Landlord and tenant — Forfeiture, relief, waiver — Appeal by landlords against judge’s grant of unconditional relief against forfeiture to tenants, a company which had gone into liquidation — Counterclaim by tenants based on landlords’ alleged waiver of right to forfeit — Lease was a long lease to respondents for development — The respondents’ claim that the right to forfeit had been waived was based on a letter written by the appellants to the receivers appointed to receive income under the Law of Property Act 1925 and on a submission that publication in the London Gazette of information as to the winding up, in pursuance of section 9 of the European Communities Act 1972, constituted notice to all the world and therefore imputed knowledge to the appellants — It was argued that the acceptance of rent by the appellants with such knowledge constituted a waiver — Court of Appeal, agreeing with the judge in this respect, held that there had been no waiver — As regards relief against forfeiture, however, they held that the judge had no jurisdiction to grant relief to the respondents — Relief under section 146 of the Law of Property Act 1925 was ruled out because the application was made outside the year prescribed by subsection (10) and the respondents’ leasehold interest was not sold within that year — The court rejected a submission that it had an inherent non-statutory jurisdiction to grant relief against forfeiture in the circumstances of this case — Appeal allowed
This was an
appeal by the landlords, the present trustees of the Campden Charities, and
plaintiffs in an action before Mr Vivian Price QC, sitting as a deputy judge of
the Chancery Division, against the judge’s decision granting the respondents,
Parway
against forfeiture of their lease of the Charecroft Estate. The respondents
claimed, by a respondents’ notice, that the judge was wrong in deciding against
them on a plea that the appellants’ right to forfeiture had been waived.
W J Mowbray QC
and George Lawrence (instructed by Lee Bolton & Lee) appeared on behalf of
the appellants; E G Nugee QC and Thomas Seymour (instructed by Travers Smith
Braithwaite & Co) represented the respondents.
Giving the
first judgment at the invitation of Stephenson LJ DILLON LJ said: This is an
appeal against a decision given on July 27 1983 by Mr Vivian Price QC sitting
as a deputy High Court Judge in the Chancery Division.
The
appellants, who are the plaintiffs in the action, are the present trustees of
the Campden Charities and as such they are the owners of the freehold of a
substantial and no doubt very valuable area of land known as the Charecroft
Estate situate at Shepherd’s Bush in London. The respondent to the appeal is
the sole defendant in the action, Parway Estates Developments Ltd (‘Parway’);
it is the lessee of the Charecroft Estate under a lease dated August 10 1961 granted
to it by the then trustees.
In the action
the plaintiffs claimed forfeiture of that lease under the re-entry clause
because Parway has gone into compulsory liquidation. Parway asserted by way of
defence that the right to forfeit because of the liquidation had been waived;
alternatively it counterclaimed for relief against forfeiture. The deputy judge
held that there had been no waiver but he granted Parway unconditional relief
against forfeiture and ordered the plaintiffs to pay all Parway’s costs of the
proceedings. In this court the plaintiffs appeal against the grant of relief
against forfeiture, and they contend not merely that the learned deputy judge
erred in the exercise of his discretion but also that in the circumstances to
which I shall refer he had no jurisdiction to grant any such relief.
Conversely, Parway by a respondents’ notice assert that the learned deputy
judge was wrong in holding that the plaintiffs’ right to forfeit had not been
waived. The issues in this appeal are therefore relief from forfeiture and
waiver, and logically waiver falls to be considered first.
By the lease,
which was a form of building lease, the Charecroft Estate was demised to Parway
for a term of 107 1/2 years from March 25 1961. Parway agreed to spend not less
than £750,000 at prices current at the date of the lease in erecting new
buildings on the demised land, and Parway entered into full repairing and
painting covenants in respect of those new buildings. There was, not
unexpectedly with such a lease, no restriction whatsoever on assignment or
underletting until the last seven years of the term. The rent was to be £15,000
per annum from September 29 1963, subject to review in 1968, 1988, 2016 and
2042, and on each review the landlords were to be entitled to one-fifth of any
increase in the rack rental value of the non-residential parts of the demised
premises. At the date of the trial the rent was £25,000 per annum payable
quarterly.
