Pineport Ltd v Grangeglen Ltd [2016] EWHC 1318 (Ch)

Case No HC-2015-004127

[2016] EWHC 1318 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 13/06/2016

Before

CHIEF MASTER MARSH

Between

Pineport LimitedClaimant

Grangeglen LimitedDefendant

Mr Robert Bowker (instructed by Surjj Legal Ltd) for Claimant

Mr Jamal Demachkie (instructed by Blaser Mills LLP) for Defendant

Hearing Hearing dates: 6 and 7 April 2016

Judgment

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 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

[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.

[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,

(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 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 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:

“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.” “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.”

[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.

[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.”

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 inInntrepreneur 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):

“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 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 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.

[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 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 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 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 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 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.