Summary

A tenant was not required to serve a prior demand in respect of an overpayment of rent to the landlord. The tenant was entitled to an equitable set-off in respect of that overpayment and the landlord should have taken that into account before distraining for arrears of rent.

Facts

Appeal by the defendants ('HSM' and 'N&P') from two decisions of Master Moncaster on 13 June 2000 by which he firstly refused an application by HSM for summary judgment on its claim as landlord against the claimant tenant ('F') for possession of certain shop and residential premises ('the premises'); and secondly refused an application by both HSM and N&P for summary judgment on F's claim for damages against them both for breach of a settlement agreement ('the agreement') made in 1994. By the agreement F had compromised certain claims that he was then asserting against both N&P and HSM on terms that: (i) N&P would indemnify F against certain liabilities; and (ii) HSM would grant him a lease of the premises. Clause 4 of the lease provided for F's obligation to pay either the whole or a fair proportion of the rent to be suspended in the event that all or part of the premises became unfit for occupation. Following certain storm damage that rendered part of the premises unfit for occupation, F initially paid six quarters' rent without deduction. However, with HSM having done nothing to repair the premises, F stopped paying any rent thereafter. By reason of this non-payment HSM distrained for the arrears of rent and sold certain of F's goods. The central issue on the appeal was whether any rent was truly owing to HSM at the time at which distress was levied. F denied that this was so, contending that he was entitled to set off against the rent due a larger sum comprising: (i) damages which were due to him for breach of the agreement; and (ii) overpayments of rent, which F quantified at £2,092.50 per quarter, that had been made by him under a mistake of fact and law as a result of his having made the six payments of rent without deduction, notwithstanding the storm damage to the premises. On this appeal the court identified and dealt with four preliminary issues that arose from that contention.

Held

(1) F's claim to set-off his claim under the agreement was hopeless. The obligation to indemnify was clearly imposed upon N&P alone, whereas the lease conferred the right to rent on HSM alone. (2) In the absence of some special consideration, and in particular where no case of rescission arose, the general rule was that an overpayment by A to B was due for repayment without the requirement of a prior demand by A of B. Freeman v Jeffries (1869) LR 4 Exch 189 considered. (3) In such circumstances, F was entitled to the right of legal set-off created by s.13 Insolvent Debtors Act Relief Act 1729. However, that was a procedural rather than a self-help remedy, and did not operate to reduce the indebtedness of F to HSM. (4) It was equally plain that F was entitled to invoke the doctrine of equitable set-off, which did not depend for its exercise upon the absence of the right of legal set off. It followed that HSM had been obliged to take account of F's equitable right of set-off in respect of alleged overpayments of rent, which were immediately repayable, before deciding to levy the distress.

Preliminary issues determined accordingly.