The re-entry
clause in the lease provided that the landlords might re-enter:
if and
whenever the said rents or any part thereof shall be in arrear and unpaid for
21 days next after any of the days upon which the same ought to be paid . . .
or if the Tenant shall enter into liquidation whether compulsorily or
voluntarily save for the purpose of reconstruction or amalgamation or if the
Tenant for the time being is an individual and shall become bankrupt or
insolvent or enter into an arrangement or composition with its creditors or if
and whenever there shall be a breach of any of the covenants and conditions
herein contained and on the Tenant’s part to be observed and performed.
Parway duly
erected the new buildings as required by the lease and — not surprisingly in
view of the outlay involved — Parway charged its leasehold interest under the
lease by way of legal mortgage by several documents in favour of three separate
mortgagees or groups of mortgagees. It is unnecessary to go into detail. It is
sufficient to say that in point of priority of security the London &
Manchester Assurance Co Ltd and a wholly owned subsidiary of that company are
the joint first mortgagees, the Royal Bank of Scotland are the second
mortgagees and Slater Walker Ltd are third mortgagees.
In 1976 the
Royal Bank of Scotland appointed receivers, two partners in the firm of Whinney
Murray & Co — Ernst & Whinney as it later became. They were appointed
receivers of income under the Law of Property Act 1925, and not receivers under
floating charges, since the relevant securities were all specific charges by
way of legal mortgage. The trustees learned of the appointment, and by a letter
dated November 2 1976 to which I will have to refer in greater detail later,
they called on the receivers to pay the rent under the lease. This the
receivers did regularly until July 1981. Rent demands were sent quarterly by
the trustees to the receivers’ firm and the quarterly instalments were paid by
the receivers by cheques on their receivership bank account.
In the
meantime Parway had gone into compulsory liquidation. On February 26 1979 the
usual compulsory order had been made against Parway in the Companies Court on a
creditor’s petition presented by the Commissioners of Inland Revenue for unpaid
taxes, and official notification of that event, in accordance with section 9 of
the European Communities Act 1972, was given in the London Gazette of
March 8 1979. On May 22 1979 a Mr Auger, a partner in Stoy Hayward & Co,
was appointed liquidator of Parway, and official notification of that
appointment was given in the London Gazette of August 14 1979.
In the second
half of 1981, but after July, the plaintiffs caused a search to be made of
Parway’s file in the Companies Registry and they discovered that Parway was in
liquidation. They therefore refused to accept further rent, and, after
obtaining the necessary leave to bring proceedings from the Companies Court,
they started this action claiming forfeiture of the lease and appropriate
consequential relief because Parway had entered into compulsory liquidation.
Parway’s
defence that the right to forfeit had been waived is put on two separate
grounds, firstly the letter of November 2 1976, which I have briefly mentioned,
and secondly the official notifications under section 9 of the 1972 Act. It is
not suggested that the plaintiffs had any actual knowledge of the winding up of
Parway before their search in the Companies Registry in 1981 which was after
their latest acceptance of rent from the receivers.
The letter,
from the plaintiff’s clerk to Mr Mackey of Whinney Murray & Co who was one
of the receivers, reads as follows:
re: Associated
Development Holdings Ltd/Parway Estates Developments Ltd.
My Trustees
have been notified of your appointment as Receiver in the matter of the
winding-up of the above mentioned Group of Companies. As you know, the Trustees
of the Campden Charities are the freeholders of Charecroft Estate, Shepherds
Bush which was leased to Parway Estates Development Ltd for a term of 108 years
from September 29 1960. The rent currently payable under the Lease is £17,500
per annum.
I write now to
inform you that the quarter’s rent due in advance on September 29 1976 and
amounting to £4,375 remains unpaid. I should be grateful if you would kindly
let me have a remittance at an early date.
As to the
facts, Associated Development Holdings Ltd was the parent company of Parway,
but whether it was in liquidation at the time of the letter we are not told.
Parway itself was not in liquidation — it only went into liquidation over two
years later in February 1979 — and the appointment of the receivers had not
given the trustees any ground for re-entry under the lease. There was no
question therefore of the trustees’ being put to their election at the date of
the letter, either to affirm or forfeit the lease.
