John Smith & Company (Edinburgh) Ltd v Hill & Ors [2010] EWHC 1016 (Ch)

[2010] EWHC 1016 (Ch)Case No HC09C03328
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 11/05/2010
Before
MR JUSTICE BRIGGS
Between
JOHN SMITH & COMPANY (EDINBURGH) LIMITEDClaimantRICHARD JOHN HILLDefendantsJONATHON SCOTT POPEDefendantELDRIDGE, POPE & CO LIMITEDDefendant
Mr Mark Wonnacott (instructed by Davenport Lyons, 30 Old Burlington Street, London W1S 3NL) for ClaimantMr Jeremy Bamford (instructed by Hammonds, Rutland House, 148 Edmund Street, Birmingham B3 2JR) for First and Second DefendantsHearing Hearing date: 29 th April 2010
Judgment

INTRODUCTION

[1]There are before me two cross-applications for summary judgment by, respectively, the first two defendants and the claimant in proceedings which, as between them, constitute a claim in nuisance by a reversioner upon a lease, against the Administrators of the reversioner’s own landlord. There is, as will appear, very little dispute as to primary fact, but both the proceedings and the cross-applications raise two issues of law, at least one of which is of some considerable interest and difficulty.[2]The first issue is whether there is, on rather unusual facts, an exception to the generally recognised and longstanding principle that a reversioner cannot sue upon a merely temporary nuisance until his reversion falls into possession. The second issue is whether administrators of an insolvent company incur personal liability for a nuisance committed by the company, in circumstances where the company’s conduct is the result of their exercise of statutory powers to control the company’s affairs.

