England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
OF THE ORDER OF HHJ BAILEY 5th June 2008

		Royal Courts of Justice Strand, London, WC2A 2LL
		19th Feb 2010

Mr Justice Sweeney :

Introduction.

1. This is an appeal by permission of Stadlen J, against a decision of His Honour Judge Bailey who, on 5 June 2008, in the Central London County Court refused applications by the Appellants to set aside judgments in default of appearance entered against them by His Honour Judge Collender QC, also in the Central London County Court, on 14 May 2008.
2. Stadlen J gave permission to appeal against Judge Bailey's conclusion that the Appellants had no reasonable prospects of success at trial on two grounds, namely that there were reasonable prospects of success because:-

i) The Respondent had waived its right to forfeiture.

ii) Discretionary relief should be granted to the Appellants on the basis that their breach of unpaid rent arrears was caused by the Respondent's defective Rent Collection/Billing System.

3. Stadlen J further ordered that the Appellants' application to rely on fresh evidence should be heard at the hearing of the Appeal.
4. In addition the Respondent seeks leave to cross appeal Judge Bailey's ruling that the Appellants had a good reason for not attending court on 14 May 2008.

Background.

5. The Respondent owns commercial premises situated at, and known as, Rathbone Market London E16.
6. In 2004 (the precise dates are in dispute) each Appellant entered into a lease for the occupation of shop premises, respectively at 15/15a Rathbone Market (Mrs Ayela) and 23/23a Rathbone Market (Mrs Kalley). Each Appellant asserts that, by agreement with the Respondent, she had been permitted occupation since 2003.
7. The leases were for terms expiring respectively on 28 August 2005 and 30 August 2005. According to the Pleadings, at least, it was not in dispute that the leases were contracted out; that they were at an annual rent of £5,900 and £5,000 respectively, each payable quarterly in advance; that the term was expressed in each lease to include any period of holding over or extension, whether by statute, common law or agreement; and that each lease contained a proviso enabling the Respondent to forfeit and to re-enter the premises in the event of rent being unpaid for 21 days after a due date, whether formally demanded or not.
8. Whilst it is unnecessary to go into the detail, it is clear from the Pleadings that the state of the respective shop premises during the period of occupation, who was responsible for that state, and also for its rectification, was in considerable dispute between the parties. It is also clear that, eventually, both Appellants stopped paying rent.
9. It seems that, after the terms of the respective leases expired, the parties were in negotiation for the grant of new fixed term leases, which were (again) to be contracted out. According to the Respondent, these negotiations were subject to conditions, including the need to ensure that all rental payments were up to date.
10. In the end, the negotiations did not come to fruition, and on 14 August 2007 the Respondent peaceably re-entered both premises, and sought to forfeit both tenancies upon the basis of substantial rent arrears.
11. On 30 August 2007, before District Judge Millard in the Bow County Court, the Appellants obtained ex-parte injunctions to be re-instated, having argued that since termination of the contracted out leases two years before, the Respondent had allowed them to remain in occupation, but had failed to open a new rent account. A return date of 24 September 2007 was ordered, as was the joinder of the Appellants' cases with that of a Mr Andre Ntenda who was the former occupier of the premises at 25/25a Rathbone Market.
12. The return date hearing duly took place before His Honour Judge Hornby in the Bow County Court. He ordered that Mr Ntenda and the Appellants should be permitted to re-enter and to resume occupation of their respective premises by noon on 25 September 2007, upon condition that they each made specified weekly payments into court for such use and occupation, commencing on 15 October 2007.
13. In case of any failure to agree to mediation, the learned Judge set down a detailed timetable leading to a Multi Track Trial on the first open date after 3 March 2008 at the Central London County Court.
14. The Appellants were required to serve Particulars of Claim by 8 October 2007, but failed to do so. On 19 October 2007 the Respondent issued an application to strike out both claims. Four days later, the Respondent received the Appellants' amended Particulars of Claim. Each asserted that they had suffered significant financial loss as a result of the conduct of the Respondent, and also sought relief against forfeiture.
15. In due course, a trial date of 12 and 13 March 2008 was fixed. However, due to errors by the Court, the Respondent's application to strike out was not heard until a Case Management Conference was held before His Honour Judge Mitchell in the Central London County Court on 4 March 2008. Both the first Appellant, and the second Appellant's husband were amongst those who addressed the court. As to the application to strike out, the learned Judge indicated that, but for the delay by the Court, the application would probably have succeeded. However, given the delay, he had no choice but to disallow it.
16. The parties agreed to consider mediation. Given that indication, the learned Judge vacated the trial date. However, he set down a very detailed timetable, including default provisions relating only to the Appellants, leading to a new trial date of 14 and 15 May 2008. These directions included an order that the Appellants lodge and serve a trial bundle not less than 3 days before the start of the trial.
17. On 14 March 2008 the Respondent lodged a Defence and Counterclaim. The Counterclaim sought a declaration that the Respondent had been entitled to re-enter on 14 August 2007, possession of the premises, arrears of rent, and mesne profits until delivery up of possession.
18. A Reply to Defence and Counterclaim was lodged by the Appellants in early April 2008.
19. The Respondent asserts that, in the run up to the trial, its solicitor gave the Appellants her proposals for the trial bundle, and some advice as to how each should be prepared.
20. The case was duly listed for trial before His Honour Judge Collender QC in the Central London County Court on the fixed date of 14 May 2008. Mr Ntenda attended. The Appellants did not. In the result, the learned Judge dismissed the Appellants' claims, and gave judgment for the Respondent on its counterclaims. Mr Ntenda and the Respondent eventually reached an accommodation.
21. On 20 May 2008 the Appellants applied to set aside Judge Collender's order, upon the basis that they were not aware that a hearing was being held as they had never received any order from the court to notify them of it.
22. On 5 June 2008 the applications were heard by His Honour Judge Bailey in the Central London County Court. The learned Judge treated a document before him entitled "Appellant's Statement of Issues" as the Appellants' evidence. In the result, the applications were dismissed. The learned Judge gave written reasons in the following terms:-

