Articles

When does the ‘elasticity of reasonable promptitude’ snap?

22nd February 2019

The phrase ‘elasticity of reasonable promptitude’ was used by the Court of Appeal in Gibbs v Lakeside Developments Ltd [2018] EWCA Civ 2874 about applications for relief against forfeiture after the statutory time period has elapsed. What does it mean exactly?

This case is important for three reasons: (i) it says there are no exceptions to the rule that, for a claimant to be able to sue for unjust enrichment for money paid or property transferred or extinguished pursuant to an order of the court, the claimant must first set aside the order; (ii) the Court of Appeal has confirmed that a default judgment satisfies the requirements of section 81 of the Housing Act 1996; and (iii) it gives guidance on how long a tenant can delay between forfeiture and claiming relief.

However, it will also be seen by many as a regrettable and unnecessary restriction on the rights of tenants of long leases to seek relief against forfeiture.

The facts

Ms Gibbs (the tenant) held a 999-year lease of a flat. In 1990 she went to work abroad but returned in 1999. She gave her parents’ address as a correspondence address to the landlord’s managing agent. She paid the sums demanded by the landlord between 1990 and 2006 but stopped thereafter. In 2009 the landlord issued a claim for arrears of rent and insurance premiums and served it at the flat. This was not good service because it was not the tenant’s last known address. Nevertheless, the landlord secured judgment in default and issued possession proceedings, which were again incorrectly served at the flat. The landlord obtained a possession order on 24 February 2010 and re-entered the premises on 28 April 2010. The flat was marketed for sale from June 2011.

The tenant found out about the foregoing in or around July 2011, when she discovered the flat was being marketed for sale. She wrote to the solicitors for the landlord and the agents who were marketing it for sale. The solicitors replied saying they were not instructed; and the agents ignored the correspondence on instructions. The tenant instructed solicitors in October 2011, who applied to HM Land Registry to enter a caution against the title. Although the fee was cashed, no notice was ever registered. On 21 October 2011, the tenant’s solicitors applied for relief against forfeiture and to set aside the possession order. No application for an injunction was ever issued to prevent the sale. On 15 December 2011, the landlord granted a new long lease of the property to a third party, who had no notice of the dispute with the tenant. The application for relief was adjourned on 6 January 2012 in light of the sale and the tenant amended her claim to add a claim for unjust enrichment against the landlord. The trial judge (DJ Parfitt, as he then was) found the tenant had effectively abandoned the application for relief against forfeiture and to set aside the possession order at the date of the trial, which was upheld on the first appeal (HHJ Walden-Smith).

Unjust enrichment

The substantive point on appeal was whether a possession order must be set aside for an unjust enrichment claim to succeed. The Court of Appeal upheld the decision of the trial judge and the judge on the first appeal 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. There are no exceptions to this rule.

However, as the court pointed out, albeit obiter, at [22], setting aside the possession order would not have reversed the forfeiture because the landlord had physically re-entered the flat and she needed to apply for relief against forfeiture. Due to the ineffective service of proceedings, the act of forfeiture was instead the physical re-entry, which was lawful because no one was residing at the flat, so section 2 of the Protection from Eviction Act 1977 did not apply. To make the landlord’s enrichment potentially “unjust”, the tenant would need to first obtain relief against forfeiture, not merely set aside the flawed possession order.

Default judgments

Section 81 of the Housing Act 1996 places a statutory bar on a landlord forfeiting a long lease of a dwelling for arrears of service charges until either: (i) it has been determined by the First-tier Tribunal, the court or an arbitral tribunal that the sums are due; or (ii) the tenant has admitted they are payable.  There has been much litigation on whether a default judgment is a determination of the court. In Church Commissioners for England v Koyale Enterprises[2012] 2 EGLR 42, the county court decided a default judgment was a determination for the purposes of section 81. However, it does not appear that the point has ever been considered by the High Court or the Court of Appeal.

At [34] of Gibbs, having set out what section 81 says, Lewison LJ stated, again obiter, that a default judgment was a determination by a court, without any discussion on the point or by reference to Koyale. Notwithstanding the succinct way the point is decided, it appears the Court of Appeal has almost settled the question about whether a default judgment is a determination for the purposes of section 81, in the affirmative.

Time for applying for relief 

Statute regulates the time limits placed on tenants when they seek relief against forfeiture. However, the High Court has an inherent jurisdiction in equity to grant relief beyond those strict time limits. The conclusion reached in Gibbs is that, while the court has an equitable jurisdiction to grant relief beyond the time limits set by statute, it is not “without limit of time”, as suggested in Billson v Residential Apartments Ltd[1991] 1 EGLR 70 (the references in Gibbsare to the Court of Appeal decision in Billsonbecause the House of Lords decision does not deal with this point). As Nicholls LJ said in Billson, “equity follows the law, but not slavishly and not always”. He also added that the “concurrent equitable jurisdiction can only be invoked by those who apply with reasonable promptitude. What is reasonable will depend on all the circumstances, having regard to the statutory time limits”. Lewison LJ says the width of the equitable jurisdiction to grant relief is narrow. He then cast doubt on whether Pineport Ltd v Grangeglen Ltd[2016] EWHC 1318 (Ch); [2016] PLSCS 172 was properly decided.

In Pineport, the High Court granted relief to the tenant 14 months after the forfeiture. It was decided on its unusual combination of facts that, in the judgment of the Chief Master, warranted the exercise of the court’s equitable jurisdiction to grant relief. In Gibbs, the court decided that the elasticity of reasonable promptitude had snapped after the 18-month delay in applying for relief.

In future, it seems tenants who do not apply for relief against forfeiture within six months face an almost insurmountable task to persuade the court it ought to grant relief. This will be seen by many as a regrettable and retrograde step by the Court of Appeal in restricting access to the equitable relief available to the owner of a lease with a term of 999 years.  It does seem to be contrary to the prevailing mood on leasehold reform, especially where the Government are consulting on strengthening the rights of tenants with long leases.  There is no doubt this decision and the disapproving obiter comments on Pineport will increase the demand for reform of the law of forfeiture of long leases.

Michael Walsh is a barrister at Tanfield Chambers

This is based on an article originally published in the Estates Gazette.

 

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