Landlord and tenant — Re-entry by lessor into premises subject to 999-year lease — Premises sublet to London Borough of Camden for temporary housing — Alleged breaches by lessee of insurance covenant — Notice under section 146 of Law of Property Act 1925 — Action by lessee claiming that the lease had not been forfeited and that entry by lessor was unlawful — Whether lessee had been allowed a reasonable time to comply with section 146 notice — Discussion of waiver, forfeiture and equitable jurisdiction to grant relief — Re-entry by lessor held to be a trespass — Judgment for lessee
premises were a block of residential flats, Scala House, Tottenham Street,
London W1 — Plaintiff lessee held a lease of 999 years from 1976 subject to a
substantial mortgage in favour of a Danish bank — The block had been sublet in
1987 to Camden and had fallen into a squalid condition through Camden’s failure
to observe its covenants and the activities of short-term occupiers and
squatters — There had been a history of problems in regard to insurance — The
lease contained a covenant by which the lessee was obliged to insure the
premises in the names of the lessor, lessee and other interested parties —
Scala House had been insured with Sun Alliance for a number of years, but in
July 1989 it refused to renew the cover owing to the conditions of the
occupation —- A limited cover was obtained for a time and then cancelled by the
plaintiff lessee — At this time it was trying without success to sell the
leasehold interest and was in arrear with mortgage payments; the mortgagee had
obtained a Mareva injunction to protect its interests — The mortgagee had
obtained its own insurance but this cover extended only to its interest in the
premises — The lessor, concerned about the insurance position, issued a writ in
the Chancery Division for production of the current policy of insurance and
these proceedings remained in being during the present action — Subsequently
the lessor served on the lessee a notice under section 146 of the Law of
Property Act 1925 complaining of a breach of the insurance covenant by failure
to take out agreed insurance in the names of the lessor and lessee — After a
warning that its patience was exhausted the lessor made a physical re-entry
into the demised premises and remained in possession — The lessee then
commenced the present action in which its claims as plaintiff were that its
lease had not been forfeited, that the lessor’s entry had been a trespass, and that
the lessor should be ordered to quit the premises; alternatively, if the lease
had been forfeited, the lessee asked for relief
the plaintiff lessee submitted that the defendant lessor had failed adequately
to specify particulars of the breach complained of; had made a physical
re-entry only 10 days after service of the section 146 notice, thus not
allowing the plaintiff a reasonable time for compliance; and had in any case
waived any right to forfeit by taking proceedings in the Chancery Division with
knowledge of the plaintiff’s breach of covenant — The judge rejected the
complaint about the adequacy of the notice but held that the defendant had not
allowed a reasonable time for the plaintiff to comply with the notice — The
defendant’s entry into the premises was therefore a trespass — This was
sufficient to decide the case in the plaintiff’s favour — As, however, the
matter might go further, the judge expressed his views on other points raised —
He considered that by continuing the Chancery proceedings, thereby
acknowledging the continuation of the tenancy, and having undoubted knowledge
of the plaintiff’s failure to insure, the defendant did waive its right to
forfeiture — The judge also expressed the view that if the forfeiture had been held
to be effective and if he had the necessary jurisdiction, he would have granted
relief under the general equitable jurisdiction of the court
the plaintiff was granted a declaration that the lease was not forfeit, an
order for possession and an inquiry as to damages; it was also awarded costs
The following
cases are referred to in this report.
Alghussein
Establishment v Eton College [1988] 1 WLR
587, HL
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
Expert
Clothing Service & Sales Ltd v Hillgate
House Ltd [1986] Ch 340; [1985] 3 WLR 359; [1985] 2 All ER 998; [1985] 2
EGLR 85; (1985) 275 EG 1011 & 1129, CA
Fox v Jolly [1916] AC 1
Hick v Raymond & Reid [1893] AC 22
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 plaintiff, Cardigan Properties Ltd, lessee of Scala House, 21 Tottenham
Street (off Tottenham Court Road), London W1, sought a declaration that its
lease had not been forfeited and consequential relief against the lessor,
Consolidated Property Investments Ltd. In the alternative the plaintiff claimed
relief against forfeiture.
John Colyer QC
and Martyn Zeidman (instructed by Arnold George & Co, of Ilford) appeared
on behalf of the plaintiff; James Reid QC and Michael Driscoll (instructed by
Hamlin Slowe) represented the defendant.
