Landlord and tenant — Forfeiture — Peaceable re-entry — Relief against forfeiture — Billson v Residential Apartments Ltd — Conflict between rights of landlord and rights of mortgagee — Motion by building society mortgagee for injunction — Considerations in regard to injunctive relief — Injunction refused as sought in the motion but injunction granted pending the hearing of appeal against the refusal to grant an injunction
background to this case was a conflict between the relief sought by the
building society mortgagee wishing to safeguard the society’s security and the
claim of the landlord owed arrears of service charge — The conflict centred on
the lease for 99 years of a flat in Maidenhead — The present proceeding was a
motion in an action by which the plaintiff building society sought a
declaration that the leasehold interest in the flat, which was vested in the
first and second defendants, had not been forfeited and relief, if necessary,
against forfeiture — The motion by the plaintiff society sought an injunction
to restrain the third defendant, treated for present purposes as the
reversioner, from dealing with the subject flat and in particular from carrying
out any transaction affecting the leasehold interest therein — The first and
second defendants, the leaseholders, had created a legal charge over the flat
in favour of the plaintiff society to secure a loan of £75,399 odd — They had
also fallen into arrears in the payment of service charges due to the third
defendant, the reversioner, under the lease — Following the service of a notice
under section 146 of the Law of Property Act 1925 stating that £643 was owing
in this respect, the third defendant proceeded in due course to assert its
right of re-entry by means of peaceable repossession — The present motion
resulted from information reaching the plaintiff society that the third
defendant was advertising the flat for sale — An attempt to reach a solution by
co-operation failed
hearing of the motion the third defendant submitted that the plaintiff society
had no arguable case for the remedy sought and that in any case the claim for
relief against forfeiture was ruled out by the decision of the Court of Appeal
in Billson v Residential Apartments Ltd — Mummery J expressed the view that the
balance of convenience was on the side of the plaintiff society and that, if he
did not grant the injunction sought, the third defendant would be free to grant
a new lease and thereupon the society’s claim for a declaration of forfeiture
or for relief against forfeiture would be irretrievably lost — However, he was
faced with the majority decision of the Court of Appeal in Billson’s case,
which was binding on him — Leave to appeal to the House of Lords had been given
but it might be many months before the appeal would be heard — It was therefore
the judge’s duty to apply the law as it stood at present and that meant that he
was obliged to dismiss the application for an interlocutory injunction on the
ground that the plaintiff society could not show, in the face of the Billson
decision, that it had an arguable case
quite the end of the matter, as counsel for the building society indicated that
it was intended to appeal against the dismissal and to ask for an injunction
pending the hearing of the appeal — The result was that the judge refused the
injunction sought in the notice of motion but granted an
injunction
The following cases are referred to in
this report.
American Cyanamid Co v Ethicon Ltd [1975]
AC 396; [1975] 2 WLR 316; [1975] 1 All ER 504, HL
Billson v Residential Apartments Ltd
[1991] 3 WLR 264; [1991] 1 EGLR 70; [1991] 18 EG 169 & [1991] 19 EG 122, CA
Erinford Properties Ltd v Cheshire County Council
[1974] Ch 261; [1974] 2 WLR 749; [1974] 2 All ER 448; (1974) 72 LGR 553
This was a motion in an action by the
plaintiffs, Bristol & West Building Society, against Alexandra Louise
Turner and Sally Elizabeth Hollowell, the first and second defendants, and
Sinclair Gardens Investments (Kensington) Ltd, the third defendant. The first
and second defendants were leaseholders of a flat at Croxley Rise, Boynhill
Road, Maidenhead, Berkshire, which they had mortgaged to the plaintiff society.
The plaintiff’s motion sought to restrain pending the trial of the action
adverse dealings with the flat by the third defendant in pursuance of its claim
to forfeiture on account of arrears of service charges.
Paul Morgan (instructed by Veale
Wasbrough, of Bristol) appeared on behalf of the plaintiff society. Christopher
Smith (instructed by George Ide, Phillips, of Bognor Regis) represented the
third defendant, Sinclair Gardens Investments (Kensington) Ltd; the first and
second defendants, Alexandra Louise Turner and Sally Elizabeth Hollowell, did
not appear and were not represented.
Giving judgment, MUMMERY J said:
By this motion dated May 30 1991 the Bristol & West Building Society claim
the following injunction against the third defendant, Sinclair Gardens
Investments (Kensington) Ltd: an order that the third defendant, whether by
itself, its directors, its servants or agents or otherwise howsoever, be
restrained from creating or disposing of or contracting or purporting to
contract to create or dispose of any interest in the premises known as flat 13
(earlier known as flat 16) and garage 20 Croxley Rise, Boynhill Road,
Maidenhead, and in particular from leasing or contracting or purporting to
contract to lease the said flat 13 and garage 20 with vacant possession of the
said flat 13 and garage 20 other than subject to the lease dated August 20 1976
and made between (1) A J Cleeland Ltd, (2) Boynhill Residents (Maidenhead) Ltd,
and (3) David Norman Ellis, and the plaintiff’s claim to forfeiture of the
lease.
