English and Welsh Courts - Miscellaneous

IN THE BIRMINGHAM COUNTY COURT

		Claim No: BM279828 Appeal No: BM40043A Civil Justice Centre Priory Courts 33 Bull Street Birmingham B4 6DS
		11th July 2014

JUDGE GRANT:

1. This is an appeal against the order of District Judge Williams of 6th February 2014. The issue in the appeal is whether the decision of the district judge to permit the defendant tenant to file and serve a counterclaim for disrepair was wrong, either because he erred in law or because he erred in the exercise of his discretion.
2. As regards exercise of discretion, of course, I have been referred to and bear in mind the guidance that is provided in the cases of Tanfern [2000] 1 WLR 1311 and Phonographic Performance Limited v AEI Rediffusion Music [1999] 1 WLR 1507.
3. Both Mr Singleton, who appears for the appellant/claimant, and Mr Nabi, who appears for the respondent/defendant tenant, have focused their submissions orally and in writing on the latter aspect, namely that the district judge erred in the exercise of his discretion. But it is to be noted that, on its proper construction, ground 1 of the appeal involves a submission that the district judge made an error of law, in contrast to grounds 2 and 3 which involve a submission that the district judge was in error in his exercise of discretion.
4. The underlying proceedings are as follows. The particulars of claim are dated 23rd August 2002 (pages 112 to 114 of the appeal bundle). No defence was filed and on 4th November 2002 an order for possession was made (page 115). There was then a long series of orders whereby the warrant for possession was suspended on terms. The first of those is the order of 20th June 2005 (page 116), the second the order of 26th November 2008 (page 117). It is to be noted that there was a period of some three years between the initial order for possession and that first order suspending the warrant, and then another period of a further three years between the first order suspending the warrant and the second order suspending the warrant. There was then another period of some three years, rather less, before the order of 17th January 2011 where the claimants were given permission to issue a fresh warrant of possession. On 11th April 2011, the third order was made suspending the warrant on terms (page 120). Again on 19th October 2011, the fourth order suspending the warrant was made on terms (page 121). On 14th December 2011, the fifth order, both adjourning an application and suspending the warrant on terms, was made (page 112). On 31st January 2012, the sixth order suspending the warrant was made (page 123). On 20th September 2012, a further order was made adjourning matters and again suspending the warrant. That was the seventh occasion. On 31st October 2013, the claimants were again given permission to request the reissue of a warrant of possession (page 125). It is very clear from that history that these proceedings have been running for a long time as between these parties.
5. The application that was before the district judge on 6th February is at page 42. It was an application with two limbs. Firstly, again to suspend the warrant of eviction that was due to be executed on 6th February; and secondly, for permission to bring a counterclaim for disrepair. While that application notice is dated 20th January, it was in fact signed by the tenant's solicitor on 28th January 2014 (page 43). There was a witness statement in support of it dated 20th January 2014 (pages 44 to 47) and a further witness statement from the tenant's solicitor dated 4th February 2014 which starts at page 52.
6. So far as the intimated counterclaim is concerned, a draft of that is at page 48. The notification letter is dated 8th January 2013 (pages 56 and 57). The first report of Mr Wheeler following his inspection on 26th November 2012 is at pages 58 to 64. At internal page 6 (page 63 of the appeal bundle), Mr Wheeler sets out his comment and conclusion identifying that there were various issues at the property including:

"(a) some missing, slipped and displaced roof tiles; (b) a safety warning at risk label on the central heating boiler; (c) some structural movement of the property with some cracking internally and externally and with some slopes to floors. The remedial works can be limited to making good cracks at this stage unless matters were to significantly deteriorate; and (d) various ad hoc defects including a damaged bedroom light switch, remnants of a light bulb within a bedroom light fitting, evidence of rat infestation within the rear garden boundary."

