England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CCRTF 97/1497 CMS2

(HIS HONOUR JUDGE DIAMOND QC )

Royal Courts of Justice

Strand

London WC2

Thursday, 23 April 1998

B e f o r e:

LORD JUSTICE BELDAM

MRS JUSTICE BRACEWELL

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MARYLAND ESTATES LIMITED

PLAINTIFF/APPELLANT

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JOSEPH & ANR

DEFENDANTS/RESPONDENTS

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(Transcript of the handed down judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MR N DOWDING QC (Instructed by Messrs Malthouse Chevalier, London SW18 4DX) appeared on behalf of the Appellant

MR A J MOORE (Instructed by Messrs Jim McKenzie & Co, London NW3) appeared on behalf of the Respondent/Second Defendant

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J U D G M E N T

(As approved by the Court )

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©Crown Copyright

Thursday, 23 April 1998

J U D G M E N T

LORD JUSTICE BELDAM: On 20th March 1998 after argument the court announced its decision to allow the appeal, giving our reasons later. We now give our reasons.

The appellant, Maryland Estates Ltd. (“the landlord”), is the freehold owner of 13 Brondesbury Park, London NW6. The building is divided into flats. By a lease dated 3rd April 1984, the landlord’s predecessor in title let Flat 3 to the respondents (“the tenants”) for a term of 125 years from 24th June 1983 at an initial annual rent of £75 for the first 33 years of the term, payable by equal half-yearly instalments in advance on 24th June and 25th December each year. By cl. 4(23) of the lease the tenants covenanted to pay a service charge which was to be regarded as, and recoverable as, rent. The lease contained in cl. 6 a proviso for re-entry in the usual form if the rent reserved, or any part thereof, should be unpaid for 21 days after becoming payable whether formally demanded or not. By 1994 the tenants had fallen into arrears in payment of the rent and service charges on the due dates, and on 6th June 1995 the landlord issued proceedings in the Queens Bench Division claiming possession of the premises, £2,695.79 arrears of rent and service charges up to and including 25th December 1994. Thereafter the landlord claimed mesne profits from the date of service of the writ until possession. The writ was served on the tenants and shortly thereafter they entered a defence and counterclaim in which they denied that any sums were due and owing and denied that the landlord was entitled to forfeit the lease, counterclaiming relief from forfeiture. On 6th March 1996 by its reply and defence to counterclaim the landlord said in para. 10:

“The Plaintiff will grant relief from forfeiture to the Defendants upon payment within a reasonable time of all sums claimed in the Statement of Claim, statutory interest, any further sums falling due upon the reinstatement of the Lease and the Plaintiff’s costs of the action to be taxed if not agreed.”

After close of pleadings the proceedings were remitted to the Central London County Court. In an attempt to discover the extent of disagreement between itself and the tenants, the landlord sought interrogatories and on 9th August 1996 obtained a peremptory order for discovery. By 15th August the tenants had made payments into court of £2,791.93 representing the amount of the rent claimed to be outstanding at the date of the writ and interest and a sum of £1,177.50 in satisfaction of the landlord’s costs. The latter sum was less than the amount stated by the landlord’s solicitors to have been incurred in bringing the proceedings.

The tenants failed to comply with the order for discovery and on 28th October 1996 the landlord applied to the Central London County Court for a declaration that it was entitled to possession of the premises for non-payment of rent and for an order that the tenants should give up possession unless within 28 days of judgment being obtained they paid the rent and service charges claimed and sums falling due since the issue of the summons in respect of rent and service charges which by that date totalled £5,958.90, together with interest. The landlord’s application was heard by Deputy District Judge Clapham on 9th January 1997 who made the declaration that the landlord was entitled to possession of the flat because the rent and service charges due under the lease were in arrears to the extent claimed and that the landlord had the right of re-entry or forfeiture but he ordered that the tenants should give up possession of the property unless within 14 days of agreement or taxation of the landlord’s costs the tenants paid to the plaintiff the arrears of rent of £2,791.93 and the landlord’s costs as taxed or agreed. From an agreed note of the judgment it appears the deputy district judge considered that he had no power under s.138(3) of the County Courts Act 1984 to order the tenants to pay more than the arrears of rent of £2,791.93, the sum due at the date of service of the writ upon them because the words in ss.(3):

“... all the rent in arrears”

only referred to the rent due at the date of service of the writ. From that order the landlord appealed to His Hon. Judge Diamond Q.C. On 17th October 1997 he confirmed the district judge’s order in these terms:

“(a) The Defendants do give possession of the property unless they comply with the terms set out in Paragraph 2(b) hereof.

