TFS Stores Ltd v BMG (Ashford) Ltd & Ors [2020] EWCA Civ 833

The Court of Appeal has given important clarity and breathing space to commercial and residential tenants in its recent judgment in TFS Stores Ltd v BMG (Ashford) Ltd & Ors [2020] EWCA Civ 833 by confirming that all parts of proceedings involving a claim for possession brought by a landlord are automatically stayed.

The stay, imposed initially by Practice Direction 51Z, and now extended to 23 August 2020 by the new CPR rule 55.29, applies to all claims (apart from some claims against trespassers) “brought under Part 55”. In his earlier judgment in Hackney LBC v Okoro [2020] 4 WLR 85, the Chancellor, Sir Geoffrey Vos, emphasised that all claims initiated under Part 55 were stayed, even if they were now on appeal.

In this case, DLA Piper, instructing Joanne Wicks QC of Wilberforce Chambers and Mark Galtrey of Falcon Chambers, acted on behalf of TFS Stores Ltd, who operate 198 fragrance shops across the UK. In 2017, the landlords of six of TFS’s shops asserted that the leases had been contracted out of the protection of the Landlord and Tenant Act 1954 (‘the Act’), and so that they were entitled to possession of the premises when the contractual term expired. TFS disagreed, saying that the contracting out process had not been properly followed. At a trial last summer, the High Court found against TFS, and made orders for possession in relation to five of the shops albeit postponed until the outcome of any appeal.

The Court of Appeal gave permission to appeal and listed the appeal for 24 June 2020. The point under appeal is a very important one, since the contracting out method used by the landlords is very widely used and its validity may affect the status of tens of thousands of commercial leases.

Following the decision in Okoro, it seemed to TFS that the appeal should be postponed because the proceedings were stayed.

Had the proceedings simply been started as claims for possession by the landlords, there would have been no argument: such claims must be brought under Part 55 and are certainly caught by the stay. However, in this case, there were two sets of proceedings, and neither started in that way.

The first set of proceedings were brought by TFS: the contractual terms on two of the shops had expired and so if the landlords were right, they could re-enter the premises at any time. TFS issued a claim for an injunction to prevent the landlords taking possession, and for a declaration that the leases were not contracted out of the Act. The landlords counterclaimed for possession.

Shortly afterwards, the landlords brought the second set of proceedings in relation to the other four shops, where the contractual term had not yet expired. At that time the landlords were not entitled to possession on any view, and so they claimed a declaration that the leases had been validly contracted out of the Act. But by the end of the trial, the contractual terms on three of the leases had expired. The landlords threatened to apply to amend their pleadings, or to issue separate claims for possession, unless TFS agreed to possession orders being made. On the basis of the High Court’s findings there would be no defence to a possession claim, and so TFS pragmatically agreed to the making of possession orders, postponed until after the outcome of the appeal.

The result was that neither set of proceedings was initiated under Part 55, but in both sets of proceedings possession orders were made and appealed against. The question for the Court of Appeal was whether the proceedings had been “brought” under Part 55 and so were stayed, and if they were, whether the stay should be lifted.

The landlords, represented by Wayne Clark and Joe Ollech of Falcon Chambers, argued that where a claim was correctly brought under the ordinary Part 7 procedure, it did not transform into proceedings brought under Part 55 because of later events that brought a claim (or order) for possession into the proceedings.

Arnold LJ, dissenting, agreed, pointing out that Part 55 has a whole raft of procedural requirements and differences from the Part 7 regime. This point has some force: certainly it is not standard practice when counterclaiming for possession (or amending to claim possession) for all the requirements of Part 55 to be followed, and they were not followed in this case. Given the views of the majority however, this is an important practice point: when drafting counterclaims for possession it would be now be prudent to follow the Part 55 procedure to avoid any suggestion that the claim was not properly brought.

The Chancellor and Asplin LJ, however, put more store by the policy aims of the automatic stay. As the Chancellor said at [33] – [34], referring to his judgment in Arkin v Marshall [2020] EWCA Civ 620:

As Ms Wicks correctly emphasised and, as we said in Arkin at [42], the purpose of the stay “is of its nature blanket in character and does not allow for distinctions between cases where the stay may operate more or less harshly on (typically) the claimant”. At [44], we said that “[t]he blanket stay has been imposed to protect public health and the administration of justice generally”…It is clear that the policy intention was to extend the stay on possession proceedings, even though that might “act to the detriment of some small businesses”, for example these landlords. It would send entirely the wrong message if we were to continue to hear an appeal in what must properly be regarded as possession proceedings on the technical ground that a part of the claim is for a declaration as to the law underlying that claim for possession.

TFS also argued that exposing tenants to the stress and expense of opposing with applications to lift the stay would undermine an important  purpose of the stay: to give tenants a period of time free from the risk of possession proceedings. Lifting the stay in this case, even to deal with the legal arguments about, would again send mixed messages and encourage further applications to lift the stay, undermining the stay.

The majority agreed (Arnold LJ would have lifted the stay), and the Chancellor was critical of the decision of Freedman J in Copeland v Bank of Scotland [2020] EWHC 1441 (QB), where the stay was lifted to hand down a reserved judgment, saying emphatically at [36]:

 I do not agree that that was the appropriate course. A stay means what it says. If the proceedings are stayed, nothing can happen in court at all

It might be thought that this clear message would reach courts at all levels and provide a period of stability until the stay is lifted. However, it seems that the position is not seen quite so clearly across the judiciary: on 07 July 2020, a week after the TFS judgment, a differently constituted Court of Appeal gave judgment in Jarvis v Evans [2020] EWCA Civ 854, a second appeal against a possession order granted to a landlord against a residential tenant in Wales, which appears to have been brought under Part 55, the stay presumably having been lifted (although this is not clear from the report). Perhaps a stay does not quite mean what it says in every case, and tenants must prepare to fight more applications to lift the stay.

