Landlord and tenant — Distress — Whether set-off against a claim for rent can be invoked against landlord’s remedy of distress
The plaintiff
tenant of industrial premises, who had alleged the respondent landlord
committed acts of nuisance and breaches of covenant, decided to put pressure on
the landlord in July 1992 by withholding payments of rent. On seeking to levy a
distress, the landlord’s bailiffs obtained from the tenant a walking possession
agreement to prevent physical removal of the tenant’s goods. In discharging an injunction
obtained by the tenant ex parte to restrain the landlord from proceeding with
the distress, Sir Peter Pain held that although the tenant had an arguable
cross-claim sufficiently closely connected to give rise to an equitable
set-off, he was bound by authority to hold that set off did not affect the
right to distrain. The tenant appealed.
proposition that set-off cannot arise against the levying of a distress were
decided before the judicature Acts, and on the distinctions between the courts
of common law and the Court of Chancery. Collapsing the procedural distinctions
between common law and equity, debt and replevin, undermines the basis upon
which most of the older cases were decided. Accordingly, in applying the
principle that a landlord should not recover by distress what he could not
recover by an action, the court is now free to hold that equitable set-off is
available against a claim to levy a distress.
The following
cases are referred to in this report.
Absolon v Knight (1743) Barnes 450
American
Cyanamid Co v Ethicon Ltd [1975] AC 396;
[1975] 2 WLR 316; [1975] 1 All ER 504, HL
British
Anzani (Felixstowe) Ltd v International Marine
Management (UK) Ltd [1980] QB 137; [1979] 3 WLR 451; [1979] 2 All ER 1063;
(1978) 39 P&CR 189; [1979] EGD 414; 250 EG 1183, [1979] 1 EGLR 64
Brown v Holyoak (1733) Barnes 290
Federal
Commerce & Navigation Co Ltd v Molena Alpha
Inc [1978] QB 927; [1978] 3 WLR 309; [1978] 3 All ER 1066, CA
Gibbs v Cruikshank (1873) LR 8 CP 454
Hanak v Green [1958] 2 QB 9; [1958] 2 WLR 755; [1958] 2 All ER 141,
CA
Laycock v Tufnell (1787) 2 Chit 531
Sanxter v Foster (1841) Cr & Ph 302
Stumore v Campbell [1892] 1 QB 314
Teno
(The) [1970] 2 Lloyd’s Rep 289
Townrow v Benson (1818) 3 Madd 203
Waters
v Weigall (1795) 2 Anst 575
This was an
appeal by the tenant, Adrian Eller, against the decision of Sir Peter Pain, who
discharged an injunction granted ex parte by Morland J to restrain a distress
being levied by the respondent landlord, Grovecrest Investments Ltd.
Richard
Davison (instructed by Titus Miranda) appeared for the appellant; the
respondent did not appear and was not represented.
Giving the
first judgment at the invitation of Neill LJ, HOFFMANN LJ said: The
question in this appeal is whether set-off against a claim for rent can be
invoked against a landlord exercising the ancient common law remedy of
distress.
The plaintiff
was the tenant of premises on a small industrial estate in West Hendon. He
complained for some time of what he said were acts of nuisance and breach of
covenant by his landlord. In July 1992
rent. The landlord sent bailiffs to distrain upon his goods and chattels. The
tenant was obliged to sign a walking possession agreement to prevent their
physical removal. He then applied ex parte to Morland J for an
injunction to restrain the landlord from proceeding with the distraint. He said
that in equity he owed no rent because he was entitled to set off his claims
for nuisance and breach of covenant. Morland J granted the injunction, but, on
the landlord’s application, Sir Peter Pain discharged it. He held that the
tenant had an arguable cross-claim for the purposes of the American Cyanamid*
guidelines. He also accepted that, as it arose out of the same lease as the
claim for rent, they were sufficiently closely connected to give rise to an
equitable set-off in accordance with the principle in Hanak v Green [1958]
2 QB 9. It followed that if the landlord had been suing for rent, the tenant,
if he had made good his cross-claim, would have had a complete defence: see British
Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980]
QB 137† . But, said the judge, he was bound by authority to hold that set-off
did not affect a landlord’s right to distrain. Against that decision the tenant
appeals. The judge agreed to continue the injunction pending appeal on
condition that the tenant paid the money into court. This was done. Meanwhile,
the action has not been pursued.
*Editor’s
note: American Cyanamid Co v Ethicon Ltd [1975] AC 396.
† Editor’s
note: Also reported at (1978) 250 EG 1183, [1979] 1 EGLR 64.
