Scottish & NEWCAstle Plc v Raguz

A covenant implied on an assignment of registered leasehold land under Land Registration Act 1925, section 24(1)(b), is an independent indemnity, not a guarantee. It is therefore not discharged by dealings between the assignor and a later tenant which would ordinarily release a guarantor.

The indemnity may nevertheless exclude liabilities effectively caused or prolonged by the indemnified party. That issue is fact-sensitive, but cannot ordinarily arise where the relevant rent liability accrued before the alleged causative conduct. The indemnity extends to VAT added to rent under section 89 of the Value Added Tax Act 1994. Summary judgment may be given for part of a claim where that course serves the overriding objective.

The appellant had assigned leasehold interests to the respondent and later disposed of his interest. The subsequent tenant defaulted on rent, and the respondent paid the lessor’s claims before seeking indemnity under the covenant implied by section 24(1)(b) of the Land Registration Act 1925.

On an application under CPR Part 24, His Honour Judge Norris QC held that the covenant was an indemnity, that a limited defence based on liabilities caused or prolonged by the respondent was arguable, that VAT was recoverable, and that payment by the respondent was established. He entered judgment for part of the claim and made a percentage costs order. The appellant appealed those conclusions. The issues concerned the nature and scope of the implied covenant, recovery of VAT, proof of payment, and the costs and procedural orders.

1. Appeal dismissed. The covenant implied by section 24(1)(b) of the Land Registration Act 1925 is a primary and independent obligation of indemnity. It does not become a secondary guarantee when the term is assigned onward. The wording requires the assignee and persons deriving title under him to pay the rent and keep the transferor indemnified against claims arising from non-payment.
2. The distinction between guarantee and indemnity is material. A guarantee is secondary to a principal debtor’s obligation and may be discharged by transactions altering the creditor’s and debtor’s rights. An indemnity depends on the ordinary rules of contract. Harris v Boots Cash Chemists (Southern) Ltd and Allied London Investments Ltd v Hambro Life Assurance Ltd supported the indemnity analysis. The reference in RPH Ltd v Mirror Group (Holdings) Ltd to rent being guaranteed did not alter that conclusion.
3. It was assumed, without deciding, that the indemnity might not cover a default effectively procured or prolonged by the indemnified party. On the facts, however, the relevant liabilities had accrued before the alleged conduct concerning rent reviews, marketing, sale, change of use and trading support. There was no real prospect of establishing that those events limited or discharged liability for the rents covered by the section 17 notices.
4. VAT was recoverable. Section 89(1) and (3) of the Value Added Tax Act 1994 required VAT to be added to the rent as consideration for the relevant supply after the lessor opted to tax. Non-payment of rent including VAT therefore fell within the implied covenant.
5. The respondent’s payment to the lessor was sufficiently proved by statements of truth, witness evidence and acknowledgment of receipt. The contrary case was speculative. The costs order involved no error of principle or manifest injustice. CPR Part 24 permitted judgment for part of the claim, and early determination of the appropriate issues furthered the overriding objective. The declaration figure was corrected by agreement to £31,764.08. Order: appeal dismissed; order as agreed; permission to appeal to the House of Lords refused.

• Court of Appeal (Civil Division) — [2003] EWCA Civ 1070: appeal from the Part 24 decision of His Honour Judge Norris QC, sitting as a deputy High Court judge, dismissed on all grounds. The declaration figure was corrected by agreement, and the order was made as agreed between the parties.