9911796707
TMI Blog1969 (2) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... f the other part. The demised premises are described as being "at present in the occupation of the lessees and of their associated companies." The associated companies there referred to included a company called Star Metal Stamping Co. Ltd. and another called Jet-Lube Ltd. Those companies and the lessee company had a common director in John Leonard Burden. The lease was for a term of 21 years from May 27, 1960, at an annual rent of 16,000 payable quarterly in advance on the usual quarter days. It contained ( inter alia ) a covenant for payment of rent, full repairing covenants, and in clause 2 (10), the following covenant by the company : "At the expiration or sooner determination of the said term quietly to yield up unto the landlord the demised premises together with all additions and improvements made thereto in the meantime ( a ) in such state and condition as shall in all respects be consistent with a full and due performance by the tenant of the covenants on its part herein contained and all fixtures (other than trade or tenant's fixtures affixed by the tenant) in or upon the demised premises or which during the said term may have been affixed or fastened to or upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisional liquidator and became liquidator. On November 19, 1962, the applicants accepted an informal surrender of the lease from the official receiver and their claims in this case involve a consideration of events between the presentation of the petition and that surrender. Claim I is for payment in full, as part of the expenses of the liquidation, of two sums of 666 13s. 4d. and 499 17s. 6d. respectively which represent a part, as yet unpaid, of the quarter's rent payable in advance on Lady Day, 1962, that is to say, after the presentation of the petition but before the winding-up order. It is common ground that these sums, if not payable in full, are provable. Claim II is for payment in full, as part of the expenses of the liquidation, of the sum of 6,531 7s. 5d., being the aggregate of ( i ) 4,000 for the quarter's rent payable in advance on Midsummer Day (that is to say, after the winding-up order) and as yet unpaid, and ( ii ) 2,531 7s. 5d., being the proportion from Michaelmas to the date of surrender of the quarter's rent payable in advance at Michaelmas and as yet unpaid, I need only notice in passing that there was at one time an alternative claim that the M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1948, and it is well settled that the principles relating to distress for rent apply equally to a claim for payment of rent in full. Two points emerge from the passage which I have just read which should be noticed : first, the onus of establishing a claim to payment in full is on the applicants, and, secondly, that the matter is one for the discretion of the court. In Buckley on the Companies Acts, 13th ed. [1957], p. 483 and the following pages, appear the following statements of principle : "If distress for rent is not levied before winding up, the discretion of the court is exercised upon these principles : that for rent accrued due before winding up which is provable, distress will not be allowed, but that rent accrued due after winding up in respect of premises retained for the convenience of the winding up will be treated as an obligation incurred for the benefit of the estate, payable therefore in full, and that distress or payment in full out of the assets will be allowed. But further as to rent due before winding up, if the lessor has a right of re-entry and seeks to exercise it, he may obtain payment in full, for if the company resist re-entry it can retain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of finding his own remedy by re-entry (the former of which was supposed to be countenanced by In re Progress Assurance Co., Ex parte Liverpool Exchange Co. [1870] LR 9 Eq. 370 and the latter by dicta in In re Lundy Granite Co., Ex parte Heavan's case ( supra ), but whether the company has in fact wished to retain possession for its own benefit, whether by present working or by disposing of the property to better advantage as a going concern." Then, on page 487 : "If the lessor has a right to re-enter for non-payment of rent, or by reason of the winding up, and his application is for leave to distrain (or, which is the same thing, for payment of the rent in full), or for leave to re-enter, then the company can only resist the legal right of re-entry by complying with the legal obligation of paying in full the whole rent, whether accrued due before or after the winding up. If the lease is at or above the rack rent and the lessor is not prepared to re-enter, he cannot get this advantage." Finally, at page 488 : "Expenses incurred in winding up are payable, not provable ; it is upon that principle that the above cases were decided. The creditors are to be paid pari pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J. went on, at page 329 : " There are numerous decisions in the books relating to this subject, and to which it may be useful shortly to advert. They may be grouped into two classes, the first relating to rent in arrear at the commencement of the winding up, the second relating to rent accruing subsequently to that date." Then Lindley L.J. first of all went into the question of rent in arrear at the commencement of the winding up, and he went on, at page 330 : "Secondly as to rent accruing after the commencement of the winding up. 1. If the liquidator has retained possession for the purposes of the winding up, or if he has used the property for carrying on the company's business, or has kept the property in order to sell it or to do the best he can with it, the landlord will be allowed to distrain for rent which has become due since the winding up : In re Lundy Granite