Landlord and tenant — Liability of surety — Consent order discontinuing tenant’s application for new tenancy on payment of £10,000 — Whether surety of lease liable for that sum
dated July 1 1986 the plaintiff landlords, Collin Estates Ltd, granted Jukebox
Clothing Ltd (‘Jukebox’) a three-year lease of premises at 38-40 Eastcastle
Street, London W1, from June 24 1986 at a rent of £10,000 pa md The defendant,
Alan Robert Buckley, was the principal director of Jukebox and was, under
clause 7 of the lease, the surety for the tenant’s obligations md At the end of
the contractual term Jukebox applied for a new tenancy under Part II of the
Landlord and Tenant Act 1954 — On March 5 1990 Jukebox gave notice of
discontinuance of its application for a new tenancy and that tenancy came to an
end three months later on June 5 1990 — The landlords commenced proceedings in
Bloomsbury County Court for interim rent to cover the period between the end of
the contractual term and the expiration of the statutory tenancy — Those
proceedings, together with other existing proceedings between the parties, were
compromised on February 4 1991 by a consent order under which the landlords’
claim was to be discontinued with no order as to costs on the basis that
Jukebox paid the landlords £10,000 — The other proceedings were: (1) an action
in the county court by Jukebox against the landlords for a new tenancy under
the 1954 Act; (2) an action in the High Court by the landlords against Jukebox
and Mr Buckley for arrears of rent with a counterclaim in respect of repairing
covenants; and (3) an action in the High Court by the landlords against Jukebox
for possession pursuant to section 146 of the Law of Property Act 1925 — In
late March 1991 Jukebox went into liquidation and the £10,000 was not paid — In
appealing from a decision of Judge Stockdale, the appellant guarantor contended
that the consent order comprised not just one but a number of disputes which
involved not simply questions of rent but roof repairs and alleged unlawful subletting;
further, the order was made without admission of liability by Jukebox under the
lease and it created a wholly new legal relationship for which the guarantor
cannot be liable not being a party to that order
satisfaction of the sums due under the lease, either by way of breach of the
underletting covenant or by way of interim rent during the extended period for
which those obligations existed; the consent order was an order which, at any
rate on its face, dealt with matters covered by the appellant’s guarantee under
the lease — The terms of the surety covenant in clause 7 of the lease plainly
show that it was one not limited to obligations directly to be found in the
lease itself but also to make good to the lessors on demand all losses, costs,
damages and expenses occasioned by the lessors by the non-payment of rent or
the breach of any covenants — Those terms are amply wide enough to impose upon
the guarantor an obligation to reimburse the lessors for loss sustained through
the non-payment to the lessors of the £10,000, which quite plainly on the
evidence was due in respect of rent and possibly breach of covenants under the
lease
No cases are
referred to in this report.
This was an
appeal by the defendant, Alan Robert Buckley, from a decision of Judge
Stockdale (sitting as a judge of the High Court) on January 30 1992, who had
allowed an appeal by the plaintiffs against a decision of Master Topley given
on November 15 1991 granting the defendant unconditional leave to defend an
action in which the plaintiffs had brought proceedings for summary judgment
under Ord 14.
Richard
Livingston (instructed by Bates & Partners, for Moss & Coleman, of
Hornchurch) appeared for the appellant defendant; Donald Lambie (instructed by
Pickering Kenyon) represented the respondent plaintiffs.
Giving
judgment, NOLAN LJ said: This is an appeal against a decision of Judge
Stockdale sitting as a judge of the High Court on January 30 1992. By that
decision the learned judge allowed an appeal by the plaintiffs against a
decision of Master Topley given on November 15 1991 granting the defendant
unconditional leave to defend an action in which the plaintiffs had brought
proceedings for summary judgment under Ord 14. The judge set aside the decision
of Master Topley and gave summary judgment for the plaintiffs.
The background
to the matter is clearly and helpfully summarised in a skeleton argument put
before the court by Mr Livingston for the appellant defendant. It shows that by
a lease dated July 1 1986 the plaintiff landlords, Collin Estates Ltd, granted
a company called Jukebox Clothing Ltd a three-year lease of the fourth floor of
premises at 38-40 Eastcastle Street, London W1. The term of the lease ran from
June 24 1986 and the basic rent was £10,000 pa. Mr Buckley, the defendant, was
the principal director of Jukebox and was, under clause 7 of the lease, the
surety for Jukebox’s obligations. I read clause 7, so far as material for
present purposes:
7 The Surety as principal covenantor and not
merely as collateral covenantor in consideration of the demise hereinbefore
contained being made at his instance and request . . . hereby covenants with
and guarantees to the Lessor that during the term hereby granted and any
statutory or other continuation thereof (hereafter called ‘the total period’)
the rents reserved hereby and any increased or higher rents payable during any
such statutory or other continuation of the term hereby granted shall at all
times be paid and in the manner and at the times herein appointed for the
payment thereof And also that during the total period all the covenants and
stipulations on the part of the lessee and conditions herein contained shall be
duly observed performed and kept And that the Surety will at all times
hereafter . . . pay and make good to the Lessor on demand all losses costs
damages and expenses occasioned to it by the non-payment of the said rents or
any part thereof or the breach non-observance or non-performance of any of the
said covenants stipulations and conditions . . .
