The Libyan Investment Authority v Credit Suisse and others [2021] EWHC 2684 (Comm)

Judgment has been handed down by HHJ Pelling QC (sitting as a judge of the High Court) last week in The Libyan Investment Authority v Credit Suisse and others. The Court granted summary judgment for two of the defendants and set aside service out of the jurisdiction on the remaining three defendants. Alan Gourgey QC and Anna Littler, (instructed by PCB Byrne LLP) acted for one of the successful defendants in his jurisdiction challenge – a Libyan businessman against whom a claim had been brought by the Libyan Investment Authority alleging fraud and corruption in relation to transactions valued at US$200 million that it had entered into with Credit Suisse bank in 2008 and 2009.

Permission to serve three of the defendants outside the jurisdiction had been granted by the High Court ex parte in June 2020. However, on the application by those defendants to set aside service out of the jurisdiction and by the other two defendants for summary judgment against the claimant, heard in June/July 2021, the Court found that the Libyan Investment Authority’s claim against them in fact had no real prospect of success because it was time-barred. This was on the basis that the claimant was unable to show any real prospect that it could establish at trial that, under s. 32 of the Limitation Act 1980, it could not with reasonable diligence have discovered the facts allegedly giving rise to its claim more than six years prior to its issue.

Read the full judgment here.

In the matter of the Mitchells & Butlers Pension Plan [2021] EWHC 3017 (Ch)

Michael Tennet QC, Edward Sawyer and Jonathan Chew (instructed by Gowling WLG led by Ian Gordon and Charlotte Scholes) acted for the successful trustee of the Mitchells & Butlers Pension Plan on a series of rectification and other claims, following a three week trial in July 2021.

Trower J found that amendments in 1996 which introduced a Company power to set the rate of pension increases and removed the existing Trustee power to select the index by which pensions were increased were mistakes and as a result ordered rectification. Restatements of the rules in 2002 and 2006 were also held to be mistaken and rectified. The Judge held that in any event the amendments were invalid as a result of a failure properly to consult the actuary.

The claim affected thousands of members. The question of mistake was determined on the basis of 19 witnesses, with 16 giving evidence, including as part of a hybrid trial by some witnesses giving evidence remotely. It is a rare example of rectification being sought on behalf of members against the sponsoring employer.

While there are many issues determined in the judgment and the approach to the rectification claim on the facts is a good guide to the level and extent of evidence needed to prove rectification, we note the following points of law or interpretation of more general application:

The Court accepted the principle of “serial rectification” whereby later deeds in which the error was repeated were also rectified, building on the decision in IBM [2012] Pens LR 469. Warren J there set out a distinction between an intention to give effect members entitlements as a matter of law which would found rectification of a later deed, and an intention than to do no more than to reflect the rules as they then stood, in which case rectification would fail (IBM at [448]). Trower J held a further intention would suffice where (as here) the decision-makers had a positive erroneous understanding of the relevant rules: an intention to reflect what the parties in fact thought the rules said would suffice for serial rectification: [286].
The Company argued it was a bona fide purchaser as it became Principal Employer of the Plan after the 1996 Deed (and 2002 Deed) had been executed. This novel argument was rejected, primarily on the basis that the Plan’s power of substitution did not effect a transfer of property to which the doctrine could apply (see [231]). While this analysis is based on the terms of the particular power, the nature and commercial effect of such powers is likely to be similar in similar schemes (as the judge recognised at [233]-[235]). The consideration of bona fide purchase was more detailed and involved than in previous judgments, the issue having been considered most notably in AMP v Barker [2001] Pens LR 77. In so doing, the judge addressed the question of the state of knowledge required to get rectification against third parties which is of wider importance. He held that if the decision-makers at the third party had the same mistaken subjective intention as the original parties, the third party would be burdened with the equity to rectify: [267]. The judge emphasised the burden on a third party to investigate to avoid being fixed with constructive notice: [272].
As well as rectification, the judge held that the amendments were void for failure to comply with the consultation requirement of the power of amendment. Consultation with the actuary was a condition precedent of its exercise such that failure to comply was void (following Pitmans Trustees [2004] EWHC 181 (Ch) at [61]: [349]-[350]). The judge expanded on the analysis in Pitmans (and Trower J’s earlier decision in Univar) and analysed what constituted sufficient consultation. Most importantly, the Judge held that it was not sufficient just for the relevant materials to be provided to the consultee: [355], holding that the role of e.g. actuarial consultation was to give an actuarial perspective on the proposed amendment, which required the actuary to identify the change or at least to have appeared to identify the change: [357]-[358]. This more detailed analysis of what the concept of “consultation” entails is likely to be of general application. It is also notable that the failure to consult resulted in the 1996 amendment being void even though it did not adversely prejudice anyone’s accrued rights (as found at [410]).
The judgment also contains the first substantial analysis in a reported case of when an amendment will be void under section 67 of the Pensions Act 1995 (as then in force) due to errors when instructing the Scheme Actuary to provide a section 67 certificate.

You can download a copy of the full judgment here.

The counsel team will be giving a talk on the issues of general application arising out of this decision and more information will be provided in due course.

Lehman Brothers Holdings Scottish LP 3 v Lehman Brothers Holdings PLC & Ors [2021] EWCA Civ 1523

In the Court of Appeal on 20 October 2021 Lexa Hilliard QC and Tom Roscoe (instructed by Charles Russell Speechlys LLP) after a 5 day hearing successfully overturned the judgment of Mr Justice Marcus Smith of 24 July 2020.

