England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIS HONOUR JUDGE COX
CLERKENWELL COUNTY COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th. March 2003

Lord Justice Tuckey:

1. In proceedings for an order for possession of a dwelling house let on an assured tenancy on the grounds of non-payment of rent, the court must grant the order where:

Ground 8:

Both at the date of service of the notice under section 8 of this Act …. and at the date of the hearing –

(a) if rent is payable weekly … at least 8 weeks rent is unpaid;

(Schedule 2 Part 1 Housing Act 1988)

The question which arises on this appeal is whether rent is "unpaid" if a cheque for the arrears due at the date of the hearing is delivered to the landlord, which is accepted by the landlord but has not yet been paid by the date of the hearing.

2. This question arises on appeal from His Honour Judge Cox in the Mayor's and City of London County Court who, in these circumstances, decided that the rent remained unpaid and made an order for possession against the tenant. His decision was made on appeal from a Deputy District Judge, who instead of granting an immediate order for possession, had adjourned the claim for possession to see if the cheque would clear.
3. The facts are not in dispute. The appellant had been a tenant of 30c, Ferntower Road, Highbury, London, N.5 since 1995. In February 2001 the respondent landlord granted him a new assured tenancy of this flat for 12 months at a rent of £135 per week. The tenancy agreement said nothing about how the rent was to be paid but the landlord lived in Daventry and the tenant habitually paid his rent by cheque posted the day before it was due.
4. The tenant was entitled to housing benefit, but due to the paying Borough's administrative problems he did not receive the benefit due to him and so was unable to pay his rent from May 2002. These problems were not sorted out for over three months. In the meantime on the 19^th July, when 11 weeks rent was outstanding, the landlord served a valid notice under section 8 of the Act stating her intention to start proceedings to recover possession of the flat on ground 8.
5. Proceedings were issued at the end of the statutory period in early August and the landlord's solicitors applied for an early hearing date which was fixed for 9^th September. The Mary Ward Legal Centre were by now acting for the tenant. On the 2^nd September they informed the landlord's solicitors that the tenant's housing benefit had finally been processed and asked for details of the landlord's bank account so that the benefit could be paid directly to her. There was no reply to this request and so the benefit was paid to the tenant who at once on the 4^th September drew his own cheque in favour of the landlord for the full amount of the arrears, £2,295. On the same day Mary Ward sent this cheque with a covering letter by DX to the landlord's solicitors who are in St. Albans, faxing a copy of the cheque and letter to them at the same time. The landlord's solicitors received the cheque the following day, 5^th September, which was a Thursday. It was not dealt with in the solicitors' office until the next day when the landlord was told of its receipt and discovered from her bank that, if she had paid it into her account for collection the previous day, it would not have been "cleared for use" through the normal clearing system until 11^th September. The landlord attended the hearing on the 9^th September and she was handed the cheque by her solicitor advocate, Mr Braun. She then paid it into her bank for collection and it was paid by the tenant's bank on first presentation. At no time before or during the hearing did the landlord or her solicitors attempt to return the cheque or say that they refused to accept it in payment of the arrears.
6. If the District Judge was satisfied that the landlord was entitled to possession on ground 8 at the hearing on the 9^th September he had no power to adjourn (section 9 (1) and (6) of the Act). Mr Braun submitted to the District Judge that as the cheque had not been paid the ground for possession was made out and so he had no power to adjourn. However, after being told by the tenant that the cheque would be met, the District Judge did adjourn to give the cheque time to clear, but gave the landlord permission to appeal.
7. We do not have a transcript of the judge's judgment on the appeal because the court tape was inadvertently wiped. We do however have a transcript of some of the argument and an agreed note of the judgment. It appears that the judge agreed with Mr Braun's submission that the cheque had not been accepted. What he is noted as saying is:

…. on general principles rent should be paid in cash but can be waived and accept cheque. The court should be slow to come to the conclusion that waiver has occurred. [Counsel for the tenant] contends that rent had always been accepted by cheque, but up to the hearing no payment had been made for 17 weeks. So that may be the position when rent is regularly paid but this cannot bind the landlord always to accept cheque.

