Landlord and tenant — Whether landlord waives right to forfeit lease following a demand for rent after period for payment — Whether leave of court required under section 252 of Insolvency Act 1986 before peaceable re-entry
By a lease
dated May 5 1994 the respondent landlords granted the appellants a term of 25
years of business premises; the lease contained a forfeiture clause. Rent for
the quarters commencing September 1 and December 1 1994 were not paid.
Proceedings were issued by the landlords on January 5 1994 seeking arrears of
rent; on February 8 interim orders were granted on the appellants’ application
under section 252 of the Insolvency Act 1986. Judgment was entered by the
landlords in their action for rent on February 10 and on February 13 they
peaceable re-entered the premises. In the county court in bankruptcy, the judge
held that the landlords: (1) had not waived their right to forfeit by claiming
the rent and then re-entering; and (2) did not require leave under section
252(2) of the 1986 Act to forfeit the lease. The appellants appealed.
been paid in the period allowed by the lease for payment, there is nothing
inconsistent between the landlord re-entering and his claiming or even
receiving the rent concerned. His right of re-entry arises once the rent is
unpaid within the specified period and by virtue of that non-payment; it is
unaffected by demand for, or acceptance of, that instalment of rent outside the
period permitted for payment. (2) Peaceable re-entry under a forfeiture clause
in a lease does not require the leave of the court under section 252(2) of the
Insolvency Act 1986.
The following
cases are referred to in this report.
Central
Estates (Belgravia) Ltd v Woolgar (No 2)
[1972] 1 WLR 1048; [1972] 3 All ER 610; (1972) 24 P&CR 103; [1972] EGD 648;
223 EG 1273, CA
Ellis v Rowbotham [1900] 1 QB 740
Exchange
Travel Agency Ltd v Triton Property Trust plc
[1991] 2 EGLR 50; [1991] 35 EG 120; [1991] BCC 341
Exhall
Coal Mining Co Ltd, Re (1862) 4 DJ&S 377
Fanshaw
& Forston, In re, ex parte Birmingham
& Staffordshire Gaslight Co (1871) LR 11 Eq 615
Herbert
Berry Associates Ltd v IRC [1977] 1 WLR 1437
McMullen
& Sons Ltd v Cerrone [1994] 1 EGLR 99;
[1994] 19 EG 134; [1994] BCC 25
Naeem (a
bankrupt), In re [1990] 1 WLR 48
Olympia
& York Canary Wharf Ltd, Re [1993] BCC
154
Paramount
Airways Ltd, Re [1990] BCC 130
Segal
Securities Ltd v Thoseby [1963] 1 QB 887;
[1963] 2 WLR 403; [1963] 1 All ER 500
This was a
hearing of two appeals by debtors nos 13A10 and 14A10 of 1994 from a decision
of Judge Weeks QC, sitting in Bristol County Court in bankruptcy, in
proceedings against the respondents, Mr Joyner and others.
Malcolm Warner
(instructed by Clarke Wilmott & Clarke, of Taunton) appeared for the
appellants; Jeremy Bamford (instructed by Galbraith Quinn, of Bristol)
represented the respondents.
Giving
judgment, RATTEE J said: This is an appeal against a decision of Judge
Weeks QC, sitting in Bristol County Court in bankruptcy. The appellants carried
on business, in partnership, as what they call solicitors’ agents, liquidators’
agents and commercial debt collectors.
On May 5 1994,
they took a lease of offices in Bristol — to which I shall refer as ‘the
premises’ — in part of which they carried on their business. The lease, dated
May 5 1994, was made between the respondents as landlords and the appellants as
tenants. The lease was for a term of 25 years, commencing on April 18 1994, at
an initial rent of £9,950 pa, payable quarterly in advance on March 1, June 1,
September 1 and December 1 in each year.
Clause 4 of
the lease contained a common form right for the respondents to re-enter the
demised premises and thereby determine the lease in the event, inter alia,
of the rent reserved by the lease, or any part thereof, being unpaid for 14
days after becoming payable, whether formally demanded or not. Rent for the
quarter commencing on June 1 1994 was paid in accordance with the lease, but
neither the instalment of rent due on September 1 1994 nor that due on December
1 1994 was paid because the appellants were in financial difficulties.
