Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 17 June 2026
Before
MR JUSTICE RICHARDS
Between
EDGWARE ROAD (2015) LIMITEDAppellantTERA WESTEND LTDRespondentEDGWARE ROAD (2015) LIMITED AppellantTERA WESTEND LTD RespondentNicholas Trompeter KC (instructed by Ronald Fletcher Baker LLP) for AppellantEmer Murphy (instructed by Stepien Lake LLP) for RespondentHearing Hearing date:11-12 February and 29 May 2026Approved JudgmentThis judgment was handed down remotely at 10.30am on 17 June 2026 by circulation to the parties or their representatives by e-mail and by release to the National Archives
INTRODUCTION
[1]The Appellant (ERL) was, at material times, the landlord of premises (the Premises) in Edgware Road, London. The Respondent (TWL) held the Premises under a lease dated 26 March 2014 (the Lease) and claimed to carry on a restaurant business from them. The majority of the shares in TWL are owned by Mr El Gibaly who is, with Mrs Aisha Aliu, a director of TWL. On 6 May 2022, ERL entered the Premises and, on its case, forfeited the Lease.[2]TWL brought a claim in the County Court at Central London asserting, among other matters, that ERL had not validly forfeited the Lease and was therefore a trespasser when it re-entered the Premises. TWL claimed damages for profits said to be lost as a result of this asserted trespass. It also sought relief from forfeiture. HHJ Monty KC (the Judge) tried TWL’s claim and on 4 November 2024, the Judge handed down his reserved judgment (the Judgment). References in this judgment to numbers in square brackets are to paragraphs of the Judgment unless the context requires otherwise. In the interests of readability, I will also try to use the same defined terms as are used in the Judgment.[3]The Judgment reveals just how poorly both ERL and TWL have behaved during the course of this dispute: i) The Judge found that TWL was, at material times, a dormant company and that the profits arising from the restaurant business accrued to another company (WLR) that was, like TWL, under the ultimate control of Mr El Gibaly. TWL’s claim for loss of profits would therefore have failed (had it not been discontinued during the trial before the Judge), because it had not lost any profits. The Judge found at [220] that TWL knew all along that it was dormant and had brought its claim on a basis that it knew to be untrue. At [171], the Judge found that Mr El Gibaly had made a deliberate attempt to conceal the true position by preparing confected accounts suggesting that TWL was earning profits. In his judgment on costs, the Judge characterised the loss of profits claim as dishonest and TWL does not challenge that assessment in this appeal. ii) ERL gave an untrue account to the Judge of what happened to some £43,800 (the £43,800) in a rent deposit account described in paragraphs 18 to 20 below.[4]The Judge concluded that there were no arrears of rent or service charge as at 6 May 2022 because, in summary, the £43,800 that ERL had appropriated more than counteracted the arrears on which it relied. However, given the conclusions summarised in paragraph 3.i), the Judge would have refused TWL’s claim for lost profits. That was sufficient to dispose of the claim. However the Judge also expressed obiter conclusions on other matters in dispute between the parties. In those obiter conclusions, the Judge held that, if he were wrong in his conclusion on arrears of rent and service charge and ERL had validly forfeited the Lease, he would not have given TWL relief against forfeiture.[5]ERL now appeals, with the permission of Marcus Smith J against the Judge’s conclusions. TWL has filed a Respondent’s Notice that advances further arguments, unsuccessful before the Judge, as to why it owed no arrears of rent or service charge as at 6 May 2022. In its Respondent’s Notice, TWL also argues that, even if the Lease was validly forfeited, it should be given relief from forfeiture.[6]There was a hearing before me on 11 and 12 February 2026. Following that hearing, I sent the parties a list of questions (Post Hearing Questions) in areas where I needed more assistance. In response to the Post Hearing Questions, both ERL and TWL applied to amend their Grounds of Appeal and Respondent’s Notice respectively and each opposed the other’s applications to amend.
PART A – THE JUDGMENT
[7]The trial before the Judge took place between 12 and 16 February and 20 to 22 February 2024. The Judge circulated a first draft judgment on 5 September 2024. However, all parties, and the Judge, came to accept that this draft judgment did not address ERL’s argument that it was entitled to forfeit the Lease by reference to arrears of service charge as well as arrears of pure rent. As a result, the draft judgment did not adequately address the question of whether there were arrears of service charge as at 6 May 2022.[8]The Judge therefore recalled this draft judgment and there was a further hearing on 19 September 2024 with the Judge handing down the reserved Judgment on 4 November 2024. Although not raised as a formal ground of appeal (or a ground specified in the Respondent’s Notice), both parties suggest that the delay in handing down the Judgment means that this court should have less confidence in it than would otherwise be the case.
Key facts found in the Judgment
[9]None of the Judge’s conclusions of primary fact are challenged and the summary in this section is taken from the Judgment.[10]The Lease was originally entered into on 26 March 2014 between Central London Investments Limited (CLIL) as lessor and Interforce Leisure Limited (ILL) as lessee. CLIL assigned its reversionary interest to ERL in 2017 ([44]) and ILL assigned its interest in the Lease to TWL on 24 September 2019 with the result that TWL became the tenant of ERL.[11]It was WLR (rather than TWL) that ran the restaurant business at the Premises. Mr El Gibaly’s attempts to present TWL as the entity that earned profits attracted the adverse findings of the Judge to which I have referred in paragraph 3.i) above.[12]Mr El Gibaly was a director of ILL. He also had a connection with both TWL and WLR.[13]When TWL acquired the Lease, it entered into a deed (the Rent Deposit Deed) with ERL. I will consider the terms of the Rent Deposit Deed later in this judgment when I address ERL’s grounds of appeal. For present purposes it is sufficient to note that the Rent Deposit Deed required TWL to pay £107,000 into an account in the name of ERL (the Rent Deposit Account). The balance of the Rent Deposit Account was intended to stand as security for TWL’s obligations under the Lease. The Rent Deposit Deed set out the circumstances in which ERL was entitled to withdraw sums from the Rent Deposit Account. It is common ground that, unless and until ERL became entitled to withdraw such sums, the amount standing to the credit of the Rent Deposit Account was beneficially owned by TWL, albeit legally owned by ERL since the Rent Deposit Account was in ERL’s name.[14]After TWL acquired the Lease, a business plan was prepared for a restaurant concept known as “Mua Mua” to be run from the Premises. The Premises underwent a refurbishment programme in late 2019 extending into 2020 ([48]). The Judge did not decide whether it was TWL, WLR or someone else that incurred that expenditure, but it is clear that ERL did not incur it.[15]By March 2020, the effects of the COVID pandemic were being felt. The restaurant at the Premises could not lawfully be operated while national restrictions were in force and TWL stopped paying rent in March 2020 ([50] and [51]). Rent accruing after March 2020 can be divided into two categories: i) Rent accruing in the period from 21 March 2020 to 18 July 2021 (the Protected Period) was Protected Rent in the sense that various statutory provisions precluded ERL from taking various steps to enforce its collection (including forfeiture). In addition, the regime set out in The Commercial Rent (Coronavirus) Act 2022 (the 2022 Act) later came to provide for a process of arbitration to determine how ERL and TWL should share the consequences of TWL’s inability to pay Protected Rent because of the COVID pandemic. ii) I describe rent accruing in the period after July 2021 as Non-Protected Rent because the restrictions in the 2022 Act, and the arbitration provisions set out in the Act, were not applicable to it.[16]On 9 July 2020, ERL withdrew £65,000 from the Rent Deposit Account (the £65,000). The Judge found that this withdrawal was in accordance with the Rent Deposit Deed and the sum withdrawn was applied in satisfaction of two quarterly payments of Protected Rent, each of £32,500, that were due on 25 March 2020 and 24 June 2020 ([100]). During the appeal, I was shown some evidence that ERL’s agents, Orbit, had not, in its internal ledgers, allocated the £65,000 to any rent arrears in existence as at 9 July 2020. However, in circumstances where neither side has challenged the Judge’s conclusion at [100], I will not depart from the Judge’s conclusion in this regard.[17]On 28 July 2020, ERL withdrew the £43,800 which was the remaining balance standing to the credit of the Rent Deposit Account. TWL was not in rent arrears on that date. It is common ground that ERL was not permitted by the terms of the Rent Deposit Deed to make that withdrawal. The Judge found as a fact at [100] that: …Further, that must mean that the transfer of £43,800 on 28 July 2020 was made when there were no arrears, and therefore the £43,800 was not in fact drawn down for the purposes set out in the Deed, nor was it deemed to be. As Ms Murphy says, this wrongful withdrawal in effect deprived the sum of £43,800 as having the quality of the deposit fund.[18]ERL made an untrue statement verified by a statement of truth in paragraph 2.1 of its Rejoinder, that it was simply moving that sum to another Rent Deposit Account. That version of events would have suited ERL’s case since, if the £43,800 were indeed still sitting in the Rent Deposit Account, it would not have operated to reduce any arrears of rent or service charge that might otherwise have been present (see clause 2.4 of the Rent Deposit Deed quoted in paragraph 37 below).[19]Indeed ERL went even further in its witness evidence at the trial before the Judge. Omar Aziz, of Criterion Capital Limited, who managed the Premises, gave evidence in his witness statement of 31 January 2024 that no sums (whether the £43,800 or the £65,000) had been withdrawn from the Rent Deposit Account. Joe Bromley, a director of ERL, said in his witness statement of 31 January 2024 that, while sums had been moved from one account to another, the full £108,000 (odd) stood to the credit of the Rent Deposit Account and had not been spent.[20]The pleading in the Rejoinder, and the evidence of Mr Aziz and Mr Bromley, were untrue. The Judge made the finding in relation to the £65,000 set out in paragraph 16 above. He also found that ERL spent the £43,800. No-one knows what ERL spent the money on, although Mr Trompeter KC said, on instructions, that ERL and its wider group were under pressure from lenders given that the COVID restrictions meant that landlords in general were often not receiving rent from tenants. The way in which the withdrawal of the £43,800 is to be treated is at the heart of the issues arising on this appeal.[21]The Judge made no finding as to when TWL knew that £43,800 of money that it beneficially owned (see paragraph 13 above) had been withdrawn from the Rent Deposit Account. ERL asserts that TWL knew from January 2022 that the £43,800 had been applied against Protected Rent and positively advanced this case as part of the COVID arbitration discussed below. That forms the basis of ERL’s application to amend that is addressed in paragraph 70 below.[22]In or around August 2021, the restaurant at the Premises re-opened.[23]There was a dispute between TWL and ERL as to the operation of a rent cesser provision in Clause 5.5 of the Lease. The rent cesser clause provided for rent, or a fair proportion of it, to be suspended if the Premises became unfit for use. TWL argued that the rent cesser provision was triggered because, in January 2022, ERL removed a ventilation duct that served the premises while carrying out works on a neighbouring property in which ERL had an interest ([57] to [58]). Disputes concerning the rent cesser provision were required to be resolved by arbitration and the dispute was jointly referred to arbitration on 29 July 2022 (and so after the 6 May 2022, the date on which ERL asserted it had forfeited the Lease). An arbitration award (the Rent Cesser Award) was made on 10 February 2023. The Rent Cesser Award concluded that removal of the ventilation duct meant that TWL was unable to operate from the Premises from 10 January 2022 and so the annual rent of £130,000 should be suspended from that date. It is, however, common ground that the Rent Cesser Award had no effect on TWL’s obligations to pay service charge, as distinct from rent, because the rent cesser provision could not affect the amount of service charge payable under the Lease.[24]On 6 May 2022, ERL says that it forfeited the Lease by re-entering the Premises. The parties’ conduct in connection with the asserted forfeiture will be addressed in more detail when I consider points in the Respondent’s Notice concerning relief from forfeiture. However, for the time being the following neutral overview of key facts will suffice: i) In the run-up to 6 May 2022, TWL was expressing some uncertainty as to how much rent it owed following expiry of the Protected Period on 18 July 2021. It would have been difficult for ERL and TWL to agree on arrears of rent due between the end of the Protected Period and 6 May 2022 because they had different perspectives on whether the rent cesser provision operated to suspend rent from January 2022 and the Rent Cesser Award that would determine that issue had not been made. ii) The Judge found at [63] that ERL’s agents, Orbit, were not prepared to agree any calculation of arrears that had accrued in the period 19 July 2021 to 10 January 2022. iii) TWL paid ERL £62,328 on 25 March 2022, being its calculation of arrears of rent that were due for the period 19 July 2021 to 25 March 2022 on the footing that rent had ceased to accrue from 10 January 2022 pursuant to the rent cesser provision. TWL’s payment did not, therefore, include anything in respect of the £32,500 which would, absent operation of the rent cesser provision, fall due for payment on 25 March 2022. iv) TWL’s calculation also included nothing in respect of the sum of £1,071.89 (the Service Charge Instalment) representing a payment on account of service charge that ERL says fell due on 25 March 2022 following demands for payment submitted by email. v) ERL’s position was that it was entitled to forfeit the Lease by reference to the £32,500 of rent that it asserted had fallen due on 25 March 2022 which been unpaid for at least 21 days thereby triggering the right of re-entry in Clause 5.1 of the Lease. Even if the rent cesser provision applied to suspend the obligation to pay that rent, that could not apply to the £1,071.89 of service charge instalment which was expressed to be reserved as rent and so also triggered the right of re-entry. vi) After ERL re-entered the Premises, TWL asserted that the forfeiture was wrongful and that it would be applying for relief from forfeiture ([69]). vii) Two weeks after re-entering the Premises, ERL entered into a Licence to Occupy (the Fox Licence) with Fox Catering Limited (Fox Catering). That licence was expressed to apply for a period of up to one year (for an annual licence fee of £100,000). However, it could be terminated early on 30 days’ notice from ERL or 90 days’ notice from the licensee. viii) On 7 July 2023 ERL entered into a lease of the Premises (the Butteryest Lease) with Butteryest Limited (Butteryest). The Butteryest Lease was expressed to be contracted out of the provisions of Part II of the Landlord and Tenant Act 1954. The Butteryest Lease was granted for a term of 15 years, at an initial rent of £80,000 (following expiry of a rent-free period) with upwards-only rent reviews, the first of which was to take place on 7 July 2025.[25]The 2022 Act permitted unpaid rent debts that were attributable to the COVID pandemic (defined as “protected rent debts” in the 2022 Act) to be dealt with by arbitration whose outcome could be to require landlord and tenant to share in the economic consequences of that pandemic. On 20 September 2022 (after the date on which ERL says it forfeited the Lease), TWL referred what it asserted to be a protected rent debt of £181,148 to an arbitrator pursuant to the 2022 Act. On 5 February 2023, an arbitrator made an award (the COVID Award) that reduced the amount of protected rent debt to £81,516.60 and directed TWL to pay the reduced amount in 24 monthly instalments of £3,396.50 from 20 February 2023 ([55] and [56]). The arbitrator did not specify that all or any part of the amounts she had directed TWL to pay should be applied to restore the Rent Deposit Account. The effect of the COVID Award is addressed in more detail below.