By issuing the notice seeking possession the agreement to accept the cheque was no longer in force and there was no doubt as to whether the landlord had accepted the cheque. As Mr Braun pointed out, the payment of a cheque at or shortly before a hearing of a ground 8 action would always defeat the purpose of ground 8 as the decision would not be capable of being made at the date of the hearing as required by the wording of ground 8.

On this analysis the rent was unpaid on 9^th September so the District Judge had no power to adjourn and should have made an order for possession which the judge then made.

8. It is common ground that in principle a landlord is entitled to have his rent in cash on the due date, unless the parties have expressly or impliedly agreed upon some other method of payment, such as by cheque. If they have agreed to pay by cheque

The general position in law … is clear. Where a cheque is offered in payment it amounts to a conditional payment of the amount of the cheque which, if accepted, operates as a conditional payment from the time when the cheque was delivered.

(per Lord Woolf at para. 35 in Homes v Smith (2000) Lloyds Law Rep. (Banking) 139)

For this summary of the principle, Lord Woolf relied on earlier cases and in particular what Farwell L.J. said in Marreco v Richardson (1908) 2 KB 584, 593:

The giving of a cheque for a debt is payment conditional on the cheque being met, that is, subject to a condition subsequent, and if the cheque is met it is an actual payment ab initio and not a conditional one.

Marreco was concerned with the effect of the Limitation Act, but Lord Woolf added that Farwell L.J.'s approach was of general application. This is demonstrated by three cases decided under the Agricultural Holdings Act 1948 to which we were referred.

