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Ltd v Grangeglen Ltd [2016] EWHC 1318 (Ch) (13 June 2016)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2016/1318.html
Cite as: [2016] EWHC 1318 (Ch)
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Neutral Citation Number: [2016] EWHC 1318 (Ch)
Case No: HC-2015-004127
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
13/06/2016
B e f o r e :
CHIEF MASTER MARSH
____________________
Between:
Pineport Limited Claimant
- and -
Grangeglen Limited Defendant
____________________
Mr Robert Bowker (instructed by Surjj Legal Ltd) for the Claimant
Mr Jamal Demachkie (instructed by Blaser Mills LLP) for the Defendant
Hearing dates: 6 and 7 April 2016
____________________
HTML VERSION OF JUDGMENT
____________________
Crown Copyright ©
Chief Master Marsh:
1. This claim concerns the Claimant's application for relief against forfeiture of an underlease
of Unit 4, Endsleigh Industrial Estate, Endsleigh Road, Southall, Middlesex UB2 5QR
("Unit 4"). The underlease which is dated 20 July 1998 was granted to the Claimant for a
term of 125 years, less 10 days, from 6 April 1981 for a premium of £90,000. It is agreed
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that the current value of the leasehold interest is £275,000 in its actual condition and
£300,000 if Unit 6 were put into full repair. The reversionary interest expectant upon the
termination of the lease became vested in the Defendant in about March 2011. The
underlease includes a right of re-entry in the event of non-payment of rent for a period of 21
days, whether formally demanded or not (Clause 6(1)). The rent payable pursuant to the
underlease comprises three elements:
i. ground rent of £100 per annum;
ii. a sum equivalent to the amount expended by the landlord in insuring Unit 4;
iii. a service charge as defined in clause 4(7).
2. The landlord's expenditure which falls within the service charge is widely defined and
includes all the expenditure falling within the definition of "Management Services" as well
as the costs of collection and audit and the creation of a reserve. The Claimant was obliged
to pay:
i. A quarterly advance payment of an amount considered to be fair and
reasonable by the landlord.
ii. A balancing payment in respect of the sum shown to be due by the account
produced by the landlord supported by a certificate of the landlord or the
landlord's managing agent produced as soon as reasonably practicable after the
end of the service charge year. Clause 4(7)(b) makes provision for the
information to be provided with the certificate. In the event that the tenant has
overpaid for the service charge year, the overpayment is held by the landlord as
a credit against the following year's service charge.
3. The only other clauses of the underlease which are material are clauses 4(12) and 4(13)
concerning user. The use of Unit 4 was restricted to any use falling within Use Class III of
the Town and Country Planning (Use Classes) Order 1972. The tenant covenanted not to
use the premises for any illegal or immoral act or purpose. Unit 4 has been used as an MOT
garage and workshop.
4. On 24 April 2014 the Defendant forfeited the underlease by peaceable re-entry based upon
unpaid rent. However, this claim seeking relief against forfeiture was not issued until 23
June 2015. The claim was transferred to the County Court at an early stage but then
transferred back on the basis that the County Court does not have jurisdiction to grant relief
in the circumstances which have arisen. A case management conference was held on 25
November 2015 at which it was allocated to the case management and trial by Master
management track. It came on for trial before me on 6 and 7 April 2016. The only other
aspects of the order for directions made on 25 November 2015 which are worthy of mention
are that:
i. An order for disclosure was made in accordance with CPR 31.5(7)(b),
requiring the parties to serve the documents upon which they relied by 16
December 2015 with requests for specific disclosure and response by fixed
dates. There was no order for standard disclosure.
ii. Witness statements were ordered to be exchanged by 29 January 2016.
The parties
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5. The Claimant was incorporated on 3 March 1998 and operated its main business of
providing MOT and garage services from Unit 4 until the underlease was forfeited. It has
two directors, Mr Shorab Jadunandan and Mr Sajjad Ahmad, who are equal shareholders. In
recent years Mr Ahmad has had no involvement with the running of the company and the
business has been under the control of Mr Shorab Jadunandan. An underlease of Unit 11 on
the same estate was purchased by the Claimant at the same time as Unit 4 but was sold a
few years later. The company also holds an underlease of Unit 5 which has not been
forfeited. The abbreviated balance sheet for the Claimant as at 31 March 2014 shows a
negative balance of £24,022.
6. A restraint order was made against both the Claimant and Mr Shorab Jadunandan by a judge
in Isleworth Crown Court on 2 August 2013 upon the application of the Vehicle & Operator
Services Agency ("VOSA"). The order was made in extremely wide terms and included a
prohibition against Mr Shorab Jadunandan disposing of, dealing with or diminishing the
value of any of the assets the Claimant. It also prohibited any third party from "knowingly
to assist in or permit a breach" of the order. No point was taken during the trial about
whether the act of re-entry may have been a breach of the restraint order, or placed the
Defendant at risk of contempt proceedings, although it is the Claimant's case that the
Defendant was made aware of the order.
7. The prosecution was based upon the issue of MOT certificates by Mr Shorab Janunadan,
and others, without the correct procedure being followed. The prosecution's case was that
over 1,400 such MOT certificates had been issued; in some cases the certificate was issued
without the vehicle being examined and in other cases following examination by a person
who was not authorised. In any event, Mr Shorab Janunandan pleaded guilty on 23 April
2014 to two counts of conspiring dishonestly to make a false representation to make a gain.
On 2 March 2015 he pleaded guilty to four further counts of dishonestly making a false
representation to make a gain. His sentencing hearing was deferred and on 7 March 2016
Mr Shorab Janundandan was sentenced to a term of imprisonment of 18 months. When he
gave evidence at the trial before me he was a serving prisoner. It is right to say, however,
that Mr Shorab Jadunandian does not accept the prosecution case about the scope of his
dishonest activity. He says that the prosecution extrapolated from a very limited review of
test certificates issued and has come up with an estimated number of incorrect certificates
which is far too large. Mr Jadundanian puts the number of vehicles which were given MOT
certificates without tests having been undertaken at between 10 and 15. He accepted,
however, that there were other irregularities concerning the manner in which MOT
certificates were issued.
8. The Defendant is a property holding company. One of its directors, Mr Andrew Butler, is
also head of the Uxbridge office of Colliers International which acted as managing agents
for the estate.