The central issues determined in the Judgment
[26]TWL raised the following arguments on construction of the Lease which sought to defeat ERL’s analysis that there were arrears of rent as at 6 May 2022 and thereby establish that ERL’s purported forfeiture of the Lease was invalid: i) TWL argued that ERL was simply not entitled, having regard to the terms of the Lease, to forfeit the Lease because of an asserted non-payment of the Service Charge Instalment. The Judge rejected that argument at [73] to [80]. TWL pursues a more nuanced version of this argument in this appeal by way of Respondent’s Notice. ii) The demand for the Service Charge Instalment was sent by email. TWL argued that this was an invalid method of service of such a demand, having due regard to Clause 5.2 of the Lease. Accordingly TWL argued that the Service Charge Instalment never fell due and that this was a further reason why any non-payment of the Service Charge Instalment could not justify forfeiture of the Lease. The Judge rejected that argument at [111] to [128] for two reasons. First, properly construed, the Lease permitted the Service Charge Instalment to be served by email. Second, even if the Lease did not permit service by email, TWL’s previous acceptance of rent and service charge demands by email established a course of dealing such that TWL was estopped from denying valid service of the demand for the Service Charge Instalment. TWL challenges the Judge’s conclusions on these points by way of Respondent’s Notice. iii) TWL argued that the rent cesser clause meant that £32,500 of Non-Protected Rent did not fall due for payment on 25 March 2022 so that the Lease could not be forfeited for asserted non-payment of this rent. The Judge agreed at [82] to [89] and [91]. ERL challenges this conclusion as Ground 2 of its appeal.[27]The Judge’s conclusions summarised in paragraph 26 above meant that ERL was in principle entitled to forfeit the Lease by reference to the Service Charge Instalment, even though it could not do so by reference to £32,500 of Non-Protected Rent said to have fallen due on 25 March 2022. TWL argued that the Service Charge Instalment was not actually in arrears as at 6 May 2022 because of the way in which the £43,800 should be treated. The Judge agreed at [96] to [108]. ERL challenges this conclusion as Ground 1 of its appeal. It also seeks to assert, by way of the proposed amendments to its Grounds of Appeal described in paragraph 70 below, that TWL is estopped from pursuing this point on appeal as it is inconsistent with TWL’s position in relation to the COVID Award.[28]Having found that there were no arrears, whether of rent or service charge, as at 6 May 2022 in relation to which ERL was entitled to forfeit the Lease, the Judge found that the purported forfeiture was of no effect. That meant that the question of relief from forfeiture did not arise. However, in a brief section at [217] to [221], the Judge said that he would have refused relief from forfeiture if it were necessary to consider the point. TWL challenges this conclusion in its Respondent’s Notice.[29]TWL had discontinued its claim for lost profits during the trial ([136]) and so the Judge awarded TWL no damages in this regard. Neither side challenges that decision.
The structure of this judgment
[30]Until the applications to amend referred to below, both parties approached the first hearing of this appeal on the footing that the question whether there were arrears of rent as at 6 May 2022 would be determined conclusively by the treatment of the £43,800. Although TWL had pleaded, in its Respondent’s Notice in this appeal, that the Judge should have given credit for the £65,000, TWL said in its skeleton argument served in advance of the hearing before me in February 2026 that it no longer pursued this point. TWL seeks to reinstate an argument based on the £65,000 as part of its application to amend considered below.[31]I will structure this judgment as follows: i) In Part A below, I will address the question of arrears raised by ERL’s Ground 1. That part will also consider points that TWL raises by way of Respondent’s Notice that touch on issues raised by ERL’s Ground 1. Before embarking on the substantive analysis, I will consider both sides’ applications to amend their respective cases made following the Post Hearing Questions. ii) In Part B, I address the issues surrounding the rent cesser provision raised by ERL’s Ground 2 and with it points in TWL’s Respondent’s Notice that touch on issues raised by Ground 2. iii) In Part C, I address other issues raised by the Respondent’s Notice to the extent not otherwise dealt with in Parts A and B.[32]Some of the issues dealt with in this judgment do not strictly arise given my conclusion on other issues. However, I am conscious that the parties waited a long time for the Judgment whose reasoning on some issues was quite brief. They waited a long time for the hearing of the appeal and they have had to deal with Post Hearing Questions from me, and a further hearing. In those circumstances, I have tried to deal with almost all the issues raised in some detail which inevitably means that this judgment is a good deal longer than it might otherwise have been.
PART A – ARREARS OF RENT
[33]Ground 1 of ERL’s appeal is that the Judge erred in holding(i) that there were no arrears of rent as at 6 May 2022 so that(ii) ERL’s re-entry onto the premises on that date was unlawful.[34]To avoid any overlap with Ground 2 of ERL’s appeal, I will proceed, when considering Ground 1, on the basis that ERL’s sole entitlement to forfeit the Lease is by reference to the Service Charge Instalment (since Ground 2 seeks to establish that ERL was also entitled to forfeit by reference to the rent of £32,500 that was expressed to fall due on 25 March 2022).[35]To avoid any overlap with Part C of this judgment, I will proceed on the assumptions that(i) the Service Charge Instalment, if unpaid for 21 days, could in principle trigger ERL’s entitlement to forfeit the Lease and(ii) a demand for the Service Charge Instalment had been validly served by email, or that TWL was estopped from denying the validity of such service. If ERL’s appeal fails on those assumptions then there would strictly be no need to address TWL’s challenge to these assumptions raised in its Respondent’s Notice. If ERL’s appeal succeeds on those assumptions, then the validity or otherwise of the assumptions can be tested as part of my analysis of the Respondent’s Notice.[36]Before ERL’s appeal can be considered it is necessary to set out a lot of groundwork on the terms of the Rent Deposit Deed and some provisions of the 2022 Act.
The detailed provisions of the Rent Deposit Deed
[37]The Rent Deposit Deed was entered into between ERL (defined as the “Landlord”) and TWL (defined as the “Tenant”). Clause 2.1 of the Rent Deposit Deed required TWL, on the date of its execution, to pay the “Initial Deposit” of £107,000 to ERL for onward payment into the Rent Deposit Account (which was defined as the “Account”). ERL emphasises the following provisions of the Rent Deposit Deed: 2.3 The Landlord may (but is not obliged to) withdraw money from the Account to meet:2.3.1 any sums to make good a Tenant's Default (which shall include any reasonable professional fees properly incurred by the Landlord as a result);2.3.2 in the case of a Termination Event, such sums as are necessary to satisfy the proper Expenses. 2.4 No money forming part of the Deposit Fund will be deemed to be appropriated to or paid towards any sums due to the Landlord or losses of the Landlord, unless it is withdrawn from the Account by the Landlord for that purpose... 2.6 A withdrawal from the Account by the Landlord shall not amount to liquidated damages in respect of the relevant Tenant's Default or Termination Event and neither withdrawal from nor re-payment of the Deposit Fund or any part of it prevents the Landlord from making further withdrawals and does not affect any liability of the Tenant to the Landlord in relation to the Lease or the Premises. 2.3.1 any sums to make good a Tenant's Default (which shall include any reasonable professional fees properly incurred by the Landlord as a result); 2.3.2 in the case of a Termination Event, such sums as are necessary to satisfy the proper Expenses.[38]For the purposes of the Rent Deposit Deed, the term “Tenant’s Default” included, as might be expected, any failure to comply with any of TWL’s obligations under the Lease, including the obligation to pay rent or service charge. The definition of “Termination Event” is not material but included any termination of the Lease. The “Deposit Fund” was defined as meaning: the balance of all monies in the Account held under this Deed from time to time including any interest credited to it.[39]Clause 2.7 of the Rent Deposit Deed required the Tenant to top up the Rent Deposit Account if ever the balance on that account became less than the Specified Amount of £107,000. That obligation to top up was expressed to apply “even if there is a dispute as to any withdrawal from the Deposit Fund by the Landlord”.
The 2022 Act
[40]Rental deposits are common in commercial lettings and they gave rise to a drafting issue for the 2022 Act. If a landlord draws down a rental deposit to meet an unpaid protected rent debt, that will naturally result in the protected rent debt being either reduced or eliminated. The tenant might well have a contractual obligation to “top up” the rental deposit, but without more that obligation would not be a protected rent debt for the purposes of the 2022 Act.[41]As a matter of policy, Parliament took the view that tenants whose rental deposits had been used to discharge protected rent debts should be in the same position as tenants who either had not given rental deposits, or if they had, whose rental deposits had not been drawn down. To that end, s2(4) of the 2022 Act provided that: (4) An amount drawn down by the landlord from a tenancy deposit to meet the whole or part of a rent debt is to be treated as unpaid rent due from the tenant to the landlord (and such rent is "paid" where the tenant makes good any shortfall in the deposit).[42]Sections 3(1) and 3(2) of the 2022 Act introduced the central definition of a “protected rent debt” as follows:(1) A "protected rent debt" is a debt under a business tenancy consisting of unpaid protected rent.(2) Rent due under the tenancy is "protected rent" if— (a) the tenancy was adversely affected by coronavirus (see section 4), and (b) the rent is attributable to a period of occupation by the tenant for, or for a period within, the protected period applying to the tenancy (see section 5). (a) the tenancy was adversely affected by coronavirus (see section 4), and (b) the rent is attributable to a period of occupation by the tenant for, or for a period within, the protected period applying to the tenancy (see section 5).[43]Section 3(6) of the 2022 Act built on ss2(4), 3(1) and 3(2) as follows: (6) An amount treated by section 2(4) as unpaid rent is to be regarded as unpaid protected rent if the rent debt that was satisfied (in whole or part) by drawing it down from the tenancy deposit would otherwise have been a protected rent debt.[44]Thus s3(6) of the 2022 Act is a deeming provision. Where a rent deposit is used to satisfy a protected rent debt, the protected rent debt is to be treated as still outstanding (even though in reality it has been discharged by application of the rent deposit). That enables an arbitrator to make an award consisting of “relief from payment” in relation to the amount discharged.[45]Section 14(6) of the 2022 Act sets out the awards that are available: (6) An award under this section may—(a) give the tenant relief from payment of the debt as set out in the award, or(b) state that the tenant is to be given no relief from payment of the debt. (a) give the tenant relief from payment of the debt as set out in the award, or (b) state that the tenant is to be given no relief from payment of the debt.[46]The concept of “relief from payment” is defined in s6(2) of the 2022 Act as follows: (2) “Relief from payment”, in relation to a protected rent debt, means any one or more of the following —(a) writing off the whole or any part of the debt;(b) giving time to pay the whole or any part of the debt, including by allowing the whole or any part of the debt to be paid by instalments;(c) reducing (including to zero) any interest otherwise payable by the tenant under the terms of the tenancy in relation to the whole or any part of the debt. (a) writing off the whole or any part of the debt; (b) giving time to pay the whole or any part of the debt, including by allowing the whole or any part of the debt to be paid by instalments; (c) reducing (including to zero) any interest otherwise payable by the tenant under the terms of the tenancy in relation to the whole or any part of the debt.[47]Sections 14(9) and 14(10) of the 2022 Act set out the effect of an award giving “relief from payment”: (9) An award giving the tenant relief from payment of a protected rent debt is to be taken as altering the effect of the terms of tenancy in relation to the protected rent constituting the debt. (10) Subsection (9) means, in particular, that— (a) the tenant is not to be regarded as in breach of covenant by virtue of— (i) non-payment of an amount written off by the award, or (ii) failure to pay an amount payable under the terms of the award before it falls due under those terms; … (d) any amount payable under the terms of the award is to be treated for the purposes of the tenancy as rent payable under the tenancy. (a) the tenant is not to be regarded as in breach of covenant by virtue of— (i) non-payment of an amount written off by the award, or (ii) failure to pay an amount payable under the terms of the award before it falls due under those terms; (d) any amount payable under the terms of the award is to be treated for the purposes of the tenancy as rent payable under the tenancy.[48]Suppose that £1,000 of a rent deposit is applied in the complete discharge of a protected rent debt of £1,000. One might expect a well-drafted rent deposit deed to impose an obligation on the tenant to top-up the rent deposit account by paying £1,000 back into it. Accordingly, in the “actual” world, £1,000 of the tenant’s money would have been used to discharge its liability of £1,000. The tenant would also have a contractual obligation to pay £1,000 back into the rent deposit account. In the “deemed” world introduced by s3(6) of the 2022 Act, there is a protected rent debt of £1,000 and, by s14(6)(a) of the 2022 Act, the arbitrator has power to make an award affording the tenant “relief from payment of the debt”.[49]In the situation described in paragraph 48 an arbitrator might decide that landlord and tenant should share the consequences of the COVID pandemic equally. That might suggest an award under which(i) the landlord pays the tenant back £500(ii) the tenant uses that £500 to top up the rent deposit but(iii) the tenant is not required to top up the rent deposit to its former level of £1,000. It is possible that there is a lacuna in the 2022 Act that does not permit an arbitrator to make limb (i) of such an award, although I do not need to determine that point. The parties are, however, agreed that the 2022 Act does permit an arbitrator to make limb (iii) of such an award.[50]Paragraph 40 of the Explanatory Notes to the 2022 Act is as follows: 40 [Section 3(6) of the 2022 Act] states that unpaid protected rent is to be treated as including an amount drawn down from the tenancy deposit, as referred to in section 2(4). This means that the arbitrator can consider and make an award about this full amount and, depending on the award, the tenant may be relieved from having to make good any shortfall in the deposit.[51]Neither side invites me to doubt the correctness of that statement in the Explanatory Notes. One possible legislative basis for the statement is that:(i) s14(6)(a) permits the arbitrator to give relief from “payment of the debt”,(ii) in context “the debt” means the “protected rent debt”;(iii) by s2(4) and s3(6) an amount drawn down from a rent deposit and set off against protected rent is itself an unpaid protected rent debt,(iv) by s2(4) that protected rent debt would be “paid” when the shortfall in the rent deposit is made good and therefore(v) relieving a tenant from “payment of a [protected rent debt]” extends to relieving the tenant from an obligation make good any shortfall in the rent deposit.[52]Even if the analysis set out in paragraph 51 holds good, s14(9) provides only for an award to alter the effect of the tenancy. I do not need to decide precisely how an arbitrator’s award can alter the effect of a rent deposit deed that stands separate from a tenancy agreement as both sides agree that it could. Perhaps the answer is, as ERL submits, that a degree of purposive construction enables the term “tenancy” to extend to a rental deposit agreement connected with that tenancy.
