Nearly Legal: Housing Law News and Comment

Do not put aside the set aside, or delay 6 months to seek relief

Gibbs v Lakeside Developments Ltd (2018) EWCA Civ 2874

Oh dear…

Behind the key point in this case lies a history of unfortunate things. But what fell to be decided by the court of appeal is whether, in a leasehold forfeiture case, the lessee could succeed in a claim for unjust enrichment without setting aside the possession order, on the basis that they could show the possession order would have been liable to be set aside.

The answer is no, and then there are some more complicated points about forfeiture. But to reach that, we need a brief history of events.

Ms G held a 999 year lease of a studio flat in Whitechapel from 1986. Under the lease, she was liable for ground rent, service charges and insurance premium. In 1990 Lakeside became the freeholder.

Also in 1990 Ms G left to live in Hong Kong. She left her parents address with the managing agents for correspondence. Mostly the flat was unoccupied. Ms G returned to the UK in 1999, living first with her parents, then from 2008 in the South West. Up to 2006 rent and insurance premiums were pad. The managing agents sent demands to the parents’ address and to the property. But from 2006, there was only one payment in 2007, then nothing more. Ms G had overlooked them.

Lakeside brought a claim for arrears of some £1400 in September 2009, but the claim was served on the studio flat only. This was not good service as not Ms G’s last known address. Judgment in default was made. No attempt to set aside that money judgment was made subsequently.

In November 2009, Lakeside issued possession proceedings on the basis of the unpaid judgment debt. These were also served on the studio flat only. Again, this was not good service as not last known address. A possession order was made in February 2010, Lakeside took possession of the flat in April 2010 and it was put on the market for sale in June 2011.

This was the point that Ms G became aware. We are told that she became aware of the possession proceedings and order in July 2011.

The appellant first became aware of the possession proceedings and order in July 2011 when she learnt that the property was being offered for sale. She immediately wrote to the solicitors who had acted for the respondent in the possession proceedings and to the estate agents marketing the property. On the respondent’s instructions, the estate agents did not reply and the solicitors replied only to say that they were no longer instructed. The property remained on the market. The appellant instructed solicitors in October 2011. They applied to register a caution against the title of the property but, while the fee cheque was cashed, no notice was entered. On 21 October 2011, the solicitors issued an application for relief against forfeiture and to set aside the possession order. They requested an undertaking from the respondent not to sell an interest in the property but none was offered. No application was made for an interim injunction pending the hearing of the appellant’s application. If an injunction had been applied for and granted, the appellant would of course have been required to give an undertaking in damages to make good any losses suffered by the respondent if the application for relief against forfeiture failed.

(Pausing here for a moment, waiting 3 or 4 months to instruct solicitors is not ideal in such circumstances. But the really puzzling bit is why there was not an injunction application to prevent the sale. In the absence of an undertaking, this would be vital. There may well be circumstances not set out in this judgment that would explain that decision or failure, but it is, on the face of it, odd. It is odder still in that bad service of the possession proceedings would be an even stronger basis than that in Forcelux v Binnie (2009) EWCA 854 for setting aside the possession order.)

While Ms G’s application was underway, in December 2011 Lakeside sold a new lease of the flat to a third party with no knowledge of Ms G’s claim.

In January 2012, Ms Gs application was adjourned in the light of the new lease, and Ms G amended her application notice “to make the claim one of unjust enrichment and to add a claim for damages for conversion of (the appellant’s) possessions in the Property”.

When the matter eventually came to trial, a key question was whether in this and the subsequent conduct of the case Ms G had abandoned the claim for relief from forfeiture and for set aside of the possession order. At first instance, and on first appeal to a circuit judge, it was held that these claims for relief and set aside had indeed been abandoned.

At first instance and on first appeal, the decision on the claim for unjust enrichment and conversion failed, on the basis that there can be “no claim in unjust enrichment for money paid or property transferred or extinguished pursuant to an order of the court without first setting aside the order”.

This was the sole issue on the second appeal.

The Court of Appeal held (per David Richards LJ):

1. A court order is valid and enforceable until it is set aside, Blakey v Solicitors Regulation Authority (2014) EWHC 2168 (Admin).

2. Ms G was wrong to argue that the subsequent sale and third party rights meant that the possession order could not be set aside.

the order could be set aside on terms that did not call into question the new lessee’s title, but confined the consequences of setting aside the order to a financial remedy against the respondent, by reference to the premium received by the respondent on the grant of the new lease, less sums properly due to the respondent.