7. The counterclaim as filed and served is between pages 81 and 86, and it is common ground that there is no material difference between the statement of case as filed and served, and the draft that was before the district judge, though there are in fact some differences in the text. There is also Mr Wheeler's re-inspection report following his re-inspection on 27th January 2014 (which starts at page 88). It is to be noted in his comment and conclusion section at page 92 that in the interim various works had been undertaken since his previous inspection including:

"…some repairs to the roof and chimneys, repairing of some internal or external cracks and the replacement of the central heating system including the fitting of a replacement central heating boiler and radiators throughout. However … there are significant ongoing defects at the property including (a) a drip leak to the water pipe serving the WC cistern that is causing severe dampness within the WC compartment, the abutting bedroom and the living room below; (b) the gas fires in this the front and rear living rooms have been disconnected; and (c) some ad hoc defects as detailed within the body of the report including a damaged front external door."

8. In that conclusion section, as in his previous report, Mr Wheeler opines that:

"The condition of the premises are such that I am satisfied that they constitute a statutory nuisance, as defined by section 79(1)(a) of the Environmental Protection Act 1990."

9. The grounds of appeal are firstly, that the district judge should not have permitted the counterclaim to include a claim to set off - essentially because that amounted to a defence - and in so doing, circumvented any process of appeal and/or application to set aside; secondly, that it deprived the claimants of an accrued limitation defence; and thirdly, that he failed to have any or any sufficient regard to delay.
10. Permission to appeal was granted on 7th April 2014 (see the order at page 155). The principles engaged are conveniently to be found from the decision of the Court of Appeal in Rahman v Sterling Credit Limited [2001] 1 WLR 496. They are essentially threefold. The first principle is that limitation is or can be a decisive issue: see the judgment of Mummery LJ at (apparently) page 500 of the printed copy, and page 5 of the electronic copy, of the report which is in fact paragraph 17 of the report as published in the Housing Law Reports.
11. On behalf of the defendant, Mr Nabi referred to the decision of the Court of Appeal in Filross Securities Limited v Midgeley [1999] 31 HLR 465. The introduction to that report provides as follows:

"3. In Hanak v Green [1958] 2 QB 9, Morris LJ identified three types of set off: (a) the legal set off of mutual debts; (b) the reduction of damages in respect of the sale of goods; and (c) an equitable set off...Such an equitable set off exists where, for example, a tenant defends an action for arrears of rent by means of a set off for breach of covenant by his landlord (see British Anzani ( Felixstowe) Limited v International Marine Management (UK) [1980] QB 137)."

4. By section 36(2) of the Limitation Act 1980, the normal time limits do not apply where equitable relief is sought."

12. In the holding, the decision of the Court of Appeal is summarised as follows:

"The defence of equitable set off is an exercise of equitable jurisdiction which prevents a person from recovering damages without accounting for a sum that should be paid in equity. The defendant's obligations to pay rent and service charges were so intimately bound up with the alleged breaches of the plaintiff landlord's repairing covenant…that it would be unjust for the defendant to obtain damages without accounting for any rent due.

Secondly, that equitable defences are not governed by the statutory period of limitation that applies to claims to enforce legal rights, it is section 36(2) of the Limitation Act 1980 that applies to the defence of equitable set off rather than section 35."

