Scottish and Newcastle Plc v Raguz
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lloyd,Lord Justice Rix,Lord Justice Mummery |
| Judgment Date | 06 March 2007 |
| Neutral Citation | [2007] EWCA Civ 150 |
| Docket Number | Case No: A3 2006/1008 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 March 2007 |
[2007] EWCA Civ 150
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
MR JUSTICE HART
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Mummery
Lord Justice Rix and
Lord Justice Lloyd
Case No: A3 2006/1008
Edward Bannister Q.C. (instructed by LHP Law LLP) for the Appellant
Christopher Stoner (instructed by Eversheds LLP) for the Respondent
Hearing date: 24 January 2007
Introduction
This appeal is brought from an order of Mr Justice Hart made on 11 April 2006 after a nine day trial. The clarity and perceptiveness of the analysis and discussion in the judgment, and its presentation of the factual and legal subject-matter in a very readable manner, are characteristic of the judge, and a vivid reminder of how much the law has lost by his recent premature death.
The appeal requires the court to consider points arising as between the landlord and the original tenant, where the lease has been assigned, the lease being one in existence when the Landlord and Tenant (Covenants) Act 1995 came into force on 1 January 1996, but being affected by that Act. It also involves the obligations as between the original tenant under such a lease and its assignee (not being the current occupying tenant) where the occupying tenant defaults under the lease, the landlord seeks payment from the original tenant and the original tenant in turn claims over against its assignee under section 24 of the Land Registration Act 1925. Although the leases in question predate the 1995 Act, the points under that Act apply to tenancies dating from after as well as before the Act, though the points under the indemnity covenant implied by section 24 of the 1925 Act do not arise under more recent leases, that section having been repealed by section 30 of the 1995 Act.
This is the second occasion on which this court has had to consider these proceedings. On 24 July 2003 the court dismissed an appeal by the Defendant against an order made by His Honour Judge Norris Q.C. granting judgment under Part 24 in respect of part of the claim made in these proceedings: [2003] EWCA Civ 1070. The remainder of the claim came on for trial before Mr Justice Hart in January 2006. The judge gave judgment for the Claimant, but gave permission to appeal to the Defendant. The Defendant raised two points in pursuance of that permission. The Claimant then served a Respondent's Notice challenging the judge's decision on another point. The latter point is logically the first to be considered on the appeal.
The Claimant is the original tenant under two underleases dated 17 March 1967 and 7 March 1969. The term granted by each lease expires on 22 March 2062. The Defendant took an assignment of both leases from the Claimant in 1982. It assigned them on in 1983. During the period relevant to the proceedings the premises were occupied by a later assignee, Hotel St James Ltd (HSJ), which went into administrative receivership in 1999. At that time the reversion was owned by National Car Parks Ltd (NCP).
The amount of the rent due under each lease was increased as a result of two rent reviews, one completed in September 2000 under the 1967 lease and the other in July 2001 under the 1969 lease, with effect from review dates in 1995 and 1996 respectively. Undoubtedly the reviewed rents were due from HSJ, but it did not pay them. NCP demanded payment of the same amounts from the Claimant, which paid them. The question is whether the Defendant is liable to indemnify the Claimant for these sums under the terms of section 24(1)(b) of the Land Registration Act 1925.
Faced with the prospect of exposure for rent falling due far into the future, as well as for sums already due arising from the rent reviews, the Claimant decided on a strategy to protect its own position, on the premise that the best solution was for a solvent purchaser to be found for the business and the leases. In order to make that more likely, the Claimant decided to support the administrative receivers in their attempts to dispose of the leases, and to assist them in keeping the business running, in order to be able to offer a going concern for sale. A purchaser was found in 2000, to whom the business and the leases were eventually sold, but not until 28 February 2003.
