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Cite as: [1999] EWCA Civ 1033, [1999] L & TR 278, [1999] 2 EGLR 30, (2000) 32 HLR 107, [1999] 22 EG 145, [1999] 3 All ER 113, 32 HLR 107, [1999] EG 46, [2000] QB 541, [2000] 2 WLR 357

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IN THE SUPREME COURT OF JUDICATURE CCRTF 98/1462/2

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE TELFORD COUNTY COURT

(His Honour Judge Nicholas Mitchell

Royal Courts of Justice

Friday, 19th March 1999

Before:

LORD JUSTICE HIRST

LORD JUSTICE MANTELL

- - - - - - - -

ARTESIAN RESIDENTIAL INVESTMENTS LIMITED

Appellant

-v-

MR. NICK BECK

Respondent

- - - - - - - - -

(Computer Aided transcript of the stenograph notes of

Smith Bernal Reporting Limited

180 Fleet Street, London EC4A 2HD

Tel: 0171 421 4040 Fax: 404 1424

Official Shorthand Writers to the Court)

- - - - - - - -

MR. E. DENEHAN (instructed by Messrs Finers, London, W1) appeared on behalf of the Appellant/Plaintiff.

MR. JAN LUBA (instructed by Messrs R. Gwynne & Sons, Shrewsbury, Shropshire) appeared on behalf of the Respondent/Defendant.

- - - - - - - -

J U D G M E N T

(As approved by the Court )

Crown Copyright

HIRST LJ:

This case raises an important point of principle, namely whether a tenant is entitled to invoke the relief provided for by section 138 of the County Courts Act 1984 in relation to an order for possession validly made against him as an assured tenant of the demised premises within the meaning of section 1 of The Housing Act 1988.

On 23rd October 1998 His Honour Judge Mitchell in the Telford County Court held that he is so entitled, and consequently set aside the orders made on 29th June 1998 and 5th August 1998 that the respondent tenant, Mr Nick Beck, should give the plaintiff, Artesian Residential Investments Ltd, possession of 42, The Hobbins, Bridgnorth, Shropshire WB15 5HH.

These two orders had been made respectively by District Judge Garrett and District Judge Schroeder, and the latter, while expressing sympathy for Mr Beck, expressly held that the court had no such power.

It is against Judge Mitchell's order that the landlord presently appeals, and there is also a respondent's notice.

The facts are not in dispute, and I gratefully adopt the summary in the judge's judgment which is as follows:-

"The facts which lead to this matter are not in dispute. The plaintiffs are freehold reversioners of a property known as No. 42, The Hobbins, Bridgnorth, Shropshire (which I will refer to as ´the property'). By a written agreement the plaintiffs' predecessors in title demised the property to the defendants for a fixed term of ten years from 1st December 1989. The initial rent payable under the terms of the tenancy agreement was at the rate of £2,700 per annum, but that rent is subject to review by means of an index linking provision. The rent is payable monthly in advance. The tenancy agreement incorporated letting terms which include [as clause 4(a)(i)] a proviso for re-entry and determination if the rent is at any stage 14 days in arrears.

The defendants have throughout occupied the property and continue to do so as their only principal home. The tenancy accordingly is an assured tenancy within the provisions of the Housing Act 1988.

The defendants duly paid the rent and performed the terms of the tenancy until some time in around 1996 they encountered financial difficulties when the first defendant was made redundant. By this time the monthly rent payable had increased to a rate of £313 a month. By April 1998 the arrears of rent amounted to £2,239.92 and no payment at all had been made since December 1997.

On 15th April 1998 the plaintiffs served notice on the defendants pursuant to the provisions of section 8 of the Housing Act 1988 of their intention to seek possession on the grounds numbered 8 and 10 in the second schedule to the Act. Proceedings were then issued on 14th May 1998, and on 29th June 1998 those proceedings came on for hearing before Mr District Judge Garratt who made an order for immediate possession together with judgment for the arrears of rent in accordance with County Court Form N.26.