On December
16, the respondents’ solicitors wrote to Mr Turner, on behalf of both the appellants,
a letter on which the appellants rely and from which I should therefore read.
The letter says:
I refer to my
letter of 30th November and to our telephone conversation today when I advised
you that, notwithstanding recent promises made by you to my client, the
outstanding rent has not been discharged and the arrears now stand at £4,742.30
plus interest. My clients are not prepared to allow this situation to continue
and, accordingly, unless your cheque for £2,732.15 plus £68.36 is delivered to
my clients’ office no later than 12.00 pm on Monday next, then immediate steps
will be taken to enforce payment of the whole of the arrears. If payment is
made within the time limit, then my clients would be prepared to allow payment
of the December quarterly rent, to be made on or before 14th January. This is
also subject to your providing evidence that the standing order required in my
letter of 5th May last has been set up. The first rent payment will be on 1st
March 1995.
The reference
to the solicitor’s ‘letter of 5th May last’ was a reference to a letter in
which the respondents’ solicitor required the appellants to issue a standing
order to their bankers, to pay the amounts due by way of rent under the lease.
This requirement the respondents were entitled to impose on the appellants
under clause 2(1) of the lease.
The appellants
failed to make payment of the arrears of rent in accordance with the terms of
the letter of December 16 1994 and, on January 5 1995, the respondents issued a
writ against the appellants claiming arrears.
On February 1
1995, each of the appellants applied to the court for an interim order under
section 252 of the Insolvency Act 1986. Such orders were granted on February 8
1995.
On February
10, the respondents entered judgment in default of defence for £5,081.52
against the appellants in their action for arrears of rent. On February 13 the
respondents peaceably re-entered the premises. On February 15, with the leave
of the court, under section 252 of the Insolvency Act 1986, the respondents
issued an application in Bristol County Court in bankruptcy seeking
declarations that: (1) the respondents’ re-entry on the premises effective on
February 13 1995 did not require the leave of the court under section 252(2)(b)
of the Insolvency Act 1986; and (2) that the lease was forfeited by that
re-entry.
On February 16
the appellants issued, in effect, cross applications against the respondents
for possession of the premises and damages for trespass and breach of the
covenant for quiet enjoyment contained in the lease.
The
applications were all heard by Judge Weeks QC on February 16. The applications
before him raised two separate points: first, was the respondents’ re-entry on
February 13 ineffective to forfeit the lease because the respondents had waived
the appellants’ failure to pay rent; and, second, was such re-entry anyway in
breach of section 252(2) of the Insolvency Act 1986 because the leave of the
court was not obtained pursuant to that subsection. The learned judge dealt
with the two points in his judgment in that order, and so shall I.
The appellants
submitted to the learned judge in regard to waiver, and submit to me, that by
their conduct before their purported re-entry the respondents had waived the
appellants’ failure to pay instalments of rent due on September 1 and December
1 1994. The judge held they had not waived the failure to pay on December 1. He
held, and the respondents accept, that by demanding rent due on December 1 they
waived the failure to pay rent due on September 1.
In my
respectful opinion, the learned judge rightly directed himself to the relevant
principles of waiver as set out in the following passage of the judgment of
Buckley LJ in Central Estates (Belgravia) Ltd v Woolgar (No 2)
[1972] 1 WLR 1048 at p1054. He said:
The
landlord’s right is a right to elect whether to treat the lease as forfeit or
as remaining in force. Any election one way or the other, once made, is
irretractable: Scarf v Jardine (1882) 7 App Cas 345, per
Lord Blackburn at p360. If the landlord by word or deed manifests to the tenant
by an unequivocal act a concluded decision to elect in a particular manner, he
will be bound by such an election. If he chooses to do something such as
demanding or receiving rent which can only be done consistently with the
existence of a certain state of affairs, viz, the continuance of the
lease or tenancy in operation, he cannot thereafter be heard to say that that
state of affairs did not then exist. If at the time of the act he had a right
to elect whether to forfeit the lease or tenancy or to affirm it, his act will
unequivocally demonstrate that he has decided to affirm it. He cannot
contradict this by saying that his act was without prejudice to his right of
election continuing or anything to that effect. In this respect his act speaks
louder than his words, because the act is unequivocal: it can only be explained
on the basis that he has exercised his right to elect. The motive or intention
of the landlord, on the one hand, and the understanding of the tenant, on the
other, are equally irrelevant to the quality of the act.
