Landlord and tenant — Dispute as to the period for which interest should be payable by original lessees on a sum recovered against them by lessors — No provision in lease for payment of interest on rent in arrear — Whether interest payable as from the date on which each payment of rent became due or only from the date of a letter sent by the lessors to the original lessees before action — Held, distinguishing BP Exploration (Libya) Ltd v Hunt (No 2), that interest should be calculated as from the date when each payment of rent became due — The original lessees were bound by the covenant to pay rent by virtue of privity of contract throughout the term of the lease despite assignments — Although the commercial expectation is that the assignee in whom the lease is vested will pay, the assignor does not get rid of one jot or tittle of his original liability
This
proceeding became necessary because the parties, Allied London Investments Ltd,
plaintiffs in the action, and Hambro Life Assurance Ltd, defendants, had been
unable to agree on the period for which interest should be payable on a sum of
£48,146.83 awarded to the plaintiffs by Walton J on July 29 1983 in respect of
arrears of rent payable for a property at 82 Brook Street, London W1. The rate
of interest, but not the period, had been agreed, the difference being
£28,206.63 on the plaintiffs’ basis and £9,023.24 on the defendants’. The
calculation in either case went only to the date of judgment, as thereafter any
sums recoverable would bear interest in the usual way. The earlier decision of
Walton J was reported at (1983) 269 EG 41, [1984] 1 EGLR 16.
Gavin Lightman
(instructed by Wright & Webb, Syrett & Sons) appeared on behalf of the
plaintiffs; Jonathan Gaunt (instructed by Nabarro Nathanson) represented the
defendants.
Giving
judgment, WALTON J said: I now have to deal with the question of interest
payable on the sum of £48,146.83 recovered by the plaintiffs in this action
pursuant to my judgment of July 29 1983. Because it was at that stage thought
that the plaintiffs and the defendants might be able to sort out the position
between themselves, the second part of the order directed that the defendants
shall pay interest on the said sum but of such amount, rate and for such period
as shall be decided by the court.
The parties
have in fact been able to agree between themselves as to the appropriate rate
of interest, which I understand is 2 1/2% over some mutually agreed base rate,
but what they have not been able to agree about is the period for which the
interest should be payable. The situation is that the lease was originally
granted on January 27 1972 to the defendants of 82 Brook Street for a term
which would have gone on until the year 2000 if it had not been brought to an
end, as it was, earlier. On December 19 1973 the defendants assigned the lease,
but having assigned the lease they still remain liable under their covenants
contained in the original lease by virtue of privity of contract.
A section 146
notice was served on the assignee in 1979 and on March 5 1979 the attention of
the defendants was called to the fact that such a notice had been served, and
the letter continued: ‘The enclosed documents are sent to you by way of
information, but you will no doubt be aware that you remain liable under your covenants
in the lease notwithstanding the assignment.’
The letter
before action was sent on March 5 1982 and was apparently received by the
defendants three days later on March 8 1982. The writ was issued on April 14
1982 and judgment, as I have already indicated, was given on July 29 1983.
I have had the
benefit of two extremely excellent arguments on both sides on this point and
neither argument has omitted anything which ought to have been omitted, and,
more pertinently and refreshingly, has not included anything which ought not to
have been included.
Mr Gaunt for
the defendants makes the undoubtedly correct point that there is no provision
in the lease for payment of interest upon rent in arrears, and he says that by
seeking, as the plaintiffs do, to recover interest not from the date when they
wrote their letter before action but in each case — and I say in each case
because the total sum recovered is made up of a number of instalments of rent —
from the date when the instalment of rent became payable, what in substance the
plaintiffs are trying to do is to write into the original lease the provision
which will now be found in most well-drawn leases to the effect that interest
is to be paid upon rent in arrears.
Mr Gaunt
drives home that point by pointing out, again perfectly correctly, that if in
fact the defendants had paid the sum demanded at any time after receipt of the
letter before action and before the date when the writ was issued, then it is
perfectly clear pursuant to the provisions of section 35A of the Supreme Court
Act 1981, under which I have power to award interest, that, there being no
proceedings on foot when the sum was paid, there could be no question of the
plaintiffs’ recovering any interest.
I follow all
that, but it does not seem to me that that is any way conclusive of the matter,
because it is precisely because the lease does not contain the sort of
provision in relation to interest that it would have been possible for the
defendants to have escaped any question of liability for the payment of
interest by paying between the date of the letter before action and the date of
the writ. The fact that it would have been possible for them to make payment
then and thus avoid any question of interest points out very sharply and
accurately the fact that that is not something, the payment of interest is not
something, which is contained in the lease.
