Lessee of shop premises on ground floor of block of flats obtains option to purchase whole building–Agreement provides for him to take rents and defray outgoings in the meantime–Lessee lays out substantial sums on repairs, subsequently suffers receiving order–Order for possession of shop premises on default in payment of rent properly made despite bankruptcy proceedings–Relief from forfeiture may still be sought by separate application ad hoc
This was an
appeal by Mr Ifoloma Orakpo, tenant of shop premises at 5-11 Kennington Lane,
Kennington, London SE11, from a judgment of Deputy Judge Hammerton at Lambeth
County Court on July 3 1975 granting the landlord of the property, Mr Freddy
Jacob Ezekial, an order for possession.
Mr J W Mills
QC and Mr K A D Hornby (instructed by Sylvester Amiel & Co) appeared for
the appellant, and Mr N B Primost and Mr P D Wulwik (instructed by Kaufman,
Kramer & Shebson) represented the respondent.
Giving the
reserved judgment of the court, SHAW LJ said that the appellant had been defendant
in the proceedings below. He held the property in question under a seven-year
lease granted by the plaintiff landlord on January 15 1973. The claim to
possession was founded on an exercise of the right of forfeiture for
non-payment of rent contained in the lease, and the plaintiff sought incidental
relief in the form of payment of arrears of rent and mesne profits. The answer
to the claim was set out in a defence and a supplement thereto, both of which
were settled by the defendant himself. He challenged the plaintiff’s right to
forfeit the lease, alleging that collateral contracts purporting to confer on
the defendant an option to purchase from the plaintiff a property known as
Albert House which included the shop premises had in some way converted his
status from that of a lessee to that of a purchaser, so that forfeiture was
inoperative and inapplicable. No counterclaim for relief against forfeiture was
put forward. Mr Orakpo did, however, plead that as a receiving order in
bankruptcy had been made against him on January 6 1975, the proceedings issued
by the plaintiff on January 23 were invalid and should have been stayed under
the provisions of section 7 or section 9 of the Bankruptcy Act 1914. These
contentions, together with other aspects of the case, were argued by the
defendant in person at the trial in the Lambeth County Court. The judge held
that the effect of section 7 was to deprive him of jurisdiction to deal with
the money claims put forward by the plaintiff, but that the section’s provisions
did not affect the claim for forfeiture. Accordingly he gave judgment in favour
of the plaintiff for possession in 21 days, but obtained from him an
undertaking not to part with the proceeds of any sale of the premises without
prior notice to the defendant (or to his trustee in bankruptcy, if the
bankruptcy proceedings against him resulted in his adjudication). The Court of
Appeal subsequently granted Mr Orakpo a stay of execution of the possession
order pending the present appeal.
The history of
the matter as found by the judge was that the lease was at a yearly rent of
£2,000 payable by quarterly instalments, and there was a re-entry clause
providing for re-entry in the event of rent being unpaid for 21 days after
becoming due. The ground-floor shop premises at 5-11 Kennington Lane formed
part of a larger property called Albert House which had belonged to the
plaintiff since 1970, and the premises as a whole were subject to an agreement
of January 15 1973, the ‘option agreement,’ which recited that in consideration
of £100 the purchaser (the defendant) should have the option to purchase Albert
House for an estate in fee simple for a price of £40,000. The option was to be
exercised before February 1 1974, and on its exercise the purchaser was to pay
by way of deposit the sum of £3,000. The agreement provided that the date of
completion should be not later than March 25 1974, and it stated in express
terms that on completion the vendor would allow the incoming purchaser a sum of
£10,000 against the cost of repairs, to be allowed by way of deduction from the
purchase-price, and that from the date of the agreement to the date of its
exercise the defendant should be entitled to receive rents from the flats
subject to paying all outgoings. The county court judge was told that there
were six flats of which four were unfurnished, that the furnished flats were
let at substantial rents and the unfurnished flats at rents which might have
amounted to £300 net, and that the premises were in a poor state of repair, the
defendant producing an estimate of £21,830 as the cost of carrying out work at
Albert House.
