Nicholas Po Man Lee v Michael Stephen Sommer and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Barling |
| Judgment Date | 19 November 2015 |
| Neutral Citation | [2015] EWHC 3889 (Ch) |
| Court | Chancery Division |
| Docket Number | No: CH/2015/0331 |
| Date | 19 November 2015 |
[2015] EWHC 3889 (CH)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
7 Rolls Building
Fetter Lane
London
EC4A 1NL
The Honourable Mr Justice Barling
No: CH/2015/0331
Carl Fain (instructed by Howard Kennedy) appeared on behalf of the Appellant
Nicolas Grundy (instructed by Bryan O'Connor & Co) appeared on behalf of the Respondents
Thursday, 19 November 2015
Introduction
This is an appeal against the order of Mr Recorder Bueno QC dated 19 June 2015. By that order made in Part 8 proceedings between the appellant and the respondents, the Recorder refused to declare that a consent order dated 24 April 2014 in other proceedings between the parties was void and of no effect and should therefore be set aside.
The appellant is represented by Mr Carl Fain and the respondents by Mr Nicolas Grundy.
The consent order was made by Deputy District Judge Thomas sitting in the Central London County Court. It represented the compromise of separate proceedings brought by the respondents against the appellant and a Mr David Wong in respect of arrears of rent under two commercial leases of a restaurant and adjoining yard ("the guarantee claim"). As one would surmise, in the guarantee claim the appellant and Mr Wong were sued, not under those leases, but under a personal guarantee agreement.
The circumstances leading up to the consent order are not in dispute. For present purposes, the following is a sufficient summary of them. By a lease dated 24 November 2003, the appellant was granted an underlease of commercial premises of the ground and basement floors of a property in Windmill Row, London by the respondents. The respondents granted the appellant a further underlease dated 3 February 2004 of a yard situated at the rear of those premises. Both these underleases were "new tenancies" for the purposes of the Landlord and Tenant (Covenants) Act 1995 ("the 1995 Act").
Thereafter, the appellant traded from these premises as a restaurant until 1 February 2011 when he sold the business to Mr Wong. On that date the appellant assigned the underleases to a company called DRWY Limited, and he and Mr Wong provided a guarantee of the company's obligations to pay rent under them.
DRWY Limited's business failed and the company was dissolved on 1 February 2012, following which, on 10 January 2013, the Treasury Solicitor on behalf of the Crown disclaimed the underleases. DRWY Limited failed to pay all the rent due to the respondents and on about 25 March 2013 they issued the guarantee claim against both the appellant and Mr Wong under their guarantees of the company's obligations. The arrears of rent then totalled some £38,750.
Importantly, this claim was not preceded by service of any notice by the respondents under section 17 of the 1995 Act and no reference to section 17 appears in the Particulars of Claim in that action. The appellant instructed solicitors, Messrs Freeman Box, who settled a Defence on his behalf which did not plead the failure to serve notices pursuant to section 17 of that Act, a plea which, it is agreed, would have been a complete answer to the claims under the guarantee for rent. Other defences were raised in the Defence.
Notwithstanding these proceedings and the Crown's disclaimer of the underleases, Mr Wong, through a different company called DWCZ Limited continued to occupy the premises including the yard, and up to April 2014 some £19,000 was paid by the latter company which the respondents accepted as part-payment of the appellant's and Mr Wong's guarantee liabilities. As a result some £19,750 was outstanding on 23 April 2014, on which date the guarantee claim was settled and Messrs Freeman Box signed the consent order on the appellant's behalf.
The matter came before Deputy District Judge Thomas, and he approved the consent order without a hearing. The provisions of section 17 were not drawn to his attention.
Pursuant to the consent order, judgment was entered against the appellant for £26,390.60 which comprised £19,750 arrears of rent up to and including the rent due on 24 March 2013, together with £6,640.60 interest. In addition, there was an order that the appellant should pay the landlord's costs of that action in the sum of £10,966.90.
The appellant instructed new solicitors on 1 September 2014 who spotted that the respondents had failed to serve section 17 notices. This resulted in the Part 8 proceedings which came before the Recorder and are now before me on appeal.
