Landlord and tenant — Guarantors of tenant’s obligations — Arrears of rent — Whether six-year limitation period applies to claim against guarantor
The first
defendant was the tenant under a lease by deed dated November 29 1982 to which
the second and third defendants were joint guarantors. The plaintiff landlord
claimed arrears of rent from the defendants. The third defendant’s application,
to dismiss the landlord’s claim for want of prosecution, failed before both the
Master and Mr Simon Goldblatt QC (sitting as a deputy judge of Queen’s Bench
Division) on the ground that, at the date of that application, the limitation
period of 12 years applied to a claim for arrears of rent against a guarantor,
and that period had not expired; the landlord could therefore have commenced
fresh proceedings. The third defendant appealed contending that section 19 of
the Limitation Act 1980 applied and a claim against a guarantor in respect of
rent arrears must be brought within a six-year limitation period; accordingly
most of the claims were statute-barred on the date of the third defendant’s
application.
Limitation Act 1980 applies the six-year time-limit not only to actions against
the lessee, but also to actions against the guarantor of his undertaking to pay
the rent reserved by the lease. As against the guarantor, each relevant cause
of action arose only when payment was demanded under the guarantee. The rent
claims in respect of which demands had been made outside the six-year period of
limitation were therefore dismissed.
The following
cases are referred to in this report.
Birkett v James [1978] AC 297; [1977] 3 WLR 38; [1977] 2 All ER 801,
HL
Brown’s
Estate, Re [1893] 2 Ch 300
Hawkins,
deceased, In re [1972] Ch 714; [1972] 3 WLR 265;
[1972] 3 All ER 386
Lep Air
Services Ltd v Rolloswin Investments Ltd
[1973] AC 331; [1972] 2 WLR 1175; sub nom Moschi v Lep Air Services
Ltd [1972] 2 All ER 393, HL
London
& County (A&D) Ltd v Wilfred Sportsman
Ltd [1971] Ch 764; [1970] 3 WLR 418; [1970] 2 All ER 600; (1970) 21
P&CR 788, CA
Milverton
Group Ltd v Warner World Ltd [1995] 2 EGLR
28; [1995] 32 EG 70
President
of India v La Pintada Compania Navigacion SA
[1985] 1 AC 104; [1984] 3 WLR 10; [1984] 2 All ER 773; [1984] 2 Lloyd’s Rep 9,
HL
Royton
Industries Ltd v Lawrence [1994] 1 EGLR 110;
[1994] 20 EG 151
Swift
(P&A) Investments v Combined English Stores
Group plc [1989] AC 632; [1988] 3 WLR 313; [1988] 2 All ER 885; [1988] 2
EGLR 67; [1988] 43 EG 73, HL
This was an appeal
by the third defendant, Stephen Graham Brown, from the decision of Mr Simon
Goldblatt QC, sitting as a deputy judge of the Queen’s Bench Division, who had
dismissed an appeal against the decision of Master Eyre, who had dismissed the
third defendant’s application to strike out part of the claim of the
plaintiffs, Philip Romain and Elizabeth Wolfson, in an action for arrears of
rent.
Guy
Fetherstonhaugh (instructed by Penningtons, of Basingstoke) appeared for the
third defendant; Leslie Michaelson (instructed by Brown & Emery)
represented the plaintiffs.
Giving
judgment, Evans LJ said:
The main issue in this appeal is whether the limitation period in a claim
against the guarantor of a tenant’s obligation to pay rent is 12 or six years,
when both the guarantee and the lease are under seal. The guarantor is the
third defendant in the action and the appellant in this court.
The question
arises because the plaintiff landlords are liable to have a large part of their
claim dismissed for want of prosecution; in other words, they or their
representatives have been guilty of inordinate and inexcusable delay in the
prosecution of the action. But if the limitation period is 12 years they could
bring fresh proceedings, if the present ones were dismissed, and it would be
wrong to make the order in such circumstances: Birkett v James
[1978] AC 297. On the other hand, if the limitation period is six years, most
but not all of the claims were statute-barred when the application to dismiss
the action for want of prosecution was made by the third defendant on September
26 1994 and those claims, the defendant submits, should be dismissed
accordingly. Master Eyre and the learned judge, Simon Goldblatt QC, both held
that the relevant period is 12 years. The third defendant’s application
therefore failed and he now appeals.
A further
issue is the date when the plaintiffs’ cause or causes of action arose under
the guarantee.
Section 8 of
the Limitation Act 1980 provides that ‘actions on a specialty’ shall not be
brought after the expiration of 12 years from the date on which the cause of
action accrued (subsection (1)) unless a shorter period is prescribed by any
other provision of the Act (subsection (2)). The defendant says that section 19
applies to a claim against the guarantor of a tenant’s obligation to pay rent.
