Pineport Ltd v Grangeglen Ltd

The trial of the claimant’s application for relief from forfeiture was heard on 6^th and 7^th April 2016 and on 13^th June 2016 judgment was handed down in the absence of the parties dealing with the principal issues in the claim. I determined that the court should make an order granting the claimant relief from forfeiture on terms that it pays to the defendant £24,530.

On 16^th August 2016 issues consequential upon the judgment were dealt with. By that stage the claimant’s ability to pay the sum of £24,530 had been put beyond doubt. However, two issues in relation to costs remained to be resolved. First, the parties disagreed about whether I had decided in the judgment that the costs of the proceedings, if ordered to be paid in whole or in part by the claimant, would form one of the conditions of the grant of relief. Secondly, the parties were not agreed about what order for costs the court should make. I will deal with those issues in turn.

The claimant’s lease was forfeited on the basis of the non-payment of rent (in fact service charges reserved as rent) in the sum of £2,155. It has never been in doubt that the rent would have to be paid, whether or not relief against forfeiture was granted, and the claimant’s reply, which is supported by a statement of truth signed by the claimant’s solicitor, states that the claimant’s solicitors hold the sum of £2,155 and that the claimant was ready willing and able to pay this sum plus interest into court if and when directed by the court to do so. The principal issues in the claim were whether the court should exercise its discretion, given the very lengthy delay between forfeiture and the issue of the application for relief, and, if relief was to be granted, the terms the claimant would have to meet. A subsidiary issue concerned whether the claimant would in fact be able to make the payment.

The defendant incurred expenditure in relation to the forfeiture, which included legal fees, and further expenditure after the forfeiture had taken place. In the event, the amount which the claimant will have to pay is significantly less than the amount which the landlord claimed as its costs and expenses arising from the forfeiture. One particularly notable example of an item claimed by the defendant was a claim for loss of a market rent despite the claimant’s lease having been granted for a premium and at a ground rent. Plainly, provided that the ground rent and sum equivalent to the service charge was paid, the landlord has suffered no loss of a rent.

In the course of considering the evidence, I considered the defendant’s claim for legal costs relating to the forfeiture and determined that the sum of £3,000 should be paid. At paragraph 56 of the judgment I stated:

“The defendant is only entitled to recover as a condition of the grant of relief legal expenses relating to the forfeiture. Legal fees of the claim seeking relief are at large and fall to be considered applying the provisions of CPR 44.2.”

At the consequentials hearing, I confirmed that paragraph 56 of the judgment meant precisely what it said. In other words, I had already determined that the legal costs of the claim, distinguished from the legal costs of the forfeiture, fall to be determined applying the provisions of CPR 44.2. I accept that in many cases it will be appropriate to make the payment of the costs of the claim a condition of the grant of relief. In this case, it seemed to me that it was appropriate to deal with the grant of relief and the award of costs separately and I so determined in the judgment, not least because the claim is the tenant’s claim for relief rather than the more usual situation of a claim for possession by the landlord in which the tenant seeks relief.

I now turn to deal with the second issue. It is unnecessary for me to set out the provisions of CPR 44.2 in this judgment. Its provisions may be summarised as follows:

My judgment in the claim sets out the considerations the court should take into account in relation to an application for the grant of relief against forfeiture and the conditions upon which such relief may be granted. To my mind it is clear that there is no principle of law which constrains the court necessarily to grant the defendant landlord its costs of the claim. To take an extreme example, in the event of a lease being forfeited for non-payment of rent, but before the tenant’s application for relief is issued, the tenant offers to pay all the landlord’s reasonable costs and expenses, as well as the arrears, and the landlord declines to accept that offer, it might well be the case that the court would exercise its discretion as to costs and require the landlord to pay all the tenant’s costs of the claim. All the more so where the forfeiture is by peaceable re-entry, the claimant does not dispute that the forfeiture was lawful and the terms of relief make provision for the landlord’s costs and expenses of the forfeiture (including reasonable legal costs associated with the forfeiture).

However, there are features of the claimant’s application for relief against forfeiture in this case, particularly one made as in this case so long after the forfeiture took place, which are likely to be relevant to an award of costs. The claimant invited the court to exercise its inherent jurisdiction to grant relief and it is incumbent on the tenant to put itself in the best possible position to persuade the court to do so. It follows that it is necessary for the tenant to provide the landlord with the information and assurances it needs in order to make good its claim for discretionary relief at the earliest opportunity.

It seems to me that the proper approach to an award of costs in the circumstances of this case is for the court to consider first whether the tenant has provided the landlord with such information as the landlord may reasonably require in order to consider the application, and, secondly, whether the landlord has behaved reasonably in relation to the application. The second criteria will be of particular significance where, as here, the tenant has made an offer. Even where the landlord stands to gain a substantial windfall by the court refusing to grant relief against forfeiture, I do not consider that there is an obligation on the landlord to ‘make the running’ on seeking to resolve the tenant’s application for relief. The landlord need only act reasonably and respond to the application as it is put forward.