On 7th July the defendants applied for a suspension of that order saying that with the aid of a friend they would be able to clear the arrears in full within a matter of days. On 10th July 1998 they did indeed clear those arrears fully by means of a banker's cheque. Since that time the monthly rent has been paid on the due date and is now up to date.

On 5th August the defendants' application for suspension came on for hearing before Mr District Judge Schroeder. ......"

The case turns almost entirely on the construction of the relevant sections of the Housing Act 1988, and its inter-relation with section 138 of the County Courts Act 1984.

It is common ground that the defendant's tenancy was an assured tenancy within the meaning of section 1 of the 1988 Act, which is the opening section of Part 1 Chapter 1 of the Act, the Chapter being headed "Assured Tenancies". Section 5(1), which is headed "Security of Tenure", provides as follows:-

"5(1). An assured tenancy cannot be brought to an end by the landlord except by obtaining an order of the court in accordance with the following provisions of this Chapter ..... or, in the case of a fixed term tenancy which contains power for the landlord to determine the tenancy in certain circumstances, by the exercise of that power and, accordingly, the service by the landlord of a notice to quit shall be of no effect in relation to a periodic assured tenancy."

Section 7, headed "Orders for Possession", which is one of the key sections for present purposes, provides as follows so far as relevant:-

"7(1). The court shall not make an order for possession of a dwelling house let on an assured tenancy except on one or more of the grounds set out in Schedule 2 to this Act; but nothing in this Part of this Act relates to proceedings for possession of such a dwelling-house which are brought by a mortgagee, within the meaning of the Law of Property Act 1925, who has lent money on the security of the assured tenancy.

(2) The following provisions of this section have effect, subject to section 8 below, in relation to proceedings for the recovery of possession of a dwelling-house let on an assured tenancy.

(3) If the court is satisfied that any of the grounds in Part I of Schedule 2 to this Act is established then, subject to subsections (5A) and (6), the court shall make an order for possession.

.................

(6) The court shall not make an order for possession of a dwelling-house to take effect at a time when it is let on an assured fixed term tenancy unless -

(a) the ground for possession is Ground 2 or Ground 8 in Part I of Schedule 2 to this Act or any of the grounds in Part II of that Schedule, other than Ground 9 or Ground 16; and

(b) the terms of the tenancy make provision for it to be brought to an end on the ground in question (whether that provision takes the form of a provision for re-entry, for forfeiture, for determination by notice or otherwise)."

Section 8, headed "Notice of proceedings for Possession", provides so far as relevant as follows:-

"8(1). The court shall not entertain proceedings for possession of a dwelling-house let on an assured tenancy unless -

(a) the landlord or, in the case of joint landlords, at least one of them has served on the tenant a notice in accordance with this section and the proceedings are begun within the time limits stated in the notice in accordance with subsections (3) to (4B) below, or

(b) the court considers it just and equitable to dispense with the requirement of such a notice.

(2) The court shall not make an order for possession on any of the grounds in Schedule 2 to this Act unless that ground and particulars of it are specified in the notice under this section; but the grounds specified in such a notice may be altered or added to with the leave of the court.

(3) A notice under this section is one in the prescribed form informing the tenant that -

(a) the landlord intends to begin proceedings for possession of the dwelling-house on one or more of the grounds specified in the notice; and

(b) those proceedings will not begin earlier than a date specified in the notice [in accordance with subsections (4) to (4B) below], and

Ground 8 in schedule 2 part 1 which is headed "Grounds on which Court must order Possession" is in the following terms:-

"Both at the date of the service of the notice under section 8 of this Act relating to the proceedings for possession and at the date of the hearing -

(a) if rent is payable weekly or fortnightly, at least eight weeks rent is unpaid;

(b) if rent is payable monthly, at least two months rent is unpaid;

(d) if rent is payable yearly, at least three months' rent is more than three months in arrears;

and for the purpose of this ground ´rent' means rent lawfully due from the tenant."