The terms of the COVID Award
[53]The COVID Award was made on 10 February 2023. That was after the date on which ERL asserts it forfeited the Lease and also after the date on which ERL asserts that arrears of rent entitling it to forfeit accrued.[54]As noted in paragraph 25 above, the arbitrator making the COVID Award said nothing about TWL’s obligation to top up the Rent Deposit Account. This was not because the arbitrator was unaware of the Rent Deposit Deed. Paragraph 11 of the COVID Award includes the following: 11. … On 6 July 2020, the Respondent is said to have withdrawn £65,000 from the Applicant’s rent deposit of £107,000 to cover the rent arrears for March and June 2020. The Applicant submits that the “withdrawal is to be disregarded under the [2022 Act] and the rent to which it related is to be treated as “protected rent””. On 25 January 2022, the Applicant states that it was notified by the Respondent via SMS message that the entire rent deposit had been used to cover the rent arrears.[55]The arbitrator returned to this theme at [52] of the COVID Award which reads as follows so far as material: 52. Mr El Gibaly highlights in his witness statement that the Respondent advised on 25 January 2022 that the entire rent deposit had been used to cover the rent arrears. The deposit account does not appear to have been topped up with Mr El Gibaly submitting that the withdrawal is to be disregarded under the Act. The guidance to the Act at paragraph 4.29 states that “An amount drawn down by the landlord from a tenancy deposit to meet all or part of a protected rent debt is treated by the Act as unpaid rent if the tenant has not made good any shortfall in the deposit.” It adds “Where a tenancy deposit is used in this way to satisfy a rent debt which would otherwise have been a protected [rent] debt, then the amount drawn down in respect to that debt is treated as a protected rent debt”. Bearing in mind the guidance and the finding that the arrears amounted to a protected rent debt, it is accepted that the money drawn down from the rent deposit is to be disregarded for the purpose of assessing the level of relief to be granted.[56]It is quite possible to read paragraphs [11] and [52] of the COVID Award as finding that(i) the arbitrator accepted Mr El Gibaly’s evidence that £107,000 was drawn down from the Rent Deposit Account(ii) that £107,000 was used to discharge TWL’s obligation to pay Protected Rent and therefore(iii) the £107,000 was an element in the calculation of the protected rent debt because of the combined effect of s2(4) and s3(6) of the 2022 Act. Such an interpretation of the COVID Award would appear to be in TWL’s interests because it increased the amount of protected rent debt and so increased the amount of relief from payment that the arbitrator could award.[57]However, while I regard that interpretation as the most natural, I accept that it is not the only possible reading once the COVID Award is read together with Mr El Gibaly’s witness statement that was before the arbitrator. Certainly, at [45] of that witness statement, Mr El Gibaly stated that, “on 6 July 2020, [ERL] withdrew £65,000 from the Applicant’s rent deposit account for March and June 2020 rent arrears. That withdrawal is to be disregarded under the [2022 Act] and the rent to which it related is to be treated as ‘protected rent’.” Thus far, at least as regards the £65,000, Mr El Gibaly’s evidence is consistent with the interpretation in paragraph 56. However, Mr El Gibaly goes on to complain in that witness statement that ERL has given him no credit for the £65,000 as it did not allocate that sum to the rent account.[58]Mr El Gibaly’s witness statement is not clear as to what is asserted in relation to the balance of the Rent Deposit Account. He referred in paragraph 22 to a text message of 22 January 2022 informing him that the “entire rent deposit” had been used to “cover the rent arrears”. However, he did not say precisely which arrears were said to have been covered and at [65] complained again that ERL did not say how the rent deposit would have been utilised.[59]It is to be recalled that, at the trial before the Judge, ERL’s position was that the Rent Deposit Account had been left undisturbed. The Judge made no findings as to what Mr El Gibaly meant by his witness statement in the COVID arbitration. However, given ERL’s position at trial, I consider it quite possible that Mr El Gibaly did not know precisely what had happened to the proceeds of the Rent Deposit Account but knew only that TWL was being given no credit for it. I therefore consider that it is realistically possible that Mr El Gibaly was asking the arbitrator to “disregard” the Rent Deposit Account and make a decision about how much of the £181,148 rent and service charge that accrued in the Protected Period should actually be paid, leaving the parties to “true up” the position between themselves so that TWL obtained proper credit for sums which had been withdrawn from the Rent Deposit Account and allocated against Protected Rent. The 2022 Act did not permit the arbitrator to “disregard” the Rent Deposit Account. On the contrary, ss2(4) and 3(6) required the amount of withdrawals from the Rent Deposit Account to be ascertained as part of determining the protected rent debt. However, I regard it as realistically possible that Mr El Gibaly was asking the arbitrator to take this course.[60]The arithmetic of the COVID Award was as follows: i) The passing rent due under the Lease (excluding service charge) was £130,000 per annum or £356.16 per day. There were 485 days in the protected period (see [34] of the COVID Award). So some £172,740 of passing rent accrued in the protected period and the arbitrator’s calculation of a protected rent debt of £181,148 (at [54] of the COVID Award) included £8,408 of service charge. ii) At [56] of the COVID Award, the arbitrator said that she intended to reduce the protected rent debt by 55% to £81,516. iii) The arbitrator ordered TWL to pay ERL 24 instalments of £3,396.50 from 20 February 2023. Those sums were apparently to be paid in cash (and it will be noted that the total of those instalments is £81,516). iv) The COVID Award said nothing at all about TWL’s obligation, or otherwise, to top up the Rent Deposit Account.[61]After the first hearing in the appeal, it occurred to me that the COVID Award was difficult to understand. One of the few things that the parties appear to have agreed upon (at least until TWL’s application referred to in paragraph 79 below) is that the Judge correctly found at [100] that ERL validly used the £65,000 to discharge rent accruing in the Protected Period. Taken at face value, the effect of the COVID Award is that(i) TWL paid £65,000 of protected rent when the Landlord withdrew that sum from the Rent Deposit Account and(ii) also has to pay £81,516 (in 24 monthly instalments). The total of those amounts (£150,516 out of a total liability of £181,148) was nothing like the 55% reduction the arbitrator thought she was making.[62]In fact, the position might be even more stark. If the arbitrator was, at [52] of the COVID Award, accepting that all £107,000 (odd) of the Rent Deposit Account was applied in discharging the protected rent, then the effect of the COVID Award is that TWL had to pay £107,000 plus £81,516 which is more than the total amount of rent and service charge that accrued in the protected period. That outcome would make no sense.[63]Given what I saw to be a fundamental lack of clarity in the COVID Award, I invited the parties to provide some written submissions on what they considered the effect of that award to be.[64]In its response to my questions, ERL defended the COVID Award as entirely coherent. It submitted that all parties accepted the finding of the Judge at [100] that £65,000 of the Rent Deposit Account was used to discharge protected rent. In those circumstances, the arbitrator was obliged by statute to treat that £65,000 as “unpaid protected rent” just like the part of the protected rent that had not been discharged by application of the Rent Deposit Account. In ERL’s submission, the arbitrator was not obliged to divide the total protected rent debt of £181,148 into a part consisting of £65,000 and a part consisting of the balance of £116,148 and treat those parts differently.[65]Thus far, I accept ERL’s analysis. However, I part company with ERL’s analysis insofar as it is suggested that ERL’s withdrawal of the (agreed) £65,000 from the Rent Deposit Account had nothing to say about the amount of relief that the arbitrator should make. In my judgment, the arbitrator could, quite lawfully, have reasoned as follows in relation to the £65,000:(i) the total protected rent debt was £181,148,(ii) it was appropriate to reduce the total protected rent debt to £81,516,(iii) ERL had £65,000 of that sum, having withdrawn it from the Rent Deposit Account,(iv) taking into account the £65,000 that ERL already had, that left £16,516 to be paid in cash in instalments and(v) TWL was not obliged to top up the £65,000 withdrawn from the Rent Deposit Account.[66]The parties are agreed that the arbitrator had power to absolve TWL from any obligation to top up the Rent Deposit Account (see point (v) of the analysis in paragraph 65 above). However, that aside, ERL says that the arbitrator had no power to make an award of the kind described in paragraph 65. I disagree. An award of that kind, in my judgment at least, would have been a perfectly coherent and lawful award dealing with the £65,000, although leaving the treatment of the £43,800 at large. It consists of “relief from payment” as defined in s6(2) of the 2022 Act by writing off part of the protected rent debt and allowing the whole or any part of the debt to be paid by instalments.[67]However, it is not the award that the arbitrator made. Rather, in my judgment, the arbitrator misunderstood her powers and did indeed “disregard” the Rent Deposit Account altogether. The effect of the COVID Award is simply that TWL must pay £81,516 by instalments in addition to whatever sums were withdrawn from the Rent Deposit Account. It is possible that the arbitrator impliedly also exercised her power to excuse TWL from any obligation to top up the Rent Deposit Account. I make no finding as to whether she did exercise that power or not. However, even if she did, that would simply excuse TWL from an additional cash flow problem that would arise if it had to pay £107,000 (odd) into the Rent Deposit Account and obtain that sum back on termination of the Lease if it had not been used to discharge liabilities due in the interim.[68]TWL advanced an analysis of the COVID Award to the effect that it implicitly treated the £65,000 and the balance of £116,148 separately, with each monthly instalment of £3,396.50 being treated as in part a sum of money that ERL was obliged to pay back into the Rent Deposit Account and a part that it could retain. I see no support for that approach on the face of the COVID Award.[69]With hindsight, TWL may feel short-changed by the COVID Award. However, there is no challenge to the COVID Award properly before me.
ERL’s application to assert an estoppel by conduct
[70]After I sent the Post Hearing Questions, ERL applied to add the following additional Ground of Appeal: 3. Given the position adopted by TWL in the context of the COVID Arbitration, TWL is estopped by conduct from contending and/or it would be an abuse of process for TWL to contend that the sum of £43,800 should be set off against non-protected rent.[71]That Ground seeks to establish that TWL should not be permitted to advance one position in the COVID arbitration (that the £43,800 had been set off against Protected Rent) but another position in the present dispute (that the £43,800 should be allocated to Non-Protected Rent with the result that there are no arrears of rent entitling ERL to exercise the right of forfeiture).[72]The parties agree that whether the estoppel by conduct applies involves similar questions to whether TWL is “approbating and reprobating”. As Zacaroli LJ noted at [36] of Malik v Malik [2024] EWCA Civ 1323, the precise label does not matter. The question is whether TWL is engaged in a species of abuse of process which involves the court engaging in a “broad merits-based assessment”. That assessment will involve, but is not limited to, a consideration of the principles set out in the judgment of the US Supreme Court in New Hampshire v Maine 532 US 742: First, a party’s later position must be clearly inconsistent with its earlier position. Secondly, the court may enquire whether the party has succeeded in persuading a court to accept the party’s earlier position, so that judicial acceptance of an inconsistent position in later proceedings would create the perception that either the first or the second court was misled. Thirdly, the court may ask whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.[73]There was some debate between the parties whether the principle applies given that TWL is asserted only to have taken a contrary position in an arbitration, rather than in court proceedings. I will assume in favour of ERL that the estoppel can apply in these circumstances without deciding the point.[74]It is clear from [53] and [64] of Zacaroli LJ’s judgment in Malik v Malik that, by contrast with other species of estoppel, TWL would not need to have made a “clear and unequivocal representation” of a position to the COVID arbitrator for the estoppel to be engaged. However, given the “broad merits-based assessment” and the question being whether TWL is engaged in a species of abuse of process, it is relevant to consider both what TWL said to the arbitrator and for what purpose (see [81] of Malik v Malik).[75]ERL seeks to rely on an estoppel by conduct even though it did not do so at trial before the Judge. In Rhine Shipping DMCC v Vitol SA(‘the Dijilah’) [2024] EWCA Civ 580, Popplewell LJ gave some recent guidance on the approach that the courts should take to permitting a point to be run for the first time on appeal. At [23] Popplewell LJ cited with approval Haddon-Cave LJ’s familiar summary of applicable principles in Singh v Dass [2019] EWCA Civ 360: 16. First, an appellate court will be cautious about allowing a new point to be raised on appeal that was not raised before the first instance court. 17. Second, an appellate court will not, generally, permit a new point to be raised on appeal if that point is such that either(a) it would necessitate new evidence or (b), had it been run below, it would have resulted in the trial being conducted differently with regards to the evidence at the trial … 18. Third, even where the point might be considered a “pure point of law”, the appellate court will only allow it to be raised if three criteria are satisfied: (a) the other party has had adequate time to deal with the point;(b) the other party has not acted to his detriment on the faith of the earlier omission to raise it; and(c) the other party can be adequately protected in costs.[76]At [24] to [31] Popplewell LJ expanded on these principles. At [24] he emphasised the importance, both as a matter of fairness and the efficient use of court resources, of parties bringing their whole case to the first instance trial. At [26] to [29], he stressed that an application to take a new point for the first time on appeal will usually be refused if there is any possibility that evidence could have been adduced at the first instance trial that would have prevented it succeeding or if the new point requires findings of fact which the first instance judge has not made.[77]Applying that approach, I have reached the clear conclusion that ERL should not be permitted to advance its new estoppel argument. As noted in paragraphs 57 to 59 above, it is not clear precisely what position Mr El Gibaly was taking in the COVID arbitration. Nor was it clear precisely what outcome he sought when asking the arbitrator to “disregard” the Rent Deposit Account. ERL characterises these enquiries into Mr El Gibaly’s subjective intention as irrelevant, but I do not agree. Without knowing what TWL was seeking from the arbitrator, and why, it is not possible to determine whether its conduct now is an abuse of process. I do not therefore consider that I have the findings of fact necessary to conduct the broad merits-based assessment that would be necessary.[78]Moreover, the judgment in New Hampshire v Maine would require me to consider whether it would give TWL an “unfair advantage” if it could now advocate for £43,800 to be allocated to Non-Protected Rent. It is only possible to assess the fairness or otherwise of that by reference to the circumstances in which Mr El Gibaly made his witness statement in the COVID arbitration. For example, if as appears possible ERL had given Mr El Gibaly a contradictory or unclear explanation as to what had happened to the Rent Deposit Account, it might be correspondingly less unfair to permit TWL now to depart from its position before the COVID arbitrator. Yet I have no findings from the Judge to assist with that task.
TWL’s application to be released from a concession and to amend its Respondent’s Notice
[79]In the light of the Post Hearing Questions, TWL made an application to do the following: i) To reinstate its reliance on paragraph 1.1 of its Respondent’s Notice which it had formally abandoned at the first hearing before me. That paragraph, prior to its abandonment asserted that, in determining whether there were any rent arrears as at 6 May 2022, TWL should be given credit for the £65,000. ii) To amend its Respondent’s Notice to argue that the effect of the COVID Award was retrospectively to replace the liability to pay Protected Rent with a prospective liability to pay £81,516 in 24 monthly instalments from 20 February 2023. On that analysis, none of the sums withdrawn from the Rent Deposit Account was expended in satisfying Protected Rent as no liability to pay Protected Rent ever arose.[80]In her oral submissions, Ms Murphy showed me a summary of her written closing note to the Judge on conclusion of the trial. I agree with Mr Trompeter KC that this closing note does not raise the retrospectivity argument referred to in paragraph 79.ii). By that argument, TWL is seeking to advance an analysis of the COVID Award that was not advanced before the Judge.[81]Applying the principles set out in Rhine Shipping, I will permit TWL to advance the retrospectivity argument set out in paragraph 79.ii). This is a pure point of law that raises a self-contained point of statutory construction in relation to the effect of the COVID Award. While it was not advanced before the Judge, it needs no additional factual findings to underpin it. Moreover, TWL was, even before it applied to amend its Respondent’s Notice, relying on a species of this argument in this appeal. Paragraph 23 of TWL’s skeleton argument served prior to the February hearing contained the submission that the COVID Award replaced its obligations under the Lease with a “different forward-facing liability to pay a more limited sum (£81,516.60) in 24 monthly instalments…” It is true that my Post Hearing Questions caused TWL to focus this argument more closely on the assertion that the effect of the COVID Award was retrospective, but the argument was already alluded to.[82]I have considered the need for fairness and efficient use of judicial resources. Fairness considerations are dealt with by the fact that ERL has been given the opportunity to address TWL’s retrospectivity analysis and has done so. The court can address the fact that ERL has had to do so at a further hearing by exercising its costs discretion if necessary. The need for efficiency is more difficult. TWL’s retrospectivity argument has certainly led to an additional hearing. It means that the court is allocating still further time to the hearing of an appeal in a relatively small landlord and tenant matter in which neither side’s conduct of the litigation to date has been attractive. However much of the work had already been done (in the form of responses to the Post Hearing Questions) by the time TWL made its application to amend. In those circumstances, an undue insistence on the efficiency of the court process would risk being unfair as it would deprive TWL of the opportunity to deploy arguments that it formulated in response to the court’s own questions. The lateness of the point can in principle be dealt with by an appropriate costs award.[83]I will also permit TWL to apply its retrospectivity analysis to the £65,000 as well as to the £43,800. TWL may, therefore, make the argument of pure law that, although the Judge found that the £65,000 was allocated against rent falling due in June and September 2020, the COVID Award meant that there was in fact no rent due for those quarters. I will not, however, give TWL any wider permission to argue that the £65,000 should be treated in a different way and indeed I did not understand TWL to be making any such argument distinct from its point on retrospectivity.
