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Cadogan Estates Ltd v McMahon [1999] EWCA Civ 1470 (25 May 1999)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/1999/1470.html
Cite as:
(2000) 32 HLR 433,
[1999] L & TR 481,
[1999] EWCA Civ 1470,
[1999] 1 WLR 1689,
32 HLR 433,
[1999] WLR 1689
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[1999] 1 WLR 1689]
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IN
THE SUPREME COURT OF JUDICATURE
CCRTF
1999/0317/2
IN
THE COURT OF APPEAL (CIVIL DIVISION
)
ON
APPEAL FROM WEST LONDON COUNTY COURT
(HIS
HONOUR JUDGE COTRAN
)
Royal
Courts of Justice
Strand,
London W2A 2LL
Tuesday
25th May 1999
B
e f o r e
LORD
JUSTICE STUART-SMITH
LORD
JUSTICE LAWS
MR
JUSTICE JONATHAN PARKER
CADOGAN
ESTATES LIMITED
Respondent
v.
RODERICK
JOSEPH McMAHON
Appellant
(Computer
Aided Transcript of the Stenograph Notes of
Smith
Bernal Reporting Limited, 180 Fleet Street
London
EC4A 2HD Tel: 0171 421 4040
Official
Shorthand Writers to the Court)
MR
PAUL STADDON (instructed by Messrs Oliver Fisher, London W8 5EH) appeared on
behalf of the Appellant (Defendant).
MR
ANTHONY RADEVSKY (instructed by Messrs Lee & Pembertons, London SW1X 0BX)
appeared on behalf of the Respondent (Claimant).
J
U D G M E N T
(As
approved by the court)
Crown
Copyright
LORD
JUSTICE STUART-SMITH: I will ask Lord Justice Laws to give the first judgment.
LORD
JUSTICE LAWS: This is a defendant's appeal brought with leave of Lord Justice
Brooke against an order for possession of a dwelling-house made on 18 February
1999 by His Honour Judge Cotran at the West London County Court. The plaintiff
was the landlord and the defendant the tenant of Flat 9, 85-89 Lower Sloane
Street, under the terms of a statutory tenancy which, pursuant to the Rent Act
1977, came into existence upon the expiry of a lease which had, I understand,
been entered into by the parties' respective predecessors in title on 15 August
1979.
Section
98(1) of the Rent Act 1977 permits the court to make an order for possession of
premises let on a statutory tenancy if it is reasonable to make an order and
the circumstances are as specified in any of the cases set out in Part I of
Schedule 15 to the Act. There is no challenge to the judge's finding that it
was reasonable to make the order and it is therefore unnecessary to rehearse
the facts which led him to do so.
The
appeal raises a short point of law which I will explain directly. First, it is
convenient to look at the terms of Case 1 of Schedule 15. That provides so far
as relevant as follows:
"Where...
any obligation of the protected or statutory tenancy which arises under this
Act, or
(b) in
the case of a statutory tenancy, any other obligation of the previous protected
tenancy which is applicable to the statutory tenancy, has been broken or not
performed."
Section
3(1) of the 1977 Act provides:
"So
long as he retains possession, a statutory tenant shall observe and be entitled
to the benefit of all the terms and conditions of the original contract of
tenancy, so far as they are consistent with the provisions of the Act."
Proviso
1 to the lease contains, among other things, a proviso for re-entry should the
tenant become bankrupt. It is not necessary to read out the text which appears
at page 27 of the bundle.
The
defendant was made bankrupt on 17 March 1998. The plaintiff issued proceedings
for possession of the flat asserting that, having regard to the proviso for
re-entry, the defendant's bankruptcy amounted to a breach of an obligation
within Case 1 of Schedule 15, giving rise to a claim for possession under that
case. That claim was upheld by the judge who duly made the order under appeal.
Mr
Staddon for the defendant contends, first, that proviso 1 does not create an
obligation within the meaning of the Rent Act at all. He submits, secondly,
that if that is wrong and an obligation was created, then it was not an
obligation which was carried through to the statutory tenancy being, as he
submitted, inconsistent with the concept of statutory tenancy.
There
is a paucity of authority on the question whether a proviso for re-entry upon
bankruptcy creates an obligation upon the tenant. There is one case in the
English jurisdiction and that is a decision of this court in
Paterson
v. Aggio
[1987] 2 EGLR 127. There the Court of Appeal had to decide whether bankruptcy
amounted to a breach of an obligation arising from a proviso for re-entry whose
terms were not noticeably different from those in this case. However, the
question arose in a context different from that with which we are dealing. In
that case, if the proviso imposed an obligation not to go bankrupt, then
section 52 of the Housing Act would have applied and the tenancy would be a
protected shorthold tenancy. That was the plaintiff landlord's contention. It
is convenient to cite this passage first from May LJ's judgment at page 128 D:
"There
has throughout been only one point in this case. The landlord, who is the
respondent before us, granted the tenants what she contended was a protected
shorthold tenancy within section 52 of the Housing Act 1980. The tenants
contended that their tenancy was not one within section 52 and that they were
accordingly entitled to the protection of the Rent Act 1977. The learned judge
held against the tenants' contentions and made the order for possession.
