Landlord and tenant — Winding-up of company — Whether original tenant entitled to claim rent from assignee where covenant implied by section 77(1)(d)(i) of the Law of Property Act 1925 expressly excluded and not implied in the assignment of the lease
London Export Corporation (Holdings) Ltd (‘the petitioner’), a petition was
presented for the compulsory winding-up of Healing Research Trustee Co Ltd
(‘the company’) on the ground that the company, to whom the petitioner in 1982
had assigned an underlease, owed the landlord rent of £308,288 for which the
petitioner was liable — On behalf of the company it was submitted that the
petitioner was not a creditor because, by reason of a clause in the 1982
transfer, the covenant on the part of the purchaser in the terms of Part IX of
Schedule 2 to the Law of Property Act 1925 was excluded — The transfer also
provided for a one year’s rent deposit as security for the petitioner — The
petitioner also contended that there was no room for the rule in Moule v Garrett because
Parliament, in enacting the Law of Property Act 1925, had legislated on the
same subject area
Parliament, in legislating in the terms of covenants to be implied in
conveyances, was not dealing with the whole law of obligations and the rule in Moule
v Garrett was not affected — It was impossible to be sure that at
the date of the transfer the parties intended to exclude the rule even having
regard to the rent deposit
The following
cases are referred to in this report.
Becton
Dickinson UK Ltd v Zwebner [1989] QB 208;
[1988] 3 WLR 1376; [1989] 1 EGLR 71; [1989] 13 EG 65
Downer
Enterprises Ltd, Re [1974] 1 WLR 1460; [1974] 2 All
ER 1074
Duncan
Fox & Co v North and South Wales Bank (1880)
6 App Cas 1
Moule v Garrett (1872) LR 7 Ex 101
Official
Custodian for Charities v Parway Estates
Developments Ltd [1985] Ch 151; [1984] 3 WLR 525; [1984] 3 All ER 679;
(1984) 48 P&CR 125; 270 EG 1077, [1984] 1 EGLR 63, CA
This was a
hearing of a petition by London Export Corporation (Holdings) Ltd for the
winding-up of Healing Research Trustee Co Ltd on the ground that the petitioner
was a creditor of the company.
Daniel Gerrans
(instructed by Wood Winfield) appeared for the petitioner; and Robert
Powell-Jones (instructed by Mishcon de Reya) represented the company.
Giving
judgment, HARMAN J said: This is a petition for the winding-up of
Healing Research Trustee Co Ltd, hereafter ‘the company’. It was presented to
the court on November 30 1990 by solicitors acting for London Export
Corporation (Holdings) Ltd, hereafter ‘the petitioner’. The petition alleges
that the company is the present tenant of the premises by an assignment of an
underlease from the petitioner to the company by transfer dated March 1 1982.
It further alleges that the company has not paid rent to the landlord since
Christmas 1988 and now owes £308,288-odd, including an insurance premium due
and unpaid. It asserts that the company is insolvent and unable to pay its
debts.
The petition
then sets out the claim by the petitioner that the landlord has called upon it,
as the original tenant under the underlease, to pay, pursuant to its covenant
therein, the outstanding rents. The petitioner therefore claims to be a
contingent or prospective creditor of the company for over £300,000. Accordingly,
it seeks an order for the compulsory winding-up of the company. The petition
was duly verified and was advertised on January 7 1991. On the first hearing
before the registrar on Wednesday, January 30 1991, the company appeared and
contested the petition, which was accordingly adjourned to me as the companies
court judge.
On the matter
being argued before me the company asserted that the petitioner was not a
creditor of it at all. None of the facts averred in the petition were disputed,
but it was said that the petitioner had agreed in the transfer of March 1 1982
not to claim against the company for liabilities arising under the assigned
underlease. Unfortunately, the transfer dated March 1 1982, by which the
petitioner assigned the underlease to the company, cannot be found and no copy
of it is available.