13. The upshot of that I construe to be as follows: that if, on its proper construction, the tenant's claim for damages for breach of the covenant to repair is an equitable set off (as explained in Hanak v Green) then normal time limits do not apply where equitable relief is sought.
14. The second principle to be derived from the judgment of Mummery LJ is that the real question is whether the action is at an end: see page 8 of the electronic print out in the section of his judgment headed 'The Discretion Point' which correlates with paragraph 39 of the report in the Housing Law Reports. I construe that principle in the following way: namely, that if judgment has not been satisfied - and in the context of a case such as the present that means that the warrant for possession has not been executed, and thus the claimant has not obtained possession - then the court has a discretion whether or not to permit a counterclaim to be made in the proceedings.
15. The third principle is that delay of itself is not a reason to refuse such permission: see a little lower down in Mummery LJ's judgment still under the heading of 'The Discretion Point'.
16. As it emerged in the course of Mr Singleton's oral submissions this morning, there are in fact three possible or potential outcomes to be considered. Firstly, if the tenant's cross claim for damages for breach of the covenant to repair is, on its proper construction, being raised as an equitable set off then, so far as limitation is concerned, section 36 is engaged. The consequence of that is that there is in effect an unlimited limitation period, save, of course, for the consideration of laches or delay provided for in section 30(2). So far as the procedural aspect is concerned, a set off can only be raised as a defence (see CPR rule 16.6), and thus the defendant would have had to have applied to set aside the judgment and thus invoke the criteria of CPR rule 39.3, either directly or indirectly through the medium of CPR rule 3.1(2)(m): see in this regard the notes at paragraph 39.3.1 of the 2014 edition of 'Civil Procedure'.
17. Secondly, if the tenant's cross claim is a stand-alone cross claim proceeding as a counterclaim then, so far as limitation is concerned, section 35 is engaged, and that would involve a consideration of matters up to six years before the issue of these proceedings, i.e. before 2002 in this case. So far as the procedural aspect is concerned, that would involve the court in the exercise of discretion under CPR rule 20.4. I shall return to that point in a moment.
18. Thirdly, if the tenant's cross claim was comprised within entirely separate proceedings then, so far as limitation is concerned, that would involve the consideration of matters which had occurred up to six years before the issue of such proceedings, which would, of course, be six years before 2014.
19. As regards the factors that are in play so far as the exercise of discretion under CPR rule 20.4 is concerned: in the course of his oral submissions on behalf of the claimant, Mr Singleton submitted that the most significant factor here was the factor of delay. That point is developed in paragraphs 23 to 29 of his written submissions. It is the case that in the section of his skeleton argument dealing with ground 1, he refers to matters relating to limitation (see paragraphs 18 to 22). However, it is accepted by both parties here that limitation was not in fact raised as an issue before the district judge. I shall thus take the matter of limitation into account only as part of the general background of the case rather than as a matter in respect of which any complaint is made as regards the exercise of discretion.
20. As regards delay, the point made here was essentially that there was here a long and unexplained delay in making the application for permission to bring a counterclaim (see paragraph 23 of Mr Singleton's written submissions). Thus the essence of the ground here is that the district judge did not give sufficient weight to this factor in exercising his discretion.
21. The second point which Mr Singleton identified as regards the exercise of discretion related to the district judge's criteria of cost effectiveness in coming to his decision. Mr Singleton's submission was that, assuming that this can be equated to consideration of procedural considerations, it was appropriate to consider the decision of Lightman J in Ernest & Young v Butte Mining [1997] 2 All ER 471 in which he referred to the judgment of Neill LJ in Boocock v Hilton International [1993] 4 All ER 19, where Neill LJ had held that:

"'The surest guideline for the exercise of any general discretion is to consider what the justice of the case demands.' But it is, in my view, necessary to have in the forefront of the mind the statutory object of the creation of the counterclaim, namely procedural convenience…But if the counterclaim is one which ought to be tried in a separate action then the future of the counterclaim (and with it the potential saving by section 35 from the consequences of the 1980 Act) is a matter for the discretion of the court, and in the exercise of its discretion in any ordinary case procedural convenience is the primary consideration and limitation consequences are, at best, only secondary consideration."

