White & Anor v Riverside Housing Association Ltd

The Defendants appeal, and the Claimant seeks permission to cross-appeal, against parts of an order made by His Honour Judge Stewart QC in the St. Helen’s County Court (sitting at Liverpool County Court) on 9 July 2004. The Judge thereby determined certain preliminary issues arising out of a claim to possession of a residential property owned by the Claimant subject to an assured tenancy held by the Defendants, the claim being based on arrears of rent. In resisting the claim to possession the Defendants challenged for the first time the validity of certain increases in the rent payable by the Defendants which, they claimed, were introduced in a manner not permitted by the tenancy agreement. If the Defendants are correct, the consequences for the Claimant, which had many other tenants from whom like rent increases have been demanded, may be very serious. The Defendants claim that four annual notices of rent increases are invalid and that the rent currently payable is that of which notice was given in 1999. Six separate arguments in favour of the validity of the rent increases were deployed before the Judge by the Claimant. Only one of them succeeded. The Defendants, with the permission of this court (Waller LJ), appeal against the Judge’s decision on that argument and against the Judge’s costs order, whereby he directed that the Defendants should pay an amount, to be determined by a District Judge, not to exceed two thirds of the full costs incurred by the Claimant on the preliminary issues. The Claimant seeks to uphold the Judge’s order on the issue of the validity of the rent increases but on different or additional grounds, viz. the five other arguments which the Judge had rejected. It also seeks permission to appeal against the costs order.

The Claimant, Riverside Housing Association Ltd. (“Riverside”), is a large registered social landlord and a charitable housing association with 20,000 tenants in all. It allows its tenants to participate in its decisions through a tenants’ association, the Central Tenants’ Association (“the CTA”), through a forum attended by tenants and its officers, the Tenant Participation Forum (“the TPF”), and through tenants being represented on its board of directors.

The Defendants are a married couple, Gary White and Ellen White (“the Whites”). Riverside first granted them a tenancy in 1996, but on 8 February 1999 they signed a revised form of assured tenancy agreement. That form of agreement is applicable to approximately 5,000 of Riverside’s tenants.

The Whites’ agreement states that the tenancy is a weekly assured non-shorthold tenancy for the purposes of the Housing Act 1988. By the agreement Riverside let 20 Brampton Court, St Helens to the Whites at the rent of £54.10 per week with a weekly service charge of £1.39. In Section 2, headed “Riverside’s Duties”, the grounds for possession contained in Sch. 2 to the Housing Act 1988 are summarised. They include, as a ground on which the court may order possession:

“Some rent lawfully due from the tenants –

(a)

is unpaid on the date on which the proceedings are begun; and

(b)

….. was in arrears at the date of the service of the notice under [section 8 requiring the giving of notice of proceedings for possession] relating to those proceedings.”

(Ground 10, Part II, Sch. 2 to the Housing Act 1988)

The following provisions of Section 2 of the tenancy agreement are particularly material:

“(6)

Net Rent

Riverside may increase the rent by giving the tenant four (4) weeks notice in writing as set out in accordance with the provisions of this Agreement.

The notice will specify the net rent payable and any additional payment for the service charges, both of which may be varied each year in accordance with the provisions of this Agreement.

(7)

Rent Variation Date

The rent payable will be increased annually with effect from the first Monday of June each year.

(This is known as the ‘Rent Variation Date’)

(8)

Rent Formula

Riverside will calculate the annual increase in weekly rent by reference to the publication of ‘The General Index of Retail Prices’ and “The Index of Average Earnings’ for the twelve (12) month period to the 31^st December immediately prior to the next rent variation date.

The increase in weekly rent will be whichever of the following two methods of calculation gives the highest weekly net rent. (This is known as the ‘Rent Formula’)

In Section 6, headed “General Terms”, para. (2) provides:

“(2)

Rent Variation Date

In this Agreement the term ‘Rent Variation Date’ refers to the annual increase in rent which will occur each year on the first Monday in June with four (4) weeks prior notice.”

Para. (6), headed “Variable Service Charge”, provides that the service charge may be altered every 12 months to reflect the costs incurred or to be incurred in the provision of services each year to the homes which share them, but that Riverside will give four weeks’ notice in writing before there is any change in the service charge.

Soon after the Whites entered into their tenancy agreement, Riverside gave notice of a rent increase to take effect from the first Monday in June 1999. Thereby the rent was increased to £56.21. That, the Whites say, was the last valid notice which they received of a rent increase.

The rents which Riverside demanded from its tenants were influenced by the limits suggested each year by the regulator of registered social landlords, the Housing Corporation, limiting the rent increases of such a landlord to a fixed percentage of all the rents. Riverside’s assured tenancy rents were higher than secure tenancy rents of comparable properties. It wished to harmonise the rents for all its properties. To that end on 3 February 2000 the Riverside Board decided not to increase its assured tenancy rents in its financial year commencing 1 April 2000 but to increase the rents under other tenancies to bring them closer to the assured tenancy rents. Accordingly, Riverside gave no notice to assured tenants of any increase in their rents to take effect on the first Monday in June 2000.