Co. ( supra ), In re North Yorkshire Iron Co. [1878] 7 Ch. D. 661, In re Silkstone and Dodworth Coal and Iron Co. [1881] 17 Ch. D. 158, In re South Kensington Co-operative Stores [1881] 17 Ch. D. 161, and see In re Brown, Bayley Dixon [1881] 18 Ch. D. 649 per Fry J. 2. But if he has kept possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull. We cannot regard the rent ordered to be paid as a debt, or cost charge or expense, incurred by the liquidator in the course or for the purpose of the winding up, consequently the order appealed from ought to be discharged and the summons to be dismissed with costs." The second case to which I propose to refer is In re Lancashire Cotton Spinning Co. [1885] 35 Ch. D. 656. The headnote reads : "A limited company mortgaged certain cotton mills, machinery, and fixtures for 22,000. The mortgage deed contained a clause by which the company attorned tenants to the mortgagees at an annual rent of 1,595. The company was ordered to be wound up, and the official liquidator remained in possession of the mills for more than a year in order that he might, if possible, sell them as a going concern. He paid the expenses of keeping the premises and the machinery in repair, but did not actually work the mills. The mortgagees acquiesced in this arrangement, believing it to be the best for all parties. The mortgagees then applied for leave to distrain for a year's rent accrued since the winding up order : "Held (affirming the decision of North J.), that as it appeared from the eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtgagee. I in no way differ from him, and I think probably he was right in coming to that conclusion. It is very true that the liquidator delayed selling in order to get a better price and in the hope that he would get something after paying the mortgagees. That looks as if the delay in selling was for the benefit, not of the mortgagees in any way coming here as landlords, but for the benefit of the company. But we must remember what the position of the mortgagees was. They were executors and were very largely interested in this company, one of them in his own right and all of them in respect of shares which had belonged to the testator. They were anxious to get up a new company, and one of the objects of postponing the sale was to do what was necessary in order to start a new company in which one of the executors was to take a very large share. So that the mortgagees delayed to exercise their power of sale as mortgagees in order to enable that to take place which was for the benefit not only of the company but of themselves who were interested in the company. I do not think the judge was wrong in the conclusion which he arrived at, and it cannot in my opinion be considered as in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agees as in the interests of the company. I think the decision of North J. was right, and that the appeal must be dismissed with costs. " Then Bowen L.J. said, at page 666 : "I do not see how in reason there can be any except two principles upon which such leave can be granted to escape from the fetter imposed by statute. It seems to me the first inquiry must be whether anything has happened since the winding up which renders it inequitable that the company in possession should be allowed to shelter itself against distress by virtue of the statute; or, if that inquiry results in a negative answer, and there is nothing to shew it is inequitable that the company should be sheltered by section 163, the next inquiry must be, has anything happened which renders the rent in respect of distress properly chargeable among the costs, charges, and expenses of the winding up ? If so, the rent ought to be paid, and it may well be that the court ought to allow the landlord to distrain as one of the natural means of obtaining his rent. "In applying those two principles the courts have dealt in many instances, which it is not necessary to review, with the case where the occupation was retain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rent accrued due before the commencement of the winding up. As to subsequent rent, the late Master of the Rolls [Lord Romilly M.R.], in the Progress Assurance Co. ( supra ) refused leave to distrain, considering that upon the evidence the company had, after the winding up, retained possession for the benefit of all parties. In In re Lundy Granite Co. ( supra ) James L.J. says : But in some cases between the landlord and the company, if the company for its own purposes and with a view to the realization of the property to better advantage, remains in possession of the estate, which the lessor is therefore not able to obtain possession of, common sense and ordinary justice require the court to see that the landlord receives the full value of the property. He must have the same rights as any other creditor, and if the company choose to keep the estates for their own purposes, they ought to pay the full value to the landlord, as they ought to pay any other person for anything else, and the court ought to take care that he receives it.' Mellish L. J. says,' I agree. If the official liquidator, for the convenience of the winding up, does not surrender the lease, but continues to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od of 12 months be paid by three equal monthly payments on the tenth day of each month following the date on which the quarter's rent became due, without prejudice, however, to the provisions of the lease. The sum of 1,979 10s. ld. and the first of the two instalments of 666 13s. 4d. were paid in due course. But the second instalment which became payable on June 16 was not paid and now forms part of Claim I. The 499 17s. 6d., which also forms part of Claim I, is the sum of that amount allowed as a deduction for Schedule A tax. The company in fact paid that sum to the Revenue on May 25, 