Whether the COVID Award had retrospective effect
[84]TWL argues that the COVID Award was “retrospective” in the particular sense that(i) once it was made it replaced TWL’s obligations to pay rent and service charge that would otherwise have accrued in the Protected Period with an obligation to pay 24 instalments of £3,396.50 starting on 20 February 2023 and(ii) it meant that TWL never had any obligation to pay any rent and service charge during the Protected Period. On that analysis, TWL argues that neither the £65,000 nor the £43,800 could be allocated against any rent or service charge due in the Protected Period because no such rent or service charge was ever due. That analysis would bolster its argument that either or both the £65,000 and the £43,800 could be allocated to rent and service charge accruing in March 2022 so that there were no arrears on 6 May 2022.[85]As both Newey LJ and Nugee LJ pointed out in their judgments in Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point [2026] 1 WLR 1857, there are “degrees of retrospectivity”. TWL argues that the 2022 Act, and the COVID Award made under it, was retrospective to such a degree that no entitlement to rent or service charge ever accrued to ERL in the Protected Period. ERL says that the 2022 Act was not retrospective to that degree. It asserts that, until the COVID Award was made, it did have a right to rent and service charge that had accrued in the Protective Period. Once the COVID Award was made, that right was altered in a manner that was retrospective to a degree (as it interfered with a right that had already accrued). However, that interference took place only after the COVID Award was made.[86]The difference between ERL’s and TWL’s positions can be seen in the way they would answer the question, “On 29 September 2020, did £32,500 of rent become due from TWL to ERL?” ERL would answer that question, “Yes, but in February 2023, when the COVID Award was made, TWL’s obligation to pay that rent was modified”. TWL would answer that question, “No, even though ERL and TWL might have thought, on 29 September 2020, that £32,500 of rent fell due, in fact the later COVID Award meant that there was never any such liability”.[87]Applying the approach in Adriatic Land, both sides urged me to approach this debate as involving a question of pure statutory construction. I will do so. However, I consider that I should start from a presumption that Parliament did not intend TWL’s construction to apply. I do so because of paragraphs [136] to [138] and [185] of Nugee LJ’s judgment in Adriatic Land. It is atypical indeed for a statute to provide, with retrospective effect, that accrued rights of citizens are removed and some clear justification for that interpretation would need to be shown. That justification could be found either in the words of the 2022 Act or in surrounding circumstances (see [138] and [139] of Nugee LJ’s judgment). Relevant surrounding circumstances can include the purpose for which the 2022 Act was enacted.[88]In support of its interpretation, TWL relies on s14(9) of the 2022 Act and, in particular, its stipulation that the COVID Award “is to be taken as altering the effect of the terms of the tenancy in relation to the protected rent constituting the debt”. TWL points out that Parliament could have adopted a different approach and, for example, simply barred landlords from enforcing claims for Protected Rent as adjusted following an arbitrator’s award.[89]I agree that Parliament could have adopted a different approach. However, I do not consider that to be a pointer in favour of TWL’s preferred interpretation. Parliament quite clearly did not simply want to bar landlords from enforcing claims for Protected Rent. Section 14(10) shows that Parliament also wanted to mitigate any spill-over consequences of non-payment of Protected Rent (for example by precluding landlords from relying on such failures when resisting lease renewals under Part II of the Landlord and Tenant Act 1954 (the 1954 Act)). Those spill-over consequences could not have been avoided if landlords had simply been barred from enforcing claims to Protected Rent in excess of an arbitrator’s award. The legislative mechanism that Parliament has adopted does not support TWL’s proposed interpretation. The question is whether the legislative mechanism that Parliament did adopt is retrospective in the sense for which TWL argues.[90]TWL argues that, unless an arbitrator’s award is retrospective in the sense for which it argues, s14(9) of the Act would misfire as it would permit ERL to sue for, for example, the full amount of the £32,500 ostensibly due on 29 September 2020 notwithstanding the COVID Award. I do not agree. If ERL purported to sue for that £32,500 after the COVID Award was made, TWL would have a complete defence. The COVID Award altered the effect of the Lease with the result that any court considering the matter after the date of the COVID Award was bound to conclude that the £32,500 was not due. Similarly, if ERL had sued for the £32,500 before the date of the COVID Award but had not yet obtained judgment, once the case came before the court, the court might well conclude that, as at the date of the hearing, the £32,500 was not due, even if had been previously. The 2022 Act would operate coherently even if s14(9) is not retrospective in the sense for which TWL argues.[91]I do not accept TWL’s argument that s6(2)(a) and s6(2)(b) of the 2022 Act point in favour of the retrospectivity it considers to be present. The argument, as I understood it, is that it is significant that an arbitrator has power to write off the whole or any part of “the debt” and/or to give time to pay the whole or any part of “the debt”. That is said to point in favour of an indication that the original debt is treated as never having fallen due and is to be replaced by a new debt that falls due for the first time after the arbitrator makes an award. I see no indication of the kind for which TWL argues.[92]Both TWL and ERL pointed me to provisions of the 2022 Act which expressly make provision that is retrospective in at least some form. For example, paragraph 3 of Schedule 2 dealt with the situation where a landlord instituted proceedings for Protected Rent after 10 November 2021 (the date when the Government announced an intention to legislate in the form of the 2022 Act) and before the date on which the 2022 Act was passed. Paragraph 3 permitted either landlord or tenant to apply to stay such proceedings (pending arbitration or other agreement on Protected Rent). Indeed, paragraph 3(4) went further and provided that, even if judgment had been obtained, an arbitrator could grant relief from payment from the judgment debt in just the same way as with Protected Rent itself. Paragraph 3(6) provides that, if such an arbitration award is made then, on becoming aware of the arbitration award, the court must send a request cancelling the entry of the judgment debt in the register of judgments under s98 of the Courts Act 2003.[93]TWL submits that paragraph 3 is consistent with its approach to retrospectivity as it demonstrates that even a judgment debt is not immune from adjustment. However, in agreement with ERL, I draw the opposite conclusion. If TWL were correct in its retrospectivity analysis, then an arbitrator’s award made after judgment is given for a protected rent debt would mean that there never was any protected rent debt. If that truly were what Parliament intended then one would expect paragraph 3(6) to record that any judgment in respect of the protected rent debt was void ab initio rather than simply providing for a record of the judgment debt to be expunged when an officer of the court becomes aware of particular matters.[94]A similar point can be made in relation to paragraph 8 of Schedule 2 to the 2022 Act on which TWL also relies. I agree with ERL that this is an example of Parliament ensuring that, when it does wish to undo the effect of legal steps already taken, it does so in a considered and specific fashion. I regard it as inconsistent with Parliament intending, by s14(9) of the 2022 Act, that there never was any protected rent debt due following an award such as the COVID Award. Such a “blanket approach” would risk consequences that there is no suggestion that Parliament either intended, or considered. For example, if a landlord in ERL’s position accounted for VAT when using a rent deposit to satisfy a tenant’s obligation to pay a protected rent debt and s14(9) meant that, following a subsequent arbitrator’s award, there never was any protected rent due, TWL’s analysis might suggest that the landlord could request repayment of the VAT it paid. There is no hint either in the 2022 Act or in its legislative purpose that Parliament intended s14(9) to have such far-reaching consequences.[95]I bear in mind Lindley LJ’s statement in Lauri v Renad [1892] 3 Ch 402 to the effect that a “statute is not to be construed so as to have a greater retrospective operation than its language renders necessary”. In the light of all the indications above, I reject TWL’s analysis of retrospectivity. The Judge’s reasons for concluding that there were no arrears of rent or service charge as at 6 May 2022[96]Having laid much groundwork, I can at last turn to the Judge’s conclusions, ERL’s criticism of his reasoning and to points raised in TWL’s Respondent’s Notice. TWL’s arguments on retrospectivity having failed, the £65,000 must be treated as the Judge found at [100] and so my focus will be on the treatment of the £43,800.[97]The arrears of service charge on which ERL relied were £1,071.89. In addition, ERL asserted that there were arrears of rent of £32,500 on the basis of its interpretation of the rent cesser provision. Viewed either separately or in aggregate, those sums were less than the £43,800 that ERL had withdrawn from the Rent Deposit Account. The Judge’s overall conclusion was that the £43,800 eliminated any arrears of both rent and service charge and so there were no arrears that could justify ERL in forfeiting the Lease. His core reasons for that conclusion are set out at [100] to [108].[98]At [100], which I have already quoted, the Judge found that ERL did not withdraw the £43,800 for the purpose of satisfying any sums due to, or losses of, ERL. The Judge also found that ERL’s acts “deprived the sum of £43,800 as having the quality of the deposit fund”.[99]At [101], the Judge determined that TWL had to be “given credit for” the £43,800. At [103] to [104], he recorded ERL’s submissions that Clause 2.4 of the Rent Deposit Deed expressly prevented the £43,800 from being “appropriated to or paid towards any sums due to [ERL]” precisely because the Landlord had not withdrawn it from the Rent Deposit Account for that purpose. However, he agreed with TWL that this argument was “wholly unattractive” and at [105] set out the nature of the “credit” that TWL should have for the £43,800: 105. I agree with Ms Murphy [counsel for TWL]. The £43,800 is money which ERL owes to TWL (without conceding this point, Mr Trompeter accepted that TWL may have a claim in contract for that sum against ERL). The question seems to me to be this: how is that money to be treated in the context of this landlord/tenant relationship? In my view, the money wrongfully withdrawn from the rent deposit is to be treated as if it had not been withdrawn, and must be credited to TWL (as I said in paragraph 101 above); this was money in the hands of ERL, wrongfully withdrawn and it would appear spent by ERL, and which had belonged to TWL before the withdrawal. Ms Murphy is in my view correct when she says that the withdrawn sum should be added to the rent and service charge account, and there were, I conclude, no arrears at the time of the purported forfeiture.[100]At [106], the Judge recorded ERL’s submission based on Clause 3.1 of the Lease which required TWL to pay rent and additional rents reserved by the Lease “without any deduction set-off or counterclaim whatsoever”. ERL argued, in essence, that TWL had not paid either the service charge of £1,071.89 or the rent of £32,500 that was due on 25 March 2022 and that giving “credit” of £43,800 against either or both of these sums involved TWL asserting a set-off or counterclaim contrary to Clause 3.1. The Judge rejected this argument saying at [107] to [108]:107. I accept that the words “without any deduction set-off or counterclaim whatsoever” are clear and exclude any rights of deduction etc. On this, see Altonwood Ltd v Crystal Palace FC (2000) Ltd [2005] EWHC 292 Ch at [32], and the authorities cited in that paragraph of Lightman J’s judgment.108. However, I agree with Ms Murphy that this wording does not prevent TWL from using the money wrongfully withdrawn against the service charge to defeat the right of re-entry. Once the £43,800 was wrongfully withdrawn, it ceased to be part of the rent deposit money. It was TWL’s money, in the hands of ERL. It is not within the “no off- set” wording of clause 3.1, but is to be treated as TWL’s money which ERL has chosen to appropriate to itself (as Ms Murphy says, it is not a set-off at all, but it is as if TWL had paid the money to ERL), and as such it extinguished the service charge arrears.
ERL’s challenges to the Judge’s conclusions
[101]In its skeleton argument, ERL provides six reasons in support of its appeal on Ground 1: i) Reason 1 - The Judge found at [100] that the £43,800 was not drawn down for the purposes of the Rent Deposit Deed. Given that finding, Clause 2.4 of the Rent Deposit Deed is engaged and expressly prevents the £43,800 from operating as a credit against either rent or service charge arrears. ii) Reasons 2, 3 and 5 – ERL argues that the Judgment is essentially unreasoned in important regards and that such reasoning as is provided is illogical and inconsistent. ERL maintains that the Judge made findings that the £43,800 was appropriated towards arrears of rent and service charge without any basis in the evidence to support those findings. iii) Reason 4 – Even if, as the Judge found, the £43,800 was to be added to a running rent and service charge account, it should have been allocated against arrears that built up in September and December 2020 when TWL did not pay the passing rent due for those quarters. If allocated in that way, there would still have been arrears of rent and service charge as at 6 May 2022. iv) Reason 6 – TWL had never pleaded that the £43,800 should be allocated against any particular arrears of rent and still less had it argued that this sum should be allocated against the unpaid service charge of £1,071.89. It was procedurally unfair for the Judge to determine the matter in the way that he did.[102]In his oral submissions, Mr Trompeter KC submitted that neither the Judgment, nor TWL’s defence of the Judgment, satisfactorily addressed the following three matters: i) Why TWL should obtain any “credit” for the £43,800 at all when determining the extent of any arrears in May 2022: ERL acknowledges that it has been found to have misappropriated £43,800. If TWL brought a claim in this regard, ERL might be ordered to restore that £43,800 either by paying it back to TWL or into the Rent Deposit Account. However, that was not relevant to the extent of any arrears in May 2022, particularly given that TWL was, by clause 3.1 of the Lease, required to pay rent without deduction, set-off or counterclaim. ii) Why any credit for the £43,800 should be against rent and service charge, rather than to the Rent Deposit Account: ERL had wrongly withdrawn money from the Rent Deposit Account. The Judge himself found at [105] that this sum should be treated as if it had not been withdrawn.If the £43,800 had been left in the Rent Deposit Account, Clause 2.4 of the Rent Deposit Deed would have provided that it could not have operated to reduce arrears of rent. iii) If the £43,800 was to be credited against an obligation to pay rent and/or service charge, why it should be credited against sums falling due in May 2022: ERL submits that neither the Judgment, nor TWL’s submissions answer this point. The most natural approach would be to give credit for the £43,800 in July 2020 when ERL withdrew it. If that had happened, then the £43,800 would reduce the amount of Protected Rent that was dealt with by the COVID Arbitration. Credit could not be given again against sums falling due in March 2022.