Giving
judgment, MR P J COX QC said: In this action the plaintiff claims a
declaration that its lease of Scala House, 21 Tottenham Street, London W1, is
not forfeit and that the defendant has trespassed therein. In the alternative
the plaintiff claims relief against forfeiture and for other relief as set out
in the statement of claim.
The writ was
issued on June 26 1990 and the trial of the action took place over four days
commencing on July 26 1990. This may be a speed record for the progress of any
civil action this century. The facts which are material to the issues in this
case are not seriously in dispute and it is convenient to relate them in some
detail in chronological order.
By a lease
dated June 16 1976 (‘the lease’) the defendant demised the block of residential
flats, Scala House, to Salut Co for a term of 999 years at a peppercorn rent in
consideration of the payment of £770,000. The eight storeys of Scala House are
constructed above and supported by the second storey of a building not forming
part of the demised property.
By a sublease
dated December 1 1987 Flowplace Ltd, the then lessee under the lease, granted
Scala House to the London Borough of Camden (‘Camden’) for a term of two years
at an annual rent of £618,000 for the purpose of providing temporary housing
and requiring vacant possession at the end of the term on December 1 1989.
Under the sublease Camden was required to yield up the premises at the end of
the term in the same clean state and condition as at the beginning and to
replace or repair broken fixtures and fittings.
The plaintiff,
a company registered in Panama, the sole shareholder being Mr Ehab Debs,
purchased the lease from Flowplace in July 1988 by a transfer dated July 13
1988 for the sum of £6,829,000. This purchase was substantially financed by a
mortgage advance from a Danish Bank, ‘KD’. Thereafter Mr Debs acted for the
plaintiff under a power of attorney.
Scala House
had been insured with Sun Alliance for a number of years and, when the
plaintiff purchased, a new policy with Sun Alliance was negotiated. The
proposal form, signed by Mr Debs, showed the mortgagee’s requirements as to
rebuilding costs to be £5,464,000. The schedule to this policy shows the
policy-holder to be the plaintiff, the sum insured to be £5,464,000, and the
annual premium to be £4,185.20.
In July 1988
the flats in Scala House were still in a reasonable state of internal repair,
but because of the nature of the occupancy by Camden, involving short-term
tenants and later on by squatters, there was a rapid deterioration internally. On
October 23 1988 a fire occurred in one of the flats, doing damage to the value
of over £30,000.
On April 26
1989 Sun Alliance wrote to the plaintiff’s brokers indicating that, owing to
the occupation of the premises, renewal of the policy on July 20 1989 would not
be invited. The letter ended with these words:
We trust this
has provided you with adequate time to place the business elsewhere.
On May 16 1989
the plaintiff’s brokers, David White, wrote by recorded delivery to the
plaintiff’s solicitor advising urgent action and recommended contact with
specialist high-risk brokers. Thereafter Mr Debs attempted to obtain insurance
cover for Scala House and was also trying to find a buyer for the property.
On August 29
1989 Kay International, acting for the plaintiff, wrote to the plaintiff’s
solicitors confirming that 21 Tottenham Street (that is Scala House) was held
covered in the sum of £2,000,000 from August 2 1989 at an annual premium of
£24,000. The cover was limited to fire, explosion and aircraft, and Mr Debs
told me that he thought this was adequate to cover the cost of rebuilding. This
must have been wishful thinking on Mr Debs’ part, no doubt dictated by the
slump in property values in late 1988 and early 1989 and the high cost of
insuring this high-risk building.
On November 24
1989 Kay International wrote to the plaintiff’s solicitor informing him that Mr
Debs had cancelled the insurance and requesting that the mortgagee should be
informed. Mr Debs, in evidence, explained that he did this because he thought
he had found a purchaser whom he expected to insure the building, I think that
day.
I should say
this: so far as Mr Debs is concerned, I found him a truthful witness, but in
the field of property management he was probably somewhat naive, although he
told me that he had had a number of property transactions apart from this one.
During
November 1989 the defendant and National Car Parks Ltd, its associate company,
became anxious about the insurance cover for Scala House, and on November 30
1989 Mr Phillips, the insurance manager of National Car Parks, informed the
plaintiff’s solicitors that the defendant had arranged the necessary cover and
would recoup the premium calculated on a daily basis from the plaintiff until
the arrangement of satisfactory cover by the plaintiff in accordance with the
terms of the lease. This cover was arranged with the Royal Insurance, who had
previously surveyed the property. Royal Insurance, on May 21 1990, wrote to Mr
Phillips referring to the property. The letter contains these words:
Our survey
report is not too complimentary on this building. It would appear to have been
very poorly maintained and that there is a lack of management control on the
part of the London Borough of Camden. They are in a very squalid condition with
trash on the landings and stairs and damage to the fixtures such as doors and
windows and lift machinery. There is 24-hour security at the front entrance and
all the unoccupied flats (only five of the 34 flats are occupied) are sealed
with steel doors to avoid squatters. Apart from this the security of these
premises is negligible.