(b) If, within the period set out below, the Defendants do pay to the Plaintiff the following sums, then the existing lease will continue and the Plaintiff will no longer be entitled to possession of the property under this Judgment:-

(i) Arrears of rent £2,791.93 within 28 days.

(ii) The Plaintiff’s costs as taxed or agreed within 14 days of agreement or taxation.”

Such costs only to be payable up to and including August 1996.

“4. The Plaintiff do pay the Second Defendant’s costs from 15th August 1996 to be taxed if not agreed. Legal Aid Taxation of the Second Defendant’s costs.”

He further ordered sums to be paid by way of interest and that:

“In the event that the lease does not continue and the Plaintiff do take possession of the property, the Plaintiff do recover against you the sum of £2,791.93 together with Mesne Profits to be assessed.”

From this order the landlord now appeals.

On the face of it the issue is a narrow one which turns upon the interpretation to be given in s.138(3) to the phrase “all the rent in arrears”. But the tenants’ argument, which found favour with the district judge and His Hon. Judge Diamond, is based on a wider foundation. The tenants argue that the jurisdiction of the County Court to grant relief from forfeiture for non-payment of rent is different from, and not as wide as, the jurisdiction of the High Court. Further it is separate from the jurisdiction exercised in equity to grant relief. Historically the right to grant relief from forfeiture has developed differently in the County Court and in the High Court so that the power to grant relief given in s.138 is to be strictly construed and confers by sec.138(3) power to make an order for possession on terms that only the rent in arrears at the date of service of the writ or summons is payable together with the landlord’s costs incurred.

On the other hand the landlord argues that if the very restricted meaning of “all rent in arrears” is adopted and orders for relief from forfeiture are made in the form of the order in the present case, a landlord entitled to forfeit a lease will, to recover sums due to him, be forced to return to the court more than once and possibly several times to obtain judgment resulting in a multiplicity of proceedings. If the proceedings had remained in the High Court, the terms on which relief from forfeiture is granted would not be so constrained; thus landlords who commence proceedings in the High Court would resist any move to transfer them to the County Court. Underlying the controversy between the parties is the question which has been considered by the courts from time to time, of the effect of the exercise by a landlord of his right to claim forfeiture for breach of covenant under the lease and the status of the lease after service on the tenants of a writ claiming possession. In Meadows v. Clerical Medical and General Life Assurance Society [1981] Ch 70 Sir Robert Megarry V.C. at page 74 said:

“A number of authorities were discussed in argument, but none of them had any direct bearing on this problem. It seems clear that the mere issue of a writ claiming forfeiture of a lease does not bring about a forfeiture. On the other hand, there is authority for saying that as soon as such a writ is served, there is a forfeiture, though not until judgment will it be determined whether the forfeiture was justified.”

At page 75 he observed:

“There are, of course, curiosities in the status of a forfeited lease which is the subject of an application for relief against forfeiture. Until the application has been decided, it will not be known whether the lease will remain forfeited or whether it will be restored as if it had never been forfeited. But there are many other instances of such uncertainties. When the validity of a notice to quit is in dispute, until that issue is resolved it will not be known whether the tenancy has ended or whether it still exists. The tenancy has a trance-like existence pendente lite; none can assert with assurance whether it is alive or dead. The status of a forfeited underlease which is the subject of an application for relief seems to me to be not dissimilar; at least it cannot be said to be dead beyond hope of resurrection.”