3. The judges below were correct on the unjust enrichment claim. That could not succeed unless the possession order was set aside.

4. (In the judgment of Lewison LJ) on an issue not dealt with in detail in the judgments below.

As the flat was vacant and had not been occupied since 2003, nobody was ‘lawfully residing there’ in the meaning of section 2 Protection from Eviction Act 1977 (no enforcement of forfeiture other than by court order).

The usual rule is that where legal proceedings are elected, forfeiture takes place on the service of proceedings. However, here the proceedings had not been served (the ‘bad service’ point, above). The proceedings and the possession order did not effect forfeiture.

Forfeiture took place with the physical re-entry into the flat by the freeholder on 28 April 2010. (The original money judgment had never been set aside so was court or tribunal determination of breach of lease. But in any event the possession order included a money judgment on the arrears.)

An application for relief from forfeiture must be made within 6 months “from the date on which the lessor recovers possession”, s.138(9A) Access to Justice Act 1985 (as amended). The county court would have no power to grant relief outside of that 6 month period.

Since the county court is a court created by statute, it can in principle do only what the statute permits it to do. Moreover, where Parliament has imposed a particular time limit on an application for relief against forfeiture, that implicitly ousts any broader jurisdiction that the court may have:

The High Court retained the old powers of equitable relief, but must have ‘due regard’ to the statutory time limits – the 6 months. Lewison LJ goes on to doubt whether Pineport Ltd v Grangeglen Ltd (2016) EWHC 1318 (Ch), (2016) L & TR 28, where an application for relief some 14 months after re-entry was granted, was correctly decided on the issue of delay.

Ms G’s application for relief from forfeiture was out of time in the county court and the court would have had no power to grant relief.

Appeal dismissed.

Comment

Where does this leave us, and indeed Ms G?

Clearly a lot turns on the specific facts of the case, in particular the conduct of the application/claim at first instance that led the court to decide that Ms G had abandoned the claim for set aside/relief. but there are broader points and questions.

Do not abandon an application for set aside of a possession order because the property has been leased to a third party. (At least,  definitely do not do so where the property has or had a resident – so that a possession order is required under s.2 PEA 1977)

However, given Lewison LJ’s judgment that forfeiture in this case (no resident and bad service) did not take place with the service of the possession claim, but with the physical re-entry, I presume that in this case, Ms G would have had to apply for both the original money judgment (bad service) and the possession order insofar as it contained a money judgment (bad service again) in order to bring the claim for unjust enrichment. The forfeiture by re-entry was otherwise lawful on the basis of the money judgments on arrears. But then she was out of time to bring an application for relief.

Would that application for relief have been necessary for the unjust enrichment claim in the same way that setting aside a possession order would be if the property had a resident (or by election if the service had been good)? The court of appeal helpfully don’t tell us clearly, but it appears that Ms G’s claim for unjust enrichment was thereby doomed from the start – see para 22. Or it may be that setting aside both orders would make the forfeiture by re-entry void retrospectively?

The overall lesson can only be ‘don’t get into this situation’, but that is not to ignore some serious issues raised by this case about residential leasehold.

I’ve previously said that outright forfeiture of residential leases is rare, and it indeed it is, but my follow up comment that it takes grim determination to lose a lease needs qualifying in this instance.

Obviously Ms G should not have, well, forgotten to pay the rent and insurance premium for a few years. But Lakeside were simply wrong to serve the money claim and then possession proceedings on the flat when that was not Ms G’s last known address.  In those circumstances, it would normally have been relatively easy to get those judgments set aside.

However, given that service error, it is not wholly surprising that Ms G remained unaware of the claims and orders until she became aware of the attempts to sell. On Lewison LJ’s analysis, that was already too late for her to apply for relief from forfeiture, on the statutory time limit – though setting aside both judgments would, I think, undo the lawfulness of the forfeiture by re-entry.

There is the frankly mystifying failure to apply for an injunction to prevent the sale by Ms G, or by her then legal advisors. It also appears that the conduct of the application/claim was, in the words of the court of appeal, ‘convoluted’.

But there is also what is evidently quite determinedly unprincipled, albeit lawful, conduct by Lakeside who appear to have realised early on that forfeiture for a small debt and a substantial windfall re-sale may well be likely and to have handled the matter with a view to that – instructing their agents and solicitors not to respond to Ms G, not giving an undertaking not to sell and so on. This is hardly attractive behaviour, indeed it is exactly the kind of conduct that is driving calls for reform of the leasehold sector.

 

 

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