Section 19 reads as follows:
Time limit
for actions to recover rent.
No action
shall be brought, or distress made, to recover arrears of rent, or damages in
respect of arrears of rent, after the expiration of six years from the date on
which the arrears became due.
Lease
The lease of
shop, offices and other premises at 640 Lea Bridge Road, Leyton, Essex, was
made under seal and dated November 29
it as joint guarantors of the first defendant who was the lessee. Their
undertaking is contained in clause 5:
5. The
Guarantors … hereby jointly and severally covenant with the landlords that the
Lessee will at all time during the continuance of this demise pay the rents
hereby reserved and will also duly observe and perform the covenants on the
part of the lessee hereinfore contained and that they will pay and make good to
the landlords on demand all losses damages costs and expenses thereby arising
or sustained or incurred by the landlords.
The last
phrase ‘thereby arising’ etc does not make grammatical sense. We were told that
words were omitted from the draft which make it clear that the reference
intended is to a relevant default by the lessee. This does not affect the
interpretation of the operative part of the clause, with which we are
concerned.
Does
section 19 apply?
So the
question is whether the claim against the guarantors under this clause
following the lessee’s failure to pay instalments of rent when they fell due is
‘brought … to recover arrears of rent, or damages in respect of arrears of
rent’ within section 19. If it is, then the relevant period is six years. If it
is not, then because the action is brought ‘on a specialty’ section 8 applies
and the period is 12 years.
The judge held
that the claim is made under what may be called the second part of the
undertaking by the guarantors: not for breach of their covenant that the lessee
would pay the rents reserved by the lease, but under the words which follow:
and that they
will pay … on demand all losses [etc] thereby arising [from default by the
lessee]
He did not
decide whether the first part gave rise to a separate cause of action but he
said that if it did, it was difficult to avoid the conclusion that that was a
claim for arrears of rent or for damages in respect of arrears of rent to which
section 19 applied. But the claim for losses etc payable on demand was, he
held, though not without hesitation, outside the section. He said that:
an action
whose origin is a demand by the landlord in respect of the obligation of a
surety in a lease under seal is not to be categorised as an action brought to
recover damages in respect of arrears of rent.
He held,
therefore, that the limitation period is 12 years, which had not expired, and
that it would be inappropriate to strike out any part of the claim. The third
defendant appeals.
The precise
nature of the obligations of a surety, or guarantor, has been considered in a
number of authorities, to which we were referred. The lessee’s covenant to pay
rent runs with the land — that is to say, it may be enforced by a succeeding
landlord even when the benefit of the covenant has not been assigned to him —
and so does the surety’s undertaking as regards that covenant also: P&A
Swift Investments v Combined English Stores Group plc [1989] AC
632*, and compare Royton Industries Ltd v Lawrence [1994] 1 EGLR
110. Where a rent instalment is paid by the guarantor, at least in a case where
the guarantor expressly undertakes the same obligations as the lessee, then the
lessee’s obligation is discharged also: Milverton Group Ltd v Warner
World Ltd [1995] 32 EG 70†. But this does not lead, Mr Leslie Michaelson
for the plaintiffs submits, to the conclusion that the obligations of the
guarantor and the lessee are one and the same. He points to the judgment of the
Court of Appeal in A&D London & County Ltd v Wilfred Sportsman
Ltd [1971] Ch 764, per Russell LJ at p780:
*Editor’s
note: Also reported at [1988] 2 EGLR 67
†Editor’s
note: Also reported at [1995] 2 EGLR 28
But in law
they were nothing but payments under the guarantee in satisfaction of the third
party’s contractual obligation thereunder …
and to the
statement in the previous edition of Woodfall on Landlord and Tenant
(not in the current edition) that:
Payment of
arrears of rent by a guarantor of the lessee’s rent does not discharge the
lessee
para 7.085,
cited in Milverton Group by Glidewell LJ at p71.
The court held
in Milverton Group that that general statement was not justified by the
earlier authorities, and was too broad. Hoffmann LJ said that the facts in London
& County Ltd were unusual, because the erstwhile guarantor, as well as
paying under the guarantee, had acquired the reversion from the original
landlord and then claimed successfully to forfeit the lease for the tenant’s
failure to pay the previous instalment of rent. The result could be justified:
on the basis
that the guarantor was entitled to be subrogated to the previous landlord’s
claim for the rent and so, on acquiring the reversion, was entitled to exercise
the right to forfeit for non-payment
In In re
Hawkins deceased [1972] Ch 714 Megarry J held that payments by a guarantor
in respect of interest due from the debtor retained their identity as interest
even though they were paid by force of the guarantee. Megarry J said at p728D:
What matters is
the nature or quality of the thing paid and not the source of the obligation to
pay it. Rent is rent, a fine is a fine, a debt is a debt, and interest is
interest, whoever pays it.
