Rother District Investments Ltd. v Corke & Ors

Mr Justice Lightman: INTRODUCTION

1. I have before me an appeal by the Claimant Rother District Investment Limited ("Rother") from the judgment of HH Judge Michael Kennedy QC dated the 10 th May 2003 on a preliminary issue of law. That preliminary issue raises the question of the legal effect of a purported peaceable re-entry and forfeiture of a lease by a purchaser of the reversion prior to registration of the purchaser as proprietor at HM Land Registry. FACTS

2. The facts can be stated quite shortly. On the 3 rd August 1985 Mountfield Developments Limited ("Mountfield"), the registered proprietor of the freehold title to the property known as Hanover House, Marine Court, St Leonard’s on Sea, East Sussex ("the Property"), granted a head lease ("the Head Lease") of the Property to Albany Life Assurance Company Limited ("Albany"). The title to the Head Lease was registered at HM Land Registry and Albany were duly registered as proprietor. Albany subsequently transferred the Head Lease to Cradle Port Limited ("Cradle") and Cradle was duly registered as proprietor. On the 22 nd August 1989 Cradle granted a sublease ("the Sublease") of part of the Property ("the Demised Premises") back to Mountfield. The title to the Sublease was not registered. On the 22 nd December 1992 Cradle transferred the Head Lease to Tambarella Limited ("Tambarella") and Tambarella was duly registered as proprietor.

3. Early in 1994 Mountfield sold and transferred the freehold title to the Property to Rother and Rother was registered as proprietor. On the 2 nd August 1994 Mountfield transferred the Sublease to the First and Second Defendants who thereafter carried on a partnership business at the Demised Premises. The Third Defendant was subsequently admitted as a partner and later took over the business as principal. For the purpose of this judgment it is unnecessary to distinguish between the three Defendants and I shall refer to them as "the Defendants".

4. On the 15 th March 1999 Tambarella executed a transfer on sale of the Head Lease to Rother, but Rother was not registered as proprietor at HM Land Registry. In consequence the legal title did not pass, but Rother was not aware of this.

5. At some date prior to the 18 th July 2000 the Defendants ceased to occupy the Demised Premises each of them assuming that one or more other of them was alone responsible for the performance of any obligations under the Sublease. Sums (and in particular rent) became payable by the Defendants (or one or more of them) under the covenants of the Sublease to Tambarella and were unpaid. By reason of these breaches of covenant the Sublease became liable to forfeiture and on the 18 th July 2000 Rother purported peaceably to re-enter and forfeit the Sublease and take steps to re-let the Demised Premises. On the 20 th November 2000 Rother granted a new sublease of the Demised Premises to a new tenant who has remained in possession ever since. The Defendants were not aware of these actions.

6. In 2000 Rother commenced proceedings against the Defendants for sums due under the Sublease. The Defendants put Rother to proof of its title. In consequence on the 19 th December 2001 Rother discovered that its title to the Head Lease was not registered. It accordingly applied for registration and was duly registered on the 31 st December 2001. Rother discontinued its existing proceedings and commenced fresh proceedings (being the present proceedings) on the 15 th January 2002. On the 15 th March 2002, an order was made that all steps in the earlier proceedings should stand as steps in the present proceedings and for service of a defence. The First Defendant filed his defence on the 6 th April 2002. On the 22 nd May 2002 directions were given for the trial of the preliminary issue. THE ISSUE

7. At issue in these proceedings is the entitlement of Rother to recover from the Defendants as tenants under the Sublease sums due in respect of the period prior to the date that Rother took possession. Rother concedes that the Defendants must have a defence to any claim in respect of the period after it took possession. At the very least the Defendants must be entitled to claim against Rother or set-off as damages for trespass a sum equal to the rent reserved by the Sublease. Rother however claims payment in respect of the prior period when the Sublease on any basis must have continued to subsist and the Defendants were tenants and in possession (if not in occupation).

