This is an issue we’ve looked at before, bringing a disrepair counterclaim after a possession order has been made. Now the Birmingham County Court has dealt with the issue on an appeal from the decision of a District Judge.
Midland Heart Ltd v Idawah  EW Misc B48 (11 July 2014)
In this case, a possession order had been made in November 2002 (apparenly an SPO). There had subsequently been some seven stays of warrant on terms, in 2005, 2008, 2011 and 2012. In February 2014, the Defendant made an application for a further stay of warrant and permission to bring a counterclaim for disrepair, supported by an expert’s report of from an inspection in November 2012 (which had apprently been served on the Claimant in Janaury 2013) and a reinspection report from January 2014. The first report found:
“(a) some missing, slipped and displaced roof tiles; (b) a safety warning at risk label on the central heating boiler; (c) some structural movement of the property with some cracking internally and externally and with some slopes to floors. The remedial works can be limited to making good cracks at this stage unless matters were to significantly deteriorate; and (d) various ad hoc defects including a damaged bedroom light switch, remnants of a light bulb within a bedroom light fitting, evidence of rat infestation within the rear garden boundary.”
The second report found:
“…some repairs to the roof and chimneys, repairing of some internal or external cracks and the replacement of the central heating system including the fitting of a replacement central heating boiler and radiators throughout. However … there are significant ongoing defects at the property including (a) a drip leak to the water pipe serving the WC cistern that is causing severe dampness within the WC compartment, the abutting bedroom and the living room below; (b) the gas fires in this the front and rear living rooms have been disconnected; and (c) some ad hoc defects as detailed within the body of the report including a damaged front external door.”
The District Judge granted the application and permission to bring a counterclaim. The Claimant appealed.
On appeal, the Claimant argued
- that the district judge should not have permitted the counterclaim to include a claim to set off – essentially because that amounted to a defence – and in so doing, circumvented any process of appeal and/or application to set aside;
- secondly, that it deprived the claimants of an accrued limitation defence; and
- thirdly, that he failed to have any or any sufficient regard to delay.
The Circuit Judge derived from Rahman v Sterling Credit Limited  1 WLR 496 and British Anzani ( Felixstowe) Limited v International Marine Management (UK)  QB 137 the following principles:
- where the tenant’s counterclaim for damages for breach of covenant to repair is an equitable set off then normal time limits do not apply where equitable relief is sought as section 36(2) of the Limitation Act 1980 applies.
- The real question is whether the action is at an end. Where, as in the present case the that means that the warrant for possession has not been executed, and thus the claimant has not obtained possession – then the court has a discretion whether or not to permit a counterclaim to be made in the proceedings.
- Delay of itself is not a reason to refuse such permission (Rahman)
The Claimant argued
three possible or potential outcomes to be considered. Firstly, if the tenant’s cross claim for damages for breach of the covenant to repair is, on its proper construction, being raised as an equitable set off then, so far as limitation is concerned, section 36 is engaged. The consequence of that is that there is in effect an unlimited limitation period, save, of course, for the consideration of laches or delay provided for in section 30(2). So far as the procedural aspect is concerned, a set off can only be raised as a defence (see CPR rule 16.6), and thus the defendant would have had to have applied to set aside the judgment and thus invoke the criteria of CPR rule 39.3, either directly or indirectly through the medium of CPR rule 3.1(2)(m): see in this regard the notes at paragraph 39.3.1 of the 2014 edition of ‘Civil Procedure’.
Secondly, if the tenant’s cross claim is a stand-alone cross claim proceeding as a counterclaim then, so far as limitation is concerned, section 35 is engaged, and that would involve a consideration of matters up to six years before the issue of these proceedings, i.e. before 2002 in this case. So far as the procedural aspect is concerned, that would involve the court in the exercise of discretion under CPR rule 20.4. I shall return to that point in a moment.
Thirdly, if the tenant’s cross claim was comprised within entirely separate proceedings then, so far as limitation is concerned, that would involve the consideration of matters which had occurred up to six years before the issue of such proceedings, which would, of course, be six years before 2014.
Further, there was a long an unexplained delay in bringing the counterclaim, this was a factor for consideration in the discretion exercised by the District Judge under CPR 20.4 and the District Judge had not given that factor due weight.