Mr Richard
Davison, who appeared for the tenant, told us that the landlord company was in
financial difficulties. It has not appeared to oppose the tenant’s appeal. So
Mr Davison has ably put before us the arguments which he thinks could be made
on the landlord’s behalf as well as those for the tenant. We are greatly indebted
to him.
In Halsbury’s
Laws of England, vol 13, paras 284-6, it is said that the amount for which
a landlord can distrain may be reduced by payments made on the landlord’s
behalf with his express or implied authority. But otherwise ‘the general rule
of law is that there is no right to set-off against or deduct from the rent
distrained for sums due from the landlord to the tenant or payments made on
behalf of the landlord’. Five old cases, to which I shall return, are cited in
support.
These
authorities can be understood only against the background of the principles
which governed set-off at common law and equity before the judicature Acts. At
common law, a defendant could resist a money claim on the ground that he had
already paid money to the plaintiff’s use. That was the basis of the rule in Halsbury
which allows sums paid on the landlord’s behalf to be deducted from the
rent for which he can distrain. But no cross-claim could be set off in any
proceedings until the Insolvent Debtors Relief Act 1729 (2 Geo II c22) which
provided in section 13:
Where there
are mutual Debts between the Plaintiff and the Defendant . . . one Debt may be
set off against the other, and such Matter may be given in Evidence upon the
General Issue, or pleaded in Bar, as the nature of the case shall require . . .
In Brown v
Holyoak (1733) Barnes 290 the Court of Common Pleas decided this statute
did not enable a tenant to rely on a debt under a simple contract against his
landlord’s action for rent on a parol lease. The reason was that because rent
issued out of land, it was treated as a special debt and ‘a debt of inferior
nature cannot be set off against a superior demand’. This technical distinction
was abolished two years later by section 5 of the Debtors Relief (Amendment)
Act 1735, which provided that:
. . . by
virtue of [the Act of 2 Geo II] mutual Debts may be set against each other,
either by being pleaded in Bar, or given in Evidence on the General Issue, in
the Manner therein mentioned, notwithstanding that such Debts are deemed in Law
to be of a different Nature . . .
Nevertheless,
set-off under the statute was restricted to mutual debts and did not, for
example, allow the set off of a claim for unliquidated damages such as the
tenant makes in this case.
In Absolon v
Knight (1743) Barnes 450 the Court of Common Pleas considered whether
the statute applied to distraint. The common law procedure for challenging a
distraint was for a tenant whose goods and chattels had been distrained to give
security for the rent and bring an action for replevin. The landlord’s defence,
by which he pleaded the rent due, was called the avowry. This could be
challenged by various pleas on the part of the tenant, such as riens in
arrere, that no rent was owing. The difficulty for the tenant was that the
statute of 2 Geo II c22 was procedural rather than substantive. Set-off was a
defence which could be pleaded in an action of contract or debt for a
liquidated sum. But replevin was an action in tort and the statute could not be
made to fit into its system of pleading. Accordingly, the tenant’s attempt to
plead a mutual debt against the landlord’s avowry failed. A similar attempt in
the King’s Bench was equally unsuccessful in Laycock v Tufnell (1787)
2 Chit 531.
So much for
the position at common law. The Court of Chancery approached set-off on a wider
basis and would relieve a debtor against a common law liability when he had a
cross-claim —
. . . so
directly connected with [the claim] that it would be manifestly unjust to the
claimant to recover without taking into account the cross-claim . . .
per Parker J in The Teno [1970] 2 Lloyd’s Rep 289 at p297. The
procedural remedy given by the Court of Chancery was to injunct the plaintiff
from bringing or proceeding with his common law action until the cross-claim
had been taken into account.
But as Morris
LJ pointed out in Hanak v Green [1958] 2 QB 9 at p18:
The Court of
Equity would not act merely because there were cross-demands. The assistance of
the Court of Equity would only be given to someone who could show some
equitable ground for being protected against his adversary’s demand.
So, for
example, if the alleged set-off would have been valid under the statute of 2
Geo II c22 a Court of Equity would not usurp the jurisdiction of a common law court
by trying the action.
In Waters v
Weigall (1795) 2 Anst 575 the tenant claimed to have spent money on
repairs which he said should have been done by the landlord. He claimed that
the Court of Exchequer, in the exercise of its equity jurisdiction, should
therefore restrain the landlord from proceeding with his claim for rent.
