Landlord and tenant — Claim for damages for breach of statutory duty under Landlord and Tenant Act 1988 — Determination of liability for failure of landlord to grant consent within a reason time of application for underletting
The plaintiff
was the tenant of a three-floor office building under a lease dated January 21
1980 for a term of 59 years from August 12 1978 at an initial yearly rent of
£45,791, subject to review on each fifth anniversary. The defendant, acquired
the freehold reversion to the lease in or about December 1988. By a letter
dated July 21 1993, following an earlier telephone conversation, written on
behalf of the tenant, the landlord was notified of the tenant’s application for
consent to sublet part of the property to T. By a letter dated July 22 1993 on
behalf of the landlord it was stated that it was unable to consider the request
for subletting until a rent review matter had been resolved. By this date it
was accepted on behalf of the landlord at the trial that there was no objection
in principle to T as a subtenant. The landlord’s justification for refusing or
withholding its consent to the tenant’s application for consent was placed on
receipt of an undertaking from the tenant’s solicitors as to its costs of
dealing with the transaction. No consent having been received in answer to
further inquiries on behalf of the tenant on September 30 1993, the present
proceedings were issued on October 5 1993 claiming, inter alia, damages for
breach of the statutory duty to give consent, or to serve on the tenant written
notice the reasons for withholding consent. In a telephone conversation on
October 12 1993, it was said on behalf of the landlord that the matter had not
been progressed because no undertaking in costs had been provided, and on
behalf of the tenant it was said that the amount sought by way of the
undertaking at £4,500 was unreasonable. It was agreed at the hearing that in so
far as the landlord’s reasons were in issue, reasons which were not in the
landlord’s corporate mind prior to the issue of the proceedings could have no
bearing on the position. The landlord contended that as a matter of
construction of section 1(3) of the Landlord and Tenant Act 1988 a ‘reasonable
time’ did not begin to run until the landlord was offered a satisfactory
undertaking for his costs. As no undertaking was ever offered until after the
commencement of the proceedings, the landlord could not then have been in
breach of its duties under the section.
Act. Section 1(3) of the 1988 Act did not require a tenant
undertaking for the landlord’s costs. If a landlord has been furnished with
sufficient particulars of the proposed transaction, such as ‘heads of terms’
agreed between parties to the transaction, then he would, prima facie know
the substance of the ‘true nature of the transaction’ so as to be able to make
a sensible decision on its merits, although it may well still be reasonable to
impose a condition that his consent is subject to his further approval of the
form of sublease. The absence of a premise form of sublease was never a matter
considered on the landlord’s behalf at any time. The original application by
the tenant described the proposed transactions sufficiently for a landlord’s
purposes. If the landlord’s argument was correct and a landlord’s right to
require an undertaking for his costs can, even if only in some cases,
reasonably be made a condition for his proceeding to consider the tenant’s
application, then by clear analogy with section 19(1) of the Landlord and
Tenant Act 1927, this could apply only where the undertaking requested or
required by the landlord was for a reasonable sum or for reasonable costs. The
demand of £4,500 for costs was not reasonable. The landlord was in a position
to give, and ought reasonably to have given, a conditional consent by, at the
latest, August 8 1993.
The following
cases are referred to in this report.
Air India v Balabel [1993] 2 EGLR 66; [1993] 30 EG 90, CA
Fuller’s
Theatre & Vaudeville Co Ltd v Rofe
[1923] AC 435; 128 LT 774; 39 TLR 236, PC
Warren v Marketing Exchange for Africa Ltd [1988] 2 EGLR 247
This was a hearing
of preliminary questions of liability in a summons by the plaintiff, Dong Bang
Minerva (UK) Ltd, for the determination of questions arising out of an
application to the defendant, Davina Ltd, for consent to a subletting under the
Landlord and Tenant Act 1988.
Jonathon Brock
(instructed by Denton Hall) appeared for the plaintiff; Kenneth Munro
(instructed by Hugh Cartwright & Amin) represented the defendant.
Giving
judgment, HAZEL WILLIAMSON QC
said: This is a claim by a tenant against its landlord for damages for breach
of statutory duty under the Landlord and Tenant Act 1988.
The plaintiff,
Dong Bang Minerva (UK) Ltd, is a subsidiary in the Thorn EMI group of companies
and formerly known as Thorn Emi Fire Appliances Ltd. It is the tenant of a
three-floored office building known as St James’ House, Grosvenor Road,
Twickenham, Middlesex. It holds the premises under a lease dated January 21
1980 made between Harry Offer Ltd and itself for a term of 59 years from August
12 1978, at an initial rent of £45,791 subject to rent review on each fifth
anniversary of the commencement date of the term.
The defendant,
Davina Ltd (‘Davina’), is a Jersey trust company whose affairs, at the relevant
time, were run for the benefit of an anonymous beneficiary of Kenyan nationality.
It acquired the freehold reversion on the lease in about December 1988. It
employed an English company called Angel Morgan Ltd to manage the property, and
it has been undisputed that Angel Morgan were fully authorised to deal with
matters concerning St James’ House on behalf of the defendant.
St James’
House has been empty for several years, being surplus to the plaintiff’s
requirements. The lease contains, at clause 2(9) the commonly found tenant’s
covenant not to assign or sublet the premises, or sublet any part of them,
without the landlord’s previous consent in writing not to be unreasonably
withheld.
In July 1993
the plaintiff applied to the defendant for consent to sublet the first and part
of the second floors of St James’ House to Thyssen Lifts & Escalators Ltd
(‘Thyssen’), a subsidiary of a major German lift manufacturing company, Thyssen
AG. The present proceedings arise out of that application and I need to mention
first a little of the history of the proceedings before turning to the issues.