The full judgment can be downloaded here.

Safeway Limited v (1) Andrew Newton and (2) Safeway Pension Trustees Limited [2020] EWCA Civ 869

On 13 July 2020, the Court of Appeal handed down judgment confirming unanimously that the introduction of s.62 of the Pensions Act 1995 (“s.62”) was a domestic law measure that closed the Barber window with effect from 1 January 1996.

The Claimant, the employer of the Safeway Pension Scheme (the “Scheme”), had brought proceedings to determine whether the Normal Pension Ages (“NPAs”) of members had been validly increased to 65 with effect from 1 December 1991, either in accordance with the 1991 Announcements to members or as a result of the terms of the 1996 Trust Deed dated 2 May 1996 having had retrospective effect to 1 December 1991.

In an earlier hearing before the Court of Appeal ([2017] EWCA Civ 1482), the Court had concluded that, whilst the 1991 Announcements were not in themselves sufficient to amend NPAs, the 1996 Trust Deed was capable under domestic law of retrospectively amending NPAs to 65 with effect from 1 December 1991 and there was an open question of EU law as to whether such a retrospective amendment was prohibited by what was at the time Article 119 of the Treaty of Rome (“Article 119”).  In deciding to refer this question to the Court of Justice of the European Union (the “CJEU”), the Court of Appeal overruled the decision of Mr Justice Warren both at first instance and in Harland & Wolff Pension Trustees Limited v Aon Consulting Financial Services Ltd [2006] EWHC 1778 (Ch) that it was acte clair that there was such a prohibition on retrospective “levelling down” even where the underlying benefits that were accruing during the Barber window were defeasible benefits, in the sense of always being subject under domestic law to retrospective reduction by a valid exercise of the Scheme’s amendment power.

The Grand Chamber of the CJEU delivered its judgment on 7 October 2019, concluding that there was such a prohibition under EU law, even where the rights accruing were defeasible rights under domestic law.

The key question in each case was when did the Barber window close?

The answer given by the CJEU was that the Barber window did not close until a measure was introduced into domestic law that brought about legally enforceable rights and remedies to Article 119 compliant benefits.

Prior to the date of those measures being introduced (referred to as “the past” or “Period 2”), Article 119 required that the benefits of the disadvantaged class accruing during that period had to be treated as “levelled up” to the benefits of the advantaged class (and could not then be reduced even if the benefits of the advantaged class accruing during that preiod were themselves defeasible) on the basis that, in the absence of Article 119 having been implemented into domestic law, those right formed the only valid frame or system of reference. Once Article 119 had been implemented into domestic law (referred to as “the future” or “Period 3”), then all that Article 119 required was equal treatment and it was a matter of domestic law policy as to what the level of those benefits ought to be.

The final issue left over for the Court of Appeal pending the outcome of the hearing before  CJEU was whether the introduction of s.62 as a matter of domestic legislation could itself have closed the Barber window.

The argument advanced by the Claimant was that – even if EU law precluded the 1996 Trust Deed from having its domestic law effect of retrospectively reducing benefits during the Barber window – the Barber window closed on the introduction of s.62 with effect from 1 January 1996.  What this meant was that “the past” ended on 31 December 1995 and “the future” began on 1 January 1996, with the result that Article 119 only prohibited the 1996 Trust Deed from retrospectively increasing NPAs to 65 for the period between 1 December 1991 and 31 December 1995, not for the period between 1 January 1996 and 2 May 1996, which period was governed exclusively by domestic law.

The Court of Appeal were unanimous in accepting these arguments.

It concluded that the Claimant was right in contending that:

1. The domestic law effect of s.62 was to introduce into every occupational pension scheme an equal treatment rule that brought domestic law into compliance with the requirements of Article 119.
2. This satisfied the “litmus test” laid down by the CJEU for the closing of the Barber window in terms of introducing into domestic law legally enforceable rights and remedies to benefits that complied with Article 119.
3. The reason that the introduction of legally enforceable rights and remedies under domestic law was the litmus test for closing the Barber window was that it marked the transition from Member State non-compliance (where the rights and remedies had to be supplied by Article 119) to Member State compliance (where the rights and remedies were supplied by domestic law) which marked the transition from “the past” to “the future”.
4. It could not make a difference whether those legally enforceable rights and remedies were imposed by statute or derived from textual amendments to the governing documentation of the Scheme brought about by the exercise of the Scheme’s amendment power.

This is an important decision in the narrative of equalisation because it confirms for the first time that the introduction of s.62 was a domestic law measure capable of closing the Barber window for any occupational pension scheme where the Barber window was still open on 1 January 1996.

The wider practical effect of this within the industry will need to be considered.

The range of schemes affected by this development is unlikely to be great given that it will only impact those schemes which sought (consistently with their own governing documentation) retrospective changes to the NPAs of members and only then if such retrospective changes were made after 1 January 1996 and before the introduction of s.67 of the Pensions Act 1995 with effect from 6 April 1997.  Yet for any scheme that does meet those criteria, there is clearly the welcome potential for this decision to result in a material reduction in liabilities.

Sebastian Allen acted for the successful appellant, Safeway Ltd, instructed by DWF LLP.

Please click here to download a copy of the judgment.

Hughes and others v Board of the Pension Protection Fund [2020] EWHC 1598 (Admin)

The judgment of Mr Justice Lewis in Hughes and others v Board of the Pension Protection Fund [2020] EWHC 1598 (Admin), handed down on 22 June 2020, is of considerable importance for members of defined benefit schemes of insolvent employers. Thomas Seymour along with a counsel team from Blackstone Chambers (Tom de la Mare QC and Iain Steele), instructed by Farrers, acted for the British Airline Pilots Association (BALPA) representing pilots who were members of the Monarch and BMI Schemes, who brought proceedings for judicial review along with the claimants of other schemes. The proceedings, brought against the Pension Protection Fund (“PPF”)  with the Department of Work and Pensions (“DWP”) as an interested party, were heard at a five-day remote hearing in the Administrative Court in May.