THE FACTS

[3]The third defendant Eldridge Pope & Co Ltd is the tenant in possession of premises on the ground floor and basement of a six storey building in Bristol known as St Stephen’s House, Colston Avenue, Bristol BS1 4SP (“the Property) pursuant to a lease (“the Occupational Sublease”) dated 7th February 1997 for a term of thirty years from 25th December 1996 at an initial rent of £60,000 per annum for the first year, rising in annual steps to £85,000 in the fifth year. The use of the ground floor and basement contemplated by the Occupational Sublease was that of a public house, and until January 2007 the defendant traded from the Property as “Bar Excellence”, whereupon it gave up occupation, and has not returned. By then, the freeholder of the Property was Kenmore St Stephen’s Ltd (“Kenmore”).[4]On 30th April 2007 Kenmore granted a 999 lease of the first to fourth floors inclusive of the Property to Urbis St Stephen’s House Residential Ltd (“Urbis Residential”) at a premium of £2.2 million and a peppercorn rent. At about the same time Urbis St Stephen’s House Freehold Ltd (“Urbis Freehold”) acquired the freehold of the whole of the Property from Kenmore, and thereby became the immediate landlord of the third defendant. The two Urbis companies acquired their respective interests in the Property with a view to redevelopment of the first to fourth floors. For that purpose, scaffolding was erected around the whole of the Property in February 2008 by Ashton Scaffolding Services Ltd (“Ashton”) pursuant to a subcontract from the main development contractors SRC Property Build Ltd.[5]On 29th February 2008 Urbis Freehold granted the claimant John Smith & Co (Edinburgh) Ltd a 999 concurrent lease of the basement and ground floor of the Property at a premium of £1.5 million and at a peppercorn rent, subject to the third defendant’s rights under the Occupational Sublease. The claimant thereby replaced Urbis Freehold as the immediate landlord of the third defendant.[6]Both the concurrent lease and the Occupational Sublease contained provisions which, albeit differently worded, enabled the respective landlords thereunder to erect and maintain scaffolding around the Property for the purpose (inter alia) of redevelopment, with the proviso that the redevelopment and its associated scaffolding should respectively be completed and removed as quickly as reasonably possible, causing as little nuisance, inconvenience, annoyance or disturbance to the tenant as reasonably possible, without thereby committing a breach of the respective, standard form, qualified covenants for quiet enjoyment. Nothing turns on the differences of language used in those reservations of rights by the respective lessors, as counsel were, eventually, constrained to agree. It is therefore unnecessary for me to set them out in full.[7]The redevelopment of the upper part of the Property ran into difficulties later in 2008, with the consequence that development work ceased when only 80% complete in September, and the first and second defendants, Richard Hill and Jonathan Pope of KPMG LLP were appointed Administrators of both Urbis Freehold and Urbis Residential by the directors of those companies on 30th October. The scaffolding was, at that date, still in place, but all development work at the Property had by then ceased.[8]The Administrators were faced with the decision whether to attempt to arrange for the completion of the development or whether to seek to sell the Urbis companies’ interests in the Property as it stood. They decided, for reasons which do not matter for present purposes, to arrange for the minimal work to be done necessary to keep the partly developed upper floors wind and water-tight, but otherwise to seek a buyer for that part of the Property as it stood. Marketing began in December 2008, and the Urbis companies’ interests in the Property were in due course sold on 10th August 2009.[9]On the reasonable assumption that any purchaser of the upper floors of the Property would wish to complete its redevelopment, the Administrators took no steps to have the scaffolding surrounding the Property removed. On the contrary, and (I infer) faced with a threat by Ashton to remove the scaffolding, the Administrators made arrangements for payment of scaffolding rentals to be made to Ashton by or on behalf of the Urbis companies, funded by the secured creditors in the administration, payments commencing in May 2009. The consequence was that the scaffolding remained in place around the Property throughout the intermission in its redevelopment which began in September 2008 and ended at some time after the sale in August 2009.[10]Although not in occupation of the ground floor and basement, the third defendant began complaining about the continued presence of the scaffolding, alleging in particular that it interfered with safe access to and egress from those premises, and that it was substantially interfering with the third defendant’s attempts to market the ground floor and basement, by way of an assignment of the Occupational Sublease. The third defendant’s complaints were duly passed by the claimant up the tenurial chain to the Administrators.[11]Eventually, the third defendant sought to rely upon the breach of the claimant’s covenant for quiet enjoyment constituted by the continued presence of the scaffolding after the cessation of development works, as a reason for refusing to pay its rent, leading to the commencement of the present proceedings by claim form issued against all three defendants on 16th September 2009. As against the third defendant it was a claim for arrears of rent, to which the third defendant responded by a defence and counterclaim, seeking damages for breach of the claimant’s covenant for quiet enjoyment (which it had inherited upon the grant of the concurrent lease) and claiming a set-off of those damages against liability for the rent. As against the Administrators as first and second defendants, the claim was for nuisance, in the form of an indemnity, by way of damages, for any sum which a court might decide that the third defendant was entitled to recover or withhold by way of set-off, together with costs, in respect of the period up to 10th August 2009. Understandably, the claimant did not waste powder and shot by a claim against Urbis Freehold under the covenant for quiet enjoyment in the concurrent lease, due to its hopeless insolvency. Such a claim would during the administration have required the court’s permission.[12]By application notice dated 4th December 2009 the Administrators sought defendants’ summary judgment against the claimant, upon the sole ground that the temporary interference (if any) caused by the continued presence of the scaffolding between September 2008 and August 2009 could not possibly qualify as the basis for a nuisance claim by the claimant as reversioner upon the Occupational Sublease. By their defence (but not by way of knockout blow justifying summary judgment) the Administrators contend in addition first that the continued presence of the scaffolding was not a nuisance even as against the third defendant, secondly that in any event it went no further than that which was permitted by the reservations permitting scaffolding in the concurrent lease, and thirdly that they incurred no liability as Administrators in connection with the retention of the scaffolding by the Urbis companies, even if those companies might have incurred a liability in nuisance.[13]Finally, the claimant made its own application for summary judgment on liability against the Administrators by application notice dated 22nd December 2009. Its position is that, while it concurs with the Administrators in denying that the third defendant has anything to complain about, it seeks to pass on any liability to the Administrators by way of what Mr Wonnacott for the claimant described as an unanswerable claim for an indemnity, to the extent that the third defendant established any right of set-off against its otherwise admitted liability for rent under the Occupational Sublease.