Later in 2000 a Housing Green Paper was published. In it the suggestion was made that Housing Associations should be limited to increasing rents only by the inflation figure. Riverside estimated that if that suggestion were implemented, it would lose around £42 million over the next 10 years. It looked at what it could do. One possibility was to increase its total income in its then current financial year ending 31 March 2001 by changing the annual date of increase from the first Monday in June to 1 April. Riverside also wanted to change the date for increasing rents to the beginning of April so that the period for the increased income would accord with its financial year and so that its financial arrangements would be brought more into line with those of the Housing Corporation and the local authorities with which Riverside worked. Over 75% of Riverside’s tenants receive housing benefit to help pay their rents and many of the local authorities assessed housing benefit twice a year on 1 April and 1 October.

Riverside’s head of housing policy, Caroline Field, produced a report by way of “background information” for a meeting of the TPF on 18 October 2000 in which she referred to the Green Paper and its effect on Riverside and said:

“We have looked at the possibilities of what we can do, and one idea was to look at moving the rent increase date to 1^st April each year. This would give us around £180,000 extra income each year compared to the rents going up in June. We have not yet decided what to do about that and would like to hear tenants views.”

Riverside’s Chief Executive, Ms Deborah Shackleton, in her witness statement dated 3 June 2004 said:

“4.

I should explain that when consulting TPF, I believed, on legal advice, that we did not need to vary the terms of the tenancy agreement in order to defer the rent increase from June 2000 to April 2001. I was therefore consulting on the deferral.”

The minutes of the TPF meeting show that Ms Field tabled her report and explained that, whilst no date had been set for introducing the Green Paper’s proposal, Riverside expected it to be put in place in 2001 and that Riverside’s direct costs would increase by more than the inflation rate. She further explained that Riverside had looked at ways of reducing costs and was looking at the possibility of moving the rent increase date to 1 April each year which would give Riverside around £180,000 extra income each year compared to the rent increase taking place in June. The minutes do not record any comments by the TPF on that possibility, but they do record that Ms Field asked for the CTA’s views on whether the tenants would need to be consulted about the rent increase and that it was agreed that the CTA would consider this at their next meeting which she would attend.

Ms Field produced the same report to a meeting of the CTA on 8 November 2000 save that she added to para. 2.5:

“Since we did not increase the assured rents in June 2000, the increase in April 2001 would effectively be the 2000 rent increase delayed by ten months.”

On 8 November 2000 at the meeting of the CTA Ms Field gave a very detailed report on the rent issue. The evidence does not disclose whether the CTA expressed any view on it.

Next Ms Field and two directors of Riverside produced a report to the meeting of the Riverside Board on 7 December 2000. In para. 1.2 the report stated:

“1.2

The report recommends that we should increase the assured rent for 2001 by 5% in April 2001, assuming an increase of 10% in fair rents. This should deliver an increase which falls within the Housing Corporation guidelines of 4.3% for the financial year 2001/2002.”

The report further states:

“3.

Constraints on the assured rent increase.

3.1

There are obviously constraints on the level of our overall increase in rents because of the Housing Corporation guideline of RP1+1%. For 2002/2003 this may well be RP1+0.5%, which is our latest understanding of the Government’s initial Green Paper proposals for RP1+0%. We are also constrained by the specific terms of increase on assured rents set out in the tenancy agreement.

3.2

The assured tenancy rent agreement says that the assured rent increase should be within RP1+2% or the Index of Average Earning (AEI)+2%, both measured in December before the rent increase date, which is set as the first Monday in June each year.

3.3

We may choose to make the rent increase date in 2001 the first Monday in June to the first Monday in April – 2^nd April 2001, which would give us an extra 9 weeks of higher income within the financial year. This is only possible because we did not set an assured rent increase in 2000, since our rents would not rise more than once in 12 months. If we do make the rent increase date April, then the earliest subsequent increase would be April 2002.

4.

Implications of bringing forward the rent increase date in 2001.

4.1

If we increase the assured rent on 2^nd April we will receive around £180,000 additional income in the financial year, depending on the level at which we set our assured rents. If the rent increase date moves to April forever then this will be additional income every year.

4.2

We have had discussion with the tenant members of the Tenants Participation Forum (TPF) about making April the rent increase date in 2001, instead of June. On the basis that the rent will not increase again until April 2002, they are not unhappy with this, even though the tenancy agreement says that the rent increase is fixed at the first Monday in June.

4.3 TPF feel that the rent increase letter should simply say that the rent increase will be whatever the amount is and that it will take effect on the first Monday in April, and not rise again before April the following year. They feel that explaining that the rent increase is the 2000 rent increase deferred for 10 months will simply be begging the question about why we are doing it. Our alternative to simply deferring the 2000 rent increase for 10 months would be to go out to consultation again with all 12,000 tenants on assured tenancy agreements to change the tenancy agreement again. We have checked with solicitors whose view is that, since the delay is in the tenants’ favour, we are able to defer the rent increase date from the date fixed in the tenancy agreement.

4.4

Other implications of deferring the rent increase date to April 2001 are that the increase must be bound by the tenancy agreement terms for 2000/2001, which means using RPI and AEI at December 1999 as the limits, not those indices as at December 2000.”

The report ended with the recommendation to increase average rents by 4.3% for the rent increase in 2001 (being RPI+1% for the year commencing 1 April 2001) and that the rent increase date for 2001 should be set as the first Monday in April. The minutes of the Board meeting on 7 December 2000 show that the board agreed to adopt the Housing Corporation’s guidelines of an increase in average rents of 4.3% for the rent increase in 2001 and “that the rent increase date for 2001 and subsequent years would be set as the first Monday in April”.

