Civil procedure — Jurisdiction — Council Regulation (EC) 44/2001 — Claim against guarantor of lessee’s obligations — Guarantor domiciled in France — Articles 2, 5(1)(a) and 22 of regulation — Whether English courts having jurisdiction to hear claim — Whether principal subject matter of claim relating to rights in rem in property situated in England — Whether lease impliedly specifying England as country for performance of relevant obligation
The claimant was the landlord under a lease of a public house for a term of 20 years from 1997. The defendant guaranteed the obligations of the tenant under the lease; the guarantee clause provided that, should the tenant default in the performance or observance of any of the covenants during the term, the defendant would, on demand, make good all loss, damage, costs and expenses occasioned to the claimant as a result.
At the date of the lease, the parties all resided in England, but the defendant moved to France in around 2003. The rent falling due in March and June 2008 went unpaid and the claimant forfeited the lease by peaceful re-entry in August 2008. The claimant served a demand on the defendant in France for payment pursuant to the guarantee clause. The demand was not met and the claimant brought proceedings in respect of the unpaid rent, together with insurance, VAT, the administration fee and statutory interest. It also made a dilapidations claim of £32,529 on the ground that the premises had, at the date of forfeiture, been in a state of disrepair in breach of the repairing covenants in the lease.
The defendant applied to the court for a declaration that since he was domiciled in France, the English courts did not have jurisdiction to hear the claim, by virtue of article 2 of Council Regulation (EC) 44/2001. The claimant contended that the English courts had jurisdiction by virtue of: (i) article 22 of the regulation in respect of proceedings that had as their object rights in rem in immovable property situated in England; and (ii) article 5(1)(a) in respect of a contract for which England was the country of performance. The defendant argued that article 22 did not apply to a landlord’s claim for compensatory damages against a guarantor. With regard to article 5, it submitted that the alleged obligation had not arisen until the service of a demand, which, having been made in France, gave rise to an obligation for performance in France.
Held: The application was refused. (1) Proceedings have “as their object” rights in rem if the principal subject matter of the claim relates to such rights. A guarantor of the obligations in a lease can avail itself of any defence that would be available to the lessee and, in a claim for dilapidations in particular, expert valuation evidence will normally be required. The matter cannot be categorised as being only the assessment of damages. Consequently, the principal subject matter of the claim against the defendant was the lease. Applying a purposive interpretation of article 22, the English court was both the best forum for establishing the factual basis of the claim and the only court that could deal with the questions arising under the English law of landlord and tenant. Consequently, it had exclusive jurisdiction under article 22. The declaration sought by the defendant was refused. (2) Further, article 5(1)(a) applied because it could be implied from the terms of the lease that England was the place for payment by the tenant’s guarantor in respect of any liability under the guarantee; that was the country in which all the parties resided when the lease was entered into, where the subject property was located and where the claimant always received the rent payments. That conclusion was unaffected by the fact that the demand for payment had been made in France and that were the defendant to be found liable to pay anything, he would instigate the method of payment in France.
The following cases are referred to in this report.
Ashurst v Pollard; sub nom Pollard v Ash [2001] Ch 595; [2001] 2 WLR 722; [2001] 2 All ER 75, CA
Crédit Agricole Indosuez v Chailease Finance Corporation; sub nom Chailease Finance Corporation v Crédit Agricole Indosuez [2000] 1 All ER (Comm) 399; [2000] 1 Lloyd’s Rep 348; [2000] Lloyd’s Rep Bank. 119, CA
Hacker v Euro-Relais GmbH C-280/90 [1992] ECR I-1111, ECJ
Moschi v Lep Air Services Ltd; sub nom Moschi v Rolloswin Investments Ltd; Lep Air Services v Rolloswin Investments [1973] AC 331; [1972] 2 WLR 1175; [1972] 2 All ER 393, HL
Rosler v Rottwinkel 241/83 [1986] QB 33; [1985] 3 WLR 898, ECJ
This was the hearing of an application by the defendant, Malcolm Hancock, for a declaration that the court lacked jurisdiction, under Council Regulation (EC) 44/2001, to hear a claim by the claimant, Wellington Pub Co plc, to enforce a guarantee of obligations under a lease.
Jonathan Steinert (instructed by Gosschalks, of Hull) appeared for the claimant; Angus Macpherson (instructed by Ross Green & Crowe, of Dartford) represented the defendant.
