Scottish & Newcastle Plc v Raguz
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE JONATHAN PARKER,LORD JUSTICE WALLER,Vice-Chancellor |
| Judgment Date | 24 July 2003 |
| Neutral Citation | [2003] EWCA Civ 1070,[2003] EWCA Civ 468 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2003/0147,A3/2003/0147 |
| Date | 24 July 2003 |
[2003] EWCA Civ 1070
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BIRMINGHAM DISTRICT REGISTRY
HIS HONOUR JUDGE NORRIS QC
Royal Courts of Justice
Strand,
London, WC2A 2LL
The Vice-chancellor
Lord Justice May and
Lord Justice Sedley
Case No: A3/2003/0147
Mr. Edward Bannister QC and Miss Marion Lonsdale (instructed by Messrs LHP Law) for the Appellant Mr. Christopher Stoner (instructed by Messrs Eversheds) for the respondents
Introduction
By two underleases dated respectively 17th March 1967 and 7th March 1969 Colston Property Holdings Ltd demised to the respondent, Scottish & Newcastle Breweries Ltd ("the Assignor") the Abbey Motor Hotel, Abbey Street, Leicester and an adjoining plot of land forming part of the hotel for a term of years expiring on 22nd March 2062. The Assignor covenanted to pay the rents thereby reserved in conventional terms but subject to rent reviews every fourteen years. In accordance with the terms of the underleases rent reviews were due as at 18th April 1995 in respect of the 1967 Lease and 25th December 1996 in respect of the 1969 Lease. The relevant reviews were completed on 23rd September 2000 and 10th July 2001 and gave rise to rents payable from the review date of £68,000 and £16,000 respectively. At all times material to this appeal the reversion expectant on the underleases has been vested in National Car Parks Ltd ("the Lessor").
By an agreement dated 12th August 1982 and made between the Assignor (1) and the appellant ("Mr Raguz") and Impney Hotel Properties Ltd (2) the former agreed to assign to the latter the then residue of the terms demised by the underleases. The price was £30,000. The agreement was completed by the registration of the relevant transfers on 29th September 198In accordance with s.24(1) Land Registration Act 1925 there is to be implied in each of the transfers:
"(b) on the part of the transferee, a covenant with the transferor, that during the residue of the term the transferee and the persons deriving title under him will pay, perform, and observe the rent, covenants, and conditions by and in the registered lease reserved and contained and on the part of the lessee to be paid, performed and observed, and will keep the transferor and the persons deriving title under him indemnified against all actions, expenses, and claims on account of the non-payment of the said rent or any part thereof, or the breach of the said covenants or conditions or any of them."
In about March 1983 Mr Raguz and his company disposed of their interest in the underleases which in March 1992 became vested in Hotel St James Ltd ("the Tenant"). Administrative Receivers were appointed in respect of the Tenant on 6th October 1999. On or about 6th August 2000 there was an agreement ("the Support Agreement") whereunder the Assignor or one of its associate companies agreed to support the Tenant by underwriting its trading losses.
The Tenant ceased to pay the rent due in June 1999. The Administrative Receivers paid the rent due at the pre-review level for the period 6th October 1999 to 14th February 2000 only. On and after 11th November 1999 the Lessor served on the Assignor notices, as required by s.17 of the Landlord & Tenant (Covenants) Act 1995, and statutory demands for the purpose of recovering the outstanding rent from the Assignor. The Assignor paid £346,313–05 to the Lessor on 5th July 2001 and sought by these proceedings to recover the same from Mr Raguz pursuant to his covenants implied by s.24(1)(b) Land Registration Act 1925.
The original defence served on behalf of Mr Raguz on 18th October 2001 consisted of little more than non-admissions. Accordingly by an application issued on 9th November 2001 the Assignor sought summary judgment for the whole of its claim pursuant to CPR Part 24. This prompted an application by Mr Raguz for permission to amend his defence. The application came before HH Judge Norris QC, sitting as a deputy High Court judge which took no fewer than three days to conclude. On 22nd July 2002 the judge gave limited permission to amend for the reasons given in a detailed judgment handed down on 14th June 2001 and gave directions for the hearing of the Part 24 application.