Statements of case
9. The claim is made in straightforward terms. Although the Claimant reserved its position
concerning the lawfulness of the re-entry there is now no challenge to it. The claim has
proceeded on the basis that at the time of re-entry there were arrears of rent (in fact service
charges) amounting to £2,155. In passing, I mention that a notice under s.146 of the Law of
Property Act 1925 was served on 3 April 2014 although such a notice is not required in the
case of unpaid rent. The claim merely asserts that the Claimant was ready willing and able
to pay the arrears of service charges and seeks relief from forfeiture under the court's
equitable jurisdiction on such terms as the court thinks fit, just and equitable.
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10. The defence was settled by leading counsel, Mr Jonathan Karas QC. The Defendant relies
on the delay on the part of the Claimant in making the claim for relief and the absence of an
explanation for that delay. The claim for relief is described as being stale. In addition the
Defendant relies upon the following points:
i. Prior to forfeiting the underlease the Defendant made repeated attempts to
contact the Claimant to ascertain why the arrears had not been paid and to
require payment.
ii On 8 August 2014 the Claimant's solicitors acting in the criminal
proceedings, Makwanas, contacted the Defendant's solicitors and said a
freezing order had been made against the Claimant. However, there was no
follow up to that conversation.
iii. It was not until 12 June 2015 that the Claimant's current solicitors made
contact and said an application for relief was to be made.
iv. The Defendant has incurred costs and expenses since the date of re-entry
and the costs and expenses have increased by virtue of the delay. They are
described as falling into four general categories namely (a) management,
insurance and security, (b) dealing with vehicles found at Unit 4, (c) business
rates and (d) preparing an application to the Land Registry to vacate reference
to the underlease from the Defendant's title. The costs and expenses are
particularised in a schedule served with the defence.
v. In addition, it is said that the Defendant has been prejudiced by the delay on
the part of the Claimant in making the application for relief. The claim to
prejudice is based upon the increase in costs and expenses incurred by the
Defendant resulting from the delay.
vi. In the alternative, the Defendant requires payment of all sums which would
have fallen due for payment had the lease continued and an indemnity for all
costs and expense the Defendant has incurred.
11. In its reply the Claimant says at paragraph 3 that the Defendant "… did not at any time prior
to re-entering the premises demand any alleged arrears, indicate its intention to forfeit, enter
into dialogue with the Claimant regarding alleged arrears, or pursue pre-action
correspondence". The Claimant goes on to say in the following paragraph that its solicitors
hold £2,155 on their client account and that the Claimant was ready and willing to pay that
amount into court if directed to do so. The Claimant's case for the grant of relief is fleshed
out in paragraph 8:
"8. …. Matters of fact and evidence in seeking to persuade the court to exercise
its discretion shall be provided in witness evidence. For completeness, the
Claimant is entitled to relief from forfeiture on the following basis:
a. On 7 August 2013 the Claimant and its sole director Mr Shorab Jadunandian
were served with a Restraint Order freezing the Claimant's assets ("the Order")
and causing some financial hardship to the Claimant and access to funds. The
Order was made in separate criminal proceedings against Mr Shorab
Jadunandian.
b. Despite financial hardship the Claimant took steps to mitigate arrears by
subletting Unit 4 ….. ("the Property") to Adil Yusek t/a A.K. Motors on 5
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October 2013. The Claimant also holds the leasehold interest in Unit 5 …. next
to the Property which is sublet to Zeus Security and Electrical Limited.
c. The claimant did however fall into service charge arrears for the Property and
Unit 5 … On or about 25 March 2014, the Defendant instructed bailiffs to
attend Unit 5 and collect arrears from the Claimant. The Claimant informed the
bailiffs of the order and provided them with a copy. The Claimant made clear
that whilst there was an order in place it was willing to make payment of all
arrears and the bailiffs telephoned the Defendant's solicitors on site during the
visit. Between the period of 25 March 2014 and 13 May 2014 the Claimant
paid approximately £4,807.84 in rent arrears which it believed would be
apportioned between Unit 4 and Unit 5.
d. However, on 24 April 2014 the Defendant peaceably re-entered the Property
without any notice to the Claimant. The Claimant put the Defendant to strict
proof of its "repeated attempts to contact the Claimant to ascertain why
payment of arrears had not been paid", as set out in paragraph 8(2)(a). The
Defendant was aware of the Order and the Claimant's circumstances at the time
of forfeiture. Paragraph 3 of the Reply above is repeated.
e. The Claimant was contacted by Mr Adil Yusef t/a A.K. Motors to whom the
Property had been sublet on 24 April 2014 and both the Claimant and Mr Adil
Yusef contacted the Defendant's solicitors informing them that they were
willing to make payment of the arrears. The Claimant has from the outset
expressly set out its intention to seek relief from forfeiture.
f. Due to Mr Jadunandian's ill health and state of mind the Claimant delayed in
seeking legal advice and making its application for relief from forfeiture. Mr
Jadunandian as the sole director of the Claimant was diagnosed with depression
in or around 10 March 2014. During the immediate period after forfeiture took
place Mr Jadunandian struggled to face reality and was unable to engage in day
to day activity. Due to the stress and anxiety caused by criminal proceedings
against him, Mr Jadunandian continues to suffer from depression and has been
prescribed antidepressants."
The jurisdiction to grant relief and the relevant principles
12. I am grateful to both counsel for their helpful submissions on the law. The principles are
summarised in Chapter 17 of Woodfall on Landlord and Tenant and the references which
follow are to paragraph numbers in that chapter. It is helpful in a number of instances to
refer to the underlying authorities.
13. Where a landlord has lawfully peaceably re-entered, as opposed to forfeiting a lease by
pursuing proceedings, the High Court has power in equity, independently of statute, to grant
relief. This principle is stated unequivocally at paragraph 17.188 and with a degree of
equivocality at paragraph 17.185 ("It seems the court also has power to grant relief under its
inherent jurisdiction …"). However, the position is made plain by the Court of Appeal's
approval of Howard v Fanshawe [1895] 2 Ch 581 in Lovelock v Margo [1963] 2 QB 787
and the decision of the Court of Appeal in Billson v Residential Apartments [1992] 3 WLR
264 (that decision being unaffected by reversal on a different point).