The learned
judge held that the respondents’ claim in their action for rent due on December
1 was inconsistent with forfeiting the lease for non payment of the rent due on
September 1, for by claiming the later instalment of rent the respondents
indicated their acceptance of the continued existence of the lease on December
1. In my view, the judge was plainly right in this conclusion and indeed the
respondents do not challenge it.
The learned judge
went on to hold that to claim the rent due on December 1, even after the right
to re-enter had arisen 14 days after December 1, was in no way inconsistent
with an exercise of the right of re-entry which arose once that rent had been
unpaid for 14 days. The right of re-entry reserved by the lease is, in the
usual way, expressed to be without prejudice to the landlords’ right of action
in respect of any antecedent breach of covenant by the tenant. Thus, a re-entry
for non payment of rent within the permitted 14 days leaves unaffected the
landlords’ right to recover the unpaid rent and is not inconsistent with an
exercise of the latter right.
There is of
course ample authority for the obvious proposition that a demand for or
acceptance of rent accrued due after a breach of covenant by the tenant is
inconsistent with, and therefore waives, the landlord’s right to forfeit the
lease for that breach because such demand or acceptance is a recognition that
the lease has continued after the breach. This is so even if the demand for
acceptance of such
for the antecedent breach: Segal Securities Ltd v Thoseby [1963]
1 QB 887. However, in my judgment, the same reasoning cannot apply to a demand
for or acceptance of rent accrued due on or before the relevant breach. As is
recognised by the terms of the right of re-entry itself in this case, there is
nothing inconsistent between forfeiting the lease and demanding or accepting
rent accrued due before the right to forfeiture arose.
Thus, on the
only argument put to the learned judge on this aspect of the case, namely that
the claim made by the respondents by their writ, issued on January 5 1995, for
rent accrued due on December 1 1994 constituted a waiver of the respondents’
right to forfeit the lease for non payment of that rent within the 14 days
allowed for payment, in my judgment, the judge’s conclusion was entirely
correct.
Counsel for
the appellants did not, before the county court judge or at the beginning of
his submissions before me, seek to draw any comfort on his waiver argument from
the fact that the rent concerned was payable in advance rather than in arrears.
However, when I raised the point in the course of counsel’s submissions to me,
he argued that indeed this is a point of significance, in that a demand for
payment of rent in advance is a recognition that the lease will continue for a
period covered by the rent — in this case, three months from December 1 1994.
It therefore, runs the argument, was inconsistent with forfeiture for non
payment of rent for that period.
I was
persuaded by counsel for the respondents that this last argument is fallacious.
The fact is that, since the lease made the rent for the quarter commencing on
December 1 payable in full on December 1, action by the respondents to recover
that rent recognises only that the lease subsisted on December 1. That there is
nothing inconsistent between re-entry by a landlord for breach of a covenant to
pay a quarter’s rent in advance within a stated period and a claim by the
landlord for the full amount of the unpaid rent, not withstanding that re-entry
took place within the relevant quarter, was decided by the Court of Appeal in Ellis
v Rowbotham [1900] 1 QB 740. The court held that the Apportionment Act
1870 had no application to make the quarter’s rent apportionable between the
period prior to and that subsequent to forfeiture of the lease.
It is
interesting to note, in relation to the appellants’ argument that to sue for the
unpaid rent is inconsistent with forfeiture of the lease for its non payment,
that in Ellis v Rowbotham it appears to have been assumed by the
parties as well as the court that no such inconsistency arose and that, having
re-entered for non payment of rent, the landlord was entitled to sue for the
rent. This, it was said by A L Smith LJ, at p743 of the report, was the result
of a proviso for re-entry providing (as in the lease in the present case) that
re-entry was without prejudice to the landlord’s other remedies for antecedent
breach.