The consent order
It is common ground that the consent order reflected an agreement reached between the parties to settle the proceedings so far as the claim by the respondents against the appellant is concerned. The position as between the respondents and Mr Wong is somewhat different and is not material to the issues in this appeal.
So far as material, the consent order recited that the matter was listed for trial, that none of the parties had attended court and that the court file had been read by the judge. The order then stated:
"1. Judgment be entered for [the respondents] against [the appellant] in the sums of £26,390.60 comprising £19,750 arrears of rent … together with £6,640.60 interest.
2. The [appellant] shall pay the [respondents'] costs of this action in the agreed sum of £10,966.90."
The order is signed as "approved" by the Deputy District Judge.
The judgment below
Before the learned Recorder, the appellant argued that the consent order was void and of no effect for two reasons: (1) the judge had no jurisdiction to make the consent order because no notices were served pursuant to subsection 17(2) of the 1995 Act and thus the consent order was a nullity; and/or (2) the consent order was void by virtue of section 25 of the 1995 Act because it represented an agreement relating to both the leases which had the effect to exclude, modify or otherwise frustrate the operation of section 17 of the 1995 Act.
On the first point, having considered section 17 itself and the unreported decision of the Court of Appeal in Bloomfield v Williams (17 February 1999), together with a number of other authorities, the Recorder concluded that although the need to plead and prove service of section 17 notices in respect of the two leases were clearly ingredients of the respondents' causes of action against the appellant under the guarantee, that was altogether different from the court having no jurisdiction to receive and dispose of the guarantee claim by way of the consent order. He distinguished this case from one where, for example, the court made an order which was outwith its statutory powers, such as where the court made an order for possession of a dwelling house on grounds other than those permitted by the statute, and where the court's powers were clearly circumscribed. He held that in the present case the Deputy District Judge had jurisdiction to make the consent order which was therefore not a nullity.
On the second ground, the Recorder held that the consent order and the underlying settlement agreement did not fall within subsection 25(1) of the 1995 Act because the consent order was not an agreement "relating to a tenancy" for the purposes of subsection 25(1) but was an agreement relating to a claim arising out of non-payment of rent under an authorised guarantee agreement or "AGA" within the meaning of section 16 of the 1995 Act, and was therefore too far divorced from the tenancy to be caught by subsection 25(1). The Recorder also referred to the respondents' alternative argument that there is no provision of the consent order that excludes, modifies or otherwise frustrates the operation of section 17 of the 1995 Act but he made no finding on this point.
In those circumstances, the Recorder refused the declaration sought and declined to set the consent order aside.
Both parties agreed that, in the event that I considered that the Recorder was wrong to conclude that the compromise agreement and consent order were not "relating to a tenancy" within subsection 25(1), I should not remit the alternative argument which the Recorder left open but should determine it myself.
The relevant legislation
The relevant statutory provisions are sections 16, 17, 19, 25 and 27 of the 1995 Act. These, so far as relevant for present purposes, provide as follows:
"16 Tenant guaranteeing performance of covenant by assignee.
(1) Where on an assignment a tenant is to any extent released from a tenant covenant of a tenancy by virtue of this Act ("the relevant covenant"), nothing in this Act (and in particular section 25) shall preclude him from entering into an authorised guarantee agreement with respect to the performance of that covenant by the assignee.
(2) For the purposes of this section an agreement is an authorised guarantee agreement if –
(a) under it the tenant guarantees the performance of the relevant covenant to any extent by the assignee; and
(b) it is entered into in the circumstances set out in subsection (3); and
(c) its provisions conform with subsections (4) and (5).
(3) Those circumstances are as follows –
(a) by virtue of a covenant against assignment (whether absolute or qualified) the assignment cannot be effected without the consent of the landlord under the tenancy or some other person;
(b) any such consent is given subject to a condition (lawfully imposed) that the tenant is to enter into an agreement guaranteeing the performance of the covenant by the assignee; and
(c) the agreement is entered into by...
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