Norwich Union Linked Life Assurance Ltd. v Mercantile Credit Company Ltd.

This is an appeal against the dismissal by Deputy Master Nurse of an application to strike out under CPR Part 3.4 two allegations made in the Defence in these proceedings or to give summary judgment under CPR Part 24 in favour of the Claimant on those allegations. The primary ground of the Deputy Master’s decision, as appears from the Claimant’s note of his reasons, was that it was not an appropriate application to make, since it involved picking two issues out of the Defence in circumstances where a decision in favour of the Claimant would neither avoid a trial nor even shorten it. Far from saving expense the Deputy Master regarded the application as likely to add to the costs without any significant benefit to the conduct of the case and as therefore being contrary to the overriding objective in CPR Part 1. In any event he did not regard the relevant allegations as so hopeless that they should be struck out or determined against the Defendant on an application for summary judgment, although he does not appear to have given reasons for this view.

In its Appellant’s Notice, the Claimant sought to set aside the Deputy Master’s Order principally on the grounds that he was not entitled to dismiss an application on the basis that it was not a proper application to bring in the light of the overriding objective, or, if he was entitled to do so, that his decision was on the facts of this case irrational or against the weight of the evidence. The Appellant’s Notice also sought an order that the application be re-heard on the first open date. The Defendant served a Respondent’s Notice supporting the Deputy Master on the additional grounds that the relevant paragraphs disclose reasonable grounds for defending the claim with a real prospect of success at trial.

Both parties came prepared to argue the underlying merits of the Claimant’s application and I took the view that it was right to deal with them, even if I thought that the Deputy Master was justified in dismissing the application for the reasons that he gave. Given that I had the arguments on the merits before me, I considered that it would simply be a further waste of the parties’ money and the Court’s time if I dismissed the appeal without consideration of the merits of the application.

Dealing first with the grounds of the Deputy Master’s decision, I reject the Claimant’s submission that a Court cannot refuse to consider the merits of an interim application if it considers that making the application is contrary to the overriding principle of the CPR. It was submitted that the overriding objective applies only to how an application is dealt with, not whether it is dealt with, and that a Court has no alternative but to consider an application on its merits. I very much doubt whether that was true before the introduction of the CPR and it is certainly not the case now. The overriding objective is concerned not with procedural and other interim applications taken on their own, but with dealing fairly, expeditiously and economically with cases as a whole. If a Court considers that an application made by a party in a case will delay resolution of the case or add to costs or take up Court time, with no proportionate benefit to the conduct of the case, the Court is in my judgment fully justified in refusing to consider it. Whether this is an appropriate course in any case will depend on the particular circumstances of that case, and I will return to that issue at the end of this judgment.

The case concerns an attempt by the Claimant to sub-let premises held by it under the terms of an underlease dated 19 November 1980 granted to it by the Defendant and expiring on 21 June 2005 ("the Lease"). The Defendant is the lessee under a Head lease dated 14 July 1980 and expiring on 21 June 2005. Consent to the proposed sub-letting was required from both the Defendant and the Head Lessee. The Claimant alleges that it made a request for consent to the sub-letting by a letter dated 13 June 2002 and that thereafter the Defendant unreasonably delayed or withheld its consent with the result that it lost the proposed sub-letting. It claims damages for the loss that it thereby suffered, either under section 1(3) of the Landlord and Tenant Act 1988 or for breach of an alleged covenant in the Lease.

The Claimant alleges in paragraph 6 of its Particulars of claim that:

The Defendant responds to this in paragraph 6 of its Defence as follows:

It is paragraph 6, apart from the admission of the letter at the start, which is the subject of the Claimant’s application.

Whatever the technical merits of the points taken in paragraph 6 of the Defence, it is clear from the Statements of Case from both parties and from the evidence before the Court on this application that neither the Defendant, nor its managing agents Donaldsons nor its solicitors Denton Wilde Sapte took these points at the time, but instead were involved in considering the claimant’s request for consent to the sub-letting and dealing with the Head-lessor as regards the request. The claimant also gave undertakings, at the Defendant’s request, to be responsible for the costs of both the Defendant and the Head-lessor in considering its request.

In paragraph 8 of the Defence, the Defendant admits its request for an undertaking as to costs and the giving of the undertaking but continues:

In its reply served on 20 June 2003, some time after the hearing before the Deputy Master, the Claimant pleaded a case of estopped or waiver as regards the defences in paragraph 6.

