Forcelux Ltd v Binnie

A lease covenant requiring a lessee to pay the lessor’s costs of steps or proceedings under section 146 may extend to possession proceedings enforcing a right of re-entry, and to linked applications to set aside possession and for relief from forfeiture.

That contractual entitlement does not displace the court’s discretion over costs. Although the usual approach may give effect to the contract, it is not an inflexible rule. The court may depart from it where its application would cause injustice, particularly where the lessor unsuccessfully appeals after it has become clear that the lessee can comply with the lease and is entitled to relief.

Forcelux obtained a possession order against its lessee, Mr Binnie. District Judge Hudson later set aside that order and granted relief from forfeiture, making a split costs order. Her Honour Judge Hampton dismissed Forcelux’s appeal and held that the earlier hearing had not been a “trial”.

On the main appeal, the Court of Appeal agreed that there had been no trial, exercised the relevant discretion in Mr Binnie’s favour, and formally dismissed Forcelux’s appeal. This supplemental judgment determined consequential matters. Forcelux relied for the first time on a lease covenant said to require Mr Binnie to pay its litigation costs. The central issue was whether that contractual provision should alter the costs orders below and on appeal.

1. The appeal remained dismissed. The court held in its main judgment that the hearing before District Judge Hudson was not a trial for CPR 39.3. It exercised its discretion to set aside the possession order in Mr Binnie’s favour. Warren J gave this supplemental judgment, with Ward and Jacob LJJ agreeing.

2. Construction of the lease covenant. Following and applying Fairview Investments Ltd v Sharma CA (unreported 14 October 1999), proceedings “under” section 146 include a possession action enforcing a right of re-entry after a section 146 notice. Section 146(2) of the Law of Property Act 1925 contemplates enforcement by action or otherwise. The covenant therefore covered the possession claim and the associated applications to set aside the possession order and obtain relief from forfeiture.

3. Costs discretion. The authorities relied on by Forcelux supported the general proposition that a costs discretion will ordinarily be exercised consistently with a contractual costs provision. That proposition is not a rule of law. The court may depart from it where justice requires. Even assuming that the covenant covered appeal costs, it would have been unjust to enforce it against Mr Binnie. By the end of the hearing before District Judge Hudson, it was clear that Forcelux would receive what it was entitled to and that Mr Binnie was entitled to relief. Forcelux pursued its later challenge at its own costs risk.

4. Consequential orders. Mr Binnie was the substantial winner of the appeal and was entitled to its costs, subject to no separate recovery for the respondent’s notice or the Stenson witness statement. Indemnity costs were refused because the trial issue was arguable and not straightforward. The existing costs orders of District Judge Hudson and Her Honour Judge Hampton were left undisturbed. The court ordered £10,000 on account of Mr Binnie’s appeal costs and continued the stay pending any Supreme Court permission application and, if granted, the appeal.

• Court of Appeal (Civil Division): [2009] EWCA Civ 1077. The court held that the earlier hearing was not a trial, exercised the discretion to set aside the possession order, and dismissed Forcelux’s appeal. This supplemental judgment resolved consequential costs, payment-on-account, permission and stay matters.
• Nottingham County Court, Her Honour Judge Hampton: Dismissed Forcelux’s appeal from District Judge Hudson. She held that there had been no trial and made a costs order in Mr Binnie’s favour, subject to specified exceptions.
• Nottingham County Court, District Judge Hudson: Set aside the possession order, granted relief from forfeiture, and made a split costs order.