The adequacy or otherwise of the Judge’s reasons
[103]The question of how to allocate the £43,800 is of considerable complexity. As presented to me, it has involved a detailed review of the 2022 Act which is itself complicated and may contain a lacuna of the kind set out in paragraph 49 above. It has involved a detailed analysis of the COVID Award which is far from clear in its effect and which appears to overlook the Rent Deposit Deed. It has involved a detailed analysis of the retrospectivity or otherwise of the COVID Award.[104]I do not criticise the Judge for not addressing these issues. Neither party assisted him by putting these matters properly before him.[105]However, I do consider that the Judge’s analysis of precisely why the £43,800 was to be allocated against rent and service charge falling due in March 2022 is compressed and not equal to the task of explaining why he reached his conclusion. If one were starting afresh with that question of allocation, it would be relevant to consider matters such as(i) when TWL knew that ERL had accessed the £43,800,(ii) what discussions TWL and ERL had about arrears and the allocation of the £43,800 once TWL realised it had been withdrawn and(iii) why the £43,800 should not be allocated against rent falling due in September 2020 and December 2020 but rather, as Mr Trompeter KC put it, it should go into a “magic drawer” for some 18 months after ERL withdrew it and emerge by being allocated against rent and service charge otherwise due in March 2022.[106]The Judgment does not contain analysis of the kind I have described in paragraph 105. It proceeds on the basis that the £43,800 necessarily falls to be allocated against rent and service charge falling due in March 2022 without considering the other possibilities summarised in paragraph 102.ii) and 102.iii). I do not, however, accept ERL’s submission that there is no analysis of the point summarised in paragraph 102.i). The point was addressed at [104] and [105], although I agree with ERL that the reasoning was compressed.[107]A good part of the absence was no fault of the Judge. ERL came to the first instance trial with a case that all £108,000 (odd) remained in a Rent Deposit Account and so simply could not be allocated to any arrears of rent because of Clause 2.4 of the Rent Deposit Deed. TWL met that case at trial and the Judge ruled on it. As far as I can tell, the Judge simply did not have evidence before him on issues (i) and (ii) set out in paragraph 105.[108]However, even making allowance for this, something went wrong with the process of preparing the Judgment. The Judge released a draft judgment 7 months after the trial. That judgment proceeded on the basis that the allocation of the £43,800 did not matter because the rent cesser provision meant that there was no rent or service charge due in March 2022. However, as all parties agree, the rent cesser clause could not “switch off” any obligation to pay service charge and therefore, contrary to what the Judge thought when preparing the first draft judgment, far from being irrelevant, the allocation of the £43,800 was crucial, necessitating a further hearing and an amended draft judgment.[109]In those circumstances, I consider that both parties could usefully have taken stock when the Judge circulated the second draft judgment dealing with the £43,800. Had they done so, they would have realised that the reasoning did not fully deal with an issue that was both difficult and crucial. I quite recognise that neither the Judge nor the parties would have welcomed the idea of a still further hearing on a second draft judgment that had been awaited for 9 months. However, that would have been preferable to the situation this court now finds itself in. In short the court is being asked, on appeal, to grapple with issues of some complexity which have been the subject of little detailed analysis by the Judge and on which there are few factual findings available.[110]I canvassed the difficulty of the exercise facing this court during oral submissions. On receiving the embargoed judgment, ERL submitted that I had not properly understood the submissions of Mr Trompeter KC on the question whether the matter should be remitted back to the Judge for further factual findings and I have, therefore, reflected further on this issue. As I have noted in paragraphs 105 to 108 above, the trial before the Judge was not conducted on the basis that factual findings as to contemporaneous discussions on the allocation of the £43,800 were considered important. That was largely because of ERL’s position that the Rent Deposit Account remained intact.[111]In different circumstances, I might well have simply allowed the appeal and remitted the matter back to the Judge to enable further factual findings to be made as I am in no position to make any further factual findings myself. However, the absence of factual findings on the kind of matters set out in paragraph 105 arises largely because of ERL’s untrue case before the Judge on dealings with the Rent Deposit Account. Therefore, remittal back to the Judge would risk giving ERL the opportunity to escape the consequences of advancing its untrue case and to pursue a different case based on Mr El Gibaly’s knowledge, understanding or acquiescence in dealings with the £43,800. Nor is it even obvious that there is much additional evidence on that issue: I was shown some text messages passing between Mr El Gibaly and Mr Aziz in January 2022, a good time after the £43,800 was withdrawn, but they were unclear, often proceeded at cross-purposes and neither side suggested that these were dispositive of the proper allocation of the £43,800. This dispute needs to be dealt with proportionately. It has already consumed a large amount of the parties’ and the court’s resources and has been ongoing for longer than this kind of dispute should. On balance, I have decided that I must do the best with the material that I have, acknowledging that the £43,800 has received much more analysis than was available to the Judge. Since I am doing that, I will set out my own analysis of the allocation of the £43,800, by reference to what I see as the crucial issues and the relatively limited factual findings, without detailed cross-references to the Judge’s analysis.
Clause 2.4 and/or Clause 2.6 of the Rent Deposit Deed
[112]ERL relies on Clause 2.4 of the Rent Deposit Deed which I have quoted in paragraph 37. ERL’s position is that Clause 2.4 is dispositive. It argues that(i) the Judge found at [100] that the £43,800 was not withdrawn for the purposes set out in the Rent Deposit Deed,(ii) no party challenges that conclusion(iii) Clause 2.4 provides explicitly that, not having been withdrawn from the Rent Deposit Account for the purposes in the Rent Deposit Deed, the £43,800 cannot be “deemed to be appropriated to or paid towards any sums due to [ERL]” so that(iv) the Judge was wrong to conclude that TWL should be “given credit for” the £43,800.[113]In considering this issue, I will apply the same principles of contractual interpretation as I do when considering issues raised by the Respondent’s Notice (see paragraph 151 below).[114]ERL approaches Clause 2.4 as if it is making a statement about the treatment of sums wrongfully withdrawn from the Rent Deposit Account. I consider that to involve an incorrect approach to Clause 2.4.[115]Clause 2.4 is not dealing with sums wrongfully withdrawn from the Rent Deposit Account. Rather, it is dealing with sums that remain in the Deposit Account prior to the point at which ERL makes a withdrawal for the purpose of appropriating the amount withdrawn to any sums due to ERL. Clause 2.4 is simply making the somewhat banal statement that the Tenant cannot assert that it has complied with its payment obligations under the Lease simply because sums sufficient to discharge those obligations stand to the credit of the Rent Deposit Account. When ERL withdraws sums from the Deposit Account for the purpose of appropriating towards any sums due to it, the liability to pay those sums is discharged, but discharge does not occur earlier.[116]ERL argues that Clause 2.6 of the Rent Deposit Deed expressly provides that any withdrawal from the Rent Deposit Account cannot affect “any liability of the Tenant to the Landlord in relation to the Lease”. I do not agree that this precludes the £43,800 from being allocated against arrears of rent or service charge. This aspect of Clause 2.6 simply provides that, if ERL permissibly withdraws sums from the Rent Deposit Account, TWL cannot assert that it is absolved of all liability for the default that led to that withdrawal. So, for example, if the Rent Deposit Account is not sufficient to discharge the liability in question, Clause 2.6 makes it clear that TWL retains a liability for the shortfall. The whole flavour of Clause 2.6 is that it is concerned with permitted withdrawals. Clause 2.6 is not dealing with the consequences of withdrawals from the Rent Deposit Account that ERL was not permitted to make.
Significance of the Judge’s finding at [100]
[117]ERL argues that the Judge’s finding at [100] to the effect that “the £43,800 was not drawn down for the purposes set out in the [Rent Deposit Deed] nor was it deemed to be” is crucial. It also emphasises the Judge’s finding that the wrongful withdrawal “deprived the sum of £43,800 as having the quality of the deposit fund”.[118]I do not agree that this finding precludes the £43,800 from being allocated against any rent or service charge (see paragraph 102.i) above). The Judge’s point was simply that the £43,800 was withdrawn at a time when there were no arrears and it was not, therefore, a withdrawal from the Rent Deposit Account that was permitted pursuant to the Rent Deposit Deed. The exercise of the right of re-entry set out in Clause 5.1 of the Lease requires that rents reserved by the Lease be “in arrear or unpaid for twenty one days after the same shall become due”. Determining whether that precondition is met does not depend on any withdrawal from the Rent Deposit Account being regular or irregular. It involves an analysis of whether rents are in “arrear”. The concept of “arrears” invites a comparison between(i) sums that are expressed to be due under the Lease and(ii) the date, if any, on which those sums were paid. Even though the £43,800 was impermissibly withdrawn from the Rent Deposit Account when there were no actual arrears, it remains possible that ERL’s subsequent dealing with that sum involved it, in effect, obtaining a payment of some of the rents reserved by the Lease.
Significance of Clause 3.1
[119]ERL argues that Clause 3.1 of the Lease precludes the £43,800 being allocated against rent or service charge due on 25 March 2022 as it would involve ERL asserting some species of deduction, set-off or counterclaim.[120]I do not agree. The Judge made findings at [63] about the process that TWL followed when determining that a payment of £62,328 on 25 March 2022 would leave it with no arrears. He noted that Orbit refused to provide its own calculation of arrears. The process that TWL followed did not involve asserting whether explicitly or implicitly that it had any claim against ERL for £43,800. Indeed, there is no finding in the Judgment that TWL even knew that the £43,800 had been withdrawn from the Rent Deposit Account at that date. That is not surprising given that ERL’s position at trial was that the £43,800 had not been withdrawn from the Rent Deposit Account. TWL could not assert any claim for the return of the £43,800 until it knew that ERL had wrongly withdrawn that sum from the Rent Deposit Account. ERL’s prevarication and obfuscation on this issue meant that TWL only realised the position at the trial before the Judge.[121]The logic of ERL’s argument is that, if ERL had broken into TWL’s premises and stolen £43,800 that was sitting in an office drawer ready to be applied in paying the next day’s payment of rent, ERL could(i) refuse to give any credit for that £43,800 and(ii) forfeit the Lease if TWL did not pay in full the next day. That cannot be right. TWL’s position since at least the trial before the Judge is that ERL does not owe it £43,800. TWL is not seeking the return of £43,800. The logic of TWL’s position, therefore, is that neither when it made the payment to ERL in March 2022 nor at the trial before the Judge, was it asserting any right of deduction, set-off or counterclaim. Rather, it says that the £43,800 should be treated as, in effect, a payment of rent for the purposes of deciding whether there are any arrears of rent. I do not consider that approach to run contrary to Clause 3.1. Why should the £43,800 be allocated against rent at all rather than operating as a notional credit to the Rent Deposit Account?[122]I agree with ERL that there is a gap in the Judge’s reasoning, namely why the £43,800 should not be treated as a credit to the Rent Deposit Account. I also agree with ERL that a case can be made that the £43,800 should be treated as a notional credit to the Rent Deposit Account reflecting an obligation to ERL to top up that account having made a wrongful withdrawal from it.[123]However, in my judgment, there is nothing wrong in principle with the £43,800 operating as a credit when determining the amount of any arrears of rent. Arrears are, by definition, a difference between the amount that TWL owed and the amount that ERL received by way of rent and service charge. In circumstances where ERL has obtained value at TWL’s expense, by making an unauthorised withdrawal from the Rent Deposit Account, there is nothing obviously wrong with that sum being treated as reducing arrears. Indeed, treating the sum as reducing arrears is consistent with the fact that TWL has at no point asked for that sum to be repaid.[124]Therefore, the £43,800 can realistically be regarded either(i) as a notional credit to the Rent Deposit Account or(ii) as an amount to be taken into account when calculating arrears. The former treatment would suit ERL; the latter would suit TWL. There is no finding that ERL and TWL agreed any such treatment and I am not satisfied that either ERL or TWL have a legal right to insist on their treatment. In those circumstances, I must simply choose between the two competing allocations.[125]In my judgment, treating the £43,800 as a notional credit to the Rent Deposit Account, and so affording it the same treatment as if it had never been withdrawn, would be wrong in principle. The £43,800 was withdrawn. ERL spent it and did so without any agreement from TWL. It would be quite wrong, and at odds with commercial reality, to treat the £43,800 in the same way as if it continued to sit in the Rent Deposit Account. That would give ERL all the benefits of having had and spent the £43,800 and also all the benefits of the £43,800 continuing to sit in the Rent Deposit Account so that it could not operate to reduce arrears of rent because of Clause 2.4 of the Rent Deposit Deed.
Should the £43,800 be allocated to rent falling due in September or December 2020?
[126]ERL argues that it did nothing more than “jump the gun” when it withdrew the £43,800 in July 2020. Admittedly, TWL was not in arrears at that point. However, in September 2020, TWL owed a further £32,500 in passing rent and £32,500 more in December 2020. In those circumstances, ERL argues that the £43,800 should be allocated against Protected Rent falling due in September and December 2020. Having been allocated in that way, the £48,300 cannot be allocated again to rent or service charge falling due in March 2022 particularly given that the amount of Protected Rent due has now been determined by the COVID Award.[127]ERL refers to the rule in Clayton’s Case (1816) 1 Mer 585 in support of a contention that the allocation should be on a “first in first out basis” so that the £43,800 is allocated against the earliest debts that TWL incurred to ERL after the withdrawal of the £43,800. I do not doubt that this would be a potentially logical way of allocating the £43,800. However, I am not satisfied that there is any rule of law that requires the £43,800 to be allocated against Protected Rent due in September/December 2020. Clayton’s Case itself sets out a rule of thumb for determining the presumed common intentions of two parties to a running current account. I do not consider it straightforward to apply a process of divining presumed common intentions to the situation where ERL makes an entirely unauthorised withdrawal from the Rent Deposit Account. Having rejected ERL’s analysis based on the terms of the Rent Deposit Deed itself, I find it difficult to see how ERL and TWL could have any common intention dealing with an unauthorised withdrawal such as this.[128]Moreover, the judgment of the Court of Appeal in Barlow Clowes International Ltd (in liquidation) and others v Vaughan and others [1992] 4 All ER 22 makes clear that the rule in Clayton’s Case must give way if it would involve injustice.[129]In my judgment, allocating the £43,800 to Protected Rent falling due in September and December 2020 would involve injustice. As I have noted in paragraph 120 there is no finding by the Judge that TWL was even aware at that time that the £43,800 had been removed from the account. If TWL had known in July 2020 that ERL had withdrawn £43,800 from the Rent Deposit Account it might well have taken a different position in the COVID arbitration so as to avoid the unfavourable outcome of the COVID Award that I have described in paragraph 61 above. Moreover, if TWL had known in 2020 that the £43,800 was to be allocated against rent falling due in September or December 2020 it could have taken a different approach to calculating what sum to pay in the information vacuum the Judge found to be present at [63] of the Judgment.[130]I pause to consider ERL’s point that to allocate the £43,800 to rent and service charge falling due in 2022 risks placing it into the “magic drawer” that Mr Trompeter KC describes (see paragraph 105). There is some force in that point. However, that result arises because of ERL’s prevarication as to what precisely happened to the £43,800. If ERL had wanted the Judge to conclude that the £43,800 should be allocated to rent falling due in September 2020 and December 2020, it should have given a truthful account of the withdrawal from the Rent Deposit Account. It might then have been able to put forward a good case for allocating the £43,800 to that rent. However, given ERL’s untruthful account, I agree with TWL that the £43,800 could only be allocated to any debt once ERL’s untrue statements about the state of the Rent Deposit Account had been found out. That could only happen at the trial before the Judge. By that time the COVID Award had been given that dealt with Protected Rent and I agree with TWL that the Judge, when performing that apportionment, was entitled to conclude that the amount of Protected Rent due having been finally determined by the COVID Award, the £43,800 should be allocated against Non-Protected Rent. That approach finds some echo in the approach taken by the Court of Appeal in Smith v Betty [1903] 2 KB 317 although I agree with both parties that the circumstances of that case were very different and I certainly do not conclude that Smith v Betty mandates an allocation against Non-Protected Rent.[131]The point is far from straightforward but, on balance, I conclude that the Judge’s overall conclusion, that the £43,800 should be allocated against rent and service charge falling due in March 2022, rather than in June/September 2020, should not be disturbed.
