Section 168 determinations, waiver and shared ownership

The case
On 12 October 2021 the Upper Tribunal (Lands Chamber), in Bedford v Paragon ASRA Housing Limited [2021] UKUT 266 (LC), rejected an appeal against the refusal of the First-tier Tribunal to strike out as an abuse of process the Housing Association’s application for a section 168 determination that the tenant of a shared ownership lease had breached a covenant therein prohibiting sub-letting.

Remember that by section 168(1), Commonhold and Leasehold Reform Act 2002,

“(1)A landlord under a long lease of a dwelling may not serve a notice under section 146(1) of the Law of Property Act 1925 (c. 20) (restriction on forfeiture) in respect of a breach by a tenant of a covenant or condition in the lease unless subsection (2) is satisfied.

(2)This subsection is satisfied if—

(a)it has been finally determined on an application under subsection (4) that the breach has occurred,

(b)the tenant has admitted the breach, or

(c)a court in any proceedings, or an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement, has finally determined that the breach has occurred.”

Appellant’s case
The tenant’s argument was that Paragon had waived the breach such that the application was obsolete:

14. Despite being aware of the breach of covenant by subletting Paragon appear not to have taken a decision to forfeit Mr Bedford’s until May 2020 and it continued to collect rent by monthly direct debit between December 2018 and May 2020.

17. The basis of the application to strike out the proceedings was said to be that they served no purpose because the right to forfeit the lease had been waived by Paragon’s acceptance of rent with full knowledge that Mr Bedford was subletting the property.  The sole purpose of an application under section 168, 2002 Act was to secure a determination that a breach had occurred as a prelude to the service of notice under section 146, 1925 Act and the commencement of forfeiture proceedings.  In circumstances where Mr Bedford had a defence that the breach of covenant had been waived, the pursuit of the application by Paragon was, he contended, an abuse of process.

First instance decision
The First-tier Tribunal did not accept it would be a “futile exercise” to make a determination of breach because forfeiture was not the only remedy available to Paragon (e.g. they may seek damages and/or an injunction). In any event the tribunal said it did not have the jurisdiction to determine the question of waiver of the forfeiture in this case. 

Upper Tribunal decision
Martin Rodger QC, Deputy Chamber President, dismissed the appeal:

(a) Alternative remedies46. I do not accept that the availability of alternative remedies for the breach of covenant was an irrelevant consideration in the FTT’s assessment of whether the application was an abuse of process.  On the contrary, it was highly relevant.  The most obvious alternative remedy that a landlord might seek in the face of a persistent breach of covenant by its tenant would be an injunction compelling the tenant to comply, either by requiring that he terminate the current sub-tenancy or by prohibiting any future sub-letting.  Mr Gallivan also referred to the possibility of a claim for compensatory damages on a negotiating basis, as had been directed, for example, by Lightman J in Crestfort v Tesco [2005] L & TR 20 where commercial premises had been sublet in breach of covenant.

[see also paragraph 47 of the judgment]

(b) Determination of waiver – “48. As for the second ground of appeal, Miss Cattermole is obviously correct in her submission that, in principle, the FTT could have determined whether the right to forfeit had been waived as part of its consideration of the application to strike out.  It was neither necessary nor strictly correct to approach the question as raising a matter of jurisdiction.  But that does not take the appeal very far. Even if I was to take the view that the FTT had erred by suggesting that it did not have jurisdiction to consider the issue of waiver, its decision not to strike out was obviously correct because the proceedings were plainly not an abuse of process.   Neither the detailed facts nor the application of the law to those facts was clear.  Although Mr Bedford made a lengthy witness statement in relation to the allegation of breaches of covenant and in support of his application to strike the proceedings out, he did not include any detail of the subletting itself.  Nor did the submissions prepared by counsel say any more than that “the property is sub-let” and only the 2018 tenancy agreement (which had expired in 2019) was exhibited.  Until the facts about the breaches themselves are established it cannot be ascertained whether the Paragon had sufficient knowledge of those facts to amount to waiver, and until it can clearly be seen that there has been a waiver it cannot be suggested that the proceedings were an abuse of process.

[see paragraphs 28-32 of the judgment re jurisdiction]

Modern shared ownership leases are assured tenancies:

(a) until the purchased share has been staircased to 100%, and until then

(b) for so long as the tenant/one of joint tenants live there as their only or principal home.