What is
submitted on behalf of Parway is that the letter shows that the trustees
believed that Parway was being wound up, and that a landlord who demands and
accepts rent in the belief that his tenant is being wound up cannot assert a
right to treat the lease as forfeited if the tenant is subsequently wound up.
Alternatively it is said that the letter shows that the trustees believed that
Parway was about to be wound up, and that a landlord who demands and accepts
rent in the belief that the tenant is about to be wound up and continues to do
so without making any inquiry until well after a winding-up order has been made
cannot assert a right to treat the lease as forfeited on the ground that he had
no actual knowledge of the making of the winding-up order.
It is not
suggested that the letter raises any estoppel, as that term is usually
understood, against the plaintiffs to prevent them from asserting that they did
not know of the winding up when they accepted rent. Apart from any other
difficulty there is no evidence at all that Parway or any one else acted to its
or his detriment in any way in reliance on the letter. What is said is that the
letter showed that the trustees were not concerned at the liquidation of
Parway, and so the letter operated in a general way as a waiver of any present
or future right to forfeit on the ground of the liquidation of Parway.
In my judgment
the short answer to this submission is that the wording of this somewhat
muddled letter will not bear the weight
advance.
I turn to the
case of waiver put forward in reliance on the official notifications in the Gazette
of the making of the winding-up order and of the appointment of the liquidator.
It is common
ground that — apart from the argument based on the letter of November 2 1976 —
receipt by the trustees of rent after Parway had gone into liquidation cannot
have operated as a waiver of the right to forfeit the lease if at the time that
the rent was received the trustees had had no notice that Parway had gone into
liquidation.
It is also
common ground that before section 9 of the 1972 Act came into force, the
registration in the Companies Registry and subsequent promulgation in the London
Gazette of the fact that a company was in liquidation or of the appointment
of a liquidator, did not operate as notice to all the world, and more
particularly did not operate as notice to the company’s landlord, that the
company was in liquidation. This was decided in Fryer v Ewart,
reported in this court at [1901] 1 Ch 499 and in the House of Lords at [1902]
AC 187. The effect of section 9 of the European Communities Act 1972 is
therefore crucial to the argument.
Section 9 was
enacted in anticipation of the entry of this country into the European Economic
Community, in order to comply with a directive of the Council of the European
Communities which was adopted on March 9 1968.
Section 9
deals with a number of different aspects of company law covered by the
directive. The provisions directly relevant to the present case are those of
subsections (3) and (4), but subsection (1) is also of importance. The three
subsections read as follows:
(1) In favour
of a person dealing with a company in good faith, any transaction decided on by
the directors shall be deemed to be one which it is within the capacity of the
company to enter into, and the power of the directors to bind the company shall
be deemed to be free of any limitation under the memorandum or articles of
association; and a party to a transaction so decided on shall not be bound to
enquire as to the capacity of the company to enter into it or as to any such
limitation on the powers of the directors, and shall be presumed to have acted
in good faith unless the contrary is proved.
(3) The
registrar of companies shall cause to be published in the Gazette notice
of the issue or receipt by him of documents of any of the following
descriptions (stating in the notice the name of the company, the description of
document and the date of issue or receipt), that is to say —
(a) any certificate of incorporation of a
company;
(b) any document making or evidencing an
alteration in the memorandum or articles of association of a company;
(c) any return relating to a company’s register
of directors, or notification of a change among its directors;
(d) a company’s annual return;
(e) any notice of the situation of a company’s
registered office, or of any change therein;
(f) any copy of a winding-up order in respect of
a company;
(g) any order for the dissolution of a company
on a winding up;
(h) any return by a liquidator of the final
meeting of a company on a winding up;
and in the
following provisions of this section ‘official notification’ means, in relation
to anything stated in a document of any of the above descriptions, the notification
of that document in the Gazette under this section and, in relation to
the appointment of a liquidator in a voluntary winding up, the notification
thereof in the Gazette under section 305 of the Companies Act 1948, and
‘officially notified’ shall be construed accordingly.
