England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LAMBETH COUNTY COURT
HHJ WELCHMAN
7LB01600

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/11/2008

Lord Justice Mummery :

1. This appeal is from a possession order made by HHJ Welchman on 20 December 2007. He refused relief from forfeiture of a lease dated 15 April 1998 (the Lease) for a term of 16 years expiring on 25 March 2014. The Lease was of premises at 54 Camberwell Church Street, London SE5 (the Property), which were permitted to be used only as a public house/restaurant. The judge granted permission to appeal on the issue of whether there had been waiver of forfeiture by acceptance of rent by the landlord, Seahive Investments Limited (Seahive), with knowledge of breaches of covenant by the appellant tenants.
2. Tuckey LJ's refusal of permission to appeal on other grounds was renewed at the hearing of the appeal. The first appellant, Mr Osibanjo, is one of the tenants under the Lease. He is a practising solicitor and argued the appeal in person. The main point on the appeal is whether Seahive had waived the right to forfeit by acceptance of rent with knowledge of the tenants' breaches of covenant. The judge held that there had been no waiver.
3. There is no substantial dispute about the relevant law. Forfeiture may be waived by the receipt of rent. The rent must have accrued due since the landlord had notice of the cause for forfeiture and it must have been tendered and accepted by the landlord as rent. In those circumstances the landlord has elected not to take advantage of the forfeiture. The cited authorities included Matthews v. Smallwood [1910] 1 Ch 777 at 786-787 per Parker J; Central Estates (Belgravia) Limited v. Woolgar (No 2) [1972] 1 WLR 1048 at 1051H-1053A per Lord Denning MR; John Lewis Properties PLC v. Viscount Chelsea (1994) 67 P & CR 120 at 137-140 and Thomas v. Ken Thomas Limited [2007] EWCA Civ 1504 at paragraphs 14-22 per Neuberger LJ. As a matter of law the right to forfeit may be waived by acceptance of rent by the landlord with knowledge of the breach, even though the landlord had no intention to waive. The test is an objective one: did the landlord so act as to recognise the continued existence of the Lease and the continuing relationship of landlord and tenant? Thus the landlord's acceptance of rent as the result of an error, or on a "without prejudice" basis may indicate that the landlord had no intention to waive, but such circumstances do not, as a matter of law, prevent waiver.

Background facts

4. The facts found by the judge relating to the waiver issue can be stated shortly.
5. The Lease contained covenants against making structural alterations or additions to the Property, against parting with possession or changing user of the Property and against closing the Property. The common form proviso for forfeiture for breach of covenant and for bankruptcy was included in clause 7.
6. Seahive made a statutory demand dated 30 November 2005 for a sum based on arrears of rent relating to the period 25 March 2004 to 24 June 2005 and rent due on 29 September 2005 and other sums. The demand was not satisfied, although some payments were made. Seahive presented a bankruptcy petition against Mr Osibanjo on 5 January 2006 to be heard on 21 February 2006. It was adjourned on a number of occasions. In June 2006 Seahive became aware of breaches of the tenants' covenants.
7. Shortly before the adjourned hearing of the bankruptcy petition Mr Osibanjo sent a cheque for £10,000 under cover of a letter dated 24 October 2006 to Seahive's former solicitors (Jennings Son & Ash). At that time the outstanding sum left over from the date of the statutory demand was £3,414.80, but other sums had become due. They banked the cheque. The letter stated that the cheque was

" .. to discharge the outstanding Bankruptcy sum and the remainder as part payment for arrears of rent. Please confirm the outstanding arrears.

Please note that this payment is only a pragmatic gesture. It is made without prejudice to our case that the Bankruptcy proceedings is a wrong action for issues such as this and we will be appealing the decision made by the Registrar.

Kindly arrange for the petition to be dismissed."