1962, but in August it was repaid by the Revenue to the official receiver, the payment by the company having been rendered void by section 227 of the Act as a result of the winding up order. In 1966 the applicants themselves paid the sum in question to the Revenue. I come now to consider the circumstances in which the official receiver retained the company's lease from the date of the winding up order to the time of its surrender, a period of about five and a half months. The applicants say that it was retained for the convenience of the winding up ; that the object was to obtain a better pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the official receiver closed down the business and instructed a local firm of auctioneers and valuers, John Layton Son (whom I will call "Laytons ") to make an inventory and valuation of the company's effects on the premises and to secure their protection. He had a search made of the company's records for the lease but it could not be found and accordingly on June 22 he wrote to the applicants' solicitors, Messrs. Markbys, asking for full details of its terms so that he could consider the position. On June 25 Markbys sent him a copy. A day or two later the official receiver had a letter from a company, F.H. Lloyd Co. Ltd. (whom I will call "Lloyds") for whom the company had acted as sub-contractors, saying that they might be interested in acquiring the lease of the property and asking for full particulars. On June 28 the official receiver replied sending Lloyds certain particulars of the lease, and on the same day he sent Laytons a copy of the lease for valuation. Lloyds then wrote to the official receiver asking for the name of the lessor and the official receiver replied saying that the landlords were the trustees of the late G.S. Ferdinando and that their solicitors were Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eave to sell the company's assets and asking their immediate advice as to the best mode of sale, i.e., by tender, private treaty or auction. And on the same day he wrote to Lloyds, who had made an offer for certain jigs and fixtures and were negotiating with Laytons for the whole of the company's plant, reporting that he had been given leave to sell and that he had asked Laytons to advise on the manner of sale. He added that Markbys were taking their client's instructions but that they had intimated that their clients would consider with some favour the granting of a new lease with the right to sublet. The official receiver concluded by saying that if Lloyds were still interested would they communicate direct with Markbys. On the same day, July 27, Laytons wrote to the official receiver in reply to his letter of June 28 expressing the opinion that there was no equity in the lease which could be realised for the benefit of creditors. On the following day, July 28, Laytons wrote to the official receiver in reply to his letter which had asked the best way of selling the company's assets, and I quote : "As you are aware, we would prefer to deal with the assets of the company on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een advised that purchasers of the company's effects were unlikely to be interested in the lease and asking for confirmation that they would be prepared to deal with the matter by the grant of a new lease on more favourable terms, if any would-be purchaser indicated interest in purchasing the unit as a whole. Meanwhile on July 30 Lloyds had approached Markbys by telephone. An internal memorandum of Markbys states that Lloyds said that they were interested in the Paget Works lease at the right price, but that they did not want a repairing covenant and would like to discuss the matter. They were apparently told that Markbys would communicate with them as to their client's instructions. Early in August Laytons' letter of July 28 was discussed by the official receiver with Mr. Marsh, who on August 9 wrote to the official receiver as follows : "Further to our Mr. Marsh's telephone conversation with Mr. Turn-bull of yesterday afternoon, we would advise that in the event of it not being possible to come to terms with the present landlords in respect of modification of the existing lease, or alternatively for a new lease to be granted on more reasonable terms, then we would suggest adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here seems little doubt that it will be difficult to find a purchaser for the lease on its present terms. There may be offers forthcoming to purchase at least the coupling side of the business of 'A.B.C' as a complete unit and the amount of these offers will obviously depend on whether the unit can be operated from its present-site or will require moving elsewhere. "I would inform you that my local agents John, Layton Son, 27, Darlington Street, Wolverhampton, have been instructed to make arrangements to sell the company's effects as soon as possible. I understand that they will invite tenders first and follow with auction or private treaty as most advantageous. No doubt any prospective purchaser of the unit as a whole or even part will communicate with you or your clients regarding terms for future occupation of the site." A fortnight later Lloyds made an offer of 50,000 for the company's machinery and plant, jigs, tools, patterns and dies, drawings, name, goodwill and patents. On September 28 the official receiver was given leave to accept this offer and in due course did so. The suggestion that Lloyds might arrange terms to enable them to occupy the premises in the end ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, 1948, provided that provision for payment in full of the interim rent is made, and for such rights of proof as are given by sub-section (7) thereof. Nevertheless, it is thought that you should come to a decision as to whether or not you intend to disclaim. Accordingly you will find