(4) A company shall not be entitled to rely
against other persons on the happening of any of the following events, that is
to say —
(a) the making of a winding-up order in respect
of the company, or the appointment of a liquidator in a voluntary winding up of
the company; or
(b) any alteration of the company’s memorandum
or articles of association; or
(c) any change among the company’s directors; or
(d) (as regards service of any document on the
company) any change in the situation of the company’s registered office;
if the event
had not been officially notified at the material time and is not shown by the
company to have been known at that time to the persons concerned, or if the
material time fell on or before the fifteenth day after the date of official
notification (or where the fifteenth day was a non-business day, on or before
the next day that was not) and it is shown that the person concerned was
unavoidably prevented from knowing of the event at the time.
Mr Nugee
submits that on the true construction of section 9 official notification of an
event is to be treated as giving notice of that event to all the world. In this
submission he has the support of the editors of Palmer’s Company Law
23rd ed vol 1, who say on pp 184-186:
The European
Communities Act 1972, section 9, introduced a new notion into company law viz
that of official notification. The provisions dealing with that subject are
contained in subsection (3) . . . and (4) of section 9. The object of this
measure is to give persons in the United Kingdom and the other member states of
the EEC official intimation that an important change in the constitution of the
company has occurred . . .
Only when the
official notification has become fully effective can the company absolutely
rely on any of the events listed in subsection (4) of section 9 . . . and is a
third party treated as having constructive notice of the event in question.
Before the official notification becomes fully effective, the company can rely
on any of those events only if certain conditions are satisfied. Official
notification becomes fully effective after the expiration of a period of grace
which is 15 days . . .
It is to be
noted that the statement in Palmer that ‘the object of this measure is
to give persons in the United Kingdom and the other member states of the EEC
official notification that an important change in the constitution of the
company has occurred’ does not wholly accord with the wording of the directive.
A version of the directive in the English language and apparently taken from
the Official Journal of the European Communities has been put before us.
In this the provisions which have led to subsections (3) and (4) of section 9
appear in a section headed ‘Disclosure’, and the relevant recital states:
Whereas the
basic documents of the company should be disclosed in order that third parties
may be able to ascertain their contents and other information concerning the
company, especially particulars of the persons who are authorised to bind the company.
Even without
reference to the directive, I have no doubt, on the wording of section 9, that
that section was primarily intended for the protection of persons dealing with
a company rather than for the protection of the company. This is apparent not
least from the opening words of subsection (1) ‘in favour of a person dealing
with a company in good faith’ and from the opening words of subsection (4) ‘A
company shall not be entitled to rely against other persons on the happening of
any of the following events . . . unless’.
The question
then is whether, even so, it is implicit in subsection (4), or necessary in
order to give effect to subsection (4), that, after an official notification of
an event has become fully effective, all persons must be treated as having
constructive notice of that event. Three matters can be urged in support of the
argument, viz: (i) if an event has not been officially notified a company can
still rely on it as against a person who has actual knowledge of it, and so
official notification is in a sense treated as the counterpart of actual
knowledge, in enabling the company to rely on the event; (ii) during the period
of grace before the official notification has become fully effective, the
person concerned can prevent the company relying on the event by showing that
he was unavoidably prevented from knowing of the event, absence of knowledge of
the event being treated in the period of grace as countervailing the official
notification; and (iii) it is difficult to think of circumstances in which a
company will wish to rely as against a third party on the happening of the
event of its own liquidation and in which the real issue will not be the third
party’s knowledge of that event rather than the happening of the event itself.
This question
whether official notification of a relevant event constitutes notice of that
event to all the world is an important question. If indeed the notification
does constitute notice to all, the very many landlords who are not in the habit
of studying the London Gazette regularly or effecting regular searches
of the files of their company tenants in the Companies Registry will be at risk
of inadvertently waiving the forfeiture of leases by accepting rent after the
company tenant has gone into liquidation.
The learned
deputy judge, after considering the wording of subsection (4) and the views
expressed in Palmer, concluded that subsection (4) did not impute
knowledge to anyone and did not impute notice to anyone. It was essentially
negative in its impact. It provided that a company cannot rely upon a relevant
event if it is not in the Gazette, but it did not make the positive
counter-proposition that a company can rely upon that event — sc it can rely on
everyone having notice of that event–merely because it is in the Gazette.
I agree with the learned deputy judge’s analysis of the subsection and with his
conclusion.