8. By letter dated 31 October 2006 Seahive's solicitors informed Mr Obibanjo that Seahive had retained the sum £3414.80 representing the bankruptcy debt, but returned the balance of £6585.20. The letter explained how the bankruptcy sum was calculated and continued-

"For the avoidance of doubt the clearance of your cheque through this firm's client account should not be regarded as a waiver by our client of his right to forfeit the lease.

We will attend tomorrow's hearing and request dismissal of the petition. We shall forward a schedule of costs in due course."

9. On 1 November 2006 the bankruptcy petition was duly dismissed by the court.
10. On 24 November 2006 Mr Obibanjo sent a further cheque for £18,750. Seahive did not bank it. The cheque was returned.
11. In the forfeiture proceedings issued on 4 April 2007 the appellants unsuccessfully contended that Seahive had waived the right to forfeit the Lease by appropriating the cheque for £10,000 dated 24 October 2006 to pay the rent due for the relevant period.

The judgment

12. The judge held that there had been no waiver of the right to forfeit by the acceptance of rent with knowledge of breaches of covenant.
13. The judge found as a fact that extensive works had been carried out on the Property and that there had been breaches of covenant relating to the making of unauthorised alterations to the Property, in change of use of part to residential use, in closure of the Property for a substantial period and in unlawful parting with or sharing of possession. Seahive had no knowledge of the alleged breaches of covenant until 19 June 2006 when the Property was inspected by Seahive's surveyor, Mr Tobin. The rent arrears for which payment had been accepted related to a period prior to Seahive's knowledge of the breaches of covenant.
14. While recognising that waiver is a matter of law and not of intention in the case of the tender and acceptance of money as rent, the judge held that, as a matter of fact, the money paid by the tenants was not accepted by Seahive as rent. He said (paragraph 29)-

"…the real issue is whether this [taking part of the cheque and rejecting the other] was ever an acceptance of rent, and the conclusion that I reach is that it was not. It was certainly not intended to be by the landlords and it was not treated as such by the tenant. I only find that of some residual comfort, because I think the crucial thing, really, is what happened at the landlord's end, but this was a conscious decision communicated effectively and appropriately to the defendants to say, "We're going to take part but not the other part." This was an indivisible cheque and they banked the cheque as I say. There it is, that is the conclusion that I reach and I accept the submissions that the first question is one of fact and I do not find that this money was accepted by the landlord as rent."

Appellant's submissions

15. Mr Osibanjo's main contention was that the Seahive had waived the right to forfeit because, instead of returning the £10,000 cheque, Seahive accepted and banked it at a time when it had knowledge of the alleged breaches of covenant. Payment of rent due for the relevant period was accepted by virtue of the cheque having been presented for payment.
16. Mr Osibanjo had two other points: first, that the commencement and pursuit to their conclusion of the bankruptcy proceedings, as an alternative cause of action with knowledge of breaches of covenant, was a waiver of forfeiture; and, secondly, acceptance of the part of the monies to discharge the bankruptcy debt was a waiver of the right to forfeit, as the sum in question was or represented rent arrears (albeit relating to a time before knowledge of breach) and it was accepted after Seahive had knowledge of the breaches of covenant.
17. On the second point Mr Harper, who appeared for Seahive, objected that this was a new point and that the court ought not to allow it to be taken for the first time on the appeal. If it had been taken earlier, Seahive might have wished to bring evidence to answer it. There had been no investigation of the facts relevant to this point. Mr Osibanjo claimed that the point had been taken and that a part of the transcript plus his closing skeleton documents not before the court would demonstrate that it had. On this aspect of the case we allowed Mr Osibanjo to submit further documents to the court after the end of the oral hearing.
18. Mr Osibanjo supplied a document headed "Revised skeleton argument" dated 13 December 2007. It bears a stamp that it was filed in the Lambeth CC on 6 October 2008. It apparently advances, as part of "the waiver point below" (sic) the argument that the bankruptcy proceedings were conduct evidencing Seahive's decision not to use its right to forfeit on the breaches that it was aware of in November 2006. This document differs from another document headed "additional skeleton argument" also dated 13 December 2007. This was supplied to Seahive's lawyers at the hearing. It was supplied to this court by Seahive's advisers. This document does not mention the point on payment of the bankruptcy debt, though it appears from the transcript of the proceedings to have been mentioned in a short exchange between the tenants' then counsel and the trial judge. It was not developed further. It did not feature in the judgment.
19. I should mention that it was also argued that the November cheque, though returned unbanked, was a waiver of forfeiture. Reliance was placed on the time – a week or so - that elapsed before it was sent back. On this point I say only that, in my judgment, the judge rightly held that there was nothing in it. In the absence of exceptional circumstances the receipt of a cheque, which the landlord does not present for payment, does not amount to waiver. There were no exceptional circumstances in this case. I would not grant permission to amend the grounds of appeal to raise this point (ground 8).