"The relevant rule is at CPR 39.3(5):

a) The Claimants certainly acted promptly

b) Their reason for not attending trial was that they did not appreciate that the trial would take place that day. It is the case that they did not receive a separate notification of the trial date from the court. However at the application that each of the claimants attended on 4^th March 2008 Judge Mitchell ordered that 'All the claims and any counterclaims shall be listed on 14 and 15 May 2008 (2 day time estimate)'. Both claimants accept that they heard Judge Mitchell say this, and that they received a copy of a draft Minute of Order prepared by Defendant's counsel reciting this part of the Judge's order by e-mail later that day, 4^th March 2008. They also told me that Judge Mitchell had told them to 'keep these two days free'. However they said that they thought that 'listed for trial' meant that the trial date would be fixed on 14 and 15 May, not that the case would be heard then. They made the point that no time was specified. They had no clear idea why they needed to keep two days free for this purpose but told me that they did so and that on 14 May they were simply doing nothing at their respective homes. They also told me that Mr Kalley received a telephone call on the morning of 14^th May from the 3^rd claimant suggesting that they may have to go to court that day. However they said that the 3^rd claimant was to let them know if they were needed. In the event the 3^rd claimant did go to court, and he left a message on Mr Kalley's phone to say that he should come to court. However Mr Kalley did not retrieve that message until 2.00pm.

This is not impressive. However Judge Mitchell had made a series of orders for pleading disclosure witness statements and pre trial checklists which the claimants had (substantially) complied with. Further Mrs Ayela had twice written to the Defendant's solicitor asking whether she had received a sealed copy of the court order. Having involved themselves so fully in the process up to the 14 May I was prepared to give them a very generous benefit of the doubt and hold that they had a good reason for not attending the trial.