In my
judgment, in the context of a lease containing a right of re-entry in the
common form, as that in the present case, once an instalment of rent has not
been paid in the period allowed by the lease for payment, there is nothing
inconsistent between the landlords re-entering and their claiming or even
receiving the rent concerned. Their right of re-entry arises once the rent is
unpaid within the specified period and by virtue of that non payment. It is
unaffected by demand for or acceptance of that instalment of rent outside the
period permitted for payment.
A further
argument raised by the appellants before me, but not before the learned county
court judge, was based on the letter of December 16 1994 from the respondents’
solicitor to the appellants, which I have read earlier in this judgment. It was
argued that in that letter the respondents were calling on the appellants to
comply with their obligation in the lease to put in place a standing order for
the payment of rent due on March 1 1995 and thereafter. This, it was argued,
was inconsistent with forfeiting the lease before March 1. I consider this
argument misconceived. The letter concerned made proposals to accept late
payment of the over due rent provided that the obligation to create a standing
order for the future was also complied with. I see nothing inconsistent between
that proposal and pursuing the landlords’ right of re-entry when even the
proposal for delayed payment was not complied with by the appellants.
Thus, in my
judgment, the conclusion reached by the learned county court judge remains
correct, namely that the respondents did not waive their right of re-entry for
the appellants’ failure to pay the instalment of rent due on December 1 within
14 days of that date.
Section
252 of the Insolvency Act 1986
The second
main argument put by the appellants is that the re-entry by the respondents was
invalid because the consent of the court was not obtained under section 252 of
the Insolvency Act 1986. The judge rejected this argument. Section 252(1)
provides as follows:
In the
circumstances specified below, the court may in the case of a debtor (being an
individual) make an interim order under this section.
As appears
from my recital of the facts at the beginning of this judgment, an interim
order was made in respect of each of the appellants on February 8 1995, that is
before the respondents’ re-entry on the premises. Section 252(2) is in the
following terms:
An interim
order has the effect that, during the period for which it is in force —
(a) no
bankruptcy petition relating to the debtor may be presented or proceeded with,
and
(b) no
other proceedings, and no execution or other legal process, may be commenced or
continued against the debtor or his property except with the leave of the
court.
The appellants
contend that peaceable re-entry by a landlord in exercise of the right of
re-entry reserved by a lease is ‘other proceedings’ or ‘other legal process’
within the meaning of section 252(2). They seek to derive support for this
argument from the analogous, though significantly different, provisions
relating to the effect of an administration order made in respect of a company
in section 11(3) of the Insolvency Act 1986. That subsection says:
During the
period for which an administration order is in force —
(a) no resolution may be passed or order made for
the winding up of the company;
(b) no administrative receiver of the company may
be appointed;
(c) no other steps may be taken to enforce any
security over the company’s property, or to repossess goods in the company’s
possession under any hire-purchase agreement, except with the consent of the
administrator or the leave of the court and subject (where the court gives
leave) to such terms as the court may impose; and
(d) no other proceedings and no execution or
other legal process may be commenced or continued, and no distress may be
levied, against the company or its property except with the consent of the administrator
or the leave of the court and subject (where the court gives leave) to such
terms as aforesaid.
It is clear
that both section 252(2) and section 11(3) are intended by the legislature to
provide a breathing space to enable a rational scheme for the realisation of
assets for the benefit of creditors to be considered and formulated. However,
the provisions of section 11(3) and section 252(2) are significantly different
in that, for example, the former prohibits without the leave of the court the levying
of distress for rent as well as ‘proceedings’ and ‘legal process’ whereas
section 252(2) does not.
In support of
his argument, counsel for the appellants sought to draw comfort from various obiter
dicta. The first one I should mention, because it is in the context of
section 252(2) itself, is by Hoffmann J (as he then was) in In re Naeem (a
bankrupt) [1990] 1 WLR 48. At p49E–F he said:
On 20 October
1988 the court made an interim order under section 252 of the Act with a view
to proposals for an arrangement being made. That interim order was subsequently
continued over the making of the proposals and the holding of the creditors’
meeting. While it continued, the landlord’s right of forfeiture which had come
into existence not only by virtue of there being arrears of rent but also by
virtue of the bankruptcy order and the interim order itself, could not be
enforced because section 252(2)(b) of the Act says that while the
interim order is in effect no execution or other legal process may be commenced
or continued against the debtor or his property except with the leave of the
court.
