Disrepair – counterclaims after possession order.

Here is an interesting prospect* (and a big tug of forelock to Beatrice Prevatt at Garden Court for the initial suggestion).  Can a counterclaim for disrepair be brought after a possession order is made?

Conventionally, we’ve thought that a counterclaim would have to be raised before a possession order, or the complex and fraught option of applying to set aside the possession order would have to be followed, even assuming there was actually any basis for such an application. But there appears to be a solid argument based on Court of Appeal precedent to suggest otherwise.

Rahman v Sterling Credit Ltd [2001] 1 WLR 496 [Also on Bailii] was a mortgage possession case. A possession order had been made, but Mr R remained in the property and sought to counterclaim to re-open a loan transaction with the mortgagee as an extortionate credit bargain under s.139 of the Consumer Credit Act 1974. At first instance and first appeal Mr R was unsuccessful and a warrant ordered. At the first appeal Mr R accepted that he could not raise a defence to the possession order, it having been made, but maintained that a counterclaim could be brought. If successful, the counterclaim could then lead to an application to set aside the possession order.

The crucial parts of the Court of Appeal judgment granting Mr R permission to bring a counterclaim are at 502G to H:

In my judgment the fact that the possession order has been made and that there is no present claim to have it set aside does not affect the power of the court to permit Mr Rahman to make a counterclaim for relief under s.139.

In CSI (supra) it was held that the defendants were unable to serve a counterclaim on the plaintiffs after the plaintiffs had obtained summary judgment in respect of a dishonoured cheque and had been paid in full the amount of the judgment debt, with interest and costs. Roskill LJ said at 1075 C-E that he rested his decision on “this simple point”:

“. . . where a counterclaim, even if it has previously been raised, has not been the subject of a summons for directions or when required of a formal pleading before the time when the plaintiff has received full satisfaction of the judgment which he has obtained against the defendants, I do not think there is still extant any action by the plaintiffs in which the defendants could properly counterclaim against them. The action had, for all practical purposes, come to an end when satisfaction of the judgment had been obtained.”

Mr Neville attempted to distinguish CSI as a decision on the special provisions on summary judgment in Rules of the Supreme Court 1965 O 14 rule 3 (2) and contended that, in any event, on the facts of this case the judgment had been satisfied.

I do not accept those submissions. The real question is whether the action is at an end, so that there are no longer any proceedings by the claimant to which defendant can respond with a counterclaim. This action is not at an end. Mr Rahman and his wife are still living in the Property. Sterling continue to accept monthly instalments. Sterling have not yet obtained possession of the Property. They cannot do so without a further application to the court for a warrant of execution, the existing one having expired at the end of twelve months and more than six years has elapsed since the possession order was made: CCR O 26 rule 5 (i) (a) and The Mayor and Burgesses of the London Borough of Hackney v White (1995) 28 HLR 219. Although judgment for possession has been obtained, it has not been satisfied and it cannot be satisfied without a further application to the court for a warrant of execution. Such an application would be proceedings to enforce the security relating to the credit bargain within the meaning of s.139 (1) (b).

The situation seems to be parallel to that of a tenant having had a possession order or suspended possession order made, but before application for and execution of the warrant. The tenant remains in the property, rent is paid, and the landlord has not yet obtained possession of the property. There is the possibility for the tenant (at least a secure or assured tenant) to apply for a stay of warrant, or to apply to vary or discharge the possession order. The action is not at an end.

If this is right, and I am persuaded that it may well be, or at least should be, then a social tenant could seek the court’s permission to bring a disrepair counterclaim after the possession order has been made but before execution of the warrant. If the counterclaim was successful to the extent of extinguishing arrears (or more), there is the obvious opportunity to apply to discharge the possession order.

The next question is the relation of the counterclaim to the possession proceedings. The Court’s permission is required. As it is put in Rahman v Sterling.