The
relevant provisions of the Housing Act 1980 are contained in section 52(1)(a)
and are to this effect:
´A
protected shorthold tenancy is a protected tenancy granted after the
commencement of this section which is granted for a term certain of not less
than one year nor more than five years and satisfies the following conditions,
that is to sayÄ
(a)
it cannot be brought to an end by the landlord before the expiry of the term
except in pursuance of a provision for re-entry or forfeiture for non-payment
of rent or breach of any other obligation of the tenancy;'"
And
then at F on the same page:
"The
tenants' contention has been that on the proper construction of his proviso for
re-entry the tenancy could be brought to an end before the expiry of the fixed
term if, for instance, the tenants should go bankrupt or make a composition
with their creditors. It was submitted that there is no ´obligation' in
the tenancy agreement on the tenants not to go bankrupt. Thus the tenancy
agreement did not satisfy section 52(1)(a) of the 1980 Act which I have quoted
and consequently could not be a protected shorthold tenancy."
It
is necessary to cite a major part of the learned judge's recital of the
landlord's argument since, as I shall show, he accepted it. At 129E May LJ
says this:
"Finally,
on the question of pure construction, counsel [for the landlord] suggested that
if the inquisitive bystander had asked the tenants whether they were, under the
terms of their tenancy agreement, obliged not to go bankrupt, or not to make a
composition with their creditors, or not to leave the premises vacant and
unoccupied for more than 21 days, the common sense and reasonable answer would
have been in the affirmative.
Counsel
for the landlord further developed his argument in this way. The proviso for
re-entry with which this case is concerned was a condition of the tenancy
agreement. See Woodfall, Landlord and Tenant, vol 1, para 1-1840 on p 820.
Further, it was a condition which ran with the land and related to the tenancy
(see Woodfall op cit at the top of p 461) and was therefore properly to be
considered as an obligation of the latter. In addition, a proviso for re-entry
on, for instance, the bankruptcy of the tenant is nothing unusual and is well
known in the context of the law of landlord and tenant, which is demonstrated
by the specific reference to such a condition for forfeiture in subsections (9)
and (10) of section 146 of the Law of Property Act 1925. In all these
circumstances counsel submitted that if a tenant under the terms of the tenancy
agreement with which we are concerned went bankrupt, this must amount to a
breach by him of an obligation or a term and condition of the tenancy and, in
the context of the Rent Acts, would entitle the landlord to possession under
Case 1 of Schedule 15 to the 1977 Act.
Finally,
although there may not be authority directly in point, counsel drew our
attention to a passage from the judgment of Johnston J in
Re
Drew
[1929] IR 504, where at p 508, albeit strictly obiter, the learned judge said:
´Sect
6 of the [Rent] Act of 1923 provides that where a tenant retains possession of
any dwelling-house by virtue of the provisions of the Act, he must observe all
the terms and conditions of the original contract of tenancy so far as the same
are consistent with the provisions of the Act of 1923. Sect 15, subsect 1 of
the [Rent] Act 1920, contained a similar provision. The tenant here has broken
one of the conditions of his tenancy by allowing himself to be adjudicated a
bankrupt, and therefore he is no longer entitled to possession even as a
statutory tenant.'
For
all these reasons counsel for the respondent submitted that on its proper
construction the proviso for re-entry in the relevant tenancy agreement did
impose obligations on the tenant not to go bankrupt, nor make a composition
with their creditors, nor leave the premises vacant and unoccupied for more
than 21 days within the meaning of section 52(1)(a) of the Housing Act 1980 and
thus the learned judge had been correct in holding that the tenancy had been a
protected shorthold one.
For
my part, I agree with this submission. Although on a strict construction of
the relevant statutory provision it might be said that the requirement not to
become a bankrupt was not an ´obligation' on the tenant, this would, in my
opinion, defeat the plain intent of the legislature. In my respectful opinion,
the learned judge below was right in construing the three requirements in the
relevant proviso for re-entry as ´obligation' imposed by the tenancy
agreement upon the tenant and I for my part would dismiss this appeal."
Mr
Staddon for the defendant did not distinctly submit that the reasoning in
Paterson
v. Aggio
was wrong. His submission was that that case falls to be distinguished because
it arose in a different statutory context from that in this case. He submits
that the real thrust of the decision in
Paterson
v. Aggio
was to the effect that, for the legislative scheme in the 1980 Act creating
shorthold tenancies properly to be effective, the construction of "obligation"
at which the court arrived was necessary since otherwise many persons, who had
contracted on the putative basis that a shorthold tenancy would be the outcome
of their agreement, would find that that was not the case at all. It is
plainly right that
Paterson
was concerned with the context of section 52.
What
are the consequences of Mr Staddon's argument? It means that a proviso for
re-entry in the event of bankruptcy, contained in a tenancy which has become a
Rent Act statutory tenancy, creates no obligation, but a proviso in identical
words in a tenancy which is a shorthold tenancy creates an obligation. That
seems to me to be an extremely anomalous result which ought to be avoided if it
can possibly be done.