The same report was presented to a meeting of the TPF on 13 December 2000. The minutes of that meeting record:

“840

Rent Increase on Assured Properties

Caroline Field explained that the Rent Increase on Assured Properties paper was presented to the Board meeting on 7 December 2000 and explained the background to the report. Caroline explained that assured rents would increase by an average of 5% or £2.05 on the first Monday in April 2001 and that rent caps would be increased by an average of 5% or between £2 and £3. There will be no further rent increase until April 2002. New Tenancy Agreements after January 2001 will be amended to read that rent increases will occur on or after the first Monday in April. Tenants will receive notification at least four weeks in advance regarding the rent increase via a letter in February.”

Ms Field and the Deputy Chief Executive presented to the Riverside Board at its meeting on 1 February 2001 a revised proposal for the assured rents increase. This was for the previously agreed increase of £2.05 to be altered to £2.48 because of the impact of the Rent Acts (Maximum Fair Rents) Order on secure tenancies. The proposed increase came within the Housing Corporation’s guidelines. The proposal was accepted by the Board.

On 12 February 2001 Riverside wrote to the Whites in the following terms:

“RENT INCREASE NOTICE

As Landlord of the premises, we are writing to tell you that your total rent will change from 2^nd April 2001.

Your new charge will be £60.08 a week. This is made up as follows:

Basic Rent 58.69

Services 1.39

Total £60.08 PER WEEK

Your tenancy agreement with Riverside allows us to increase the basic rent for your home on an annual basis, on the first Monday in June each year. Your basic rent was not increased in June 2000.

If you pay service charges in with your rent these may have changed during this period. There will be no rent increase in June 2001, and no further rent increase until April 2002.”

In subsequent years further rent increase notices were sent out by Riverside to the Whites. Those notices largely followed the pattern set in 2001. By a notice dated 1 February 2002 notice was given to the Whites of an increase in their rent to £61.04 plus £1.51 for services, such increase to be from 1 April 2002. Again the notice explained that the tenancy agreement allowed Riverside to increase the basic rent on the first Monday in June each year, but the tenants were told that because their rent was last increased in April 2001, the next rent increase would be in April 2002 with no further increase until April 2003. By a further notice dated 31 January 2003 the Whites were told that the next rent increase would be from 7 April 2003 when the rent would be £62.04 plus £1.29 for services and that Riverside would not increase this rent again until 2004. No reference was made to the contractual provision that the rent variation date was the first Monday in June. By further notice dated 11 February 2004 the Whites were informed that their rent would increase from 5 April 2004 to £64.09 plus £1.01 for services. They were told that the rent would not be further increased before 4 April 2005. They were further informed:

“If your tenancy agreement shows a June rent increase, you will have noticed that we did not increase your rent in June 2003. Instead the increase we are making now has been deferred from June 2003 to April 2004, using the same rules that would have applied then.”

As is apparent from the notice of 11 February 2004, Riverside has been careful to apply the rules laid down in the tenancy agreement for calculating the rent increase each year, but they have deferred the date on which that increase takes effect from June till April of the following year. From the beginning of 2001 a new form of tenancy agreement, changing the rent variation date to the first Monday in April, was issued to new tenants.

The Judge records two further factual matters which are common ground. The first is that the Whites claimed and were awarded housing benefit on the increased rents notified up to and including the notice dated 31 January 2003, but the housing benefit award, claimed and awarded, postdated the issue of proceedings by Riverside against the Whites. The second is that on 5 September 2002 and 7 April 2003 the Whites made agreements with Riverside to pay off arrears calculated on the rents claimed in the rent increase notices.

On 11 February 2003 Riverside commenced proceedings against the Whites, claiming possession of 20 Brampton Court on the basis that they had failed to pay rent due under the tenancy agreement and claiming payment of those arrears. A rent statement was attached. This recorded the rents said to be due week by week since the commencement of the Whites’ tenancy and the amounts paid, almost invariably, it appears, by way of housing benefit. But it also appears that the housing benefit paid did not cover all the rents due, because, we are told, there were weeks when Mr White was employed and housing benefit was not payable. We are told that the arrears which are sought to be recovered and on the basis of which possession is sought amount to about £900, the substantial part (but not the whole) of which depends on the validity of the rent increase notices from 2001 onwards.

The Whites resisted the relief sought. By their Amended Defence and Counterclaim they claimed that the alleged arrears of rent were not lawfully due because Riverside had not duly implemented the contractual procedures for rent increases in that the rent variation date in each of the notices from 2001 onwards did not conform with the contractual rent variation date. They counter-claimed for damages for breach of Riverside’s repairing covenants.

The following preliminary issues were identified by the parties and accepted by the Judge for determination:

“(1)

Definition of ‘Rent Lawfully Due’

Generally:

(a)

For the purposes of Part 2 of Schedule 2 Housing Act 1988 (Grounds on which a Court May Order Possession) does the phrase ‘rent lawfully due’ referred to in Ground 10 prohibit a landlord, when seeking to establish that ground, from relying upon non-payment of amounts higher than the rent actually stated in the agreement (or stated in the last valid notice of increase of rent) which have been demanded under notices of rent increase given other than in compliance with the terms of the tenancy agreement with the tenant?