I would add
two further comments. In the first place, I do not think that the link, such as
it is, in subsection (4), between official
not been officially notified, requires that official notification should be
treated as importing notice of the event to everyone. The object of the
legislation is that persons dealing with a company should be officially given
an opportunity of finding out important information concerning the company, but
there is no sense in hampering the company vis-a-vis those who have actual
knowledge of the relevant event. Hence the qualification of the restriction
imposed by the subsection on the company. It is not necessary to treat official
notification as the equivalent of actual knowledge in all circumstances.
In the second
place, among the events, other than liquidation and the appointment of a liquidator,
listed in subsection (4) as events on which a company cannot rely in the
absence of official notification are the making of any alteration in the
memorandum of association of the company, including, of course, its objects
clause, and the making of any change among the company’s directors. But it is
plain to my mind from subsection (1) of section 9 that a person dealing in good
faith with a company is not to be treated as having constructive notice (as
under the previous ultra vires doctrine of English law) of the terms of
the company’s objects clause, whether in its original form or as from time to
time altered, and is not to be treated as having constructive notice of the
composition from time to time of the board of directors of the company. The tenor
of the section is thus against imputing constructive notice of relevant events
to persons dealing with a company, while ensuring that they have an opportunity
to find out information about those events.
I thus agree
with the deputy judge that Parway’s defence of waiver fails, and I turn to the
question of relief against forfeiture.
It is
necessary to look first at the current statutory provisions in relation to
forfeiture and relief against forfeiture which are contained in section 146 of
the Law of Property Act 1925. The relevant provisions of that section are to
the following effect:
Under
subsection (1) a right of re-entry or forfeiture under a lease cannot be
enforced unless the lessor has served on the lessee an appropriate forfeiture
notice.
Under
subsection (2) ‘where a lessor is proceeding by action or otherwise to enforce
such a right of re-entry or forfeiture’ the lessee may apply for, and the court
may grant, relief against forfeiture.
Under
subsection (4) the court has jurisdiction to grant relief against forfeiture to
an underlessee. It has been held that the term ‘underlessee’ includes a legal
mortgagee or a chargee by way of legal mortgage. Applications for relief under
this subsection have been made by the London & Manchester Assurance Society
Ltd and by the Royal Bank of Scotland. These applications, which are not before
this court, were made by the same solicitors on behalf of both mortgagees.
There is no conflict between the mortgagees; they are merely concerned that
relief should be granted by one route or another. Relief as granted to an
underlessee or mortgagee normally takes the form of the grant of a new lease of
the relevant premises to the underlessee or mortgagee, in the place of the
lease forfeited by the previous lessee, and this would require that the
underlessee or mortgagee should enter into direct covenants with the landlords
to pay the rent and observe the covenants and conditions of the new lease
throughout its term. Where such a new lease is granted by way of relief against
forfeiture to a mortgagee of the original lease, the mortgagee will hold the
new lease by way of substituted security. A first mortgagee, for example, will
thus be accountable to a second and subsequent mortgagees for any surplus, over
the amount due to the first mortgagee, realised on a sale of the new lease, and
the mortgagor, despite the forfeiture of the original lease, will ordinarily
have an equity of redemption in the new lease and will be entitled to any
surplus of the proceeds of sale after payment off of all the mortgagees: Chelsea
Estates Investment Trust Co Ltd v Marche [1955] Ch 328.
Subsections
(9) and (10) of section 146 are of fundamental importance to this appeal and
must be set out in full:
(9) This section does not apply to a condition
for forfeiture on the bankruptcy of the lessee or on taking in execution of the
lessee’s interest if contained in a lease of —
(a) Agricultural or pastoral land;
(b) Mines or minerals;
(c) A house used or intended to be used as a
public-house or beer-shop;
(d) A house let as a dwelling-house, with the
use of any furniture, books, works of art, or other chattels not being in the
nature of fixtures.
(e) Any property with respect to which the
personal qualifications of the tenant are of importance for the preservation of
the value or character of the property, or on the ground of neighbourhood to
the lessor, or to any person holding under him.