Procedural unfairness?
[132]ERL argues that it was procedurally unfair for the Judge to make any allocation of the £43,800 because TWL did not plead that ERL allocated the sum of £43,800 towards any particular item of rent or service charge and therefore the proper allocation was not put to any of its witnesses.[133]The allocation point has certainly been developed in a somewhat unsatisfactory fashion as discussed in paragraph 109 above. However, on balance, I consider there was no procedural unfairness. In the first place, ERL could have controlled its risk of a somewhat rough and ready apportionment taking place by choosing not to advance an untrue case that the Rent Deposit Account remained intact. If it chose, it could have explained what had happened to the £43,800 and why that was consistent with an allocation to something other than rent or service charge falling due in March 2022. Secondly, by September 2024, it was clear that the apportionment of the £43,800 mattered. If ERL had wished to argue that further evidence was needed on that issue, it could have made submissions accordingly.[134]Ultimately, all parties have had the ability to develop before me very full cases on what they consider the proper apportionment to be.
Conclusion
[135]I will not disturb the Judge’s overall conclusion that there were no arrears of service charge as at 6 May 2022. ERL’s appeal on Ground 1 is dismissed. PART B – RENT CESSER The Judge’s conclusion and the appeal against it
PART B – RENT CESSER
[136]Ground 2 of ERL’s appeal concerns whether, in the light of the rent cesser provision, the passing rent that would otherwise have fallen due for payment on the 25 March 2022 quarter day did indeed fall due. That issue is relevant to the amount of arrears of rent on 6 May 2022.[137]The rent cesser provision provided as follows: 5.5 Cesser of Rent If the Premises or any part thereof shall at any time during the Term be destroyed or so damaged by fire or any other cause whatsoever as to render the Premises or any part thereof unfit for habitation and use and any policy or policies of insurance effected by the Lessors pursuant to the covenant in that behalf hereinafter contained shall not have been rendered void or voidable or payment of any policy monies refused in whole or in part in consequence of any act or default of the Lessee then the rent first hereby reserved or a fair proportion thereon according to the nature and extent of the damage sustained shall be suspended until the Premises shall again be rendered fit for habitation and use or for a period of three years from the date of such destruction or damage (whichever shall be the shorter) and any dispute concerning this clause shall be determined by a single arbitrator in accordance with the Arbitration Act 1996 or any statutory enactment in that behalf for the time of being in force.[138]The ventilation duct was removed in January 2022 and so prior to 6 May 2022 on which date ERL says it forfeited the Lease. As at 6 May 2022, TWL was arguing that the ventilation duct did indeed make the Premises unfit for habitation and use. However, ERL did not accept that. The matter was not referred to arbitration as required by the Rent Cesser Provision until after the asserted forfeiture and the arbitrator did not make the Rent Cesser Award until February 2023 (see paragraph 23 above). In those circumstances, the competing positions before the Judge were as follows: i) ERL argued that, because the applicability or otherwise of the Rent Cesser Provision had not been determined by 25 March 2022, and the arbitrator had not made the Rent Cesser Award suspending any rent by that date, passing rent of £32,500 fell due on 25 March 2022 in the ordinary way. That passing rent fell to be taken into account when calculating arrears of rent as at 6 May 2022. ii) TWL argued that the event necessary to trigger the Rent Cesser Provision, namely the removal of the ventilation duct, had happened by 25 March 2022. The arbitrator would subsequently confirm this, and decide what fair proportion of rent should be suspended. However, the Rent Cesser Award simply confirmed the existence of a factual situation that was already in existence as at 25 March 2022 which meant that the rent falling due on that date was already suspended and so could not contribute to arrears of rent as at 6 May 2022.
The Judge preferred TWL’s analysis and Ground 2 of ERL’s appeal challenges that conclusion.
Discussion
[140]The dispute is as to the proper construction of the Rent Cesser Provision. I apply the principles of construction summarised in paragraph 151 below.[141]In my judgment, the text of the provision firmly supports TWL’s analysis: i) The architecture of the provision specifies a factual trigger, and a consequence. ii) The factual trigger is that(a) the Premises have been damaged or destroyed,(b) that damage renders the Premises unfit for habitation and use and(c) (to paraphrase) the Lessee must not have done anything to preclude the Landlord from claiming on its insurance. iii) The consequence is that the passing rent (but not the service charge), or a fair proportion thereof, is suspended “until the Premises shall again be rendered fit for habitation and use or for a period of three years from the date of such destruction or damage (whichever shall be the shorter)”. Significantly, the rent is not expressed to be suspended from the date the destruction or damage is discovered, or from the date the arbitrator makes any award in the case of a dispute. Rather, the three-year maximum period at least is expressed to run from the date of the destruction or damage. If the date of the arbitrator’s award was of any significance for the purpose of the clause’s operation, one would expect that date to be mentioned somewhere. However, the date of the arbitrator’s award features nowhere in clause 5.5. iv) Both the factual trigger and the consequence involve matters of fact which might be the subject of debate. That is acknowledged by the provision for arbitration. Yet, despite expressly acknowledging the scope for a factual dispute on both the factual trigger and the consequence, the Rent Cesser Provision is not expressed to operate from the date any such dispute is resolved.[142]Strictly, the indication in paragraph 141.iii) relates expressly only to cases in which the three-year maximum is engaged. However, there is a clear linguistic indication that in all events, the suspension is to start from the date of destruction or damage and end either (i) when the Premises are again rendered fit for habitation or use or (ii), if earlier, three years after the damage or destruction. It would make no sense to count “three-year maximum” cases from the date of the damage or destruction and other cases from the date of the arbitrator’s award.[143]Moreover, the purpose of the provision is consistent with TWL’s analysis. If the Premises are unfit for habitation and use, TWL is not expected to pay rent, or a fair proportion of rent. ERL is entitled to insure against the risk of the maximum of three years’ rent being lost (paragraph 14.2 of the Third Schedule to the Lease) and to pass the cost of that insurance on to TWL. Therefore, the Lease envisages that ERL holds insurance protection against the risk of the rent cesser provision operating which is paid for by TWL. It would make no commercial sense for ERL, despite enjoying that protection, to be able to forfeit the Lease in circumstances where TWL has validly asserted that the rent cesser provision meant that no rent was actually due.[144]Both sides made analogies with court orders and judgments. ERL’s preferred analogy was with the situation where the court makes an order that is subsequently reversed on appeal. It argued that, in such a case, people are entitled to act in accordance with the earlier order unless and until it is set aside (see Hillgate House Ltd v Expert Clothing Services & Sales Ltd [1987] 1 EGLR 65). By parity of reasoning it argued that the rent should continue to be regarded as due under the Lease until the date of the Rent Cesser Award that suspended it.[145]TWL’s preferred analogy was with the situation where a court gives a judgment that alters the common law. In such a case, legal theory is that the court has simply declared what the common law always was (though people might not have understood that to be the case). By parity of reasoning, TWL argues that the rent did not fall due as soon as the trigger event occurred.[146]I do not myself consider these analogies to advance the debate greatly. In my judgment, the answer emerges clearly from the relevant provisions of the Lease. I agree with the Judge’s conclusion on the issue and Ground 2 of ERL’s appeal fails. PART C – OTHER RESPONDENT’S NOTICE POINTS Whether ERL was entitled to send service charge demands by email The terms of the Lease
PART C – OTHER RESPONDENT’S NOTICE POINTS
[147]The Judge set out Clause 5.2 of the Lease at [113]. However, he transposed it wrongly and the correct version of it is (so far as material) as follows: 5.2 Notices Section 196 of the Law of Property Act 1925 … shall apply to all notices required to be served hereunder and such provisions shall be extended as follows:… 5.2.2 Any demand or notice or request to be made on or given to the Lessee for any of the purposes of this Lease shall begiven sufficiently served if made in writing addressed to the Lessee and sent by registered post or left at its registered office for the time being[148]I highlight the words “shall be given sufficiently served” because they are at the heart of TWL’s argument that something has gone wrong with the drafting of the provision. TWL argues that the phrase should be read as “shall be given and sufficiently served” so that it is specifying particular methods of service that must be adopted (so that notice must be “given” by those methods) and, having done so, specifying the consequences of giving such notice (namely that the document is “sufficiently served”).[149]Clause 5.2 is expressed to “extend” the provisions of s196 of the Law of Property Act 1925 (Section 196) which provides, so far as material, as follows: 196. — Regulations respecting notices(1) Any notice required or authorised to be served or given by this Act shall be in writing.(2) Any notice required or authorised by this Act to be served on a lessee or mortgagor shall be sufficient, although only addressed to the lessee or mortgagor by that designation, without his name, or generally to the persons interested, without any name, and notwithstanding that any person to be affected by the notice is absent, under disability, unborn, or unascertained.(3) Any notice required or authorised by this Act to be served shall be sufficiently served if it is left at the last-known place of abode or business in the United Kingdom of the lessee, lessor, mortgagee, mortgagor, or other person to be served, or, in case of a notice required or authorised to be served on a lessee or mortgagor, is affixed or left for him on the land or any house or building comprised in the lease or mortgage, or, in case of a mining lease, is left for the lessee at the office or counting-house of the mine.(4) Any notice required or authorised by this Act to be served shall also be sufficiently served, if it is sent by post in a registered letter addressed to the lessee, lessor, mortgagee, mortgagor, or other person to be served, by name, at the aforesaid place of abode or business, office, or counting-house, and if that letter is not returned by the postal operator (within the meaning of Part 3 of the Postal Services Act 2011) concerned undelivered; and that service shall be deemed to be made at the time at which the registered letter would in the ordinary course be delivered.(5) The provisions of this section shall extend to notices required to be served by any instrument affecting property executed or coming into operation after the commencement of this Act unless a contrary intention appears. The Judge’s conclusion[150]As I have explained, the Judge had quoted Clause 5.2.2 incorrectly. He recognised the linguistic difficulties associated with the phrase “shall be given sufficiently served”. He was unattracted by TWL’s submission that there was a missing “and” ([123]). He concluded that Clause 5.2.2 was permitting particular methods of service, rather than making those methods mandatory. He therefore rejected TWL’s argument that Clause 5.2.2 excluded service by email ([125]). Since the Judge went on to find at [126] that emails sending service charge demands were received by Mr El Gibaly, in his capacity as director of TWL, he concluded that those service charge demands were validly served.
Principles of construction
[151]There was no dispute between the parties as to the principles that the court should apply when construing the Lease. Both parties agreed that I needed no more guidance on those general principles of construction than is set out at [15] of the judgment of Lord Neuberger in Arnold v Britton [2015] AC 1619, [2015] UKSC 36, as expanded by [16] to [23] of that judgment. I will, therefore, apply those principles.[152]The parties are also agreed that, if the ordinary process of construing the Lease leads to the conclusion that “something has gone wrong with the language” used, the court has power to “correct” that mistake as part of the unitary process of construing it. Two conditions need to be satisfied for such a “corrective construction” to be applied. First it should be clear, not merely possible, that something has indeed gone wrong with the language. Second it needs to be clear what a reasonable person would have understood the parties to have meant (see the judgment of the House of Lords in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38).