In June 2001 NCP demanded payment of £346,313.32 arrears of rent from the Claimant. The Claimant paid that amount in July 2001. By 28 February 2003 further sums had fallen due under the leases, amounting to £245,714.55. NCP required payment of those sums as a condition of agreeing to the assignment of the leases to the purchaser. The Claimant paid that amount. The present proceedings had been commenced in September 2001, seeking payment of the £346,313.32 and a declaration as to future liabilities. By virtue of an amendment the claim included the £245,714.55 as well by the time it came to trial.
The judge held that the Claimant was entitled to an indemnity from the Defendant “in respect of those sums properly sought from it by NCP” under the two leases, and ordered payment of £543,059.54 being the total claimed, less the amount covered by the judgment under Part 24 and subject to certain other adjustments which are not relevant to the appeal.
The three issues on the appeal are as follows:
i) Was the Claimant legally liable to pay to NCP all the rent arrears that it did in fact pay? As to some payments, no question arises on the appeal, including those covered by the summary judgment. As to others a different question arises, mentioned at sub-paragraph (iii) below. The point at issue here, however, is whether it is a precondition to such liability that the reversioner should have served notice on the original tenant under section 17(2) of the Landlord and Tenant (Covenants) Act 1995 within 6 months of the original unreviewed rent falling due, followed by a notice under section 17(4) on the completion of the review, or whether it is sufficient to serve notice under section 17(2) when the rent review has been completed. This is the point raised by the Respondent's Notice.
ii) If the judge was right to hold that a notice under section 17(2) should have been served at the first stage, followed by one under section 17(4) after the rent had been reviewed, so that NCP could not have sued the Claimant for that part of the arrears in respect of which no such notices were served, was he right to hold that the Claimant was entitled to an indemnity from the Defendant in respect of the sums which it actually paid to NCP on account of that part of the arrears of rent under the lease?
iii) As regards £49,350 of the rent, for which notices under section 17(2) were served in due time on 27 February 2003, just before the rent was paid by the Claimant, the issue is whether the Claimant is entitled to an indemnity despite it having prompted NCP to serve those notices.
The requirement of notice under section 17 of the 1995 Act
At common law the original tenant remains liable in contract for the rent falling due under a lease throughout the term, regardless of having assigned the lease. He is entitled to an indemnity from the assignee under provisions to be discussed later.
The 1995 Act changed this position, and did so (in certain respects) as regards existing leases as well as those granted after its commencement date on 1 January 1996. Much of the Act was based on recommendations of the Law Commission in its report Landlord and Tenant Law: Privity of Contract and Estate (Law Com 174), but sections 17 to 20 were not part of the Law Commission's recommendations.
Section 17, so far as relevant to a lease already in existence on 1 January 1996 and to the facts of this case, is as follows:
“17(1) This section applies where a person (“the former tenant”) is as a result of an assignment no longer a tenant under a tenancy but—
(a) (in the case of a tenancy which is a new tenancy) he has under an authorised guarantee agreement guaranteed the performance by his assignee of a tenant covenant of the tenancy under which any fixed charge is payable; or
(b) (in the case of any tenancy) he remains bound by such a covenant.
(2) The former tenant shall not be liable under that agreement or (as the case may be) the covenant to pay any amount in respect of any fixed charge payable under the covenant unless, within the period of six months beginning with the date when the charge becomes due, the landlord serves on the former tenant a notice informing him
(a) that the charge is now due; and
(b) that in respect of the charge the landlord intends to recover from the former tenant such amount as is specified in the notice and (where payable) interest calculated on such basis as is so specified.
…
(4) Where the landlord has duly served a notice under subsection ( 2) or (3), the amount (exclusive of interest) which the former tenant … is liable to pay in respect of the fixed charge in question shall not exceed the amount specified in the notice unless
(a) his liability in respect of the charge is subsequently determined to be for a greater amount,
(b) the notice informed him of the possibility that that liability would be so determined, and
(c) within the period of three months beginning with the date of the determination, the landlord serves on him a further notice informing him that the landlord intends to recover that greater amount from him (plus interest, where payable).”
Section 17(1)(b)...
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