Landlord and tenant — Forfeiture — Relief — Section 38 of Supreme Court Act 1981 — Tenant commencing collateral claim against landlord for damages — Whether tenant entitled to relief from forfeiture — Whether relief can be granted on terms that permit tenant first to pursue collateral claim against landlord
In July 1997 the defendant tenants of a public house stopped paying
rent otherwise due under a lease they held from the claimant landlord. They
then commenced proceedings against the landlord for damages for breach of what
was then Article 85 of the EC Treaty, based on the beer tie in the lease. The
defendants’ proceedings were ultimately dismissed by the Court of Appeal: see Courage
Ltd v Crehan [1999] 2 EGLR 145. In April 1999 Jacob J made an
order for possession in proceedings by the landlord for forfeiture of the
lease, and gave judgment for the arrears of rent totalling £20,411, interest of
£6,111 and costs.
In July 1999 the first defendant issued her claim for relief from
forfeiture. The master gave relief from forfeiture; he recognised that the
first defendant had a Part 20 claim based on promises that she would be
released from the beer tie and that, if so released, she would be entitled to a
rent review and be able to find a purchaser for the lease enabling her to pay
off the rent arrears and other costs. The landlord appealed.
from forfeiture is based on solid principle and is not simply to be exercised
in a manner that the court considers fair on the particular facts before it. In
order to obtain relief from forfeiture, it was not sufficient to produce
evidence that the first defendant would be able to pay the arrears if she won
her claim for breach of the promise to be released from the beer tie; there had
to be evidence that she would be able to pay the arrears if her claim failed.
The following cases are referred to in this report.
Barton Thompson
& Co Ltd v Stapling Machines Co Ltd [1966] Ch 499; [1966] 2 WLR
1429; [1966] 2 All ER 222
Chandless-Chandless
v Nicholson [1942] 2 KB 321
Claridge Estates
Ltd v Johnson & Jorgensen (Packaging) plc unreported 26 November
1996
Courage Ltd v Crehan
[1999] 2 EGLR 145
Egerton v Jones
[1939] 2 KB 702
Essex Furniture
plc v National Provident Institution unreported 13 November 1998
Essex Furniture
plc v Prudential Assurance Co Ltd unreported 11 December 1998
Gill v Lewis
[1956] 2 QB 1; [1956] 2 WLR 962; [1956] 1 All ER 844, CA
Howard v Fanshawe
[1895] 2 Ch 581
Inntrepreneur Beer
Supply Co Ltd v Langton [1999] 2 EGLR 145
Mottram
Consultants Ltd v Bernard Sunley & Sons Ltd [1975] 2 Lloyd’s Rep
197
This was an appeal by the claimant, Inntrepreneur Pub Co (CPC),
from a decision of Master Moncaster granting relief from forfeiture to the
first defendant, Mrs Sarah Louise Langton, in proceedings by the claimant for
forfeiture and possession of premises.
Richard Field QC and Martin Rodger (instructed by Masons) appeared
for the claimant; Jonathan Brock QC (instructed by Maitland Walker) represented
the first defendant; the second defendant did not appear and was not
represented.
Giving judgment, ARDEN J
said: This is an appeal by the claimant (by original action) against the order
of Master Moncaster dated 16 August 1999, which granted the first defendant, Mrs
Sarah Louise Langton, relief against forfeiture in the terms set out below. The
first defendant made her application for relief from forfeiture under section
38 of the Supreme Court Act 1981, which provides as follows:
(1) In any action in the High Court for the forfeiture of a lease
for non-payment of rent, the court shall have power to grant relief against
forfeiture in a summary manner, and may do so subject to the same terms and
conditions as to the payment of rent, costs or otherwise as could have been
imposed by it in such an action immediately before the commencement of this
Act.
