England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CCRTF 1999/0317/2

IN THE COURT OF APPEAL (CIVIL DIVISION )

(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)

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.