Counsel for
the appellants submitted, with some force, that it is apparent from this
admittedly obiter dictum that Hoffmann J did consider that the
enforcement of a landlord’s right of forfeiture is comprised within the words
‘other proceedings’ or ‘other legal process’ in section 252(2). However, it is
impossible to tell whether Hoffmann J had in mind peaceable re-entry as well as
enforcement of the right of forfeiture by action. The latter is, on any view,
within section 252(2)(b). Counsel for the appellants accepted that
re-entry was not ‘execution’ within the meaning of that word in section 252(2).
Counsel for
the appellants relied further in support of the argument that ‘other
proceedings’ or ‘other legal process’ are not limited to proceedings before the
court on the following dicta. In Re Exhall Coal Mining Co Ltd
(1862) 4 DJ&S 377, the court was considering sections 87 and 163 of the
Companies Act 1862. Section 87 provided:
When an order
has been made for winding up a company under this Act no suit, action, or other
proceeding shall be proceeded with or commenced against the company except with
the leave of the Court, and subject to such terms as the Court may impose.
Section 163
provided:
Where any
company is being wound up by the Court, or subject to the supervision of the
Court, any attachment, sequestration, distress or execution put in force
against the estate or effects of the company after the commencement of the
winding up shall be void to all.
In a very
short judgment, Turner LJ said:
I think the
163(d) section of the Act must be construed as only avoiding
attachments, sequestrations, distresses or executions when leave to put them in
force has not been given under the 87th section.
Thus,
submitted counsel for the appellants, the learned lord justice took the view
that the words ‘other proceeding’ in section 87 of the 1862 Act included, for
example, a distress, which involves no legal proceedings before a court. It is
to be noted that the words in section 87 were ‘other proceeding’ in the
singular and not the words ‘other proceedings’ in the plural, as in section
252(2) of the 1986 Act.
Counsel for
the appellants next relied on a dictum of Lord Russell of Killowen in Herbert
Berry Associates Ltd v IRC [1977] 1 WLR 1437 at p1448D. In that
case, the House of Lords was considering section 226 of the Companies Act 1948
which referred to: (a) any action or proceeding against a company pending in
the High Court or Court of Appeal in England and Northern Ireland; and (b) ‘any
other action or proceeding’ pending against the company. At p1448D, Lord
Russell said:
My Lords, I
share with Oliver J his surprise in In re Bellaglade Ltd [1977] 1 All ER
319 that a distraint, whether by a landlord or by the Crown in this case, is
properly to be regarded as a ‘proceeding’ within section 226. If I were to
consider the question de novo, I would say that it was not, though I
need not set out my reasons. There is a consistent stream of authority over a
long period of time based upon the assumption that for present purposes a
distress when levied is a proceeding, a stream which it is not sensible to
assume Parliament did not observe and adopt in the series of re-enactments of
company law, and for that reason the Crown did not contest the point in this
appeal.
In the same
case, on the other hand, Lord Simon of Glaisdale, at p1446A, said:
In several
cases it seems to have been assumed that a distress falls within the words
‘… any other action or proceeding … pending against the company, … ‘ in section 226(b) of the Companies Act
1948. In In re Bellaglade Ltd [1977] 1 All ER 319 Oliver J expressed
surprise at this. In the instant case counsel for the respondents reserved in
the courts below the right to argue before you, Lordships that a distress was
not a ‘proceeding’ within the meaning of this section. In the event he did not
avail himself of the opportunity. In these circumstances it would be
inappropriate to express a concluded opinion. But as at present advised I
presume to share the surprise of Oliver J. The Companies Act 1948 is a statute
dealing with technical matters, and one would expect the words therein to be
used in their primary sense as terms of legal art. The primary sense of
‘action’ as a term of legal art is the invocation of the jurisdiction of a
court by writ, ‘proceeding’ the invocation of the jurisdiction of a court by
process other than writ. Furthermore, ‘action or proceeding’ in section 226(b)
must presumably have the same meaning as the same words in section 226(a),
where they undoubtedly refer to the invocation of the jurisdiction of a court.