On 15 June 1992 the claimant granted to Mr Clive Jenkins a lease of
the Albion public house, Hilderthorpe Road, Bridlington, for a term of 20 years
from 16 March 1992 at a rent of £18,000 pa. The lease included a beer tie, a
forfeiture clause and a covenant by the lessee that he would pay the rent on
the due date without deduction by variable direct debit or other means
specified by the lessor. On 22 May 1996 Mr Jenkins assigned this lease to Mr
and Mrs Langton for £32,000. On 3 December 1997 Mr Langton was adjudicated
bankrupt and his trustee has disclaimed any interest in the lease. On 24 April
1996 Mr and Mrs Langton agreed an increase in the rent payable for the premises
to £19,000 with effect from 16 March 1997. In February 1997 Mrs Langton began
to carry out alteration works to the premises without the consent of the
claimant.
In July 1997, on the advice of her solicitor, Mrs Langton stopped
paying rent. On 27 August 1997 she commenced proceedings for damages alleging a
breach by the claimant of Article 85 (now 81) of the EC Treaty. A
proceedings was agreed pending a decision in a number of test cases, including Courage
Ltd v Crehan*. At about this time, Mrs Langton began buying beer
from a supplier other than the claimant’s nominated supplier, in breach of the
beer tie. The claimant suggests that the discounts currently available to Mrs
Langton if she complies with the beer tie are better than those that she currently
obtains from purchasing through a wholesaler.
* Editor’s note: Reported at [1999] 2 EGLR 145
On 8 April 1998 the claimant commenced proceedings for forfeiture
of the lease and possession of the premises on the ground of non-payment of
rent. Mrs Langton sought to set off her claim for damages for breach of Article
85 against her liability for rent. On 30 April 1999 Jacob J made an order for
possession and gave judgment for the arrears of rent, then totalling £20,411,
interest totalling £6,111 and costs. On 27 May 1999 the Court of Appeal
dismissed an appeal of Mrs Langton and a further appeal by Mr Crehan in test
cases, and held that, in English law, a party to an illegal contract (which,
for the purposes of the appeal, the beer tie was assumed to be) had no claim in
damages against his co-contractor, and was barred from pleading or relying on
his own illegality in support of such a claim; that even if such a claim could
be brought, it was insufficiently connected with the lessor’s claim for rent to
amount to an equitable set-off; and, third, that the contractual agreement to
pay rent by direct debit precluded set-off in any event. The House of Lords
subsequently dismissed Mrs Langton’s petition for leave to appeal.
On 23 July 1999 Mrs Langton issued her application for relief from
forfeiture, supported by a witness statement. She acknowledges that she is
currently unable to pay the sums due. Mrs Langton contends that she and her
predecessor, Mr Jenkins, were promised that they would be released from the tie
on 28 March 1998. She contends that if she is released from the tie she will be
able to assign the lease, pay off the arrears of rent and so obtain relief from
forfeiture. She states that if she succeeds in her claim for a release from the
beer tie (which she seeks to pursue by a Part 20 claim in the forfeiture
proceedings), she will be able to obtain an advance-of-discount loan (that is,
a loan from a beer supplier granted in return for a purchasing agreement and
repayable by deductions from the discount that the purchaser would ordinarily
obtain in the free market) and thereafter assign the lease and redeem the
advance-of-discount loan. I refer to her claim to be released from the tie, on
the basis of promises made to her and Mr
warranty claim’.