Giving judgment, Mr Recorder Nigel Thomas said:
[1] By a lease dated 2 September 1998 (the lease) made between (1) the claimant as landlord, (2) Hancock Inns (Southern) Ltd as tenant (the lessee)and (3) the defendant as guarantor, the claimant let to the lessee a public house in Welling, Kent, for a term of 20 years from 20 March 1997 at an initial rent of £25,000 pa.
[2] By clause 7(i) of the lease, the defendant, in consideration of the demise contained in the lease, covenanted with the claimant that the lessee should pay the rent payable under the lease and should duly perform and observe all the covenants on the lessee’s part contained in the lease. It was further provided that in default of performance or observance of any of the covenants by the lessee during the term, the defendant would, on demand, make good all loss, damage, costs and expenses thus arising or incurred by the claimant.
[3] At the date of the lease, all the parties were resident in England. The present proceedings relate to the non-payment of rent on 1 March 2008 and 1 June 2008, together with insurance, VAT and an administration fee and statutory interest. In addition, the public house is alleged to have been, at the time the lease was forfeited, in a state of disrepair in breach of the repairing covenants contained in the lease. The claimant states that the dilapidation claim amounts to £32,529.
[4] Forfeiture was effected by peaceful re-entry on 5 August 2008, demand was made in France on 1 October 2008 and the claim form with |page:46| particulars of claim is dated 27 October 2008. The matter comes before me as a result of the defendant’s application dated 15 July 2009, seeking a declaration that, by reason of article 2 of Council Regulation (EC) No 44/2001 (the regulation), the English courts do not have jurisdiction to hear this matter because the defendant is domiciled in France and the place of performance of the obligation in question is not in England; alternatively, if there is no place of performance of the obligation in question, likewise jurisdiction is not conferred on the English courts. Furthermore, says the defendant, this is not a case that falls within article 22 because it does not involve rights in rem or has as its object a tenancy of immovable property.
[5] At some point, I believe in 2003, the defendant went to live in France. The claimant admits that the defendant is, within the meaning of the regulation, domiciled in France. The defendant submits, which is accepted by the claimant, that, subject to the regulation, persons domiciled in a member state shall, whatever their nationality, be sued in the courts of that member state: see article 2, but it is also provided by article 3:
1. Persons domiciled in a Member State may be sued in the courts of another Member State only by virtue of the rules set out in Sections 2 to 7 of this Chapter.
[6] My attention has been invited to the following articles of the regulation:
Article 5
A person domiciled in a Member State may, in another Member State, be sued:
1.—(a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
…
Article 22
The following courts shall have exclusive jurisdiction, regardless of domicile:
1. in proceedings which have as their object rights in rem in immovable property or tenancies of immovable property, the courts of the Member States in which the property is situated…
[7] Before considering the submissions of each party, I would mention that the Court of Appeal, in Ashurst v Pollard [2001] Ch 595, has given guidance on the meaning of “object” as used in article 22(1) of the regulation (which was then article 16(1)); in [41] of the judgment, Jonathan Parker LJ said:
Thus the Advocate General equated proceedings which have “as their object” rights in rem (see article 16(1)) with proceedings where the “principal subject matter” of the claim relates to rights in rem.
[8] Returning to article 5(1)(a), the defendant says that the claimant’s claim, although expressed in terms of arrears of rent, damages, interest and legal and other costs, is in fact a claim for compensatory damages for non-performance, as opposed to, say, a claim in debt: Moschi v Lep Air Services Ltd [1973] AC 331. The claimant accepts that this is a correct view of the law.
[9] This being so, Mr Angus Macpherson, for the defendant, submitted, in his skeleton argument, that the obligation to pay damages for non-performance is a separate independent obligation from the obligation to discharge alleged sums owing under the guarantee. The alleged obligation of the defendant does not arise until such time as he was served with a demand. The demand was made of the defendant in France, and as the relevant obligation was to pay these damages, the obligation arose in France, for that is where he would pay the damages. Any enforcement proceedings, moreover, can be taken in France.
[10] As to article 22, Mr Macpherson dismissed its applicability to this case by pointing out that the claim is against a guarantor for damages, whereas article 22 is concerned with rights in rem and lessees, as opposed to the defendant’s position as a guarantor.
[11] Mr Steinert focused his argument on article 22 of the regulation, pointing out that if it applies it confers exclusive jurisdiction on the English courts.