Dealing first with paragraph 6(a) of the Defence, it is said that by reason of a term to be implied as a matter of business efficacy into clause 3(26) of the Lease, a request for consent for a proposed sub-letting must stipulate the proposed rent. Clause 3(26) contains the covenant not to assign or underlet "without the previous consent in writing of the Landlord (which shall not be unreasonably withheld or delayed)", subject to a number of provisos, including the following:

The Defendant contends that the proviso makes no commercial sense unless the parties intended that the tenant should supply to the Landlord details of the rent when seeking consent to the Underletting and that accordingly an effective request for consent must state the proposed rent. I reject this argument. The proviso to clause 3(26) in effect gives the Landlord a right to refuse consent to a proposed underletting if he is not satisfied with regard to the rent. However, it is a matter for the Landlord not only whether he exercises the right but also whether he is concerned with the level of the proposed rent. It is open to the Landlord to request details of the rent. While it may be relevant to the issue of unreasonable delay if the lessee has not supplied details of the rent, that is very different from saying that an effective request under the lease must specify the rent. The test for an implied term is necessity, and in my judgment there is no necessity to imply this requirement. Clause 3(26) works perfectly well without it. This is a point of law, not dependant on any evidence, and in my judgment it has no reasonable prospect of success for the purposes of CPR Part 24 and indeed discloses no reasonable ground of defence for the purposes of CPR Part 3.4. Accordingly I will allow the appeal as regards paragraph 6(a) and order the striking out of paragraph 6(a) of the Defence and the consequential averment in paragraph 22(b).

Mr Karas for the Defendant suggested that paragraph 6(a) should be read as an averment that because the rent for the proposed underletting was not specified in the letter of 13 June 2002 a request had not been made for the purpose of considering whether there was unreasonable delay and unless and until the rent had been notified to the Defendant time did not start running for that purpose. Paragraph 6(a) cannot in my view be read in that way and if that is a case which the Defendant wishes to advance it will need to apply to amend its defence. I have not heard argument or given any consideration as to whether it would be appropriate to permit an amendment along those lines.

Paragraph 6(b) of the Defence raises a point on service of the application for consent contained in the letter of 13 June 2002 and is in terms restricted to service for the purposes of the claim for damages under the Landlord and Tenant Act 1988 ("the Act"). The Claimant also claims damages for breach of the Lease in unreasonably withholding or delaying consent (paragraphs 19 and 20 of the Particulars of Claim). The Defendant denies that any claim can arise under the Lease, on the basis that it contains no covenant binding the Defendant not unreasonably to withhold consent to a sub-letting. The Defendant does not however raise the point on service in relation to the claim for breach of Lease because the Lease contains no provision as to service of a request under clause 3(26). If there is a relevant covenant in the Lease, the question whether there was unreasonable delay or refusal in giving consent will depend on the facts which, the Defendant will submit, include the manner in which the Claimant’s request was made and when it came to the attention of the Defendant or its agents.

In contrast to the Lease, the 1988 Act contains provision for service. Section 1(3) imposes a duty to consent to a subletting, unless reasonable not to do so, where

The issue on this application is not whether the Claimant’s arguments are correct but whether the Defendant’s case on service is bound to fail.

I consider first the Claimant’s reliance on service on "an agent of the landlord duly authorised in that behalf" under section 23. The letter was addressed and sent to Denton Wilde Sapte. Evidence given on this application by a partner in Denton Wilde Sapte is that they did not have authority from the Defendant to accept service of notices by tenants, either generally or specifically in relation to the property in this case. There can be no question of summary judgment for the Claimant on any issue involving Denton Wilde Sapte’s authority to accept service.

A copy of the letter with a cover sheet stating "For your information" was faxed on 13 June 2002 to Donaldsons. On the evidence it seems to me that Donaldsons either had actual authority to be served with documents on behalf of the Defendant or were held out to the Claimant as having such authority so that the Defendant cannot deny Donaldsons’ authority. In the course of an earlier attempt to sub-let the premises to a different sub-tenant, the Defendant had written a letter dated 5 October 2000 to the Claimant’s solicitors informing them that Donaldsons were responsible for the management of the property and that "all matters relating to the above property should now be addressed to" Donaldsons. Donaldsons have since then continued to be managing agents and the instruction to address all matters to them has not been withdrawn. The Defendant has suggested on this application that its letter was no more than a response to a request for information and provides no warrant for alleging ostensible authority to Donaldsons to receive notices. I consider this to be an untenable view of the letter in the light of the earlier correspondence to which it relates, which included a formal application for consent to the proposed sub-letting.

However, as noted above, the letter dated 13 June 2002 containing the application for consent was addressed not to Donaldsons but to Denton Wilde Sapte and was faxed to Donaldsons with a cover sheet stating simply "For your information". In my judgment it is reasonably arguable that faxing to Donaldsons a copy of the letter in those circumstances was not by itself service on Donaldsons. The words "for your information" are generally understood to indicate that the communication does not directly affect the recipient, which can only be strengthened when the communication is a letter addressed to someone else. They are at least arguably inconsistent with service of a notice intended to have legal consequences.