Specifically:

(b)

What (having regard to the resolution of the further preliminary issues below) is the ‘rent lawfully due’ from the Defendants to the Claimant in the instant case for the purposes of Ground 10.

(2)

Rent Increases

(a)

on a true construction of the tenancy agreement made between the present parties and dated 8 February 1999, and on a true construction of notices given by the Claimant to the Defendants, were any or all of the following notices effective to increase the amounts payable by the Defendants under that agreement and (if so) from what dates did such increases take effect:

Date of notice 12 February 2001

Date of notice 1 February 2002

Date of notice 31 January 2003

Date of notice 11 February 2004

(b)

on a true construction of the tenancy agreement made between the present parties and dated 8 February 1999, and most particularly having regard to the definition of ‘Rent Variation Date’ in clause 6(2) thereof, is it open to the Claimant to give notice of increase of rent to take effect on any date other than the first Monday in June. If the tenancy agreement permits a notice of increase of rent to take effect on some other date or dates, what date(s).

(c)

what amounts were payable by the Defendants per week for the following periods:

April 2, 2001 - March 31, 2002

April 1, 2002 - April 6, 2003

April 7, 2003 - April 4, 2004

April 5, 2004 -”

The Judge noted six separate arguments advanced on behalf of Riverside in favour of the validity of the rent claimed by Riverside as arrears.

The Judge found in favour of Riverside on argument (3). He referred to the decision of the House of Lords in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 and held that there was nothing to displace the presumption that time was not of the essence in relation to clause 2(7).

The Judge rejected Riverside’s argument (1) because it had failed to adhere to the procedure in clause 2(12); there was no proposed variation of the agreement, there was no notice in writing given of a proposed variation of the agreement, there was no invitation to TPF to comment on any proposed variation within a reasonable specified time, and there was no notice to individual tenants in accordance with clause 2(12)(i)(d) together with information explaining “the new terms and their effects”.

The Judge rejected Riverside’s argument (2) because the words of the tenancy agreement are clear and do not mean that some other rent variation date can be used.

The Judge rejected Riverside’s argument (4) because the parties by clause 2(12) expressly contracted out of variation of the tenancy agreement otherwise than by the clause 2(12) procedure and, if that was not right, in any event there was no offer to vary the terms of the contract.

The Judge rejected Riverside’s argument (5) because there was no clear and unequivocal representation by the Whites that they would not rely upon their strict legal rights.

The Judge rejected Riverside’s argument (6) because an estoppel by convention can only be used as a shield by way of defence and not as a sword to found a cause of action; similarly it could not create a cause of action for the purposes of an estoppel by acquiescence.

Mr Jan Luba QC for the Whites appeals against the Judge’s decision on Riverside’s argument (3). Mr Luba points out that the Judge’s discussion of this point came after he had held that, as a matter of construction of the tenancy agreement, the only date upon which a rent increase might take effect is the first Monday in June. He submits that the Judge erred in holding that a notice of increase of rent with effect from the first Monday in April was valid and effective because time was not of the essence. He says that the Judge misdirected himself in holding that the presumption that time is not of the essence applied not only to the machinery for fixing a rent on a rent review but also to the date from which the increase was to take effect. He contends that the question whether time is of the essence in relation to clause 2(7) of the tenancy agreement does not arise at all, as the presumption that time is not of the essence can only affect a temporal question arising from a contract. Here, he argues, clause 2(7) unambiguously states what is the date on which a rent increase, of which notice has been given under the stipulated procedure, will have effect. He submits that the United Scientific case was not concerned with the moving of the date on which a rent increase allowed by a rent review was to take effect but was limited to whether the rent review machinery could be put in motion after the expiry of the period specified in a lease for the initiation of that machinery.

Mr Andrew Arden QC for Riverside supports the Judge’s reasoning and conclusions on this point. He submitted that the argument for the Whites fails to recognise that the United Scientific case decides that there is no presumption that time in a rent review clause is to be treated as of the essence and that the contract as a whole must be read and interpreted in its surrounding circumstances to determine whether the time element in the clause is of the essence. He reminded us of the familiar guidance on construction given by Lord Hoffmann in ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pp 912, 3. He drew attention to the wide-ranging review of the law conducted in particular by Lord Diplock in the United Scientific case and to the breadth of the reasoning at p 930 where Lord Diplock said:

“ My Lords, I see no relevant difference between the obligation undertaken by a tenant under a rent review clause in a lease and any other obligation in a synallagmatic contract that is expressed to arise upon the occurrence of a described event, where a postponement of that event beyond the time stipulated in the contract is not so prolonged as to deprive the obligor of substantially the whole benefit that it was intended he should obtain by accepting the obligation.

So upon the question of principle which these two appeals were brought to settle, I would hold that in the absence of any contraindications in the express words of the lease or in the interrelation of the rent review clause itself and other clauses or in the surrounded circumstances the presumption is that the time-table specified in a rent review clause for completion of the various steps for determining the rent payable in respect of the period following the review date is not of the essence of the contract.”

Mr Arden also pointed to the importance attached by Lord Diplock at pp 931,2 to the question whether the tenant would suffer any detriment from time not being of the essence. He said that in the present case, as in the United Scientific case, the tenants have their own remedy and could serve a notice on Riverside making time of the essence. He argued that time was not only not of the essence of clause 2(7) but also of clause 2(8) so that Riverside could choose a date other than 31 December to end the 12 months period referred to, provided that the rent variation date was at least 5 months after the end of that period.