Mr Rahman requires the permission of the court to make his counterclaim under Part 20: CPR 20.4. In deciding whether that claim should be dealt with in separate proceedings the court may have regard to the matters specified in CPR 20.9 These provisions are subject to the overriding objective in CPR Part 1. In my judgment, this is a case in which it is appropriate to grant permission to make a counterclaim rather than to direct that the issue of the s.139 application be made by separate action. There is a connection between the claim for the enforcement of the charge taken to secure the money advanced under the credit bargain in respect of which Mr Rahman seeks relief.

For rent arrears possession claims, there is arguably a clear connection between the possession order obtained for arrears of rent on the tenancy agreement, and the breach of obligation by the landlord for which the tenant seeks relief.

So, is this worth trying? I think it is. In fact I am doing*.

There is also the obvious benefit for the client that a counterclaim for disrepair should still obtain full legal aid funding, for eligible clients, where a stand alone claim may or may not be suitable for a CFA, even if one is available (e.g. small claims risk if works done promptly).

Also, it must be arguable that limitation – the 6 years on a tenant disrepair – is the six year prior to the date of issue of the possession claim and then subsequently (assuming the disrepair was extant for this period, of course). S.35(1) Limitation Act 1980 provides:

For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced—
(a)in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and
(b)in the case of any other new claim, on the same date as the original action.

And a disrepair counterclaim would fall under s.35(1)(b) as far as I can see.

[*By the end of tomorrow, 10 April 2014, it may no longer be just a prospect. I’ll update if an update can be made.]

[Update. I’ve now been told of several cases on this point having been successfully run in the Leeds and London areas, and others in the North West. So, this is a viable line of argument with a track record.]

[update 10/04/2014 – my application effectively conceded, subject to limitation from date of Counterclaim, which made no odds on the facts.]

Posted in assured-tenancy, Disrepair, FLW article, Housing law - All, Possession, secure-tenancy and tagged , .

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +

16 Comments

  1. Likewise, I’ve run these as mortgage misselling claims after possn order but before execution. Never been challenged. This is in the LAG Casebook isn’t it?

  2. We have been making these applications in Shelter Manchester successfully for over a year now without difficulty, relying on the case of Rahman v Sterling Credit Ltd. This was further to advice received from Andrew Byles at Garden Court North.

  3. For many years Rahman has been referred to in the White Book’s commentary on CPR 20.4.

    The commentary states ‘In Rahman … the Court of Appeal held that where a judgment remained unsatisfied the action was not at an end and the court could grant permission to file a counterclaim.’

  4. Whether or not the Court will allow a Counterclaim after judgment is of course a matter of discretion. The crucial part of the for the judgment in Rahman v Sterling to which you have not referred is that there was no ‘limitation’ advantage to Mr Rahman whether he brought his challenge to the underlying Loan Agreement as a Counterclaim or as a stand alone Claim. The same reasoning does not, of course, apply to a disrepair counterclaim: see Limitation Act 1980 s. 35.

    • I mentioned Limitation Act s.35 in the post. Of course the arguments cut both ways. The Claimant/Part 20 Def might consider itself hard done by in a possible extension of the 6 year limitation in that way. But then arguably it should not have brought a possession claim when there was known disrepair that it had failed to resolve, let alone failed to resolve for the 6 years prior to the issue of the possession claim. If that full period can’t be proven, then the limitation point is academic. Why should the Claimant be allowed to rely on its own failings to avoid the import of s.35?

      I would be surprised if the Court failed to exercise its discretion in favour of the Defendant on the basis that there would be an extension of limitation that would be unfair to the Claimant, particularly as the limitation act provides for just such a situation.

  5. I have run this a number of times in tenancy cases without problems – CPR 20.4(2)(b) says after all that a counterclaim can be brought “at any time”. The exercise of discretion usually favours a tenant where the disrepair counterclaim is effectively the mirror image of the very arrears that the Claimant relies on – i.e. the measure of damages for disrepair is usually a notional reduction in rent liability.

    • I think we’ve established that while this was news to many people (like me) others have been successfully using it for some time. So, to cover up for my own ignorance, I’ll settle for it being worthwhile for more people to be aware of the possibility…

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