The Part 24 application was heard by HH Judge Norris QC on 1st November 2002. In his judgment handed down on 9th December 2002 he concluded that:
a) the covenant implied by s.24(1)(b) Land Registration Act 1925 is a contract by way of indemnity and not liable to be discharged by misconduct on the part of the creditor/lessor;
b) it is, nonetheless, arguable with real prospects of success that the obligation undertaken pursuant to that covenant does not extend to liabilities resulting from the creditor/assignor's own actions, in particular in relation to the Support Agreement made in August 2000;
c) such a contention could not apply to the rent aggregating £39,978.08 demanded on or before 3rd August 2000 so that summary judgment should be entered for that amount;
d) VAT on such rent was also recoverable so that paragraph 20 of the amended defence should be struck out; and
e) payment of the rent by the Assignor to the Lessor had been established.
There is no appeal by the Assignor from the conclusion summarised in sub-paragraph (b). Mr Raguz appeals from the conclusions summarised in sub-paragraphs (a) and (c) to (e) with the permission of Waller and Jonathan Parker LJJ. I will deal with those issues in that order.
The nature of the obligation undertaken pursuant to s.24(1)(b) Land Registration Act 1925.
In paragraph 13 of his amended defence Mr Raguz claims that in relation to the Assignor he stood and stands in the position of guarantor or surety of the obligations of all subsequent assignees of the terms demised by the underleases. He contends that from that relationship arise duties not to cause or connive at a default by the principal debtor such that in the event of a breach his liability is discharged altogether. This contention is denied by the Assignors in their reply. They contend, in effect, that the obligation is one of indemnity not guarantee.
The distinction between contracts of guarantee and indemnity are real and important, cp per Harman LJ in Yeoman Credit Ltd v Latter [1961] 1 WLR 828, 835. In a contract of indemnity the indemnifier undertakes an independent obligation which does not depend on the existence of any other obligation on the part of any other person. He agrees to keep the other harmless against loss whether or not a third party is liable for that or a cognate loss. By contrast a contract of guarantee presupposes some principal obligation of a principal obligor to which the guarantee is secondary or ancillary. The guarantor assumes a secondary liability to the creditor for the default of a third party who remains liable as the principal debtor. The importance of the distinction for present purposes is that the obligation of a guarantor may be discharged by transactions between the creditor and principal debtor, for example by giving time, the release of securities or novation of the obligation because any of those transactions may alter the mutual rights and obligations of the guarantor and the principal debtor. As there is no need for a principal obligation in the case of an indemnity its discharge depends on the usual rules of contract.
The judge rejected the submissions of counsel for Mr Raguz. In paragraph 14 of his judgment he pointed out that S.24 Land Registration Act 1925 is (and always has been regarded as) a contract of indemnity. He considered that this proposition was demonstrated by the decision of Warrington J in Harris v Boots Cash Chemists (Southern) Ltd [1904] 2 Ch. 376. He concluded:
"There is nothing in the structure or language of the usual covenant (now contained in s.24) which suggests that whilst the term is vested in the assignee the obligation to the assignor is one of indemnity, but on a subsequent assignment by him it changes into an obligation of guarantee. The single promise that the assignee and those deriving title under him would perform the covenants in the lease does not suggest that two separate obligations, different in nature, are being undertaken. The actual language used is that of indemnity: and the common understanding of conveyancers is that there exists a chain of indemnities. This established understanding of the nature of the assignee's obligation mirrors the established understanding of the original tenant's obligation. The original tenant's obligation to pay rent does not become a contract of guarantee when he assigns the term."
Counsel for Mr Raguz submit that the judge was wrong. They contend that a contract to be answerable for the defaults of another is necessarily a contract of guarantee not of indemnity. They submit that the covenant implied by s.24(1)(b) makes the assignee answerable for the defaults of whoever may be the current tenant, the difference between a guarantee and an indemnity being merged when the tenant and the assignee is the same person. They rely on a dictum of Sir Donald Nicholls V-C in RPH Ltd v Mirror Group (Holdings) Ltd [1993] 1 EGLR 74. They contend that the judge read too much into the decision of Warrington J in Harris v Boots Cash Chemists (Southern) Ltd [1904] 2 Ch. 376.
The Assignor contends that the judge was right for the reasons he gave. In addition to Harris v Boots Cash Chemists (Southern) Ltd it relies on Allied London Investments Ltd v Hambro Life Assurance Ltd [1984] 1 EGLR 16 and the other cases cited therein.
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