Magnic Ltd v Ul-Hassan & Anor

This is an appeal by the defendants, Mr Mahmood Ul-Hassan and Mrs Nasim Akhtar Malik, against an order of HH Judge Powles QC made in the Brentford County Court on 23 September 2013. The judge dismissed the defendants’ appeal against an earlier order of District Judge Jenkins dated 8 August 2012 under which the District Judge dismissed the defendants’ application for relief from forfeiture in respect of a lease of the ground floor of premises at 131, Heston Road, Heston, Middlesex (“the Premises”) from which they operated the business of a take-away pizza restaurant. Permission for a second appeal was granted by Tomlinson LJ.

The appeal is the latest episode in a long-running dispute about the defendants’ use of the Premises which began in 2008. In September 2004 the defendants’ son, Mr Ishtiaq Malik (“Mr Malik”), acquired by assignment the residue of a sub-lease of the Premises (“the Sub-Lease”) which had been granted on 27 March 2003 for a term of 16 years from 8 April 2012. Under clause 2.29 of the Sub-Lease the tenant covenanted “to comply in all respects with the provisions and requirements of the Planning Acts and all licences consent permissions and conditions (if any) already or hereafter to be granted or imposed thereunder … so far as the same relate to or affect the Demised Premises”. Clause 4.1 contained the usual proviso for re-entry in the event of unpaid rent or a breach of covenant.

On 16 May 2008 the defendants acquired the residue of the head lease of the Premises (“the Head Lease”) which was granted on 30 September 1981 for a term of 125 years from 24 June 1980 at a ground rent increasing from £25 to £125 per annum during the continuation of the term. The Head Lease also contained a covenant by the tenant in clause 3(12) not to do anything on the Premises which contravened the Town and County Planning Acts and in clause 7 a proviso for re-entry in the event of a breach of covenant.

At the time when Mr Malik acquired the Sub-Lease there was no planning permission for the use of the Premises as a takeaway restaurant. There were also issues about the ventilation of the Premises. The previous tenants, who had operated a bakery, had installed an external vent at ground floor level but this was inadequate to deal with the fumes from a takeaway pizza business.

On 28 August 2006 the defendants and their son applied for planning permission to operate a takeaway pizza business in the Premises and, after an appeal, permission was granted on 3 August 2007 subject to conditions. These included the installation of a suitable fume extraction system.

On 7 January 2008 the claimant, Magnic Limited, acquired the freehold reversion subject to the Head Lease and the Sub-Lease.

In order to comply with the planning condition relating to the extraction system, Mr Malik proposed to erect ducting leading from the outside of the Premises at ground floor level up to the roof of the building. The demise under both the Head Lease and the Sub-Lease is limited to the interior of the Premises. The claimant commenced proceedings in August 2008 and obtained a declaration that Mr Malik had no right to erect ducting on the outside of the building. In order to comply with the planning condition, the extraction system had to be in place on 3 February 2008. As a result of the defendants’ inability to comply, the planning permission never became unconditional and lapsed.

Notwithstanding this, the defendants with their son continued to operate the pizza takeaway business from the Premises in breach of covenant. On 12 May 2009 the claimant served the defendants with a s.146 notice and proceedings for possession were issued and served in August 2009 thereby forfeiting the Head Lease and with it the Sub-Lease.

The trial of the claim for possession was due to take place on 7 January 2010 but the proceedings were compromised on the terms contained in a consent order made on 5 January 2010 (“the 2010 Consent Order”). This granted the defendants relief from forfeiture of the Head Lease on terms:

In default of compliance with these terms, the defendants’ application for relief from forfeiture was to stand dismissed and the claimant was to be at liberty to enter judgment in the action for possession and costs.

The schedule to the 2010 Consent Order also granted the Defendants a personal licence to use the existing vent on a temporary basis subject to supplying details to the planning authority of their proposals for a replacement extraction system to be approved by the planning authority.