Article 8 of EU Directive 2008/94/EC (“the Insolvency Directive”) requires member states to take measures to protect the pensions of employees and ex-employees of an employer, in the event of insolvency, including protection in respect of survivor’s benefits. It does not specify the method or extent of extent of protection. In a series of cases (Robins (2007), Hogan (2013) and Hampshire (2018)), the European Court of Justice (“ECJ”) has decided that whilst member states have some latitude as to the measure they put in place, and complete protection is not required, protection to the level of at least 50% of the benefits is required, including in respect of envisaged growth throughout the pension period, in order to comply with Article 8.

Against the background of the Directive, the Pension Act 2004 established the Pension Protection Fund, the so-called statutory lifeboat, funded by employers imposed on employers of other defined benefit schemes, and designed to provide a measure of compensation to members of schemes. Upon the insolvency event, the scheme was subject to assessment by a valuation mechanism which valued the assets of the scheme and the “protected liabilities”, being the estimated PPF compensation which would be payable if the scheme was transferred into the PPF. If protected liabilities exceeded assets, the scheme along with its assets is transferred to the PPF, the member’s trust rights are extinguished and the trustees discharged, and the member receives statutory compensation instead. The level of PPF compensation is based on the accrued entitlement and depends on age and status immediately before the assessment date/insolvency event. Members who have attained normal pension age (NPA) are entitled to 100% PPF compensation; those under NPA are entitled to 90% PPF compensation. The Act places a salary-related cap on compensation for those under NPA. The cap is fixed by reference to age 65, actuarially reduced where the compensation comes into payment before age 65, and is limited to 90% of the actuarially adjusted cap. The effect is that members subject to the cap may receive compensation amounting to a modest fraction of the benefits they receive; whereas a former colleague who may have attained NPA a few days earlier (entitled to 100%) is unaffected. The claimants challenged the validity of the Compensation Cap as contrary to Article 8 and as being age discriminatory.

Following the Hampshire decision in September 2018, no primary legislation was introduced but the PPF set in place an interim scheme designed to deliver the 50% uplift to affected members. This entailed a one-off actuarial valuation of each member’s pension benefits under the scheme as at the assessment date, based on the member’s actuarially assumed lifetime, and payment of an uplifted benefit which was “front-loaded” (to make up for PPF compensation having no increases on pre-1997 service). The claimants contended that this scheme failed to comply with EU law, in particular (a) because it failed to ensure that the member received at least 50% of his scheme benefits in each pension year; (b) because it would inevitably yield less than 50%, both on an annual basis, and on a cumulative receipts basis, for members who lived significantly beyond the assumed lifetime; (c) because it failed to protect survivor benefits.

The judge held:

1. That the Compensation Cap was unlawful from its inception, in that it failed to comply with Article 8 and was age discriminatory.

2. That the PPF’s interim scheme as it stood did not comply with Article 8, in particular:

(a) It needed a mechanism to ensure that the cumulative value of the compensation did not fall below 50% of the scheme benefits, and that the proposed scheme, as currently structured, on the PPF’s own admission, failed to achieve this for those who lived beyond the actuarially assumed lifetime.

(b) Survivor benefits must be protected to the minimum value of 50% of the survivors’ benefits under the Scheme. This is significant because PPF compensation only provides survivor benefit based on 50% of the member’s periodic compensation payable at the date of death, whereas (a) schemes commonly provide (as did all the schemes in question) survivor benefits based on the member’s pre-commutation benefit and (b) some schemes provide a survivor benefit of two-thirds (as did BMI).

The case is also of significance in relation to issues, relevant to the other claimants but not the BALPA claimants, of limitation of claims and the benefits payable by trustees of schemes whilst in assessment (S.138 PA 2004).

To download a copy of the judgment, please click here.

Univar UK Ltd v Smith [2020] EWHC 1596 (Ch)

On 19 June 2020, Mr Justice Trower handed down judgment granting rectification of the Univar Company Pension Scheme (1978), in the first pension rectification claim decided after a full trial since the landmark decision of the Court of Appeal in FSHC Group Holdings Ltd v GLAS Trust Corp Ltd [2019] EWCA Civ 1361.

The Claimant sought rectification of the rule in the definitive deed and rules dated 13 March 2008 (“2008 DDR”), which required increases to pensions in payment and revaluation of pensions in deferment to be calculated by reference to the Retail Prices Index (“RPI”). The previous deed and rules had provided for increases to pensions in payment and revaluation of pensions in deferment to be calculated on the statutory basis. Statutory pension increases and revaluation were calculated by reference to RPI until 2010, but since then have been calculated by reference to the Consumer Prices Index (“CPI”), which generally provides a lower level of increase. The Claimant contended that the 2008 DDR failed to reflect the common intention of the company and the trustees that the pension increase and revaluation rules would reflect the pre-existing basis for pension increases and revaluation (namely to increase benefits by whatever the statute required from time to time), because it mistakenly wrote the then statutory regime (calculated by reference to RPI) into the rules of the scheme. This had the consequence that under the 2008 DDR members continued to be entitled to RPI-based increases even after the statutory regime had switched to providing CPI-based increases.