The judge went
on to deal with and reject the defendant’s contentions as to the consequences
of the option to purchase and the lease of the shop premises in combination.
Not surprisingly, he was much troubled by one fact, which was that in the
expectation of acquiring a title to the whole property comprised in Albert
House, Mr Orakpo had expended very substantial sums on repairs and
improvements. If his lease of the shop premises was forfeited, and he was also
left without any contractual right to purchase the property, the whole of that
expenditure would be lost to him. In a corresponding measure the plaintiff
would benefit from what would be a substantial windfall. It was this
consideration that impelled Judge Hammerton to put the plaintiff on terms as to
the disposition of the proceeds of any sale of the property. In the Court of
Appeal Mr Mills had not pursued any argument founded on the exercise or
purported exercise by the defendant of an option to purchase Albert House in
its entirety, but he had not abandoned the possibility of seeking relief
against forfeiture of the lease of the shop premises. The prospect of relief
might perhaps be open in other proceedings which might still be brought, but it
was outside the ambit of the present appeal. Mr Mills’ principal argument was
directed to jurisdiction and derived from the provisions of the Bankruptcy Act.
Section 7 (1) read:
On the making
of a receiving order an official receiver shall be thereby constituted receiver
of the property of the debtor, and
indebted in respect of any debt provable in bankruptcy shall have any remedy
against the property or person of the debtor in respect of the debt, or shall
commence any action or other legal proceedings, unless with the leave of the
court and on such terms as the court may impose.
The contention
was that since the plaintiff had commenced his action after a receiving order
had been made against the defendant and had not sought or obtained the leave of
the court, the proceedings were a nullity and the order of the judge was made
without jurisdiction and accordingly nugatory. Mr Mills submitted that the
language of the subsection was mandatory, so that the proceedings were
inevitably vitiated and the lack of jurisdiction could not be cured by
acquiescence or submission. He cited a number of cases beginning with In re
Manning (1885) 30 ChD 480, but in the view of the court these did not touch
the fundamental question which the court had to consider in regard to the
operation and effect of section 7. It was clear that the section was intended
to inhibit any form of remedy or action which was directly designed to enforce
payment of the debt which was owed. What had first to be considered was whether
an action in which an order for possession was sought where a lease had been
forfeited for default in payment of rent came within the terms of section 7 (1)
at all. If it did not, it was not necessary to get leave of the court under
section 7 before commencing such an action.
In the court’s
view, an action for possession following the forfeiture of a lease was not
within the terms of the section, and this was so whatever the ground of
forfeiture to which the lessor had recourse under the covenants in the lease.
The nature of the action was the same in every case, namely, that the right and
interest of the lessee to possession had been terminated before its natural
expiry in pursuance of a contractual provision of his lease, so that he became
a trespasser if he continued in occupation of the premises. The obverse of this
situation was that the lessor became entitled to possession on forfeiture of
the lessee’s interest. The action for re-entry was in the nature of an action
for trespass. It was not a remedy against the property of the debtor in respect
of a debt, notwithstanding that the occasion of the forfeiture was default in
payment of the rent reserved by the lease. The consequence of forfeiture
(subject to the power of the court to grant relief) was to determine the
lessee’s interest. It was not a remedy for enforcing payment of the rent due
and was not within the ambit of section 7 (1). The judgment in the county court
was right in deciding that the proceedings were duly constituted in so far as
they related to the claim for possession, and that the court had jurisdiction
to entertain them in that respect. The appeal must be dismissed.
The appeal
was dismissed with costs, the order respecting costs incurred since the filing
of the defendant’s legal aid certificate not to be enforced without further
order of the court. Applications for leave to appeal on the point of law to the
House of Lords, and for a stay of the possession order pending any necessary
application to the House for leave to appeal, were both refused.