The defendants failed to comply with the terms of the 2010 Consent Order and on 19 March 2010 the claimant applied for an order for possession. After various adjournments, this application came on for hearing before District Judge Allen on 14 January 2011. She noted that paragraph 4 of the 2010 Consent Order contained an express liberty to apply in favour of both parties which she interpreted as giving the Court a discretion to vary the conditions upon which relief from forfeiture had been granted. By then the defendants had obtained a grant of planning permission (on 16 December 2010) which was subject to various conditions relating to the extraction system. They had also paid the costs provided for in the Order but late. The defendants argued that, although outside the timetable provided for under the 2010 Consent Order, their compliance with the planning conditions could be accommodated within the terms of the schedule which, on one view, provided for the works to the extraction system to be carried out over an extended period. The difficulty, however, for the defendants was that the system which they had submitted to the local authority for approval was not the same as the system which the claimant had agreed could be installed under the terms of the schedule. The schedule refers to what is described in the evidence as the O’Leary system; a reference to a Mr O’Leary, a planning officer of the London Borough of Hounslow. This was an internal system of extraction. What the defendants were proposing in order to satisfy the conditions attached to the new planning permission was an external system up to and above roof level which was exactly what the claimant had objected to back in 2008.

The District Judge therefore indicated that she would not have been minded to extend the time limits or otherwise vary the conditions in the 2010 Consent Order so as to enable the defendants to obtain relief from forfeiture on the basis of their proposed system. But the claimant indicated to the judge that it was willing for the defendants to be granted relief on an alternative basis; namely that they cease altogether to operate the takeaway business on the Premises and pay the costs. The judge therefore made an order for possession and costs with the proviso that if the defendants paid the sum of £5,000 by way of costs on or before 28 January 2011 and the takeaway business ceased completely by 11 February 2011 they would be granted relief from forfeiture.

The defendants applied for permission to appeal on the grounds, inter alia, that the date of 1 March 2010 should be varied to 23 December 2010 to give them further time to obtain a planning permission for the takeaway business based on the O’Leary type of extraction system. In section 8 of the appellants’ notice they also sought a stay of execution because:

“the business, which is required to cease completely by 11 February 2011 by the terms of the Order of 14 January 2011, is the Appellants’ primary source of income and they will suffer irremediable prejudice should that Order be reversed in the respect; conversely the Respondent can point to no prejudice if the business continues pending the appeal.”

In the skeleton argument in support of the application for permission, counsel made it clear that what was being sought was a stay of the requirement that the takeaway business should cease to trade by 11 February 2011.

On 8 February 2011 HH Judge Powles QC granted permission to appeal on paper and made an interim order staying the order of District Judge Allen pending the appeal. The appeal was eventually heard and dismissed by HH Judge Oppenheimer on 31 May 2011.

The defendants continued to operate the takeaway business from the Premises until 31 May when the stay was lifted following the dismissal of their appeal. This led to correspondence between solicitors as to whether the continuation of the business beyond the 11 February 2011 deadline in the District Judge’s order of 14 January meant that the claimant had become entitled to possession of the Premises because the condition for the grant of relief from forfeiture had not been complied with. The defendants’ solicitors (Messrs Tann & Tann) contended that the stay of execution was sufficient to extend the 11 February deadline. The claimant’s solicitors took the view that there needed to have been a variation of the date and that the stay was effective only to postpone the order for possession until after the appeal. The terms and conditions for relief from forfeiture had, they said, remained the same.

The defendants sought permission to appeal from Judge Oppenheimer to the Court of Appeal but permission was refused by Sir Robin Jacob on 10 November 2011.

On 27 March 2012 the claimant commenced a new action against the defendants in the County Court seeking a declaration that by virtue of their failure to cease using the Premises for the takeaway business by 11 February 2011 the Head Lease had been forfeited and the claimant was entitled to possession. A defence was served on 25 April 2012 relying on the stay of execution which it said was sought specifically in order to allow the defendants to trade pending their appeal.

On 11 May 2012 the claimant applied for summary judgment on its claim. By then the Premises had remained unoccupied since 31 May 2011 and on 16 May 2012 the claimant’s insurers wrote to say that if they remained unoccupied as of 17 August then cover for the whole building would be withdrawn.

On 29 May the defendants issued an application of their own seeking relief from sanctions under CPR 3.9 in the event that the Court concluded on the claimant’s application for summary judgment that relief from forfeiture had been lost by the continuation of the takeaway business after 11 February 2011. As drawn, the application was misconceived because the conditions imposed by District Judge Allen for the grant of relief from forfeiture were not procedural but the terms of a substantive exercise of discretion in relation to the Court’s equitable and statutory jurisdiction to avoid forfeiture of the Head Lease. The application was, however, treated as one for relief from forfeiture.