On the facts, it was clear that the trustees and the company were well aware of the actual words used (which had been discussed and amended in the course of the drafting process), but did not understand the legal implications of what was said. The case was complicated by the fact that, as the trustees were aware, the words used in the 2008 DDR did reflect the actual practice of the scheme at the date it was executed, because the words enacted the statutory regimes for indexation and revaluation as they were then in force. The changes which the Claimant contended were unintended were therefore rather more subtle than in many rectification cases of this sort.

The judge considered FSHC and earlier authorities, and explained that in the context of rectification of a pension scheme:

• the exercise was to ascertain the actual (subjective) collective intent of the trustees and the company, but that as a matter of evidence the intentions of a body such as a group of trustees or a board will normally be established by (or at least with the support of) documentary means (i.e. the subjective intent will normally be objectively manifested);
• it is not necessary to show an “outward expression of accord” in such cases;
• the absence of discussion of a particular change by the parties can in an appropriate case be taken as evidence that it was not intended;
• the fact that the parties intended to use a particular form of words is no bar to rectification on the basis that they misunderstood its legal effect.

On the facts, the judge found that the Claimant had established that neither it nor the trustees actually intended the pension increase and revaluation rules in the 2008 DDR to have the legal effect they did. The oral and documentary evidence established that the company and trustees intended that no change of substance would be made unless it was included on the “schedule of changes” supplied by the solicitors who drafted the 2008 DDR. The change from the statutory basis to pension increases and revaluation being tied to RPI was a change in legal effect that was not identified on the schedule of changes, and therefore the change was not intended. The judge therefore granted rectification.

The judge also offered some obiter observations on the approach to be taken when not all of the trustees share the same subjective intentions (obiter because in the event he found that they all shared the same intention) and discussed the difference between a mistake as to legal effect, and a mistake merely as to the legal consequences, of the words used.

The full judgment can be read here.

Michael Furness QC and Tim Matthewson acted for the successful Claimant, instructed by Pinsent Masons (Manchester).

Adams v Options SIPP UK LLP [2020] EWHC 1229 (Ch)

On 18 May 2020, the Chancery Division handed down judgment in Adams v Options SIPP UK LLP [2020] EWHC 1229 (Ch) (originally known as Adams v Carey), a landmark test case on the potential liability of an execution-only SIPP provider (D) to an investor (C) whose underlying investment in the SIPP sustained significant losses. The Court held that D was not liable for such losses.

C’s claim had been advanced on, among others, the following grounds: (1) the FCA’s Conduct of Business Sourcebook (“COBS”) Rules imposed an obligation (COBS 2.1.1) on D to act “honestly, fairly and professionally in accordance with the best interests its client”, that this required D to advise in relation to the underlying investment in the SIPP, and that there had been a breach of this duty (“the COBS claim”); and (2) s.27 of FSMA permitted C to have the contract with D declared “unenforceable” on the basis that the unregulated introducing broker was in breach of s.19 of FSMA in arranging and/or advising on investments within the meaning of arts 25 and 53 of the RAO (“the s.27 claim”).

The Court rejected each claim.

On the COBS claim, the Court concluded that (1) in order to identify the extent of any duty imposed on a SIPP provider by COBS 2.1.1, one has to consider the underlying contract between the parties which defined their roles and functions; and (2) the contract made clear that the D did not owe any duty to advise on the underlying investment.

On the s.27 claim, the Court concluded that an unregulated introducing broker was not arranging and/or advising on investments within the meaning of arts 25 and 53 of RAO.

Fenner Moeran QC acted for the Defendant.

The full judgment can be handed down here.

Barrowfen Properties Limited v Stevens & Bolton LLP [2020] EWHC 1145 (Ch)

Download the full judgment here.

Duval v 11-13 Randolph Crescent Ltd [2020] UKSC 18

Duval v 11-13 Randolph Crescent Ltd: Limits on Landlords

The Supreme Court has now given judgment in the case of Duval v 11-13 Randolph Crescent Ltd and there can be little doubt of its significance for landlords of blocks of flats and flat owners alike.

Where a building or estate is occupied by a number of leaseholders, there are three general models for the enforcement of covenants in their leases.

In the first model, the enforcement of covenants is entirely a matter between the landlord and each individual tenant. This is the model most commonly used in commercial settings. The landlord retains control over the enforcement of each tenant’s covenants: it alone can sue for breach or choose to overlook a transgression; it retains the power both to grant consent under qualified covenants (where a tenant promises to do or not to do something, save with the landlord’s consent) and to authorise a departure from an absolute covenant (where the tenant promises to do or not to do something, without qualification).

At the opposite end of the spectrum is a letting scheme. Under a letting scheme, each tenant covenants not only with their landlord but also with all other tenants in the building, with the intention that the covenants of all tenants should be mutually enforceable. The result is a form of local law, effective in equity. If Tenant A is in breach of a covenant in their lease, Tenant B may sue Tenant A directly: at least if the covenant is a restrictive one, for there is some doubt about the ability to enforce positive covenants through a letting scheme: Arnold v Britton [2015] AC 1619, [51]. A letting scheme imposes significant limitations on the landlord’s freedom of action but despite these drawbacks they are not unknown. In the 1960s and 1970s, a number of letting schemes were set up in residential buildings or estates: the holiday chalets in Arnold v Britton were subject to one. Letting schemes are, however, rare in commercial buildings.

The third model involves a middle way. There is no letting scheme, and tenants cannot sue each other directly for breaches of covenant. But the landlord agrees with each tenant that upon certain conditions, such as the payment of costs and the provision of security for those costs, they may request the landlord to take action against another tenant in the building. This model is very common in residential buildings and many leases, old and new, may be found which contain such provisions.