Analysis
[153]Before considering the difficulties posed by the phrase “shall be given sufficiently served”, I note the following surrounding circumstances that I consider to have a bearing on the proper construction of Clause 5.2.2: i) Section 196 does not mandate any particular method of service. It is permissive, in the sense that, if one of the methods of service set out in Section 196 is followed, then the document in question is treated to be served even if it never comes to the recipient’s attention (see Kinch v Bullard [1997] 1 WLR 423). However, Section 196 is silent as to the effect of any other method of service being used and so does not provide that only methods of service specified in Section 196 are to be good service. I did not understand these propositions to be controversial. ii) Clause 5.2.2 of the Lease on any view provides for a document that is in writing, is addressed to the Lessee and is left at TWL’s registered office to be properly served. Section 196 says nothing at all about the treatment of documents that are left at a company’s registered office. iii) At the time the Lease was executed, the Lessor was a company incorporated in the Isle of Man. The very first page of the Lease gave a physical address for service on the Lessor in the UK (being “care of 13 Coventry Street, London W1”). Clause 5.14 of the Lease provided that, if the lessee under the lease is an individual who does not ordinarily reside in England, or a company that does not have its registered office in England, then the lessee is obliged to ensure that solicitors are instructed in England who have instructions to accept service of documents on the lessee’s behalf. iv) The Lease does not expressly permit service of documents by email. Nor does it specify any email address that can be used either for the landlord or the tenant. v) Clause 5.2 of the Lease applies only to documents served on the lessee. It says nothing about the service of documents on the landlord. Section 196 would, therefore, apply (unmodified) to service of documents on the landlord with the result that, provided a notice is given in writing, any method of service that brings it to the landlord’s attention will be good service.[154]ERL’s central argument is that Clause 5.2 of the Lease operates to “extend” the provisions of Section 196. It argues that, if TWL’s construction were correct there would be no such extension. On the contrary, there would be a contraction in the methods of permissible service since(i) Section 196 permits a variety of methods of service yet mandates none (see paragraph 153.i)) whereas(ii) on ERL’s construction, Clause 5.2.2 would set out a sole permitted method of service on the lessee. In my judgment, there is a clear force to that argument. Indeed the force of the argument is increased by the point made in paragraph 153.v): it might be asked why the parties would have wished to make it much harder to serve documents on the lessee than on the landlord.[155]Paragraph 153.ii) also supplies a further powerful argument in favour of ERL’s approach given that the lessee was a company that had a registered office. It would make complete sense for the Lease to wish to “extend” Section 196(3) by providing that leaving a document at the lessee’s registered office would necessarily amount to good service. It would also make complete sense for the Lease to wish to “extend” Section 196(4) to provide that putting a registered letter in the post addressed to the lessee at its registered office would also amount to good service (and preserve the effect of Section 196(4) that in such a case service would be deemed even if the document never came to the attention of the lessee). Clause 5.2.2 reads, quite naturally, as seeking to achieve both results, replicating as it does concepts that appear in both Section 196(3) and Section 196(4).[156]However, those indications cannot altogether dispose of the matter. It is still necessary to determine what to make of the odd phrase “shall be given sufficiently served”. I consider that something clearly has gone wrong with the wording since the phrase in question is an odd one that does not, as a whole, make sense in its context.[157]I agree with ERL and the Judge that the word “given” was included by mistake. That conclusion is consistent with, and explained by, the considerations summarised in paragraph 155 above. The draftsperson wanted to extend the effect of Section 196(3) and Section 196(4) and needed to cross-refer to concepts used in those sections. To do that, the draftsperson had to identify the notices with which Clause 5.2.2 was concerned, namely those demands or notices that had to be “made on or given to the Lessee” (my emphasis). Having identified the notices affected by Clause 5.2.2, the draftsperson then had to specify an effect of the clause where it operated.[158]The draftsperson’s first instinct was to express the operative effect as being that the notice “shall be given” (i.e. that notice is to be treated as “given”). However, on reflection, the draftsperson realised that Section 196(3) and Section 196(4), whose effect was to be extended, did not refer to notices being “given” but rather to those notices being “sufficiently served”. The draftsperson realised that this was the end result to be specified, but simply omitted to delete the word “given”.[159]I was referred to the judgment of the Court of Appeal in Ener-g Holdings plc v Hormell [2012] EWCA Civ 1059. At [32] of his judgment the Master of the Rolls said that “clear words would normally be required before one could ascribe to the parties an intention that a recipient who actually receives a notice in time should nonetheless be treated as not having received the notice at all”. I agree with TWL that this phrase does not represent guidance binding on me as to how I should construe the particular provision before me. Overall, I consider that the factors set out above support ERL’s interpretation and I conclude that the Judge was right to decide that service charge demands were validly served by email. Whether an estoppel operated in relation to service charge demands sent by email (paragraph 1.2 of the Respondent’s Notice)[160]At [126] and [127] of the Judgment, the Judge concluded that, even if he was wrong in his construction of Clause 5.2 of the Lease, TWL was estopped from denying that service charge demands had been validly served. The Judge’s reasoning on this matter was brief indeed, no doubt because he did not consider the matter arose for determination given his conclusion that the Lease permitted service charge demands to be served by email.[161]It seemed to me that there was force to some of the challenges that TWL made to this aspect of the Judgment. In particular, the Judge said that he found an estoppel by convention based on what he considered to be a course of conduct that involved TWL accepting service charge demands by email. However, the Judge did not set out all the ingredients necessary for an estoppel by convention to apply. He did not, therefore, explain why this amounted to conduct by TWL that “crossed the line” between the parties and so manifested TWL’s assent to a common assumption.[162]Addressing the issue of estoppel would burden an already long judgment with an issue that does not arise for consideration. I will not, therefore, express a concluded view on this issue. Was ERL entitled to forfeit the Lease by reference to amounts of service charge payable on account (paragraph 1.3 of the Respondent’s Notice)? Relevant provisions of the Lease[163]Clause 2 of the Lease contains a well-known formula for the grant of a lease and provides, so far as material as follows: 2. DEMISE AND RENT In consideration of the rent and covenants by the Lessee hereinafter reserved and contained, the Lessors hereby demise unto the Lessee the Premises … TO HOLD the Premises unto the Lessee for the term of years commencing on (hereinafter referred to as “the Term”) YIELDING AND PAYING THEREFOR unto the Lessors during the Term: FIRST the clear yearly rent specified in the Particulars… THIRDLY by way of additional rent (the “Additional Rent”) the service charge set out in Part II of the Second Schedule PROVIDED THAT the Lessee shall pay to the Lessors on account of the Additional Rent in advance on the usual quarter days in every year such quarterly sums as shall be demanded by the Surveyor pursuant to the provisions of this Lease
FIRST the clear yearly rent specified in the Particulars…
[164]Clause 5.1.1 of the Lease contains a right of re-entry that is exercisable, in the following circumstances, as well as others: 5.1.1 [if the] rents reserved in this Lease or any part of them shall be in arrear or unpaid for twenty one days after the same shall become due (whether legally demanded or not)[165]Clause 5.13 provides as follows: All sums payable or repayable by the Lessee under the terms of this Lease shall be recoverable as if the same were rent[166]Part I of the Second Schedule is headed “Rents”. Paragraph 8, that falls within Part I, introduces some provisions relating to rent reviews (which are not applicable to service charge). Paragraph 8, however, concludes with some general words that are capable of applying to all the rents reserved by the Lease: … AND all such rents as aforesaid shall be payable by equal quarterly payments in advance on the usual quarter days in every year the first payment computed the quarter day next following the date hereof to be made on the date hereof[167]Part II of the Second Schedule is headed “Service Charge”. By paragraph 13 of the Second Schedule, the Additional Rent (i.e. the service charge) is expressed to be a sum equal to 3.8% of the Outgoings relating to the services set out in the Third Schedule.[168]The term “Outgoings” is defined in paragraph 12.4. That definition includes, as limb (a): (a) the expenses outgoings and costs actually disbursed incurred or reasonably estimated from time to time by the Surveyor as likely to be incurred by the Lessors in connection with the Services and Additional Matters in respect of any Financial Year[169]Limb (b) of the definition of “Outgoings” envisages the creation of a “sinking fund” to deal with, for example, the anticipated replacement cost of machinery. Such machinery might not need to be replaced for many years, but the Lease permits the Lessor to allocate part of the anticipated future cost to a particular period and treat that sum as Additional Rent under limb (b) of the definition.[170]Paragraph13.1 and13.2 of the Second Schedule provide as follows: 13.1 Payment of shortfall If the actual cost (as certified by the Auditor) of the Outgoings shall for any Financial Year be in excess of the Surveyor's estimate thereof then the Lessee shall immediately following service of a written demand from the Surveyor pay to the Lessors an amount equal to the difference between the proportion as aforesaid of such actual costs and the Additional Rent already paid by the Lessee in respect of that Financial Year. 13.2 Excess payment to be credited to Lessee If the actual cost (certified as aforesaid) of the Outgoings shall for any Financial Year be less than the Surveyor's estimate thereof then the Lessors will hold to the credit of the Lessee on account of future demands for the Additional Rent (or in the final year of the Term repay to the Lessee) an amount equal to any difference between the Additional Rent already paid by the Lessee in respect of that Financial Year and the proportions as aforesaid of such actual cost (together with any interest accruing upon the amount of such difference where it exceeds £l,000).[171]By paragraph 12.3 of the Second Schedule, a “Financial Year” was, subject to any stipulation to the contrary, to be the period (of one year, although the definition does not say so expressly) ending on 25 March in each year. The Judge’s conclusion and the challenges to it[172]The core of the Judge’s conclusion is set out at [78]. He accepted ERL’s argument that the payment on account of service charge was “rent” with the result that the right of re-entry set out in Clause 5.1.1 could be exercised if payments demanded were not made.[173]By its Respondent’s Notice, TWL makes a somewhat different argument from that advanced before the Judge. It accepts that, in principle the non-payment of the “rents reserved in this Lease”, which is the trigger for the right of re-entry in Clause 5.1.1 of the Lease, includes the “Additional Rent” that is reserved by Clause 2 of the Lease. However, it argues that the right of re-entry is not triggered by a failure to pay service charge demanded on account. Rather, it argues that the Additional Rent only falls due (for the purposes of Clause 5.1.1) at the end of the Financial Year to which it relates. Accordingly, it argues that the right of re-entry can be exercised only after the end of the relevant Financial Year and then only if the Additional Rent for that Financial Year has not been paid in full.
Analysis
[174]I apply the same principles of construction as I have summarised in paragraph 151.[175]There is some linguistic support for TWL’s approach. What is thirdly reserved as “Additional Rent” is “the service charge set out in Part II of the Second Schedule”. There is then a proviso to the effect that “the Lessee shall pay to the Lessors on account of the Additional Rent in advance on the usual quarter day in every year such quarterly sums as shall be demanded by the Surveyor”. That opens the door to an argument that “Additional Rent” is one thing, but sums demanded “on account of the Additional Rent” are another.[176]It is, therefore, necessary to interrogate the Second Schedule to ascertain precisely what is the “service charge set out in Part II of the Second Schedule” because it is that item that constitutes Additional Rent. Happily, paragraph 13 of the Second Schedule gives a clear answer. The Additional Rent is 3.8% of the “Outgoings” relating to specified services.[177]The definition of “Outgoings” does not just extend to expenses that are known. Nor does that definition include only expenses that have actually been disbursed. The definition specifically envisages that “expenses reasonably estimated by the Surveyor as likely to be incurred in connection with the Services and Additional Matters in respect of any Financial Year” fall within the definition. The effect of this provision is clear: sums reasonably estimated to be spent in respect of services for a given Financial Year are “Additional Rent” just as much as are sums actually incurred.[178]That points firmly against TWL’s argument, notwithstanding the linguistic indication that comes from the definition of “Additional Rent” described in paragraph 175 above. A further pointer against TWL’s argument can be seen in paragraph 13.1 of the Second Schedule. That paragraph imposes an obligation on the Lessee to make a “top-up” payment if the actual cost of Outgoings for any Financial Year is in excess of the Surveyor’s estimate. The drafting of that obligation is instructive because it requires the Lessee to pay the difference between 3.8% of actual costs in respect of that Financial Year and “the Additional Rent already paid by the Lessee”. The clear implication of this is that payments made on account, by reference to the Surveyor’s estimate of Outgoings, are themselves Additional Rent.[179]TWL points out that, by paragraph 8.3 of the Second Schedule, following a rent review the new “rents” are to be payable by equal quarterly payments in advance on the usual quarter days. It was suggested that since payments on account of service charge are not automatically payable on those quarter days, that supports an inference that such payments on account are not “rents”. I do not accept that as it overlooks a relevant aspect of the proviso to the definition of “Additional Rent”. That proviso ensures that sums on account of service charge (which are included within the definition of “Additional Rent”) are not automatically payable in any particular amount on the usual quarter days but rather only become payable if the Surveyor demands a particular sum (see paragraph 163 above).[180]In my judgment, the provisions of the Lease demonstrate a clear intention, ascertained objectively, that sums demanded on account of Additional Rent are themselves Additional Rent as defined. TWL may be correct to say that Clause 5.13 of the Lease was seeking to ensure that, while the self-help remedy of distraining for rent was lawful, the Lessor could levy distress for any sum payable under the Lease. However, Clause 5.13 is also consistent with a wider intention that sums demanded on account of Additional Rent are themselves to be labelled as “rent”.[181]TWL argues, by reference to paragraphs 4610 to 4621 of Issue 154 of Hill and Redman’s Law of Landlord and Tenant (December 2025) that the court should adopt a “strict construction” of forfeiture clauses. However, even if a “strict construction” must be adopted, in my judgment, the words used quite clearly support ERL’s analysis.[182]TWL also argues that it is “draconian and unnecessary” for the Lessor to be able to forfeit the Lease for failure to pay an amount on account in circumstances where it could immediately sue in debt for the sum demanded. It raises the spectre of a Landlord demanding an excessive sum that turns out to be in excess of the amount needed to cover Outgoings and forfeiting the Lease when that excessive sum is not paid.[183]I agree with ERL that this does not advance the debate on construction greatly. Perhaps the Lessor could have formed the view that its remedy in debt was sufficient. However, it did not do so for reasons that I have explained and TWL is bound by the provisions of the Lease as they are, and not merely by those provisions that it considers afford ERL sufficient protection.[184]In a similar vein, the Lease addresses the issue of excessive demands expressly. Estimated amounts only count towards Outgoings (and so towards the determination of Additional Rent) if the Surveyor, exercising reasonable discretion, considers those estimates appropriate. The Lessee has to pay an estimated amount that the Surveyor so determines. If, with hindsight, Surveyor’s estimate turns out to be excessive, paragraph 13.2 of the Second Schedule explains what is to happen to the excess. That scheme is not inconsistent with the Lessor having a right to forfeit the Lease should the Lessee not pay the amounts demanded. Whether TWL should be given relief from forfeiture (paragraphs 3 to 7 of the Respondent’s Notice) The Judge’s conclusion and the challenges to it[185]The Judge had found that there were no arrears of rent or service charge as at 6 May 2022. Given that conclusion, ERL had not validly forfeited the Lease and so the question of relief from forfeiture did not arise. The Judge therefore dealt with the question of relief from forfeiture in a brief obiter section at [218] to [221]:218. I would have refused relief from forfeiture, for two main reasons.219. First, and I think predominantly, because there is no evidence that TWL is ready willing and able to pay rent and costs (this is the position irrespective of the continued suspension of the rent under the Rent Cesser Award, and the money paid in as security for costs has no relevance to the consideration of relief). I was not persuaded that Mrs Aliu would lend the relevant sums to TWL come what may.220. Secondly, the claim for damages is not made out (for the reasons I have set out above), as TWL was a dormant company and has brought its damages claim on a basis which it knows to be untrue, that it was in fact trading. The bringing of this claim in this way should disentitle TWL to relief.221. As to the position of the new lessee, Butteryest, whose interest in the property would be adversely affected by the grant of relief, I agree with Ms Murphy that since Butteryest’s interest post-dates TWL’s interest which arises as “a mere equity” because of the application for relief, it would not have prevented the grant of relief, had that been necessary.[186]By its Respondent’s Notice, TWL argues that the Judge should have determined that it would be given relief from forfeiture for the following reasons: i) The Judge applied too high a test at [219]. In order to grant relief from forfeiture, he did not need to be satisfied that TWL would be able to pay arrears of rent “come what may”. ii) Relatedly, the Judge ignored relevant considerations that pointed in favour of granting relief from forfeiture: a) TWL was entitled to credit for benefits that ERL had enjoyed as a consequence of re-entry including the substantial amounts of rent and licence fee that it had received from Fox Catering and Butteryest. That would have reduced significantly the amount of arrears of rent which TWL would have had to pay. b) The amount that TWL was obliged to pay in respect of arrears of rent and costs would have been reduced by(i) the effect of the rent cesser clause and(ii) the £187,000 that TWL had paid into court as security for costs. c) Relief from forfeiture could have been granted conditional on TWL’s payment of costs and arrears of rent (after giving credit for sums referred to in sub-paragraph (a) above). iii) The Judge took into account an irrelevant consideration at [219] namely an apparent concern that TWL might fail to pay rent in the future. That was not a legitimate ground on which to refuse relief from forfeiture (see Gill v Lewis [1985] 2 QB 1). iv) The Judge was wrong to conclude that at [219] that there was “no evidence” that TWL was ready, willing and able to pay rent and costs. There was such evidence: for example TWL had paid sums into court as security for costs, had expended sums on refurbishing the Premises and Mrs Aliu had given sworn evidence that she was prepared to advance sums to TWL. v) This was not the kind of “very exceptional case” referred to in Gill v Lewis that would have justified the refusal of relief from forfeiture. vi) Overall, the Judge reached a conclusion on relief from forfeiture that no reasonable judge could have come to.