In Exchange
Travel Agency Ltd v Triton Property Trust plc [1991] BCC 341*,
Harman J considered section 11(3) of the 1986 Act. He held that the exercise by
a landlord of his right of re-entry on property comprised in a lease to a
company does constitute the enforcement of a security over the company’s
property within section 11(3)(c) of the 1986 Act. More pertinently for
present purposes, Harman J also held that re-entry by a landlord amounted to
‘other legal process’ within section 11(3)(d). On the latter point,
Harman J said at p345 F–G:
*Editor’s
note: Also reported at [1991] 2 EGLR 50.
Mr Snowden’s
other proposition was that in any event the exercise of a right of re-entry
would be, pursuant to sec 11(3)(d), the ‘commencement’ of ‘other legal
process’. Those three words appear in that paragraph a little after the words
‘no other proceedings’ with which the paragraph begins. The Vice-Chancellor in Paramount
Airways held that ‘proceedings’ in that phrase meant proceedings of a
judicial or quasi-judicial nature, that is an action in the courts or an
arbitration or similar matter. Mr Snowden observed that the later part of the
phrase was not concerned with ‘proceedings’ but something different. The words
are ‘and no execution or other legal process may be commenced or continued’. In
my view ‘other legal process’ is plainly something different from ‘proceedings’
of a judicial or quasi-judicial nature.
Counsel for
the respondents, on the other hand, was able to point to cases in which
contrary views on the words ‘other proceedings’ and ‘other legal process’ had
been expressed. In re Fanshaw & Forston, ex parte Birmingham
& Staffordshire Gaslight Co (1871) LR 11 Eq 615, Sir James Bacon CJ
considered the words ‘execution or legal process’ in section 13(1) of the
Bankruptcy Act 1869. He said at p618:
I think it
quite plain that a distress for rent cannot be considered to be included in the
expression ‘legal process’, inasmuch as no legal process whatever is necessary;
and the landlord may, if he thinks proper, distrain with his own hands. As
little can it be called an execution, for an execution is the result of a
judgment which has been recovered in some Court of Law, but to a distress no
legal proceedings whatever are necessary.
More recently,
in Re Paramount Airways Ltd [1990] BCC 130, the Court of Appeal
considered whether the detention of aircraft for alleged failure by their
operators to pay airport charges was within the words ‘other proceedings’ in
section 11(3)(d) of the 1986 Act. At p153 of the report, Sir Nicolas
Browne-Wilkinson V-C (as he then was) said:
The
administrators submit, and the judge held, that the detention of the aircraft
required the leave of the court as being ‘other proceedings against the company
or its property’.
I have no
hesitation in rejecting that view. In my judgment the natural meaning of the
words ‘no other proceedings … may be
commenced or continued’ is that the proceedings in question are either legal
proceedings or quasi-legal proceedings such as arbitration. It is true that the
word ‘proceedings’ can, in certain contexts, refer to actions other than legal
proceedings, eg proceedings of a meeting. In Quzai v Quazi [1980]
AC 744 the House of Lords held that a divorce by talaq in Pakistan constituted
other proceedings within the statutory phrase ‘judicial or other proceedings’.
But in that phrase the word ‘other’ must have referred to non-judicial
proceedings since judicial proceedings had already been expressly referred to.
No such special feature is present in sec 11(3)(d).
Further, the
reference to the ‘commencement’ and ‘continuation’ of proceedings indicates
that what Parliament had in mind was legal proceedings. The use of the word
‘proceedings’ in the plural together with the words ‘commence’ and ‘continue’
are far more appropriate to legal proceedings (which are normally so described)
than to the doing of some act of a more general nature. Again, it is clear that
the draftsman when he wished to refer to some activity other than ‘proceedings’
was well aware of the word ‘steps’ which he used in sec 11(3)(c).
The judge (at
p139D) took the view that the words ‘other proceedings’ covered ‘every sort of
step against the company, its contracts or its property, which may be taken,
and the intention of Parliament by sec.11 is to prevent all such, without the
leave of the court or the consent of the administrators’.
In my
judgment, however anxious one may be not to thwart the statutory
word ‘proceedings’ has this wide meaning, all the other detailed prohibitions
in sec 11(3) would be unnecessary. Moreover such a construction would introduce
great uncertainty as to what constituted commencement or continuation of
proceedings. Would the acceptance of a repudiation of a contract by the company
constitute a ‘proceeding’? Would a counter-notice claiming a new tenancy under
the Landlord and Tenant Act 1954 be a ‘proceeding’? In my judgment, the
judge’s view would produce an undesirable uncertainty which, in view of my
construction of sec 11(3)(c), it is unnecessary to introduce into the
Act.