Mrs Langton’s application for relief from forfeiture came before
Master Moncaster on 16 August 1999. Master Moncaster considered that the only
way in which Mrs Langton could be expected to pay the arrears would be if she
could realise the lease at a premium. There was evidence that a Mr and Mrs
MacWilliams were prepared to purchase the lease and take an assignment, even
though the lease was subject to tie. However, the master found that the value
of the lease would be higher with a release from tie. He was satisfied that the
collateral warranty claim was perfectly plausible. If Mrs Langton sold the
lease before the collateral warranty claim was determined, all she would obtain
from the potential freedom from tie would be some hope value. In those
circumstances, he concluded that it was inequitable to require the arrears to
be paid before the hearing of the Part 20 claim. He noted that the Part 20
claim would be heard not later than June 2000 in the High Court. He ventured
the proposal that the case should be heard by agreement before him within about
two months. (This proposal was rejected by the claimant.) He held that there
were special, unusual factors in that terms of the lease were unknown and that
neither party knew where they stood at that time. He rejected the claimant’s
argument that there would be irrecoverable costs if the collateral warranty
claim proceeded, but the master considered that if relief were not granted and
the collateral warranty claim proceeded, expense would be incurred in any
event. He also held that it was not right for the court to take Mrs Langton’s
impecuniosity into account, and that that could not outweigh the injustice to
her of allowing forfeiture before her Part 20 claim was considered. The master
held that he should fix a period long enough to allow for the Part 20 claim to
be heard to enable the payment to be made. The order made by the master was
accordingly in the following terms:
(1) that provided the first defendant complies with the provision
of paragraph (4) below she shall be granted relief from forfeiture on terms
that she pays the balance of the rent arrears and other sums claimed in the
statement of claim interest and costs due to the claimants within 28 days
following:
(a) the final determination of that part of the Part 20 claim
relating to her collateral warranty claim; or
(b) earlier release from tie for the period from 29 March 1998;
(2) that in the event the first defendant’s Part 20 claim is
successful and she is entitled to release from the tie backdated to 28 March
1998 the claimants shall be entitled to a free of tie rent review backdated to
29 March 1998 but so that it shall not be a requirement that the said rent
review must be determined before the grant of relief from forfeiture;
(3) that the first defendant do pay the claimants’ costs such
costs assessed in the sum of £4,000;
(4) that execution of the judgment shall be stayed until 28 days
from:
(a) final determination of the first defendant’s collateral
warranty claim; or
(b) earlier release from tie.
Provided that the first defendant complies with the following
conditions:
(i) that the first defendant pays 1/12 of the annual rent, VAT and
insurance promptly in advance on the first day of each month or on delivery of
a VAT invoice whichever shall be later;
(ii) that the first defendant pay to the claimants interest at the
rate specified in the lease in respect of the capital sums for which the
claimants have judgment monthly in arrears;
(iii) that the first defendant do comply with all the terms of the
lease inclusive of the beer tie (such supply to be on non-discriminatory
terms);
(5) that in the event the first defendant’s Part 20 claim is
successful and she is entitled to release from tie backdated to 28 March 1998
the claimants do give the first defendant credit in respect of any difference
between the value of Supplyline discounts received and the free trade discounts
which are available to the first defendant plus interest at the court rate.
Since the matter was before the master, there have been some
further developments. In particular, Mr and Mrs MacWilliams are not now willing
to take an immediate assignment of the lease. The lease has been valued by a
professional valuer without tie at £35,000, which it is expected could be
obtained within six months. This valuation is made on the basis of certain
assumptions as to rent review. Since it is a valuation about the lease at a
future date in time, there must be doubts about this figure. Furthermore,
Global Investments & Securities Ltd (Global) has made an offer of an
advance-of-discount loan to Mrs Langton in the sum of £30,000 to secure relief
from forfeiture if the premises are released from tie. However, this offer is
subject to satisfactory survey and business evaluation. It is on commercial
terms. It provides for the borrower to take barrelage from a nominated supplier
in return for part of the discount being attributed to capital repayment. If
trading accounts are not paid within three days of the due date, interest is
chargeable at 4% over base lending rate of Lloyds Bank plc. The lender requires
a first charge by way of legal mortgage on the lease. This would probably
require the consent of the claimant, although it would appear that its
objections could be overcome. If Mrs Langton were to take this loan and were to
prepay it in the first three and a half years, she would have to pay Global a
commitment fee of some £3,000 plus VAT. This evidence effectively substitutes
for an unsigned offer of an advance-of-discount loan from Tavern Group, which
is not now available.
It appears that Mrs Langton stopped buying beer from the nominated
supplier of the claimant in about September 1997. Save as regards the business,
which is a partnership, there is no evidence as to the financial position of
Mrs Langton. The business is not very profitable. The profits for the last
financial period were only some £13,000, and that sum has to be divided between
three partners. The business is solvent only on the basis of the lease and
improvements being valued at cost (£79,310). As at the date of the hearing,
Mrs
She has, however, made the payment required to be made to date by the order of
Master Moncaster, that is current rent of £1,900 per month, VAT, insurance,
interest and costs (£4,000). Since the hearing, I have been informed that there
is a dispute about whether she is in default in paying for beer supplies. As it
was not one of the matters argued before me, I have not taken that dispute into
account in this judgment.