Section 45(4) of the Act provides as follows:-

"For the avoidance of doubt, it is hereby declared that any reference in this Part of this Act (however expressed) to a power for a landlord to determine a tenancy does not include a reference to a power of re-entry or forfeiture for breach of any term or condition of the tenancy."

Section 138 of the County Courts Act 1984, under the heading "Provisions as to Forfeiture for non-payment of Rent" provides, so far as relevant, as follows:-

"(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 rents 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."

The judge expressed the view that it required very careful consideration before a decision is arrived at that the provisions of the Housing Act 1988 should "remove by a sidewind" protection which is afforded to any other tenant or lessee for a term of years, all the more so because of the exclusion of the discretion to adjourn, stay or suspend any order or proceedings pursuant to section 9(6).

He then went on as follows:-

"It would be odd indeed, and I would for my part say repugnant, anomalous, and unjust, that one class of tenant should be excluded from the right to relief from forfeiture; and, even more so, where, as here, there is a blameless tenant who has performed satisfactorily for many years but is then faced with losing his entire tenancy for what may be a long term of years yet remaining (not as it happens in this case, but as it may well be, particularly where one is considering, as has been observed by the editors of the Encyclopedia of Housing, a term which would be likely to be attractive to a mortgagee) and that in these circumstances the tenant would lose that long term of years and find himself forfeited and expropriated as the result of a temporary difficulty in payment of the rent which was beyond his control, and which might indeed be a very temporary difficulty - only two months' arrears being required to meet the conditions of Ground 8."

In the upshot, he held that section 138 of the 1984 Act did apply stating:-

"In my judgment, it cannot be gainsaid that what the plaintiff in substance is seeking to do here is to enforce a right of re-entry for non-payment of rent. That is a right to which section 138(1) of the County Courts Act expressly applies. Without that right the plaintiffs would not arrive at all at the provisions of subsection 7(6)(b) of the Housing Act 1988 if, ...... subsection 7(6)(b) does apply to the provisions for re-entry or forfeiture in standard form, notwithstanding the provisions of subsection 45(4). As I say, in my judgment, in substance the landlord is seeking to enforce a right of forfeiture or re-entry."

He concluded as follows:-

"The appropriate form of order, it being undoubtedly just and equitable to grant the tenants relief in these circumstances and in any event being mandatory under section 138, would have been an order in form N.27 of the County Court Forms. That form of order would, in the circumstances of the Housing Act, be sufficient to resolve both the contractual tenancy and also the statutorily governed assured tenancy under the 1988 Act. If the tenants pay within the stipulated period, the intermediate stage of termination of the contractual tenancy is in those circumstances not passed. But, if they do not pay within the stipulated period, the contractual tenancy is then struck down, together also with the security of tenure of an assured tenant under the Housing Act 1988."

The plaintiff's particulars of claim are contained in the appropriate County Court form headed "Summons for Possession of Property", and, having alleged that the property was let under an assured tenancy agreement, and that the defendant was currently in arrears of rent totalling £2552.92, claimed possession inter alia under ground 8.

There were other entries on the summons on which Mr Luba relies in one of his additional grounds, to which I will refer in due course.

At the outset of his submissions on behalf of the landlord, Mr Edward Denehan submitted that the hub of the appeal was that section 138 had no application in the present case, because the plaintiff was not proceeding to enforce against the defendant a right of re-entry or forfeiture in respect of the premises for non-payment of rent, which under Section 138(1) is the prerequisite of the operation of the section. Otherwise section 138 does not come into play at all, and consequently it is a legal impossibility for the tenant to succeed on the basis of that section.