It is not
clear from that letter at which date the survey report had been obtained, but
it must have been well before May because, according to the evidence in the
case, the last of the squatters were moved during the month of April.
By December
1989 the plaintiff had fallen into arrears with the mortgage repayments and KD,
on January 16 and 17 1990, obtained ex parte Mareva injunctions against
the plaintiff and Mr Debs. These injunctions continue in force to the present
day.
In early
December the plaintiff’s solicitor, Mr Orchover, stressed to Mr Debs the urgent
need to insure. KD had arranged for the insurance of Scala House with Preferred
Insurance in early December to cover the period from December 22 1989 to
December 31 1990 in the sum of £8,830,000 at a premium of £12,635. The
plaintiff became aware of the existence of this insurance in February 1990. On
January 19 1990 in a valuation report to KD Knight Frank & Rutley gave a
vacant possession price on the open market for Scala House of £3,000,000.
At the end of
1989 the proposed purchaser of Scala House withdrew and Mr Debs continued his
efforts to sell the property, without success. This is not surprising with many
of the flats unoccupied and about 15 still occupied by squatters.
On February 16
1990 the defendant issued a writ against the plaintiff in the Chancery Division
for production of the current policy of insurance. These proceedings remain in
being and give rise to a legal argument on waiver, to which I will refer later
in this judgment.
Knowing that
both the defendant and the KD Bank had obtained insurance cover for Scala House
no serious effort was made by the plaintiff to obtain its own insurance cover
until June 1990, as required by the lease. However, on May 24 1990 — by which
time the last of the squatters had left — Mr Orchover sent a copy of the
Preferred policy to the defendant requesting confirmation that the Chancery
proceedings for production would be discontinued. Such confirmation has never
been forthcoming.
On May 31 1990
Mr Phillips wrote a letter on behalf of the defendant to Mrs Brown of Preferred
Insurance. The fifth paragraph of that letter reads as follows:
Doubtless you
will note the insured interest does not bear the name of Consolidated Property
Investments Ltd as stipulated by the lease, but obviously in fairness you are
not responsible for the omission. We have in our possession only a photostat
copy of the policy wording and schedule but we would appreciate the opportunity
to visit your offices to examine the original policy document and also, if
possible, to view the proposal form (if any) and your survey of the risk. It is
possible that we may have material information which may affect the
acceptability of the building for insurance cover.
Mrs Brown
replied to that letter on June 6:
Dear Mr
Phillips,
We acknowledge
receipt of your letter. You are welcome to come to our offices to discuss this
matter and we look forward to hearing from you at which time a mutually
convenient appointment can be arranged.
We are not in
possession of the original policy document relating to the aforementioned
premises. This of course is with our insured. Our insurance arrangements are
confidential but the policy, as you have already established, only protects the
interest of KD and affords no protection to Consolidated Property Investments
Ltd.
We are most
interested in the comments contained in the fifth paragraph of your letter and
would welcome the opportunity for discussion at your earliest convenience.
This
correspondence was not copied to Mr Orchover, who remained unaware of this
development until these letters were disclosed in the course of these
proceedings.
On Tuesday
June 5 1990 the defendant served a section 146 notice on the plaintiff. Para 2
of the notice reads as follows:
The lease
contains covenants by the lessee with the lessor as follows . . .
(2)(1) At all times during the said term to insure
the demised premises and the building erected thereon and to keep the same
insured in the name of the lessor and the lessee and in the name of other
interested parties with a reputable insurance office or offices and at not less
than the full replacement value thereof as agreed from time to time between the
parties hereto. Provided that if the parties shall fail to agree upon the full
replacement value thereof, then the matter shall be referred to the arbitration
of an independent surveyor appointed for that purpose by the parties jointly in
writing or, upon their failure to agree upon such appointment within one month,
then by an independent surveyor appointed for that purpose on the application
of either party by the President for the time being of the Royal Institute (sic)
of Chartered Surveyors. And in either case in accordance with the provisions of
the Arbitration Act 1950 including architects’ and surveyors’ fees Against loss
or damage by fire, explosion, tempest or aircraft other than hostile aircraft
and all other risks commonly or usually covered by comprehensive ‘All Risks’
policy, and pay all premiums for such insurance within 7 days after the same
become payable and will produce to the lessor on demand policies of such
insurance for the current year’s premium.