Discussion and conclusion of waiver point

20. The waiver argument boils down to very short points on the particular facts of the case.
21. First, it was impossible for Seahive, without first processing the cheque, to separate out the two liabilities expressly stated by the tenants in the covering letter- the payment to avoid a bankruptcy order in pending proceedings and the payment to discharge part of the arrears of rent. It was necessary to process the cheque in order to secure the dismissal of the bankruptcy petition. It was important for Mr Osibanjo to have the petition dismissed. The making of a bankruptcy order would itself be an event occasioning forfeiture. It would also be a very serious for him as a practising solicitor. This basis for division of the amount for which the cheque was drawn was made clear by Mr Osibanjo in his covering letter, as it was in the reply letter sent by Seahive's solicitors promptly after processing the cheque. In those circumstances an objective observer would have had no ground for supposing that the amount re-paid by Seahive to Mr Osibanjo had been accepted by Seahive as rent.
22. Secondly, the processing of the cheque is not in itself conclusive of the question whether the payment was accepted as rent. The processing is evidence of payment to Seahive, but for waiver of forfeiture it must also be shown that the payment was accepted and that it was accepted as rent by the landlord. In this case only part of the sum realised by the processing of the cheque was accepted. That sum related to the bankruptcy debt, which Mr Osibanjo paid in order to secure the dismissal of the bankruptcy petition. It was accepted on that basis and it was used to achieve that end. In my judgment, that was not an acceptance of the balance by Seahive as rent.
23. Thirdly, I would reject Mr Osibanjo's additional arguments in the proposed amended grounds of appeal. First, the bankruptcy proceedings were not in themselves a waiver of forfeiture. They were commenced before Seahive knew of the breaches of covenant. Their purpose was to demonstrate that the tenants were unable to pay their debts. They had not complied with the statutory demand. If they were made bankrupt the proviso for forfeiture would apply. On Mr Osibanjo's argument a landlord could not forfeit for bankruptcy because the very process of making a tenant bankrupt would itself waive the right. This cannot possibly be correct and I would not grant permission to amend the grounds of appeal to raise the point (ground 9).
24. Nor would I accept his bankruptcy debt argument. It appears from the transcript that it was briefly raised below, though not elaborated in the written submissions or dealt with in the judgment or raised in the grounds of appeal. In my view, it is not a good point and I would not grant permission to amend the grounds of appeal to raise it (ground 10). The arrears on which the bankruptcy petition was based related to a rent period prior to Seahive's knowledge of the breaches of covenant. There can be no waiver of the right to forfeit if the relevant arrears preceded the landlord's acquisition of knowledge of breach. As for the argument that acceptance of payment of the bankruptcy debt was itself acceptance of rent amounting to waiver of forfeiture, as distinct from a payment made and accepted to secure the dismissal of the bankruptcy petition, it is unnecessary to express a concluded view and I prefer not to do so.
25. I would add that, in so far as there have been continuing breaches of covenant, such as parting with possession, the waiver point, even if valid, would not apply to prevent forfeiture in respect of continuing breaches. They would be recurring causes for forfeiture. Acceptance of rent would not prevent Seahive from seeking to take advantage of a subsequent continuation of the breach.