MacDonald CB said:
I do not see
how you entitle yourself to the interposition of this Court. If the landlord is
bound in law or equity to repair . . . and you were right in expending this sum
in repairs for him, it is money paid to his use; and may be set off against the
demand for rent. If you fail in making out these points, your ground of relief
is destroyed in equity as well as at law.
These
principles, with their heavily procedural and jurisdictional content, were the
background to Townrow v Benson (1818) 3 Madd 203. The plaintiff
was tenant of a 500-acre farm in Lincolnshire at a rent of £500 a year. When he
entered into the tenancy he, at the landlord’s request, paid the previous
tenant £1,200 in respect of his claim to tenant-right for standing crops and
manure. He said that it was a condition of this payment that he should be paid
a similar sum when he quitted the holding. But when he did so, the landlord
refused to pay him anything. His own claim to tenant-right was valued at £692
and he wanted to set off at least this amount against his liability for rent.
The landlord distrained for rent and the tenant gave security for the rent by
bond and brought an action for replevin. Instead of proceeding to plead to the
avowry at common law, the tenant applied to the Court of Chancery for an
injunction to restrain the landlord from enforcing the replevin bond. The
landlord demurred to the bill for want of equity.
Mr Horne, for
the landlord, said:
Here the set
off, if any, might have been made available at law. It is a legal set off and
therefore cannot be enforced in this Court.
In view of Absolon
v Knight (1743) Barnes 450 and Laycock v Tufnell (1787)
2 Chit 531, I rather doubt whether Mr Horne meant that
was probably saying that the true basis of the tenant’s claim was that his
payment to the previous tenant had been money paid to the landlord’s use, which
(like the money spent on repairs in Waters v Weigall (1795) 2
Anst 575) could have been relied upon at law even before the statute to reduce
or extinguish the landlord’s claim to rent.
Mr Agar, for
the tenant, conceded that ‘there is not perhaps any case where a legal set-off
has been enforced in a Court of Equity’, but he claimed that the tenant had an
equitable claim to stand in the shoes of the previous tenant. Sir John Leach
V-C does not seem to have thought much of this argument. He said:
The tenant
here claims to set off a legal demand against the distress of his landlord for
rent. The policy of the law does not permit set off against a distress for
rent; and a Court of Equity must follow the law and cannot relieve against the
rule of law, where the claim to set off is founded on a legal demand. It is not
necessary to consider how the case might be if the tenant had a counter-demand,
not at law, but in equity.
This is a very
compressed report, but it seems to me that when the Vice-Chancellor says that
‘The policy of the law does not permit set-off against a distress for rent’, he
is referring to the way in which the statute had been construed in Absolon v
Knight and Laycock v Tufnell to exclude its application to
replevin. His remark that equity must follow the law meant, I think, that in
the case of a legal cross-claim which could be pleaded as a defence to an
action, but not to an avowry, equity should not subvert the statutory
distinction by injuncting a landlord from enforcing the replevin bond. But he
expressly left open the case of a purely equitable set-off.
There is some
slight indication of willingness of the Court of Chancery to injunct a
distraint on purely equitable grounds in Sanxter v Foster (1841)
Cr & Ph 302. The tenant there sought relief against liability to pay an
additional rent on the grounds that it was penal. The Vice-Chancellor granted
an interlocutory injunction to restrain the landlord from levying a distress.
The Lord Chancellor, on appeal, discharged the injunction on the facts, and
because the tenant could not support the cross-undertaking in damages, but
there is no suggestion that it was wrong in principle to interfere with the
remedy of distraint. And if a Court of Equity could do so in order to enforce relief
against penalties and forfeitures, why not to enforce an equitable set-off?
I have now
discussed three of the five cases cited by Halsbury in support of the
proposition that there is no set-off against rent for the purposes of
distraint. The other two, in my judgment, take the matter no further. All the
cases are before the judicature Acts. These, it was said by the Court of Appeal
in Stumore v Campbell [1892] 1 QB 314, were not intended to alter
the rights of the parties in set-off, but only to affect procedure. In the case
of set-off, however, procedure was usually what had determined whether or not a
set-off was available in a particular court. Collapsing the procedural
distinctions between common law and equity, debt and replevin, undermines the
basis upon which most of the older cases were decided. Thus, the fact that
set-off under the statute of 2 Geo II, c22 could not apply to replevin was
purely on account of the fact that its procedure could not be fitted into the
replevin cause of action. The statute itself was repealed over a century ago
and only its principle was preserved. The refusal to allow a set-off in Townrow
v Benson (1818) 3 Madd 203 turned entirely upon the jurisdictional
division between the Courts of Common Law and the Court of Chancery.