"In summary, the basic jurisdiction to relieve from forfeiture for non-payment
of rent is the old equitable jurisdiction; that equitable jurisdiction (and the
statutory application thereof in the county courts) is subject to a separate code
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of statutory provisions modifying and limiting the equitable jurisdiction in
certain respects, particularly in relation to time; however the old equitable
jurisdiction to relieve, without limit of time, continues to apply where there has
been a forfeiture by peaceable re-entry." Per Nicholls LJ
14. Paragraph 17.185 adds the proviso, which is repeated elsewhere in Chapter 17, that the
landlord is to be paid in full the arrears of rent and the cost of recovering those arrears. I will
return to the question of what constitutes the cost of recovery as opposed to the costs of the
claim.
15. The equitable jurisdiction to grant relief from forfeiture arising from court proceedings was
restricted by the Landlord and Tenant Act 1730 to an application made within a period of 6
months after the execution of judgment for possession. This provision was re-enacted in
Section 210 of the Common Law Procedure Act 1852. However, those provisions relate
only to forfeiture arising from proceedings and have no direct application in the case of
peaceable re-entry. The position is summarised in Woodfall in the following way at 17.188:
"For the purposes of [the equitable jurisdiction], the six months' limitation
period under the Common Law Procedure Act does not apply; but the six
month period will be taken as a guide rather than as a strict limit."
It is also pointed out at paragraph 17.187 that it may be inequitable to grant relief under the
1852 Act within the six month period. Thus, the 1852 Act does not operate in a similar way
to the Limitation Act which provides fixed periods with a bar to recovery only in the event
of a claim being issued outside that period.
16. In this case the application for relief was issued some 14 months after re-entry. There is
only limited help from the authorities concerning whether the equitable jurisdiction may be
exercised to grant relief in response to an application made so far outside a period which is
to be taken as a guide rather than a final cut-off date. The issue was considered by Sir
Jocelyn Simon P in Thatcher v C. H. Pearce & Sons (Contractors) Ltd [1968] 1 WLR 748.
In that case the landlord peaceably re-entered on 4 July 1964 for non-payment of the
quarter's rent due on 24 June 1964. The application was issued on 8 January 1965, just six
months and four days after re-entry. The Claimant was in prison during the relevant period
and the judge accepted that he did all he could to deal with seeking relief in the
circumstances but was hampered by being 'inops consilii' for a period. The judge granted
relief and in doing so made the following observations:
"As I understand the old equitable doctrine, the court would not grant relief in
respect of stale claims. Furthermore, if there were a statute of limitation
applying at common law, equity followed the law and applied the statute to
strictly analogous proceedings in Chancery. But there is no question in the
instant case of a Limitation Act applying to the present situation; and it seems
to me to be contrary to the whole sprit of equity to boggle at a matter of days,
which is all that we are concerned with here, when justice indicates relief.
I think that a court of equity … would look at the situation of the plaintiff to see
whether in all the circumstances he acted with reasonable promptitude.
Naturally it would also look at the situation of the defendants to see if anything
has happened, particularly by way of delay on the part of the plaintiff which
would cause a greater hardship to them by the extension of the relief sought
than by its denial to the plaintiff."
17. The six month period was also considered by Nicholls LJ in the Court of Appeal in Billson:
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"Equity follows the law. This is not to say that courts of equity should now
grant relief without any regard to the statutory provisions. Equity follows the
law, but not slavishly nor always: see Cardozo C.J. in Graf v. Hope Building
Corporation (1930) 254 N.Y. 1, 9. On this we have the benefit of guidance
elsewhere in the field of relief from forfeiture. Section 210 of the Common Law
Procedure Act 1852, which is still in force, limited to six months after judgment
the period within which a tenant could apply for relief in the non-payment of
rent cases to which that statute applied, viz., where the rent was six months in
arrears. Courts of equity have due regard to this statutory limitation in non-
payment of rent cases where the statute does not apply: in cases of forfeiture by
peaceable re-entry, and in cases where possession has been taken under a court
order where less than six months' rent was in arrears. In Howard v. Fanshawe
[1895] 2 Ch. 581, the landlord re-entered without the aid of the court. Stirling J.
said, at pp. 588-589:
"it does not follow that a court of equity would now grant relief at
any distance of time from the happening of the event which gave
rise to it. It appears to me that, inasmuch as the inconvenience of
so doing has been recognised by the legislature, and a time has
been fixed after which, in a case of ejectment, no proceedings for
relief can be taken, a similar period might well be fixed, by
analogy, within which an application for general relief in equity
must be made. A court of equity might possibly say that the action
for relief must be brought within six months from the resumption
of possession by the lessor."
18. Nicholls LJ went on to say, having considered the decision in Thatcher:
"The concurrent equitable jurisdiction can only be invoked by those who apply
with reasonable promptitude. What is reasonable will depend on all the
circumstances, having due regard to the statutory time limits."
19. Plainly, in this case where the application was made 14 months after re-entry, the Claimant
has a significant obstacle to overcome whether the court has "due regard" to the six month
period under the 1852 Act or the period is taken as a guide. It is not that the court is unable,
as a matter of jurisdiction, to grant relief where an application is made some considerable
time outside the six month period but rather whether the court should exercise its
jurisdiction to do so. The issue of "reasonable promptitude" necessarily involves
consideration of the reasons for the delay by the Claimant; it also may involve considering
those reasons in the overall context as what is reasonable may vary depending on that
context.
20. The general principles which apply to applications for relief in the case on non-payment of
rent are explained in paragraph 17.181:
"In the eyes of equity, the proviso for re-entry was merely a "security" for the
rent. Equity is in the "constant course" of relieving against forfeiture where the
tenant pays the rent and all expenses. Thus save in exceptional circumstances
the function of the court is to grant relief when all that is due for rent and costs
has been paid up. The same applies where the breach for which forfeiture has
occurred is non-payment of sums analogous to rent such as service charges.
The fact that the tenant is insolvent does not make any difference; if he pays the
rent in arrear, interest and costs, he is normally entitled to relief."
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21. Mr Demachkie draws assistance from the approach adopted by Lewison J in Vision Golf v
Weightmans [2005] EWHC 1675 (Ch). In that case solicitors failed to apply for relief
against forfeiture within 6 months. Referring to Thatcher the judge observed that "a few
days is not a few weeks" and without deciding whether the tenant would not have been
succeeded on an application for relief from forfeiture, concluded that the right to relief had
been substantially damaged or devalued by the solicitors' breach of duty. Mr Demachkie
submits that I should conclude from the approach adopted by Lewison J that an application
for relief made 14 months after re-entry should not succeed. However, the way the court
deals with a late application for relief will depend upon the facts of the case and Lewison J
did not find that the tenant's application was bound to fail.