THE ISSUES

[14]There is a partial asymmetry between the respective positions of the claimant and the Administrators. The only thing about which they both agree is their denial that the third defendant has anything to complain about by reason of the continued presence of the scaffolding. On the face of it, bearing in mind in particular that the third defendant was not in occupation of the basement and ground floor premises at any time during the relevant period, there is much to be said for that denial. Nonetheless they both acknowledge that the court cannot at this stage conclude, without a trial, that the third defendant has nothing more than a fanciful prospect of showing an actionable interference with its quiet enjoyment of those premises, in particular in relation to its ability to dispose of its lease by way of assignment. No point was taken by the Administrators, at least for summary judgment purposes, that the qualified covenant for quiet enjoyment in the Occupational Sublease was in terms insufficient to protect the third defendant from an interference by the Urbis Companies, in the sense of providing a basis for a set-off against rent.[15]Secondly, the claimant and the Administrators’ positions in relation to the ability of the claimant as reversioner to pursue a claim in nuisance are symmetrical, in the sense that each contend that the arguments of their opponent have no real prospect of success. Apart from that, the Administrators do not say that, if otherwise entitled to sue, the claimant is bound to fail to establish liability against the Administrators, but merely that the issue is unsuitable for summary determination against them. Finally, although the claimant initially recognised an obligation to establish, beyond realistic challenge, that the continued presence of the scaffolding could not be justified by the reservation permitting scaffolding in the concurrent lease, the similarity in the effect between the respective reservations in that lease and in the Occupational Sublease eventually led both counsel to a grudging acknowledgment that it was unrealistic to think that the continued presence of the scaffolding could, at one and the same time, be justified under the concurrent lease while nonetheless constituting a breach of the covenant for quiet enjoyment in the Occupational Sublease.

ANALYSIS

[16]I have concluded that it is neither possible, nor would it be convenient as an exercise of good case management, to grant summary judgment on either of the parties’ competing applications. It follows that the issues debated before me will have to be resolved, in the absence of any compromise, at trial, upon the basis of findings rather than assumptions as to underlying facts and issues, such as, in particular, the question whether any actionable interference has in fact been caused to anyone by the scaffolding. It also follows that, notwithstanding the interest and difficulty of the issues of law raised by these applications, I should in expressing my reasons do so with something less than the detail which I would have included, had I found it possible or appropriate finally to determine them. Nonetheless, and not least because of the novelty of Mr Wonnacott’s submissions on the question whether his client as reversioner can sue for a temporary disturbance, I shall provide a little more than a bare summary.

NUISANCE CLAIM BY THE CLAIMANT AS REVERSIONER

[17]Mr Wonnacott put his claim in two alternative but related ways. Common to both was the submission that an action in nuisance has always been available as a means of redress, not merely for interference with the possession, use and enjoyment of land, but for interference with the enjoyment of any interest in land, including any incorporeal hereditament. Subject to that, his submissions diverged into two parts.[18]The first was that rent has, from the earliest of times, been regarded as an incorporeal hereditament in its own right, so that regardless of any limitations upon the right of a reversioner to sue in nuisance, an action lies for nuisance constituted purely and simply by interference with rent, in much the same way as, he submitted, had been allowed in the past in connection with interference with the incorporeal hereditament constituted by a market toll.[19]For that submission Mr Wonnacott relied on the description of a rent as an “incorporeal thing” known to the medieval common law, in Holdsworth’s History of English Law, vol. 3 at page 153, upon the classification of a rent service within the list incorporeal hereditaments set out in Blackstone’s Commentaries at pages 41 to 43 of Book II, and upon the definition of ‘land’ in section 205(ix) of the Law of Property Act 1925 as including “a rent and other incorporeal hereditaments”.[20]For the proposition that an action in nuisance will lie for the interference with any of a person’s rights over land Mr Wonnacott referred me to Newark on The Boundaries of Nuisance (1949) 65 LQR 480 (described by Lord Goff as a “seminal article” in Cambridge Water v. Eastern Counties Leather [1994] 2 AC 264 at 299), and in particular, at page 482 an attribution to Bracton of the following analysis:
“A man has rights over his own land which are conferred a jure, and he likewise has rights over another which are created ab homine: entirely deprive him either and you disseise him; incommode him in the enjoyment of either and you commit a nuisance.”
He relied also on the uncontroversial statement later on the same page of that article that nuisance lay not only for interference with natural rights incidental to the occupation of land, but also for interference with easements.[21]The high point of Mr Wonnacott’s submissions on this part of his case consisted of a passage in the Earl of Shrewsbury’s Case (1609) 9 Co Rep 46b at 51(a) apparently recognising (albeit obiter) that rent was one of those rights in respect of the infringement of which an action would lie for nuisance on the case.[22]Mr Wonnacott readily acknowledged that he could point to no reported decision in which an action for nuisance constituted by interference with rent had ever been allowed, or for that matter refused, so that as far as legal research goes, it appears to have lain around unused and unnoticed for a little over 400 years. Furthermore, as Mr Bamford submitted for the Administrators, the world has moved on since medieval times, so much so that rent has lost, or as some would say escaped from, many of its medieval trappings. In CH Bailey Ltd v. Memorial Enterprises [1974] 1 WLR 728, at 732, Lord Denning MR said:
“It is time to get away from the medieval concept of rent.”
He referred to the following passage from Holdsworth (vol 7 page 262):
“… in modern law, rent is not conceived of as a thing, but rather as a payment which a tenant is bound by his contract to make to his landlord for the use of the land.”