Para 3:
You are in
breach of the covenants set out above, or one or some of them, in that you have
failed to insure and keep the demised premises and the building erected thereon
insured in the name of the lessor and the lessee and in the name of other
interested parties And/or pay all premiums for such insurance within seven days
after the same become payable.
Para 4:
We require
you to remedy the said breaches insofar as they may be capable of remedy and to
compensate the lessor in money for the commission thereof.
Para 5:
On your
failure to comply with this notice within a reasonable time, then it is the
intention of the lessor to re-enter the demised premises and forfeit the lease
and/or claim damages for your breaches of covenant.
This notice
accurately reproduced the wording of clause 2(1) of the lease. At the time of
service the plaintiff was in breach of the clause.
On June 6 1990
Mr Orchover wrote to KD’s solicitors. The letter is addressed to Messrs
Hedleys:
Dear Sirs,
We write to
confirm our telephone conversation today regarding the problem in connection
with the insurance. We enclose herewith a copy of the notice received from the
freeholders, from which you will see that the problem is that the insurance is
not taken out in the names of the lessor and lessee. This is also holding up
exchange of contracts because the insurance position is not totally
satisfactory in that the freeholders are contending that we are in breach of
the terms of the lease.
Would you
therefore get your client Bank kindly to contact the Preferred Insurance
Company Ltd and ask them to forward a revised schedule showing that the insured
names are (1) Consolidated Property Investments Ltd. as lessor; (2) Cardigan Properties
Incorporated as lessee, and your client bank as mortgagees (3). This will
remedy the situation and we can then proceed with the transaction without
further delay.
Your early
attention to this matter will be much appreciated.
It is clear
from this letter that efforts to sell Scala House were continuing; that an
exchange of contracts was being prejudiced by the insurance position, and that
Mr Orchover was very anxious to correct the insurance position. On Friday June
8 1990 Mrs Brown of Preferred wrote to KD’s solicitors. The letter is addressed
to Hedleys and signed by Mrs Brown:
We would
confirm that on receipt of a written instruction from KD we would be able to
elevate Consolidated Property Investments to the status of joint insured as
required by the lease. At present we are prepared to revise the insurance as
indicated above for a period of 14 days from today pending the visit of Mr
Phillips of Consolidated to this office on Tuesday 12th June. Our letter of 6th
June to Mr Jenkins refers.
With regard
to Cardigan, we are unable to provide cover on the same basis to Cardigan
Properties without receipt of their own instructions in this regard. Without
this instruction we could only comply with Consolidated’s request on receipt of
written confirmation from Consolidated that if Cardigan also be elevated to
status of joint insured, Consolidated would agree to pay such additional
premium as the company at such time in the future may require in this regard.
Once again, this cover would only be available at present for 14 days pending
discussion with Mr Phillips.
It is apparent
from this letter that Preferred was by no means certain of continuing to extend
more than very limited cover after the meeting with Mr Phillips on Tuesday June
12.
On Monday June
11 Mr Orchover sent by fax a letter to Mrs Brown. It is marked ‘Urgent’ by post
and fax:
Dear Mrs
Brown,
Your fax
addressed to Mrs Jackson dated 8th June has been passed to me. I can confirm
that we act for Cardigan Properties who are the lessees of the above property
holding under a registered lease from the landlords Consolidated Property
Investments being a lease of 999 years from 25th March 1976. We are therefore
able to confirm instructions on behalf of our clients Cardigan Properties that
they should be shown on the schedule of the insurance as having an interest as
lessees of the property with Consolidated Property Investments being shown as
the freeholders. We trust this is sufficient for your purposes because there is
some urgency in obtaining the necessary revised schedule for confirmation of
the insurance. Should there be anything further please do not hesitate to fax
me by return.
Mrs Brown
replied to this letter the next day:
Dear Mr
Orchover,
We are
presently awaiting the instructions of our policy-holder in this connection. We
will contact you again in due course.
and Mrs Brown
signed that letter.
There was then
a flurry of letters, mainly by fax from Mr Orchover, who plainly was mystified
by his failure to persuade Preferred to add the names of the plaintiff and the
defendant to KD’s policy. These letters and replies cover the period between
June 13 and 19.