c) Reasonable prospect of success. This was the problem. Both Claimants are business tenants with units in a run down parade of shops owned by LB of Newham. The leases were contracted out of the LTA 1954 pt. 2 and expired by effluxion of time in August 2005. There had been negotiations for new leases (also outside the 1954 Act) in 2005 but these had broken down – Newham says because they would not bring their arrears up to date. As at August 2007 Mrs Ayela's rent was in arrears of about £10,000 (rent at £5,900 pa) and Mrs Kalley's arrears were £18,300 (rent at £5,000 pa). There was no prospect of either paying off the arrears in under 24 months, and in Mrs Kalley's case 24 months would be extremely optimistic. Both claimants have complaints about the state of repair of the premises and the effect on their businesses, but the leases are subject to a full tenant's repairing covenant. The LB of Newham had re-entered peacefully on 14^th August 2007 and the claimants had to be let back in on an interim basis by Judge Hornby on 24^th September 2007 on terms that they paid current rent which they have done. I took the view that given the history of the matter and the high level of arrears there was no reasonable prospect of a court granting relief against forfeiture.

A disturbing aspect of this case is that the claimants have many complaints against LB of Newham and assert that other tenants in the same parade have been treated much more favourably than they have. But I took the view that even if the claimants were able to make good such complaints at trial (itself unlikely as they told me that other tenants had refused to give them witness statements) they would not form the basis of a successful claim for relief against forfeiture."

23. On 8 July 2008 the Appellants sought permission to appeal. There was some confusion at one point as to whether they were seeking to appeal against the decision of Judge Collender or that of Judge Bailey.
24. At all events, after initial consideration on paper by Plender J, Davis J refused permission to appeal on 11 December 2008, identifying that the real challenge had to be to the decision of Judge Bailey.
25. On 18 December 2008 the Appellants sought an oral hearing. There was an initial oral hearing before Burnett J on 11 March 2009, during which it became clear that, although lodged with the Court some two days before, the Appellants' Skeleton Argument had not been served on the Respondent until the hearing itself. In the event, the learned Judge adjourned the application, ordered that the Appellants be limited in their applications to the first three grounds set out in the Skeleton, and ordered that any application for reliance of fresh evidence had to be made by 20 March 2009, and had thereafter to be determined at the adjourned hearing.
26. On 22 March 2009 the Appellants issued applications to rely on fresh evidence.
27. On 3 July 2009, following a hearing lasting 1½ days, Stadlen J granted permission to appeal against Judge Bailey's conclusion that there were no reasonable prospects of success at trial on the two grounds already indicated above.
28. A Respondent's Notice was duly filed on 24 July 2009. In the Notice, the Respondent sought permission to cross appeal Judge Bailey's finding that the Appellants had a good reason for failing to attend the trial on 14 May 2008.
29. During the course of the hearing before me, the Appellants' arguments were advanced, in the main, by their Mckenzie Friend Mr Van Staden. The Respondent's arguments were advanced by its counsel, Mr Skelly. I am grateful to them both.
30. I propose to deal with the matters under the following headings:-

i) The Respondent's cross appeal.

ii) Fresh evidence.

iii) Waiver of Right to Forfeiture

iv) Discretionary Relief

v) Conclusion.

The Respondent's Cross Appeal.

31. I have considered with care the document entitled 'Appellant's Statement of Issues' that was before Judge Bailey, together with the note prepared by Mr Skelly recording the exchanges between the parties and the learned Judge.
32. It is a striking feature that Mr Ntenda attended the trial on 14 May 2008. Even more so that he spoke to the Second Appellant's husband that morning, and said that he was going to court, yet the Appellants still failed to attend.
33. CPR 39.3(5) provides as follows:-

"Where an application is made under paragraph (2) or (3) by a party who failed to attend the trial, the court may grant the application only if the applicant –

a) acted promptly when he found out that the court had exercised its power to strike out or to enter judgment or make an order against him;

b) had a good reason for not attending the trial; and

c) has a reasonable prospect of success at the trial."

34. As Mr Skelly rightly points out, when considering whether a party had a good reason for not attending a trial, the court has to consider the case in the light of all the relevant factors for non-attendance and then, looking at the matter in the round, to determine whether the reason is sufficient for the court to exercise its discretion in favour of the defaulting party.
35. Whilst many judges would undoubtedly have exercised their discretion against the Appellants, it seems to me that Judge Bailey's 'generous benefit of the doubt' was nevertheless, just, within the bracket of discretion properly available to him. Accordingly, I refuse the application for permission to cross appeal.

Fresh Evidence.