9. Under the 1948 Act, effect must be given to a notice to quit served after failure to comply with a notice requiring the tenant to pay any rent due within two months of the notice. In Beevor v Mason (1978) 37 P & CR 452 the evidence showed that the landlord had previously accepted payment of the rent by cheque posted on the date it was due. The court held that a cheque posted in this way on the last day of the two month notice period was payment of the rent on that day if the cheque was honoured. The cheque was not received by the landlord until after the notice had expired. Nevertheless, as a result of the previous course of dealing, the court held that the tenant was entitled to pay by cheque and treated the post office as the landlord's agent for the purpose of deciding when the cheque was delivered. This court accepted that approach in Official Solicitor v Thomas (1986) 2 EGLR 1 although it did not apply to the facts of that case. It would also have applied in Luttenberger v North Thoresby Farms Ltd. (1993) 1 EGLR 3 but for the fact that the tenant's cheque lacked a necessary signature.
10. There really cannot be any doubt about the principles of law to which I have referred in the last two paragraphs. Nevertheless Mr Braun submitted that they should not be applied to ground 8. Rent is unpaid, he says, if it has not been received. A conditional payment by uncleared cheque, even in accordance with a previous course of dealing, is not good enough. This may count as payment in some statutory and commercial contexts, but it does not here. The cases show no more than that the right to sue upon a debt is suspended pending clearance of a cheque accepted in payment of the debt. The section 8 notice procedure and the timed steps to a hearing which follow it give the tenant ample time to get the money into the hands of the landlord by the time of the hearing. If he fails to do so, the intention of the legislation is that the court should deal with the matter there and then and not have to adjourn. If tenants were able to produce cheques at the last minute this intention would be thwarted because in each case the court would have to adjourn to see whether or not the cheque would be paid.
11. I can see no good reason for saying that the principles of law to which I have referred should not apply to Ground 8. They are of general application and there is nothing in the language of the statute to support Mr Braun's submissions. It is very similar in effect to the language of the Agricultural Holdings Act to which these principles have been held to apply and which Lord Woolf described as of general application. Mr Braun is right that acceptance of a cheque in payment of a debt suspends the right to sue for the debt whilst the cheque is being cleared, but that is not the point. The cases also show that, if the cheque is cleared, the debt has been paid when the cheque is delivered. Although the legislation gives the tenant time to pay the rent he can save his position by making payment right up to the date of the hearing, in which case the court has no power to make an order for possession. An uncleared cheque delivered to the landlord or his agent at or before the hearing and which is accepted by him, or which he is bound by earlier agreement to accept, is to be treated as payment at the date of delivery provided the cheque is subsequently paid on first presentation. At the date of the hearing therefore, the judge has jurisdiction to adjourn the claim to see whether the cheque will be paid on the grounds that he cannot at that time be satisfied that the landlord is entitled to possession, though I do not think he would be bound to do so if he had reason to conclude that the cheque would not be paid. In the ordinary way, the adjournment should only be for, say, seven days to enable the cheque to be cleared – the adjournment of 56 days in this case was obviously excessive. If the cheque is not paid at first presentation then the order for possession must be made, the date of the hearing for the purpose of Ground 8 being the earlier hearing and not the adjourned hearing.
12. I do not think that these conclusions have the dire consequences predicted by Mr Braun. In the absence of express or implied agreement the landlord is not bound to accept a last minute cheque. If he is sent a cheque shortly before the hearing which it is not possible to have cleared through the normal clearing system in time for the hearing, he can refuse to accept it. He should obviously do so promptly and return the cheque, otherwise he may be taken to have accepted it. The same obviously applies if the tenant produces a cheque at the hearing.
13. So I come back to the facts of this case. Mr Braun submits that there was no evidence that the landlord accepted the tenant's cheque and the judge's decision is based on the fact that she did not. But the judge heard no evidence. We extracted the facts which I have set out from the parties at the beginning of the hearing before us. What is now clear is that payment was always previously made and accepted by cheque. It is further clear that the instant cheque was delivered to the landlord's agents (her solicitors) on the 5^th September and handed to her four days later, after which she paid it into her bank for collection and it was paid. No attempt was made to return the cheque to the tenant or to indicate that it was not accepted as payment of the outstanding rent. The inescapable conclusion is that the cheque was accepted with the consequences which I have already spelt out.
14. It follows from this conclusion that the District Judge had jurisdiction to adjourn the hearing to see if the cheque would clear and that the judge was wrong to conclude that he had no such jurisdiction and that the landlord had not accepted the cheque.
15. For these reasons I would allow this appeal and set aside the judge's order for possession.

Mr. Justice Wall:

16. I agree that this appeal should be allowed for the reasons given by Tuckey LJ. I add a short judgment of my own for two reasons: firstly because we are reversing the decision of an experienced circuit judge whose judgment is not available due to a fault in the mechanical recording system in the court below; and secondly to address what I have to say seemed to me the somewhat alarmist submissions advanced by Mr. Braun relating to the consequences which he argued would follow if the appeal were allowed.
17. On the facts of this case, the long established principle, succinctly set out by Byrne J in Felix Hadley & Co v Hadley [1898] 2 Ch 680 and recently reiterated by Lord Woolf in Homes v Smith (2000) Lloyds Law Rep. (Banking) 139, that a cheque for a sum due which (a) is delivered to a creditor (b) is not returned by the creditor and (c) is met on first presentation discharges the debt as at the date the cheque is delivered, provides the tenant, in my judgment, with a cast iron defence to the landlord's claim for possession under Ground 8 of the Housing Act 1988.
18. This is a Housing Benefit case. The arrears of rent were not due to the tenant's wilful default, but to bureaucratic difficulties in the funding agency. As soon as those were resolved, the money was made available. The parties had a history of making and receiving payments by cheque. A cheque for the full amount due was delivered by the tenant to the landlord's agent on 5 September 2002, several days in advance of the hearing of the landlord's claim for possession. The cheque was not rejected and was cleared at first presentation, although payment did not occur until after the hearing of the landlord's claim for possession. It follows that the debt was discharged at the date the cheque was delivered, and was thus not unpaid at the date of the hearing before the deputy district judge on 9 September.
19. In such circumstances, in my judgment, the deputy district judge was entitled to say that he was not satisfied that the landlord was entitled to possession under Ground 8, because he was not satisfied that the outstanding rent was unpaid. He was thus entitled to adjourn the landlord's claim under section 9(1) of the Housing Act 1988. Indeed, not to have done so, on the facts of this case, would have worked a serious injustice on the tenant, who would have been dispossessed of his accommodation.
20. We only have a note of the hearing before the deputy district judge on 9 September 2002. The argument, inevitably, did not have the sophistication it developed in this court, but the essential elements were there. The deputy district judge was told about the difficulties with the tenant's housing benefit. He insisted that the tenant give evidence and asked him in terms if the cheque would clear. Had the tenant spent the money? "No" was the answer, "only on my rent". The deputy district judge is recorded as saying that he was uneasy about making the order, as the hearing had been brought forward without discussion with the tenant. He assumed that the tenant had made every effort to resolve the housing benefit issue. He assumed the tenant was telling the truth and adjourned to give the cheque time to clear.
21. In my judgment if, as it appears, the deputy district judge decided the case by instinct, his judicial instinct was sound. The only thing he did wrong was to adjourn for 56 days. An adjournment of that length was plainly unnecessary and disproportionate.
22. I recite what happened before the deputy district judge because Mr. Braun's submission was that if this appeal were allowed, county courts up and down the country would be besieged by tenants who in every Ground 8 case would assert that they had paid the outstanding arrears by cheque, and demand that the claim for possession be adjourned pending clearance of the cheque. This would, it was argued, both defeat the intention of Parliament in enacting Ground 8 and cause administrative chaos.
23. I am unpersuaded by this argument for a number of reasons. Firstly, Ground 8 expressly empowers the court to make an order for possession only if - in the case of rent payable weekly, fortnightly or monthly - the relevant amount of rent is unpaid "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" (emphasis supplied). Parliament has thus provided that the tenant can avoid an order for possession under Ground 8 by paying at the very last moment. In my judgment, therefore, the delivery of a cheque prior to the hearing which is not returned and which is paid at first presentation cannot be said to be outside, or designed to frustrate, the scheme laid down by Parliament.
24. Furthermore, the landlord (in addition to not being deprived of any other remedies he may have) can refuse the cheque, particularly if the rent has historically been paid in cash, and if the cheque is proffered late.
25. Thirdly - and this is the purpose of my recitation of what happened before the district judge - the decision whether or not to make a possession order or to adjourn will be a judicial decision, taken in the light of the evidence in the particular case. District judges will be entitled on appropriate evidence to be satisfied that the landlord is entitled to possession on Ground 8, and to reject improbable or unscrupulous last minute offers of payment by cheque. The issue is not a particularly complex one. Any tenant who wishes to persuade a judge or district judge to adjourn a Ground 8 claim for possession on the basis that he has paid by cheque will need, as here, to establish that there are funds to meet the cheque, and that it will be honoured on presentation.
26. Fourthly, if an adjournment is granted to enable a cheque to be cleared, it need only be for a minimal period of 7 or 14 days. Doubtless these are matters to be worked out on the ground if difficulties emerge, but it may not even be necessary to adjourn.
27. In my judgment, therefore, Mr. Braun's anxieties are unwarranted. On the facts of this case, which I anticipate are not untypical, the judge's order, as he recognised, would have unfortunate consequences for the tenant, and does him an injustice. In my judgment, for the reasons given by Tuckey LJ, nothing in Ground 8 of the Housing Act 1988 renders that result necessary.
28. For these reasons and for those given by Tuckey LJ, I too would allow this appeal.

Lord Justice Potter: I agree with both judgments.

ORDER: Appeal allowed. No order for costs both here and below, save assessment according to the Legal Fund Regulations. Permission to appeal to the House of Lords refused. (Order not part of approved judgment)