Consent to the
proposed subletting not having been forthcoming by October 5 1993, the
plaintiff commenced these proceedings by originating summons, seeking, in para
(1) a declaration that:
the refusal
of the Defendant to consider the Plaintiff’s application for licence to underlet
… was unreasonable
and in para (2)
a declaration that the plaintiff was, accordingly, entitled to underlet to
Thyssen notwithstanding the defendant’s refusal. Evidence was filed, but
Thyssen had apparently ceased to be interested in the transaction and the
plaintiff therefore applied to Master Moncaster on February 15 1994 for leave
to amend the originating summons by adding a claim for damages for breach of statutory
duty under the Landlord and Tenant Act 1988, together with interest and other
consequential relief. This was given.
The matter
came before me on May 16 1994 pursuant to orders made by Master Moncaster on
February 15 1994 that the further hearing of paras (1) and (2) of the
originating summons be adjourned into court, that the question of liability be
tried before the question of quantum and that the matter be dealt with on
affidavit evidence with the attendance of deponents for cross-examination.
At the
commencement of the hearing, it became apparent that there were differences
between the parties as to the scope of the hearing. Realising that the relief
sought on the amended originating summons was in completely general terms, the
plaintiff had, through its solicitors, notified the defendant on about April 26
1994 of the various bases upon which it proposed to put its case that there had
been a breach of one or more of the duties imposed on landlords by the 1988
Act. The parties disagreed as to whether an amendment of the originating
summons was required for this. In the circumstances, and while endorsing the
comment of Mr Jonathon Brock, who appeared for the plaintiff, that with
hindsight it would have been more satisfactory if the matter had proceeded on
the basis of pleadings, I gave leave to the plaintiff to amend the originating
summons (on the usual terms) to specify the particular breaches of statutory
duty relied upon. In the event, the defendant’s counsel did not find it
necessary to seek an adjournment.
In addition,
the plaintiff had notified the defendant on April 28 1994 of the evidence of
three new witnesses which it wished to call, to deal with points made in the
defendant’s evidence. By the time of the hearing a fourth witness (namely a Miss
Silk, who had been the solicitor acting for Thyssen in relation to the proposed
subletting) had been added to this list, but her affidavit evidence had been
notified to the plaintiff only one clear working day, at best, before the
hearing. Mr Kenneth Munro, who appeared for the defendant, objected to the
introduction of these witnesses without directions, but it rapidly emerged that
the substantial objection was that the evidence of Miss Silk, and, to some
extent, the evidence of another witness, Mr Andrews, was directed mainly at
what was called the ‘causation’ point, namely the reasons why Thyssen had
withdrawn from the proposed transaction. This was a point with which Mr Munro
stated he required time to deal. He also said that the affidavit evidence of one
of his witnesses, a Mr Christopher Barbary, which had apparently prompted this
further evidence from the plaintiff, had not been directed at this point, but
at whether the terms of the proposed underletting had been finalised between
the plaintiff and Thyssen.
Mr Brock urged
me to admit the evidence of Miss Silk and Mr Andrews on the grounds that the
causation point was properly and conveniently dealt with as part of the
question of liability. I took the view, however, that while, in principle,
causation might conveniently be dealt with in conjunction with either liability
or quantum, the parties had in fact proceeded on the basis that the trial on
liability was concerned only with issues of the defendant’s conduct under the
Act, and that, particularly given the lateness of Miss Silk’s evidence, it
would not be right to widen the hearing before me. I therefore declined to
decide any causation question, but gave the plaintiff leave to adduce the
evidence of his three new witnesses in so far as this related to the conduct
issues. Mr Brock then withdrew, for another time, his application to call the
evidence of Miss Silk. On the application of Mr
read certain passages of the affidavit of Mr Barbary notwithstanding that the
defendant had been unable to secure his attendance to give evidence.
Following the
above, the originating summons now claims damages for breach of the following
statutory duties under the Landlord and Tenant Act 1988, namely:
(a) the duty
within a reasonable time to give consent to the said application for licence to
underlet, except in a case where it would be reasonable not to give consent;
alternatively
(b) the duty
not to impose unreasonable conditions for the grant of such consent;
alternatively
(c) the duty
within a reasonable time to serve written notice of the Defendant’s decision
whether or not to give such consent specifying the conditions for giving such
consent or the reasons for withholding it; further or alternatively
(d) the duty
to take such steps as would have been reasonable in the circumstances to secure
the receipt within a reasonable time by its mortgagee of a copy of the
Plaintiff’s application for such consent.
The material
provisions of the Landlord and Tenant Act 1988 are sections 1(3), (4) and (6)
and section 2(1) of the Act, which read as follows:
1 …
(3) Where
there is served on the person who may consent to a proposed transaction a
written application by the tenant for consent to the transaction, he owes a
duty to the tenant within a reasonable time —
(a) to give
consent, except in a case where it is reasonable not to give consent
(b) to serve
on the tenant written notice of his decision whether or not to give consent
specifying in addition —
(i) if the
consent is given subject to conditions, the conditions,
(ii) if the
consent is withheld, the reasons for withholding it.
(4) Giving
consent subject to any condition that is not a reasonable condition does not
satisfy the duty under subsection (3)(a) above.
…
(6) It is for
the person who owed any duty under subsection (3) above —
(a) if he
gave consent and the question arises whether he gave it within a reasonable
time, to show that he did,
(b) if he
gave consent subject to any condition and the question arises whether the
condition was a reasonable condition, to show that it was,
(c) if he did
not give consent and the question arises whether it was reasonable for him not
to show to do so, to show that it was reasonable,
and, if the
question arises whether he served notice under that subsection within a
reasonable time, to show that he did.
2 — . (1) If, in a case where section 1 of this Act applies, any person
receives a written application by the tenant for consent to a proposed
transaction and that person —
(a) is a
person who may consent to the transaction or (though not such a person) is the
landlord, and
(b) believes
that another person, other than a person who he believes has received the
application or a copy of it, is a person who may consent to the transaction,
he owes a
duty to the tenant … to take such steps, as are reasonable to secure the
receipt within a reasonable time by the other person of a copy of the
application.