Duval concerned a model of the third kind. The building was previously two mid-terrace houses, converted into nine flats, with the freehold owned by a company of which the lessees were shareholders. In clause 3.19 of the leases, the landlord covenanted with each tenant that all other flat leases would contain covenants of a similar nature to those the tenant was giving and that at the request of the tenant, and subject to provision of security for costs, the landlord would enforce the covenants given by other flat owners. Mrs Winfield, lessee of one flat, wished to carry out works which would involve removing part of a load-bearing wall. This was prohibited by clause 2.7 of her lease, which contained an absolute covenant against “cutting or maiming…any roof wall or ceiling within or enclosing the demised premises”. She applied for a licence to the landlord, which the landlord was minded to grant. But another tenant, Dr Duval, contended that to do so would be a breach by the landlord of the obligations it owed her. And so the battle lines were drawn.

The question for the Court was whether the grant of a licence by the landlord to Mrs Winfield would be a breach of its obligations to Dr Duval. The Supreme Court upheld the Court of Appeal’s judgment, holding that it would. The important thing to note was that the landlord’s obligation under clause 3.19 was contingent: the obligation to enforce Mrs Winfield’s covenants would arise only if Dr Duval made a request and provided security for costs: the case proceeded on the basis that she had done the former but not the latter. So the landlord was not under any express obligation to do, or refrain from doing, anything. But the Court explained that it is well-established that a party who undertakes a contingent or conditional obligation may, depending on the circumstances, be under a further obligation not to prevent the contingency from occurring or from putting it out of his or her power to discharge the obligation if the contingency arises. This is not, as Dr Duval contended, an immutable rule of law. It is an implied term which, like other implied terms, is sensitive to the express terms of the contract and must satisfy the tests of business efficacy or obviousness: Marks and Spencer Plc v BNP Paribas [2015] UKSC 72 [2016] A.C. 742 [14]-[32]. The Supreme Court concluded that it would be “uncommercial and incoherent” to say that clause 3.19 could be deprived of practical effect by a landlord giving consent to a lessee to carry out work before another lessee could make a request and provide the necessary security.

The implications of this judgment on buildings let under the third model are profound.  Though the Supreme Court’s decision turned on the implication of a term into Dr Duval’s lease in relation to the potential breach of one particular absolute covenant (clause 2.7 of Mrs Winfield’s lease), the logic of it applies to any absolute covenant, however minor: if a lease says that a lessee cannot keep pets, for example, the landlord will put itself in breach of all other leases if it allows the tenant to keep a dog, cat or hamster. It equally applies to any qualified covenant which is not strictly complied with: a landlord cannot, for example, give retrospective consent to works carried out in breach of a clause requiring the landlord’s prior approval.  Further, though the Supreme Court confirmed that its decision was based on an implied term (and therefore in any future case, the Marks and Spencer test would have to be met in order for the term to apply), it is difficult to envisage a lease of the third kind where such a term would not ordinarily be implied (in the absence of some  specific express wording). Landlords’ freedom of action in managing blocks with leases of the third kind has been seriously curtailed by the Supreme Court’s decision. Commensurately, the power wielded by other tenants in the block has increased exponentially.

Further, it is not just future licence requests that landlords should be concerned about.  The Supreme Court’s decision declares the law as it always was.  The limitation period for a breach of covenant is 12 years. Therefore, tenants in the block may challenge the grant of a licence or permissions given or concessions made to their neighbours a number of years ago. Though the potential damages available are likely in most cases to be minimal, the nuisance value of these claims alone may become a serious headache for landlords and managing agents in the future.

The Supreme Court has answered the question raised in Duval by confirming that landlords in the third model of multi-let building have substantially less room for manoeuvre than many had previously understood.  But the approach adopted in the judgment raises a whole host of new and difficult questions for landlords.

The full judgment can be downloaded here.

Joanne Wicks QC and Emer Murphy acted for the appellant.

LIFE Services Ltd and The Learning Centre (Romford) Ltd v Commissioners for HM Revenue and Customs [2020] EWCA Civ 452

Court of Appeal makes important ruling on EU principle of fiscal neutrality 

Jonathan Davey QC has been successful before the Court of Appeal in two important charity / EU / tax cases regarding whether UK legislation providing an exemption from VAT for certain welfare services infringes the EU principle of fiscal neutrality. The Court of Appeal (Floyd, Newey and Arnold LJJ) upheld two decisions of the Upper Tribunal (Mann J and Judge Timothy Herrington ([2017] UKUT 484 (TCC)); Nugee J and Judge Timothy Herrington ([2019] UKUT 2 (TCC))), which had overturned two decisions of the First-tier Tribunal (Judge Barbara Mosedale ([2017] UKFTT 0492 (TC)); Judge Charles Hellier and William Haarer ([2016] UKFTT 444 (TC))), in holding that provisions of the Value Added Tax Act 1994 did not infringe the relevant EU law jurisprudence. The factual context of the cases was that of the provision of day care services to adults with learning disabilities by private operators providing such services for profit. The key issue in dispute was that of whether or not any differential treatment of providers of day care services, whether as between: (i) charities on the one hand and private operators on the other; or (ii) private operators in England and Wales on the one hand and private operators in Scotland and Northern Ireland on the other, was impermissible. The Court of Appeal found that it was not. Jonathan Davey QC acts for HMRC with Natasha Barnes (1 Crown Office Row). Jonathan Bremner QC (One Essex Court) and Hogan Lovells act for LIFE Services Ltd. Eamon McNicholas (Westwood Chambers) acts for The Learning Centre (Romford) Ltd.

The full judgment can be downloaded here.

Kensell v Khoury [2020] EWHC 567 (Ch)

Article written by Martin Hutchings QC

 

1) Introduction

Is it possible to resist an application to amend on the grounds that the new case could and should have been advanced earlier in the same proceedings?