For the landlord Mr Dowding Q.C. traced the development of the grant of relief against forfeiture in the County Court. He outlined the way in which equity first started to intervene to restrain forfeiture and to grant relief to a tenant who was in breach of covenant whether to pay rent or to perform some other obligation. He referred us to the judgment of the Lord Chancellor, Lord Erskine, in Sanders v Pope [1806] 12 Vesey 282 at 289 emphasising the two forms of relief obtainable in courts of equity, namely an injunction to restrain the landlord from pursuing his rights at law on the one hand and on the other an order for the grant of a new lease. The right of re-entry reserved in the lease was regarded as a security for rent and although by statute a tenant could originally seek relief at any period after the landlord had re-entered in the exercise of his right under the lease the period during which the tenant could thereafter seek relief was limited to six months by the Common Law Procedure Act of 1852. Further by s.212 of that Act it was provided:

“If the tenant or his assignee do or shall, at any time before the trial in such ejectment, pay or tender to the lessor or landlord ... or pay into court where the same cause is depending, all the rent and arrears, together with the costs then and in such case all further proceedings in the said ejectment shall cease and be discontinued; and if such lessee, his executors, administrators, or assigns, shall, upon such proceedings as aforesaid, be relieved in equity, he and they shall have, hold, and enjoy the demised lands, according to the lease thereof made, without any new lease.”

By s.1 of the Common Law Procedure Act 1860 jurisdiction was conferred on common law courts to grant relief in a summary manner:

“... subject to the same terms and conditions in all respects as to payment of rent, costs and otherwise as in the Court of Chancery”.

When it was decided to give County Courts power to give summary relief from forfeiture by s.52 of the County Courts Amendment Act 1856, that Act largely followed the language used in s.212 of the Common Law Procedure Act 1852. Section 52 of the Act of 1856 provided for recovery of possession of “small tenements” by landlords for non-payment of rent. The section afforded two means by which a tenant could avoid forfeiture. Where under the terms of a lease the landlord had the right to re-enter for non-payment of rent, he could without any formal demand or re-entry enter a plaint in the County Court for recovery of the premises; the summons then issued was served on the tenant and stood in lieu of a demand and re-entry and if five clear days before the return day the tenant paid into court “all the rent in arrears, and the costs,” the action ceased. If the tenant did not make payment and did not at the hearing show good cause why the landlord should not recover the premises, then if one half year’s rent “was in arrear before the plaint was entered” and the landlord proved that there was no sufficient distress on the premises and his power to re-enter and “the rent being still in arrear ...” the judge could order possession of the premises to be given by the defendant to the plaintiff on or before such day not being less than four weeks from the day of hearing, as the judge should name unless within that period “ all the rent in arrear and the costs be paid into court” (My emphasis). If the order was not obeyed, the court at the instance of the plaintiff would issue a warrant for possession for the bailiff to give possession to the plaintiff:

“... and the plaintiff shall from the time of the execution of such warrant hold the premises discharged of the tenancy, and the defendant and all persons claiming by, through or under him shall so long as the order of the court remains unreversed be barred from all relief in equity or otherwise.”

From the wording of this section it is clear that the premises of which possession was sought was only “discharged of the tenancy” from the time of execution of the warrant. The Act therefore did not regard the issue of the plaint as itself forfeiting the lease and s.52 referred to the rent in arrear at the different stages of the procedure making it clear that at each stage all the rent in arrear had to be paid without limiting or qualifying the arrears to those due when the summons was issued.

The wording of this Act was undoubtedly the statutory forerunner of the present words of s.138 of the County Courts Act 1984, the Act under which the court acted in the present case. The section where relevant provides:

“Sec.138, Provisions as to forfeiture for non-payment of rent.

(1) This section has effect where a lessor is proceeding by action in a county court (being an action in which the county court has jurisdiction) to enforce against a lessee a right of re-entry or forfeiture in respect of any land for non-payment of rent.

(2) If the lessee pays into court not less than 5 clear days before the return day all the rent in arrear and the costs of the action, the action shall cease, and the lessee shall hold the land according to the lease without any new lease.