The two applications were heard by District Judge Jenkins on 3 August 2012. By order dated 8 August 2012 he dismissed the defendants’ application for relief and declared that the Head Lease had become forfeit to the claimant. On 11 February 2013 HH Judge Powles QC dismissed the defendants’ appeal against the District Judge’s order.

The District Judge accepted the claimant’s submission that he was not concerned with relief from sanctions under CPR 3.9 but with whether the defendants should be granted an extension of time in respect of the date by which they had to cease the takeaway business The defendants’ counsel (Mr McGuiness) made it clear in his skeleton argument for the 8 August hearing that he did not accept that the order of Judge Powles QC was ineffective to extend the 11 February deadline until the hearing of the appeal, but most of his submissions were directed to the prejudice which the defendants could suffer through the forfeiture of the Head Lease which they were then seeking to dispose of.

The District Judge gave a preliminary judgment on whether the order for a stay was sufficient in itself to postpone the 11 February date to the disposal of the appeal on 31 May. He held that the order of Judge Powles QC did not vary the terms of the order of 14 January 2011 but merely prevented the claimant from enforcing the order for possession:

“… in my judgment when the February date came and passed, and the defendants continued to trade, they were continuing to trade in breach of Judge Allen’s order, but that because execution of the order, the enforcement of the order was stayed the claimants could do nothing about it. In my judgment staying of execution in effect staying enforcement of the order does not render lawful what Judge Allen’s order made unlawful. It simply provided that the claimant could do nothing about it. It seems to me the fact that they may not have taken any point on that, in fact they may not have been aware of it. It deals with the either or proposition advanced, cannot affect the simple fact that in my judgment a stay of execution does nothing but to prevent the unlawful act from being enforced. It does not render them lawful.”

The District Judge then went on to consider whether an extension of time was needed. He confined himself to considering whether he should exercise the discretion to extend time and therefore grant relief from forfeiture in accordance with the principles set out in the decision of this Court in Starside Properties v Mustapha [1974] 2 All ER 567and of Gray J in Fivecourts Limited v J.R. Leisure Development Co Ltd [2001] L&TR 5. They confirm that although the Court has jurisdiction to extend time in relation to the conditions for relief from forfeiture, the Court needs to scrutinise an application for further relief with particular care. At p. 574 of Starside Properties, Edmund Davies LJ said:

“The conclusion I have come to in the light of the cases to which our attention has been directed is that, certainly in relation to the jurisdiction of the court to vary an order granting an extension of time by granting a further extension, no distinction is to be drawn between cases of relief against forfeiture for non-payment of rent and other cases where relief against forfeiture is sought. The common feature in all these cases is that a penal provision is involved and the court grants relief against the forfeiture which would otherwise follow therefrom in such circumstances as justice requires, and it does so on such terms as are equitable in these circumstances. If it should later appear that the relief by way of extension of time first granted ought to be extended, and that in fairness to the other party this can be done, I see no difficulty in holding that the court has the jurisdiction to do that which the justice of the case is seen to require. Naturally enough, the court will scrutinise with particular care an application for further relief and will be more reluctant to grant it than in the case of a first application; but that goes to the likelihood of the later application succeeding and not to the court's jurisdiction to entertain it.”

In Fivecourts Limited Gray J (at p. 54 ) said:

“… the court should show great reserve when exercising its jurisdiction to consider interfering with the time limits in the orders because ‘any lessee who has obtained relief on conditions cannot expect to get further indulgence from the court in the matter of time unless good grounds are shown’.”

This is a quotation from the judgment of Lord Greene MR in Chandless-Chandless v Nicholson [1942] 2 KB 321 at 323-325:

“I hold the view without hesitation that notwithstanding the omission of the words "liberty to apply" an order of this kind, which gives relief on terms to be performed within a specified time, is one in respect of which the court retains jurisdiction to extend that time if circumstances are brought to its notice which would make it just and equitable that extension should be granted.

