Kumar v Dunning
| Jurisdiction | England & Wales |
| Judge | THE VICE-CHANCELLOR,LORD JUSTICE NEILL |
| Judgment Date | 15 April 1987 |
| Judgment citation (vLex) | [1987] EWCA Civ J0415-11 |
| Docket Number | 87/0432 1984 K No. 1026 1985 K No. 633 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 April 1987 |
and
[1987] EWCA Civ J0415-11
The Vice-Chancellor
(Sir Nicolas Browne-Wilkinson)
Lord Justice Croom-Johnson
Lord Justice Neill
87/0432
APPEAL NO QBF 990/86
1984 K No. 1026
1985 K No. 633
IN TEE SUPREME COURT OF JUDICATURE
COURT OF APPEAL. (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE,
QUEEN'S BENCH DIVISION.
MR JUSTICE TUCKER.
Royal Courts of Justice,
MR N. PRIMOST (instructed by Messrs How, Davey & Lewis) appeared on behalf of the appellant (plaintiff).
MR WAYNE CLARK (instructed by Messrs Trower Still & Keeling) appeared on behalf of the respondent (first defendant).
MR W.A BLACKBURN Q.C. and MR ROBIN ST. JOHN KNOWLES (instructed by Messrs Milners Curry & Gaskell) appeared on behalf of the respondent (second defendant).
This appeal raises the question whether an assignee of the reversion on a lease can enforce the payment of rent by those who have entered into surety covenants guaranteeing performance of the tenant's obligations under the lease. The question has been raised in a number of recent cases at first instance. This is the first time it has come before this court.
By a head lease dated 30th April 1970 the then freeholder demised to Old Kentucky Restaurants Limited ("OK") the premises 198/200 Earls Court Road, London SW5 for a term of 42 years. By an underlease dated 9th October 1970 OK demised part of the premises to the plaintiff for a term of 21 years from 30th April 1970 at an initial rent of £2,500 per annum with provisions for review. OK was defined as "the lessor which expression where the context admits includes the owner from time to time entitled in reversion immediately expectant on the determination of the term hereby granted". The plaintiff was defined as "the lessee which expression where the context admits includes his successors in title". Clause 2(10) of the underlease contained a covenant against assigning or parting with possession of the premises in terms which were subsequently amended by agreement. As amended clause 2(10)(b) included a covenant against assigning or underletting the whole of the demised premises without the consent of the lessor and the superior lessor. Clause 2(10)(d) then provided as follows:
"For the purpose of sub clause (10)(b) above the Lessor may require the proposed assignee or under tenant to enter into direct covenants with the Lessor and the Superior Lessor to perform and observe all the covenants and conditions herein contained on the Lessee's part to be performed and observed".
On 31st May 1978 the plaintiff assigned the unexpired residue of the underlease to Sundowners Limited ("Sundowners"). The licence to make such assignment was dated 7th June 1978 and is the critical document in this case. The licence is made between the then freeholder (defined simply as "the Lessor") of the first part, OK (defined as "the Lessee") of the second part, the plaintiff (defined as "the Underlessee") of the third part, Sundowners (defined as "the Assignee") of the fourth part and a Mr Dunning and Mr Powell (defined as "the Sureties") of the fifth part Clauses 3 and 4 of the licence provide as follows:
"3. The Assignee here by covenants with the Lessee that henceforth during the remainder of the term created by the Underlease the Assignee will pay the rent and perform and observe the covenants on the part of the Underlessee and the conditions therein contained……
4. In consideration of the Licence herein before contained the Sureties hereby jointly and severally covenant with and guarantee to the Lessor and the Lessee and with and to each of them as follows that is to say:
(i) that the Assignee shall at all times during the term created by the Underlease duly pay the rent and will perform and observe all the covenants on the part of the Underlessee therein contained,
(ii) that the Sureties will at all times hereafter so long as aforesaid pay and make good to the Lessor and the Lessee or either of them all losses costs damage and expenses occasioned to the Lessor and the Lessee or either of them by the non-payment of the said rents or any of them or any part thereof or the breach non-observance or non-performance of any of the covenants or conditions as aforesaid including the covenants hereinbefore contained……"
The defendants in this action are Mr Dunning and the executor of Mr Powell, the sureties under the licence. It is to be noted that neither Sundowners nor the sureties entered into any direct covenant with the plaintiff to perform the covenants in the underlease.
