The Court recently considered the position in respect of bringing a disrepair counterclaim after a Possession Order has been made.
This case related to ongoing possession proceedings between Midland Heart Ltd (‘MHL’) and Makkedah Idawah (‘Idawah’). Proceedings were issued on 23 August 2002, no Defence was filed and MHL were granted an Order for possession on 4 November 2002. Warrants of possession were subsequently requested and suspended by way of Orders dated 20 June 2005 and 26 November 2008. In 17 January 2001, MHL were granted permission to issue a further Warrant of possession, which was further suspended by the Court by way of five additional Orders between April 2011 and September 2012. On 31 October 2013, MHL were again given permission to issue a further Warrant of possession.
Idawah made a further Application which was heard before the District Judge on 6 February 2014. The Application had two limbs: 1) to suspend the Warrant of possession; and 2) for permission to bring a counterclaim for disrepair, thereby raising a claim of set off approximately eleven years after the Order for possession was granted.
The District Judge granted Idawah’s Application, allowing the set off claim to proceed. MHL appealed the decision and permission to appeal was granted on 7 April 2014.
The basis of MHL’s appeal was that the District Judge should not have permitted the counterclaim to include a claim to set off, as this amounted to a Defence and, in doing so, circumvented any process of appeal or Application to set aside. Secondly, MHL submitted that the District Judge’s decision deprived MHL of an accrued limitation defence and the District Judge had failed to have any or sufficient regard to delay.
The Circuit Judge referred to the decisions in Rahman v Sterling Credit Limited  1 WLR 496 and British Anzani (Felixstowe) Limited v International Marine Management (UK)  QB 137 deriving the following principles:
• Where the counterclaim for damages for breach of covenant to repair is an equitable set off, then normal time limits do not apply where equitable relief is sought, as section 36(2) of the Limitation Act 1980 applies.
• The question is whether the action is at an end. In the present case, the Circuit Judge stated that proceedings would be at an end when the Warrant of possession had been executed. As MHL had not obtained possession, the current proceedings were ongoing and so the Court has discretion whether or not to permit a counterclaim to be made in the proceedings.
• Delay of itself is not a reason to refuse such permission.
In applying these principles, the Circuit Judge made the following findings:
• The District Judge had not erred in permitting the respondent to submit a counterclaim which raised a set off. As the action was not at an end, because possession had not been obtained “the provisions of CPR rule 39.3 are not in cases such as this strictly engaged. Instead the Court is able to deploy its much wider powers under CPR rule 3.1(2)(m), and indeed generally, in considering an application such as this.”
• The District Judge had not erred in permitting the counterclaim. The Circuit Judge found that this point was not raised before the District Judge and therefore this ground of appeal was rejected.
• The Circuit Judge found that the District Judge gave due regard to the issue of delay in making the judgment. The Circuit Judge referred specifically to the District Judge’s judgment which acknowledged that it would be more cost effective to allow the counterclaim rather than issuing a separate set of proceedings to deal with the set off claim.
This case provides practical guidance on the application of a claim for disrepair in possession proceedings. It applies and emphasises the principles laid down in Rahman v Sterling Credit Limited. When assessing a counterclaim for damages for breach of covenant to repair, this is deemed to be an equitable set off and the usual limitation time limits do not apply where equitable relief is sought, as section 36(2) of the Limitation Act 1980 applies. Accordingly, landlord clients should be aware of the potential challenges posed to possession claims where the tenant defendant alleges breach of covenant and they should be prepared to address such challenges, even when raised later in possession proceedings.
For further information, please contact Georgina Squire or the Partner with whom you usually deal.