One of these
letters is a letter from the defendant’s solicitors to Mr Orchover and I read
that letter:
Dear Sirs,
We thank you
for your letter of 13th June received on 15th. Our client’s patience is
exhausted. The section 146 notice is crystal clear as to what needs to be done
and your client has lamentably failed to do it. As you will be aware, even if
your clients are not, there is a world of difference between an interest being
noted on a policy and a policy in joint names. Our client’s building is
substantially at risk and in view of your client’s non-compliance with the
section 146 notice our clients are taking such further steps as may be necessary
fully to protect their interest.
That letter
was written nine days after the service of the notice and on a reading of that
letter it casts doubt in my mind as to the defendant’s understanding of the
significance of Mr Orchover’s efforts, or as to its knowledge of what had
passed between Mr Phillips and Mrs Brown. In the absence of any evidence from
Mr Phillips one can only surmise about these matters. But what is clear is that
the defendant by June 15 was contemplating steps to re-enter Scala House and to
forfeit the lease. Such re-entry occurred on June 21 when the premises were
entirely unoccupied and there is now no dispute between the plaintiff and the
defendant as to the fact of re-entry and the defendant remains in possession
pending the resolution of this case.
On June 22
1990 the plaintiff’s solicitors wrote to the defendant:
Dear Sirs,
We refer to
your letter faxed to us yesterday evening.
We do not
accept that your clients’ purported forfeiture is valid or lawful and our
clients will be seeking appropriate relief in the courts as already notified to
you.
Your clients
were fully aware that steps were being taken to have the insurance, which is in
the names of KD, placed in the joint names of our respective clients. This coupled
with the fact that your clients reversionary interest is not at risk, clearly
demonstrates that quite apart from any other argument, your clients acted
hastily and prior to the expiry of a reasonable period following the service of
the section 146 notice.
Entirely
without prejudice to our clients’ position we can confirm funds are immediately
available for our clients to take out a new policy of insurance in their name
jointly with the name of your clients in the insured sum of £4,000,000,
and so on.
Now section
146 of the Law of Property Act 1925, subsection (1), provides essentially as
follows — and I omit many of the words:
A right of
re-entry or forfeiture . . . for a breach of any covenant . . . in the lease
shall not be enforceable, by action or otherwise, unless and until the lessor
serves on the lessee a notice . . . specifying the particular breach complained
of . . . and the lessee fails, within a reasonable time thereafter, to remedy
the breach, if it is capable of remedy. . . .
Subsection (2)
essentially provides that where the lessor is proceeding, by action or
otherwise, to enforce such a right of re-entry or forfeiture, the lessee may
apply to the court for relief . . .
By the amended
statement of claim in this action the plaintiff claims, first, a declaration
that the lease was not forfeit and that the defendant’s entry was a trespass;
in the alternative, relief against forfeiture; third, an injunction requiring
the defendant to quit the premises; fourth possession; fifth an inquiry as to
damages; and sixth, interest.
The plaintiff
supports its case on four main grounds. First, the defendant failed adquately
to specify the particular breach complained of in the section 146 notice, which
ipso facto could not be relied upon as giving rise to a right of
re-entry. Second, the defendant by re-entering the premises only 10 clear
working days after the service of the section 146 notice did not allow
reasonable time for the plaintiff to comply with the terms of the notice in all
the circumstances of the case. Third, the defendant, with knowledge of the
plaintiff’s breach of covenant to insure, by issuing proceedings in the
Chancery Division on February 16 1990 against the plaintiff, which proceedings
are still continuing, has waived the forfeiture. Fourth, in the event of a
finding by the court of a valid forfeiture of the lease, the plaintiff seeks
relief under the equitable jurisdiction of the court.
I propose to
consider each of these in turn in the light of the evidence and the relevant
case law.
First, the
adequacy of the section 146 notice. By clause 2(1) of the lease the lessee
covenanted to ‘insure the demised premises . . . and keep the same insured in
the name of the lessor and the lessee and in the name of other interested
parties with a reputable insurance office . . . and in not less than the full
replacement value . . . [to be] agreed from time to time between the parties .
. . Against loss or damage by fire, explosion, tempest or aircraft . . . and
all other risks commonly or usually covered by a comprehensive ‘All Risks’
policy.’ It is clear from these words
that in order to comply with the terms of the covenant the lessee must reach
agreement with the lessor as to the replacement value of the property.