8. The transfer of the Sublease to Rother included no express assignment of the right to accrued arrears of rent or other sums due under the Sublease and accordingly the right to such sums remained vested in Tamborella unless they passed to Rother under section 141 of the Law of Property Act 1925 . The right passed, and only passed, to Rother under that section if the Sublease continued in force when the legal title to the leasehold reversion (i.e. the Head Lease) vested in Rother. The legal title only vested on the registration of the Head Lease in Rother on the 31 st December 2001. The preliminary issue of law raised for determination on this application is whether the acts of Rother in taking possession, purporting to forfeit the Sublease and granting the new Lease brought the Sublease to an end prior to the 31 st December 2001 and without bringing about a situation in which the Sublease was to be treated as subsisting on the 31 st December 2001. LAW

9. Rother contends that its purported forfeiture of the Sublease was without legal effect because the legal title to the reversion only vested in it on the 31 st December 2001 and that accordingly the sublease continued in full legal force and effect until that date. If this is the case, as is common ground, Rother must be entitled to the sums which it claims.

10. There are in my judgment four interrelated grounds on which the court should hold that Rother is not entitled to the sums which it claims. They all focus upon the fact that Rother’s case is based on the contention that its peaceable entry prior to its registration as proprietor of the Head Lease was unlawful and constituted the tort of trespass against the Defendants. (a) Presumption of authority

11. It is common ground that as a matter of principle, if Tambarella expressly or impliedly authorised Rother in the interim period between completion of the sale and registration of Rother as proprietor at HM Land Registry to exercise the power peaceably to re-enter and forfeit the Sublease, the acts of Rother would have been legally fully effective to do so. The question arises whether the presumptions of legality, regularity and against wrongdoers enable the court to presume that Tambrella did authorise such action. The evidence establishes that Rother believed that it was acting and entitled to act as it did as legal owner of the reversion. I do not think that this fact precludes the possibility of the existence of the authority of Tambarella to which I have referred. It is to be borne in mind that from the moment of completion Tambarella held the legal title as bare trustee for Rother. Though the presumption of regularity operates primarily in respect of public or official acts the presumptions can operate between private persons. Thus it is established that, where a purchaser has entered into possession and enjoyed the subject of the contract, the court will make every reasonable presumption in favour of the validity of the transaction: see e.g. Sea Fire Life Assurance Society 43 ER 951 reversed on other grounds 10 ER 1351. Likewise entry will not be construed as tortious if it can be construed rightful: Thomas v. Thomas (1855) 69 ER 701 approved in Corea v. Appuhamy [1912] AC 230 . Again presumption of regularity raises a probability that a will has been duly attested: see In the Goods of McLean [1950] IR 180 at 185. I think that I am justified in presuming as against Rother the existence of the necessary authority to take the actions which it did and holding that on this basis the Sublease was forfeited on the 18 th July 2000. b. Advantage of Own Wrong

12. The second ground is that Rother should be precluded from avoiding the legal consequences of its actions as against the Defendants (namely the forfeiture of the Sublease) by praying in aid the fact that, by reason of the absence of registration of title, Rother had no legal title entitling it to forfeit.

13. The ambit of the principle that a man shall not be permitted to take advantage of his own wrong has been in question for some time, and in particular the question has been left open whether it is merely a principle of construction or whether it is a substantive rule of law: see e.g. Chitty on Contract, 28 th ed, Vol 1 paragraph 12.080. The question has most recently been the subject of authoritative consideration by the Court of Final Appeal of the Hong Kong Special Administrative Region in Kensland Realty Limited v. Whale View Investment Ltd Final Appeal No 10 of 2001 (Civil). Mr Justice Ribeiro PJ, in a judgment with which all other members of the court agreed, after reviewing the authorities went on to state how the principle is to be given effect: "96. On the basis of the foregoing discussion, it seems clear, based on the underlying principle that a person is not permitted to take advantage of his own wrong, that a contractual party who is in breach of an obligation owed to the other party, will be prevented from asserting rights or claiming benefits which arise in consequence of his breach. The cases also show that, where this ‘prevention principle’ applies, it may be given effect in different ways.