The claimant alternatively puts its case that faxing the letter to Denton Wilde Sapte or to Donaldsons was by itself good service in two other ways. First, it was argued that as a matter of common law service on a person who has the decision-making authority on behalf of the landlord on the relevant matter is itself good service on the landlord. Therefore, as Donaldsons had discretionary management powers on behalf of the Defendant, the faxed communication on 13 June 2002 was good service. This argument faces the same problem that it was a copy of a letter to Denton Wilde Sapte sent to Donaldsons for its information. In any event, I am very doubtful about the proposition of the law on which this argument is based. If the principal has not given his discretionary manager authority to receive formal documents on his behalf, I do not see why the law should impose it. Counsel for the Claimant was not able to cite any authority in support of it.

The second alternative argument, which applied to both Donaldsons and Denton Wilde Sapte, was that at common law it is sufficient to serve notice on a person whose duty it is to deliver it to the landlord and it does not matter that he is not himself authorised to accept service of notice. There are at least two principles which may be relevant here. The first is that, where an agent has authority to receive information or does receive information in the course of his agency, communication to the agent is treated as communication to his principal. The second, on which Mr Hutchings for the Claimant particularly relied, is the rebuttable presumption of fact that an agent, acting for his principal in a transaction, will pass on to his principal a notice relating to the same transaction, even though he is not authorised to accept service of the notice: A/S Rendall v Arcos Ltd [1937] 3 All ER 577 (HL). These principles cannot apply to Denton Wilde Sapte if, as appears from the evidence before me, it had no instructions on 13 June 2002 with regard to the relevant property. The principles may be applicable to Donaldsons but, in view of the facts that the letter was addressed to Denton Wilde Sapte and only copied to Donaldsons for their information, I do not regard the contrary as so unarguable as to justify summary judgment. Effective service of a notice intended to affect legal rights and the provision of information are not the same thing and it is arguable that application of these principles to the facts of this case would confuse the two. It is not a straightforward area of the law and it is a question best decided on the facts as found at trial. The Claimant relied also on a passage at para. 8423 of Hill and Redmond’s Law of Landlord and Tenant and Tanham v Nicholson (1872) L R 5HL 561. They are concerned with the authority of a servant of a tenant, or of a person in the same position as a tenant’s servant, to receive notice to quit addressed to the tenant and delivered to the demised premises. I do not think that they provide assistance to the very different circumstances of this case.

Accordingly I am not satisfied that the Defendant is bound to fail in a contention that faxing the letter to Denton Wilde Sapte, with a copy to Donaldsons, was not by itself good service of the application for consent contained in the letter.

However, it is clear that the Defendant, Donaldsons and Denton Wilde Sapte in fact took the letter to be an application for consent and proceeded on that basis. The Claimant relies on these facts, which are pleaded in the Particulars of Claim and admitted or pleaded in the Defence, as showing that there was good service of the application. Paragraph 9 of the Defence pleads that

In Stylo Shoes Ltd v Prices Tailors Ltd [1960] Ch 396, Wynn-Parry J. said at p. 405:

However, if that view is right, it still leaves open the question as to when service took effect and when the period relevant to the issue of unreasonable delay began. It may have been as early as 13 June 2003 or it may be a later date. Moreover, the Claimant may succeed in establishing that service was effected simply by faxing the letter dated 13 June 2002 to Denton Wilde Sapte or to Donaldsons.

In my judgment the appropriate course is for these issues to be determined on the basis of the facts found at trial. I shall therefore dismiss the appeal to the extent that it relates to paragraph 6(b) of the Defence.

I revert finally to whether the Deputy Master was justified in this particular case in refusing to consider the application. I have sympathy with his approach, as regards the issue of service. The Claimant introduced a substantial amount of evidence and raised a number of legal arguments on a question which can be fully answered only once the facts are found. Even if the application had succeeded those facts would still need to be investigated to resolve the issue of unreasonable delay. In those circumstances, I think the Deputy Master was entitled to conclude summarily that it was not a suitable application as regards the point on service and to decline to go into the detail of the arguments. I take a different view with respect to the implied term point, and it may well be that the Deputy Master would also have done so if it had been the only point raised. It was a very short point of law which could be dealt with in the time allowed for the hearing. It was clearly relied on by the Defendant as a complete answer to the claim and if it was a good point its early determination would save the parties and the Court the time and costs of a trial. This in turn suggests that the Claimant should have raised it as a preliminary issue, but in the event I have felt able to determine it on this application.

In addition to the appeal against the Deputy Master’s Order, the Claimant sought to bring before me an application for specific disclosure of certain documents. This application is currently part heard before Master Bowman and the hearing is scheduled to continue on 9 January 2004, which leaves ample time before the trial fixed for February 2004 to give disclosure if it is ordered. The Master declined a request to adjourn the application to the Judge hearing the appeal and was entitled to do so. I do not consider it appropriate to order that it should come before me. It would be an exceptional course to take when the application is part heard before the Master and there is no reason for doing so in this case.