That was,
however, a case where the guarantor was liable as primary obligor (p728F).
So Mr
Michaelson submits that it was wrong to go so far as to describe the
obligations of guarantor and tenant as a ‘single set’, as Hoffmann LJ did in Milverton
Group, except possibly when the guarantor expressly undertakes the same
obligations as the tenant. This is because their obligations are separate and
distinct. The lessee undertakes to pay the rent, a liquidated sum, while the
guarantor undertakes that the lessee will perform that obligation, this being a
separate covenant which is broken if the lessee defaults and which renders the
guarantor liable in damages for the amount of the rent, but not for the rent
itself.
This is the
classic definition of the liability of a guarantor, as stated by Lord Diplock
in Lep Air Services Ltd v Rolloswin Investments Ltd [1973] AC
331, nor is it disputed by Mr Guy Fetherstonhaugh, who appeared for the
appellants. So the submission supports the landlords’ contention that their
claim against the guarantors is not ‘for arrears of rent’, and therefore not within
the first of the two categories described in section 19. But it leads them into
difficult terrain when the second category is considered. Their claim
admittedly is for damages; is it for ‘damages in respect of arrears of rent’,
in which case also section 19 applies? The question seems to compel an
affirmative answer unless, as Mr Michaelson submits, the section is not
concerned with claims against guarantors or other third parties, but only with
claims against lessees.
This is, in my
view, the central issue raised by this appeal. Apart from the literal meaning
of the words, there are two formidable obstacles in the way of the landlord’s
contention. First, section 19 does not say that its operation is limited to
lessees and others in like estate; it could easily have done so. Second, if its
scope is so limited, it is near impossible to give any realistic meaning to the
phrase ‘damages in respect of arrears of rent’, particularly in the light of
the House of Lords’ decision in President of India v La Pintada
Compania Navigacion SA [1985] 1 AC 104 to the effect that no claim lies for
general damages as opposed to interest when the breach of contract consists of
the failure to pay a liquidated sum.
On the other
hand, the lineage of section 19 can be traced back through the Limitation Act
1939 (section 17 — ‘actions … to recover arrears of rent … or damages in
respect thereof’) to 3 & 4 William IV Cap 27 (1833) section XLII (‘no
Arrears of Rent …’) and to the ‘Act for Limitation of Actions, and for avoiding
of Suits in Law’ 21 James I Cap 16 (1623) which refers to ‘all actions of Debt
for Arrears of Rent’ (section III). There is no express provision for the
liability of a guarantor, and it can fairly be said, in my view, that the
statutes were concerned with the situation of the tenant, rather than of third
parties, including sureties or guarantors.
The
consequence, of course, if the tenant is protected by a six-year limit but the
guarantor under seal is not, is that the latter remains liable ‘in respect of’
the same obligations for the full period of 12 years, and for longer if no
cause of action arises against him until the landlord demands payment from him.
I have come to
the clear conclusion that section 19 applies the six-year time-limit not only
to actions against the lessee but also to actions against the guarantor of his
undertaking to pay the rent reserved by the lease. In both cases, the action is
brought ‘to recover arrears of rent, or damages in respect of arrears of rent’
and the absence of any express reference to the surety is not, in my judgment,
significant. The legal nature of the cause of action against the surety is
entirely apt to explain the reference to an action for damages, which otherwise
would have no clear meaning at all.
Equally, it is
unnecessary, in my judgment, to consider further whether it is appropriate to
describe the obligations of the lessee and his surety as the same or forming ‘a
single set’. They are undoubtedly separate obligations, because they are owed
by separate obligors, and their content cannot be for all purposes identical,
if only because the liability of one is contingent upon default by the other.
Nor is it necessary in the present case to consider the effect of words by
which the surety expressly undertakes the liabilities of the primary obligor.
If such words existed here, it would be even clearer than it already is that
the action against the surety falls within the scope of section 19, so that the
six-year limit applies to the claim for, or rather in respect of, unpaid rent.
As for the
authorities referred to above, it is wrong as a matter of law, in my judgment,
to attempt to deduce from them any general rule as to whether the guarantor’s
obligation is the same as that of the principal debtor or lessee. Payment of
rent by the guarantor discharges the lessee (Milverton Group), but it
does not enable the lessee to dispute a claim to forfeit the lease by the
guarantor as assignee of the landlord’s rights (London & County Ltd).