The approach I should take to those challenges
[187]The grounds that I have summarised in paragraph 186 are the kind of grounds that might be advanced to challenge an evaluative conclusion of a judge at first instance. Faced with grounds of that nature, ERL naturally emphasised the principle exemplified in the judgment of the Court of Appeal in Re Sprintroom Ltd [2019] EWCA Civ 932 to the effect that an appeal court should not interfere with evaluative conclusions of a lower court unless the conclusion was wrong because of an identifiable flaw in the treatment of the issue to be decided such as a gap in logic, a lack of consistency or a failure to take into account some material factor that undermined the cogency of the conclusion.[188]However, I agree with the position that Ms Murphy advanced in her oral submissions. The Judge did not express a full evaluative conclusion on the question of relief from forfeiture. That is clear from the brevity of his analysis. In emphasising that brevity, I am not being critical: on the Judge’s analysis the question of relief from forfeiture did not arise. However, in circumstances where it is clear from the Judgment that the judge did not find it necessary to engage with all the evidence and submissions before him and perform a full balancing exercise of the kind he would certainly have undertaken if it were necessary to determine the question of relief from forfeiture then the justification for a Sprintroom approach in this case falls away.[189]Moreover, on my earlier findings, the question of relief from forfeiture does not arise as there were no arrears of rent or service charge on 6 May 2022. I nevertheless consider that it is appropriate for me to provide a reasonably full analysis of whether TWL should have relief from forfeiture on the assumption, contrary to my finding, that there were arrears as no such full analysis has been provided to date. I will, therefore, consider the question of relief from forfeiture entirely afresh, although I will of course give appropriate regard to the Judge’s evaluative conclusion. When considering the matter afresh, I will treat the grounds that I have summarised in paragraph 186 not as “grounds of appeal” against the Judge’s conclusion but rather as containing reasons why TWL says that it should be given relief from forfeiture if there were arrears of rent or service charge.
The applicable law on relief from forfeiture
[190]There is a good amount of statute law dealing with relief from forfeiture. Happily the parties agree that whether or not TWL obtains relief from forfeiture is not affected by any statutory provision but will depend on the exercise of a judicial discretion that is not constrained by statute law.[191]Both sides referred to Gill v Lewis [1956] 2 QB 1, as they did before the Judge, as setting out the parameters within which the judicial discretion must be exercised. Strictly, what was said on this issue in Gill v Lewis was obiter since, in that case, the statutory provisions were operative and held to determine the matter. However, both sides agree that Gill v Lewis accurately states the law in this area and indeed the judgment of the Court of Appeal in Keshwala v Bhalsod [2021] EWCA Civ 492 has endorsed the approach set out in Gill v Lewis.[192]I draw the following conclusions on the parameters within which the judicial discretion must be exercised in this case: i) The court is exercising an “ancient equitable jurisdiction” (see [40] of Keshwala v Bhalsod). It should exercise that discretion in accordance with established principles of equity. ii) One such equitable principle is that, as a general proposition, equity regards a right of re-entry as constituting security for a tenant’s obligation to pay rent reserved by a lease. Therefore, in a simple case, where there have been no intervening dealings with the property or any other change of position, the court will ordinarily grant relief to a tenant on payment of arrears of rent and the landlord’s costs ([47] of Keshwala v Bhalsod). iii) That same principle explains why a tenant’s other breaches of covenant, or perceived inability to pay rent going forward, will in general not disqualify the tenant from being granted relief from forfeiture (see p13 of the report of Jenkins LJ’s judgment in Gill v Lewis and [47] of Keshwala v Bhalsod). iv) However, equity’s fundamental concern is to do justice. Therefore, there will be “very exceptional cases” in which a tenant’s conduct can mean that a landlord will not be fully compensated even if a tenant pays all arrears of rent (p13 of the report of Jenkins LJ’s judgment in Gill v Lewis and [47] of Keshwala v Bhalsod).[193]Understandably, the case law does not provide an exhaustive description of the nature of the “very exceptional cases” described in paragraph 192.iv). In my judgment they must be “truly exceptional” (see 680j of the report of the judgment of Vinelott J in Re Brompton Securities Ltd (No 2) [1988] 3 All ER 677). They must be sufficient to displace equity’s starting point that, once a tenant pays arrears and the landlord’s costs “there is no longer any real discretion in the matter” in the words of Lord Esher MR in Newbolt v Bingham (1895) LT 852 at 853. It is no part of my task to engage in fact-matching with other cases, but insight into the nature of the threshold can be seen from: i) The tenant’s persistent failure to pay rent in the past, coupled with its insolvency calling into question its ability to pay rent in the future was insufficient to disqualify it from relief from forfeiture on paying arrears of rent and costs in Re Brompton Securities Ltd. ii) In Gill v Lewis, Jenkins LJ said, obiter, that he doubted that a court would grant relief from forfeiture to a tenant who was consistently using premises for immoral purposes as that would be tantamount to the court giving assistance to the tenant to use the premises for such purposes. iii) Also in Gill v Lewis, Jenkins LJ did not consider it was sufficient that one of the joint tenants of the premises had committed a sexual assault on the premises. This was not on the basis that the crime was irrelevant, but rather because it had been committed by one of two joint tenants, it was an isolated instance and the court had been told nothing of the circumstances.
Application of those principles to the present question of relief from forfeiture
[194]TWL advanced a claim before the Judge for loss of profits that was dishonest. It follows that TWL has sought to use the very landlord/tenant relationship that it asserted to be in place throughout as a basis for advancing a claim that would have defrauded its landlord.[195]TWL argues that it should be given credit for the fact that it discontinued its loss of profits claim during the hearing before the Judge. I do not agree. The Judgment demonstrates that the Judge had seen through the claim. Discontinuing that claim, when TWL was on the verge of being caught out, should attract little credit indeed. The dishonest claim should never have been advanced.[196]Nor do I accept TWL’s argument that the Judge’s award of indemnity costs in connection with the claim for lost profits is a sufficient “punishment”. All the award of those costs does is to restore ERL to the position it should have been in as regards costs: it should never have been required to incur any costs to defend a fraudulent claim. That does not answer the wider question whether, applying equitable principles that include the strong principle summarised in paragraph 192.ii), the court should exercise its discretion to require ERL to resume a landlord/tenant relationship with TWL.[197]In my judgment, there quite clearly are “truly exceptional circumstances” present. The real question is whether, applying equitable principles, the court should deny relief from forfeiture in those circumstances.[198]I quite accept that TWL is not alone in acting in an unacceptable fashion. ERL made false statements about its treatment of the Rent Deposit Account in its witness evidence and its pleadings. It maintained that position up to trial. It was seeking to forfeit the Lease by reference to a modest amount of arrears of rent. (I acknowledge that the figure of £1,071.89 on which ERL relied before the Judge was what it considered to be an irreducible minimum of arrears. However, given that it affirmed the continued existence of the Lease by demanding an amount on account of service charge on 25 March 2022, it seems to me that the greatest amount of arrears on which it could rely, even if it were right about the operation of the Rent Cesser Provision was that sum together with passing rent accruing from 25 March to 12 July 2022. That sum remains relatively small. It granted the Fox Licence just two weeks after it exercised its right of re-entry.[199]It is certainly unattractive for ERL to be seeking to forfeit the Lease for a relatively small amount of unpaid rent and service charge. However, TWL could straightforwardly have had relief from forfeiture much earlier in proceedings if it had simply volunteered payment of any arrears that were due. It chose not to take that straightforward course preferring to make a fraudulent claim for lost profits as well.[200]Even if exceptional circumstances are present, I recognise that the fairest outcome might be to grant relief from forfeiture. TWL presses that point arguing that relief from forfeiture would restore to it a valuable commercial lease in a good location on the Edgware Road.[201]However, I regard it as questionable whether TWL would indeed obtain that benefit. The fixed term of the Lease expires on 28 December 2026. The Lease is protected under Part II of the 1954 Act and ordinarily s24 of the 1954 Act would prevent the Lease from expiring by effluxion of time. However, TWL is not currently in occupation of the Premises: Butteryest is. Therefore, to prevent the Lease from expiring, TWL will need to secure and enforce an order for possession against Butteryest before 28 December 2026. That is certainly not impossible. However, Butteryest was not party to the proceedings before the Judge and is not party to these High Court proceedings. I am not in a position to judge what, if any, arguments might be available to Butteryest in resisting an application for a possession order.[202]TWL suggested that, in referring to the deadline of 28 December 2026, ERL might be seeking to “run down the clock”. I quite accept that I need to be alive to that possibility. ERL has not covered itself in glory in the conduct of the dispute to date. It has an obvious self-interest in seeking to make it as difficult as possible for TWL to go back into occupation. However, I do not regard ERL as being any more (or less) responsible than TWL for the fact that the Lease is now close to its expiry date. Both sides could have acted better in reducing the number of issues before the Judge, but TWL’s fraudulent claim for lost profits has added at least as much to the issues before the Judge as ERL’s persistence with an untrue account of the use of the Rent Deposit Account.[203]Neither side could have foreseen that it would take 9 months following the end of the hearing before the Judge until they received the Judgment. It is not clear that either side was any more to blame than the other for the fact that the appeal hearing before me took place some 16 months after the Judgment was given.[204]My own Post Hearing Questions resulted in both sides seeking to amend their cases in the appeal. That necessitated a further hearing, but I do not consider that either party was any more responsible than the other for the delay consequent on the need to list that hearing.[205]Overall, I regard the fact that the Lease is close to the end of its fixed term as unfortunate, but not engineered.[206]Moreover, even if TWL is able to assert the protection given by s24 of the Act, s30(1)(c) of the 1954 Act entitles ERL to object to the grant of a new tenancy on expiry of the Lease’s fixed term on the basis that: … the tenant ought not to be granted a new tenancy in view of other substantial breaches by him of his obligations under the current tenancy or for any other reason connected with the tenant’s use or management of the holding.[207]ERL argues that TWL’s fraudulent claim for lost profits is at least capable of supplying the “some other reason” necessary for ERL to resist the grant of a new tenancy. TWL does not accept that this is sufficient to deny a new tenancy but has not contradicted ERL’s assertion that it is a relevant consideration. Without determining the matter, I can see at the very least a material possibility that ERL would be entitled to rely on s30(1)(c) in the light of the fraudulent claim for loss of profit.[208]ERL also suggests that TWL has impermissibly shared possession of the Premises with WLR and that this supplies a further reason why s30(1)(c) could excuse ERL from being required to grant a new tenancy. There is something in that point, but I consider it to be much less strong than the argument based on the claim for loss of profit.[209]TWL argues that it is unattractive for ERL to rely on circumstances occasioned by the Butteryest Lease. It argues that this lease was an aspect of ERL’s orchestrated attempt to keep TWL out of possession and frustrate its attempts to secure relief from forfeiture. In this regard, I note that I have not heard the evidence first hand. However, TWL positively asked that, if ERL’s appeal succeeded, I should not remit back to the Judge the question of relief from forfeiture, but should decide it for myself. Doing the best I can with the documentary evidence I have, I consider that TWL’s assertion in this regard goes too far. It is true that, prior to granting the lease to Butteryest, ERL was marketing the Premises as being available to let “on a new lease”. That obviously did not give any weight to the continued interest in the Lease that TWL was asserting.[210]However, ERL did not grant the lease to Butteryest until nearly a year after (on its case) it forfeited the Lease. I see force in ERL’s point that it is not reasonable to require it to keep the Premises empty until the dispute with TWL could be resolved. I am not prepared to conclude that the Butteryest Lease was the device that TWL asserts it to be.[211]I am less attracted than the Judge was to the argument that TWL might not pay ERL’s costs or arrears of rent. In his brief analysis, the Judge did not address the point that ERL would be obliged to give credit for rent or licence fees that it had received from Fox Catering and from Butteryest (see, for example, Bland v Ingram’s Estates Ltd (No 2) [2001] EWCA Civ 1088). That factor is highly material to the calculation of arrears since: i) The passing rent under the Lease is £130,000 per year. However, from January 2022 the rent cesser provision was operative for three years. That means that between January 2022 and 25 March 2026, just 1¼ years’ worth of passing rent would have accrued totalling £162,500. ii) Assuming that Fox Catering and Butteryest have paid all sums due, ERL would have received £100,000 from Fox Catering in the 12 months of its occupation until May 2023. ERL would have received £80,000 per annum from Butteryest since then (over £200,000 by 25 March 2026). Moreover, the Butteryest Lease contained provision for a rent review in 2025 so the amount it had to pay might be even higher.[212]Of course these figures result from a highly simplified calculation. The figures above ignore service charge. Fox Catering and Butteryest may not have paid in full. TWL would also have to make a contribution to ERL’s costs as the price of obtaining relief from forfeiture, and I am in no position to determine the size of that contribution. However, the figures do demonstrate that the requirement to give credit under the principle explained in Bland v Ingram’s Estates is material to an assessment of whether Mrs Aliu would have been prepared to put TWL in funds to pay arrears of rent and costs. Of course, I am not in any position to assess whether Mrs Aliu was telling the truth in her witness statement. However, it seems to me that the amount she would have needed to lend to TWL to enable it to pay arrears of rent and costs would have been materially lower than the amount the Judge had in mind. Therefore, in my judgment, a conditional order of the kind that TWL suggests (see paragraph 186.ii)c) above) would be appropriate if I were minded to order relief from forfeiture. If TWL did not pay the amounts ordered then it would not obtain relief.[213]I also agree with TWL that the question whether TWL would pay rent going forward if granted relief from forfeiture is not relevant (see paragraph 192.iii).[214]At [28] of his judgment in Keshwala v Bhalsod, Nugee LJ quoted from the judgment of the judge at first instance in that case who commented that, when weighing up competing arguments on relief from forfeiture, she was not really dealing with which of the arguments she found most appealing “but, rather dismally, it is which of the arguments I found least unappealing”. I find myself in a not dissimilar position.[215]On balance, I would not give TWL relief from forfeiture if, contrary to my conclusion, there were arrears of rent and/or service charge as at 6 May 2022. TWL’s fraudulent claim for damages weighs heavily in the balance not least since TWL chose to advance that in preference to making a more straightforward claim for relief from forfeiture much earlier in the process. So too is the risk that, if TWL were given relief from forfeiture, but failed to secure a new tenancy under the 1954 Act, the court would be acting in vain. Other considerations point in the opposite direction, such as the possibility that Mrs Aliu may be prepared to put TWL in funds to pay the arrears owing and the availability of a conditional award. The low amount of arrears weighs in the balance too, but it counts for less than TWL submits given that TWL preferred to make a fraudulent claim for loss of profits than a straightforward application for relief from forfeiture conditional on paying those modest arrears. A still further consideration is that TWL has, apparently, already suffered a harsh outcome in the form of the COVID Award. TWL also notes that, if relief from forfeiture is not ordered, ERL obtains the benefit of refurbishments to the Premises that it did not pay for (see paragraph 14 above).[216]Weighing all those factors in the balance, I consider that the cumulative effect of those pointing against relief are the more weighty. I would not order relief from forfeiture.
DISPOSITION
[217]ERL’s appeal fails. I will invite the parties to agree an order giving effect to this judgment. If they cannot agree, there will need to a consequentials hearing before me. That should take place no later than 28 days after the hand-down of this judgment.