empty lines in text are not converted to <p> or <br>

When I edit text in the filtered HTML mode empty lines are not converted into <p> or <br> when displayed. When I entered them directly <code><br> is ignored altogher only <p> is accepted.

Is there some way to fix this issue, or are there some circumstances in which it works that way. I have checked the inport format configurations and everyting looks fine.