Section 4 of
the Act provides a remedy in damages by way of a civil action for tort for
breach of these duties.
In evidence,
the plaintiff called Mr Savio d’Costa and Miss Alicia Foo from its solicitors,
Denton Hall, who had conducted, respectively, the conveyancing and the
litigation in the mater, Mr Brian Andrews, a surveyor who marketed the premises
for the plaintiff, Mr William Roots, a property manager in the plaintiff’s
group, and Mr Robert Wates, a solicitor who had acted for the plaintiff in a
previous application made to the landlord, which I must mention later. The
defendant’s evidence was that of Mr Bharat Amin, of Angel Morgan Ltd, Mr Atul
Amin of its solicitors and the permitted part of the affidavit of Mr Barbary, a
surveyor who had shown Thyssen the alternative premises which it eventually
took.
The evidence
disclosed the following history. In June 1993, negotiations took place between
the plaintiff and Thyssen for a possible subletting of part of St James’ House
which, as I have already mentioned, had been empty for a considerable time.
Heads of terms were agreed at about June 24 1993, and, by a letter dated July 6
1993, Mr d’Costa, acting for the plaintiff, wrote to the defendant, care of
Angel Morgan Ltd, saying:
Please accept
this letter as our Client’s application to sublet the first floor and part
second floor premises to Thyssen Lifts and Escalators Limited for a term of
five years outside the provisions of the Landlord and Tenant Act 1954 (Part II)
at an annual rental of £16,175 per annum for the first three years rising to
£23,000 per annum for the fourth and fifth years.
We enclose
accounts for the proposed sub-tenant.
We look
forward to receiving the draft Licence to Sublet.
On July 7
1993, Mr d’Costa forwarded references for Thyssen to Angel Morgan.
Having had no
reply, Mr d’Costa telephoned Angel Morgan on July 20 and spoke to Mr Bharat
Amin. Although Mr Bharat Amin manages the property, he is a banker and
accountant by training and experience, and not a lawyer or surveyor. Mr d’Costa
kept no note of the conversation. Mr Bharat Amin’s note, with which Mr d’Costa
did not disagree, reveals that Mr Bharat Amin told Mr d’Costa that the delay in
responding to the application was intentional, pending the outcome of the rent
review which was due to take place on August 12 1993. He named the defendant’s
solicitor as Mr Atul Amin of Hugh Cartwright & Amin. (Mr Bharat Amin and Mr
Atul Amin are not related, but they have a social as well as a business
relationship.) Mr Bharat Amin also said in evidence that in this conversation
he made it clear to Mr d’Costa that he would not pass papers to Mr Atul Amin
unless it had already been agreed that consent would be given, as this would
simply waste costs.
Mr Bharat Amin
freely admitted in his evidence that the ‘linkage’ (as it was called at the
trial) of the rent review with the application for consent to subletting was
not a proper justification for delay in dealing with the application. However,
he said that he did not appreciate this at the time, and, when subsequently
told so by Mr Atul Amin, he says he conceded this point to the plaintiff, in a
later telephone conversation with Mr d’Costa. Mr d’Costa denies that such a
conversation ever took place, and it is the plaintiff’s case that the defendant
never withdrew ‘linkage’ as a reason for withholding consent to the subletting.
Following this
telephone conversation, Mr Bharat Amin wrote to Mr Atul Amin on July 21 1993.
His letter was primarily concerned with the rent review, but in addition, he
expressly notified Mr Atul Amin of the plaintiff’s application for consent to
sublet part of the property to Thyssen. It is not clear what further
information, if any was sent to Mr Atul Amin at that stage. He asked,
generally, for Mr Atul Amin’s response as soon as possible.
It is common
ground that a second telephone conversation took place between Mr d’Costa and
Mr Bharat Amin on either July 21 or 22 1993. Mr Bharat Amin also agreed, in
cross-examination, that by this time he himself was satisfied, without making any
external inquiries, that there was no objection in principle to Thyssen as a
subtenant. He said that he regarded himself as competent to decide
considerations of a person’s commercial standing, but not legal or valuation
considerations.
The following
day, July 22 1993, Mr Bharat Amin wrote to Mr d’Costa:
As discussed
on the telephone today, we are unable to consider your request for subletting
the above premises until the rent review matter has been resolved.
Before we
consult our Solicitors, Hugh Cartwright and Amin (Attention of Atul Amin) with
regards to your application to sublet outside the landlord and Tenant Act 1984.
May we have
your undertaking that your client will be fully responsible for all the costs,
agents, Solicitors and other associated costs.
The question
of undertakings as to costs has been central to this case, and I must refer
briefly to some history which is relevant to that
this application.
First, in
February 1989, the plaintiff had applied to the defendant, through Mr Atul
Amin, for consent to assign the lease of St James’ House to Projectlink Ltd,
and a solicitor’s undertaking to meet costs up to £500 plus VAT was given,
after some initial argument. The assignment did not go ahead and it is clear
that Mr Linnell of the Thorn EMI property department, who was dealing with the
matter, blamed this on what he saw as an obstructive attitude by the defendant
and Mr Atul Amin. In September 1989 Mr Atul Amin applied, twice, for £300 plus
VAT for his costs. He applied again in June 1990 and was eventually paid, after
further pressure, in August 1990. Mr Amin saw this delay as the plaintiff’s
being ‘difficult’ over his costs.
Second, the
defendant complains about late payment of rent. This is a point which has
undoubtedly caused friction between the parties. The defendant was incurring
interest charges to its mortgagee, Allied Irish Bank, for the borrowings which
it had made in order to purchase the property. It was therefore a matter of
concern to the defendant, and it appears there was also pressure from Allied
Irish, that the rent payments should be made promptly, if not early, in order
to reduce the interest liability. Under the lease, however, interest was only payable,
from the due date, if payments were more than 14 days late.