…

It is not, of course, to be understood from anything I say that lessees who obtain orders for relief are entitled to treat the conditions laid down in them lightly. Any lessee who has obtained relief on conditions cannot expect to get further indulgence from the court in the matter of time unless good grounds are shown. Lessees must not think for one moment that they are entitled to be slack or casual about the performance of terms. If they are so and then endeavour to get further indulgence from the court, the court will know how to deal with them, but in a case where on all equitable grounds a period of limitation ought in fairness to be extended and its extension will do no more than apply the principle that the condition of re-entry is nothing more than security for the rent, there is no reason why equity should not lend its aid notwithstanding the original order.”

The District Judge referred to Mr McGuiness’ submissions that the claimant would receive a windfall of some £150,000 represented by the value of the Head Lease if relief from forfeiture were not granted. He submitted that the loss of the lease would be catastrophic for the defendants, whereas the claimant would suffer little or no prejudice if relief were granted given that the takeaway business had now ceased and the defendants were seeking to dispose of the Head Lease. In particular, it was put to the judge that the failure of the order of 8 February 2011 to protect the position of the defendants pending the appeal from District Judge Allen was not of the defendants’ making. Their solicitors had genuinely believed that a stay of execution would suffice to protect the defendants’ position and it was explained to Judge Powles QC in the written submissions filed in support of the application for the stay that its purpose was to avoid the Head Lease being forfeited in the meantime. Once the appeal was dismissed the condition requiring the business to cease was complied with.

District Judge Jenkins set out his findings in these terms:

“1.

The court should exercise discretion after scrutinising the application with great care only where there are good grounds to do so.

2.

After obtaining relief in January 2010 the Defendants only obtaining further relief in January 2011 due to the concession made by the Claimant.

3.

That required the takeaway business to stop by 14th February 2011. It did not.

4.

It did not stop by deliberate decision. In my judgment in the circumstances of this case there should be no distinction between the actions of the Defendants and/or their lawyers.

5.

Whilst the Claimant did put the Defendants on notice, the obligation to seek relief promptly rested entirely with the Defendants.

6.

The fact of a windfall must be present in all forfeiture actions; it cannot therefore of itself be a significant factor. Whilst the Defendants referred to this claim as the Claimant's third attempt at seeking possession, more properly it is the Defendants' third attempt at seeking relief. The windfall argument in these circumstances therefore carries little weight.

7.

I do not find any other relevant prejudice will be suffered by the Defendants.

8.

Some sixteen months after DJ Allen found "… little purpose in granting relief from the forfeiture … ," there has been no substantive change in the Defendants' position other than delay for which they are responsible.

9.

I do not find there are good grounds to grant further relief.”

On the appeal to Judge Powles QC the defendants accepted that the stay granted by the judge on 8 February 2011 had not been effective by itself to postpone the date by which they were required to close the takeaway business even though that was not the belief of the defendants or their solicitor at the time. Their submissions therefore concentrated on the relatively narrow issue of whether relief from forfeiture should be refused given the circumstances in which they failed to comply with the order to cease trading by 11 February 2011. Mr Knox QC, who appeared for the defendants as he does on this appeal, argued that the District Judge should have weighed what he contended was the limited and excusable nature of the default against the very considerable windfall to the claimant landlord that would result from the forfeiture of the Head Lease. The landlord’s right of forfeiture is intended, he said, to secure the performance of the tenant’s covenants and, in this case, that has been achieved (albeit late) by the closure of the business. The claimant, by contrast, contended that the District Judge had been right to look at the broader picture. This included the defendants’ repeated failures to meet the conditions imposed by the court for relief from forfeiture; their attempts to keep the takeaway business running for as long as possible notwithstanding that they had only escaped forfeiture of the Head Lease at the hearing before District Judge Allen by the claimant agreeing that relief should be granted if the business ceased by 11 February 2011; and the expense incurred by the claimant after the business eventually closed on 31 May 2011. In order to secure the Premises and to avoid the loss of its insurance cover, the claimant had re-entered the Premises on or after 13 August 2012 and has carried out works said to cost a total of some £15,000. The claimant has also obtained final costs certificates in respect of the costs of the two actions against the defendants. Added to this are the costs of the defendants’ further unsuccessful appeal to Judge Powles QC which they were ordered to pay. None of these costs have been paid.