[12] Mr Steinert asked what is the “principal subject matter” of this case: per Ashurst? The answer, he said, is the lease and the obligations and liabilities arising under it. He pointed out that there is a claim for dilapidations that involves a factual investigation of the state of repair of the public house and the possibility of the defendant raising a defence under section 18 of the Landlord and Tenant Act 1927. He drew my attention to [53] of Ashurst:
In considering whether article 16(1) applies in any particular case… [consider] whether the proceedings involve a factual investigation which is best carried out by the courts of the state in which the property is situated, and/or questions of local law and practice are raised.
[13] The claimant relies on Rosler v Rottwinkel 241/83 [1986] QB 33, a decision of the European Court of Justice, particularly para 14, at p57, and paras 18 to 20, at pp58-59. In para 20, the court commented:
Article 16(1) seeks to ensure a rational allocation of jurisdiction by opting for a solution whereby the court having jurisdiction is determined on the basis of its proximity to the property since that court is in a better position to obtain first-hand knowledge of the facts relating to the creation of tenancies and to the performance of the terms thereof.
He also drew my attention to paras 23-29, at pp59-60.
[14] In another decision of the European Court Hacker v Euro-Relais GmbH C-280/90*, the court considered Rosler and indicated its agreement to the view of the legislation described by the court in the earlier case.
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* Editor’s note: Reported at [1992] ECRR 1-1111
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[15] On the reasoning to which I have referred, the claimant argues that the proper approach is to adopt a purposive interpretation of the provisions of article 22.
[16] In reply, Mr Macpherson rejected this, saying, in effect, that the claimant’s view of the matter is over-elaborate in that the only issue is to establish what the value of the claim is, and since it does not involve complex legal issues, there is nothing to preclude the French court from dealing with the case in accordance with article 2.
[17] I understand Mr Macpherson’s argument that we are dealing with a matter that is to be categorised simply as the assessment of damages, an investigation that the French courts could normally undertake. However, in my judgment, that is to overlook the fact that a guarantor of the obligations in a lease is able to avail himself of any defence that would be or would have been available to a lessee. In particular, a claim involving dilapidations will almost always require expert valuation evidence, particularly where a section 18 defence is raised. In short, I accept that the subject matter of the action is the lease.
[18] I accept Mr Steinert’s argument that the courts, both European and domestic, have, when considering article 22 (or article 16 as it was), favoured a purposive interpretation of the article, even a pragmatic one: see, for instance, [53] of Ashurst. The English court is, in my judgment, not only the best forum for establishing the factual basis of the claim but also the only court that can deal with the questions of the English law of landlord and tenant that arise. For these reasons, I hold that the English courts have exclusive jurisdiction under article 22 and I refuse, for this reason, the declaration as sought by the defendant.
[19] It follows that I do not need to consider the arguments with regard to the application or otherwise of article 5(1)(a) because my decision on article 22 is sufficient to dispose of the matter. However, out of deference to the very full arguments that have been made, I ought to deal with this aspect as well.
[20] The defendant reminded me that his alleged obligation to pay the claimant is for the payment of damages. The demand was made in France and it is in France that he will pay. Mr Macpherson specifically relied on the third limb of the defendant’s covenant at clause 7 of the lease, namely:
[the lessor] will pay and make good to the Company on demand all loss and damage costs and expenses thereby arising or incurred by the Company…
[21] It seems to me that my task is to ascertain whether the lease imposes an obligation to pay in England or not, or whether a place |page:47| is impliedly specified for meeting the obligation: Crédit Agricole Indosuez v Chailease Finance Corporation [2000] 1 All ER (Comm) 399 and Chitty on Contracts (30th ed) vol 1, in para 21-054.
[22] It is my judgment that it is an irresistible implication of the lease that the place for payment by the tenant’s guarantor, in respect of any liability under the guarantee, is England. The parties were all resident here when the lease was made, the subject property is here and the claimant always received the rent payments in England; indeed, it had a right under clause 4(i) of the lease to specify where the lessee should make its rent payments, which in fact the claimant did.
[23] The demand for payment may have been made in France and, no doubt, if the defendant is found liable to pay anything to the claimant, he will instigate the method of payment in France. However, that, it seems to me, has no bearing on the place where payment should be made under the lease and, hence, the guarantee, which, in my view, is in England.
[24] Having found that the place of payment is England, does this equate to “the place of performance of the obligation in question”: article 5(1)(a)? It seems to me that it must do and I find that, for this reason as well, the English courts may exercise jurisdiction to hear this claim, and for the reasons that I have given, I believe that they should.
Application refused.