There is no mention of the relationship in CPR Part 17 (‘Amendments to Statements of Case’) between the Court’s wide discretionary power to allow amendments, and the abuse of process rule of law embodied in Henderson v Henderson [1843] 67 ER 313. Nor does the White Book address the point. The leading textbook on Res Judicata^[1] also makes no mention of whether Henderson abuse can apply within the same set of proceedings. How if at all do they interrelate?

The point of principle was considered recently in Kensell v Khoury [2020] EWHC 567 (Ch)^[2]. In the final section of this article I set out the implications of the decision.  Before explaining the conclusions of Zacaroli J in that case, it is worth remembering the basic principles.

 

2) Henderson v Henderson

In Henderson v Henderson (1843) Wigram VC famously laid down the rule that:

‘…The plea of res judicata applies, except in special cases, not only to points which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of the litigation, and which the parties, exercising reasonable diligence, might have brought forward.’

Henderson v Henderson was a case in which all relevant matters in a new (English) action had been previously litigated in Canada. That case and almost all subsequent cases relying on the ‘extended’ res judicata doctrine exemplified in it, are cases in which the issue was whether a new set of proceedings was an abuse of process in light of a determination in earlier proceedings.

The mischief to which the Henderson rule is therefore primarily directed is the bringing of a second action, not the making of an application to amend the first. Thus in Greenhalgh v Mallard^[3] the Court of Appeal characterised the Henderson rule as applying to: ‘issues or facts which….clearly could have been raised [such] that it would be an abuse of the process to allow … new proceedings to be started….’. The most recent authoritative case on the Henderson rule (Johnson v Gore Wood & Co (no 1)^[4]) was also concerned with the question whether the claim or defence ‘should have been raised in the earlier proceedings if it was to be raised at all’. Lord Bingham’s statements of principle in that case, including that ‘…..there will rarely be a finding of abuse unless the later proceedings involves what the Court regards as unjust harassment of a party’, seem also to confine the rule to circumstances where a second set of proceedings has been issued following the determination of the first. This is also apparent from Bingham MR’s earlier statement of principle in Barrow v Bankside Members Agency Ltd^[5]:

‘The [Henderson] rule is…..a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by successive suits when one would do. That is the abuse at which the rule is directed.’ (Emphasis supplied)

One could therefore be forgiven for concluding that the danger that the rule in Henderson is designed to meet is the re-litigation of matters in fresh litigation, rather than attempts to amend statements of case to bring forward matters which might have been pleaded earlier in the same proceedings.

Amendments are allowed as a matter of principle because of the Courts’ willingness to ensure that all relevant arguments/claims are before the Court at one time during one set of proceedings. The application of the Henderson rule to amendments, by barring a party from bringing forward in one claim all relevant matters, even late in the day, might be said to call into question the justification for the rule’s original application, whilst also being inconsistent with the Court’s wide discretionary power to allow amendments under CPR Part 17.  Furthermore, the Henderson rule is a rule of law. There is no discretion for a Judge to exercise once s/he has decided that Henderson abuse will occur. Thus once it is determined, applying a ‘broad merits-based judgment^[6]’, that the rule in Henderson is engaged, the claim/issue must be struck out. This fact might be said strongly to militate against a requirement that applications to amend statements of case must also be shown not to offend the Henderson abuse rule. The Court’s powers to allow amendment at any stage of proceedings – even after judgment – should not be trammelled by the additional need also to consider whether the Henderson rule is engaged.

Indeed, the idea that Henderson can apply to applications to amend a first set of proceedings could be argued to run contrary to the well-established practice, in strike out applications, that where, having heard argument, the Court is of the view that an application to strike out a statement of case as disclosing no arguable claim/defence is likely to succeed, the respondent should be given an opportunity to file a draft amended statement of case to attempt to cure the defects, before the pleading is struck out. The White Book, affirms the principle in note 3.4.2 which states: ‘Where a statement of case is found to be defective, the Court should consider whether that defect might be cured by amendment and, if it might be, the Court should refrain from striking it out without first giving the party concerned an opportunity to amend (Soo Kim v Young)^[7]….’.  Thus if it were right that it could be a Henderson abuse of process to apply to amend defective pleadings at the point of strike out, it might be said that the general practice exemplified in Soo Kim on strike out / summary judgment applications, should not exist. On the other hand, that practice can be said to be entirely consistent with the Henderson rule, in that it encourages parties to bring forward all of their potential claims and arguments in one set of proceedings, rather than dragging matters out and wasting court time by the hearing of abuse applications in a second set of proceedings.

 

3) Ruttle Plant Hire Ltd v The Secretary of State for the Environment, Food and Rural Affairs [2007]

In the only High Court case before Khoury v Kensell to deal ‘head on’ with the relationship between the CPR’s amendment principles and Henderson abuse, Rupert Jackson J (later, Jackson LJ of CPR Reforms fame) found that the Henderson rule did not, as a matter of principle, apply to applications to amend statements of case to plead new causes of action, even after there had been a preliminary issue trial. In Ruttle Plant Hire Ltd v The Secretary of State for the Environment, Food and Rural Affairs [2007]^[8] the question before the Judge was: ‘  …….whether the rule in Henderson v Henderson can be invoked as a ground for opposing amendments in existing litigation’.

In Ruttle, there had been a lengthy trial of preliminary issues and a considerable amount of the Court’s and the parties’ time and resources had already been consumed. Over 5 months after the determination of those issues by Jackson J, the partially unsuccessful claimant applied to re-re-amend its PofC to plead new matters. The matters could have been pleaded at the outset. The application was opposed, partly on the basis that: ‘16.  …..a party cannot return to Court and advance arguments, claims or defences which that party could have put forward for decision on the first occasion but failed to raise’. Jackson J found that Henderson did not apply, and he gave four reasons why this was the case:

’36. Having considered the competing submissions of counsel, I have come to the conclusion that the rule in Henderson v Henderson cannot be invoked in order to prevent a party from pleading at a late stage in litigation issues which might have been pleaded earlier. I reach this conclusion for four reasons.