Accordingly, I
see no reason why the present case should not be decided in accordance with
principle rather than by following cases based upon procedural distinctions of
long ago.
There is
encouragement to take this course in Federal Commerce & Navigation Co
Ltd v Molena Alpha Inc [1978] QB 927 at p974, where Lord Denning MR
said:
It is now far
too late to search through the old books and dig them out. Over 100 years have
passed since the Judicature Act 1873. During that time the streams of common
law and equity have flown together and combined so as to be indistinguishable
the one from the other. We have no longer to ask ourselves: what would the
courts of common law or the courts of equity have done before the Judicature
Act? We have to ask ourselves: what
should we do now so as to ensure fair dealing between the parties?
What fair
dealing requires seems clear enough. It is contrary to principle that a
landlord should be able to recover more by distress than he can by action. As
Mr Davison pointed out, it would mean that a landlord whose application for
judgment under RSC Ord 14 in a claim for rent was defeated by an arguable
cross-claim could leave court and immediately enforce his claim by levying a
distress. The injustice will be even greater if the landlord, as there is
reason to believe may be the case in these proceedings, is in financial
difficulties. The money recovered from the tenant by distress will, on
insolvency, be distributed among the creditors while the tenant will have to be
satisfied with a dividend in respect of his cross-claim.
In my
judgment, therefore, this court is free to hold that set-off is available
against a claim to levy distress. Mr Philip Wood, in his comprehensive book on English
and International Set-Off (para 4.86) says that this is the better view. I
agree. I would, therefore, allow the appeal and restore the injunction granted
by Morland J.
WAITE LJ agreed and did not add anything.
Also agreeing,
NEILL LJ said: There are numerous statements in the text books and
elsewhere to the effect that no cross-claim by a tenant can be used by way of
set-off so as to restrict the landlord’s right to distrain on the tenant’s
property to enforce a claim for arrears of rent. This appeal raises the
question whether these statements accurately represent the law.
In these
proceedings Mr Adrian Eller seeks an injunction to restrain Grovecrest
Investments Ltd (the landlord) from exercising the remedy of distress in
respect of unpaid rent and rates. Mr Eller complains of breaches of covenant
and asserts that his cross-claims for damages exceed the sum claimed by the
landlord by way of rent and rates. It is argued that these cross-claims can be
used as an equitable set-off so as to support the defence that at the date of
the distress no sum was due to the landlord at all.
Sir Peter Pain
rejected Mr Eller’s contention. He held that he was bound by authority to find
that an equitable set-off provided no defence to a distraint. In his judgment
the judge continued at p5:
It [an
equitable set-off] may provide a defence to an action for rent but that a
distraint exists is an ancient right independently of the right to sue for
one’s rent and a right which the landlord has retained throughout the ages. It
seems to me, somewhat to my regret, that I must treat that as still being good
law on the basis of Townrow v Benson (1818) 3 Madd 305.
In this court
the landlord has not appeared. In these circumstances a heavy burden was placed
on Mr Davison, for the tenant, to ensure that the court was referred to the
relevant authorities and that any arguments available to support the judge’s
decision were put forward. The court is grateful to Mr Davison for the help
which he gave us.
It is not in
dispute in the present proceedings that if the landlord had brought an action
to recover rent and rates, or had claimed possession on the basis that the rent
and rates were in arrear, Mr Eller could have set up his claims for damages by
way of equitable set-off within the principles formulated by Morris LJ in Hanak
v Green [1958] 2 QB 9 and applied by Forbes J in British Anzani
(Felixstowe) Ltd v International Marine Management (UK) Ltd [1980]
QB 137. Sir Peter Pain felt constrained by authority, however, to hold that a
similar equitable set-off could not be relied on where the landlord exercised
the remedy of distress as a means of self-help.
Mr Davison
submitted that there was no satisfactory reason why, if an equitable set-off
could be relied upon in an action for rent, such a set-off should be
disregarded where the landlord distrained.
It is
necessary to remember that before the passing of the statutes of set-off in the
time of George II there was no right of set-off in an action at law. The two
statutes which were passed at that time — the Insolvent Debtors Relief Act 1729
and the Debtors Relief (Amendment) Act 1735 — were designed to prevent the
imprisonment, as a debtor, of a person who was not truly indebted because there
was a mutual debt owing to him by his creditor.