At the end of
the contractual period of the lease Jukebox applied for a new tenancy of the
premises under the provisions of the Landlord and Tenant Act 1954 and the usual
exchange of notices and counternotices took place. On March 5 1990 Jukebox gave
notice of discontinuance of its application for a new tenancy and it followed,
by virtue of section 64 of the 1954 Act, that the tenancy came to an end three
months later on June 5 1990. Thereafter the landlords commenced proceedings in
Bloomsbury County Court for interim rent to cover the period between the end of
the contractual tenancy, that is, June 23 1989, and June 5 1990, when the
statutory tenancy came to an end. Those proceedings, together with other
existing proceedings between the landlords and Jukebox were compromised on
February 4 1991 by a consent order under which the landlords’ claim was to be
discontinued, with no order as to costs, on the basis that Jukebox paid the
landlords £10,000 in four instalments of £2,500. Those other proceedings were
three in number. There was the action brought in Bloomsbury County Court by
Jukebox against the landlords for a new tenancy under the 1954 Act; there was
an action brought in the Queen’s Bench Division by the landlords against
Jukebox and the appellant guarantor, Mr Buckley, for arrears of rent with a
counterclaim in respect of repairing covenants; and there was an action in the
Queen’s Bench Division brought by the landlords against Jukebox for possession
pursuant to section 146 of the Law of Property Act 1925.
The events
leading up to the consent order are summarised in para 5 of an affidavit sworn
by a Mr Rodda on behalf of the plaintiffs’ solicitors, in the course of which
he says:
On the 4th
February 1991 the trial of the Plaintiff’s claim for interim rent (Bloomsbury
County Court No 9005406) was heard. The parties agreed terms of settlement
contained in the Consent Order dated 4th February 1991, . . . In broad terms
the Plaintiff and Jukebox compromised their various claims arising from the
four actions and under the Lease against one another upon terms that Jukebox
pay to the Plaintiff the sum of £10,000 by instalments as set out therein. The
Defendant [Mr Buckley] . . . was not a party to the Bloomsbury County Court
action . . . and was therefore not a party to the Consent Order.
That order, so
far as material, reads as follows:
[IS ORDERED
that the Applicants application be discontinued with no Order as to costs on
the terms hereafter set out:
1. Jukebox
(Clothing) Ltd shall pay £10,000 to Collin Estates Ltd and Collin Estates Ltd
shall accept the said sum in full and final settlement by both parties of all
claims each may have against the other to include all claims and counterclaims
presently before any court and any costs orders therein, it being agreed that
neither party shall seek to enforce any costs Orders the other has or may have
obtained against either party.
2. The
£10,000 shall be paid by four instalments of £2,500 each due and payable on or
before the 3rd day of April 1991, 2nd August 1991, 4th November 1991 and the
3rd February 1992.
In the event
no payment was ever made under this agreement, Jukebox having gone into
liquidation in late March 1991. The respondent landlords now sue the appellant,
Mr Buckley, for the sum of £10,000 relying on the surety covenant in the lease.
It was in these proceedings that their application for summary judgment was
refused by the master but succeeded on appeal to the judge. The learned judge
dealt with the matter in this way:
But the
parties settled the action for a payment by four equal instalments by the
company of £10,000. Now, that made sense, but what were they settling? Mr Foskett for the defendant in this action,
the company director, the guarantor, says we do not really know what precisely
they were settling. They had had other litigation as well and there had been a
section 146 dispute and there was a dispute about roof repairs etc but the only
live dispute at Bloomsbury County Court was were the plaintiffs going to
recover rent at all and if yes, how much?
The issue was rent on liability and quantum. There was no other issue.