In Re
Olympia & York Canary Wharf Ltd [1993] BCC 154, Millett J (as he then
was) considered the meaning of the words ‘other legal process’ in section
11(3)(d) and whether they included the service of a notice on a company
making time of the essence of a contract or a notice accepting a repudiatory
breach as terminating a contract.
Millett J
considered the decision of Harman J in Exchange Travel Agency Ltd v Triton
Property Trust plc [1991] BCC 341, to which I have already referred, and
expressed his agreement with the decision in that case that re-entry by a
landlord on property leased to a company in administration does require the
leave of the court as being the enforcement of a security over the company’s
property within section 11(3)(c) of the 1986 Act. However, Millett J
declined to accept the conclusion of Harman J that such re-entry is within the
meaning of ‘other legal process’ in section 11(3)(d). At p157F–G of the
report, Millett J (as he then was) said:
It is not
necessary in this case to consider where the line is to be drawn between the
commencement or continuation of ‘proceedings’ on the one hand or of ‘legal
process’ on the other. But in my judgment both concepts are well known.
Together they embrace all steps in legal proceedings from the issue of
initiating process, to their final termination in the process of execution or
other means of enforcement of a judgment such as the appointment of a receiver
by way of equitable execution or the making of a charging order or other steps
for the enforcement of the court’s judgment without execution. But the phrase
is not apt to describe the taking of non-judicial steps such as the service of a
contractual notice in order to crystallise the liability of the party on whom
the notice is served.
Finally, in McMullen
& Sons Ltd v Cerrone [1994] BCC 25*, Mr Roger Kaye QC, sitting as a
deputy High Court judge of this division, had to consider whether distress for
arrears of rent payable by an individual, in relation to whom an interim order
under section 252 of the 1986 Act had been made, requires the leave of the
court under section 252(2). In an illuminating judgment he held that it did
not. It was not within the words ‘other proceedings’, ‘execution’ or ‘other
legal process’ in section 252(2)(b).
*Editor’s
note: Also reported at [1994] 1 EGLR 99.
In reaching
this conclusion, the learned deputy judge preferred the view of Millett J to
that of Harman J on the meaning of the words ‘other legal process’. The deputy
judge acknowledged that the result of his conclusion was an apparent anomaly
between the effect of section 11(3) in relation to companies the subject of
administration orders and the effect of section 252(2) in relation to
individuals the subject of interim orders. For distress for rent is expressly
included in section 11(3) as requiring leave of the court but, so the judge
held, excluded from the requirement of leave in section 252(2). He suggested
that Parliament might consider removing the anomaly, since there is no
apparently good reason for the difference. Both provisions seem to have as
their purpose the provision of a moratorium on the exercise of the creditors’
rights over the property of the relevant corporate or individual debtor.
I was referred
to no case in which the particular point arising in this case, namely whether
peaceable re-entry by a landlord requires leave of the court under section
252(2) where the tenant is the subject of an interim order has been decided.
However, it would seem to follow inevitably from the decision in McMullen
& Sons Ltd v Cerrone [1994] BCC 25 that a peaceable re-entry by
a landlord for breach of covenant is not within section 252(2). I see no
sensible reason for construing the words of section 252(2)(b) as
excluding distress for rent but including peaceable re-entry. Both are
self-help remedies not requiring the assistance of the court.
I would follow
the decision in McMullen & Sons Ltd v Cerrone unless I were
satisfied that it was wrongly decided. Far from being so satisfied, it seems to
me, with respect, to have been rightly decided. In construing section 252(2), I
bear in mind its apparent purpose, namely to provide, in the case of a debtor
in respect of whom an interim order has been made, the ‘breathing space’ to
enable him to formulate a voluntary arrangement, in the form of a moratorium on
the enforcement (except with the leave of the bankruptcy court) of creditors’
rights against him and his property.