The starting point in the 1988 Act, he submitted, is section 5(1) which expressly provides that an assured tenancy cannot be brought to an end by the landlord except by obtaining an order of the court or (which has no application in the present case) in the case of a fixed term tenancy by the exercise of a power for the landlord to determine the tenancy in certain circumstances. The important aspects of those words, he submitted, were twofold, viz:-

(a) the order for possession in itself ipso facto brings the tenancy to an end.

(b) any other means of bringing the tenancy to an end, (e.g. forfeiture) is excluded.

This second aspect was, he submitted, underlined by section 45(4) which declared, for the avoidance of doubt, that the power for a landlord to determine the tenancy does not include a reference to a power of re-entry or forfeiture.

Section 7(1), he contended, precludes the court from making an order for possession of a dwelling house let on an assured tenancy except on one or more of the grounds set out in Schedule 2. Section 7 then proceeds to spell out this requirement in the ensuing subsections, section 7(3) rendering it mandatory to make an order for possession if any of the schedule 2 part 1 grounds is established, subject to inter alia section 7(6). At this point Mr Denehan placed particular emphasis on the word "shall" in subsection (3).

Section 7(6) lays down two further limitations:-

(a) that the ground for possession is ground 8 (the only relevant one for present purposes).

(b) that the terms of the tenancy make provision for it to be brought to an end on the ground in question (whether that provision takes the form of a provision for re-entry, for forfeiture, for determination by notice, or otherwise).

Pausing at this juncture, Mr Denehan drew attention to the terms of clause 4(a)(i) of the lease, which prescribed:-

"The landlord may re-enter on the property and immediately thereupon this agreement shall absolutely determine without prejudice to other remedies of the landlord

(i) if the rent or any monies payable under the agreement shall be in arrears or unpaid for at least fourteen days after the same shall have become due (whether demanded or not)" .......

It is, he submitted, very important to appreciate that section

7(6)(b) does no more than require provision for e.g. forfeiture to be included in the terms of the tenancy (as it was here by clause 4(a)(i)), and does not, he stressed, set up forfeiture as an independent ground for terminating the tenancy.

Nothing turned on section 8, since it was common ground that the notice served on 15th April 1998 complied with its requirements.

In a nutshell, he submitted that the judge had been right in his interpretation of the 1988 Act, but wrong in applying section 138 of the 1984 Act, since the requirements of section 138(1) were not met, there being no proceedings to enforce a right of re-entry or forfeiture.

Mr Jan Luba's submissions fell into two parts, first as to the general principles addressed by Mr Denehan, and, secondly, by reference to the two points raised in his respondent's notice, which turn not on general principles but on the particular terms of the tenancy agreement and of the summons in the present case. I propose first to consider and give my conclusions on the general point of principle, before returning at the end of this judgment to the points raised in the respondent's notice.

Mr Luba submitted that, as a matter of principle, a claim for possession under the 1988 Act and a claim for forfeiture operated in parallel and against the same factual background, with the latter opening the door to a section 138 application. A claim for forfeiture, he pointed out, inevitably takes the landlord into the County Court, since by virtue of section 2 of the Protection from Eviction Act 1977, the landlord is required in such circumstances to bring proceedings in the County Court. In order to bring the lease to an end under its contractual terms, he submitted, it was incumbent on the landlord to invoke the forfeiture provisions under clause 4(a)(i), otherwise the lease would continue in being, with mutual contractual obligations continuing in force, even though an order for possession had been made pursuant to the 1988 Act. This approach was in full conformity with section 7(6)(b), which he portrayed as, in effect, hallmarking forfeiture as a parallel ground in any case where the lease is still in being when the 1988 Act proceedings for possession are brought.

Mr Luba frankly recognised that section 45(4) presented him with a problem, but he submitted nonetheless that section 7(6)(b) was the dominant provision. In the result, he submitted, the judge's approach in applying section 138 was correct.

I am unable to accept Mr Luba's argument substantially for the reasons advanced by Mr Denehan.