Counsels’ submissions
I now turn to counsels’ submissions. Mr Richard Field
the claimant, submitted, first, that those who seek relief must be able to pay
off the arrears, so that relief is not given if there is evidence that they
cannot pay. A mere hope of having funds to pay is not enough. In this connection,
he relied on Barton Thompson & Co Ltd v Stapling Machines Co Ltd
[1966] Ch 499. In that case, Pennycuick J struck out a claim for relief from
forfeiture where there was no assertion that the plaintiffs could pay the
arrears presently or in any ascertainable time. Pennycuick J held at p150:
It is an invariable condition of relief from forfeiture for
non-payment of rent that the arrears, if not already available to the lessor,
shall be paid within a time specified by the court. The precise length of time
is a matter of discretion and again the time may be extended on subsequent
application, but the imposition of the condition is not a matter of discretion;
it is a requirement of law rooted in the principle upon which relief is
granted. It follows that readiness to pay arrears within such time as the court
shall think fit is a necessary condition of the tenant’s claim for relief.
Mr Field further submitted that forfeiture would not be granted
unless it was clear that the tenant could pay within 28 days. In the present
case, it was clear that Mrs
this, while 28 days may often be the period fixed by the court, in my judgment,
there is no invariable rule to this effect.
Mr Field’s second submission approached the same point from the
direction of the Court of Appeal’s holding in Inntrepreneur Beer Supply Co
Ltd v Langton* that, under
the terms of Mrs Langton’s lease, set-off against rent was not permitted.
* Editor’s note: Reported at [1999] 2 EGLR 145
Mr Field further submitted that the terms of relief cannot be
fundamentally inconsistent with the obligation to pay rent. That meant, in his
submission, that the collateral warranty claim could not play any role in the
exercise of discretion. The lease provided for the payment of rent by direct
debit, and the reference to the payment of rent without deduction confirmed
this. No set-off was available, and, accordingly, the terms of relief should
not be framed so as, in effect, to grant set-off. The present form of order was
fundamentally inconsistent with the covenant to pay rent and it deviated from
the security given by the right of forfeiture. The two authorities upon which
Mr Field relied were Mottram Consultants Ltd v Bernard Sunley
& Sons Ltd [1975] 2 Lloyd’s Rep 197 and Claridge Estates Ltd v Johnson
& Jorgensen (Packaging) plc unreported 26 November 1996 (Lloyd J).
These cases make it clear that where the parties have agreed that a payment
should be made without set-off, the court will not refuse summary judgment and
grant leave to defend or grant a stay, which would effectively allow set-off,
contrary to the terms of the parties’ agreement. Mr Field accepted that Master
Moncaster did not rely on set-off. Moreover, Mr Jonathan Brock
Langton, did not rely on it either, and he distanced his approach from set-off,
while not questioning the authorities mentioned.
It is common ground that, in the present case, the collateral
warranty claim would merely sound in a declaration, not in an award of damages.
If any damages are awarded, the claimant has to give credit for them against
the arrears under para 5 of Master Moncaster’s order. As already explained, Mrs
Langton had been buying beer outside the tie, in any event, for about six
months before the forfeiture. That means that she was not observing the tie
from that date, which was ahead of the date when she alleges the tie should
have come to an end. Under the terms of Master Moncaster’s order, she must
observe the tie. Since the commencement of the proceedings for forfeiture, she
has been in a position to ignore the tie because the lease has been forfeit,
and, subject to the conditions imposed by an order granting relief from
forfeiture, the landlord cannot enforce it.
Third, Mr Field submitted that it was wrong in principle to
formulate terms of relief that would lead to the landlord being worse off than
if the rent were paid. Both counsel resisted the temptation to explore the
merits of the collateral warranty claim. It turns on oral evidence, and I
cannot form any view as to its merits at this stage. For Mr Brock’s purposes,
he accepted that it was sufficient that it was an arguable claim. Mr Field’s
concern was that if Mrs Langton lost her case, the landlord would recover
neither the rent arrears nor its costs. In other words, the cross-claim
enhanced the risk of non-recovery of arrears. Master Moncaster rejected this
argument. Mr Field, however, pointed out that Mrs Langton is in financial
straits and that the profitability of the business is marginal.