22. The essence of Mr Singleton's submission in this regard was that here there was in fact insufficient procedural convenience in having this matter proceed as a counterclaim (see paragraph 28 of his written submissions).
23. However, to my mind that submission, of course, depends upon a decision on the prior issue which concerns the appropriate formulation of the counterclaim. The essence of Mr Singleton's submission in this regard, so far as the exercise of discretion was concerned, was that here the district judge gave too much weight or too much emphasis to this as a factor and/or brought it into account as a factor that was not really in play.
24. On behalf of the defendant, Mr Nabi submitted that there were in fact other considerations in play, and he identified two factors here. Firstly, the general way in which the Housing Act works in the context of social housing. He identified two aspects of this: (a) the fact that the court adopts a flexible approach in housing matters, such matters which often involve claims going back over many years (and here the period of time covered by the rent arrears schedule provides an apt example); and (b) the fact that the court has the power to rescind an order for possession (see section 85(4)), though, as Mr Singleton pointed out in reply, that power only comes into play if the relevant conditions of an order have been satisfied.
25. Secondly, Mr Nabi pointed to the artificiality of the situation which obtains here. He submitted that what the tenant is seeking to do is to set off against the claim for unpaid rent (which, of course, founds the claim for possession) her cross claim for damages for breach of the covenant to keep the premises in good repair. In practical terms, it would be difficult, if not impossible, for a tenant in the position of this tenant to do that through the medium of a defence, because such tenant would not be able to satisfy the criteria set out in CPR rule 39.3.
26. I turn to draw matters together, and come to my conclusions on the three grounds of appeal. Ground 1 is that the district judge erred in permitting the respondent to submit a counterclaim which raised a set off. In subparagraph (2) the appellant states that: "By allowing a set off to be raised, the court has permitted the respondent to defend the original claim some 11 years after judgment was entered." However, in my judgment, that is what in effect will be the position whether the tenant's cross claim proceeds by way of a counterclaim in these proceedings or by way of separate proceedings. Either way the tenant will be seeking to set off against the claim for unpaid rent her cross claim for damages for breach of the covenant to repair. To my mind, the second principle identified by Mummery LJ in British Anzani is as relevant to the filing and service of a defence as it is to a counterclaim, when the real question is whether the action is at an end, which question necessarily involves consideration of the matters that are and/or remain in issue between the parties. Perhaps that analysis explains what is behind the reasoning that the provisions of CPR rule 39.3 are not in cases such as this strictly engaged. Instead the court is able to deploy its much wider powers under CPR rule 3.1(2)(m), and indeed generally, in considering an application such as this. In those circumstances, I conclude that the district judge did not make an error in law in permitting the tenant to raise a counterclaim which included either in fact or in effect a claim to set off.
27. So far as ground 2 is concerned - namely, that the learned judge failed to take any or any proper account of the fact that, by allowing a counterclaim, the appellant was deprived of an approved limitation defence - as I have already indicated, it is accepted that that point was not raised before the district judge and I therefore reject that ground of appeal.
28. So far as ground 3 is concerned - namely, that the learned judge failed to take any or any adequate account of the delay in bringing the counterclaim - here while it is right that, in paragraph 6 of his short judgment, the district judge held as follows that "Having granted an adjournment, it would be most cost effective to grant the tenant permission to make the counterclaim within these current proceedings rather than issuing a separate set of proceedings", it is clear from the transcript that, in paragraph 4 of his judgment, the district judge did have regard to the issue of delay. In those circumstances, I do not regard this as a matter to which the district judge failed to have any or any sufficient regard in the exercise of his discretion.
29. I should make a couple of general points in conclusion. It is, of course, to be noted that this matter was in the district judge's general list proceeding by way of a short 15-minute appointment, and while it is clear from the transcript that he was he was referred to the fact of the decision in Rahman v Sterling, it appears that he was only referred to it by name and he was not referred to any of the text of the judgment in that case. That is perhaps not surprising having regard to the nature and/or length of the hearing. Further, it does not appear that the district judge was referred to the decision in Filross at all and again similar considerations apply. As Mr Singleton observed, the nature of the hearing of an appeal in this sort of case often follows a markedly different style of hearing when compared with the nature of the hearing below.
30. To return to the overall conclusion: in light in particular of the decisions in Rahman and Filross, I do not consider here that the district judge either erred in law or exercised his discretion outwith the ambit of discretion that was available to him on this matter.
31. In those circumstances the appeal fails.
32. Because the points raised in this appeal may be of some general application, I shall direct that a transcript of this ruling be made available to the parties at public expense.
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