That motion is made in an action which was
started on May 24 1991 by an originating summons in which the building society
claims against all defendants the following relief: first, a declaration that
the interest of the plaintiff and the leasehold interest of the first and
second defendants in the premises known as flat 13 (also known as 16) and
garage 20 Croxley Rise, Boynhill Road, Maidenhead, Berkshire, in respect of
which the plaintiff is the mortgagee, has not been forfeited by the third
defendant; alternatively, relief from forfeiture on such terms as the court
shall think fit.
When the matter came before the court on
May 30 I made an ex parte order in the terms of the injunction now
claimed in the notice of motion and gave leave to serve short notice of motion
for today. The matter has been argued inter partes today; the first and
second defendants have not appeared, but the third defendant has been
represented by counsel.
The dispute arises in the following
circumstances. The first and second defendants were the lessees of flat 13 and
garage 20 at Croxley Rise in Maidenhead under a lease granted on August 20 1976
by A J Cleeland Ltd. The lease was for a term of 99 years from June 24 1975.
The benefit of that lease was assigned to the first and second defendants in
the summer of 1989 and they were registered as proprietors of the lease on
August 29 1989. There was also registered on that date a legal charge which had
been granted over the property by the first and second defendants in favour of
the building society on July 28 1989 to secure an advance of £75,399-odd. Under
the terms of the lease service charges were payable to the landlords. The first
and second defendants fell into arrears in the payment of service charges. This
led to the service, on April 2 1991, of a section 146 notice by the third
defendant, which is stated in the notice to be entitled to the reversion of the
premises, though the affidavit evidence now before the court indicates that the
third defendant may be involved in the financial management of the property
only on behalf of the freeholder. By that notice, which was served by recorded
delivery and by hand, it was stated that some £643 was owing by the first and
second defendants to the landlords by way of service charge arrears, charges
and costs. The first and second defendants were given 21 days in which to pay
that sum.
Also on April 2 the third defendant
informed the building society, in a recorded-delivery letter, of the fact of
the arrears of service charges and of the service of the section 146 notice. In
the same letter the building society was informed of the rights of re-entry or
exercise of rights of peaceable repossession which could be exercised by the
third defendant if the account had not been settled within the 21-day period.
On the same day the first and second defendants redelivered the keys of the
flat to the building society’s agents in Maidenhead.
Unfortunately, the building society did
not respond to the third defendant’s letter of April 2. It is stated in an
affidavit sworn by the solicitor to the building society that the building
society did not, in fact, receive the letter of April 2 in their arrears
department until April 17. The affidavit goes on to say that on April 18 the
building society arranged for the locks on the flat to be changed. On April 23
the time expired for the payment of the service charges; they remained unpaid,
and so, on May 2, the third defendant claims that it peaceably re-entered the
premises.
On May 15 the building society wrote to
the third defendant saying that it would give consideration to the making of
the payment of the arrears of service charges if the first and second
defendants did not pay within 14 days. The building society had written on the
same day to the first and second defendants pointing out their obligations to
pay those charges and the consequences of not doing so.
On May 20 the building society became
aware that the third defendant was advertising the flat at Croxley Rise for
sale. It therefore issued the originating summons on May 24, to which I have
referred, and made the motion of May 30. At the same time it submitted an
application to the Land Registry to register a caution against dealings with
the property. The present position is that there are negotiations for the sale
of the flat for a sum in the region of £45,000. The service charges have not
been paid and the current mortgage balance owing to the building society is in
excess of £77,848. The building society has proposed to the third defendant a
way of dealing with this problem; that is that both parties should co-operate
in the sale of the flat and that, pending a resolution of the building
society’s claims in the proceedings to the declaration that the lease has not
been forfeited and to relief against forfeiture if it has, the proceeds of sale
of the flat should be put in a deposit account, earning interest, until the
dispute can be resolved.
The third defendant does not agree with
this proposed arrangement and submits that the reason it does not agree is that
the building society has no arguable case for the relief claimed in the
proceedings. It is pointed out, rightly I think, that there is no evidence in
the affidavit sworn on behalf of the building society supporting a claim to the
first declaration, that the lease has not been forfeited. It goes on to submit
that, as regards the second head of relief, which is the claim for relief
against forfeiture, the building society is faced with an insurmountable
obstacle in this court in the form of the judgment of the Court of Appeal in
the case of Billson v Residential Apartments Ltd on February 11
1991*. In that case the majority of the Court of Appeal held that the Court of
Appeal, and therefore all inferior courts, are precluded by earlier decisions
from holding that the courts have any statutory or equitable jurisdiction to
grant relief from forfeiture in a case of peaceable re-entry by a landlord for
breach of covenant, other than a covenant for the payment of rent.