Fourth, Mr Field submitted that to postpone payment of arrears
until 28 days after the final determination of the claim (including appeals)
involves too much uncertainty as regards payment of the arrears. Mr Field
submitted that there must be a real chance that Mrs Langton will lose her case.
If she wins her case, her evidence is that she can obtain an assignment for
£35,000, but it is clear that this valuation is on the basis of a sale within
six months. Mrs Langton no longer relies on an assignment with tie. There was a
possibility that one of the assumptions made by the valuer, as to the rent that
would be assessed under the forthcoming rent review, was incorrect, since he
assumed that improvements to a games room would be excluded, whereas the
claimant considered that there was a possibility that those improvements would
have to be included. Mr Field submitted that a prudent approach was to value
the lease at £30,000.
As to the possibility of an advance-of-discount loan, Mr Field
referred to the draconian terms of the loan under offer and the uncertainties
surrounding it. For all these reasons, Mr Field submitted that relief from
forfeiture should not be granted.
Mr Brock, for Mrs Langton, referred to the overriding objective of
the new civil procedure rules, which is to deal with cases justly and, in
particular, in a manner that is proportionate to a number of matters, including
the financial position of each party. Mr Brock drew attention to the fact that
Mrs Langton was solvent but impecunious, whereas the claimant was a very large
enterprise indeed. The present application concerned historic arrears, not
current rent that Mrs Langton was paying. Mrs Langton’s case has been propelled
into the limelight because of the compromise of an earlier case chosen as a
test case. Mr Brock submits, and I accept, that Mrs Langton’s case has to be
looked at on its facts, even if the parties propose to treat it as a test case.
Mr Brock emphasised that if Mrs Langton is given merely 28 days, the claimant
will not obtain its money. On the other hand, Mrs Langton knows that she has to
sell the business and has the offer of an advance-of-discount loan to bridge the
time between judgment in her favour in the collateral warranty claim and sale
of the business. She will not make a profit out of success in the collateral
warranty action. He referred to the fact that the collateral warranty claim was
confirmed by the circulars that had been sent by the claimant to all its
tenants in 1991 and early 1995, as well as other dates.
Mr Brock submitted that the approach of the court should be to draw
a balance between the landlord and the tenant. There is no rule that relief
should be limited to 28 days. Relief for non-payment of rent was given in
pursuance of the court’s equitable jurisdiction, whereas relief from other
breaches was granted in pursuance of section 146 of the Law of Property Act
1925. Mr Brock drew attention to the fact that in a bankruptcy, parliament has
seen fit to allow a one-year period for an application to the court: Law of
Property Act 1925, section 146(10). However, the Law Commission has criticised
this provision as anomalous (Codification of the Law of Landlord &
Tenant: Forfeiture of Tenancies (1985) (Law Com No 142) HC 279, paras
5.53-5.55), and it does not follow from section 146(10) that a year should be
allowed in the present case.
Mr Brock considered that the collateral warranty claim could have
been tried by the master and would only last a half to one day. Mr Field, on
the other hand, though that two/two and a half days was more realistic. Mr
Brock submitted that the court’s primary concern should be to protect the
creditors of the tenant. He sought to diminish the authority of Barton
Thompson on the basis that it was a lease of chattels rather than of real
property. Mr Field submitted that nothing turned on that, and, in my view, that
is correct as respects the principle.
Mr Brock accepted that a mere chance that a tenant would be able to
pay the landlord was not enough. He accepted as a proper statement of law the
following paragraph appearing in Mr Field’s skeleton argument:
The principle which underlies the exercise of the court’s
discretion is that provided the lessor can be put in the same position as
before, the lessee is entitled to be relieved against the forfeiture on payment
of the rent and any expenses to which the lessor has been put. Prima facie
the lessor is entitled to be put into the position he would have been in if the
forfeiture had not occurred. This principle has often been endorsed by the
Court of Appeal. See Egerton v Jones [1939] 2 KB 702, at p706 per
Sir Wilfred Greene MR.