The actual decision in the United Scientific case is that stated by Lord Diplock in the second paragraph of the passage which I have cited. In the first of the two cases considered by the House of Lords, the Burnley case, the lease provided a period during which the parties were to agree or determine by arbitration the new rent for the next 10 years. There was no agreement or reference to arbitration by the end of that period and the question was whether time was of the essence of the provision. In the second of the two cases, the Messels case, the rent review clause in a lease required the lessor to serve a notice between 6 and 12 months before the review date to initiate the review, and the question was whether time was of the essence of that provision. In each case the House of Lords held that there was nothing in either of the leases to displace the presumption that time was not of the essence. It was further held that once the new rents were determined, the landlords could recover the increased rents going back to the respective review dates. The House of Lords thereby rejected the argument of the tenants that there could be no such retrospectivity. It was not argued that the date from which the new rents would be payable could be altered because of the presumption against time being of the essence.

The presumption applied by the House of Lords is the rule of equity which distinguished between those terms of a contract providing for something to be done by a particular time which were formal or non-essential, so that it would be inequitable for either party to insist on them as a bar to the other’s rights, and those which were of the essence of the contract. The presumption was against time being of the essence, but even if the contract did not expressly provide that time was of the essence, the subject-matter of the contract or indications in the contract itself could give rise to the inference that the provision as to time was essential to the contract. The equitable rule is now, by s. 41 Law of Property Act 1925, the rule of law.

As a matter of construction of the tenancy agreement, it is plain that the only date stipulated is that from which the increase in rent allowed by clause 2(6) is to have effect is the first Monday of June each year. Clause 2(7) is in substance repeated in clause 6(2). It is tied in with that part of clause 2(8) which makes the calculation of the rent increase dependent on the two specified indices for the 12 months ending 31 December immediately prior to the next variation date. Clause 2(6) makes clear that Riverside “may” increase the rent in the manner provided. That gives it the power to increase rent, but there is nothing to prevent Riverside from not exercising the power, or, if it has increased the rent, from choosing not to levy the increased rent or part of it. I do not read clause 2(7) as requiring Riverside to increase the rent, despite the word “will”. That would be in conflict with “may” in clause 2(6). Its only purpose seems to me to identify the rent variation date, as the heading of clause 2(7) suggests. So too with clause 6(2). The tenants are thereby told that the rent variation date from which the increase in the rents, if Riverside chooses to increase the rent, will take effect is the first Monday of June each year. With that falls to be contrasted the express provision providing for flexibility in relation to the service charge.

On that construction I agree with Mr Luba that there is no scope for the application of the presumption against time being of the essence to clause 2(7). All that the clause has done is to identify the rent variation date. It contains no obligation on Riverside to do something by a particular time and there is therefore no failure against which equity would relieve on the basis that the time provision was non-essential. On the contrary it seems to me to be an important provision, linked with the rent formula, which gives the tenant the certainty of the date from which an increased rent can be demanded if the stipulated procedures are followed.

There is nothing the United Scientific case which militates against such conclusion. As I have already said, it was not concerned with moving the rent review date (in the sense of the date on which the reviewed rent is to become payable, as distinct from the date by reference to which the rental valuation takes place or the date at which the reviewed rent is actually determined: see Hill and Redman’s Law of Landlord and Tenant, para. A [4041]). The Judge, with all respect, was wrong to hold that the United Scientific decision provided guidance on the point before him. He appeared to attach significance to the failure in that case of the argument against retrospectivity, but that cannot support the conclusion which he reached as the decision of the House of Lords is entirely consistent with the contractual rent variation date not being capable of being moved. As for the importance of looking at any detriment to the tenant if time were not of the essence, I accept that there may be no such detriment on the facts of the present case if Riverside’s conduct is taken to be no more than postponing a rent increase which it could have imposed with effect from the first Monday of June 2000 to April 2001. But the actual conduct of a party is hardly relevant to a question of construction of the tenancy agreement. Further, if Mr Arden were right and it was open to Riverside to choose a period of 12 months other than that ending on 31 December, in circumstances where inflation jumped, it would theoretically be possible for Riverside to choose the 12 months period which provided the maximum rent increase. In my judgment the date of 31 December is as unalterable as the rent variation date. As for the suggestion that tenants in social housing like the Whites might serve a notice making time of the essence, I can only say that it seems to me utterly unrealistic.

No authority has been drawn to our attention in which it has been held that time is not of the essence of a provision stipulating the date from which a permitted rent increase is to take effect. For all these reasons I would respectfully disagree with the conclusion of the Judge and hold that the presumption that time is not of the essence has no application to clause 2(7).

In view of that conclusion it is unnecessary to say anything on the alternative arguments addressed to us on this point.

By a Respondent’s Notice Riverside first argued that the impugned rent increase notices are valid because the procedure set out in clause 2(12) of the tenancy agreement was observed. Mr Arden accepts that in some particulars that procedure was not strictly followed, but he said that such non-compliance was not substantial. He referred us to the observations in London & Clydesdale Estates Ltd v Aberdeen District Council [1980] 1 WLR 182 at p. 189 where Lord Hailsham LC said of the non-compliance by a statutory authority with statutory requirements affecting the discharge of its functions that there is a spectrum of possibilities, ranging from a fundamental obligation being outrageously and flagrantly ignored or defied so that it can have no legal consequences to a defect in procedure so nugatory or trivial that it need not be remedied. The burden of Mr Arden’s argument was that the non-compliance in the present case was towards the latter end of the spectrum.