Sundowners went into liquidation on 24th November 1982 and has paid no rent since that date. At a date which is not known, OK assigned the head lease to Hedges and Butler Limited ("H & B") The assignment of the head lease is not in evidence. The argument has, therefore, proceeded on the footing that there was no express assignment to H & B of the benefit of the surety covenants,
H & B demanded from the plaintiff, as the original underleases, payment of rent accruing due since the winding-up of Sundowners totalling £23,401.96. The plaintiff, having paid this sum to H & B, in this action seeks to recover it from the sureties. The judge dismissed the plaintiff's claim.
There is a substantial measure of agreement between the parties as to the relevant law. Mr Blackburn, for the defendants, accepts
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1. That the plaintiff, as the original underlessee, was liable to pay the rent to H & B as assignees of the reversion, notwithstanding the fact that the rent was largely in respect of a period before the assignment of the reversion to H & B;
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2. That the plaintiff, having paid the rent, is entitled to be subrogated to the rights of H & B: Re Downer Enterprises Ltd. [1974] 1 WLR 1469;
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3. Accordingly, the plaintiff is entitled to succeed if, but only if, H & B as assignee of the immediate reversion were entitled to recover the rent from the sureties.
Therefore, the only question we have to decide is whether, in the absence of any express assignment to H & B of the benefit of the surety covenants contained in the licence, H & B as assignee of the immediate reversion on the underlease is entitled to enforce the surety covenants in the licence.
Mr Blackburn first argues that the surety covenants are purely personal covenants between the sureties on the one hand and OK on the other. As such, he submits, they were incapable of assignment either expressly or by operation of law. He relies primarily on the fact that, in the licence, "the Lessor" and "the Lessee" are defined as meaning simply the freeholder and the head lessee, OK, respectively. He emphasises that, in contra-distinction to the definitions in the underlease itself, in the licence there is no provision extending the definition of "the Lessee" to mean the owner for the time being of the immediate reversion on the underlease. Therefore, he submits, the covenant by the sureties with "the Lessee" is simply a covenant for the benefit of OK and was not intended to be capable of assignment to, or enforcement by, anyone other than OK.
I have no hesitation in rejecting this argument. The benefit of a surety contract, like the benefit of any other contract, is normally assignable. The burden lies on Mr Blackburn to show clear indications that in this case it was intended, contrary to the general rule, that only OK should have the benefit. I do not think the mere nature of the definitions by itself would be sufficient for that purpose. But, as Mr Primost for the plaintiff has demonstrated, there are clear indications that the surety covenant was intended to be for the benefit of the reversioners for the time being. The licence contains a recital that the consent of OK to the assignment was required "by reason of the covenant to that Effect contained in the….. underlease". Accordingly, the licence was entered into pursuant to clause 2(10) of the underlease, sub-clause (d) of which entitled "the Lessor" (as defined by the underlease) to require an assignee to enter into a direct oovenant with "the Lessor" (as so defined) to perform the covenants in the underlease. Given the definition of "the Lessor" as including the owner from time to time of the immediate reversion on the underlease, one would therefore expect clause 3 of the licence to be a covenant with "the Lessor" as defined by the underlease, i.e. as including the owners from time to time of the reversion on the underlease. By clause 3 of the licence the assignee covenants "during the remainder of the term created by the underlease" to pay the rent and perform the covenants in the underlease. Accordingly, on its proper construction, clause 3 imposed on Sundowners, as assignee, an obligation to perform the tenants covenants throughout the term of the underlease. In my judgment, it must have been intended that that obligation was to be for the benefit of the person who was for the time being entitled to the reversion on the underlease. When one turns to the surety covenant in clause 4 of the licence, one finds the sureties guaranteeing to "the Lessee" that the assignee will perform the covenants "at all times during the term created by the underlease" and "at all times hereafter so long as aforesaid". In my judgment, it is clear that the intention was to guarantee performance of the covenants throughout the term, whoever was the reversioner. There is no ground for saying that the intention was that the liability under the surety covenant was to last only so long as OK was entitled to the immediate reversion.
For these reasons, in my judgment, the surety...
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