The
introduction of the statutory right of set-off represented an important
development, but the set-off was available only in the circumstances prescribed
in the statute, that is, in respect of debts or liquidated demands due between
the same parties in the same right. It followed, therefore, that a claim for
damages for tort or in pursuit of a remedy in respect of some tortious
liability could not be used by way of a set-off under the statutes. Thus, in Laycock
v Tufnell (1787) 2 Chit 531, it was held that a plaintiff in an
action in replevin could not plead a set-off in response to a claim for rent
because an action for replevin is for the tortious taking of goods: cf Gibbs
v Cruikshank (1873) LR 8 CP 454, per Lord Bovill CJ at p459.
It would
appear that another effect of the strict rules governing statutory set-off at
law was that in the 18th and 19th centuries, before the judicature Acts 1873
and 1875, Courts of Equity were very reluctant to intervene where the position
of the parties inter se was regulated by their rights at law. A useful
illustration of this reluctance is provided by the decision in Townrow v
Benson (1818) 3 Madd 203, to which the judge referred. In that case the
plaintiffs sought an injunction to restrain proceedings at law for rent on the
ground that the landlord was indebted to them in a sum which was more than the
amount of the rent. Sir John Leach V-C refused the application for an
injunction holding that it was against the policy of the law to allow a set-off
against a distress for rent and that in these circumstances a Court of Equity
would not intervene. It is unnecessary for the purpose of this judgment to
consider whether the Vice-Chancellor was correct in concluding that at law a
set-off could not be asserted against a distress for rent in any circumstances,
because the plaintiffs had the additional difficulty that the agreement under
which their claim to a ‘tenant-right’ was not in writing.
The position
was different, however, where the set-off relied on was a true equitable
set-off and one which was not even arguably within the statutes. In the course
of his judgment in the British Anzani case Forbes J (at pp149 to 151)
referred to cases where the Courts of Equity had intervened in cases of
ejectment where the tenant had an equitable set-off for unliquidated damages.
At p151E he concluded:
A
consideration of all these cases leads me to the conclusion that except in
cases of distress or replevin equity has never refused to interfere to protect
the tenant whose landlord was bringing proceedings based on non-payment of
rent, if the tenant had a bona fide cross-claim for unliquidated damages
against the landlord, provided that he was not covered by an existing common
law remedy and that the ordinary rules pertaining to equitable set-off were
obeyed.
It will be
seen that in this paragraph Forbes J made a specific exception of cases of
distress and replevin. For my part, however, I can find no satisfactory basis
for excepting these cases from the general proposition which he set out. It is,
of course, true that the remedy of distress took the form of self-help and
that, those instituted by the tenant, either by an action for replevin or by a
claim for an injunction. One can see, therefore, that in a system where rules
of procedure were very strict it would be difficult to found a claim on the
basis of an equitable right which could only be invoked, if at all, by way of
defence. In principle, however, I can see no reason to distinguish between the
position of a landlord who is asserting his rights in respect of arrears of
rent by a claim for possession or by an action in debt, on the one hand, and
that of a landlord who is asserting identical rights, but who is availing
himself of the remedy of distress. In both cases the proper question to be
determined is, looking at the state of account between the parties in the light
of their rights under the lease, is any sum due to the landlord.
In the present
case the cross-claim by Mr Eller arises out of the same contract as the claim
for rent and is directly connected with it. In my judgment, it would be
manifestly unjust to allow the landlords to recover without taking into account
the cross-claim which, it is clear, is capable of existing as an equitable
set-off. I can, therefore, see no reason why at the present day this equitable
set-off should not be used to establish the true state of account between Mr
Eller and his landlords and thus to found a claim for an injunction.
It is
noteworthy that in Townrow v Benson (supra) itself
the Vice-Chancellor left open what the position would have been if the
cross-claim by the plaintiffs had been equitable. He said at p210:
It is not
necessary to consider how the case might be if the tenant had a counter demand,
not at law, but at equity.
Accordingly,
for these reasons and for the reasons more fully explained by Hoffmann LJ, I,
too, would allow this appeal. It seems to me that to do so would be fully in
accord with the approach suggested by Lord Denning MR in Federal Commerce
& Navigation Co Ltd v Molena Alpha Inc [1978] QB 927 at p974
where he said:
Over 100
years have passed since the judicature Act 1873. During that time the streams
of common law and equity have flown together and combined so as to be
indistinguishable the one from the other. We have no longer to ask ourselves:
what would the courts of common law or the courts of equity have done before
the Judicature Act? We have to ask
ourselves: what should we do now so as to ensure fair dealing between the
parties?
Appeal allowed
with costs here and below.