*Editor’s note: Reported at [1991] 1 EGLR
70.
It is further submitted on behalf of the
third defendant that, even if there were some arguable case by the building
society, it would not be just or convenient to grant the injunction claimed
because the building society has been dilatory in dealing with this matter. It
would not be just or convenient for dealings with the flat to be frozen pending
the trial of the action.
In my judgment, the balance of convenience,
or balance of justice as it is sometimes called, is overwhelmingly in favour of
the building society. Such delay as there has been has not prejudiced the third
defendant. If I do not grant any injunction the third defendant will be free to
grant a new lease and the building society’s claim for a declaration that the
lease has not been forfeited or for relief from forfeiture will be
irretrievably lost. That means that it will lose its security for a sum in
excess of £77,500. It is accepted by counsel for the third defendant that there
would be no claim by the building society against his client in damages; all
that the building society
charge against the first and second defendants. On the other hand, if an
injunction is granted, the building society’s rights (assuming for the moment
that it has any) will be preserved. It is accepted by the third defendant that
the building society would be good on any cross-undertaking in damages, so that
the third defendant could be compensated by an award of damages should it
suffer any by reason of the injunction and should it turn out at the end of the
day that no injunction ought ever to have been granted to the building society.
The real difficulty on this application
is as to what course I should take, having regard to the decision of the Court
of Appeal in the Billson case. It is not open to me, on American
Cyanamid, to make an order simply because it is convenient or just to do
so. I have first to be satisfied that there is a serious question to be tried.
The present position on the Billson case is that leave to appeal to the
House of Lords has been granted and a petition has been presented, though it
has been ascertained by counsel for the building society that it may be many
months before the House of Lords hears that appeal. As matters stand, the
decision of the Court of Appeal is binding on this court. The building society
submits, through counsel, that there is a serious question to be tried in this
action, namely whether the Court of Appeal was right in the Billson case
in holding that the courts have no jurisdiction to grant relief from forfeiture
in the circumstances that I have mentioned. There is an issue as to what is the
law until the House of Lords, which is not bound by the earlier decisions of
the Court of Appeal, has decided what exactly is the court’s jurisdiction in
relief from forfeiture. The building society goes on to submit that if I refuse
to grant an injunction the building society will be deprived of any real hope
of having this issue decided, because the claim for relief from forfeiture
would be irretrievably lost as a result of any third party entering into an
arrangement with the third defendant in respect of this property.
As I have already indicated, I agree with
the submissions made on behalf of the building society as to the balance of
convenience or the balance of justice, but it is clear to me that it is my duty
to apply the law as it stands at present and not to speculate on what the
decision of the House of Lords may be, either on the decision it will reach on
the Billson appeal or, if that appeal is not pursued, what decision it
will reach on some other appeal, possibly one in this case. Applying the law as
it stands at present, I am obliged to dismiss this application for an
interlocutory injunction on the ground, and the sole ground, that the building
society cannot show, in the face of the decision of the Court of Appeal in Billson,
that it has any arguable case.
That is not the end of the matter,
however, because during the course of argument I asked counsel for the building
society whether, if I were to dismiss this motion, he was instructed to appeal
against that dismissal and to ask for an injunction pending the hearing of his
appeal. He confirmed to me that he was so instructed. It appears from the
decision of Megarry J in the case of Erinford Properties v Cheshire
County Council [1974] Ch 261 that there is nothing inconsistent in a
court’s refusing to grant an injunction on a motion and, on a subsequent
application, granting the injunction which it has refused to grant until trial
until after the hearing of the appeal. The purpose of granting an injunction
pending the hearing of an appeal is to preserve the status quo pending the
appeal and to prevent the disappointed plaintiff’s right of appeal from being
made nugatory. In my judgment, this is a case in which I should, having
dismissed the plaintiff’s motion for an injunction, grant an injunction in the
terms sought in the notice of motion, save for this alteration: that instead of
an injunction until judgment in the action or further order, it will be an
order pending the hearing of the appeal against my refusal to grant an
injunction until after judgment. I am satisfied, on the basis of the arguments
before me, that an appeal against my refusal to grant an injunction would not
be frivolous and I am satisfied that it would not inflict hardship on the third
defendant to grant such an injunction over the hearing of an appeal. That is
the course, therefore, that I propose to take. I shall refuse to grant the
injunction sought in the notice of motion but I will grant an injunction
pending the hearing of an appeal against my refusal to grant the injunction.
