04/07/2020

Two thirds of a stay

TFS Stores Ltd v The Designer Retail Outlet Centres (Mansfield) General Partner Ltd & Ors (2020) EWCA Civ 833 (02 July 2020)

Another Court of Appeal challenge to the PD 51Z stay (and, by extension, the CPR 55.29 stay) this time brought to you courtesy of a chain of perfume shops. The question this time was twofold. Was a counterclaim a part 55 possession claim? And did a stay of a possession counterclaim stay an appeal of the original claim?

The appeal concerned six commercial tenancies where the tenants where a chain of perfume shops. There were two original actions. In the first, the tenants, TFS, claimed for a declaration that their leases were 1954 Act protected. The landlords in that action counterclaimed for possession. In the second, the landlords claimed for “a declaration that the tenancies were not protected by the 1954 Act, rather than possession because the terms had not then expired. By the time of the judge’s judgment, however, the terms of three of the four tenancies had expired, and the parties agreed thereafter that there should be orders for possession to give effect to the decision that the judge had made. The landlords’ claim was, however, never formally amended to claim possession.”

The first action was decided against the tenant and possession orders made on the counterclaim. The tenant appealed both decisions. The appeal was dismissed in (2019) EWHC 1363 (Ch). The tenant was granted permission to appeal to the Court of Appeal in November 2019.

A hearing was listed for 24 June 2020, which the tenant applied to have vacated on the basis that the PD 51Z stay applied. Lewison LJ refused the application on the basis that the claim was not a possession claim and the counterclaim was not under Part 55, and the tenant sought a full hearing.

By a 2 to 1 majority, the Court of Appeal held:

First, the first action for declarations as to whether or not the two tenancies were excluded from the protection of the 1954 Act and for an injunction to restrain the landlords from taking possession[1] were not, it seems to me, “proceedings for possession brought under CPR Part 55” or “proceedings seeking to enforce an order for possession” within the meaning of paragraph 2 of PD 51Z.

Secondly, the landlords’ counterclaims in the first action were, equally clearly, “proceedings for possession brought under CPR Part 55” within the meaning of paragraph 2 of PD 51Z. Accordingly, at the very least, the counterclaim in the first action and the appeal from the orders for possession made by the judge in the first action are stayed automatically by PD 51Z. I will return to the more difficult question of what impact this has on the hearing of the appeal from the judge’s decision in the first action as a whole.

Thirdly, the landlords’ claim in the second action, as issued, for declarations that the 4 ongoing tenancies were excluded from the protection of the 1954 Act, is clearly not affected by the automatic stay. The claim, as pleaded, was not a proceeding “for possession brought under CPR Part 55” nor was it a proceeding “seeking to enforce an order for possession” within the meaning of paragraph 2 of PD 51Z.

Again, the more difficult question is as to the effect of what happened to the second action after judgment. By that time, the contractual terms of three of the four affected tenancies had come to an end. The judge at [164] invited “the parties to agree a form of order to give effect to this judgment, or so much of an order as they are able”. The parties have referred us to the detail of the exchanges which then occurred. But, in essence, what happened was that the landlords said that, unless the tenant agreed to possession orders, they would apply to amend the claim form and Particulars of Claim in the second action to claim possession in addition to the declarations they had originally sought. The tenant, therefore, agreed to possession orders being made, seeing that it was otherwise inevitable that such an amendment would be allowed.

This gave rise to two questions. “a) How does the counterclaim in the first action affect the stay of the appeal in the first action, and (b) How does the inclusion, by consent, of the possession orders in the judge’s Order relating to three of the four properties in the second action affect the stay of the appeal in the second action?”

On a), once the counterclaim was initiated, then the whole action, claim and counterclaim became proceedings under Part 55.

CPR Part 55 was engaged. CPR Part 55.2(1) is in mandatory terms. It provides that “the procedure set out in this Section of this Part must be used where the claim includes – (a) a possession claim brought by a – (i) landlord (or former landlord) …”. The CPR Glossary defines a counterclaim as a “claim brought by a defendant in response to the claimant’s claim, which is included in the same proceedings as the claimant’s claim”. This indicates that the entire first action must have become “proceedings for possession brought under CPR Part 55” when the counterclaim was initiated.

In the Chancellor of the High Court’s view, in the lead judgment, this would make natural sense for landlord and tenant cases, as

The tenant started the first action to resolve the legal issue that underlay the question of whether or not it was entitled to remain in possession of the two properties. It was inevitable that the landlords would counterclaim for possession, which was itself the inevitable consequence of their position. This is the case in many types of landlord and tenant dispute. Underlying legal issues need to be resolved, but their determination leads to the conclusion that the landlord either will or will not be entitled to recover possession from the tenant.

On b) the inclusion of possession orders, even if as here, by consent, made the proceedings into proceedings for possession.

I do not see how one can have an order for possession, without there having first been proceedings for possession. As I have already pointed out, CPR Part 55 is mandatorily applicable to possession claims brought by landlords. Accordingly, even though the consensual approach encouraged by the judge employed a short cut that abrogated the need for a formal amendment of the landlords’ claim in the second action, the proceedings on which the judge made his Order must properly be regarded as “proceedings for possession brought under CPR Part 55”.

Therefore, following London Borough of Hackney v. Okoro [2020] EWCA Civ 681 (our note), the appeal was subject to the PD 51Z (and CPR 55.29) stay.

Arnold LJ dissented.

PD 51Z stayed “all proceedings for possession brought under CPR Part 55”. ‘Brought’ focuses on how proceedings were initiated, as per Okoro, so the stay only applied to proceedings initiated as possession claims. PD 51Z only applied to possession claims under Part 55, and there were ‘non-part 55’ cases in which possession orders could be made that were not affected by the stay (Okoro again).

The landlord’s counterclaim did not fall under the procedural requirements of part 55 (first hearing, etc.), and was brought under part 20. Part 55 did not evisage possession claims by way of counterclaim.

Even if the counterclaim was under Part 55, this did not transform the tenant’s claim into Part 55 proceedings. A counterclaim is an ‘additional’ claim.

Comment

There is some technical force in Arnold LJ’s dissent, but the majority held the stay applied. What is interesting (or questionable) is the approach to the position where there is a claim and counterclaim.

The judgment appears to proceed on the basis that claim and counterclaim would be (as here) closely interlinked on the issue of the tenant’s right to occupy the property. This is used in support of the view that a counterclaim for possession would turn the whole proceedings, both claim and counterclaim, into Part 55 proceedings.

However, it is not hard to conceive of common cases where a counterclaim to a claim for possession would not be directly related to the tenant’s right to occupy the property. For example, a section 21 possession claim which is defended on the basis on non-compliance with deposit rules, with a counterclaim for the penalty claim for the non-compliance. Or, as another example, a claim for rent arrears possession defended on the basis of a set off against damages for disrepair, and with the disrepair counterclaim. In each of these examples, the counterclaim could proceed and be determined without any direct engagement with the possession claim and defence to it at all.

In those instances, it would be much harder to see the rationale for staying both claim and counterclaim as somehow all ‘Part 55’, but that is what the Court of Appeal has done.

 

 

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.

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