Applying these general principles to this claim, it is clear that upon service of the claim the defendant was not under any obligation merely to grant relief. The application was made very late and well outside the normal period for granting relief and the claimant made no offer to pay any sum other than the rent which was due at the date of forfeiture. The defence attached a schedule setting out the expenditure which the defendant sought if relief against forfeiture was to be granted but the tenant’s reply made no proposal to pay the costs and expenses of the forfeiture and there was no offer in correspondence from the claimant’s solicitors. Disclosure and exchange of witness statements then took place and it was not until 24^th February 2016, approximately 6 weeks before the trial that an offer was made on behalf of the claimant. The offer was to pay £25,963.94 and the landlord’s reasonable legal fees of the claim to be assessed if not agreed. Payment of £25,963.94 was to be made within 31 days of written acceptance. The offer stated that funds for payment would be raised by Mr Jadunandan’s family. The offer quite rightly included provision for the defendant’s costs of the claim up to acceptance of the offer.

The position thereafter is unsatisfactory. First of all, the defendant’s solicitors did not reply promptly. It was not until 9^th March 2016 that they wrote seeking clarification of the offer. It seems to me that given the proximity of the trial it was incumbent upon the defendant to consider the offer and to respond to it far more quickly. Two points were made by the defendant’s solicitors. First, that costs should be paid on the indemnity basis and they referred to the decision of the Court of Appeal in Patel v K&J Restaurants Limited [2010] EWCA Civ 1211. Secondly, they sought clarification about why the period for payment was 31 days (which would take payment after the trial date) and they sought clarification about the source of the funds. The letter was accompanied by a second letter expressed in forthright terms describing the claimant’s application as having no prospects of success. The tenant’s reply on 31^st March 2016 (again the delay in replying is unsatisfactory) did not provide any clarification about the source of funds other than to say that they were to be paid by Mr Jadunandan’s family and but provided reasons why costs should not be on the indemnity basis. The landlord’s solicitor’s response on 1^st April 2016 did not take matters very much further.

The offer made on 24^th February 2016 is significant because the amount which the claimant offered to pay was more than it has been ordered to pay following the trial and the offer to pay legal costs was on the basis that payment was a condition of the grant of relief. To my mind the period for payment of 31 days was not unreasonable and I consider that, given that the court has exercised its discretion to grant relief, the defendant’s failure to accept the offer promptly must have an effect on the costs for the period after the defendant had had a reasonable period of time in which to consider the offer. I consider such a period should be short given the impending trial.

In the course of the consequentials hearing, Mr Demachkie appearing for the defendant submitted that the payment period in the offer of 31 days was too long and had the landlord accepted the offer it would have resulted in the trial being adjourned without the landlord knowing whether the payment would be made. To my mind that was not a satisfactory reason for failing to accept the offer. The parties could readily have agreed that the trial date be vacated with provision for the trial date to be re-fixed if payment was not made within the period of 31 days. It would not have been difficult to find a further two day trial slot within 2-3 months.

There are, however, aspects of the trial about which comment should be made. First of all, it is necessary for the tenant to seek permission to serve a witness statement out of time. Permission was granted at the outset of the trial. Secondly, the landlord’s failure to provide a witness who could speak with first-hand knowledge about most of the claim for expenditure was unhelpful as was the failure of the landlord to provide the documents which supported its claim for expenditure. However, neither of these events had any significant effect on the length of the trial and to my mind are not conduct which should have an effect on an award as to costs.

There is a mismatch between the offer and the additional evidence provided by Mr Jadunandan’s brother at the trial. The offer was made on the basis that the funds to pay the outstanding sum would be raised by Mr Jadunandan’s family. The evidence at the trial was that the funds would come from the sale of a flat owned by Rodion Jadunandan. In the event, the funds which are now available have come from cash resources held by the family. Nevertheless, I can see no basis for concluding other than that, had the offer been accepted, the condition would have been met and relief would have been granted. This would have avoided the need for a trial. The claimant’s success in persuading the court to exercise its discretion to grant relief is therefore a material consideration. I propose to make an order that the claimant shall pay the defendant’s costs of the claim up to and including Friday 4^th March 2016. I do not consider it is appropriate for the landlord to recover its costs of the claim thereafter in view of the terms of the offer. The question which remains, therefore, is whether the landlord should pay the whole or part of the tenant’s costs from 4^th March 2016. Although the tenant has succeeded in persuading the court to grant relief against forfeiture, as the judgment records, the tenant’s starting point was not a promising one. Nevertheless, taking into account the relatively small sum which was due at the date of forfeiture, the substantial windfall which the defendant was plainly hoping to achieve by opposing relief and the claimant’s reasonable offer, I consider it is right that the defendant should pay the claimant’s costs of the claim from and including 5^th March 2016 onwards up to and including the consequentials hearing.

Mr Demachkie submitted that an award of costs in favour of the landlord should normally be an award of costs upon the indemnity basis and he relies upon the judgment of Lloyd LJ in Patel v K&J Restaurants Limited. However, in the circumstances of this case, which are unusual, I do not consider that the decision in Patel v K&J Restaurants Limited requires the court to order costs on the indemnity basis and in the exercise of my discretion I decline to do so. It seems to me that the justice of this case is met by an award of costs on the standard basis in favour of the defendant and equally an order for costs on the standard basis in favour of the claimant.

I propose to hand down this judgment in the absence of the parties and I invite them to lodge a minute of order reflecting its terms.