The
defendant’s complaint has been that rent payments, which the plaintiff made by
cheque, were not received by it so as to be cleared funds on the due rent date,
although, with the exception of one occasion in April 1991 (when interest of
£163.57 was paid with an apology) they were received inside the grace period,
so that no interest was recoverable.
Mr Roots, in
his affidavit acknowledged that there had been late payments, but suggested two
reasons. First, he said that after the determination of the August 1988 rent
review, which occurred in July 1989, the defendant had claimed interest on the
extra payments then due, to which it was not entitled under the lease, and was
firmly told so by the plaintiff. While this is factually correct, I find that
the defendant accepted the position, and this incident was not one of its
complaints — although it clearly did not improve the parties’ relations.
The second
reason which Mr Roots gives is that ‘it was never clear’ where rent payments
were to be made, and he refers to various communications between June 1989 and
September 1992 on this subject. I do not find this justified. While the
defendant changed the destination of the payments, it generally did so clearly.
There were only two incidents of possible confusion, the first being when the
defendant’s management changed in November/December 1991, and the second being
when, on June 26 1992, Allied Irish exercised their right as mortgagee to
direct payments of rent to an account with itself. I find that neither incident
itself caused any late payment of rent.
In support of
the plaintiff’s denial that there had been a ‘history’ of late payment of rent,
Mr Brock produced a schedule derived from the plaintiff’s computerised records.
From this it appeared that with one or two exceptions, the plaintiff’s cheques
for the rent were drawn on the relevant quarter day. It follows that the cheque
itself would probably not have been received by the defendant until the
following day at the earliest, and the value of the funds would not be credited
in the defendant’s account until two or three days later still, under the
clearing system. Whether or not this was a legal breach of the defendant’s
payment obligation — and, I am inclined to think that it was — the defendant
was understandably aggrieved by this attitude of the plaintiff, which was
maintained despite requests for payment to be made by bank transfer rather than
cheque. This undoubtedly contributed to the somewhat cool relationship between
landlord and tenant.
The defendant
did not, however, rely on either of the above matters as justification for
refusing or withholding its consent to the plaintiff’s application. Mr Munro’s
argument was rather that they justified the importance which the defendant
placed on receipt of an undertaking from the plaintiff’s solicitors as to its
costs of dealing with the transaction, raised in Mr Bharat Amin’s letter of
July 22 1993.
On July 27 Mr
d’Costa replied to that letter:
Thank you for
your letter of 22nd July.
The matter of
the rent review is completely separate from my Clients’ application to
sublet.
I would draw
your attention to the provisions of the Landlord and Tenant Act 1988 and in
particular your obligation as Landlord not to withhold consent unreasonably. I
wish to put you on notice that unless your consent is forthcoming within 14
days of this letter, shall advise my clients to institute proceedings against
yourselves.
Please
provide an estimate of your Agent’s, Solicitor’s and your other associated
costs.
On August 5
1993 Mr Bharat Amin replied:
Thank you for
your letter of 27th July 1993.
We are, of
course, conversant with the provisions of the Landlord and Tenant Act 1988, but
thank you for the reminder.
All the
papers in connection with the rent review and the application to sublet are now
in the hands of our legal advisor, Mr Atul Amin of Hugh Cartwright and Amin,
and you will be hearing from us shortly.
I estimate
that Agents and Solicitors, and other related costs will be in the region of
£4,500 plus VAT.
Mr Bharat Amin
says that some time around the time of this letter — and on being pressed in
evidence he inclined to the view that it must have been after — he had a
further telephone conversation with Mr d’Costa in which he specifically ‘broke
the linkage’ between the rent review and the application for consent to sublet,
and made it clear (having been so advised by Mr Atul Amin) that the defendant’s
consent in principle was or would be forthcoming provided he received an
undertaking in costs. Mr d’Costa denies that this ever occurred, and states
that as far as he was concerned, the landlord never withdrew from its original
position that the application to sublet would not be dealt with while the rent
review was outstanding.
While
resolution of this dispute is not fundamental to my decision, the parties have
argued it, it is within the general issue of the landlord’s conduct, and it may
have future relevance for the parties, and I shall therefore deal with it.
Before I do so, however, I need to complete this review of the history.
Mr Bharat Amin
also told me that around August 10 1993, the Kenyan ‘principal’ paid a visit to
England and, probably via the principal, papers such as Thyssen’s references
were passed to Mr Atul Amin.
On August 19
1993 Mr d’Costa wrote to Mr Bharat Amin:
Thank you for
your letter of 5th August.
I look
forward to receiving a reply from your Solicitor Mr Amin.
With regard
to the estimate of your fees, they are unreasonable. Please provide a detailed
breakdown as to how the estimate has been reached.
Should this
matter be delayed any further, I shall instruct my clients to issue proceedings
against yourselves.
The tone of
this letter clearly offended Mr Bharat Amin. The material part of his reply
dated August 26 1993 was:
I strongly
object to your statement that our fees are unreasonable. The fees are based on
estimated time and quality of professional services — lease, rent etc. The make
up of the fees is as follows:
|
£ |
|
|
Legal |
2,500 |
|
Surveyor |
1,000 |
|
Agents |
750 |
|
Disbursements and Incidentals |
250 |
Mr Bharat Amin explained these figures in evidence. He said that
they were his own estimate, based on his previous experience. Having received a
bill for £750 from Wild Sapte for the defendant’s mortgagees, Allied Irish
Bank, for considering an earlier application as mortgagee, he allowed £1,000
for their legal fees. He knew that Allen & Overy had charged £750 in
respect of approval of a one-year licence to occupy premises, recently
negotiated by Mr Atul Amin, and, regarding this matter as more complicated, he
allowed £1,000 together with £500 for the drafting of the licence. He felt that
a
£1,000 for that. The £750 were for Angel Morgan’s fees.