22. When considering an application for relief in relation to forfeiture for non-payment of rent
the court should not take account of other breaches of covenant save in exceptional
circumstances (paragraph 17.182). One such circumstance is where the breach is extremely
serious. However, the taking account of such a breach does not necessarily lead to relief
being refused. It may be a factor but in the exercise of the equitable jurisdiction all the
circumstances will be considered, including the starting point that the court leans heavily in
favour of granting relief. An example of where the court considered another breach of
covenant but decided that it was not relevant is Gill v Lewis [1956] 2 QB 1 (a decision made
under s212 of the 1852 Act). A tenancy of two dwelling houses had been granted to the
Defendants as joint lessees. Forfeiture proceedings were pursued for non-payment of rent.
One of the Defendants had been convicted of indecent assaults on boys in one of the houses.
In a well-known passage, Jenkins LJ sets out the general approach to the grant of relief for
non-payment of rent and goes on to consider in what circumstances that approach may not
apply [p13 to 14]:
"… save in exceptional circumstances, the function of the court in exercising
this equitable jurisdiction is to grant relief when all that is due for rent and costs
has been paid up, and (in general) to disregard any other causes of complaint
that the landlord may have against the tenant. The question is whether, provided
all is paid up, the landlord will not have been fully compensated; and the view
taken by the court is that if he gets the whole of his rent and costs, then he has
got all he is entitled to so far as rent is concerned, and extraneous matters of
breach of covenant, and so forth, are, generally speaking, irrelevant.
But there may be very exceptional cases in which the conduct of the tenant has
been such as, in effect, to disqualify them from coming to the court and
claiming any relief or assistance whatever. The kind of case I have in mind is
that of a tenant falling into arrear with the rent of premises which he was
notoriously using as a disorderly house: it seems to me that in a case of that sort
…. the court, on being apprised that the premises were being consistently used
for immoral purposes, would decline to give the tenant any relief or assistance
which would in any way further his use or allow the continuance of his use of
the house for those immoral purposes. In a case of that sort it seems to me that
it might well be going too far to say that the court must disregard the immoral
user of the premises and assist the guilty tenant by granting him relief.
I cannot, however, find any facts in the present case approaching the
exceptional state of affairs I have in mind."
23. In applying the principles to the facts of the case, Jenkins LJ went on to note that the
conviction related to one isolated incident against one of the tenants which took place at one
of the two houses.
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24. It seems to me that a significant factor for the court in deciding whether there are
exceptional circumstances is whether the grant of relief may have the effect of assisting the
tenant to continue a breach of covenant. If the breach is past and unlikely to continue, even
a serious breach may not be sufficient to permit the court to decline to grant relief. I accept,
however, that in some circumstances, a landlord might be able to provide evidence of the
reversionary interest having been damaged by an historic breach of covenant such that the
breach could be a material factor in refusing to grant relief.
25. It was suggested by Mr Demachkie during submissions that the maxim 'He who comes to
equity must come with clean hands' may be of general application and that Mr Shorab
Jadunandan's conviction might be relevant to the grant of relief. However, it does not seem
to me that resorting to an equitable maxim is a helpful approach to the exercise of a
jurisdiction which has a long history and a well developed jurisprudence. I consider that the
approach explained by Jenkins LJ in Gill v Lewis, which takes account of the longstanding
approach to the grant of relief for non-payment of rent, is the right one.
26. The final general consideration concerns the conditions upon which relief should be
granted. The principle is explained at paragraph 17.180:
"It is an invariable condition of relief from forfeiture for non-payment of rent
that the arrears, if not already available to the lessor, shall be paid within a time
specified by the court. If the tenant cannot pay the arrears relief may be refused.
It appears there must be evidence before the Court that the rent will definitely
be paid rather than that it may be repayable in the future and that there is no
discretion otherwise to grant relief. The tenant will normally also have to pay
the landlord's costs.
The landlord is not bound to accept tender of the arrears from a third party."
27. It is not merely the arrears which must be paid, but also any other expenses or loss sustained
by the landlord in light of the forfeiture. As Arden J said in Inntrepreneur Pub Co (CPC)
Ltd v. Langton [2000] 1 EGLR 34:
"The principle which underlies the exercise of the court's discretion is that
provided the lessor can be put in the same position as before, the lessee is
entitled to be relieved against the forfeiture on payment of the rent and any
expenses to which the lessor has been put, prima facie the lessor is entitled to
be put into the position he would have been in if the forfeiture had not occurred.
This principle has often been endorsed by the Court of Appeal."
28. As for the time for payment, Inntrepreneur v Langton again provides assistance:
"The period fixed for the payment of arrears must be one within the
immediately foreseeable future, so that the court can say with a sufficient
degree of certainty that the rent outstanding will be paid. Even then, the tenant
has no right to relief. The court may decline to grant relief if, for example, the
landlord has changed his position before the tenant makes an application for
relief (see Gill v Lewis [1956] 2 QB 1) because there has been excessive delay
in making the application for relief… there has to be evidence that [the tenant]
will be able to pay the arrears within a fixed time."
29. As for costs, the matter has been dealt with definitively by the Court of Appeal in Patel v
K&J Restaurants Ltd [2010] EWCA Civ 1211, in which it was said (within a detailed
examination of the authorities at paras.96-104):
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"Having given closer consideration to the authorities on the appropriate basis of
costs than was possible during the hearing of the appeal, I have come to the
conclusion that the indemnity basis should apply as a general principle…
normally this should require that the Applicant for relief should pay the
landlord's costs on the indemnity basis, rather than only on the standard basis."
The issues
30. It is not in doubt that the High Court has jurisdiction to grant relief against forfeiture on the
Claimant's application. The principal issues for the court to consider are:
i. Should the Claimant's delay in making the application for relief preclude the
grant of relief?
ii. Should account be taken of the Claimant's use of Unit 4 for illegal activity?