There was
produced in evidence a contract dated January 15 1982 between the petitioner
and two gentlemen described as two of the trustees of the Healing Research
Trust (not the company), acting on behalf of all the trustees. By clause 11 of
that contract it was agreed that the transfer of the underlease of 21 Portland
Place, London W1, should be to the company and should contain a specific
additional clause then set out. The clause to be included in the transfer was
in two parts. Subclause (1) was a covenant by the vendor, ie the petitioner,
and can be ignored. Subclause (2) ran as follows:
(2) A covenant on the part of a [sic]
Purchaser in the terms set out in Part IX of the Second Schedule to the Law of
Property Act 1925 (as specified in section 77(1)(d)(i) of such Act)
shall be excluded from and not implied in this Transfer.
It was
submitted by Mr Powell-Jones for the company, and not disputed by Mr Gerrans
for the petitioner, that I should assume that the transfer was duly executed
and did contain a covenant in the terms agreed. I proceeded on that agreed
basis.
The contract
of January 15 1982 contained a further provision in clause 12 which was said to
be relevant. That provided that £65,000, being equal to one year’s then rent,
should be deposited by the company in an interest-bearing account in the joint
names of solicitors for the parties. Provision was made for an increase in the
sum if, at a time when the company held the underlease and during the term
created thereby, the rent was increased. Clause 12 continued that if at any
time while the company held the underlease the petitioner was required to
discharge any lessee’s obligations thereunder, then the petitioner should be
entitled to recover the cost from the deposited sum of money. It was sworn to
by an assistant solicitor employed by the company’s solicitors that the sum had
been duly deposited and had, following disputes, been released to the company.
These allegations of fact were not disputed.
Thus the
question whether the petitioner is a creditor — probably a prospective rather
than a contingent creditor, but it matters not — of the company turns upon the
question: by what right does the petitioner claim against the company for the
rent demanded of the petitioner by the landlord? Mr Gerrans asserts that that claim is founded
on the principle of law as enunciated in Moule v Garrett (1872)
LR 7 Ex 101. That decision is of the Court of Exchequer Chamber and the report
of the argument shows that the court had little doubt about the rightness of
Baron Channell’s decision reported at (1870) LR 5 Ex 132. The principle relied
upon in this case by the petitioner is the second but preferred ground of
Cockburn
general proposition of law is that:
where one
person is compelled to pay damages by the legal default of another, he is
entitled to recover from the person by whose default the damage was occasioned
the sum so paid.
Willes J, in a
short but very clear judgment, reaches the same conclusion, as does Blackburn
J, who adopts the reasons given by Baron Channell below.
Mr Gerrans for
the petitioner submitted that the liability created by the law as stated in Moule
v Garrett arises without any agreement, let alone covenant, between
the parties. The obligation, he says, is imposed by law: see Becton
Dickinson UK Ltd v Zwebner [1989] QB 208*. In that case the late
McNeill J considered Moule v Garrett, referred to in Re Downer
Enterprises Ltd [1974] 1 WLR 1460 and to Pennycuick V-C’s consideration in
that decision of the speeches in the House of Lords in Duncan Fox & Co v
North & South Wales Bank (1880) 6 App Cas 1. McNeill J, at p 217H,
holds, founding on the decisions mentioned, that liability ‘is independent of
contract’. I entirely agree with, and would in any event follow, unless
convinced it was wrong, McNeill J’s conclusion from the authorities which, in
my judgment, plainly support his analysis. Thus, Mr Gerrans’ submission is made
out.
*Editor’s
note: Also reported at [1989] 1 EGLR 71; [1989] 13 EG 65.
Mr Gerrans
went on to submit, assuming for present purposes but without conceding, that
the obligation imposed by law on a person referred to as ‘A’, whose liability
to ‘C’ has been discharged under compulsion of law by another referred to as
‘B’, to reimburse B for his expenditure, can be abrogated by agreement between
A and B, that there was no such agreement here. The term required to be
included in the transfer by clause 11 of the agreement of January 15 1982 was
perfectly clear, said Mr Gerrans. It expressly excludes obligations that would
otherwise arise under covenant. It makes no reference to obligations imposed by
operation of law.
Further,
submitted Mr Gerrans, it would be a strange agreement which provided that the
company as tenant could enjoy the use of the premises denied by the underlease
for many years but pay no rent and leave the petitioner to bear the whole cost.