36. I accept the Respondent's contention that the test to be applied in relation to the receipt of fresh evidence is that set out in Ladd v Marshall [1954] 1 WLR 1489, namely that leave will only be granted if:-

i) It is shown that the evidence could not have been obtained with reasonable diligence for use at the trial

ii) The evidence is such that, if given, it would probably have an important influence on the result of the case

iii) The evidence is such as is presumably to be believed.

37. To the extent that this was touched on in the hearing of the appeal, it seems to me that there is obvious force in Mr Skelly's submission that the evidence could have been obtained with reasonable diligence for use at the hearing before Judge Bailey, and/or that it has very little to do with whether the Appellants have reasonable prospects of success at trial. Nevertheless, for what it is worth, I have taken the material into account de bene esse.

Waiver of Right to Forfeiture.

38. Mr Van Staden argues, in summary, that:-

i) Upon the expiration of the original leases, and as the available documentation makes clear, neither Appellant owed any rent.

ii) By virtue of letters dated 17 August 2005 (Mrs Ayela) and 7 September 2005 (Mrs Kalley) sent on behalf of the Respondent, the Appellants were notified that any rent arrears, including future rent arrears, would only be collected upon the completion of a new lease, and that the Appellants relied on these letters, and thus the rents remain unpaid.

iii) The content of the letters amounted to the act of waiving strict compliance with the terms of the leases as to the payment of rent.

iv) The Respondent was thus not entitled to rely on strict compliance with the terms of the leases, at least until after it had given clear and reasonable notice that strict compliance was now required – see Hazel v Akhtar [2002] 1 EGLR 45.

v) The doctrine of promissory estoppel applied.

39. Taking the letter that was sent to Mrs Ayela as an example, the relevant parts are as follows:-

"Rent Arrears

I am advised and pleased to confirm your account is in balance. However you will appreciate that I am required to collect any arrears at completion.

Future Rent Payment Arrangements

Up to now it has been a lease requirement that rents are paid quarterly in advance. We are altering this for new leases so that tenants may elect to pay monthly in advance. One condition applies. If you want to pay this way it must be by bankers standing order. You need to contact Paul Rusby the Commercial Rents Manager at City Gate House (020 8430 3708) for details of the Corporation's Bank if you wish to pay this way.

If rental payments are due at completion and I do not have a properly completed standing order form tenants will be asked to pay the balance of the current quarter.

Payments Due on Completion

At completion I therefore expect to collect the rent arrears (if any) plus

either the rent for the remaining quarter or

a bankers standing order form providing for payment of the first instalment of the new rent immediately and the remainder by monthly standing order to be effected not later than 28^th of the month."

40. It should be noted that this argument is different to the argument put forward by the Appellants in the Skeleton Argument before Stadlen J which was, in summary, to the effect that:-

i) The cases of Greenwood Reversions Limited v World Environment Foundation [2008] EWCA Civ 47 and Central Estates (Belgravia) Limited v Woolgar (No. 2) [1972] 1 WLR 1048 between them make clear that if the landlord chooses to do something such as demanding or receiving rent which can only be done consistently with the existence of a certain state of affairs, viz., the continuance of the lease or tenancy in operation, he cannot thereafter be heard to say that the state of affairs did not then exist.

ii) Correspondence with the Appellants and other traders showed that the Respondent chose to continue with the lease after the right to forfeiture had arisen, including (for example) the demand for rent made of Mrs Kalley on 13 April 2007, and subsequent correspondence.

iii) The Respondent also waived its right to forfeiture when it made a 'subject to contract' offer to buy the Appellants' interest in the leases in the Spring of 2007.

