Landlord and tenant — Liability of original lessees for arrears of rent unpaid by assignees of lease and interest on amount due — Appeal from decision of Walton J — Original lessees (the present appellants), who were defendants in the action before Walton J, had been warned of a possible liability in a letter from the lessors’ solicitors — Subsequently the defendants received a further letter from these solicitors stating that their clients looked to the defendants for payment of the arrears owing and unpaid by the assignees — The lessors, plaintiffs in the action before Walton J, claimed this amount together with interest on it pursuant to section 35A of the Supreme Court Act 1981 — Defendants contested the claim on a ground which failed — If they had paid the amount demanded before the writ was issued they would not have been liable for interest; but they did not — The question arose whether, as the plaintiffs claimed, the interest should be paid from the date when each instalment of rent fell due, or whether, as the defendants contended, it should be payable only from the date when they received the second solicitors’ letter claiming the arrears of rent — Walton J held that in the circumstances the interest should be payable as from the date when the plaintiff lessors suffered their loss, ie from the dates when each instalment fell due — This decision was upheld by the Court of Appeal on appeal by the defendants — Appellants had, by reason of their privity of contract, a ‘concurrent liability’ with the assignees to pay the rent as it became due — Interest was not awarded as a punishment but simply because the creditor had been deprived of the use of money due to him — The onus of proof was on the appellants to show why the lessors should not be entitled to interest as from the date when they suffered loss and the appellants had not discharged that onus — The power to grant interest was discretionary but must be exercised judicially — The judge had correctly exercised his discretion — Appeal dismissed
This was an
appeal by the original lessees under a lease, Hambro Life Assurance plc, from a
decision of Walton J (reported at (1984) 270 EG 948, [1984] 1 EGLR 62)
requiring the appellants to pay £28,206.63 by way of interest to the lessors,
Allied London Investments Ltd, the present respondents, being interest on a sum
of £48,146.83 for arrears of rent for which Walton J had already given
judgment. The arrears were owed in respect of 82 Brook Street, London W1.
Jonathan Gaunt
(instructed by Nabarro Nathanson) appeared on behalf of the appellants; Gavin
Lightman QC (instructed by Wright Webb Syrett) represented the respondents.
Giving the
judgment of the court, ACKNER LJ said: This appeal concerns the order of Walton
J made on February 24 1984. It provided that the defendants in the action (the
appellants before us) should pay the plaintiffs (the respondents to this
appeal) the sum of £28,206.63, being interest on the sum of £48,146.83 for
which sum he had previously given judgment on July 29 1983. The judgment was
for arrears of rent owed in respect of 82 Brook Street, London W1.
The material
facts relevant to this appeal can be stated quite shortly. The defendants had
been lessees of the premises since early 1972, but towards the end of 1973 they
assigned their leasehold interest, which did not expire until September 26
2000, to a company called Padseal Ltd.
On March 5
1979 the plaintiffs’ solicitors wrote to the defendants stating that they had
that day served upon Padseal Ltd a notice pursuant to section 146 of The Law of
Property Act 1925. They enclosed a copy of this notice which related to alleged
breaches of the repairing covenants. This short letter ended with the following
paragraph:
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 was
acknowledged and its contents noted. The letter of acknowledgement, dated March
14 1979, concluded with the sentence:
We await your
further advices in due course.
The
plaintiffs’ solicitors’ letter and accompanying documents did not suggest that
Padseal Ltd were in breach of their covenant to pay the rent reserved by the
lease, nor were they then in arrears with the rent. However, very shortly
thereafter, namely on March 25 1979, they failed to pay the quarterly
instalment then due and their failure persisted through the quarter days, June
24 1979, September 29 1979, December 25 1979, March 25 1980 and June 24 1980,
thus achieving the total sum of £46,875. When the arrears of insurance rent of
£1,271.83 were added to this sum, the total became £48,146.83, the sum in
respect of which, as stated above, Walton J gave judgment in due course against
the defendants.