Lord Denning continued:

“The time and manner of the payment is to be ascertained according to the true construction of the contract, and not by reference to out-dated relics of medieval law.”
To the same effect may be found passages in the speeches of Lords Diplock and Simon in United Scientific Holdings Ltd v. Burnley Borough Council [1978] Ac 904 at 935 and 947 respectively.[23]Rent is not, of course, a purely contractual matter, even in the 21st century. Both the liability to pay, and the right to receive, rent continue to be incidents of interests in land, passing respectively with the lease and with the reversion, and enforceable by privity of estate, rather than merely by privity of contract. Nonetheless the better view in my judgment is that the concept of an action in nuisance purely for interference with rent, divorced from the interest in land to which it is attached, is one of those medieval relics which, not least because it appears to have lain unused for four centuries, is best returned to the historical scrap heap.[24]It is unnecessary for me to reach a final conclusion on that question, because I have been persuaded that Mr Wonnacott’s alternative way of putting his case in nuisance has a real prospect of success. It runs as follows. The right to rent is an aspect of the proprietary rights constituted by a landlord’s reversion. An interference with the tenant’s quiet enjoyment of the demised premises which, because it constitutes a breach of the landlord’s covenant for quiet enjoyment, entitles the tenant to set off damages for that breach against his liability to pay rent, may therefore constitute an injury to the reversion, because it permanently deprives the landlord of a valuable part of his rights constituted by his reversionary interest.[25]Generally speaking, temporary interferences by neighbours with a tenant’s enjoyment of the demised premises will not constitute a breach of his landlord’s covenant of quiet enjoyment, because a landlord does not by that covenant in effect guarantee the peaceful enjoyment by the tenant of the demised premises, free from any interference from his neighbours. In such cases the rent remains payable in full, and the reversion is truly unaffected by the nuisance, at least until the lease is brought lawfully to an end. Nonetheless, some forms of covenant for quiet enjoyment may constitute in effect a guarantee that the tenant may peaceably enjoy the demised premises free from any interference, for example, by a superior landlord or, as appears to be accepted as arguable in the present case, by a former immediate landlord who has distanced himself from an immediate relationship with the tenant by the grant of a concurrent lease. The relevant covenant in the Occupational Sublease is in the typical qualified form, which does not in terms protect against interference by a superior landlord, but the non-exhaustive definition of landlord may be wide enough to embrace Urbis Freehold, which was, prior to the grant of the concurrent lease, the immediate landlord of the third defendant. If so the qualified covenant would also protect against interference by Urbis Residential, claiming through or under Urbis Freehold. Following British Anzani (Felixtowe) Ltd v. International Marine Management (UK) [1980] 1 QB 137, a tenant may rely upon an equitable set-off in relation to damages for breach of his landlord’s covenant, in abatement of his liability for rent.[26]But for Urbis Freehold’s insolvency, the claimant would have had a workable remedy against that company under its covenant for quiet enjoyment in the concurrent lease. In the present case however such an action against Urbis Freehold will be both valueless, and dependant upon the obtaining of the court’s permission to proceed, for as long as that company remains in administration. Since however the retention of the scaffolding was, on the claimant’s case, at one and the same time the conduct of the Urbis companies (allegedly within the confines of the covenant for quiet enjoyment in the Occupational Sublease) and a nuisance for which the Administrators are responsible either as agents of the Urbis companies or as procurers, there is on the unusual facts of the present case, an actionable injury to the claimant’s reversion constituted by the equitable set-off triggered by the retention of the scaffolding.[27]The principal difficulty with that imaginative and elegant argument is constituted by the presence of a trilogy of Victorian cases which have, for many years, been treated as authority for an invariable rule that a reversioner may not sue for a nuisance constituted by a merely temporary interference with the use and enjoyment of land, if it is capable of being terminated by the perpetrator before the reversion falls into possession at the end of the lease, without having, in the meantime, caused some permanent lasting damage to the land, or without constituting some obstruction which will naturally endure unless dismantled. The cases in question are Mumford v. The Oxford, Worcester and Wolverhampton Railway (1856) 1 H&M 34; Simpson v Savage (1856) 1CB(NS) 347 and Cooper v. Crabtree (1882) 20 Ch D 589. The features common to all three of those cases included the following. First, in each case the perpetrator of the alleged nuisance was a mere third party neighbour, rather than anyone in respect of whose conduct the claimant reversioner in each case had given his tenants a covenant for quiet enjoyment. Secondly, the conduct complained of was inherently