The judge rejected Mr Knox’s submission that the District Judge should have approached the exercise of his discretion on the basis that the only relevant breach or failure by the defendants was their continuing to trade for the three and a half months between 11 February and 31 May 2011:

“The breach the landlord has from the start sought to remedy is a composite one namely user of the premises for a business requiring fume extraction without planning permission nor landlords consent for the necessary ducting. This had been the problem for some 2½ years and I find it cannot truly be said that the breach is only in respect of trading for 3½ months.”

In relation to the gravity of the breach, he said:

“53.

As far as whether the actions of lawyers should be seen as distinct from those of their clients is concerned, the issue goes to the gravity of the breach. For my part I would not judge a man more or less harshly if he be shown to have made an honest mistake than a man who follows inaccurate advice from his solicitor believing it to be true. Although in the latter case there is the added factor that he does have a remedy against those who have misled him. In my judgment this issue takes the argument no further. The underlying question is perhaps in finding as he did (and I believe rightly so) that there should be no distinction between the actions of the Defendants and/or their lawyers, has the District Judge lost sight of the need to assess the gravity of the breach?

54.

Mr Knox submits the breach is entirely innocent. However reading the District Judge's reasons as a whole it is reasonably clear that he considered the breach to have been continuous from the start and unabated by the service of the s.146 notice or any enforcement action by the Landlord or steps taken by the defendants or their son. He said at 6.4 that the breach did not stop by deliberate decision. In this he was correct. As I say the breach had been continuous from the start. There was no sudden desire to end that breach merely an erroneous belief that the Court had somehow sanctioned its continuance until the hearing of an Appeal. That erroneous belief might well be innocent in the sense of honest acceptance of lawyers' advice, but the continuing underlying breach was certainly not.

55.

In my judgment the District Judge did not fail to have regard to the gravity of the breach.”

He also considered the windfall argument:

“56.

Mr Knox questions paragraph 6.6 where the District Judge discusses the windfall argument. On analysis, it is clear the District Judge is not saying windfall is irrelevant merely that in this case it carries little weight. Mr Knox's primary submission is that the 3'12 months of breach post 14th February 2011 should be weighed against the windfall to the Landlord said to be £150,000. To my mind this is to ignore the sorry history of failure and continuous breach of the Defendants.

57.

The balance between windfall and other factors was first drawn at the time of the original consent order. The parties came to their own conclusion how to balance up their competing interests including the appropriate way to address relief from forfeiture. The Defendants failed to meet those conditions, but were given a yet further opportunity to escape the forfeiture by District Judge Allen on 11^th January 2011. This was the second occasion on which the balance between breach and windfall would have been struck. The condition to cease trading by 14^th February 2011 was clear. It cannot now be said that it did not itself give proper consideration to the Defendants’ position nor sufficient weight to the windfall element.

58.

By the time we get to the third attempt at obtaining relief from forfeiture before the District Judge the Court is bound to approach the case with all the caution suggested by Edmund Davies LJ in Starside. Confronted by the argument that the breach is only 3½ months and should be balanced against the full windfall value I can see that one approach is to say that the potency of the windfall argument has been dissipated in the two previous orders, which in my judgment is a fair interpretation of paragraph 6.6. Seen in that light the District Judge has not made the error of law contended for. The Law of Property Act and the authorities require all the circumstances to be looked at. I cannot accept the District Judge has failed to give proper weight to the undoubted windfall the Landlord will receive.”

The judge concluded that District Judge Jenkins had taken all material factors into consideration and that there were no grounds for interfering with the way in which he exercised his discretion. But Judge Powles QC also considered that had it been appropriate for him to re-exercise that discretion it would have been relevant to take into account the unpaid costs and expenditure to the Premises in deciding whether and upon what terms to grant relief.