Does that activity bring this case within the band of exceptional cases whereby
relief should be refused albeit but for the illegal activity relief would have been
granted?
iii. What other circumstances should be taken into account? Should the court
take account of the value of the underlease measured against the size of the
arrears of rent and, if any, prejudice to the Defendant resulting from the non-
payment of rent?
iv. Upon what terms should relief be granted and is the Claimant in a position
to comply with such terms?
31. Although delay may ultimately be determinative, it would in my judgment be wrong to deal
with this issue in isolation without regard to all the circumstances because the court's
discretion is a broad one and the conclusion will follow from an overall review. I propose to
consider the circumstances of this case taking into account all of the relevant issues rather
than treating the exercise as a series of thresholds for the Clamant to surmount with delay
being an initial hurdle.
The evidence
32. The parties exchanged witness statements in accordance with the court's directions. Mr
Shorab Jadunandan gave evidence on behalf of the Claimant and Mr Edward Thompson a
solicitor with Blaser Mills LLP, the Defendant's solicitors, gave evidence on behalf of the
Defendant. At the conclusion of Mr Shorab Jadunandan's evidence, Mr Bowker, who
appeared for the Claimant, applied for permission to adduce evidence from Mr Rodion
Jadunandan, who is Shorab's brother, and for relief from sanctions. (For the sake of brevity
and without I hope causing offence I will refer to them respectively as "Shorab" and
"Rodion"). The application was opposed. Having heard submissions from both counsel on
this application I determined the application should be granted applying the approach set out
in Denton v TH White Ltd and said I would give reasons in my judgment.
33. Rodion's evidence covers one issue in the claim, namely how the Claimant will be able to
meet an order to pay the arrears of rent and other sums as a condition of granting relief. It is
right to characterise that issue as being subsidiary to the principal issues concerning the
grant or refusal of relief. I was told that Mr Bowker had only been instructed a week before
the trial and he expressed concern about the lack of evidence about the Claimant's ability to
make a payment. The evidence was therefore procured at the last moment. It is undoubtedly
the case that the breach of the order for exchange of witness statements was serious and
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significant. Shorab's witness statement does not deal at all with the Claimant's ability to pay
any sums due although the particulars of claim say that £2,155 has been deposited with
solicitors acting for the Claimant. Clearly an element of essential evidence was overlooked
by the Claimant's advisers until it was pointed out by Mr Bowker. Oversight by legal
advisers will not normally be a good excuse for failing to comply with an order.
34. Mr Demachkie submitted that relief should be refused in view of the absence of an adequate
reason for the failure to produce the evidence upon exchange of witness statements and
taking into account the provision of CPR 3.9(1)(a) and (b). He pointed to the lateness of the
application for relief itself and submitted that the attempt to adduce late evidence was
symptomatic of the Claimant's approach. Mr Bowker urged me to take account of the wider
circumstances and submitted that it would a denial of justice if the evidence could not be
submitted.
35. My decision to permit the Claimant to rely upon Rodion's evidence is principally based on
the following considerations:
i. The Claimant did not fail to comply with the order for exchange of witness
statements altogether. A full witness statement from Shorab was provided.
ii. A error was made about the extent of the evidence which was needed.
Shorab's witness statement failed to deal with this one point.
iii. There has been no prejudice to the Defendant and the trial was able to
proceed without being affected by the later evidence.
iv. Given that the sentence of imprisonment was passed after Shorab's statement was served,
it was inevitable that some additional evidence in chief would be required and no objection
was taken to Shorab explaining his position when giving evidence. In the light of the
sentence of imprisonment Shorab became unable to work and clearly could not conduct the
Claimant's business. There has been a change of circumstances. Shorab could have given
evidence about his understanding of his brother's willingness to assist with the payment of
any sums which are ordered to be paid but it is clearly preferable to have Rodion's evidence
on the point.
36. Shorab was brought to court to enable him to give evidence. I was satisfied that he was a
truthful witness. He answered questions put to him by Mr Demachkie in a straightforward
way and I have no doubt about accepting the majority of his evidence notwithstanding that
he has recently pleaded guilty to a number of offences of dishonesty. He candidly accepted
that he had acted wrongly and he accepted his guilt by making pleas of guilty. The restraint
order remains in place and he now faces confiscation proceedings under the Proceeds of
Crime Act which he said may be concluded in 2017 but may run in to 2018. The CPS is
seeking a confiscation order in a sum between £400,000 and £450,000 between himself and
the Claimant.
37. Shorab agreed that paragraph 3 of the Reply was incorrect and that a number of demands for
payment had been made by the Defendant before re-entering Unit 4. He said that he left the
management of the Claimant's finances to others and he was not aware of the demands for
payment of the arrears whilst not seeking to excuse his lack of knowledge. He did not
dispute that there were arrears of rent at the date of re-entry, and there had been arrears in
varying amounts over the previous three years, although his understanding had been that a
payment of £4,807.84 made not long before the forfeiture was to be allocated against sums
due relating to both Units 4 and 5. In fact the payment was allocated by the Defendant
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solely to sums due in respect of Unit 5 because it arose from enforcement action taken
solely in respect of Unit 5.
38. On 2 September 2013 Tony Simpson, an employee of the Claimant, sent Andrew Butler of
Colliers International an email explaining that the Claimant was subject to an investigation
by VOSA and that it was unable to issue cheques. The email was acknowledged by Mr
Butler the following day expressing sympathy but pointing out that the Claimant held two
valuable assets and making it clear that unless payment of the arrears was made the leases
would be forfeited. There was no reply either to that email or to the email sent by Mr Butler
on 22 September 2013. Colliers sent a letter by email on 31 January 2014 referring to these
emails and others and providing a statement showing that the arrears had reached £2,003.65.
This was followed by a s.146 notice sent on 3 April 2014. Shorab may be right in saying
that the S.146 notice was never received by the Claimant because it was sent to Unit 4
where it would have been received by the sub-tenant but nothing turns on this.
