investigated under the claim for relief. The
actual amount of time taken up in debate on the question of relief was really
negligible. I do not think it would have been an appropriate case for indemnity
costs, because it is only in a rare case that the court will grant such costs
for circumstances unrelated to the conduct of the action. The mere fact that
the party against whom costs are ordered had behaved badly, giving rise to the
litigation, is not a ground for giving indemnity costs.
However, on
Friday, December 2 (which was I think the fifth day of the trial), the
defendants’ solicitors wrote to the plaintiffs’ solicitors denying that there
had been any breach of covenant, but, in an attempt to avoid further costs,
offering terms of compromise, under which (1) the defendants would agree that
the existing lease should be varied in the manner which I have imposed as a
condition of relief; (2) to pay the costs of the action up to and including
today on an indemnity basis, to be agreed or taxed. They asked for the
acceptance of the offer by five o’clock that evening.
On Monday,
December 5, the plaintiffs’ solicitors rejected that offer, saying that they
were confident that breaches of covenant would be established, and that given
the nature of those breaches relief from forfeiture would not be granted. For
that reason the detailed terms were not acceptable. On December 5, Mr Bloom,
the principal witness for the defendants was still in the witness-box and his
cross-examination had either not begun or at any rate it was not concluded
until December 6. It has been strongly submitted to me that that ought to make
little or no difference to the position: the plaintiffs were not unreasonable
in rejecting the offer; they were still unaware of the full circumstances; they
were entitled to have the matter fully canvassed before me, and the question of
relief was entirely at large and in the court’s discretion.
But, in my
judgment, it is important to look at this case commercially. The only reason
why the plaintiffs were seeking forfeiture was in order to obtain possession of
the premises, to stop the continuation of the breaches alleged and to get rid
of the tenant of whom they disapproved. They have failed to obtain possession.
In my judgment, they would have successfully ended any repetition of the
matters complained of had they accepted the offer and the variation of the
lease, and they have failed to get rid of the tenant. So the plaintiffs’
objectives would either have been achieved by accepting the terms of the letter
or have not even now been achieved. It is plain, therefore, that the plaintiffs
have not now in the judgment, and by pursuing the claim, achieved anything
which was not then available to them.
In the
circumstances, I propose to give the plaintiffs their costs of the action and
of the summons for relief down to and including December 2 — perhaps just in
case there were any costs over the weekend, down to and including the end of
December 4, but not thereafter. In my judgment, the cross-examination of Mr
Bloom, which continued on December 5 and 6, involved costs which have been
thrown away by the failure to obtain the terms then on offer. I will, however,
give the plaintiffs those costs and direct them to be taxed on an indemnity
basis, because that was offered and they ought not, I think, to lose the difference
between the standard basis of taxation and the indemnity basis, since that was
then offered.
Since that
date, I propose to give the defendants their costs of the proceedings, to be
taxed on a standard basis.
I should just
make it clear, in case I have not already done so, that I am not to be taken as
suggesting that the plaintiffs in any way acted unreasonably in continuing to
press for forfeiture without relief or to leave the matter at the discretion of
the court. My approach is that having had that offer made to them, they acted
at their peril as to costs.