41. Mr Skelly points out that the argument now advanced before me formed no part of the pleaded cases, nor was it advanced before Judge Bailey, nor (as touched on already) was it advanced before Stadlen J.
42. In those circumstances, although I allowed Mr Van Staden to develop the promissory estoppel argument de bene esse, I did not invite Mr Skelly to address me upon it in any detail, although he did so in outline.
43. Against the long background of the twists and turns of the proceedings in this case, it would not be right, at this late stage, to embark on an altogether new basis of appeal, in relation to which permission was not given. Accordingly, I propose to ignore the argument based on promissory estoppel – albeit fortified by the fact that, in any event, I found the argument to be less than persuasive on this topic.
44. As to the Appellants' original argument, Mr Skelly submits that:-

i) The Appellants were sent numerous statements, demands and reminders, and were also invited to take part in a payment agreement scheme. In the event, they failed to enter into the offered payment plans, and failed to pay the arrears.

ii) This was not a case of waiver by acceptance of rent – as rent was not paid. Thus the court must consider whether the act(s) relied upon by the Appellants were so unequivocal that, when considered objectively, they could only be regarded as having been done consistently with the continued existence of the tenancy.

iii) The mere fact that a landlord and tenant have engaged in without prejudice discussions does not necessarily amount to a waiver – see re National Jazz Centre [1988] 2 EGLR 57.

iv) The acts relied upon did not properly constitute a waiver of the right to forfeit for the arrears of rent,

v) In any event, even if any act(s) did constitute waiver of any previous right to forfeit that had arisen from non-payment of rent, further rent fell due on the quarter day in June 2007, and was not paid. Any previous waiver could not prevent a subsequent forfeiture for the subsequent breach of the failure to pay the June 2007 quarter's rent.

45. In the end, it seems to me that Mr Skelly is right. The acts relied on did not properly constitute a waiver of the right to forfeit for arrears of rent. In any event, as Mr Skelly also argues, in the case of each Appellant further rent fell due on the quarter day in June 2007 and was not paid, and there was no waiver in respect of those breaches.
46. Accordingly, I conclude that there is no merit in this ground, and it is dismissed.

Discretionary Relief.

47. Mr Van Staden submits that there is a wide discretion to grant relief, and that the failure to pay rent was neither wilful or deliberate, but was caused by the Respondent's Rent Collection/Billing System.
48. Reliance is placed on the fact that, when the leases expired no rent was due, and also again upon the letters received by the Appellants to the effect that arrears of rent were to be paid upon the completion of new leases, or lease terms.
49. It is further submitted, in summary, that:-

i) This position was deliberately misstated in witness statements and a letter written by Mr Beamant – the employee of the Respondent who was in charge of the management of the Appellants' premises.

ii) There is evidence that the Appellants were maliciously evicted from the premises, whilst other tenants with similar, or far worse rent arrears were left alone, and had remained in their shop premises.

iii) Stadlen J ruled that it was arguable that in Mrs Kalley's case it was arguable that £6,948.70 of arrears had been waived.

iv) Based on their current incomes, both Appellants were able to pay off arrears within an appropriate time frame as well as meeting future rental payments.

50. In response, Mr Skelly submits that:-

i) It is an invariable condition of relief from forfeiture for non-payment of rent that the arrears must be paid within a time specified by the court, and that there must be evidence before the court that rent will definitely be paid – see e.g. Inntrepreneur Pub Co (CPC) Limited v Langton [2000] 1 EGLR 34.

ii) The Appellants' evidence before Judge Bailey was that they would need at least two years to pay.

iii) The tenant has an obligation to pay rent, whereas the landlord does not have an obligation to make facility to collect it, and the Appellants admitted to Judge Bailey that they had not put the rent due aside.

iv) The argument that the arrears were caused by the Respondent's 'defective' rent collection system was thus facile.

v) In any event, so far from maliciously evicting the Appellants, the evidence showed that the Respondent had done everything possible to find an accommodation with them.

vi) It was not open to the Appellants to challenge the amount of arrears and, in any event, any claim for such waiver would fail for want of consideration.

51. Against that background, Mr Skelly submitted that Judge Bailey examined all the relevant issues with care, and had rightly concluded that the Appellants had no reasonable prospect of succeeding in their claim at trial to relief from forfeiture, because they were unable to pay the arrears within a reasonable time.
52. Again it seems to me that, for the reasons he advances, Mr Skelly is right that Judge Bailey's conclusion cannot be faulted, and there is no basis upon which I can properly grant discretionary relief. Thus there is no merit in this ground, and it too is dismissed.

Conclusion.

53. For the reasons I have set out above, this appeal is dismissed.