Rent – not coming to a cinema near you
London Trocadero (2015) LLP v Picturehouse Cinemas Ltd & Ors [2021] EWHC 3103 (Ch)
Background
A cinema has been told that it cannot defend a claim for payment of rent arrears and service charges on the basis that it was required by law to close during the Covid pandemic.
The background to this matter was that the first defendant was the current tenant and the claimant the current landlord under two leases. The second defendant was the original tenant under the first lease and the third defendant was the guarantor under both leases. The landlords, London Trocadero, brought a claim against the current tenant, the original tenant and a guarantor for £2.9m in unpaid rent and service charges on a cinema which had not been paid since 2020.
As a result of the pandemic, the cinema was forced to close down due to the regulations of the time meaning a loss of trade and income. The cinema remained closed for long periods of time and when it eventually reopened, the takings were only a fraction of pre-pandemic income.
Defective Part 36
During the case, a Part 36 offer amounting to 99% of the claimed damages was made in a genuine attempt to settle but also on the basis the claimant did not think there was a realistic prospect of defending the case. A defence was entered, centred on the unforeseeable and unprecedented nature of the pandemic and the impact to the interpretation of any lease.
While there was no disputing the Claimant had obtained a Judgment which was as advantageous as the terms of the Part 36 offer, the Defendants had argued defective service of the Part 36 which therefore rendered the offer invalid. It was argued the Claimant had not verified that the Defendants’ solicitors were willing to accept service by email, as required by Practice Direction 6A. The counter argument was this did not render the offer invalid under the provisions of CPR r. 3.10, which provides that;
“[w]here there has been an error of procedure such as a failure to comply with a rule or practice direction –
(a) the error does not invalidate any step taken in the proceedings unless the court so orders; and
(b) the court may make an order to remedy the error”.
Outcome & Costs Consequences
At trial, the Judge agreed that the Part 36 offer could be treated as effective and relied upon Philips v Symes (also known as Philips v Nussberger) [2008] 1 WLR 180. The Judge accepted that failure to comply with rules of service in CPR 6 should not be taken lightly and further, there was ‘no reason […] put forward by the claimant as to why the rules were not followed’ but “It was clear the defendants’ solicitors received the Part 36 offer”. The judge further commented that the defendants had suffered no prejudice and further that no complaint had been raised regarding service until shortly before the hearing on 3 November, long since the offer expired. In conclusion, the Judge cited that to invalidate the Part 36 offer, it would be a “triumph of form over substance”
With the Court ruling the Part 36 was not defective, the consequences of CPR. 36.17(4) must be considered. The claimant would be entitled to interest together with indemnity costs, however how would the Court consider the circumstances and how would the factors of CPR 36.17(5) (“whether the offer was a genuine attempt to settle the proceedings”) influence the decision? The Defendant had offered to pay the outstanding rent & service charges owed however disputed the interest amounting to around £8,000.00 (this also on the eve of a further lockdown and when many landlords were already agreeing to waive or defer unpaid rent). They argued the Claimant’s offer “was not a genuine attempt at settlement” and represented a total of 99% of their claim.
The Judge agreed with the Claimant’s submissions here in that they offered to accept an amount for the rent owed but without interest. The Claimant argued either the ‘rent was due in full, or it was not’. The claimant had conceded interest for the Part 36 offer which it was deemed there was a certainty of obtaining so the offer was a ‘genuine attempt to settle’. It was quite clear “the defendants were able to pay the rent but had simply chosen not to do so in order to preserve liquidity”.
With that being determined and the Judge also not invoking CPR Rule 3.10 in that the Part 36 offer had not been validly made, it was “unjust to award the claimant the maximum available under CPR Rule 36.17”. To decide on this, the Judge relied on two factors to reach his decision on what costs should be awarded. The first was whether the consequences set out in CPR 36.17 should apply to the entire sum awarded to the claimant and to the entirety of the costs or whether these should be applied to the part of the claim to which the Part 36 offer related. The second was whether it would be unjust to award the sum of £75,000.00 provided under CPR 36.17(4)(d) as ‘all or nothing’ or whether the Court could award a lesser amount. After considering these points further and listening to arguments from QCs for the Claimant and Defendant, on the first point he awarded the Claimant their costs on an indemnity basis from the expiry of their offer. On the second point, he expressed his view that the Court does not have the power to order the Defendant to pay a lesser amount – rather only having a choice to award the full amount or nothing at all.
Jason Green, Legal Costs Negotiator
27.01.22