The ordinary
rule, I take it, is one as to which there can be no doubt. That appears very
clearly from the judgment of Robert Goff J in BP Exploration Co (Libya) Ltd
v Hunt (No 2) [1982] 1 All ER 925. At pp 974D to 976C the learned judge
deals very comprehensively with the question of the general rules in relation
to the payment of interest. Although of course it is always a matter for
judicial discretion, it is a discretion which has to be exercised on judicial
principles. He says at the bottom of p 975 that the basic principle is that
interest will be awarded from the date of loss. That view of the matter was
upheld by the Court of Appeal and also the House of Lords.
Basically, one
starts from the proposition that unless there is some good reason to the
contrary, interest should start to run at the date when each payment of rent
became due. Is there any good reason to the contrary? What Mr Gaunt really fastens upon is this:
when discussing cases which would form exceptions to the general rule, Robert
Goff J had set out three cases. The first group of cases, the learned judge
said, concerned the position of the defendant. The court may consider in the
light of all the circumstances that his position was such that it would not be
just to make the defendant pay interest from the date of loss. It may do so if,
for example, the circumstances were such that the defendant neither knew nor
reasonably could have been expected to know that the plaintiff was likely to
make a claim, and so was in no position either to tender payment or even to
make provision for payment if the money should be found due. In such a case the
court may in its discretion grant interest only from the date of the
plaintiff’s claim or even from such a date as would allow reasonable
investigation of the claim.
Indeed, in the
case of BP Exploration v Hunt that is exactly the course which
the learned judge took. I do not think that Mr Gaunt’s attempt to bring this
case under that umbrella will really stand up, because here we have an original
covenant by the defendant to pay the rent. That is an original covenant which
binds him by virtue of privity of contract throughout the term of lease, and
indeed, as has been pointed out in a number of cases dealing with the question
of what happens when the lease is assigned, the covenant is economically to the
effect that: ‘Either I will pay you or the assignee will pay you.’ But it is not something which only comes into
effect when the assignee fails to pay. Of course the expectation, commercially
speaking, is that the assignee will pay, but the assignor does not by
assignment get rid of one jot or tittle of his original liability.
Under those
circumstances, it seems to me that it would be very curious indeed if the
situation were that if the landlord were to sue the assignee he would
undoubtedly be awarded interest from the date when each instalment of rent fell
due, but if on precisely and exactly the same covenant, but pursuing this time
in privity of contract instead of privity of estate, he were only to be able to
recover interest from the date when he intimated to the defendant that he was
going to recover from him. It would be most curious that there should be the
slightest difference in the liability of the assignee and the liability of the
original covenantor seeing that in each case suit would be made upon precisely
and exactly the same covenants.
But in the
present case I think Mr Lightman, for the plaintiffs, is correct in pointing
out that although of course the letter of March 5 1979, which was before any
arrears of rent arose, does not, naturally, deal with them, what it does, if it
does nothing else, is to alert the defendants to the position under the lease
and to remind them of their liability under the covenant.
Thereafter I
would have thought that any prudent person in the position of the defendants
would have known that there was a very considerable risk of his being called to
account on his original liability under his covenants whether it was actually
in respect of dilapidations pursuant to the notice under section 146 or
otherwise, because in general a tenant who is capable of paying the rent, and
intends to do so, will not put himself in a position where his landlord is able
to serve a section 146 notice upon him.
So it seems to
me that the matter is altogether different from the case of BP Exploration
v Hunt, where Mr Hunt had no idea that BP either could or would bring an
action against him until he received the letter informing him of just that
possibility. Here from the beginning, that is to say from the date of the grant
of the lease on January 27 1972, the defendants must have been, if they had
chosen to think about it, in a position where they knew that they might be
liable to be sued upon their covenant if in fact it was not discharged on their
behalf for them by the assignee.
It seems to me
that this is a case where the general rule ought to apply. I am happy to say
that the parties have in fact agreed the figures on the two alternative bases:
on the basis claimed by the plaintiffs, £28,206.63, and on the basis of the
defendants’ submissions, £9,023.24. That interest goes down only to the date of
the judgment because thereafter the sums recovered will bear interest in the
usual way. So, I decide that the correct amount of interest to which the
plaintiffs are entitled is the sum claimed by them, £28,206.63.