Following
their acknowledgement of the plaintiffs’ solicitors’ letter of March 5 1979,
the defendants made no inquiries of Padseal Ltd as to the section 146 notice,
nor indeed as to any matter relative to their position under the lease which they
had assigned to them, nor did they hear from the plaintiffs until they
received, on March 8 1982, a letter dated March 5 1982. In this letter the
plaintiffs’ solicitors stated that the plaintiffs had instituted proceedings
against Padseal Ltd claiming inter alia (a) possession of the premises,
(b) arrears of reserved rent amounting to £46,875 in respect of the quarterly
instalments due between March 1979 and June 1980 inclusive, and (c) arrears of
insurance rent of £1,271.83.
The letter
concluded in the following terms:
Although our
clients obtained possession pursuant to their writ, there remains unpaid
arrears of rent and insurance of £48,146.00 being the total of the outstanding
sums referred to above. Therefore our clients must look to you for payment
thereof and we shall be glad to receive your cheque accordingly.
Proceedings
have been settled by counsel (photocopy enclosed herewith), but we will refrain
from issuing them until you have had a reasonable time, say 10 days, to resolve
this matter amicably.
There was no
provision in the lease for the payment of interest on arrears of rent and
accordingly the statement of claim claimed interest pursuant to the statute.
The relevant statutory provisions at the time when Walton J gave judgment are
contained in section 35A of the Supreme Court Act 1981. Although the Act
extended the power of the High Court to award interest on debts and damages, if
the defendants had paid the sum demanded before the writ was issued there would
have been no power to order the defendants to pay any interest. However, the
defendants did not seek to take advantage of this anomaly. They delivered their
defence and contested the plaintiffs’ claim essentially upon the basis that the
plaintiffs, so they alleged, by releasing a surety in circumstances that we
need not describe, discharged their liability, a plea which Walton J rejected.
The parties
very sensibly agreed the rate of interest which should be paid, leaving in
dispute the period to be covered. The plaintiffs contended that interest should
be paid from the date when each instalment fell due, in which event it would
amount to £28,206.63, the sum which the judge awarded. The defendants contended
that interest should only be payable as from March 8 1982, being the date upon
which they received the plaintiffs’ solicitors’ letter of March 5 1982 making
the claim for arrears of rent. Calculated on this basis the interest would
amount to £9,023.24.
The following
propositions of law are in our judgment correct and, with the possible
exception of the second, are common ground:
1 The power under section 35A of the Supreme
Court Act to grant interest is a discretionary one, but it must be exercised
judicially.
2 The fundamental principle is that interest
is not awarded as a punishment, but simply because the plaintiff has been
deprived of the use of the money which was due to him. (See General Tyre and
Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819, per
Lord Salmon at p 841E quoted by Robert Goff J in BP Exploration Co (Libya)
Ltd v Hunt (No 2) [1982] 1 All ER 925 at p 974).
3 The defendants had, by reason of their
privity of contract, a concurrent liability with Padseal Ltd to pay the rent as
it fell due.
4 That it is for the defendants to show why
the interest should not be awarded from the date when the plaintiffs suffered
their loss, that is from the date when each payment of rent became due.
Mr Gaunt in
his able argument before us prayed in aid the observations of Robert Goff J in
the BP Exploration case, cit supra, at p 975, when he considered
three main groups of cases in which the court might depart from the general
rule that interest will run from the date of the accrual of the cause of
action. The first category concerned the situation where 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. Walton J
was not prepared to put the defendants into that category because he concluded
that having received the letter of March 5 1979 and its enclosures, the
defendants were alerted to their position under the lease. He said:
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.
To our mind
this view was an entirely proper one and the learned judge having decided to
exercise his discretion in the way he did on that basis, it would be contrary
to well-established principles for an appellate court to interfere with his
decision.
Mr Gaunt,
quite rightly in our view, did not seek to rely upon the concluding sentence in
his client’s letter of March 14 1979 quoted above, ‘We await your further
advices in due course’, and the failure thereafter of the plaintiffs to inform
them of the subsequent developments in the dispute, as lulling them into some
false sense of security. As Mr Lightman submitted, the assignor of a lease
normally expects the claim to be pursued against the assignee, and for the
landlord only to come back against him, the assignor, for any shortfall in the
recovery of that which he has established as due and owing.
We accordingly
dismiss this appeal.
The appeal
was dismissed with costs. An application for leave to appeal to the House of
Lords was refused.