Moreover,
despite the point of departure between this case and that consisting in the
different statutory context, it is to be noted that May LJ, as I read his
judgment, accepted the whole basis of the landlord's counsel's argument in
Paterson.
That included the submission Ä and I have recited May LJ's account of it
Ä as follows:
"...counsel
submitted that if a tenant under the terms of the tenancy agreement with which
we are concerned went bankrupt, this must amount to a breach by him of an
obligation or a term and condition of the tenancy and, in the context of the
Rent Acts, would entitle the landlord to possession under Case 1 of Schedule 15
to the 1977 Act."
For
my part I understand, with respect, May LJ to agree to that proposition. It
seems to me therefore that it is very difficult for Mr Staddon to distinguish
that case.
In
my judgment, moreover, the landlord's case here, and the conclusion arrived at
by the learned judge in the county court, is lent some further support by the
decision of Goulding J in
Halliard
Property Co. Ltd. v. Jack Segal Ltd
[1978] 1 W.L.R. 377. In that case Goulding J held that a notice under section
146 of the Landlord and Tenant Act 1954 was required before forfeiting for
bankruptcy because bankruptcy fell to be regarded as a breach of condition. Mr
Staddon says that condition is one thing and obligation is another. Of course
the words are different and their meanings are not identical. But if
bankruptcy constituted a breach of condition, then, as a matter of language and
common sense, it must also surely have been a breach of obligation.
Moreover,
as my Lord, Jonathan Parker J, said in the course of argument, one has to have
in mind the terms of section 3(1) of the Act of 1977, which I have read. That
refers to the tenant's duty to observe all the conditions of the original
contract so far as they are consistent with the provisions of the Act. Reading
the statute as a whole one must look at that provision alongside the words in
Case 1 of Part I of Schedule 15, which I have read. It seems to me that there
is here no such distinction between the idea of condition and that of
obligation such as to neutralise the support the landlord's argument gains from
Halliard's
case.
Mr
Staddon made a number of submissions concerning Johnston J's decision in
Ireland, which was cited, as I have shown, by May LJ. Mr Staddon submitted
that the learned judge in Ireland, with respect, fell into plain error because
he considered the question whether a section 146 notice or its statutory
predecessor was required in the context of the case with which he was dealing,
or whether one of the statutory exceptions relieving the landlord of the duty
to serve such a notice applied. The very asking of such a question, said Mr
Staddon, was erroneous since section 146 and its predecessor have no possible
application in the context of a statutory tenancy because it constitutes no
part of the means by which such a tenancy may be ended. It may be ended only
by a court order.
Mr
Staddon may be right as regards the learned judge's approach to the
requirements of section 146 or its predecessor. The fact is, however, that
what one has in the judgment of Johnston J is a judicial observation, obiter
perhaps, that a proviso for re-entry upon bankruptcy in effect creates an
obligation. To that extent it assists the landlord as May LJ himself held in
the
Paterson
case.
For
all those reasons it seems to me that authority favours the landlord's position
here and the conclusion arrived at by the judge. For my part I would hold
that, for the purposes of Case 1 of Schedule 15, a proviso for re-entry upon
bankruptcy, such as is here to be found, creates an obligation upon the tenant
for the purposes of that case.
Mr
Staddon's second argument was that, even if such an obligation was created by
the proviso, nevertheless it did not survive the contractual tenancy nor travel
through into the statutory tenancy. The submission here is to the effect that
the very concept of a right of re-entry is repugnant to that of a statutory
tenancy. A right of re-entry is a means by which the contractual tenancy may
be brought to an end. Of course when the statutory tenancy is in being the
contractual tenancy is already at an end and any considerations going to the
circumstances in which the landlord might be entitled to determine the contract
are, so to speak, history. Mr Staddon cited
Brewer
v. Jacobs
[1922] 1 K.B. 528. Perhaps I may be forgiven for making no extended reference
to it.
It
is of course right, indeed elementary, that the statutory tenancy has succeeded
the contract between the parties and questions how the contract
stricto
sensu
might be brought to an end have no bite upon the rights of either party to a
statutory tenancy.
However,
it seems to me that Mr Staddon's argument falls upon a simple ground. If, as I
have held, the proviso for re-entry creates an obligation Ä in this case
not to go bankrupt Ä the obligation is perfectly consistent with the terms
of the Rent Acts and the concept of a statutory tenancy. The consequences of a
breach of that obligation Ä where the contract is still in being, a right
of re-entry in the landlord Ä seem to me to be something separate from the
obligation itself. There is for that short reason, in my judgment, no
repugnance between the continuance of this obligation into the statutory
tenancy and the terms of the Rent Acts. Accordingly, in my judgment the second
argument, advanced with very considerable skill and learning by Mr Staddon,
also falls to the ground. In my view in the result the learned judge in the
county court arrived at the right answer.
I
would, for the reasons I have given, dismiss the appeal.
MR
JUSTICE JONATHAN PARKER: I agree.
LORD
JUSTICE STUART-SMITH: I also agree.
Order: Appeal
dismissed with costs; order nisi
against
legal aid fund with nil contribution;
application
for permission to appeal to the
House
of Lords refused.