temporary in nature, such as hammering upon, or the emission of smoke from, adjoining land, or the erection of a temporary hoarding, capable of being brought to an end by the perpetrator before the claimant’s reversion fell into possession. Thirdly, although some of the relevant tenants of the claimant landlords were sufficiently aggrieved by their neighbours’ conduct to give their landlord notice to quit, the evidence fell short of demonstrating that any tenant had actually left the relevant premises, or ceased paying rent. Even if an equitable set-off was in theory available prior to the British Anzani decision, none of the tenants would have had a right to such a set-off since the conduct complained of did not constitute a breach of their landlords’ covenants of quiet enjoyment. In each case, the court concluded that the conduct complained of was not of a sufficiently enduring character to be capable of causing injury to the claimant’s reversion. Claims that the conduct in question had diminished the value of the reversion were rejected on the facts.[28]It follows that none of those cases included, as part of their ratio, a conclusion that a set-off by a tenant against rent otherwise due arising from conduct consisting of an interference with his quiet enjoyment of the demised premises could not constitute an injury to the landlord’s reversion. As appears from the present case, there is no reason why, in principle, such a set-off would not avail a tenant complaining of a purely temporary interference with his quiet enjoyment of the demised premises. For the purpose of his set-off, the question whether the interference might extend beyond the end of the lease would be to him wholly irrelevant.[29]Some indication that the rule established by that trilogy of cases may not be of invariable application is provided by Bell v. Midland Railway Company (1861) 10 CB(NS) 287. The owner of a wharf let part of it to a tenant on the basis of a rent which included a royalty in respect of goods traded from it. He was entitled to a statutory right of way to and from the wharf along a railway siding connecting with the Midland Railway, and the railway company had obstructed access to his siding by parking rolling stock at the junction, with a view to generating increased trade at a neighbouring wharf in which it had an interest. Although Wills J thought that stationary rolling stock was a sufficiently permanent obstruction, the other two members of the court held that because the monetary return to the claimant reversioner under the royalty agreement would be adversely affected by the obstruction, that constituted a sufficient injury to the reversion to enable the claimant to sue.[30]In my judgment it is at least well arguable that the supposed rule that a reversioner may not sue upon a temporary nuisance is no more than a logical consequence, when applied to typical facts, of the true principle, which is that a reversioner may not sue in relation to a nuisance unless it causes injury to his reversion. If that is the true principle, then there may be unusual fact situations (such as that which occurred in the Midland Railway case) in which a temporary nuisance does injure the reversion, and it is at least well arguable that the assumed facts in the present case would also constitute a permissible exception.[31]Nonetheless Mr Wonnacott’s submissions fell short of persuading me that the Administrators have no real prospect of demonstrating otherwise, for three reasons. The first is that the factual situation in the present case (nuisance by insolvent superior landlord for which office holders are personally liable) is so unusual that it may not call for the recognition of any exception to the general rule, bearing in mind in particular that a cause of action against Urbis Freehold would lie under the covenant of quiet enjoyment in the concurrent lease and would produce the same result, but for its insolvency.[32]The second reason is that, strictly, it is the Urbis companies’ participation in the alleged nuisance which affords the third defendant its arguable right of set-off, and not the participation of the Administrators, against whom alone the present claim is made. There has as yet been no careful scrutiny of the precise basis upon which the Administrators directed, authorised or procured the retention of the scaffolding. If for example they obtained the money for the scaffolding rent directly from the secured creditor and paid it to Ashton without any significant involvement of either of the Urbis companies, there may have been no relevant nuisance committed by the companies at all. The final resolution of this first issue is therefore better carried out when the precise facts have been ascertained at trial, with the benefit of disclosure.[33]The third reason is that I am by no means sure that, on its true construction, the Occupational Sublease does protect the third defendant from interference by either of the Urbis Companies. This is a pure question of construction which might have been capable of resolution on these summary judgment applications, but neither counsel addressed any submissions to the point. Furthermore, since the claimant seeks only an indemnity against such abatement of rent as the third defendant may be entitled to, this point does not directly impugn the limited relief sought at this stage. In the absence of the third defendant it would in any event be a point best left to a hearing at which a decision would be binding on all parties.