Furthermore it is common ground between the parties that the expression ‘a
comprehensive ‘All Risks’ policy’ is a contradiction in insurance terms and
thus in my judgment, in order to give effect to the clause, it would be
necessary for the lessee and the lessor to reach agreement as to the cover
required.
In the case of
Fox v Jolly [1916] AC 1, where the House of Lords was considering
the sufficiency of a notice served under section 14(1) of the Conveyancing and
Law of Property Act 1881, which was in precisely the same terms as section 146(1)
of the Law of Property Act 1925, Lord Buckmaster said, at p 11:
I can find
nowhere in the section any words which cast upon the landlord the obligation of
telling the tenant what it is that he must do. All that the landlord is bound
to do is to state particulars of the breaches of covenants of which he
complains and call upon the lessee to remedy them. The means by which the
breach is to be remedied is a matter for the lessee and not for the lessor. In
many cases specification of the breach will of itself suggest the only possible
remedy.
Applying this
clear guidance to the facts of the present case, I consider that the notice
complied with the requirements of section 146(1) of the Act of 1925 as it
plainly called upon the plaintiff to insure the property in accordance with the
covenant in the lease.
Second, was a
reasonable time allowed for compliance with the notice? I approach this question on the basis that
all relevant facts relating to the particular case should be considered. As a
consequence there is little help to be derived from the reported cases
concerning such a notice. These in the main are concerned with breaches of
repairing covenants where, depending upon the nature of the work to be done,
times of up to a year or more have been considered to be reasonable. Mr Reid,
for the defendant, pointing out the history of the plaintiff’s failure to keep
the premises insured, has cited two cases in support of the proposition that
this history ought in some way to curtail the time to be allowed for the breach
of covenant to be remedied.
The first of
these cases is that of Expert Clothing Service & Sales Ltd v Hillgate
House Ltd [1986] Ch 340. Slade LJ*, in his judgment, at p 358, said:
An important
purpose of the section 146 procedure is to give even tenants who have hither to
lacked the will or the means to comply with their obligations one last chance
to summon up that will or find the necessary means before the landlord
re-enters. In considering what ‘reasonable time’ to allow the defendants, the plaintiffs,
in serving their section 146 notice, would, in my opinion, have been entitled
to take into account the fact that the defendants already had enjoyed fifteen
months in which to fulfil their contractual obligations to reconstruct and to
subject the defendants to a correspondingly tight time-table running from the
date of service of the notice, though, at the same time, always bearing in mind
that the contractual obligations to reconstruct did not even arise until 29th
June 1981, and that as at 8th October 1982 the defendants had been in actual
breach of it for only some ten days.
*Editor’s
note: Also reported at [1985] 2 EGLR 85 p 90B.
That case
involved consideration of the tenant’s failure to perform an obligation to
reconstruct by the due date, which seems to me to be of a completely different
nature from an obligation to insure. In considering the appropriate time for
performance of the latter obligation I reject the submission that earlier conduct
can properly be taken into account.
Mr Reid also
referred to a case of Alghussein Establishment v Eton College
[1988] 1 WLR 587. This case again involved the consideration of the obligation
by a tenant to complete redevelopment or development by a particular date. My
attention was drawn to the headnote, which conveniently sums up the effect of
the opinion of Lord Jauncey:
Held,
dismissing the appeal, that the well-known rule of construction, that there was
a presumption that a party to a contract could not be permitted to take
advantage of his own wrong as against the other party, applied, in the absence
of an express provision to contradict the presumption, as much to a party who
sought to obtain a benefit under a continuing contract on account of his
breach, as it did to a party who relied on his breach to avoid a contract and
thereby escape his obligations; that the terms of the proviso to clause 4 were
not apt to displace that rule of construction and that, therefore, the plaintiffs
were not entitled to invoke the proviso to obtain the grant of the lease.
Mr Reid argued
that in some way I should apply the finding in Alghussein’s case to a
consideration of the time adjudged to be reasonable for the performance of the
covenant to insure. I find that submission unacceptable and accordingly I
reject it.
The third case
cited by Mr Reid was Hick v Raymond & Reid [1893] AC 22, a
House of Lords’ decision, where the House was considering what considerations
applied in determining what was a reasonable time for the discharge of a ship’s
cargo. In his opinion, at p 32, Lord Watson said:
When the
language of a contract does not expressly, or by necessary implication, fix any
time for the performance of contractual obligation, the law implies that it
shall be performed within a reasonable time. The rule is of general application
and is not confined to contracts for the carriage of goods by sea. In the case
of other contracts the condition of reasonable time has been frequently
interpreted; and has invariably been held to mean that the party upon whom it
is incumbent duly fulfils his obligation, notwithstanding protracted delay, so
long as such delay is attributable to causes beyond his control, and he has
neither acted negligently nor unreasonably.
