Thomas v Ken Thomas Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NEUBERGER,LORD JUSTICE MUMMERY,LORD JUSTICE JACOB |
| Judgment Date | 09 October 2006 |
| Neutral Citation | [2006] EWCA Civ 1504 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | B2/2006/0279 |
| Date | 09 October 2006 |
[2006] EWCA Civ 1504
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM NORWICH COUNTY COURT
(HIS HONOUR JUDGE DARROCH)
Royal Courts of Justice
Strand
London, WC2
Lord Justice Mummery
Lord Justice Jacob
Lord Justice Neuberger
B2/2006/0279
MR E JOHNSON (instructed by Masseys LLP) appeared on behalf of the Appellant.
MR I RIDD (instructed by Frasers) appeared on behalf of the Respondent.
This appeal, which has been cogently and economically argued on both sides, is from a decision of HHJ Darroch in the Norwich County Court. It raises three points. The first concerns the inter-relationship to the law of appropriation and that of waiver of forfeiture of leases. The second point relates to the inter-relationship of the law of voluntary arrangements and that of forfeiture of leases. The third concerns the terms on which relief from forfeiture should be granted for non-payment of rent.
The facts
On 13 May 2004 the claimant, Mr John Thomas, let a substantial warehouse at Wisbech, Cambridgeshire, to Ken Thomas Ltd, a haulage contractor ("the company") under a lease ("the lease") for a period of 10 years. The rent payable under the lease for the first two years was £400,000 per annum, exclusive of VAT, and it was payable on the first day of each month.
The lease included a right in favour of the landlord to re-enter the premises in the events, inter alia, of the rent being in arrear for more than 21 days, whether formally demanded or not, or of the tenant becoming "insolvent", which was defined as including the tenant being unable to pay its debts or a proposal being made for a voluntary arrangement under part I of the Insolvency Act 1986 ("the 1986 Act") .
Between April and October 2004 the company paid the rent but, contrary to its obligation, without any VAT. During Autumn 2004, the company got into financial difficulties, and it did not pay the rent due on 1 November 2004.
By December 2004 the company had appointed KSA (ME) Ltd ("KSA") , to advise on its deteriorating financial situation. On 3 December 2004, Mr Campbell of KSA wrote to Mr Thomas informing him that the directors of the company had instructed KSA to prepare and propose a company voluntary arrangement (CVA) under the provisions of part I of the 1986 Act. The letter continued:
"With reference to our previous telephone conversation regarding the payment of the rent for the premises … we are writing to inform you that Ken Thomas Ltd propose to make a payment of £19,583.00 on Tuesday 7 th December 2004. This payment represents 50% of the rent for December 2004 including VAT. The balancing payment of £19,583.00 will be made on Tuesday 14 th December 2004.
"However, with reference to the amount owed for the rent for November 2004, c£33,333.33, this will go into the CVA as an unsecured amount. In addition to the rent for November 2004, the amount outstanding for the VAT on the rent prior to 1 December 2004 will also go to the CVA as an unsecured amount. Any payment in relation to the above detailed amounts may constitute a preference under s239 of the Insolvency Act 1986 …
"We anticipate that the CVA proposal will be circulated to all creditors within the next 21–28 days. If you are agreeable to a meeting in order to discuss this matter further please contact us in order to suggest a time and date which will be suitable to all parties."
On or around this date the company received a rent demand from Mr Thomas, in respect of the rent due on 1 December 2004. On 6 December, Mr Thomas had a telephone conversation with Mr Campbell of KSA, on behalf of the company. Mr Thomas made it clear that he would not accept the allocation of the payments as described in the letter of 3 December, and that he would be accepting those payments on the basis that they were in respect of the rent due on 1 November 2004. In the ensuing discussion, Mr Thomas and Mr Campbell stuck to their respective positions. The payments proposed in the first paragraph of the letter of 3 December were duly made through the CHAPS system, ie direct from the company's bank account into Mr Thomas's bank account, in the amounts described in the 3 December letter. These sums were not returned and were retained by Mr Thomas.