The permanent loss of security of tenure brought in by the Prevention of Social Housing Fraud Act 2013 by reason of sub-letting/parting with possession of the whole of the demised premises does not apply to shared ownership leases and so security of tenure can be ambulatory (section 15A, Housing Act 1988).

It follows that if security of tenure has been lost then forfeiture, and not the notice seeking possession approach, is the landlord’s route to recovering possession in a sub-letting case.

That is the context in which this appeal has to be seen.

Non admissions and (civil) defences

There is a widespread misconception that in civil claims a defendant can, by non-admissions, simply put the claimant to proof of the matters pleaded in the particulars of claim – whether that be with regard to the service of notices, allegations of anti-social conduct, etc.

In housing fraud cases, these failures to positively plead can be seen, by way of example, in respect of:

  • Details of visits to the demised premises;
  • Names of sub-tenants/occupiers;
  • Representations made leading to allocation of the premises;
  • Connections with other accommodation;
  • Monies received for use of premises.

How does such an approach sit with the CPR, especially rule 16.5 (emphasis added)?

“(1) In his defence, the defendant must state –

(a) which of the allegations in the particulars of claim he denies;

(b) which allegations he is unable to admit or deny, but which he requires the claimant to prove; and

(c) which allegations he admits.”

The short answer is “not well”, a longer answer being “not well at all”. To understand why, aside from reading CPR r. 16.5 (1)(b) and paragraph 10.2 of Part 16’s practice direction (“a defendant should deal with every allegation in accordance with rule 16.5(1) and (2)”), it is instructive to also read the judgment of Lord Justice Henderson in SPI North Ltd v Swiss Post International (UK) Ltd & Anor [2019] 1 W.L.R. 2865. Early in his judgment he explained:

“2…Under the Civil Procedure Rules , unlike the previous Rules of the Supreme Court (“RSC”), a non-admission may only properly be pleaded by a defendant where he is, in fact, unable to admit or deny the allegation in question, and therefore requires the claimant to prove it. 

3. Plainly, a defendant is able to admit or deny facts which are within his own actual knowledge, or which he is able to verify without undue delay, difficulty or inconvenience, by reference to records and other sources of information which are under his control or otherwise at his ready disposal.”

A breach of 16.5 may well lead to a strike out application. It may also be the case that the claimant seeks to “fill in the gaps” by means of a Part 18 Request for Further Information, bearing in mind the latter’s purpose:

1.2  A Request should be concise and strictly confined to matters which are reasonably necessary and proportionate to enable the first party to prepare his own case or to understand the case he has to meet.” [Practice Direction to CPR Part 18]

One note of caution is that Henderson LJ went on in his judgment, at paragraphs 49 & 54, to state that defendants were not obliged to make enquiries of third parties before pleading non-admissions.

“49. In my judgment, a number of factors point towards the conclusion that a defendant is “unable to admit or deny” an allegation within the meaning of rule 16.5(1)(b) where the truth or falsity of the allegation is neither within his actual knowledge (including attributed knowledge in the case of a corporate defendant) nor capable of rapid ascertainment from documents or other sources of information at his ready disposal. In particular, there is no general obligation to make reasonable enquiries of third parties at this very early stage of the litigation. Instead, the purpose of the defence is to define and narrow the issues between the parties in general terms, on the basis of knowledge and information which the defendant has readily available to him during the short period afforded by the rules for filing his defence.

54…I have little hesitation in concluding that the wording of rule 16.5(1)(b) does not import any duty to make reasonable enquiries of third parties before putting the claimant to proof of an allegation which the defendant is “unable to admit or deny”. But that is not the end of the matter, because Mr Drake advanced a further argument against the claimant’s approach which I find equally compelling. The argument was, in short, that rule 16.5(1) does not import a “process” requirement, of which the defendants were arguably in breach and which could for that reason alone have arguably justified striking out the defence (or parts of it) if the offending non- admissions were not remedied. In order to justify such a draconian remedy, submits Mr Drake, it would have been necessary for the claimant to establish, to the civil standard of proof, that the defendants actually could have had available to them knowledge (whether or not derived from third parties) which meant that they were in fact able to admit or deny specific allegations which they had chosen not to admit. In other words, it would not be enough merely to show that the defendants failed to make reasonable enquiries of third parties which they ought to have made. It would be necessary to go further, and to establish that the impugned non-admissions were in fact improper because the relevant allegations should have been either admitted or denied.”