(3) If -

(a) the action does not cease under subsection (2); and

(b) the court at the trial is satisfied that the lessor is entitled to enforce the right of re-entry or forfeiture,

the court shall order possession of the land to be given to the lessor at the expiration of such period, not being less than 4 weeks from the date of the order, as the court thinks fit, unless within that period the lessee pays into court all the rent in arrear and the costs of the action.

(4) The court may extend the period specified under subsection (3) at any time before possession of the land is recovered in pursuance of the order under that subsection.

(5) ... if -

(a) within the period specified in the order; or

(b) within that period as extended under subsection (4),

the lessee pays into court -

(i) all the rent in arrear; and

(ii) the costs of the action,

he shall hold the land according to the lease without any new lease ...

(7) If the lessee does not -

(a) within the period specified in the order; or

(b) within that period as extended under subsection (4), pay into court -

(i) all the rent in arrear; and

(ii) the costs of the action,

the order shall be [enforceable] in the prescribed manner and so long as the order remains unreversed the lessee shall [, subject to subsections (8) and (9A),] be barred from all relief ...

[(9A) Where the lessor recovers possession of the land at any time after the making of the order under subsection (3) (whether as a result of the enforcement of the order or otherwise) the lessee may, at any time within six months from the date on which the lessor recovers possession, apply to the court for relief; and on any such application the court may, if it thinks fit, grant to the lessee such relief, subject to such terms and conditions, as it thinks fit.

(9B) Where the lessee is granted relief on an application under subsection (9A) he shall hold the land according to the lease without any new lease.

(9C) An application under subsection (9A) may be made by a person with an interest under a lease of the land derived (whether immediately or otherwise) from the lessee’s interest therein in like manner as if he were the lessee; and on any such application the court may make an order which (subject to such terms and conditions as the court thinks fit) vests the land in such a person, as lessee of the lessor, for the remainder of the term of the lease under which he has any such interest as aforesaid, or for any lesser term.

In this subsection any reference to the land includes a reference to a part of the land.]”

His Hon Judge Diamond accepted the submission made by Mr Moore for the tenants that in s.183(3) the words “all the rent in arrear” referred only to the rent in arrear at the date of service of the summons upon them. It did not include sums which accrued due after the service of the summons for use and occupation and claimed in the summons as mesne profits. By issuing the summons the lessor had made a final election to exercise his right of forfeiture and thereafter could not enforce the covenants including the covenants to pay rent. The judge considered that this submission was supported by the judgment of Lord Denning M.R. in Canas Pty Co. Ltd. v. K.L. Television Ltd . [1970] 2 QB 433 at 442. However in a different context in Driscoll v. Church Commissioners for England [1957] QBD 330 the question how far a restrictive covenant contained in a lease survived the issue and service of a writ claiming forfeiture was considered by this court. The landlords in that case had argued that after issue and service of the writ the tenant had no right to apply to the Lands Tribunal under s.84 of the Law of Property Act 1925 for an order discharging or modifying the covenant. Denning L.J., as he then was, said at page 340:

“I do not agree with the argument for this reason: that although a writ is an unequivocal election nevertheless until the action is finally determined in favour of the landlord the covenant does not cease to be potentially good for instance the forfeiture may not be established: or relief may be granted in which case the lease is re-established from the beginning .” [Emphasis added].

This view is, in my opinion, consistent with the decision of this court in Dendy v. Evans [1910] 1 KB 263. A lessor had claimed to forfeit a lease in breach of covenant to keep in repair. He had issued proceedings and served them upon the lessee who had sub-let the premises to the defendant with a similar covenant to keep the premises in repair. After the proceedings had been served upon the lessor, he assigned the lease to the plaintiff who having obtained relief from forfeiture under s.14(2) of the Conveyancing and Law of Property Act 1881 on terms that he should hold the premises according to the old lease without any new lease brought an action against the defendant for rent due upon the underlease subsequent to the issue and service of the writ to recover possession. The defendant argued that the issue of the writ for possession by the lessor was an irrevocable election by him to treat the lease as void and made the lease void thus putting an end to the underlease. Cozens-Hardy M.R. rejected this argument. He held that the order relieving the plaintiff from forfeiture of the lease and ordering that she held the demised premises according to the lease without any new lease meant that the right of re-entry for forfeiture was got rid of. He said at page 269:

“For all purposes and as between all parties, rights and liabilities are absolutely unaffected by the circumstance that there was a breach of covenant and that there was a writ issued not followed by judgment or entry and I cannot listen for one moment to the suggestion that the effect of this order is merely to resuscitate the lease from the date of the order or grant a new lease from the date of the order, leaving the underlease to perish although the original cause of mischief, namely the forfeiture by the lessee, has been absolutely and entirely got rid of. In my opinion that would be an unreasonable and unnatural construction and I think that Darling J. was quite right when he said in effect that the lease continued for all purposes; it is the original lease which continues not a new lease; and, that being so, the derivative lease which was created out of the original lease has not ceased to exist but is still a valid lease in respect of which the defendants are liable to the plaintiff on the covenants.”

Farwell L.J. agreed. He said at page 270:

“It is not the case of the estate having gone and a new estate being now created; it is that the court says the true meaning of the parties being that the right of re-entry is a security for the performance of the covenant, and that the lessee is ready and willing and offers to do or has done equity, the Act now enables this court to give him relief on the footing that there shall be no forfeiture at all ... The forfeiture is stopped in limine; so that there is no question of any destruction of an estate which has to be called into existence again.”

I accept, as did Mr Dowding, that the effect of the relief against forfeiture given in the County Court is from start to finish statutory. But in construing the words of s.138 of the Act of 1984 it seems to me important not to lose sight of the purpose of the Act which was to grant relief against forfeiture and where there is to be found in the section wording which bears a close similarity to words which have been used to grant relief at law in the High Court it seems to me the court should not resort to a literal construction of words which have been given a purposive interpretation in Acts granting similar relief unless driven to do so. Moreover the tenant's construction depends upon the theory that the lease is in a state of suspended animation and is only revived when the order of the court granting relief from forfeiture is complied with. In the meantime the tenant who has been granted conditional relief from forfeiture has occupied the premises without payment and, if the form of the judgment in the present case is accepted, without any obligation to pay the sums outstanding for that use and occupation unless a further application is made to the court by the landlord. I would draw attention to the use of the words in s.138(5):

“If ... the lessee pays into court or to the lessor

(i) all the rent in arrear; and

(ii) the cost of the action,

he shall hold the land according to the lease without any new lease .”

In my view it is not straining the interpretation of the language to hold that all rent in arrears means the rent in arrears at the time when the court making its order assumes that payment of that rent will result in the lease continuing for all purposes. Thus if the lease is not forfeit, the rent plus the amount claimed for use and occupation is the amount of “rent in arrear” and on condition that this amount is paid the court declares that the lease is not forfeit. In my view it was not Parliament’s intention that the words used in s.138(3) should be construed to mean that the court could order payment only of the rent in arrear at the date of service of the summons as a condition of granting relief. The tenant granted relief continues to hold “the land according to the lease without any new lease”. In my view the judge was wrong to accept the submission made by Mr Moore. The implication of the judge’s approach is that if the tenant continues to hold under the terms of the lease and does not pay rent during the period between the service of the summons and the making of the judge’s order, he would at once be in breach of covenant, for further rent would be in arrears and the lease would be liable to be forfeited immediately. The landlord could commence proceedings and the whole procedure would recommence.

Such an inconvenient result is easily avoided if it is assumed that the lease continues to exist after service of the summons on the tenant, that he remains under an obligation to pay the sum reserved in the lease as rent and that all the rent in arrears means the rent payable up to the date stated in the order.

Since the date on which rent becomes due is stated in the lease, I do not understand the difficulty referred to by the judge in calculating the amount to be inserted in the order. For these reasons I would allow the appeal and in paragraph (b)(i) of his order I would substitute a figure which represents the amount of rent and service charges due under the terms of the lease up to 24th June 1997 and in arrear at the date of that order.

MRS JUSTICE BRACEWELL: I agree.

MINUTE OF ORDER TO BE DRAFTED AND SUBMITTED