39. Shorab says that he first saw his GP in December 2013 because he had become withdrawn
and deflated and he was diagnosed as suffering from depression. He was prescribed an anti-
depressant named fluoxetine which he started taking. He saw his GP again in January 2014
because he felt worse and the anti-depressants were not helping. This account is supported
by a letter from his GP. He was referred for counselling and attended his first counselling
session in mid-April 2014. However by that time he had stopped taking the medication,
because it did not agree with him, and he did not continue with counselling because he
thought he was about to be sentenced. In fact the sentencing was adjourned but he did not
take up another appointment with the counsellor. Thus by the end of April 2014 he was no
longer receiving treatment or medication for depression. He describes his ability to cope
with his business as being up and down and he had mood swings. He said he had to control
his condition himself. He believes that his depression caused a lack of mental clarity and
prejudiced his ability to take prompt steps to seek relief from forfeiture. Although the
quality of evidence about Shorab's mental state is limited, his circumstances and the way he
behaved does to my mind lend strong support to him continuing to suffer from depression
and an inability to cope with his business affairs. Some measure of support for this view can
be obtained from the shear irrationality of allowing an asset belonging to the Claimant with
a value of £275,000 to be forfeited to the Defendant when the unpaid rent amounted to less
than 1% of its value.
40. Shorab was aware of the forfeiture in Unit 4 immediately after it occurred because he was
told about by the sub-tenant. He went to Unit 4 to see for himself and made efforts to
contact Andrew Butler at Colliers without his telephone calls being returned. He then spoke
to the Defendant's solicitors. He describes them as being evasive and unhelpful. Although
they may have appeared to be unhelpful, no doubt they were being properly cautious in
dealing with him and they recommended that he should seek legal advice. Thereafter Shorab
took only limited steps to recover the underlease. He says that due to financial difficulty
arising from the prosecution, the restraint order and the loss of the income from the sub-
tenant, he was not able to seek advice and that he was only later prompted to take action by
receiving notification from the Land Registry in about June 2014 saying that the lease title
would be closed. He contacted Makwanas who were the solicitors acting in the criminal
prosecution and they made contact with Blaser Mills. There is no evidence from
Makawanas on this subject but there is no reason to doubt the veracity of the attendance
note made by Mr Thompson of Blaser Mills of his conversation with Tulsi Shah of
Makawanas on 8 August 2014 (more than three months after the forfeiture). Ms Shah was
given information about the forfeiture, the arrears and that further sums had fallen due. She
said she would take instructions.
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41. Thereafter no further steps were taken until the Claimant's current solicitors were appointed
in 2015 and after an exchange of correspondence this claim was issued. Shorab says he
thought, wrongly, that the issue was being dealt with by Makwanas but tellingly he says that
he never imagined that Unit 4 could be taken away from him. He had no understanding of
how forfeiture works or what had to be done.
42. The Claimant is not currently trading and has not traded since VOSA withdrew its licence in
September 2012. Unit 5 is still owned by the Claimant but it is in the hands of receivers
appointed by the mortgagee. The Claimant's ability to pay any sum needed to obtain relief
from forfeiture is entirely dependant upon Rodion. Shorab disputes that some of the items
claimed by the Defendant are due but says Rodion is able and willing to pay whatever is
found to be due. The Claimant does not wish to lose the capital tied up in the underlease
which includes the benefit of improvements carried out not long after the lease was
purchased.
43. Rodion's evidence, which I accept with one qualification, is that he is the sole owner of 80
Chamberlayne Avenue, Wembley which is registered in his sole name under title number
NGL800596. The title entries show that Rodion acquired the property in 2001 and that it is
charged to Santander. Rodion says he re-mortgaged the property in 2010 and the amount
currently due to Santander is approximately £207,000. He produced a screen shot on his
telephone to confirm that figure. The property was placed on the market with Ellis & Co
Estate Agents on 30 March 2016 at an asking price of £349,950. If that price were to be
achieved, taking into account the expenses of sale, there would be net proceeds of about
£100,000. He believes that it will take about 6 weeks to realise this sum. An offer of
£348,000 has been received which he had accepted.
44. Rodion explained when cross-examined that he usually lives at 11 Heritage View, Harrow
where his mother, another brother, Shorab and Shorab's son also reside. He is willing to sell
80 Chamberlayne Avenue to help out Shorab and is willing to allow, if necessary, the entire
net proceeds of sale to be used. He does not regard this is as a loan and is prepared to take a
risk about whether Shorab will ever be able to pay him back. It is for him purely a family
matter, not commerce.
45. Rodion said that the sale had moved forward even since making his witness statement on 5
April 2016. The agents have reported to him there was a new offer of £352,000 which he
has accepted and there is yet further interest. However, he had scant details and did not
know anything about the purchasers and had not received anything in writing yet from the
agents. He accepted that the purchaser at £352,000 might be subject to a chain but expressed
unshakable confidence that the sale could be completed in 6 weeks. He was asked about an
offer which had been made on behalf of the Claimant on 24 February 2016 under which the
Claimant would pay £25,963.94 plus the Defendant's reasonable legal costs. Rodion said
that had the offer been accepted the Claimant, with his help from the proceeds of sale of 80
Chamberlayne Avenue, and funds held by his mother would have been able to pay the sum
offered. My only concern about Rodion's evidence is that he is almost certainly over-
optimistic about the length of time the sale of his flat will take to complete.
46. The Defendant called only Mr Thompson to give evidence. To my mind that was a
surprising decision because Mr Thompson, as the Defendant's solicitor, has only limited
first-hand knowledge about a number of key matters. Entirely understandably, Mr
Thompson was unable to provide helpful answers to many of the questions put to him in
cross-examination because he had no relevant knowledge. His statement includes a number
of paragraphs which are mere argument rather than evidence, including his opinion that the
court should not exercise its equitable jurisdiction in favour of the Claimant. His evidence is
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based upon what he has been told by Mr Andrew Butler. In particular, Mr Thompson was
not able to provide any real help about the schedule of expenditure the Defendant claims to
have incurred as a result of the forfeiture amounting to £66,717.02, save for those items
relating to his firm's legal costs. I accept Mr Thompson's evidence about his conversation
with Tulsi Shah of Makwanas Solicitors on 8 August 2014 which is recorded in his
attendance note. Mr Thompson has no recollection of being contacted by Shorab following
the forfeiture.
47. The correspondence and emails passing between Colliers and the Claimant were not
illuminated by Mr Thompson's evidence but they largely speak for themselves. It is not
seriously in doubt that the Defendant, through its managing agent and solicitors made real
efforts to recover, without taking enforcement action, the arrears which were due and the
Claimant cannot maintain the suggestion that it was taken by surprise. There is, however, a
most curious aspect of the Defendant's case concerning the schedule of expenditure the
Defendant now seeks if the court were to be inclined to grant relief. Mr Thompson says
baldly in his statement that "the Defendant has suffered prejudice following the forfeiture of
the Lease". He then refers to the schedule of expenditure after which he says:
"… the Defendant has suffered prejudice as it has been unable to re-let the
Forfeited Property for in excess of 18 months since forfeiture took place."