LIABILITY OF THE ADMINISTRATORS

[34]The factual uncertainty referred to above prevents a clear conclusion at this stage about the second issue, namely whether the Administrators’ participation in the process which led to the retention of the scaffolding during the temporary suspension of the development works at the Property was sufficient to render them personally liable for any nuisance thereby caused. Speaking generally, a person who causes or commits a nuisance does not avoid liability by pleading that he did so as an agent for, or upon the authority of some other person: see Re Goldberg (No 2) [1912] 1 KB 606.[35]Similarly, where a director instructs a company’s employee to commit a tort, the director will generally be personally liable: see Mancetta Developments Ltd v. Garmanson [1986] QB 1212. The editors of Lightman and Moss on the Law of Administrators and Receivers of Companies (2007) suggest, at paragraph 9-029, that the law treats administrators no differently from directors in that respect.[36]Nonetheless, in MCA Records Inc v. Charly Records Ltd [2001] EWCA Civ 1441 the Court of Appeal held that where a director does no more than carry out his constitutional role in the governance of a company, or exercises control through the constitutional organs of the company, he may not incur personal liability in circumstances where the company, thus controlled, commits a tort: see per Chadwick LJ at paragraphs 48 to 50. Earlier, at paragraph 47 Chadwick LJ cited with approval the following extract from the judgment of Le Dain J giving the judgment of the Federal Court of Appeal of Canada in Mentmore Manufacturing Co Ltd v. National Merchandising Manufacturing Co Inc (1978) 89 ELR 3d 195, at 202:
“On the one hand, there is the principle that an incorporated company is separate and distinct in law from its shareholders, directors and office holders, and it is in the interests of the commercial purposes served by the incorporated enterprise that they should as a general rule enjoy the benefit of limited liability afforded by incorporation. On the other hand, there is the principle that everyone should be answerable for his tortious acts.”
And (at paragraph 15 in Mentmore), he continued:
“Enquiries into the matter will or may involve an “elusive question” turning on the particular facts of the case, and whose resolution may in turn involve the making of a policy decision as to the side of the line on which the case ought to fall.”
[37]Administrators are vested with the control of a company in administration not through its ordinary constitutional organs such as general meetings or directors’ meetings, but by a statutory code. There is as yet no authority (or at least none to which I was referred) which addresses the issues outlined in the MCA Records case by reference to administrators rather than directors. Again, this is therefore a case in which it would be preferable for the facts relating both to the question whether or not a nuisance was caused in the present case and, if so, precisely by what process of intervention by the Administrators into the Urbis companies’ affairs, to be finally determined at trial before the issue as to the Administrators’ personal liability is determined.[38]The result is that both applications for summary judgment fail and must be dismissed.