Because the first appeal was dismissed and left the decision of the District Judge undisturbed, the focus of this appeal must be on the way in which the District Judge exercised his discretion in refusing to extend the date by which the defendants were required to cease the takeaway business in order to obtain relief from forfeiture. It is common ground that the court has power to exercise that discretion retrospectively but Mr Knox submits that the reasons given by the District Judge disclose three material errors which are sufficient, either individually or collectively, to vitiate his decision. They are:

The defendants’ principal criticism of paragraph 6(4) of the decision of the District Judge is that it fails properly to engage with the circumstances surrounding the continuation of the business from 11 February to 31 May 2011. As already explained, the application for the stay was made for the purpose of postponing the date of 11 February until the disposal of the appeal against District Judge Allen’s order. The appeal, if successful, would have given the defendants more time in which to obtain a suitable planning permission to enable their business to continue. Although with the benefit of hindsight the defendants’ solicitors should have asked for an order which specifically amended paragraph 3(2) of the District Judge’s order, it was not, they say, unreasonable to assume that the order made by Judge Powles QC on 8 February was effective to achieve what they had asked for in the application I quoted from earlier.

What Mr Knox stresses on his clients’ behalf is that the continuation of trade was not a “deliberate decision” in the sense of a deliberate and conscious flouting or non-compliance with the terms of the 14 January order. They had sought an extension of time from the court before the 11 February deadline and genuinely (even if mistakenly) believed that they had obtained one. When their appeal was dismissed on 31 May they promptly ceased to trade. Although District Judge Jenkins was aware of this, he failed to reflect it or its consequences in his reasoning in paragraph 6(4). Instead he treated the non-compliance with the 14 February deadline as deliberate.

I regard this submission as well-founded. In paragraph 30 of his judgment on the first appeal Judge Powles QC described the breach by the defendants as a composite one of use without planning permission or consent for the ducting which had continued for some 2½ years. But this, I think, conflates two separate matters: the original breach or breaches of covenant which led to the service of the s.146 notice and the original forfeiture proceedings and the defendants’ subsequent failure to meet the conditions set by the court for the grant of relief from forfeiture. Although the judge was right that in deciding whether to grant a further extension of time for compliance the court is bound to have regard to the history of the case and all relevant background facts, it is nonetheless important to keep in mind the context in which the present dispute has arisen. The defendants have lost the right to obtain relief from forfeiture by reason of their continuing to trade up to 31 May: not because of the earlier breaches of covenant, serious as they may have been. The order of 14 January granted relief from forfeiture on revised terms largely on the basis of a concession by the claimant and the order allowed the defendants to continue to trade until 11 February. I can see that had the defendants chosen to ignore the terms upon which relief was granted (which they were at liberty to do) then they would have to have taken the consequences which would have been the enforcement of the order for possession. But, as already explained, that was not the course they chose to take. In order to preserve their ability to trade pending the appeal, they made the application I have described and obtained an order. The fact that they ceased to trade once the appeal was dismissed strongly supports the view that they would have ceased on 11 February had the stay not been obtained. Although the order which the court granted was inadequate, that was in one sense not of the defendants’ making and their failure (or that of their solicitors) to recognise its inadequacy sooner is in my view excusable. It certainly does not support their conduct being treated as deliberate in the sense of a conscious disregard of the terms upon which relief was granted.

I therefore think that the District Judge mischaracterised the situation in paragraph 6(4) of his decision.

Mr Knox’s next point was that in paragraph 6(6) the District Judge gave much too little weight to the windfall which the claimant will enjoy if the Head Lease is forfeited. This will enable the Premises to be re-let at a full market rent. Correspondingly the defendants will be deprived of an asset which, on the evidence before the judge, may be worth as much as £150,000.

What the District Judge is, I think, saying in paragraph 6(6) is that the weight to be given to the windfall factor is diminished by the fact that this is the third attempt by the defendants to vary the terms upon which relief from forfeiture has been granted. As a stand-alone proposition it is obviously right that considerations which would normally weigh quite heavily in the balance in favour of the grant of relief may be given much less weight when considered in relation to persistent failures by a tenant to satisfy the conditions which the court has imposed. This is made clear in the extracts from the authorities which I quoted earlier. If therefore the defendants’ conduct in this case had amounted to a conscious disregard of the terms for relief which the court imposed then it would be much more difficult to argue that the refusal of further relief was wrong in principle even though it would produce a windfall for the landlord. The balance to be struck will obviously depend on the relevant circumstances.