On September 6
1993, Mr d’Costa replied:
Thank you for
your letter of the 26th August.
Your fees are
clearly unreasonable as this is a standard Licence to Underlet.
There was no
response to this letter.
In the
meantime, negotiations on the draft sublease had been proceeding between Denton
Hall and Eversheds, on behalf of Thyssen, but no draft underlease had yet been
finalised. The correspondence shows that a question had arisen about the scope
of Thyssen’s repairing obligation, on which the last substantive letter had
been sent by Eversheds on August 25 1993. In mid-September both Eversheds and
Thyssen expressed concern at the lack of progress, but, on the plaintiff’s
side, the matter was hampered owing to the plaintiff’s in-house surveyor, Mr
Gwynne Evans Davies [fsva], being
on holiday, and the plaintiff itself moving offices, around September 17.
On September
24 1993 three things happened. First, Eversheds, faxed Mr d’Costa in an effort
to speed up matters, and stated that their client had been informed by Mr
Davies that this was due to the landlord’s failure to give licence to the
underletting owing to the pending rent review. I should make it clear that I
merely recite this multiple hearsay statement and make no finding of fact about
it in the causation context. Second, Mr d’Costa sent an amended travelling
draft underlease to Eversheds with the comment that no further amendments would
be allowed. Third, Mr d’Costa passed the file to Miss Foo, in Denton Hall’s
litigation department.
Miss Foo, in
another office, received the file on September 27 1993. From then until
September 30 1993 she tried to contact, first Mr Bharat Amin unsuccessfully,
and then Mr Atul Amin, whom she eventually reached on his mobile telephone on
September 30 1993.
Mr Brock says
that there is a conflict of evidence given by Mr Atul Amin and Miss Foo as to
what occurred in the course of this conversation and a later conversation with
Mr Atul Amin on October 11 1993. I am not sure how material any such conflict
really is, but where there is any difference, I prefer the evidence of Miss
Foo, who was both an impressive witness and had plainly approached these
conversations on the basis that their contents might prove to be important. Mr
Atul Amin was less careful about the accuracy of his affidavit evidence and
had, in any event, treated these conversations more casually.
I therefore
accept that Miss Foo gave Mr Atul Amin an ultimatum for the defendant’s consent
of 5pm that day. I also accept her evidence that it appeared that Mr Atul Amin
knew nothing about the transaction. Even allowing for Mr Atul Amin having been
taken unawares, the evidence has suggested to me (and Mr Munro has not sought
to suggest otherwise) that Mr Atul Amin had taken no steps, himself, to deal in
any way with the transaction of which he had been notified as early as July 22
1993. From the evidence, including his own, I find that his approach was that
until he knew that a solicitor’s undertaking, covering his costs in advance,
had been given, he would not be incurring any costs by progressing the matter.
No consent —
and indeed, no further response — having been received in answer to Miss Foo’s
conversation, the present proceedings were issued on October 5 1993.
On October 11
1993 Denton Hall sent a fax letter to Mr Atul Amin informing him that the
proceedings had been issued and asking whether he had instructions to accept
service, giving an ultimatum of midday on October 12 1993. Mr Atul Amin says he
did not receive this fax, but nevertheless, a telephone conversation took place
between him and Miss Foo on October 12 1993, in which he stated that he had
taken instructions and the matter had not progressed because he had not been
given an undertaking in costs. Miss Foo replied that this was because the
amount sought was unreasonable.
The following
day, October 13 1993, in a letter dealing primarily with service of the
proceedings, Miss Foo sent to Mr Atul Amin copies of the correspondence between
Mr d’Costa and Mr Bharat Amin and added (following, as she explained, a
conversation with a partner in the firm):
Our clients
have always been willing to pay your reasonable charges and, for the avoidance
of doubt, please accept this letter as our undertaking to pay your client’s
reasonable costs in dealing with this underletting.
I need mention
only one further matter. Following service of the proceedings, with which the
defendant offered no co-operation, Mr Bharat Amin wrote a letter to Sir Colin
Southgate, the chairman of the Thorn Group, complaining at the fact that
litigation had been commenced. Mr Brock criticised this letter for many
reasons, including several inaccuracies in it, but he relies also on the fact
that apparently (from the letter) in the context of the events of July 21 and
22 1993, Mr Bharat Amin stated ‘Mr De Costa agreed to give his Firm’s
undertaking’, meaning an undertaking for costs. This, says Mr Brock, shows that
the defendant knew that there had all along been no problem about an
undertaking in costs and the defendant’s withholding of consent was deliberate,
possibly (he suggested) to put pressure on the plaintiff to pursue with the
defendant an interest it had expressed in buying the freehold.
Before leaving
the facts, I must resolve the dispute over the ‘third telephone conversation’ between
Mr Bharat Amin and Mr d’Costa, in which Mr Bharat Amin says he did concede the
point about linkage.
I approach the
evidence of Mr Bharat Amin with some caution, owing to the mistakes and
inconsistencies in his letters? which were at least, carelessness and might
well have been commercial deviousness. However, I find that he gave evidence
honestly. I also find that he had been trying to deal with the plaintiff’s
application in what he saw as a businesslike way, giving proper protection to
his clients’ interests. He was not, however, a lawyer, and his approach was
sometimes misguided.
While I have
no doubt that Mr d’Costa was an honest witness, I gained the clear impression
that he had no firm recollection of the events which had occurred, and that he
had not been paying close attention to them at the time, his style of work
being somewhat mechanical and unimaginative.