At p 6G he
said:
Mr Foskett
conceded, as he had to, that had Judge Martin given judgment for £10,000 or
£5,000 or any amount at Bloomsbury his client would have been liable under the
terms of the guarantee. I cannot see how it can be said that because the matter
was settled before the judge had an opportunity of giving judgment the nature
of the claim or the nature of the outcome varied significantly in any way and
it seems to me that the agreement was a perfectly proper agreement entered into
by the tenant company to minimise the risk of a high rent being awarded by the
judge and to minimise what was agreed to be paid by way of rent. There was
nothing else being discussed and therefore it seems to me that the guarantor
cannot escape liability and has no defence.
In argument
before this court Mr Livingston has taken essentially two points. The first is
that the order of February 4 1991 comprised not just one but a number of
disputes which involved not simply questions of rent but roof repairs and
alleged unlawful subletting, the complaint about roof repairs having given rise
to the counterclaim.
On analysis,
as it seems to me, the fact that the other proceedings were very sensibly
included in the overall settlement and terminated at the same time does not
help the appellant’s case, because when one looks at the other proceedings one
finds, first, the Bloomsbury County Court action for a new tenancy. That, by
the time of the consent order, was water under the bridge. That had been
discontinued by Jukebox. Second, there was the Bloomsbury County Court action
No 9005496 itself, though that action was discontinued by the consent order
that was made, it being purely an action for rent. Third, there was the Queen’s
Bench action for arrears of rent with a counterclaim in respect of repairing
covenants. The judge found as a fact, and it is not in dispute, that there were
no arrears of rent under the lease, these all having been cleared off. Then
there is a counterclaim in respect of repairing covenants brought by Jukebox.
Finally, the second Queen’s Bench action was brought by the landlords against
Jukebox for possession, though possession was no longer a live issue at the
time of the hearing of these proceedings coming before Bloomsbury County Court.
So the company, and therefore potentially the guarantor, was being faced with a
demand for money by the landlord in the form of possible damages for breach of
a covenant against subletting and certainly a claim for interim rent, and the
landlords were faced with a counterclaim by the company in respect of repairing
costs. The upshot was a payment promised by the company in the sum of £10,000
to the landlords.
It seems to me
impossible to escape from the view that this sum, which may have been reduced
by credit being given for the counterclaim of Jukebox, must have been a payment
in satisfaction of sums due under the lease, a payment to discharge obligations
of Jukebox under the lease either by way of breach of the underletting covenant
or by way of interim rent during the extended period for
prevent the consent order from being an order which, at any rate on its face,
dealt with matters covered by the appellant’s guarantee under the lease.
But here Mr
Livingston advances his second argument, which is that in truth matters have
now moved a decisive stage away from the lease. The consent order, as he
rightly points out, was made without admission of liability by Jukebox under
the lease and it created a wholly new legal relationship. He refers to the
passage in Halsbury’s Laws of England 4th ed vol 37 at p 391 where the
effect of a settlement or compromise is set out. One of the effects there
mentioned is to supersede the original cause of action altogether. So, says Mr
Livingston, the guarantor here, the appellant, cannot be said to be saddled with
liability under the consent order. He was not a party to that order and it is
not a term of the lease to which alone the guarantor’s obligations attach.
The conceptual
problems which may arise in this field are of some complexity. There is a
number of variations of fact which may affect them. Supposing the action in
Bloomsbury County Court for interim rent had run its course and the judge had
given judgment in favour of the landlords: no one doubts that the sum that was
ordered to be paid by Jukebox would be a liability of the guarantor of Jukebox
to pay. If during the course of the hearing Jukebox decided to throw its hand
in and accept judgment for a particular sum of rent, plainly the same
consequences as regards the guarantor must follow. If Jukebox without admission
of liability agreed that the action should be discontinued upon the payment of
a certain sum, I find it very difficult to see how a different view could be
taken in relation to a guarantor in any ordinary case. Here, of course, we go
one step further — and this is Mr Livingston’s second point — and have an
agreement which, however little it may draw upon other actions, is on any view
a new contract and one to which the guarantor is not a party. But the answer to
that submission as it seems to me, at any rate in the circumstances of the
present case, lies in the breadth of the language of clause 7 of the lease. I
repeat that it is, as its terms plainly show, one not limited to obligations
directly to be found in the lease itself but to make good to the lessor on
demand all losses, costs, damages and expenses occasioned to the lessors by the
non-payment of rent or the breach of any covenants. Those terms seem to me to
be amply wide enough to impose upon the guarantor an obligation to reimburse the
lessor for loss sustained through the non-payment to the lessor of the £10,000,
which quite plainly on the evidence was due in respect of rent and possibly
breach of covenants under the lease and nothing else. This was in substance the
view taken by the learned judge. I would for my part agree with it and dismiss
this appeal.
KENNEDY LJ agreed and did not add anything.
Appeal
dismissed with costs.