‘Rent is rent’ but not necessarily for all purposes and between all the parties
concerned. And as Lord Reid said in Lep Air Services Ltd v Rolloswin
Investments Ltd, the starting point for any consideration of the liability
of a guarantor is the guarantee itself (p344G):
I would not
proceed by saying this is a contract of guarantee and there is a general rule
applicable to all guarantees. Parties are free to make any agreement they like
and we must I think determine just what this agreement means
The issue was
argued before us primarily as a matter of principle and upon the basis that
clause 5 imposed only one obligation on the third defendant as guarantor. Mr
Michaelson, for the plaintiffs, relied in the alternative on the judge’s
interpretation of the clause, whereby the relevant undertaking was to pay
losses etc on demand and the question whether the preceding words of guarantee
gave rise to a separate obligation was left open. Mr Fetherstonhaugh, for the
third defendant, did not expressly challenge this construction, but he made it
clear that, in his submission, the obligation was one of guarantee and the
subsequent reference to payment on demand was no more than ‘procedural’,
amplifying the same obligation. The same arguments are relevant to the second
issue in the appeal, which is whether the plaintiffs’ cause of action arises
when the rent becomes due and the lessee’s default occurs, or only when payment
is demanded of the guarantor.
The general
rule that when the clause provides for a demand to be made then the cause of
action arises only when the demand is made is well established: Re Brown’s
Estate [1893] 2 Ch 300. I do not see any reason for departing from it in
the present case. Similarly, the wording of clause 5 does not, in my judgment,
create two separate obligations, but only one. Each of the guarantors undertook
the obligations of a surety for the covenants of the lessee, and as regards
rent the possibly wider liability to pay the amount of losses etc, but they
stipulated for a demand to be made, as they were entitled to do.
Conclusion
— limitation
It follows
that, in my judgment, the six-year limitation defence is available to the third
defendant against the claim in respect of arrears of rent and that each
relevant cause of action arose only when payment was demanded under the
guarantee. The result, we were told, is that some but not all of these claims
were statute-barred at the relevant time (see below). The action should
therefore be permitted to proceed in respect of the remaining rent claims,
together with other claims, eg for dilapidations to which the 12-year limit
under section 8(1) applies.
Dismissal
for want of prosecution
We allowed an
application at the hearing of the appeal for leave to file a respondents’
notice which contends that no part of the claim should be dismissed because the
action will continue in any event in respect of those claims for arrears of
rent which were demanded within the six-year period and other claims not
concerning rent. Moreover, the judge
ought further
to have held that the defendants would suffer no serious prejudice if the
entirety of the claim (as opposed to part only) was allowed to proceed and
further that it would be possible in the circumstances to have a fair trial of
the issues.
The judge made
the following finding which although contingent was a clear exercise of his
discretion:
I add this,
that if I had taken a different view of the application of section 19 of the
Limitation Act 1980, I should then in the exercise of my discretion, have
struck out those parts of the plaintiffs’ claim which relate to losses,
damages, costs or expenses arising more than six years before the date of the
relevant demand
— p9E. The last
phrase may be mis-transcribed but the meaning is clear.
The
plaintiffs’ submission, therefore, is that because some claims will proceed to
trial it is wrong to strike out others which, if they stood alone, would not be
allowed to do so. I agree with Mr Fetherstonhaugh’s reply that this is to stand
the rule upon its head. If in relation to some claims the defendant has suffered
prejudice, or a fair trial is not possible, then the fact that there are other
claims which must go to trial, notwithstanding that the defendant is or may be
under the same disadvantages in seeking to defend them, does not provide any
justification for not striking out the former when that is otherwise the
correct thing to do.
A question
arose in the course of argument as to the relevant date for determining whether
claims should not be struck out on the ground that fresh proceedings are not or
would not be time-barred, in accordance with Birkett v James It
might become necessary to distinguish between the date of the defendant’s
summons and the dates of the hearing before the master and the rehearing before
the judge, to say nothing of any subsequent appeal, and it would also be
relevant to consider whether the plaintiffs’ solicitors had responded to the
summons by issuing a protective writ: see Birkett v James itself.
We understand, however, that these problems are unlikely to arise in the
present case and the parties have agreed that we should not identify those
claims which should be permitted to proceed.
For these
reasons, I would allow this appeal and dismiss some at least of the rent claims
and make an order or declaration in such terms as may be agreed.
Waite LJ and
Sir John May
agreed and did not add anything.
Appeal
allowed.