enclosed herewith a notice pursuant to sub-section (4) of section 323 requiring you to elect. An alternative possibility, we would respectfully suggest, would be for you to surrender the lease under section 245 (1) ( f ) of the Companies Act, 1948, on terms which take into account our clients' rights in respect of past and future rent." On September 27 the official receiver replied to Markby's last letter, pointing out the mistake to which I have referred, disputing an assertion that he had been in beneficial occupation and making certain observations about a surrender which I will mention in discussing Claim IV. On October 12 the official receiver ceased to be provisional liquidator and became liquidator. The following day the notice under section 323 expired and the official receiver had done nothing about it since his view was that as he was only provisional liquidator the notice wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the lease was valueless and would therefore be given up, the negotiation of new terms of occupancy with a purchaser of the plant and machinery as a unit was beneficial to the applicants because they could expect to obtain better terms from him than from an outsider, and the retention of the lease with a view to such negotiation therefore provided a benefit for the applicants. In fact, of course, Lloyds did not take a new lease; the applicants were never asked to grant a new lease, and the benefit, if any, must lie in the possibility that Lloyds or another purchaser might have been successful in negotiating one. The third reason was this : that the retention of the lease to enable the company's effects to be sold for the greatest advantage of creditors was for the benefit of the applicants because they were themselves substantial creditors. The short answer to this point is, I think, that it is by no means certain, even now, that creditors in the liquidation are not going to be paid in full. But even if the company proves to be insolvent, it cannot be the law that a landlord is prevented from recovering rent in full by the mere fact that he is a creditor, for if it were, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 31,000 odd, but both sides have agreed that I should not be concerned with any question of quantum and for that reason it would not, in my view, be right for me to express any opinion about the measure of damages, although the question was touched on in argument. It is common ground that the applicants' claim under this head is provable in the winding up, but the point was raised by Mr. Wheeler, though not pressed, that on one view of the construction of section 323 (4) of the Companies Act, 1948, and in the light of the notice under that section served on September 14, 1962, these damages would be payable in full. Section 323 (4) is as follows : "The liquidator shall not be entitled to disclaim any property under this section in any case where an application in writing has been made to him by any persons interested in the property requiring him to decide whether he will or will not disclaim and the liquidator has not, within a period of 28 days after the receipt of the application, or such further period as may be allowed by the court, given notice to the applicant that he intends to apply to the court for leave to disclaim, and, in the case of a contract, if the liquidato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is alleged that on November 19, when the surrender took place, a quantity of plant, machinery and effects belonging to Mr. Burden, Jet-Lube and Star Metal were left on the property and that it took the applicants a considerable time after November 19 to get full vacant possession. The official receiver has conceded that if the applicants have any claim under clause 2(10) ( b ) in law, it is provable, but it is submitted on his behalf that the surrender automatically put an end to any liability under that clause. The point made is that though the surrender in terms preserved the liability of the company for antecedent breaches of covenant, for example, for rent then due or dilapidations then accrued, it did not preserve, but destroyed, any liability which arose only on or after the determination of the lease. The facts relating to the surrender are these : Markbys in their letter of September 14 enclosing the notice under section 323 of the Companies Act, 1948, and the notice under section 146 of the Law of Property Act, 1925, suggested the possibility of the official receiver surrendering the lease. In his reply of September 27 the official receiver said that he was still on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntecedent breaches of covenant. In regard to these there is no dispute. Indeed, it seems that even without express mention such liability would have been preserved under the general law : see Attorney-General v. Cox. [1850] 3 HL Cas 240. Mr. Arnold cited Southwell v. Scotter [1880] 49 LJQB 356, in support of his submission, but that case related to rent accruing after the date of the surrender and decided no more than that a surrender puts an end to liability for subsequent breaches of covenant. It does not, in my opinion, cover a case, like the present, where the lessee's liability arises neither before, nor after, but "at" the expiration or sooner determination of the term. However, on the arguments presented to me I should have been of opinion that clause 2(10)( b ) did not survive the surrender of the lease on the ground that any breach of this covenant could not be regarded as a breach antecedent to the surrender. In fact, however, there is authority which appears to be precisely in point and to conclude the matter in the sense I have indicated. It is Ex parte Sir W. Hart Dyke, In re Morrish [1882] 22 Ch. D. 410 . Although that case was concerned with a di ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