Having weighed
the evidence generally, I find that some such third conversation did take
place, in which Mr Bharat Amin did mention that ‘linkage’ was now no longer an
issue, but this was lost sight of because of the importance then assumed by the
vexed question of the undertaking in costs. I find it implausible that no
further telephone conversation beyond those of July 20 and 22 1993 took place
because, initially at any rate, there was some impetus about Mr d’Costa’s
pursuit of the matter. I also find that some such further conversation is the
likely origin of Mr Bharat Amin’s understanding, evidenced by his letter to Sir
Colin Southgate dated November 16 1993 and repeated in evidence, that there
would be no problem about an undertaking in costs in principle so long as it
was reasonable. I find that Mr d’Costa did convey this, although no formal
undertaking was actually given. It also appears to me that there having been
some perceived progress in the matter of a costs undertaking is the likely
explanation for Mr Bharat Amin’s passing papers about Thyssen to Mr Atul Amin,
via the ‘principal’ on August 9 or 10; he did not then know that Mr d’Costa was
going to object that his fee estimate was unreasonable.
I place this
telephone conversation, a day or two prior to the August 5 1993 letter and I
find that it accounts for the absence of further reference to ‘linkage’ in the inter
partes correspondence.
I turn now to
the allegations of breach of duty made by the plaintiff and set out above. I
can deal quickly with the last of these, namely the alleged breach of the duty
to pass on applications imposed by section 2.
Mr Munro
pointed out, first, that the plaintiff’s case under section 2(1), that there
was an obligation on the defendant as a person within subsection (a) to pass on
the application within a reasonable time to its mortgagee, depended on whether
its mortgagee was ‘a person who may consent to the transaction’ within
subsection (b). He then drew attention to section 1(2)(b) of the Act, which
states that in sections 1
are to the person who under the covenant may consent to the tenant
entering into the proposed transaction’ (emphasis supplied). The mortgagee, he
pointed out, was not mentioned in the relevant covenant. In the face of this
formidable point Mr Brock, rightly in my judgment, abandoned the plaintiff’s case
under para 3(d) of the reamended originating summons and section 2 of the Act
therefore requires no further consideration.
The remaining
issues relate to the duties under section 1(3)(a) (duty to give consent within
a reasonable time unless it is reasonable not to do so), section 1(3)(b) (duty
within a reasonable time to serve notice of decision) and section 1(4) (duty
not to impose unreasonable conditions). Mr Munro accepted that the burden of
proof lay on him, under section 1(6), to satisfy me that there was no breach of
these various duties.
It was common
ground between the parties that the last possible date for consideration of
both the defendant’s reasonableness and the possible expiration of any
‘reasonable time’ under section 1(3) was the issue of proceedings, namely
October 5 1993. It was also common ground that in so far as the defendant’s
reasons were in issue, reasons which were not in the defendant’s corporate mind
prior to October 5 1993 could have no bearing on the position.
Mr Munro’s
first submission was that, as a matter of construction of section 1(3), a
‘reasonable time’ did not begin to run until the landlord was offered a
satisfactory undertaking for his costs. As no undertaking was ever offered here
until after the commencement of proceedings, the defendant could not then have
been in breach of its duties under the section.
He argued that
section 1(3)(a) expressly sanctions refusal of consent in a case where it is
reasonable not to give consent. If (as he submitted it plainly was) it was
reasonable not to give consent unless and until a sufficient undertaking in
costs is forthcoming, a reasonable time for consideration of the application
could not start to run until such an undertaking had been offered. He supported
this on grounds of practicality by pointing out that section 1(3) envisaged a
variety of possible decisions by the landlord, and the consequences of making
an unjustifiable decision were very grave. A landlord would therefore
inevitably have to take advice and incur costs in order to reach his decision.
Without an undertaking in costs the landlord would have no protection for his
costs if the transaction did not go ahead and his consent was not therefore
required. He must therefore be entitled to an undertaking before he embarked on
this exercise.
I reject this
submission. I agree with Mr Brock that this is tantamount to inserting the
words ‘together with an undertaking for his costs’ in section 1(3) after the
reference to the tenant’s application. In my judgment, the words of the section
are clear and there is no warrant for any such insertion.
Mr Munro’s
second way of putting his case involved a more subtle variation of his first
point and a further point. He submitted that the ‘reasonable time’ under
section 1(3) could not, as a matter of principle, expire unless and
until: (a) the tenant had given a satisfactory undertaking for the landlord’s
costs; and (b) in the case of an application to sublet, the landlord had been
furnished with a copy of the full terms of the proposed sublease. Again,
neither event had occurred prior to issue of proceedings, so that there could
have been no breach of duty by the defendant since a reasonable time was then
still running.
I understood
Mr Munro’s submission on the first point (the costs undertaking) to assume that
the landlord had made a request for such an undertaking, so that time would
then be suspended, or extended, until the requisite undertaking was given. If
it assumed that an unsolicited undertaking must be volunteered, then it would be
no different in substance from the primary case, and I agree with Mr Brock’s
submission that the section casts no onus on the tenant to volunteer anything
at all. (He may, of course, choose to do so for commercial reasons, but that is
a different point.) I therefore treat Mr Munro’s submission as being to the
effect that, once the landlord has sought an undertaking as to his costs, he is
thereafter justified in taking no further steps to consider the tenant’s
application until he has been given one.
As regards Mr
Munro’s second point on submission of the sublease terms to the landlord, Mr
Munro referred me to the dictum of Lord Atkinson in Fuller’s Theatre
& Vaudeville Co Ltd v Rofe [1923] AC 435 at p440 to the effect
that the lessor whose consent is in question is entitled to ‘be told what is in
substance the true nature of the transaction’. That, he submitted, required
that the full terms of the underlease be put to the landlord, not least because
it is usual practice to annexe the proposed underlease to the licence. He
referred me to Air India v Balabel [1993] 2 EGLR 66 p69B–F in
support of the proposition (which I accept) that the 1988 Act did not alter the
substantive law as to what might or might not be reasonable, even though
section 1(6) had reversed the burden of proof between the parties.