Although I was initially attracted by this point, Mr Luba’s convincing argument has persuaded me that it cannot succeed. In considering the evidence of what occurred, it has to be borne in mind that throughout Riverside never thought it was necessary to follow the clause 2(12) procedure, because as Ms Shackleton explained in her second witness statement, she had received legal advice which led her to believe that Riverside did not need to vary the terms of the tenancy agreement to defer the rent increase from June 2000 to April 2001; she was merely consulting on the deferral (see para. 11 above). Of course that does not mean that that which Riverside did could not amount to compliance with clause 2(1). But as Ms Shackleton herself said in para 7.5 of her first witness statement dated 24 March 2004, if any tenant had queried what Riverside had done, it would have had the choice of operating the general variation clause. The implication of that is that it never did choose to operate clause 2(12).

The report prepared by Ms Field for the TPF meeting on 18 October 2000 does contain in para. 2.5 what could perhaps be construed as the initial step in a consultation on a proposal to substitute 1 April for the first Monday of June. But I do not think that it was a proposal for a variation of the tenancy agreement within clause 2(12). Although Ms Field says she would like to hear tenants’ views and members of TPF are asked to let her know their views, little or no regard appears to have been paid to the requirements of clause 2(12)(i)(b). The report was only tabled at the TPF meeting, the written explanation of the effect of the proposed variation is notably brief and no time was specified for the TPF to comment on it.

What happened at the meeting, according to the minutes, is not that the TPF would provide its comments but that it was agreed that the CTA would consider the issue at its next meeting. The report prepared to the board meeting held on 7 December 2000 by Ms Field and the two directors records in para. 4.2 that the tenant members of the TPF were not unhappy with making April the next increase date in 2001 instead of June, but while those members must have been conscious that the tenancy agreement provided that the increase date was fixed as the first Monday in June, there is no evidence that the TPF was aware that the tenancy agreement was to be amended permanently. Again there is no indication that the TPF was commenting on such an amendment.

At the Board meeting on 7 December 2000 the relevant decision was taken. It was not that the rent increase date was to be 1 April, the proposal put to the TPF, but that the rent increase date for 2001 and subsequent years would be set as the first Monday in April. That had not been the proposal, still less the proposed variation of the tenancy agreement in the sense of an amendment of its terms.

When Ms Field reported to the TPF on 13 December 2001, the TPF was told what the Board had decided. She also said that new tenancy agreements would be amended to read that rent increases would occur on or after the first Monday in April, but it was not suggested by her that Riverside had already achieved a similar amendment to existing tenancy agreements.

The rent increase notice dated 12 February 2001 is the only communication relied on to comply with the requirements of clause 2(12)(d). It does not purport to say that the agreement had been changed nor what were the new terms of the tenancy agreement. It is merely a notice of increase in rent from 2 April 2001.

That Riverside itself did not understand the tenancy agreement to have been changed is apparent from the rent increase notice in 2002. This states that the tenancy agreement allowed Riverside to increase the rent on the first Monday in June each year.

In the light of all the evidence before the Judge, I am satisfied that he was entitled to conclude that the procedure in clause 2(12) was not complied with. It is to be borne in mind that that clause provides that the tenancy agreement may only be altered in a specified way. The non-compliance was more than trivial or nugatory.

Riverside’s second argument raised by its Respondent’s Notice is that clause 2(7) should be construed as meaning only that the annual increase could not be imposed any earlier than the first Monday in June. Mr Arden acknowledges that this is the same substantive submission as the proposition that the date was not of the essence.

For reasons similar to those which I have given in rejecting that proposition I reject this argument too. As the Judge rightly said, the words are clear and unambiguous. They do not allow Riverside to substitute some other date as the rent variation date.

Riverside’s third and fourth arguments raised by its Respondent’s Notice are that the Whites and Riverside varied the rent variation date from June to April by agreement for which the Whites received valuable consideration. Mr Arden criticises both limbs of the Judge’s reasoning for rejecting this argument.

First, Mr Arden says that the Judge was wrong to find that the parties expressly contracted out of variation of the tenancy agreement save as specifically provided for in clause 2(12). Clause 2(12) does, I accept, purport to provide the only ways in which the tenancy agreement may be varied, and such ways include an agreement in writing between Riverside and the Whites. But, in acceptance of Mr Arden’s argument, I cannot see why the parties could not orally enter into a binding agreement which would bind them, whatever clause 2(12) said.

The second limb of the Judge’s reasoning seems to me a greater obstacle to Mr Arden. He says that the Judge erred in finding that Riverside made no offer to vary the tenancy agreement. He points to Mr Luba’s acknowledgment that, if there had been an offer, there would have been consideration and to the Judge’s finding that, if there had been an offer, there would have been acceptance of it by the written acknowledgment of arrears and by what was said at the meetings between Riverside and the Whites over arrears. He argues that just as the Judge was prepared to find an implied acceptance, so he should have found an implied offer in the rent increase notices.