On 1 January 2005, Mr Thomas sent a rent demand for the rent due on 1 January 2005. On the previous day, 31 December 2004, Mr Campbell had sent Mr Thomas a letter in these terms:
"With reference to our telephone conversation earlier today we appreciate (and so do the directors of Ken Thomas Ltd) the opportunity to continue our dialogue in the New Year without any action being taken today to discuss and agree a payment structure which the company can afford to make, and you are agreeable to, with respect to the one month's rent that is due.
"We also take this opportunity to confirm that we have received an email from Mark Kirkman [a director of the company] stating that your bank should receive a payment of c9k today which is the first weekly payment of rent going forward, ie this payment will be in relation to rent for the first week in January 2005. The amount has been calculated by Mark by taking the annual rent figure and multiplying by 1/52. This payment has been paid by standing order, set out by Mark Kirkman."
As I understand it, the proposal set out in that letter was and has been complied with, so that the company has been paying about £9,000 per week in respect of the rent due under the lease. In other words, it has been paying the rent in full, albeit weekly rather than monthly.
Meanwhile, proposals for a CVA were being prepared by KSA, and they were sent to all creditors of the company, including Mr Thomas, on or about 2 February 2005. These proposals were lengthy. In summary, they explained that the only alternative to a CVA was liquidation of the company, and that the unsecured creditors of the company were likely to be much better off as a result of a CVA. Their anticipated dividend, according to the proposals, would be nil under a liquidation, and about 23p per pound under the proposed CVA. The CVA was intended, according to the proposals, to last for five years "unless completed earlier" and it was proposed that the creditors would receive a "monthly periodic payment" starting two weeks after the CVA was approved, and a further "profit related" payment, in respect of their respective debts.
On 1 February 2005, Mr Thomas began the current proceedings, claiming to forfeit the lease on the basis of non-payment of one month's rent. The claim was also based on non-payment of the VAT on the rent in respect of the period from 1 May to 1 October 2004. On 10 March 2005, the CVA was approved at a meeting of the creditors of the company, which was attended by Mr Thomas, who voted against the proposal.
Mr Thomas's action for forfeiture came on for hearing before HHJ Darroch in October 2005. There were four issues, one of which concerned the question of whether Mr Thomas was entitled to claim VAT on the rent. This was determined in his favour, and that determination is not challenged by the company on this appeal.
The other issues, in summary terms, were as follows. 1) Had Mr Thomas waived the right to forfeit the lease for arrears of rent? 2) If he had not waived the right to forfeit, had he nonetheless lost the right to forfeit the lease for non-payment of rent by virtue of the CVA? 3) If he had not lost the right to forfeit the lease, on what terms should relief from forfeiture be granted?
The judge gave judgment on 2 November 2005. He effectively determined all three questions in favour of Mr Thomas, holding that he had not waived the right to forfeit, that he was entitled to forfeit for non-payment of rent notwithstanding the CVA, and that the company should be granted relief if it paid the one month's rent due and all the VAT arrears, as well as Mr Thomas's costs which the judge assessed.
Had the right to forfeit been waived?
I turn to the first argument, which is whether or not Mr Thomas had waived the right to forfeit. The company's case, that he had waived the right to forfeit, can be summarised in the following propositions:
1(a) . The two payments made on 8 and 15 December 2004 were in respect of the rent due on 1 December 2004 (see the letter of 3 December 2004) .
1(b) . The four weekly payments made during January 2005 were paid in respect of the rent due on 1 January 2005 (see the letter of 31 December 2004)
2. Those payments were accepted by Mr Thomas and he is therefore bound by the terms of the two letters.
3. This means that the only rent outstanding, as at 1 February 2005 when the forfeiture proceedings were started, other than the VAT to which I have referred, was the rent due on 1 November 2004.
4. By accepting the payments in respect of the rent accruing due in December 2004 and January 2005 the landlord was unequivocally acknowledging the lease was in existence as at a) 1 December 2004 and b) 1 January 2005.
5. Accordingly, the landlord had waived his right to elect to forfeit the lease for the non-payment of rent due on 1 November 2004, which had arisen on 22 November 2004, 21 days after that rent fell due.
If the first two propositions are correct, it seems to me that the other propositions follow. The failure to pay rent on 1 November 2004 was a "once and for all" breach in the sense that, once the right to forfeit in respect of it had arisen, any subsequent unequivocal affirmation of the continuation of the lease with effect from a subsequent date operated to waive the right to forfeit;...
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