Mr Brock
submitted that neither of these matters went to the reasonableness or otherwise
of refusing consent, or the running or suspension of the ‘reasonable time’, but
they were properly matters to be dealt with by way of a condition attaching to
a consent.
I will deal
first with the sublease point. Since, as Mr Brock has rightly pointed out, the
submission of the terms of the sublease terms to the landlord was not a matter
operating on the landlord’s mind, Mr Munro can only succeed on this point if it
were a rule that there could never be any duty on a landlord to reach a
decision — any decision — on the tenant’s application for licence to sublet
unless and until he had been furnished with the terms of the sublease.
In my
judgment, this clearly cannot be right. If a landlord has been furnished with
sufficient particulars of the transaction, perhaps such as would usually
comprise ‘Heads of Terms’ agreed between parties to the transaction, then he
would, prima facie know the substance of the ‘true nature of the
transaction’ so as to be able to make a sensible decision on its merits,
although it may well still be reasonable to impose a condition that his consent
is subject to his further approval of the form of sublease. I do not rule out
the possibility that in a particular case a landlord might reasonably withhold
his consent until he has seen the form of sublease, but this is a question of
fact and circumstance. As was said in Warren v Marketing Exchange for
Africa Ltd [1988] 2 EGLR 247 at p252L:
The landlord,
it is well said, is entitled to be told the facts of the matter and the nature
of the proposals to which he is asked to consent. One can only consider whether
he has been reasonable or not in the light of the information furnished to him
at the time when the question of reasonable or not reasonable arises.
It follows
that there can be no rule or principle such as that for which Mr Munro
contends. Since I do not accept, either, that approval of the form of sublease
can ever be anything but a proper subject for a condition of granting consent,
it becomes necessary to look at the facts of the case.
These can be
quickly disposed of on this point. As Mr Brock rightly points out, the
defendant never mentioned the absence of the precise form of sublease as a
consideration affecting its attitude, and there is no evidence that it was a
matter which anyone considered on the defendant’s behalf at the time.
It may,
therefore, strictly be unnecessary for me to consider whether the particulars
furnished to the landlord were sufficient for it to be reasonable for it to
make some decision under section 1(3) on the basis of that information.
However, Mr Munro has not sought to suggest that the information was deficient
in any particular respect, relying simply on the assertion that nothing short
of the full form of the proposed underlease would suffice, a proposition which
I have rejected. It appears to me that the original application by the
plaintiff described the proposed transaction sufficiently for a landlord’s
purposes, and that any legitimate concern which the landlord might have about
the terms of the underlease could be perfectly adequately met by means of a
condition that it must approve the final form of sublease.
I return to
the submission that a ‘reasonable time’ can never expire once a landlord has
requested an undertaking for his costs, until he has been given one.
Mr Brock’s
submission on this point was, again, that the question of costs was a matter to
be dealt with by a condition attached to the giving of consent, and could not
properly be grounds for refusing consent or delaying consideration of the
application. He submitted that this was undoubtedly the position in this case,
as the tenant had never been asked for a reasonable undertaking in costs and
was under no duty to volunteer one. At times, however, he appeared to be
putting this submission as high as a universal rule that this is the only
proper way in which a landlord can make a requirement about costs.
I have found
it a difficult question, whether on the true construction of section 1(3) a
landlord is entitled to decline to consider a tenant’s application for consent
unless and until he has been given following a request from him, an undertaking
that the tenant will pay his costs of carrying out that consideration. I see
force in Mr Munro’s submission that, unless he can do so, he has no protection
against expenditure incurred in taking advice if his decision is ultimately
‘no’, or where the transaction does not proceed. On the other hand, the terms
of section 1(3) suggest that the duty imposed on the landlord is to get on and
make a decision, and not merely to receive a tenant’s application and then to
ask for an undertaking for his costs and wait. Making a decision necessarily
involves giving consideration to the merits of the application. If the landlord
wants to take advice for this purpose, then, on one view, he must simply treat
the costs of doing so as an overhead of being a landlord, save in so far as he
is in fact able to recover these costs by specifying the payment of his
reasonable costs as a condition of his consent.
The right to
payment of costs is recognised in section 19 of the Landlord and Tenant Act
1927, but the terms of this do not clearly resolve the matter. Section 19(1)
provides, in relation to the statutorily deemed obligation on a landlord not to
withhold consent to an assignment (etc) unreasonably, that this shall:
not preclude
the right of the landlord to require payment of a reasonable sum in respect of
any legal or other expenses incurred in connection with such licence or consent
…
This appears
to envisage the giving, and not the refusing, of licence, but is in any event
not clear as to whether such right is only exercisable as a condition of the
licence or consent itself. Moreover while section 19(3), regarding unreasonable
withholding of consent to change of user contains the same words, section
19(2), in relation to the unreasonable withholding of consent to the making of
improvements, expressly saves:
the right to
require as a condition of such licence or consent the payment of … any legal or
other expenses properly incurred in connection with such licence or consent …
While the
comparison with section 19(1) would thus tend to support Mr Munro’s position, I
can see no logic behind this difference.
In the end,
however, I do not need to decide this point, because, in my judgment, even if
Mr Munro’s argument were correct, and a landlord’s right to require an
undertaking for his costs can, even if only in some cases, reasonably be made a
condition for his proceeding to consider the tenant’s application, then by
clear analogy with section 19(1), this could apply, in my judgment, only where
the undertaking requested or required by the landlord was for a reasonable sum
or for reasonable costs. This brings me to the facts.