The Judge found that the rent increase notices contained no offer to vary the tenancy agreement. In my judgment he was entirely right to do so. Those notices on their face are not offers capable of acceptance. They inform the Whites what they will have to pay by way of rent and service charges and from what date. Of course the Whites could have reacted by serving notice to quit, but they did not, and in continuing as tenants and not objecting to the amounts said to be in arrears, they were not accepting any offer because none had been made to them.

The fifth argument raised by Riverside in its Respondent’s Notice is estoppel. The Judge found all the necessary ingredients for an estoppel by convention to be present: the parties had a common assumption about the validity of the rent increase notices; on that basis they had regulated their subsequent dealings; Riverside would suffer detriment if the Whites were to be permitted to resile from that convention. However, he held that Riverside wished to use the estoppel as a sword and not a shield and that this was not permitted. The Judge also found that an alternative argument that there was an estoppel by acquiescence on the part of the Whites also failed for the same reason. Mr Arden submitted that the Judge erred in holding that either estoppel was being used as a sword.

Mr Arden suggested that the Judge had misunderstood the facts. He submitted that the cause of action was arrears of rent and that subject to the possibility of the set-off of the damages the subject of the counterclaim, it was admitted that there were some arrears. He argued that the cause of action existed independently of the estoppel. He referred us to two textbook authorities, Wilken & Villiers: The Law of Waiver, Variation and Estoppel 2^nd ed. and Treitel: The Law of Contract 11^th ed. and to dicta in two cases in this court, Amalgamated Investment and Property Co. Ltd. v Texas Commerce International Bank Ltd. [1982] QB 84 and Baird Textiles v Marks & Spencer [2002] 1 All ER (Comm) 737. On the basis of those authorities he submitted that estoppel by convention precludes a party from arguing that a state of affairs does not exist, in this case preventing the Whites from arguing that the amount of rent lawfully due does not include the rent the subject of the notices in 2001 to 2004; that accordingly Riverside can succeed in its claim in reliance on the estoppel, even if the effect is to grant it greater rights than existed under the contract; that the estoppel is not being used as a sword but as a sharp-edged shield (in the language of Wilken & Villiers, op cit para. 10.11) to the Whites’ defence denying the amount of Riverside’s claim for arrears.

Mr Luba submitted that in the existing state of English law it is not open to this court to accede to the submissions of Mr Arden as that would be to allow the use of estoppel by convention as a sword rather than a shield. He pointed to two decisions of this court, Aristocrat Property Investments v Harounoff (1982) 2 HLR 102 and Baird, as establishing that proposition.

In the Aristocrat case, the tenant occupied premises under a statutory tenancy governed by Part III Rent Act 1977, which stipulated how rent increases may be effected. The landlord served rent increase notices which did not satisfy the statutory requirements, but the tenant paid a number of demands. The landlord claimed that the tenant was in arrears, and sought possession and the recovery of the arrears. The trial judge found that the tenant had waived the defects in the notices and made the order sought. This court allowed the tenant’s appeal, holding that the tenant could not waive the statutory requirements. Oliver LJ, giving the only reasoned judgment in this court, went on to say:

“I quite accept that it may well be the case that if the landlord is sued by the tenant for the recovery of sums which the tenant has overpaid, there may well be cases where the tenant’s conduct is such that the court might say that he is estopped from demanding back that which he has paid. Whether that is so or not is a matter which will require to be determined when the question arises. But here, in order to succeed, the landlord has not only to ignore the substantive terms of the statute, but he has, in fact, to make an estoppel (because this, as it seems to me, is an estoppel or nothing) the foundation of the positive case for the recovery of rent which he seeks to make.”

In the Baird case the claimant had supplied garments to the defendant for many years. The defendant without warning determined all supply arrangements. The claimant brought proceedings claiming that the defendant was precluded by contract and by promissory estoppel and estoppel by convention from determining those arrangements without reasonable notice. On the claimant’s application for summary judgment the trial judge dismissed the claim in contract but directed that the estoppel claim should go to trial. The defendant appealed against the decision on estoppel, submitting that this court was bound by authority to conclude that the estoppel claim had no prospect of success. The authority relied on for the proposition that an estoppel by convention cannot create a cause of action was the Amalgamated case. That submission was accepted by all the members of this court (see para. 38 per Sir Andrew Morritt V-C, para. 55 per Judge LJ and para. 57 per Mance LJ). Mance LJ went on in para. 88 to make the comments on which Mr Arden relies:

“ [88] How far an estoppel may assist in bringing about a cause of action, without standing alone as ‘a cause of action in itself’, has remained a matter of dispute over subsequent years. It may enlarge the effect of an agreement, by binding parties to an interpretation which would not otherwise be correct, see eg De Tchihatchef v Salerni Coupling Ltd [1932] 1 Ch 330, [1931] All ER Rep 233; Partenreederei MS Karen Oltmann v Scarsdale Shipping Co Ltd, The Karen Oltmann [1976] 2 Lloyd’s Rep 708; and per Robert Goff J in the Amalgamated Investment case [1981] 1 All ER 923 at 937, [1982] QB 84 at 106. In the Amalgamated Investment case itself, Lord Denning MR and, on the view I would prefer, Brandon LJ held that both the company and the bank were bound by their conventional treatment of the company’s guarantee of its subsidiary’s indebtedness to the bank as extending to such subsidiary’s indebtedness to the bank’s (Portsoken), thus entitling the bank to set up sums due under the guarantee, read in this extended sense, against the obligation that it otherwise had to account to the company for realisations which it had made.”