In the passage referred to, Sir Wilfred Greene MR said:
In the present case the learned Judge, I think, cannot have had in
mind, when he made the order he did, the fact that, without apparent
justification, he was by his order not putting the plaintiffs back into the
position that they would have been in if the forfeiture had not occurred, a
position which I think it is not putting it too strongly to say they are prima
facie entitled to be in.
Mr Brock referred me to Essex Furniture plc v National
Provident Institution unreported 13 November 1998 (Ferris J). In this case,
the lessor was a company in administration. It wanted to assign the premises,
and the case came before the court on an interim application to prevent the
landlord from allowing the plaintiff quiet enjoyment of the premises or,
alternatively, summary relief from forfeiture. The lessor proposed to pay all
the arrears. Ferris J gave interim relief to prevent the landlord from
preventing the claimant or assignee from taking possession before the relief
from forfeiture was determined. Ferris J held that it would be bizarre if the
court were to refuse to grant relief against forfeiture for breach A on the
grounds that there existed breach B, when breach B might become totally
insignificant within a comparatively short time by reason of the fact that the
landlord had no reasonable ground for refusing a licence to assign that put in
disputed possession the party whose possession was said to have given rise to
breach B. The basis on which Ferris J gave interim relief was that the claimant
would suffer considerable prejudice if its intended transferee was prevented
from reoccupying the premises, even though that might technically involve a
breach of covenant. In the view of Ferris J, there was no undue prejudice to
the landlord if he granted relief on this basis. The interim relief was to hold
the position until the application for summary judgment could be heard. Mr
Brock drew my attention to the decision of Rattee J in Essex Furniture plc
v Prudential Assurance Co Ltd unreported 11 December 1998, in which the
decision was followed.
Mr Field submitted that this case was distinguishable because it
concerned interim relief rather than relief against forfeiture. He submitted
that relief against forfeiture is not concerned with the balancing of prejudice
to the parties. In the case of non-payment of rent, the landlord had to be paid
all his arrears of rent.
Mr Brock further submitted that the collateral warranty claim
would, in effect, be stifled if there was no relief from forfeiture. There
would be no point in Mrs Langton proceeding with that claim unless she were
able to obtain relief from forfeiture and assign the lease. She wished to
honour her debts in this manner. Mr Brock further submitted that the terms of
relief were not inconsistent with the obligation to pay rent. Mr Brock was
unable to provide authority to support his balance of prejudice test as the
basis of granting relief from forfeiture. Mr Brock submitted that the claimant
had an ulterior motive, but the claimant has since confirmed that, in the trial
of Mrs Langton’s collateral warranty claim, the claimant will not contend that
she is disentitled to a declaration by reason of the fact that her lease may
yet be forfeited. Mr Brock submitted that the submission based on irrecoverable
costs was a chimera. Mrs Langton was impecunious but not insolvent, on his
submission. There was no reason for denying relief. As regards the conduct of
the collateral warranty claim, I note that no application has been made to have
it expedited. Certain directions have been agreed but no trial window has been
given.
Mr Field submitted that the possibility of Mrs Langton succeeding
on the collateral warranty claim and then finding a purchaser of the lease was
so uncertain that this case really amounted to a hope that something would come
into place.
In my judgment, this case turns on the question: what are the
guiding principles that governed the exercise by the court of its ancient
equitable jurisdiction (now replicated by statute) to grant relief from
forfeiture for non-payment of rent? The citation of authority on this point has
been commendably economical. Mr Brock also cited Woodfall on Landlord and
Tenant (1994) (loose‑leaf ed) para 17.178, which summarised the
authorities. The parties also took me to some of the authorities. Though they
were of comparatively recent origin, they contain clear resonances of the
philosophy of this ancient jurisdiction. One of the maxims of equity is that
equity follows the law. Only exceptionally did the Court of Chancery claim to
override the courts of common law. Here, the claimant has a clear legal right
to receive rent free of set-off or deduction, and to recover possession if the
rent is not duly paid. It is conceded that there are arrears of rent now due
and owing to the claimant. The claimant has a right at common law to forfeit
the lease, which he has exercised by serving proceedings for possession and
obtaining an order for possession.