(10) Where a condition of forfeiture on the
bankruptcy of the lessee or on taking in execution of the lessee’s interest is
contained in any lease, other than a lease of any of the classes mentioned in
the last subsection, then —
(a) if the lessee’s interest is sold within one
year from the bankruptcy or taking in execution, this section applies to the
forfeiture condition aforesaid;
(b) if the lessee’s interest is not sold before
the expiration of that year, this section only applies to the forefeiture
condition aforesaid during the first year from the date of the bankruptcy or
taking in execution.
It is thus
apparent that as these proceedings were launched more than a year after Parway
had gone into liquidation, and as the leasehold interest of Parway has not yet
been sold, Parway cannot claim relief under section 146 at all. (As a result of
section 1 of the Law of Property (Amendment) Act 1929 this difficulty does not
affect the mortgagees, and Mr Mowbray, for the plaintiffs, accepts that if the
present appeal succeeds the mortgagees, or one of them, will be entitled to
relief subject only to discussion of the terms of the relief.)
Being unable
to rely on the section, Mr Nugee on behalf of Parway submits that the court in
its equitable jurisdiction has, in any appropriate case, power to grant relief
against forfeiture of any property interest. In particular the court can, he
submits, under its equitable jurisdiction grant relief to any lessee against
forfeiture of a lease in any circumstances in which the court’s statutory
jurisdiction to grant relief is not available. Therefore in Mr Nugee’s
submission there is no problem about jurisdiction; the only question was
whether the jurisdiction should be exercised, and that was a matter for the
learned deputy judge.
These
far-reaching submissions are founded on the decision of the House of Lords in Shiloh
Spinners v Harding [1973] AC 691 (which was not a landlord and
tenant case). Mr Nugee relies both on the general principles established in
that case as to the width of the jurisdiction and in particular on a passage in
the speech of Lord Wilberforce at p 725 at A:
In my opinion
where the courts have established a general principle of law or equity, and the
legislature steps in with particular legislation in a particular area, it must,
unless it shows a contrary intention, be taken to have left cases outside that
area where they were under the influence of the general law. To suppose
otherwise involves the conclusion that an existing jurisdiction has been cut
down by implication, by an enactment moreover which is positive in character
(for it amplifies the jurisdiction in cases of leases) rather than negative.
That legislation did not have this effect was the view of Kay LJ in Barrow
v Isaacs & Son [1891] 1 QB 417, 430 when he held that covenants
against assigning — excluded from the Conveyancing Act 1881 — were left to be
dealt with according to the ordinary law.
In my judgment
this particular passage in Lord Wilberforce’s speech is, on a true
appreciation, destructive of Mr Nugee’s arguments. Where the legislature steps
in with particular legislation in a particular area, effect must be given to
that legislation, and in that particular area any wider equitable jurisdiction
is ousted. Parliament has stepped in initially by the Conveyancing and Law of
Property Act 1892 and now by subsections (9) and (10) of section 146 in the particular
area of relief against forfeiture of leases because of the bankruptcy or
liquidation of the lessee. The provisions of the subsections make no sense
unless they are regarded as comprehensive within that particular area; in cases
of certain types of tenancy listed in subsection (9) there is to be no relief
at all, and in other cases the insolvent lessee has a year only to apply for
relief, but if the leasehold interest is sold within that year, the time-limit
does not apply.
If Mr Nugee
were right and the court has inherent jurisdiction to grant relief in the cases
listed in subsection (9) the only effect of that subsection would be to absolve
the landlords from having to serve a forfeiture notice under subsection (1) of
a section 146; relief would be available from the moment of forfeiture to the
insolvent lessee. That cannot have been the intention of the legislature.
Similar reasoning applies to subsection (10); there is no sense in imposing a
year’s time-limit for applications made by an insolvent lessee if the court has
unlimited original jurisdiction to entertain applications made out of time.
Mr Nugee
submits that this court should uphold the existence of the unlimited equitable
jurisdiction for which he contends in cases of bankruptcy or liquidation
because there may be cases of hardship where it would be unconscionable that
relief should not be granted and yet the statutory relief is not available.
One suggestion
of circumstances in which it would be unconscionable that relief could not be
granted to an insolvent company more than a year after the company had gone
into liquidation is a suggestion, based on the opening words of subsection (2)
of section 146, that the landlords might deliberately refrain throughout the
relevant year from taking any step to enforce or waive a right of forfeiture.