Renewed application for permission

26. We received detailed written submissions and amended grounds of appeal on the renewed application for permission to appeal from other parts of the judgment. It was submitted that the judge erred in holding that Seahive had no knowledge of the alleged breaches and in finding that there had been a breach of covenant in carrying out non-structural alterations, parting with possession of the Property, and not keeping the Property closed for a period of 2 months in a relevant period of 12 months on the basis that such findings were in the absence of evidence or against the weight of reliable evidence. It was also contended that the judge wrongly refused relief from forfeiture by taking irrelevant matters into account and leaving relevant matters out of account. He submitted that, on the evidence, the judge ought to have held that Seahive had waived its right to forfeiture by standing by and allowing the expenditure of substantial sums of money improving the Property.
27. On 23 June 2008 Tuckey LJ refused permission on the papers on the ground that the findings sought to be appealed were findings of fact open to the judge and this court would not interfere with them. He also stated that the judge's refusal to grant relief from forfeiture was entirely justified in view of the serious and wilful breaches of covenant which had occurred. I agree. The same criticism applies to the proposed amendments to the grounds of appeal which seek to challenge the judge' findings of breaches of covenant (grounds 11 and 12).

Result

28. I would dismiss the appeal.

Lord Justice Rix:

29. I agree with Lord Justice Mummery that this appeal should be dismissed and that permission to appeal on the renewed or amended grounds of appeal should be refused.
30. In particular, I agree that the main argument raised by Mr Osibanjo on the appeal, that cashing of the £10,000 cheque was itself a waiver of the right to forfeit because that sum included a smaller sum in respect of arrears of rent, fails because of the judge's finding that the money in question was not accepted by Seahive as rent (see paras 14 and 22 above).
31. My only purpose in writing a separate judgment is to say that I am not sure that a landlord cannot waive the right to forfeit by accepting rent with knowledge of the breach where that rent had accrued due before knowledge of the breach: provided of course that the rent had accrued due after the breach. Thus I am concerned that acceptance of rent which accrues due after the breach on which forfeiture is based may always be a waiver of the right to forfeit for that breach provided of course that at the time of acceptance the landlord has the requisite knowledge of the breach. It is true that in Oak Property Company Limited v. Chapman [1947] 1 KB 886 at 898 Somervell LJ said (in a judgment of the court of appeal prepared by Evershed LJ) that "acceptance of any rent accrued due after the landlord's knowledge of the tenant's breach was regarded necessarily as inconsistent with an election to avoid the lease". However, at 899 Somervell LJ restated the principle more broadly as follows:

"From long usage the acceptance of rent by a landlord after knowledge of circumstances giving rise to a claim for possession has come to be regarded by landlords and tenants alike as evidence of an intention to affirm the tenancy.""

32. The former statement is true, even if it is not necessary for the rent to accrue due after knowledge of the breach. On principle, I would be inclined to think that knowledge is what is necessary to found the waiver, since one cannot waive without knowledge, but that once there is the necessary knowledge it should not matter whether the rent which is accepted has accrued due before or after the date of knowledge. However, in any event, Mr Osibanjo's difficulty here is that the judge found that there was no acceptance of rent as rent, and that is destructive of this appeal.
33. As for the bankruptcy debt argument (see para 24 above), I would therefore prefer to rest my agreement with Lord Justice Mummery's decision not to grant permisssion to appeal on this new ground not on the basis that the arrears on which the bankruptcy petition was based related to a rent period prior to Seahive's knowledge, but on the basis that it would be wrong in any event to admit such a new ground in circumstances where Seahive did not have the opportunity to investigate below the factual position whether the rent accrued due before breach and/or whether acceptance of the bankruptcy debt could in any event be said to be an acceptance of rent.

Lady Justice Smith:

34. I agree.