The Claimant also argued that the District Judge had not given due weight to the cost effectiveness of giving permission, arguing that there was insufficient procedural convenience in having this matter proceed as a counterclaim. However, the Circuit Judge considered that this was at best a secondary isue, following on from a decisions as to whether the counterclaim was appropriately formulated.
The Claimant had some problems with its argument on limitation as these had not been raised in the permission hearing. The Circuit Judge declined to consider them on the appeal for that reason, save as background to the Claimant’s attack on the exercise of discretion.
Against these points, the Defendant argued for the flexible approach to social housing matters taken by the courts in cases often dealing with periods of many years (eg the rent arrears schedule in the Claimant’s case), and that the Court had the power to rescind [or indeed discharge] a possession order, so a strict approach to a set aside was not required. Further, the Defendant:
pointed to the artificiality of the situation which obtains here. He submitted that what the tenant is seeking to do is to set off against the claim for unpaid rent (which, of course, founds the claim for possession) her cross claim for damages for breach of the covenant to keep the premises in good repair. In practical terms, it would be difficult, if not impossible, for a tenant in the position of this tenant to do that through the medium of a defence, because such tenant would not be able to satisfy the criteria set out in CPR rule 39.3.
The Circuit Judge found on the grounds of appeal as follows:
Ground 1 is that the district judge erred in permitting the respondent to submit a counterclaim which raised a set off. In subparagraph (2) the appellant states that: “By allowing a set off to be raised, the court has permitted the respondent to defend the original claim some 11 years after judgment was entered.” However, in my judgment, that is what in effect will be the position whether the tenant’s cross claim proceeds by way of a counterclaim in these proceedings or by way of separate proceedings. Either way the tenant will be seeking to set off against the claim for unpaid rent her cross claim for damages for breach of the covenant to repair. To my mind, the second principle identified by Mummery LJ in British Anzani is as relevant to the filing and service of a defence as it is to a counterclaim, when the real question is whether the action is at an end, which question necessarily involves consideration of the matters that are and/or remain in issue between the parties. Perhaps that analysis explains what is behind the reasoning that the provisions of CPR rule 39.3 are not in cases such as this strictly engaged. Instead the court is able to deploy its much wider powers under CPR rule 3.1(2)(m), and indeed generally, in considering an application such as this.
The District Judge had not erred in permitting the counterclaim.
So far as ground 2 is concerned – namely, that the learned judge failed to take any or any proper account of the fact that, by allowing a counterclaim, the appellant was deprived of an approved limitation defence – as I have already indicated, it is accepted that that point was not raised before the district judge and I therefore reject that ground of appeal.
And on ground 3
that the learned judge failed to take any or any adequate account of the delay in bringing the counterclaim – here while it is right that, in paragraph 6 of his short judgment, the district judge held as follows that “Having granted an adjournment, it would be most cost effective to grant the tenant permission to make the counterclaim within these current proceedings rather than issuing a separate set of proceedings”, it is clear from the transcript that, in paragraph 4 of his judgment, the district judge did have regard to the issue of delay. In those circumstances, I do not regard this as a matter to which the district judge failed to have any or any sufficient regard in the exercise of his discretion.
There are some interesting points floating around in this case about the status of a counterclaim in these circumstances. I think it is probably right that it cannot be permitted as a Defence per se, when there has been a possession order made and no set aside is (or can realistically be) sought. However, as an equitable set off against the arrears, it will in practice function as a Defence, at least if there is a full set off, as at that point the possession order could and should be discharged by the Court. I’m not sure that the Circuit Judge’s view that Rahman might well equally apply to the filing and serving of a Defence is right. This will perhaps remain to be tested further.
Equally, it is slightly disappointing that the limitation point wasn’t dealt with in detail. The landlords’ arguments on limitation in this and in other cases I know of, essentially boils down to ‘it’s not fair’. But given that the lack of limitation will only be an issue if there has been sustained breach of the landlord’s repairing covenant, with notice to the landlord, for over 6 years, ‘fairness’ is a bit of a tricky ground to rely on. Arguably, the landlord is not only in breach of the covenant for all that time, but demanded rent and brought possession proceedings despite regardless of its own failings.
I am sure that limitation will crop up again as an issue, given that section 36(2) of the Limitation Act 1980 would apply to any disrepair counterclaim, at least if pleaded solely as an equitable set off. The interplay with Section 35 on a straight counterclaim and the Court’s discretion under CPR 20 will have to await the right case.