But the problem in my view with paragraph 6(6) is that it is predicated upon the judge’s earlier finding (in paragraph 6(4)) to the effect that non-compliance was deliberate in this case when in fact the defendants believed that the continuation of trading had been permitted by the order of 8 February. The fact that the hearing before the District Judge may have been the third attempt by the tenants to obtain relief is not sufficient to determine how the discretion should be exercised without taking those circumstances into account.

Paragraph 6(8) raises a different issue which is what the District Judge meant when he said that there had been no substantive change in the defendants’ position since 14 January 2011. Mr Knox submits that this is factually inaccurate because one substantive change which had occurred less than five months after the order of District Judge Allen was the cessation of the takeaway business. From 31 May 2011 onwards there was compliance with the conditions contained in the 14 January order and any subsisting breaches of covenant had come to an end.

Mr Holland QC for the claimant accepted that paragraph 6(8) is somewhat delphic and that it is not easy to understand precisely what point the District Judge was making. But he submits that it was of peripheral relevance to the decision which he made and should not therefore be treated as having vitiated the exercise of discretion which he carried out.

The difficulty about that submission is that the District Judge obviously did think the point was of some materiality to his decision because he included it in the statement of his findings in paragraph 6. Given that the judge was aware (and mentions in his judgment) that the business came to an end on 31 May, one can only read paragraph 6(8) as a finding that this was not to be treated as a substantive change in the defendants’ position. But, on any view, it was. Although the cesser of user in breach of planning control occurred some 3½ months after the date specified in the 14 January order, it had occurred more than a year before the making of the order under appeal. What the District Judge had to address was whether, in those circumstances, the defendants should be deprived of the relief from forfeiture (which everyone accepted they were entitled to on a cesser of the business) by reason of their continuing to trade for the duration of the appeal.

In my judgment, the reasons given by the District Judge do not adequately engage with this issue and fail to take into account the reasons and circumstances in which trading was extended until 31 May. Although a tenant who continually fails to comply with the conditions set by the court for relief from forfeiture is likely to exhaust the patience of the court as well as that of his landlord, the court must still carry out a balancing exercise which gives proper weight and account to the reasons for the non-compliance. The District Judge, as I have explained, did not do this and appears to have treated the failure to cease trading on 11 February 2011 as a deliberate decision to carry on regardless without regard for the consequences. If that had been the position then the refusal of an extension of time would have been an entirely permissible outcome. But that is not this case.

It follows that one must set the decision of the District Judge aside and consider de novo how the court’s discretion should be exercised in this case. Mr Holland’s primary submission is that we should refuse to extend time. The correct view, he submitted, was that the defendants made no serious attempt to comply with the requirements of planning permission or with the declaration made by the court in the original 2008 proceedings when they chose to seek approval for an externally mounted extraction system in preference to the O’Leary scheme. As a result, they were unable to take advantage of the conditions under the 2010 Consent Order for the continuation of their business and (by dint of concession) avoided forfeiture of the Head Lease only on terms that the business ceased. Their failure to meet the 11 February deadline was the result of a mistaken view of the type of interim relief required in order to postpone the deadline which, although that of their solicitors, was one for which they must take legal responsibility. In consequence, they must be taken to have continued to trade without planning permission and in breach of covenant beyond the time permitted under the order of 11 January and should not now be able to salvage their right to relief from forfeiture by an extraordinary exercise of discretion by the court.

Mr Holland also relies on certain subsequent events which he submits we should take into account as additional reasons for not granting relief or, failing that, as conditions for the grant of such relief. He referred us to the fact that soon after the hearing before the District Judge on 8 August 2012 the claimant re-entered the Premises to avoid the loss of its insurance cover. The evidence is that they were in a filthy state and constituted a health and fire hazard. Work was necessary to remedy what is said to have been the dangerous state of the electrical system; broken windows; and the removal by the defendants of a load-bearing wall which had left the building without adequate support. The cost of these works was some £15,351.

In addition, the claimant has now obtained final costs certificates in respect of the original forfeiture action (claim 9BF03397) which include their costs up to and including the dismissal of the defendants’ appeal to Judge Oppenheimer on 31 May 2011. There is also a certificate in respect of the costs of the 2012 claim (2BF00297) up to and including the hearing before District Judge Jenkins on 8 August. The costs of the defendants’ unsuccessful appeal to Judge Powles QC are not included. The total amount of the costs certificates is £100,903 including interest. Mr Holland says that his client has also met the rates and insurance costs of the Premises which the defendants would have had to pay had the lease continued.