This would not, however, prevent a sale of the leasehold interest during the
year, and for my part I do not see that it is a practical as opposed to a
theoretical problem. I do not find the wording of subsection (2) readily
indicative of a recognition on the part of Parliament that there is an inherent
jurisdiction in the court to grant relief against forfeiture even if the
landlords are taking no step towards enforcing a forfeiture.
The other
suggestion put forward by Mr Nugee is that there may be cases in which a
liquidator of an insolvent company or the trustee in bankruptcy of a bankrupt
lessee may, owing to the nature of the property or owing to market conditions
for the time being, require more than a year to realise a particular property
to best advantage. It is submitted that it would be unconscionable in such a
case to allow the landlords to object to relief after the year had expired,
even if the property had not been sold. The duty, however, of a liquidator or a
trustee in bankruptcy is to realise the assets of the insolvent company or
bankrupt in order to meet the liabilities; ordinarily it would not be
appropriate for a liquidator or trustee in bankruptcy to retain a property
unsold for many years in the hope of taking advantage of some future rise in
property values. It is necessary that justice should be done to the landlords
also, who have no wish to be saddled with an insolvent tenant and who have
stipulated in the lease for a right of re-entry in the event of bankruptcy or
liquidation of the tenant. Parliament has fixed on the period of one year, as
the period which should by and large be appropriate to avoid hardship to
landlords or insolvent tenants. The possibility that there may be cases in which
it might be convenient to the insolvent lessee to have a longer period than one
year to arrange a realisation of the property in question does not warrant the
conclusion that an inherent jurisdiction, unlimited in time, to grant relief
subsists despite subsection (10) of section 146.
I should add
that on the facts of this present case there is nothing unconscionable in the
plaintiffs’ opposing Parway’s application for relief against forfeiture. The
position of the liquidator of Parway is made amply clear in a letter of
December 21 1981 which he wrote to Ernst & Whinney, the receivers’ firm. In
that letter he stated that there was no equity in the property so far as the
liquidator was concerned, and he intimated that he was prepared to instruct the
mortgagees’ solicitors to act for him and Parway (as they have in these
proceedings) only on condition that the receivers gave him a full indemnity in
respect of costs. In view of this letter, and as there is no evidence in these
proceedings sworn by the liquidator, but all the evidence filed on behalf of
Parway is provided by the mortgagees, the London & Manchester Assurance Co
Ltd and the Royal Bank of Scotland, I would for my part conclude without
hesitation that this application for relief against forfeiture is brought in
the name of Parway by the mortgagees so as to avoid any of the mortgagees’
having to enter into personal covenants with the plaintiffs under the terms of
a new lease. The merits of the particular application for relief are, however,
irrelevant to the question of the jurisdiction of the court to grant relief. On
the question of jurisdiction I would, for the reasons I have endeavoured to
explain earlier, hold that the court has no jurisdiction to grant Parway relief
against forfeiture because the application is made outside the year prescribed
by subsection (10) and Parway’s leasehold interest was not sold within that
year.
I would
therefore allow this appeal.
This makes it
unnecessary to express any view on the deputy judge’s exercise of the discretion
to grant relief which he held that he had. He granted relief on the ground that
the rents receivable under the subleases of the demised property substantially
exceeded the rent payable to the plaintiffs. He felt that it was unconscionable
therefore that the lease should be forfeited. He entirely ignored, however, the
position of the mortgagees, the right of the mortgagees to relief and the
reality of Parway’s situation as disclosed by the liquidator’s letter to which
I have referred. Nor did he take into account that Parway’s equity of
redemption, for what it is worth, would still subsist if relief against
forfeiture were to be granted to one of the mortgagees. For my part, therefore,
had the question arisen for decision I would have required a great deal of
persuasion before I could accept the conclusion on the exercise of his
discretion which the learned deputy judge reached.
STEPHENSON and
KERR LJJ agreed and did not add anything.
The appeal was allowed. The grant of relief against
forfeiture was set aside and respondents’ counter-claim based on alleged waiver
was dismissed. The appellants were awarded costs in the Court of Appeal and
below. Leave to appeal to the House of Lords was refused.