In the same
case, at p 29, Lord Herschell said:
The only
sound principle is that the ‘reasonable time’ should depend upon the
circumstances which actually exist. If the cargo has been taken with all
reasonable despatch under those circumstances I think the obligation of the
consignee has been fulfilled. When I say the circumstances which actually exist
I, of course, imply that those circumstances, in so far as they involve delay,
have not been caused or contributed to by the consignee.
Despite the submission
of Mr Colyer that the case of Hick v Raymond had no bearing upon
this present case, on a consideration of what is said in these judgments it
does seem to me that these words are of assistance in the present case as to
the way in which I should approach this question of reasonable time, and I
propose to apply them.
Now on June 5
1990 when the notice was served on the plaintiff it was incumbent upon Mr
Orchover, its solicitor, to take immediate steps to comply with the covenant.
He was aware that both the defendant and KD had separate insurance cover on the
property. In my judgment, in the prevailing circumstances, it was reasonable
and prudent of him to endeavour (as he did) to negotiate with KD in order to
get the plaintiff and the defendant added as insured names to the Preferred
policy. He was aware of the terms of the covenant and that
quite unaware that Mr Phillips, the defendant’s insurance manager, had already
queried with Mrs Brown of Preferred the acceptability of the premises for
insurance, which made it most unlikely that Preferred would comply with Mr
Orchover’s request. It was not until about a week later that it should have
become clear to Mr Orchover that he would have to take alternative steps on
behalf of the plaintiff to comply with the notice.
As I have
already indicated, due performance of the insurance covenant involved the
securing of agreement between lessor and lessee as to the full replacement
value of the premises. As to the reasonable time required for compliance with
this covenant, I have heard the evidence of two expert witnesses: Mr Peters on
behalf of the plaintiff and Mr Stratton on behalf of the defendant. I am
satisfied that both these gentlemen were very experienced in this type of
insurance cover. Each was cross-examined at some length and both impressed me
as careful, honest witnesses.
Mr Peters,
however, was more alert to the problems presented by the terms of the covenant
and in expressing the opinion that four weeks would be a reasonable time for
compliance he was plainly allowing for these. Mr Stratton held the view that
two weeks or 10 working days would have been a reasonable time, but he seemed
to take little or no account of the need for prior agreement between lessor and
lessee as to rebuilding cost and the resultant need for surveys of the
building, which was, of course, not a normal free-standing structure but
dependent for support upon a structure below it. I also bear in mind that
whereas Mr Peters prior to his involvement in this case had no prior dealings
with any of the interested parties, Mr Stratton had in the past had business
dealings with Mr Phillips through the National Car Parks company. Accordingly,
where they differ as to the period of time I prefer the opinion of Mr Peters
that a reasonable time would be four weeks. Even if I had preferred the 10
working-day period suggested by Mr Stratton, on the particular facts of this
case, taking into account the time I find was justifiably spent by Mr Orchover
in his abortive negotiations with Preferred, the defendant did not allow
reasonable time for the plaintiff to comply with the notice; they re-entered
the premises only 10 working days after service.
It follows
that I find that the defendant’s entry into these premises was a trespass.
Now I
understand that this case is likely to go further and I have been invited to
express my view upon the other points raised by the pleadings. So far as the
waiver point is concerned, it is alleged by the plaintiff, in para 7(a), (b)
and (c) of the amended statement of claim, that by continuing the action in the
Chancery Division claiming a mandatory injunction for production of the
policies of insurance in accordance with the lessee’s covenant to produce such
policies on the lessee’s demand under clause 2(1) of the lease the defendant
has waived its right to forfeiture. The writ claiming this injunction was
served on the plaintiff on May 22 1990 and such proceedings were continuing up
to the date of re-entry on June 21 1990. At the time the writ was issued I am
satisfied that the defendant was aware that the plaintiff was in breach of the
covenant to insure and that state of knowledge I find continued up to the time
of the serving of the notice.
My attention
has been drawn by Mr Colyer to the opening words in Woodfall under Waiver
of forfeiture. This is the current edition [28th ed] of Woodfall,
para 11906 at p 851:
Courts of law
always lean against forfeitures; therefore whenever a landlord means to take
advantage of any breach of covenant or condition so that it should operate as a
forfeiture of the lease, he must take care not to do anything which may be
deemed an acknowledgment of the continuance of the tenancy, and so operate to
waive the forfeiture. Merely lying by and witnessing the breach is no waiver;
some positive act must be done.