But save in somewhat special circumstances, such as were those discussed in the Amalgamated case, an estoppel by convention cannot be used as a sword, as Mance LJ accepted by agreeing with the other members of this court.

In the Amalgamated case, the claimant negotiated a loan from the defendant bank to a subsidiary of the claimant, the loan to be secured by a guarantee by the claimant. The bank made the loan through a subsidiary Portsoken, but the guarantee related to money due to the bank. The claimant got into financial difficulty and was wound up. The bank sold property of the claimant and applied part of the proceeds in discharge of Portsoken’s loan. The liquidator of the claimant brought proceedings against the bank, claiming that the claimant was under no liability for the loan made by Portksoken and that the bank had not been entitled to apply the proceeds of the claimant’s property in discharge of that loan. This court held that the guarantee did apply to the loan by Portsoken, but also stated that even if it did not, the claimant was bound by an estoppel by convention from denying that it did. Strictly therefore, the bank was using the estoppel as a defence to the claimant’s claim for declaratory relief. However, Brandon LJ went on to consider what would have happened if the bank had sued the claimant to recover the moneys owed to Portsoken. He said that in its pleaded reply the bank would have claimed that the estoppel bound the claimant. At pp. 131, 2 Brandon LJ continued (in the passage relied on by Mr Arden):

“In this way the bank, while still in form using the estoppel as a shield, would in substance be founding a cause of action on it. This illustrates what I would regard as the true proposition of law, that, while a party cannot in terms found a cause of action on an estoppel, he may, as a result of being able to rely on an estoppel, succeed on a cause of action on which, without being able to rely on that estoppel, he would necessarily have failed. That, in my view, is, in substance, the situation of the bank in the present case.”

The circumstances considered in the Amalgamated case seem to me to be very different from those in the present case. Here the position in relation to the arrears of rent dependent on the validity of the rent increase notices is the same as that in the Aristocrat case. The fact that the invalidity in that case derived from statute is not a material distinction. True it is that Riverside has a cause of action for some arrears and possession which is not dependent on the validity of the rent increase notices, but it must rely on the estoppel in claiming that the other arrears are lawfully due. Its cause of action, in the sense explained by Diplock LJ in Letang v Cooper [1964] 1 QB 232 at pp. 242, 3, is that the claimed factual situation giving rise to the remedy is that the Whites are in arrears of rent lawfully due not only in respect of the rent not dependent on the validity of the rent increase notices but also in respect of the rent so dependent. I cannot see how Riverside can be said not to be using the estoppel as a sword to create a cause of action in relation to the bulk of those arrears.

The textbook authorities to which Mr Arden referred us seem to me to support the proposition that estoppel by convention cannot be used as a sword to create a cause of action. English law can only permit an estoppel by convention to be relied on to give rise to a cause of action, pace Lord Denning MR (see the Amalgamated case at p. 122), only if the House of Lords so decides, as this court in Baird made clear. The existing state of English law on estoppel does not seem to me entirely satisfactory (see for example, the critique in Anson’s Law of Contract 28^th ed. pp. 122 ff) and, for my part, I regret that on estoppel by convention Riverside’s arguments must fail on the ground identified by the Judge.

For similar reasons, I conclude that the Judge was right to reject Riverside’s submission based on estoppel by acquiescence. Again this is dependent on the estoppel being used to create a cause of action.

The sixth argument raised in Riverside’s Respondent’s Notice is that the Judge erred in finding that there had been no waiver by the Whites. Mr Arden argues that at common law, alternatively in equity, there was a waiver by the Whites of their right to insist on the observance by Riverside of the terms of the tenancy agreement.

I can deal shortly with this argument as it seems to me plain that the Judge was entitled to find on the evidence that there was no waiver. The Whites were not aware that the rent increase notices were unlawful. They reasonably assumed that Riverside was entitled to do what it did in its notices. Indeed Riverside itself believed that. The court should be slow to find that tenants in social housing had given up their rights to object by not taking an objection to what their housing association landlord was doing by way of rent increase notices. In my judgment the assumption by the Whites that the claimed rent arrears were lawfully due when they did not object to the statement of arrears does not amount to a clear and unequivocal representation that they were not going to insist on their rights.

In the result, in my judgment, the appeal must be allowed. I own to being uneasy at this result, not least because of the potential consequences for Riverside, which throughout has attempted to act properly and in a manner which benefited its tenants. The tenants have paid less rent than they would have paid had Riverside continued to increase rents to the full extent permitted by the tenancy agreement. We are told that there are only a small handful of cases where Riverside has sought possession for arrears of rent in circumstances similar to those of the Whites. If other tenants sought recovery of rents by reason of the invalidity of the rent increase notices, it is possible that an estoppel by convention could be raised by way of defence. However, there is a danger that tenants may withhold rent and leave it to Riverside to sue, in which case the same difficulty over the use of the estoppel may arise as in this case. I regret this result, but for the reasons which I have given I am compelled to the conclusion that the Whites succeed on this appeal.

That leaves only the appeal, and the application to cross-appeal, on the costs order, on which we have yet to hear argument.