This is not really a housing case, being a commercial lease dispute, but there are a couple of points about relief from sanction and rent payments that are worthy of noting.

Michael v Lillitos (2019) EWHC 2716 (QB)

An appeal from a County Court decision on an application from relief from sanction.

Ms L was Mr M’s landlord on a lease of two floors of business premises. Mr M ran an accountancy business.

Ms L had brought a claim in February 2017 for rent arrears of £36,000 and business rates of £15,782.24 which she held Mr M somehow responsible for.

Mr M defended on the basis that in 2008 a ceiling on the second floor collapsed and this was returned to Ms L, reducing the rent to £300 per month. This was further reduced by accountancy services provided by Mr M to Ms L. Mr M also counterclaimed for disrepair to the property and damages and expenses caused.

In August 2017, Mr M brought a claim for a new lease.

These claims were joined in an order of 12 September 2017, which also made provision that

UPON the Defendant agreeing to pay £300 per calendar month to the Claimant in mesne profits in respect of the first floor of the subject property, with neither party admitting as to liability for the same and without prejudice to the parties’ contentions regarding the monies payable under the terms of occupation of the subject property; such payment of £300 per calendar month shall be made by bank transfer.”

(No date monthly date for payment was set)

Mr M made a payment by cheque of £600 for September and October on 1 November 2017, then a further £300 on 21 November, for November 2017. Then nothing on 1 December or 1 January 2018. Ms L made an application for an unless order, both on the failure to pay and on the late previous payment, by cheque not bank transfer.

By hearing on 28 February 2018, the February payment was missing as well. Mr M stated that he had sent a cheque for £900 to Ms L the day before. The court ordered:

“Unless the Defendant (i) pays to the Claimant by bank transfer the sum of £1,200 by 4pm on 1 March 2018 and (ii) thereafter pays to the Claimant by bank transfer the sum of £300 by 4pm on the first day of each month, the Defence and Counterclaim shall be struck out and judgment entered for the Claimant.”

Mr M duly paid the £1,200. Soon after, the cheque for £900 turned up with Ms L (postmarked 1 March).

No payment for £300 was made on 1 April 2018. Ms L’s solicitors wrote to the court on 4 April stating that the defence and counterclaim had been automatically struck out and with a request for judgment. The letter did not mention the cheque for £900 that by this point, Ms L’s solicitors were holding. (Their statement at the present hearing was that they had simply forgotten about it, but they remembered on 20 April because they returned it to Mr M, albeit without mentioning the request for judgment that had been made.)

Judgment for Ms L for sums claimed and costs was entered on 18 May and order drawn on 8 June.

A few days after receiving the order, Mr M made a bank transfer of of £1200 for April, May, June and (prospectively) July and set up a standing order for subsequent months. Mr M applied for relief from sanction.

At first instance, the county court refused the relief application, on the basis that the breach was serious and that in all the circumstances, relief was not merited.

On appeal, Mr M argued that the breach was not significant, and that the Recorder had failed to adequately consider all the circumstances of the case – the Denton criteria (there being no issue over the application being brought in a reasonable time).

On the appeal, the High Court held that the breach was significant:

First, it is clear that there was an issue at the hearing on 28 February as to whether the Appellant had in fact sent a cheque to the Respondent the day before. Secondly, the Respondent’s application for an unless order emphasised that the payments in respect of September and October 2017 were not made “as agreed by bank transfer” and that the Appellant “failed to pay the instalment due on 1st November 2017 by direct transfer but eventually paid direct to the Claimant by cheque”. Thirdly, the fact that the draft order did not include reference to the requirement to pay by bank transfer does not assist the Appellant. On the contrary, it supports the inference that on 28 February the deputy district judge considered the method of payment sufficiently important to amend the terms of the draft order.

And

It is, of course, correct that not every breach of an unless order is serious or significant. However, the Judge did not determine that the breach was significant simply because it was a breach of an unless order; he addressed the significance and duration of the breach.

And

The Appellant did not make payments by bank transfer on 1 April, 1 May or 1 June 2018. He failed to do so in circumstances where an unless order had been imposed on 28 February 2018. The Appellant had written “Dec 2017 Jan 2018 Feb 2018” on the back of the cheque, indicating those were the months to which he intended his cheque to be attributed. The Appellant did not ask for his cheque to be attributed to April, May and June 2018 or make the bank transfers when the cheque was returned by the Respondent’s solicitors on 20 April 2018. In the circumstances, I consider that the Judge made no error in concluding that the breach was significant.

But, while the breach was significant, the appeal succeeded on the issue of whether, in all the circumstances of the case, relief should have been allowed.

First, although the breach was significant, in the circumstances, it was near the bottom of the range of seriousness:

i) The breach did not prevent the litigation being conducted efficiently and at proportionate cost. It did not in any way disrupt the conduct of the proceedings. This is one of the two factors which is of particular importance and which should be given particular weight at the third stage when all the circumstances of the case are considered. It was less serious than the non-payment of court fees. It pointed in favour of the grant of relief. See Denton at [32] and [64].
ii) Although this was a breach of an unless order, there was no underlying breach of a rule or court order. This was not, therefore, a case of successive breaches of court rules or court orders. This is a significant factor when assessing whether the importance of compliance with the court order was such as to justify preventing the Appellant defending the claim or pursuing his counterclaim.

iii) When the application for judgment was made on 4 April 2018, although the Appellant had not made the requisite payment by bank transfer, he had made a payment for three months’ rent by a cheque which had already by then been held by the Respondent/Respondent’s solicitors for a month without any indication being given that the Respondent intended to return it.

iv) Although it was reasonable for the Judge to consider that the onus was on the Appellant to ask for the cheque to be accepted as payment in lieu of a bank transfer, as the Court of Appeal emphasised in Denton, there is an onus on both parties to work cooperatively with each other. If the Respondent’s solicitors had not forgotten that they held a cheque for three months’ rent (a fact of which Recorder Cohen was not made aware), it seems likely that an application for judgment would not have been made and, in any event, it could not properly have been made without drawing the court’s attention to the fact that the cheque was held.

Secondly, the severity of the effect on the Defendant/Appellant was severe, given the issues to be decided.

Thirdly, the impact on the Respondent/claimant was limited. The funds had been paid, and

It can also fairly be said that the Respondent chose, deliberately, to return the cheque on 20 April without making any reference in that letter or subsequently to the fact that the rent had not been paid. This was consistent with the Respondent’s solicitors’ decision not to copy the Appellant’s solicitors into correspondence with the court or otherwise inform them that they had sought judgment, so as to avoid (as Mr Restall put it) “tipping off” the Appellant, which would have been likely to have resulted in the breach being remedied earlier.

Fourthly, the claimant’s reply to amended defence and counterclaim admitted (without accepting any amount) that the defendant was entitled to set off accountancy fees, so, even on the basis of the claimant’s pleadings, refusing relief would result in a windfall to the claimant.

Relief from sanction granted.

Comment

There is a broader point here about breach of payments conditions. While they may be significant, in the broader circumstances of the case, should relief be allowed?

It is obviously key that any breach has been remedied (or at least will be realistically remedied), but a default in payment per se on an unless order may not be serious enough, when set against the issues in the case, to justify refusing relief.

That said – the original order should be a sever lecture to the client moment. And an accountant who misses payment deadlines…