In what circumstances is relief given? The right to forfeit the
lease is regarded in equity merely as security for the covenant to pay rent.
Accordingly, the courts of equity commonly granted relief where judgment for
possession was obtained, but the tenant subsequently paid the rent and other
expenses of the landlord, and it was just and equitable to grant relief: see Howard
v Fanshawe [1895] 2 Ch 581. The tenant had to pay other expenses of the
landlord in order to put the landlord in the same position as he would have
been if there had been no forfeiture of the lease: see, eg, Egerton v Jones
[1939] 2 KB 702. Thus, here Master Moncaster has ordered Mrs
pay interest on the arrears.
It can thus be seen that the discretion to grant relief is based on
solid principle and not simply to be exercised in a manner that the court
considers fair on the particular facts before it. Apart from history, there
are, no doubt, sound reasons of policy why the discretion should be
circumscribed and consistently exercised. If the courts do not uphold the terms
of the lease except in limited situations, there will be a strong disincentive
to landlords to invest in property and let it out on lease. By enforcing rights
of property, the law promotes the use and availability of this resource within
society, and property can be used, as in this case, for commercial purposes,
which can serve to increase society’s prosperity. Not all landlords are large
corporations. The principles have been established by the higher courts and
over centuries. They cannot be swept aside by this court. The rights given to
Mrs Langton by the lease were not unconditional or indefeasible. I accept that
the new civil procedure rules give further weight to Mr Brock’s argument, but
they are principally directed to procedural matters, and the principle of
equality of arms in CPR r
established principles of relief from forfeiture. I do not consider that the Essex
Furniture cases alter the principles. Those were cases where the issue was
what interim relief to grant to hold the situation until the claim for relief
from forfeiture could be heard.
The courts have granted relief where the tenant had not paid off
the arrears. I accept as a correct statement of the law the passage from
Pennycuick J in Barton Thompson &Co Ltd v Stapling Machines Co
Ltd, above, which I have already set out. As I have already said, there is
no fixed period that the courts may specify. However, in my judgment, the
courts exercise their discretion to permit the tenant relief against forfeiture
on terms that rent due is paid in the future on a basis that is consistent with
the principles already identified, namely that the landlord should be able to
recover the property in accordance with his legal right unless he can be put in
the same position as if no forfeiture had occurred. The future is uncertain;
the more distant future yet more uncertain. So the period fixed for the payment
of arrears must be one within the immediately foreseeable future, so that the court
can say with a sufficient degree of certainty that the rent outstanding will be
paid. Even then, the tenant has no right to relief. The court may decline to
grant relief if, for example, the landlord has changed his position before the
tenant makes an application for relief (see Gill v Lewis [1956] 2
QB 1) because there has been excessive delay in making the application for
relief.
Because the relief from forfeiture is discretionary, the court
must, in my judgment, have regard to the individual circumstances of this case.
In the present case, these include the fact that by the lease, as construed by
the Court of Appeal, the parties agreed that rent should be paid without
deduction or set-off. This is an indication of the importance that the parties
attached to prompt payment of rent. Relief until after the hearing of the Part
20 claim produces the same effect in economic terms as if the arrears were
subject to set-off. There is a judgment for the arrears of rent, and, in
addition, an admission that Mrs Langton cannot pay this judgment. Mrs Langton
is applying for equitable relief, but she has failed to perform her side of the
bargain and pay the arrears of rent, and these are unquestionably due. Mrs
Langton does not contend that she will be unable to proceed with her collateral
warranty claim unless she obtains relief from forfeiture. The claimant is
prepared to accept that it will not contend that the lease may yet be forfeit,
and, thus, I take it, that it will not contend that the court cannot grant a declaration
because the lease has been forfeited. Likewise, there is no suggestion that the
collateral warranty was given in bad faith or fraudulently. In defending the
collateral warranty claim, or pursuing this appeal, the claimant is not shown
to be acting otherwise than in furtherance of its commercial interests. It is
not said that, if the collateral warranty had not been given, Mrs Langton would
have been able to pay the arrears. Rather, she is asking to use that claim as a
means of financing the payment of the arrears. Another factor is that Mrs
Langton does not wish to remain in possession of the premises. This is of some
minor weight. It is not a case where Mrs Langton has been in occupation of
premises for very many years and desires to stay there; in that circumstance,
the court may have given a more extended period for payment.