The starting point for the exercise of our discretion has to be to remind ourselves that the purpose of the reservation of a right of re-entry in the event of unpaid rent or a breach of covenant is to provide the landlord with some security for the performance of the tenant’s covenants. The risk of forfeiture is not intended to operate as an additional penalty for breach. It is an ultimate sanction designed to protect the landlord’s reversion from continuing breaches of covenant which remain unremedied and to secure performance of the covenants: see Shiloh Spinners Ltd v Harding [1973] AC 691 at p. 723. There may, of course, be breaches which are so serious and irremediable as to justify the refusal of relief: for example, an unlawful sub-letting. But in most cases relief will be granted on the breach being remedied and on terms as to costs.

Although the defendants’ conduct will have been a cause for concern for any reasonable landlord, it has not been suggested that the breaches of covenant were incapable of being remedied either by the grant of planning permission with suitable conditions for the extraction of fumes or by the cesser of the takeaway business. The service of the s.146 notice and the orders made in the original forfeiture proceedings achieved a resolution of that issue by confirmation that the Head Lease had been forfeited for the breach of covenant complained of and by the grant of relief on terms that the breaches would cease. All of that had been achieved by a combination of District Judge Allen’s order of 14 January 2011 and the subsequent cesser of the business on 31 May following the unsuccessful appeal.

The only issue to be decided in the 2012 proceedings was the rather technical one of whether the interim stay granted on 8 February 2011 was effective to postpone the date upon which the business had to terminate in order to comply with the conditions for the grant of relief. Although that issue was decided against the defendants, their belief on legal advice that the order granted by Judge Powles QC had achieved the purpose for which it was sought was not in my view unreasonable. For this purpose, it is not necessary to draw a distinction between the defendants and their solicitors. In these circumstances, it would, I think, be disproportionate and, to put it bluntly, unjust for the defendants to be deprived of their property for a legal error of this kind. There is nothing to suggest that the additional 3½ months of trading caused any additional damage to the claimant or, more importantly, made this a case where the grant of relief on terms that the business ceased was inadequate to protect the landlord’s reversion. Nor is this a case, as I have explained, where the defendants’ failure to observe the 11 February deadline amounted to a defiance or disregard of the orders of the court. I would therefore reject the submission that we should refuse to extend time for the cesser of the business to 31 May 2011.

We are however, in my view, entitled to consider the other matters relied on in deciding the conditions for relief. I do not accept that we are limited to the sole question of whether time should be extended. In principle it seems to me right that the claimant should be put into the position it would have been in had the breaches of covenant not occurred. If the Head Lease is to be restored it ought therefore to be on terms that the defendants pay the costs of the works carried out to the Premises and the other outgoings in respect of rent, rates and insurance for which they are liable under the Head Lease. If there is any dispute between the parties as to whether the defendants were responsible for the removal of the load-bearing wall or as to the amount paid by the landlord to carry out the works of repair, these issues can be referred to a District Judge for determination.

The other issue is costs. Section 146(2) gives the court power to grant relief upon such terms as to costs as, in the circumstances of each case, it thinks fit. In this case I would order the defendants to pay the amount of the final costs certificates with any interest as a condition of relief. The original forfeiture action and the proceedings up to and including the hearing before District Judge Jenkins all generated costs for which the tenants were responsible as a consequence of their breaches of covenant. Although I have taken a different view from the District Judge about the grant of relief, the application made to him was necessary both in order to obtain an extension of time and to resolve the effect of the interim stay. The defendants must pay the landlord’s costs of those proceedings which were, I think, properly incurred for the purpose of s.146(3). The costs of the appeals to HH Judge Powles QC and to this court are, I think, in a different category. They have been necessitated by the failure of the defendants to obtain relief before the District Judge and should in my view be dealt with simply as the costs of litigation which we will invite submission on when our judgments are handed down. I would not make their payment by the defendants a condition of relief from forfeiture.

For these reasons, I would therefore allow this appeal and make the orders I have indicated.

I agree.

I also agree.