However, I
also bear in mind the reminder given by Sir Nicolas Browne-Wilkinson V-C (as he
then was) in Re Paramount Airways Ltd [1990] BCC 130 at p148A–B that:
however
desirable it may be to construe the Act in a way calculated to carry out the
parliamentary purpose, it is not legitimate to distort the meaning of the words
Parliament has chosen to use in order to achieve that result. Only if the words
used by Parliament are fairly capable of bearing more than one meaning is it
legitimate to adopt the meaning which gives effect to, rather than frustrates,
the statutory purpose.
In my
judgment, when one finds in section 252(2)(b) the words ‘other
proceedings’ used as alternative to a bankruptcy petition expressly mentioned
in the subsection and the words ‘other legal process’ used as an alternative to
‘execution’, the ordinary meaning of ‘proceedings’ and ‘legal process’ adopted
by Millett J in Re Olympia & York Canary Wharf Ltd [1993] BCC 154,
namely as embracing all steps in legal proceedings from the initiation of
proceedings to enforcement of judgment — but not ‘non-judicial steps’ which do
not require the assistance of the court — is confirmed. For both a bankruptcy
petition and execution are clearly legal (in the sense of judicial)
proceedings. Like Mr Roger Kaye QC, I respectfully prefer the view of Millett J
to that of Harman J in Exchange Travel Agency Ltd v Triton Property
Trust plc [1991] BCC 341 on the meaning of these words.
I appreciate that
Millett J was considering the meaning of the words in section 11(3) of the 1986
Act and not section 252(2), which I am concerned to construe. However, one
would expect the same words to be used with the same meaning in two sections of
the same Act. Of course the context of the words in one provision of a statute
may give them a different meaning from that of the same words in another
context in another provision of the same statute, but, in my judgment, it would
require a different controlling context to produce this result. As I have said,
in my judgment, the context of the relevant words in section 252(2) supports
rather than negates the construction adopted for the same words in section
11(3) by Millett J in Re Olympia & York Canary Wharf Ltd [1993] BCC
154.
Section 11(3)(d)
contains an express reference to the levying of distress inconsistent with its
inclusion in the words ‘other proceedings’ or ‘other legal process’. It is
therefore clear, in my judgment, that in section 11(3)(d) Parliament did
not intend the words ‘proceedings’ or ‘legal process’ to include the levying of
distress. It would, in my judgment, require a clear contextual indication of a
different intention to section 252(2) to justify construing the same words as including
the levying of distress. In my judgment, there is no such indication. I
therefore agree respectfully with Mr Roger Kaye QC in McMullen & Sons
Ltd v Cerrone [1994] BCC 25 that the levying of distress, being a
self-help, non-judicial act, is not within section 252(2).
I should say
that I also agree that the fact that the word ‘proceedings’ in other contexts
in the Companies Act has, in such cases as in Re Exhall Coal Mining Co Ltd (1862)
4 DJ&S 377, been construed as including non-judicial acts is of very little
help in construing ‘other proceedings’ and ‘other legal process’ in the context
in which they appear in section 252 of the 1986 Act.
Since, as I
have already indicated, I see no sensible reason for construing the words of
section 252(2) as excluding one self-help remedy, namely distress, but
including another, namely peaceable re-
the present case does not require the leave of the court under section 252 of
the Insolvency Act 1986.
I am
uncomfortably aware of the apparent anomalies resulting from this conclusion.
In the first place, it is difficult to see why section 252 should require the
court’s leave for a landlord to start proceedings for forfeiture and yet not
for him to re-enter peaceably. In the second place, it is difficult to see why
such peaceable re-entry should (as it does) require leave in the case of a
company in administration, because it amounts to the enforcement of a security
within section 11(3)(c) (see Re Olympia & York Canary Wharf Ltd
[1993] BCC 154 and Exchange Travel Agency Ltd v Triton Property Trust
plc [1991] BCC 341), but not in the case of an individual in respect of
whom an interim order has been made, because section 252 contains nothing
equivalent to section 11(3)(c). However, in my judgment, these are
anomalies that cannot properly be cured by construction of the Act. They must
be cured, if at all, by Parliament.
Thus, for
these reasons, I consider that the conclusions of the learned county court
judge were correct and I shall dismiss this appeal.
Appeal
dismissed.