97. In many cases, it will be appropriate to implement it as a substantive principle of law that precludes the wrongdoer from taking advantage of his own wrong, whatever the contract may say and however clearly the contract may appear to confer on the wrongdoer an unqualified right to enjoy such advantages. Cases like Rede v. Farr and the New Zealand Shipping case may be considered examples.

98. In other cases, where appropriate, the courts give effect to the principle as one of construction, holding that the contractual terms with which they are concerned must be construed by applying the principle as a canon or presumption of construction."

14. In my judgment in these proceedings it cannot lie in the mouth of Rother to rely on the fact that (if this was the case) it did not have the necessary authority of Tambarella and had not yet registered its title to the Head Lease so as to establish the illegality and ineffectiveness of its peaceable re-entry. Rother acted in regard to the Defendants on the basis that it had the necessary legal title and authority, and it is not open to Rother in order to obtain an advantage (namely the claim to the sums in issue in this case) to take advantage of its own wrong, namely the non-existence of the facts which provide the legal basis for its actions, to make claim to payments reserved by the Sublease. (c) Estoppel

15. The third ground is estoppel. A landlord may so act as to raise an estoppel precluding him from denying that he has forfeited the lease: see GS Fashions Ltd v. B&Q Plc [1995] 1 WLR 1088 . Rother contend that there can be no estoppel in this case because Rother did not have legal title to the reversion until the 31 st December 2001, and accordingly there could be no forfeiture until then. But in Farrow v. Orttewell [1933] 1 CH 480, the Court of Appeal held that a purchaser of the freehold reversion on a lease who prior to registration of his title served a notice to quit on the tenant, on which the tenant acted, was estoppel from denying that the notice was valid on the ground of his lack of title when it was given. Rother seeks to distinguish that case on the ground that the tenant was aware of the landlord’s act, accepted it as valid and changed his position in reliance on it. By way of contrast the Defendants in this case were unaware of Rother’s acts until the date of service of the First Defendant’s defence. But that fact, as it seems to me, did not preclude the Defendants relying on the acts (so far as reliance is required for this purpose) when they came to the Defendant’s knowledge. When the Defendants discovered what had happened, they had the alternative courses available to them of suing for possession or accepting the forfeiture of the Sublease. The Defendants sensibly elected to take the latter course. It remained open to the Defendants at the date of their election to act and rely on Rother’s actions as a valid forfeiture at least unless and until Rother reversed or undid what it had done and placed the Defendants once more in possession of the Demised Premises. Rother have never done this, have never intended to do this and have never been able to do so. The Defendants are accordingly entitled to treat the Sublease as forfeited when peaceable re-entry took place. (d) Feeding Estoppel

16. Fourthly, whatever the legal ineffectiveness of the purported peaceable re-entry when it occurred, on registration of Rother as proprietor of the Head Lease the action was retrospectively validated as between Rother and the Defendants. In the language often used in situations such as the present, what had been "a forfeiture by estoppel" between Rother and the Defendants was "fed" and became a full legal forfeiture valid as against the world. Rother contend that the registration of Rother as proprietor of the Head Lease immediately triggered the application of section 141 of the Law of Property Act 1925 and that the legal forfeiture takes effect after and subject to the application in the meantime of the section and accordingly the vesting in Rother of the right to the sums in question. In my judgment that submission may be subtle, but it is wrong. As between Rother and the Defendants, in order to right the wrong committed by Rother, the forfeiture is retrospectively validated and is accordingly to be treated for this purpose as effective on the 18 th July 2000. But the date on which for the purposes of section 141 of the Law of Property Act 1925 Rother is to be treated as having acquired title to the reversion remains the same, namely the 31 st December 2001. The righting of the wrong does not require that the date of Rother’s acquisition of legal title should be ante-dated to the 18 th July 2000 to enable Rother to have the benefit as against the Defendants of section 141 of the Law of Property Act 1925 . CONCLUSION

17. In my judgment accordingly this appeal must be dismissed.