It was clear that a fund of £65,000 was constituted which covered a year’s
rent, but, as demonstrated by the facts in this case, the liability imposed on
the petitioner amounts to £308,000-odd and continues to accrue. If the transfer
excluded by implication the Moule v Garrett liability, the
petitioner would have no remedy so long as the company continued in occupation
under the underlease. It would only be when the landlord chose to take steps
against the company for non-payment of rent that the petitioner would cease
having to pay rent for the company’s occupation. That result, said Mr Gerrans,
would be both unjust and, as a matter of the likely intention of the parties,
absurd.
Mr
Powell-Jones, for the company, argued that it would have been strange for the
parties to have agreed to release the obligations arising under the covenant
which would otherwise be implied by statute into the transfer but leave the Moule
v Garrett liability extant. He submitted that the Law of Property
Act 1925 had codified all obligations arising between assignor and assignee and
such obligations were now exhaustively set out in Part IX of Schedule 2 to that
Act. He cited Official Custodian for Charities v Parway Estates
Developments Ltd [1985] Ch 151† , especially holding (3) in the headnote at
p152 D-E, to the effect that where the legislature has enacted legislation
which deals with a particular area of law, that became exhaustive and ousted
any former wider ambit of the law or equity.
† Editor’s note:
Also reported at (1984) 270 EG 1077, [1984] 1 EGLR 63.
The main
reasoning of the Court of Appeal is set out by Dillon LJ’s judgment at p165E-G
and is rightly summarised in holding (3) in the headnote. I entirely accept
that where Parliament has legislated exhaustively on a subject there is no
longer room for provisions of the law formerly affecting that subject but not
included in the statute. The result of section 77 of the Law of Property Act
1925 was, said Mr Powell-Jones, that since January 1 1926 no Moule v Garrett
obligation can exist between an assignor and an assignee of a lease.
Mr Gerrans, in
answer, submitted that it was vital to see what was the ‘particular area’ of
the law with which section 77 was dealing. That, of course, is a reference to
Dillon LJ’s judgment in Parway Estates. The section is one of a series
of sections starting at section 76 and running through to section 84. The
cross-heading to that part of the Act is ‘Covenants’ and the side note to every
section refers to particular types of covenant, using that word expressly. Much
of this part of the Law of Property Act 1925 is taken from the Conveyancing Act
1881, which was frequently referred to as the ‘Drudgery of Conveyancers Relief
Act’. The particular area of the law dealt with, said Mr Gerrans, was that of
covenants normally included in conveyances (including assignments) which were
now to be included by operation of law, thereby relieving conveyancers from
writing them out again and again. That area of the law had nothing to do with
the wider doctrine of obligations arising not from covenant at all but by
operation of law.
It would be
remarkable, to my mind, if the far-reaching effect of section 77 in setting out
the law as to covenants to be implied in assignments had such an effect on the
Moule v Garrett obligations. I refer to Megarry and Wade’s Real
Property, 5th ed, pp 750-751, where there is no suggestion of any such
effect on Moule v Garrett, which is cited in that work at that
point as still part of the law. The book is, happily, not authority, but the
fact that it makes no reference to this striking change in general law helps me
to my conclusion.
I am wholly
unconvinced that Parliament, in legislating for the terms of covenants to be
implied in conveyances, was dealing with the whole law of obligations so as to
be taken to have ousted by implication (for there is no express reference to
the rule of law on general obligations) what is, in my judgment, a natural and
reasonable rule of law. The extent of the obligation under the implied
covenants is greater than and different from the straightforward obligation
that if A under compulsion of law pays B’s debt to C, it is just that A should
be able to recover from B even though no covenant or contract exists between
them.
Mr
Powell-Jones argued that the parties must have intended to limit all
obligations of the company to the petitioner arising under the underlease to
the sum of £65,000, which was deposited. I am unable to see why that intention
should be implied from the limited facts before the court. It may be that those
who drew the clause intended to be included in the transfer were simply
ignorant of the rule in Moule v Garrett and so made no reference
to it. It is impossible, in my judgment, to be sure that if at the time of the
contract the officious bystander had asked: ‘Do you mean to exclude all Moule
v Garrett liability?’, the petitioner and the company would have
answered with a common, ‘Oh, of course’.
I am,
therefore, of the opinion that the petitioner is a creditor, prospectively or
contingently, of the company and, the list being negative, I should make the
usual compulsory order, which I do.