Finally, it is worth noting that CPR r. 16.5 also provides:

“(3) A defendant who –

(a) fails to deal with an allegation; but

(b) has set out in his defence the nature of his case in relation to the issue to which that allegation is relevant,

shall be taken to require that allegation to be proved.

(5) Subject to paragraphs (3) and (4), a defendant who fails to deal with an allegation shall be taken to admit that allegation.

Judicial assessment of the facts

Judgment was handed down today in a multi-track possession trial in which I represented the local authority. The “simple” issue was whether the defendant had resided with the (mother) tenant at the time of her death and for at least the previous 12 months leading up to that time such that he was entitled to succeed to her (pre-1 April 2012) secure tenancy.

There was no documentary evidence supporting the defendant’s case and he relied on his own witness statement, that of a long-standing friend and some hearsay evidence (e.g. a letter from a former neighbour).

In her ex tempore judgment allowing the claim for possession, the Judge cited R (Dutta) v General Medical Council [2020] EWHC 1974 (Admin) and the judgment of Warby J at paragraph 39 and I thought it was a helpful reminder to place on this blog as to the proper judicial approach to the determination of facts:

“There is now a considerable body of authority setting out the lessons of experience and of science in relation to the judicial determination of facts. Recent first instance authorities include Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3650 (Comm) (Leggatt J, as he then was) and two decisions of Mostyn J: Lachaux v Lachaux [2017] EWHC 385 (Fam) [2017] 4 WLR 57 and Carmarthenshire County Council v Y [2017] EWFC 36 [2017] 4 WLR 136. Key aspects of this learning were distilled by Stewart J in Kimathi v Foreign and Commonwealth Office [2018] EWHC 2066 (QB) [96]: 

i) Gestmin:
We believe memories to be more faithful than they are. Two common errors are to suppose (1) that the stronger and more vivid the recollection, the more likely it is to be accurate; (2) the more confident another person is in their recollection, the more likely it is to be accurate.

Memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is even true of “flash bulb” memories (a misleading term), i.e. memories of experiencing or learning of a particularly shocking or traumatic event. 

Events can come to be recalled as memories which did not happen at all or which happened to somebody else. 

The process of civil litigation itself subjects the memories of witnesses to powerful biases. 

Considerable interference with memory is introduced in civil litigation by the procedure of preparing for trial. Statements are often taken a long time after relevant events and drafted by a lawyer who is conscious of the significance for the issues in the case of what the witness does or does not say. 

The best approach from a judge is to base factual findings on inferences drawn from documentary evidence and known or probable facts. “This does not mean that oral testimony serves no useful purpose… But its value lies largely… in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth”. 

ii) Lachaux:
Mostyn J cited extensively from Gestmin and referred to two passages in earlier authorities. I extract from those citations, and from Mostyn J’s judgment, the following: 

“Witnesses, especially those who are emotional, who think they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason, a witness, however honest, rarely persuades a judge that his present recollection is preferable to that which was taken down in writing immediately after the incident occurred. Therefore, contemporary documents are always of the utmost importance…” 

“…I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective fact proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities…”

Mostyn J said of the latter quotation, “these wise words are surely of general application and are not confined to fraud cases… it is certainly often difficult to tell whether a witness is telling the truth and I agree with the view of Bingham J that the demeanour of a witness is not a reliable pointer to his or her honesty.”

iii) Carmarthenshire County Council:
The general rule is that oral evidence given under cross-examination is the gold standard because it reflects the long-established common law consensus that the best way of assessing the reliability of evidence is by confronting the witness.

However, oral evidence under cross-examination is far from the be all and end all of forensic proof. Referring to paragraph 22 of Gestmin, Mostyn J said: “…this approach applies equally to all fact-finding exercises, especially where the facts in issue are in the distant past. This approach does not dilute the importance that the law places on cross-examination as a vital component of due process, but it does place it in its correct context…”

The Dutta case is worth reading in its entirety and emphasises that assessment as to the credibility/probative value of evidence is not a binary choice.