However, when cross-examined, Mr Thompson was unable to explain further the assertion
that prejudice had been suffered and he was unaware of anything the Defendant had been
unable to do as a consequence of the sum due not having been paid.
48. The most surprising aspect of the Defendant's case is that although Mr Thompson, entirely
in good faith, said he thought that the documents supporting the schedule of expenditure had
been disclosed pursuant to the order for disclosure, it has transpired that they were not
provided to the Claimant during the course of preparation for the trial. This is despite Mr
Thompson's firm having made observations about the trial bundles and added documents to
them. It was only after the cross-examination of Mr Thompson was almost complete during
the short adjournment on the second day of the trial that copies of the invoices were handed
to Mr Bowker. He completed his cross-examination without having had a chance to refer to
them and I ruled that they could not be relied upon for the purposes of re-examination. The
trial concluded without the invoices being part of the evidence before the court. I directed
that the Defendant could make submissions about the admission of those documents in
writing with the Claimant having an opportunity to respond. Submissions were duly
received form both parties. The Defendant requests the court to take the invoices into
account. The Claimant objects. I will approach this issue by first summarising Mr
Thompson's evidence about the schedule of expenditure and then considering whether the
invoices should be considered in order to supplement his evidence.
49. Mr Thompson says in his statement that the Defendant has incurred costs which include
service charges, buildings insurance, Local Authority Business Rates and electricity and
other charges. He goes on to say:
"25. Amongst other things, the Defendant has carried out work to secure the
Forfeited Property and ensure that the Forfeited Property is in a suitable
condition to be let to prospective tenants. The Defendant has attempted to
remove vehicles from the Forfeited Property, installed concrete barriers to
ensure the Forfeited Property remains secure.
26. As a result of the improvements to the Forfeited Property, if the Claimant is
granted relief from forfeiture in this claim, the Claimant will have a better
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Property with a substantially increased value of the Leasehold as a result of
their numerous breaches of the Forfeited Lease."
50. I do not find the logic behind these two paragraphs easy to follow. It is stretching a point to
say that a property is improved by attempting the removal of vehicles and it is not at all
clear upon what basis the value of the Unit 4 has been substantially increased or why that
increase in value should flow from the Claimant's breaches of covenant.
51. Mr Thompson said in evidence that the only document the Defendant was relying upon was
the schedule he exhibits and no other documents were relied upon. He was under the
impression that the underlying invoices had been provided to the Claimant's solicitors but he
now accepts that his belief was false. In any event, his firm had the opportunity to include
the invoices in the trial bundles but failed to take it up. As to remaining items:
i. Mr Thompson was not able to provide any help with the basis upon which the
loss of rent is calculated. The schedule of loss refers to an email from Mr Butler
but it has not been disclosed.
ii. He was able to provide a limited amount of help about the claim for legal
expenses. He said much of the work which has been invoiced was carried out
by him at a charging rate between £200 and £225 per hour. However, he said
the Defendant was not relying on any of the invoices.
iii. He was unable to provide any help about the calculation of service charges
after the forfeiture and has not seen the annual certificate which the underlease
requires to correct payments on account.
iv. His understanding, without having first-hand knowledge, is that the concrete
barriers installed in the parking area were there to maintain the security of the
unit by stopping anyone parking close to the shutters of Unit 4.
52. I have been provided with submissions by both parties together with the invoices and other
documents the Defendant wishes to rely on but failed to disclose. The court is asked to
admit them. The Claimant's response is qualified. Some of the items are accepted as proper
items to be included in the tally of sums payable as a condition of the grant of relief, without
accepting that such sums are due as a debt. In those instances the presence or otherwise of
the invoices makes no difference. As to the remaining items, the Claimant says the court
should decline to admit the invoices.
53. It is clearly unsatisfactory for documents to be produced in the course of a short trial
without the other party having an opportunity to consider them and at a moment of the trial
when the witness who relies on such documents has already been cross-examined and has
said in clear terms that additional documents are not relied upon. I can see no good reason
why these additional documents should be admitted. The Defendant had an ample
opportunity to prepare its case. The basis upon which disclosure was ordered was that each
party was required to disclose the documents relied upon. The Defendant has proceeded on
the basis that it did not rely upon the invoices and this was confirmed by Mr Thompson. As
the only witness called by the Defendant he was not in a position to speak to any of the
invoices other than those rendered by his firm and in many instances the invoices do not
speak for themselves. Furthermore, not only were they were produced at a very late stage of
the trial but without there being any adequate excuse for their omission. Indeed, I have a
strong sense that they were only produced in an attempt to bolster Mr Thompson's evidence
when it must have been clear before the trial that he would be unable to help the court about
most of the expenses claimed. It remains hard to fathom why he was tendered as a witness
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instead of someone with relevant knowledge. For all those reasons I decline to exercise my
discretion to admit the invoices which were provided to me after the trial.
Decision
54. At first sight, the Claimant's case does not look promising given the length of the delay in
making the application for relief. A helpful starting point, however, is to consider what the
terms of relief would be if relief is granted and whether the Claimant is able to comply with
them. I start, therefore, by considering the Defendant's schedule of expenditure a copy of
which forms appendix 1 to this judgment. For the purposes of the grant of relief the
Claimant accepts the items under the following headings:
Insurance £2,361.46
Business rates £14,043.66
Electricity £112.86
Bailiff's fee £644.88
Land Registry Fee £12.00
DVLA fee £12.50
Shutters £230.00
Ground rent £200.00
Service charges up to forfeiture £2,155.00
TOTAL £19,772.36
55. A claim is made for 'loss of rent' amounting to £14,808.23. I can disregard the absence of a
proper explanation for the calculation because the Defendant has not incurred a loss of rent,
other than the ground rent. The underlease was granted for a substantial premium at a
ground rent. During the twilight period pending the application for the grant of relief and
pending the trial of the claim the only loss suffered by the Defendant is the ground rent,
insurance rent and service charges. No evidence has been provided about efforts made by
the Defendant, if any, to let Unit 4 or to grant a new long lease.