Mr Brock
submitted that the letters of July 22, August 5 and August 26 1993 were plainly
unreasonable demands, in that, between them, they, first, demanded an
indemnity, and second, demanded a sum (£4,500 plus VAT), which was prima
facie unreasonable itself and which was clearly shown to be unreasonable
when its constituent elements were disclosed. He accepted that there might be
occasions when a solicitor’s undertaking was reasonably required (although
without, I think, conceding that this was such a case), but rested his attack
on this demand fairly and squarely on the unreasonableness of the amount.
Mr Munro
submitted that, in the light of the past history regarding recovery of
landlord’s costs and the rent position, the landlord was justified in seeking a
solicitor’s undertaking for costs, because of its superior enforceability to a
mere client’s undertaking. The reasonableness of this request was (he said)
demonstrated by the fact that such an undertaking was given on October 13 1993;
it could obviously have been given earlier, but was not.
He also argued
that the amount of costs mentioned by Mr Bharat Amin was expressly only
approximate. The letter of August 5 1993 could not, therefore, be regarded as a
demand for a fixed amount of costs; the final sum might be less or even more.
Since it was not a demand for a fixed sum, but only an estimate, it could not
(as I understood his submission) be an unreasonable demand. I infer that Mr
Munro submitted that it was not unreasonable to demand that the tenant be
‘fully’ responsible for ‘all’ the landlord’s costs. He did not however, seek to
justify the sums mentioned themselves.
In my
judgment, this demand for costs was not reasonable. While a sum which is in
fact an indemnity may still be a ‘reasonable sum’ for the landlord’s costs,
depending on the facts, the two letters of August 5 1993 and August 26 1993
made plain the level of costs the defendant had in mind as the sort of sum
which it was intending or expecting to incur, and to which it would expect the
tenant to raise no objection. I accept Mr d’Costa’s evidence that the sum of
£4,500 was, on the face of it, far too high.
One element
alone demonstrates that the estimate was on an unreasonable basis. That is the
inclusion of £1,000 for surveyor’s fees which Mr Bharat Amin said was for
dilapidations advice. As Mr Brock rightly (in my judgment) submitted,
dilapidations could not have been relevant to the landlord’s reasonable
decision on an application such as this. I find all the other elements, on the
evidence, on the high side. I do not find that the inclusion of an element for
a mortgagee’s charges was necessarily unreasonable; while there was no evidence
that the mortgagee’s consent was required, the landlord might reasonably have
felt obliged to consult it, but this is a matter on which I express no view.
However, I
find that the explanation for this excessive demand was not, as Mr Brock urged
me to find, obstructionism by the landlord. I find that Mr Bharat Amin produced
a genuine estimate, in good faith, of what he thought the relevant costs were
likely to be, believing this to be helpful. Unfortunately, he was stepping into
an area in which he did not know the relevant considerations and, as a result,
his estimate was inflated. This cannot alter the fact that I find it impossible
to treat his letters as anything but a representation to the plaintiff that the
defendant was going to expect it to pay a sum in the order of £4,500 plus VAT
in connection with the licence.
In summary,
therefore, even if a request for an undertaking in costs could suspend the
‘reasonable time’ running against the landlord until it was given, this would,
in my judgment, apply only to a reasonable request, and I find that the
requests made by the defendant were not reasonable, although this was not
deliberate.
Lastly, on the
facts of the case, Mr Munro submitted that the defendant had in fact complied
with section 1(3). He submitted that the letters dated July 22 1993 and, in
particular, that dated August 5 1993 (viewed as a response to that of July 27
1993) were the embodiment and notification of decisions by the defendant, to
withhold its consent, for the reasons there specified. He does not rely on the
letter of July 22 1993, as he accepts that it was bad for taking the ‘linkage’
point. However, he submitted that, the ‘linkage’ point having by then been
withdrawn, the August 5 1993 letter is to be construed as a notification of a
decision (which had effectively been taken) to withhold consent because no
undertaking in costs had been given.
With the best
will in the world, I cannot construe the August 5 1993 letter in this way. At
most, it suggests that the matter is under consideration and a decision has yet
to be made. Even if it could be treated as an implied notification of a
decision to withhold consent, as required by section 1(3)(b), it could only be
regarded as specifying an
inflated demand for costs.
Mr Munro has
therefore failed to satisfy me that the defendant discharged the duties imposed
on it under section 1 of the Act, and I turn to grounds (a), (b) and (c) under
para 3 of the reamended originating summons.
As to (a), Mr
Brock submits that, on the facts of the case, a reasonable time for a decision
was, at most, 28 days from receipt of the plaintiff’s letters dated July 6 and
7 1993, and that the defendant then required no further information in order to
make a decision to give consent, subject to appropriate conditions.
It is clear
from the wording of sections 1(3)(b)(i) and section 1(4) that the ‘consent’
referred to in section 1(3)(a) includes a conditional consent.
I bear in mind
the nature of the transaction, namely a five-year subletting of part of the
building, contracted out of Part II of the Landlord and Tenant Act 1954 and
carved out of a lease with over 40 years to run, and the fact that Mr Bharat
Amin agreed that by July 22 1993 he was satisfied that there was no objection
to the proposed subtenant. In my judgment, on these facts, and having regard to
the remaining evidence in the case, the defendant was in a position to give,
and ought reasonably to have given, a conditional consent by, at the latest,
August 8 1993.
As to (b),
since the defendant did not, in my judgment, give any consent, conditional or
otherwise, the question whether it was in breach of the duty not to impose
unreasonable conditions on its consent does not arise.
As to (c), I
have found that the defendant gave to the plaintiff no notification of any
decision and it follows that I am satisfied that there has been a breach of
this duty as well, although this would not appear to add anything of substance
to (a).
I have already
dealt with and dismissed grounds (d).
I will now
invite the parties’ counsel to address me on the appropriate directions for the
further conduct of this matter, namely the determination of issues of quantum
of damage of which the issue of the causation of loss (if any) to the plaintiff
will form part.
Declaration
accordingly.