The factor that weighed heavily with the master was that Mrs
Langton had the possibility of realising a better premium for her lease if she
first succeeded in her collateral warranty claim. The evidence is that she
could, in that event, find an assignee to take the lease for £35,000 within
about six months. (There is no evidence as to the present value of the lease,
except the offer (now withdrawn) of Mr and Mrs MacWilliams to purchase it for
£30,000.) Should the tenant be given a period of relief for the specific
purpose of enabling her to pursue the collateral warranty claim, with a view to
her realising the lease and using the expected premium on assignment to pay the
landlord? The highest at which counsel has put the claim is that it is
arguable. It turns, essentially, on oral evidence (although the substance of
the collateral warranty is consistent with the terms of a circular that the
claimant wrote to its public house tenants and with undertakings given to the
Department of Trade and Industry), and therefore a significant degree of
uncertainty must attach to it. The persons who are alleged to have made the
representations relied on have filed affidavits in which they have denied
making the statements in question. On the other hand, there has been no
application to strike the collateral warranty claim out.
Mrs Langton’s case on this application does not contemplate
failure: her evidence does not explain how she could pay the arrears if she
lost the collateral warranty claim, and the inference is that she could not do
so. In those circumstances, I am not able, consistently with the principles I
have identified, to grant relief. There has to be evidence that she will be
able to pay the arrears within a fixed time. It is not enough to produce
evidence that she will be able to pay the arrears if she wins the collateral
warranty claim. She has to cover the situation that she does not succeed in
that claim. In appropriate circumstances, she can apply for the trial of that
claim to be expedited. I am unable to accede to Mr Brock’s argument that Mrs
Langton is unlikely to proceed with the collateral warranty claim if the
master’s order is not upheld. That is not a matter to which, in the
circumstances, I can give great weight: she would be free to carry on. However,
I have not given weight to Mr Field’s contention that the master’s order should
be set aside
the collateral warranty claim. The question is whether the court can be
reasonably satisfied that the arrears will be paid within a reasonable time,
and the costs of defending the collateral warranty claim have no direct bearing
on this.
If I had followed the master’s approach, I would, in any event,
have only granted relief down to judgment at trial on the collateral warranty
claim, not down to its final determination (which would include appeals). It
would, of course, have then been open to the court to extend the period further
if it thought fit: see Chandless-Chandless v Nicholson [1942] 2
KB 321, CA.
Accordingly, I allow the appeal. However, I propose to grant Mrs
Langton 21 days in which to consider whether to present some different proposal
for payment. This will be on the terms contained in the proviso to para (4) of
the master’s order. I will adjourn the matter back to Master Moncaster, but
will reserve any ensuing application to expedite the matter to myself, although
it is unlikely that the collateral warranty claim would be ready for trial
until late this term. Subject to any application for expedition, I direct that
the trial of that claim should take place between April and June 2000, and that
the parties attend on the listing officer to fix the trial date, for which
purpose the claimant shall by 30
the Chancery listing officer and give notice of the appointment to the
defendant. The parties are to file completed listing questionnaires with the
court by the date to be fixed by the Chancery listing officer.
Finally, the law of forfeiture has been examined by the Law
Commission, which has recommended the adoption of a modern, comprehensive law
of forfeiture: see Codification of the Law of Landlord & Tenant: Forfeiture,
above; Termination of Tenancies Bill (1994) (Law Com No 221); and Termination
of Tenancies by Physical Re-entry: a Consultative Document (January 1998).
The adoption of an up-to-date, codified law would remove many anomalies in the
existing law and, in this particular case, would have rendered it unnecessary
to consider what a court of equity would have done under its ancient
jurisdiction, and thus have simplified the hearing of this case.
Appeal allowed.