56. The largest remaining item is legal fees. The Defendant is only entitled to recover as a
condition of the grant of relief legal expenses relating to the forfeiture. Legal fees of the
claim seeking relief are at large and fall to be considered applying the provisions of CPR
44.2. Five invoices were rendered to the Defendant. Three invoices post-date the issue of
the claim and are clearly costs of the claim. The two invoices which pre-date the claim are
for £4,856.88 (dated 30.9.14) and £1,203.00 (dated 19.03.15) and total £6,059.88. Mr
Thompson's witness statement does not explain these invoices and he was not able to
provide any real assistance under cross-examination. It is notable that the bailiff's fee is not
included and at least some legal work in the form of serving a s.146 notice was otiose. It
would wrong to ignore the legal expenditure altogether because it clearly relates to the
forfeiture but on the basis of the evidence cannot be allowed in full. Doing the best I can I
will allow 50% (rounded to) £3,000.
57. The claim for service charges has to be approached in a similar way. Although the
information is inadequate I cannot ignore the reality that service charges will have
continued to accrue. In the absence of annual certificates and invoices I will take the
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advance rate which prevailed at the time of the forfeiture which was £152 and allow eight
quarters which totals £1,216.
58. The remaining items in the schedule can be dealt with compendiously on the basis either
that the Defendant has not provided sufficient evidence to support them or has not been able
to demonstrate that the items of expenditure are related to the forfeiture.
59. Thus if relief is to be granted the sum to be paid totals £23,988.01 plus interest at a rate to
be determined. The Defendant is entitled to interest on this sum which I assess at 1% over
base rate during the period since re-entry and taking a broad view I shall assume that the
liabilities accrued evenly over the period up to the issue of the claim. The full interest rate
will apply thereafter. Rounding interest for convenience, I turn therefore to consider
whether the Claimant has established that it is able to meet a liability of £24,530 within a
reasonable period as a condition of the grant of relief.
60. As a starting point, I note that this figure is less than the amount the Claimant offered to
pay, plus reasonable costs, on 24 February 2016. It seems unlikely that no consideration was
given, before this offer was made, to how the sum would be paid. Although Rodion's
evidence about the likely time it will take to complete the sale of his flat was optimistic, I
am satisfied that the flat is on the market, there is a buyer and a real likelihood of a sale
taking place within a matter of weeks. Rodion is willing to lend Shorab (and he in turn will
lend the sum to the Claimant) sufficient money to enable the Claimant to pay the sum which
will be payable as a condition of the grant of relief within the immediately foreseeable
future. Without being over precise it seems likely that the money will be available within 12
to 16 weeks of the trial date. This is sufficiently soon to be the "immediately foreseeable
future".
61. I turn to consider the relevance of the illegal activity which led to Shorab's conviction and
sentence of imprisonment. The evidence about this subject is very limited. No evidence was
called by the Defendant who wishes to rely on the seriousness of the offending. Plainly the
sentencing judge regarded the offences as being well over the custody threshold and one
which merited for offences of dishonesty a moderately severe sentence. The conduct
involved activity directly connected with the Claimant's principal business carried on at Unit
4. However, it seems to me that even taking those factors into account it does not fall within
the exceptional category which Jenkins LJ had in mind in Gill v Lewis. His principal
concern appears to have been the risk of the court appearing to be complicit in the continued
use of premises for unlawful or illegal activity by granting relief in the knowledge that such
conduct was likely to continue. That concern simply does not arise here. The Claimant has
lost its licence to grant MOTs certificates and there is no real risk of the conduct being
continued. There is also only very limited evidence about the possibility of the premises
having been tainted by the past conduct. I conclude that Shorab's conviction is not a relevant
factor.
62. The underlease was granted for a substantial premium at a ground rent. To my mind this is
an important factor which weighs heavily in the balance. There may well be different
considerations in relation to a lease at a rack rent. The court should have regard to the value
of the asset which the Defendant will obtain if relief is refused compared with the rent
outstanding at the date of forfeiture and the sum payable as a condition as the grant of relief.
The Defendant exercised its right to forfeit the underlease when the unpaid rent amounted to
£2,155, rather less than 1% of the capital value of the underlease. If relief is granted, the
sum payable will be about 10% of its value. Although it would be wrong to apply a purely
arithmetic approach, in both cases there is a severe disproportion between the value
obtained by the Defendant as a windfall, if relief is refused, and the sum due to the
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Defendant. It seems to me, therefore, that the Claimant in this case has a particularly
powerful case for relief given the starting point that equity regards the right of re-entry in
the case of unpaid rent as security for payment.
63. The Defendant is not able to point to any prejudice it, or any third party, has suffered as a
result of the failure to pay the rent on time, the forfeiture or, indeed, the delay in making the
application. The Defendant took no steps to market Unit 4 with a view either to the grant of
a lease at a market rent or a long lease for a premium. The Defendant stood by to await
events.
64. The very lengthy period of delay is a matter of very great difficulty for the Claimant to
overcome. I have to consider whether it can be said the application was made with
"reasonable promptitude" taking the 6 month period as a guide and having due regard to it.
There is an explanation for the long delay. It arises from a combination of Shorab's ill
health, the restraint order, the lack of money and the absence of specialist advice. His
evidence that he did not believe it was possible for the lease to be taken away from the
Claimant rings true in view of its value. That evidence combined with the well understood
effects of depression, of which I take judicial notice, which may include an inability to
focus on important issues, are weighty factors to be put in the balance. The discretion to
grant relief is a broad one and I am not constrained by a fixed time limit which prevents the
court from granting relief. Reasonable promptitude is an elastic concept which is capable of
taking into account human factors, including those I have mentioned. Although 14 months
is more than double the guide period of 6 months (and near to the breaking point for the
concept's elasticity), I am satisfied that it would be wrong to bar the Claimant from
obtaining relief in the circumstances of this case. In the light of the evidence I am able to
conclude that the application was made with reasonable promptitude.
65. I will make an order granting the Claimant relief from forfeiture in relation to Unit 4 on
terms that the Claimant pays to the Defendant the sum of £24,530 within a period following
the date of handing down this judgment which I will fix after hearing submissions. I will
hear counsel as to the remaining terms of the order and any other matters which arise.
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