1. 1. 1. The rule in Henderson v Henderson, both as formulated by Sir James Wigram VC, and as recast by other judges over the last two centuries, is a rule focused upon re-litigation.
      2. The mischief against which the rule is directed is the bringing of a second action, when the first action should have sufficed.
      3. In all of the cases cited by counsel or unearthed by my own researches in which the Henderson rule has been applied, there have been at least two separate actions. So far as I can see, the Henderson rule has never been invoked as a ground for opposing amendment in the original action.
      4. There is no need to extend the rule in Henderson v Henderson to the sphere of amendment applications. The powers of the Court to allow or disallow amendments are clearly set out in the Civil Procedure Rules. There already exists an established body of judicial authority to guide first instance judges who are faced with applications to amend. See White Book volume 1 paragraph 17.3.5. It is inappropriate to transplant into this field the Henderson line of cases which are focused upon a different juridical problem.’

In Kensell v Khoury [2020] Zacaroli J reached the opposite conclusion, finding that, as a matter of principle at least, the Henderson rule could be engaged on an application to amend a first set of proceedings.

 

4) Tannu v Moosajee [2003] and the post-Ruttle cases

Zacaroli J felt able to depart from Jackson J’s conclusions in Ruttle because (he reasoned) that an earlier Court of Appeal decision Tannu v Moosajee [2003]^[9] had not been cited in Ruttle (nor had Jackson J apparently found Tannu from his own, no doubt diligent, researches). In Tannu, two of the three Court of Appeal judges had tentatively accepted that, at least as a matter of principle, it was possible that the Henderson rule could apply in relation to ‘separate stages’ of the same litigation, although on the facts of the particular case, it was found to be inapplicable.

In Tannu, a Queen’s Bench claim had been brought for the repayment of an alleged loan of £110,000. The defendant denied there was a relationship of creditor/debtor, claiming there was a partnership. The Judge found there was no loan, declaring that there was a partnership at will. He ordered the taking of an account in the Chancery Division. In the account proceedings the claimant claimed that the £110,000 was a capital contribution to the partnership. One question for the Court of Appeal was whether the Henderson principle could apply to prevent the claimant advancing its capital contribution case in the account phase of the trial, on the basis that this ought to have been raised at the Queen’s Bench trial. Whilst rejecting the application of Henderson on the facts, at least two of the CA judges expressly accepted the possibility that the Henderson rule might apply in the same set of proceedings to separate stages of those proceedings; although one of the two, Arden LJ, went no further than saying that it was ‘not conceptually impossible’ for Henderson to apply to those different stages.

A few, more recent first instance cases, including a Commercial Court case (Tobias Gruber v AIG Management France SA [2019])^[10] appeared to accept that Henderson might apply to applications for amendment to pleadings in existing claims, but each of those cases were ones in which there had been a trial of a preliminary issue and the unsuccessful party sought to amend at the next stage of the proceedings. Furthermore in none of those cases had the Courts apparently grappled, as a matter of principle, with whether and how Henderson could apply to a first set of proceedings. In none of those cases was Ruttle apparently cited. The obiter remarks in Tannu seemed a slender basis on which to find that the Henderson rule could be extended so as to apply within the same proceedings. Furthermore, it is to be borne in mind that in Tannu the status of the £110,000 payment had been determined in the first trial, before the account was taken in the second –  so there was arguably a much stronger rationale on the facts, for applying the Henderson doctrine in those circumstances, as compared to the subsequent cases that had referred to Tannu.

 

5) The decision in Kensell v Khoury

The facts: In Kensell v Khoury the claimants (the Khourys), alleged inter alia breaches of restrictive covenants by their neighbour, relying on a building scheme. Mrs Kensell secured summary judgment against the Khourys on the basis that there was no arguable case for the existence of a building scheme. The claim was not struck out altogether however, because the Khourys also advanced a separate, common law claim in nuisance. After instructing new counsel, the Khourys sought to amend their particulars of claim to advance a case to enforce the covenants based on s.56(1) of the Law of Property Act 1925. Mrs Kensell objected, including on the basis that the amendments would amount to a Henderson abuse. Mrs Kensell complained that she had already seen off the covenant claim by her successful summary judgment application and should not be vexed with it again.

The Khourys argued that: (i) Jackson J in Ruttle was correct to find as a matter of principle, that Henderson could not apply to amendments to pleadings in existing proceedings; (ii) on any basis the Henderson principle could not apply to a new case advanced after a successful summary judgment application (as opposed to a trial of a preliminary issue – where the Court had in effect decided to conduct the proceedings in distinct stages); and (iii) alternatively to (i) and (ii), it would be wrong, on the facts, to apply Henderson, because applying the merits-based test, no abuse of process was shown and, as a matter of discretion under CPR 17, it was right to allow the amendments, particularly as no trial date was imperilled.

Zacaroli J (on appeal from the County Court Judge) rejected (i) and (ii) above and found in the Khourys’ favour only on (iii).

In relation to (i) and (ii), Zacaroli J found that the authority of Ruttle was diminished because Tannu had not been considered. He felt free therefore to decide as a matter of principle whether Jackson J’s conclusion had been correct in light of Tannu and the post-Ruttle first instance decisions; noting however that Henderson had never been considered in the context of a case where an amendment was sought in existing proceedings, following a successful summary judgment application. Disagreeing with Jackson J the Judge found that there was no reason to preclude the application of the Henderson principle in the context of amendments; nor even as a matter of principle, where the earlier judgment had been obtained on a summary basis:  ‘51.  …………. If the bringing of the new claim would constitute unjust harassment…then it is difficult to see why the fact that the earlier summary judgment did not dispose of the whole action should make any difference.’ He did however hold that whilst the Henderson principle was capable of being engaged on an application to amend after strike-out of the original claim in the same proceedings: ‘63….It is likely to be appropriate to apply it in more limited circumstances than if the earlier judgment was given after a trial (for example on a preliminary issue) at an earlier stage in the same proceedings’.