Here it is
argued by Mr Colyer for the plaintiff that although it is a very technical
point it is none the less a good one because, by not discontinuing the action
for the injunction and having undoubted knowledge of the plaintiff’s failure to
insure, the defendant has waived the forfeiture by the unequivocal act of
commencing and continuing the proceedings. I have been referred to the words of
Buckley LJ in Central Estates (Belgravia) Ltd v Woolgar (No 2)
[1972] 1 WLR 1048 at p 1054 E:
In my
judgment the effect in law of an act relied on as constituting a waiver of a
right to forfeit a lease must be considered objectively, without regard to the
motive or intention of the landlord or the understanding or belief of the
tenant.
I have
considered this interesting point very carefully in the light of the arguments
of Mr Colyer and also, of course, of Mr Reid, and I have come to the conclusion
that by continuing those Chancery proceedings the defendant did in fact waive
its right to this forfeiture.
Now in the
event of the forfeiture being held to be valid is there a right of relief under
the equitable jurisdiction of the court?
My attention has been drawn to a number of authorities which make
interesting reading, and it is clear that there is a sharp conflict of judicial
opinion as to this. I propose to do no more than to express the view that I
find it difficult to accept the proposition that section 146, in the absence of
express words, is a complete code ousting an existing jurisdiction in the court
to grant equitable relief in cases not covered by section 146. No doubt sooner
or later the matter will be investigated and ruled upon at length by higher
authority.
If I had such
jurisdiction in this case I would have borne in mind the considerations
mentioned by Lord Wilberforce in Shiloh Spinners Ltd v Harding
[1973] AC 691 at p 725 between letters ‘D’ and ‘F’, where Lord Wilberforce
observes:
Failures to
observe the covenants having occurred, it would be right to consider whether
the assignor should be allowed to exercise his legal rights if the essentials
of the bargain could be secured and if it was fair and just to prevent him from
doing so. It would be necessary to consider the conduct of the assignee, the
nature and gravity of the breach and its relation to the value of the property
which might be forfeited. Established and, in my opinion, sound principle
requires that wilful breaches should not, or at least should only in
exceptional cases, be relieved against, if only for the reason that the
assignor should not be compelled to remain in a relation of neighbourhood with
a person in deliberate breach of his obligations.
If I had such
jurisdiction in this case I would have granted relief against forfeiture
because of the following facts:
First, the
plaintiff’s failure to insure was not deliberate but was brought about by a
combination of circumstances beyond its control:
(a) The failure of Camden to comply with its covenant
as the sublessee so that the premises fell into a state of serious squalor
shortly after the plaintiff acquired the lease, which led to Sun Alliance’s
refusal to renew in July 1989.
(b) The existence of squatters in the building
for five months until April 1990 after the sublease to Camden had come to an
end compounded the problem by making refurbishment a virtual impossibility so
that the whole became unoccupied and producing no income.
(c) The sharp decline in property values
following the plaintiff’s acquisition coupled with the heavy borrowing rendered
it difficult for the plaintiff to find a purchaser at a reasonable price and to
keep up the mortgage repayments.
(d) The constraints upon the plaintiff imposed by
the Mareva injunction.
(e) The comparative inexperience of Mr Debs.
Second, the
lease is virtually a freehold, being the unexpired portion for 999 years at a
peppercorn rent for which the plaintiff paid £6,829,000.
Third, there
was no evidence that the value of the defendant’s reversion had been materially
affected by the non-insurance.
Fourth, the
effect of refusing relief would be to cast an enormous burden of debt on Mr
Debs, who has personally guaranteed the mortgage to KD, and to result in a huge
windfall for the defendant.
The terms upon
which I would have granted such relief are: first, that the plaintiff should
reimburse the defendant for the costs of insurance paid to date; second, that
the plaintiff forthwith effects insurance in the joint names of the tenant,
landlord and mortgagee, and that the plaintiff should pay the costs of this
action. Of course, as I am not dealing in this particular case with the
question of relief against forfeiture, it is my view that the plaintiff is
entitled to judgment for the relief claimed in the statement of claim.
Judgment was
given in favour of the plaintiff with costs. It was granted a declaration, as
sought in its statement of claim, an order for possession and an inquiry as to
damages.