In my judgment, the problem which Mr Luba poses as to the termination of the contractual tenancy is met by the express words of section 5(1) itself, which make it abundantly clear that the order for possession ipso facto brings the assured tenancy to an end. This construction is also borne out in another provision of the Act (section 7(7)). This provides that when the court makes an order for possession on grounds relating to a fixed term tenancy which has come to an end, any ensuing statutory periodic tenancy which has arisen on the ending of the fixed term tenancy shall end (without any notice or regardless of the period) on the day on which the order takes effect, thus bringing the situation where the contractual tenancy has come to an end into line with my interpretation of section 5(1) as just described.

This construction of section 5(1) removes the main foundation of Mr Luba's argument that a parallel claim for forfeiture is necessary in order to avoid the contractual tenancy continuing after the granting of the order for possession under the 1988 Act.

Next, I am quite satisfied that the terms of the 1988 Act expressly rule out a claim for forfeiture, firstly by virtue of section 5(1) itself, which provides the only route for bringing an assured tenancy to an end (i.e. by obtaining a 1988 Act order for possession), and, secondly, by virtue of section 45(4) which makes an express declaration to this effect for the avoidance of doubt.

Furthermore, section 7(3) is explicit, obliging the court mandatorily to make an order for possession if the court is satisfied that any of the grounds in Schedule 2 Part 1 is established, subject inter alia to section 6: this same stringency is reflected in the heading to Part I (Grounds on which the court must order possession).

Section 7(6) itself provides, in my judgment, two stepping stones which the landlord must traverse in order to achieve his goal of an order for possession, with section 7(6)(b) itself requiring no more than that there be provision in the terms of the tenancy itself for it to be brought to an end on the ground in question, (e.g. by forfeiture). Mr Luba's submission as to the construction of subsection (b), i.e. treating it as in effect a separate ground, seems to me wholly untenable in the light of both section 5(1) and section 45(4).

Thus, as a matter of principle, I am satisfied that there was no room for applying section 138 of the 1984 Act, since the requirements of section 138(1) were not met.

I can well sympathise with the judge's anxiety, as expressed in his very clear judgment, as to the consequences of this interpretation upon a tenant's position under an assured tenancy as contrasted with other types of tenancy. But I am driven to the conclusion I have reached by the express terms of the 1988 Act as I have analysed them above.

The stringency of the scheme laid down in the Act is exemplified not only by the mandatory requirement of section 7(3), but also by the provision in section 9(6) of the Act (to which the judge referred), which provides that the extended discretion of the court to adjourn, stay, or suspend proceedings for possession, as set out in section 9(1) to (5), does not apply if the court is satisfied that the landlord is entitled to possession of the dwelling house on any of the grounds of part 1 of schedule 2 of the Act (including of course ground 8).

I now turn to the two points raised by Mr Luba in his respondent's notice. First, he contends that the compilation of the summons, when read with reference to the side notes for guidance on the summons form, indicates that this was a claim for forfeiture as well as for possession under the 1988 Act. This was a somewhat tenuous argument in view of the express reliance on the Act in the plea which I quoted earlier in the judgment, but in any event the argument cannot stand in the light of my conclusion that the Act itself debars a claim for forfeiture in the case of an assured tenancy.

The second point raised is that clause 4(a)(i) in the tenancy agreement did not meet the requirements of section 7(6)(b) because it did not spell out precisely the requirements of ground 8(b) in a case such as the present where the rent is payable monthly. However, in my judgment, the notification by reference to the rent being in arrears or unpaid "for at least 14 days" was sufficient for this purpose.

I cannot leave this case without expressing my admiration and gratitude for the admirable arguments addressed by Mr Denehan and Mr Luba, both in their skeleton arguments and in their crisp and persuasive oral submissions.

For all these reasons I would allow this appeal.

LORD JUSTICE MANTELL: I agree.

Order: Appeal allowed with costs not to be enforced without leave of the court; orders as per page 1 of notice of appeal; application for leave to appeal to House of Lords refused.

(Order not part of the judgment of the court)