However, on the facts, Zacaroli J declined to find that the application to amend to plead s.56(1) was an abuse of process, and he further found, although for somewhat different reasons, that the Judge below had been correct to exercise his discretion under CPR 17 to allow the amendment.

 

6) Is Kensell v Khoury right?

So, we know that Henderson can apply to the same set of proceedings. Statements such as those in Ruttle that ‘The mischief against which the [Henderson] rule is directed is the bringing of a second action, when the first action should have sufficed’ now require qualification. But this extension to the Henderson rule can be questioned.

First, it is unclear why the Courts should need to apply Henderson in this context when it has ample discretionary powers to refuse amendments, as explained in the well-developed jurisprudence under CPR Part 17. Secondly, as was pointed out in Ruttle, the jurisprudence is different, and designed to deal with ‘different juridical problem(s)’. It could also be said to be inappropriate to confuse or elide the discretion under CPR 17 with the Henderson principle, which is a rule of law. With Henderson, once abuse is found, there is no discretion not to strike out/refuse the amendment application. Should Judges therefore first consider the broad, merits-based test applied in the Henderson rule and only then (assuming the Henderson challenge fails) go on to consider how the CPR Part 17 discretion should be exercised? This could be said to be a recipe for confusion. Thus for example, we are told that the merits-based test for the purposes of Henderson abuse should invariably not include any assessment of the merits of the new claim that is being challenged^[11]. Yet when considering whether to allow amendments under CPR Part 17 the position is more flexible: in certain circumstances, a Court is entitled to take at least some note of the underlying merits of proposed amendments. The Court’s different treatment (in relation to questions of delay and a failure to use reasonable diligence) where abuse of process is alleged, as compared to when it is considering late applications to amend,  is also worth noting. One might conclude that some applications to amend are likely now to become more complicated and time consuming.

 

7) Lessons from Kensell v Khoury

Despite the powerful reasoning in Ruttle it would seem that Courts nowadays will be prepared to consider whether an application to amend following a strike out of part of a claim, or summary judgment, amounts to an abuse of process engaging the Henderson rule.

It is as yet unclear to what extent the Henderson rule can be used successfully to oppose an application to amend.  Clearly the abuse allegation will have more weight if the application to amend follows a preliminary issue trial rather than an ‘interlocutory’ order to strike out, or for summary judgment. But more than ever it now behoves a party to ensure that all of its potential claims and every possible way of advancing those claims are set out at the outset, because parties seeking to amend are now more likely to be met with Henderson abuse arguments. Those arguments can be expected to be deployed tactically by those seeking to oppose amendments. The other point that emerges from the above cases including Kensell is the importance of the party who is seeking to amend (and avoid an abuse finding) making every effort to inform the other side as soon as possible that it intends to raise the new claim or issue.

Whether this might also impact the practice on strike out applications exemplified in Soo Kim (above), or even the amendment of other documents such as grounds of appeal, remains to be seen.

 

Martin Hutchings QC represented the successful Respondents in Kensell v Khoury, you can read the full judgment (handed down on 13^th March 2020) from this case here.

 

^[1] Res Judicata: Spencer Bower and Handley (5^th edition) 2019

^[2] Also reported at [2020] 3 WLUK 434

^[3]  [1947] 2 All ER 255

^[4] [2002] 2 AC 1

^[5] [1996] 1 WLR 257 per Bingham MR @ 260

^[6] As explained by Lord Bingham in Johnson v Gore Wood (above)

^[7] [2011] EWHC 1781 (QB))

^[8] [2007] EWHC 1773 (TCC)

^[9] [2003] EWCA Civ 815

^[10] [2019] EWHC 1676 (Comm)

^[11] Stuart v Goldberg [2008] 1 WLR 823 @ para 57 per Lloyd LJ

Re Tariq Halal Meat (Ilford) Ltd [2020] EWHC 734 (Ch)

Chief Insolvency and Companies Court Judge Briggs handed down judgment on Friday addressing the circumstances where an insolvency practitioner should be made personally liable for the costs of a challenge to their adjudication on a proof of debt.

Having assessed authorities from Re Silver Valley Mines (1882) LR 21 Ch D 381 to Fielding and another v Hunt [2017] EWHC 406, Chief Judge Briggs stated that although the cases did not “speak with one voice when it comes to nomenclature”, nonetheless a principled approach emerged:

1. The starting point is Insolvency Rule 14.9(2), providing that an order should not ordinarily be made against an office holder personally.
2. Something more is required, which “relates to the conduct of the office holder”.
3. The degree of conduct deserving of a personal costs order will depend on the circumstances of each case. A mere mistake is unlikely to be sufficient. Acting in a neutral manner, on an appeal from a rejection of proof, is unlikely to be sufficient. Acting for a personal advantage in resisting an appeal is very likely to lead to a personal costs order. Such conduct would present a “special case” and a “good reason”, and may be characterised as “irrational conduct”, or “unreasonable conduct”.
4. Where the conduct complained of relates to a decision made on a proof of debt, the court will take account of the duties imposed upon an office holder to investigate the proof (i.e. to examine every proof, to consider the validity of the debt which is sought to be proved, and to require satisfactory evidence that the debt on which the proof is founded is a real debt, even where the proof is based on a judgment).

On the facts of the case, a personal costs order was not warranted. Thomas Robinson acted for the successful administrator, instructed by Pinsent Masons LLP.

The full judgment can be read here.