This was one of the last cases arising out of the collapse of Lehman Brothers. The case concerned the ranking of subordinated debt in the administrations of two Lehman companies.

The Court of Appeal allowed the appeal of LB GP No 1 Limited and held that the subordinated debt owed to LB GP No. 1 Limited by Lehman Brothers Holdings PLC ranked for payment before the subordinated debt owed to Lehman Brothers US parent company, Lehman Brothers Holdings Inc.

To read the full judgement, please click here

Wynne-Finch & Ors v. Natural Resources Body for Wales [2021] EWCA Civ 1473

The Court of Appeal has handed down judgment in Wynne-Finch & Ors v. Natural Resources Body for Wales [2021] EWCA Civ 1473, upholding the first instance decision of Mrs Justice Falk ([2020] EWHC 1924 (Ch)).

The case concerned the ownership and exploitation of mudstone, which is the prevailing bedrock in mid-Wales.

The case sparked some interest when the first instance decision was handed down on the basis it was thought that the High Court had ‘driven a coach and horses’ through the law and practice relating to mineral reservations when concluding that the mudstone was not within the appellants’ paper title to the sub-surface. It was suggested that the trial judge had misinterpreted the mineral reservation in conveyances dating back to 1919 and, when considering the true meaning of the relevant Inclosure Act of 1816, and awards made under that Act, had wrongly distinguished the case of Wainman v. Earl of Rosse.

The Court of Appeal has firmly concluded that there were no such errors. This decision stands as a welcome clarification in that regard and highlights that, in an area such as mines and minerals, specialist advice is required, given the difficult questions of construction and law which can arise.

The issues

The appellants claimed to own everything beneath the thin layer of surface topsoil as parcels of the manors of Arwystli and Cyfeiliog. The respondent had been merrily extracting mudstone lying beneath that topsoil for decades and using it to support foundations for a wind turbine and telecommunications and to build forest roads and tracks within its forestry estate.

The issues on the appeal were whether the mudstone was included within the appellants’ title to the sub-surface and, if so, whether the respondent had adversely possessed the mudstone stratum.

Mark Wonnacott QC and Harriet Holmes represented the successful respondent, faced with what were described as some “powerful” arguments by the appellants.

The first question: whether the mudstone had been severed from the surface

The 40 titles in dispute at first instance fell into four categories of which three were relevant on appeal. The trial judge had made the following findings about the appellants’ paper title (which were not challenged):

A type claims: the appellants’ title was to mineral exceptions, retained out of private conveyances, as a fee simple estate in any substrata made up of substances in the exceptions.
D type claims: the appellants’ title was to minerals excepted out of the allotments of land by awards under the Arwystli Inclosure Act 1816 and was a fee simple estate in any substrata made up of substances described in the Act.
C type claims: the appellants’ title was the lord’s title to manorial waste and was an ordinary fee simple in the surface and everything else as one undifferentiated thing. Subsequent informal inclosure agreements with people who had common rights over the waste were personal licences and had not severed a sub-surface stratum from the surface.

For the A type claims, the Court of Appeal considered the true construction of the following exception:

EXCEPTING AND RESERVING … (a) All mines beds and quarries of coal and ironstone and all other metals stone and minerals within and under the hereditaments and premises thereby conveyed.

The appellants said that mudstone is undeniably a form of stone and so mudstone must be included in the reservation.

The Court of Appeal is not of the same view. Having considered the “principles derived from cases of high authority”, Henderson LJ (with whom Arnold and Birss LL.J agreed) said that “it would… be surprising if the word ‘stone’ were to stand out in the present case, as if stranded on an island of literal interpretation, surround as it is by words of such notoriously indeterminate meaning as ‘mines’ and ‘minerals’.” Such words are capable of excluding the prevailing stone of the district and, in this case, the language of the exception, construed in its context, did exclude the unexceptional, “commercially valueless” mudstone.

This brings English law into line with Scots law. In 1848 in Forth & Clyde Navigation v Wilsons the Inner House of the Court of Session held that blackband ironstone was not “stone” for the purpose of the seventeenth century conveyance, on the grounds that the “ignorant people” of the day would have thrown it away as “rubbish.”

As for the D type claims, the exception in the 1816 Inclosure Act is set out at para 50 of the judgment. It expressly extends to “any Mines, Ores, Coals, Metals or Minerals whatsoever” in or under the former waste of the Manor.

The appellants’ case as to construction was premised on a point made by Lord Esher MR in Consett v. Ritson, to the effect that Inclosure Acts are of a common form and should be construed according to any canons of construction in the case law. They said such a ‘canon’ came from the cases of Wainman v Rosse and Micklethwaite v Winter, with the result that a broad construction was required and mudstone was included in the reservation.

The Court dismissed these contentions too. Lord Esher MR’s point did not provide assistance in this case, where the provision was a bespoke reservation in the 1816 Act, rather than a reservation in common form. Wainman and Micklethwaite did not require the court to apply a broad construction and were cases which the trial judge had been right to distinguish, not least as they concerned strata of stone with real commercial value. Every Inclosure Act has to be construed on its own terms.

As for the C type claims, the informal inclosure agreements between the Lord and individual landowners, permitting them to inclose and cultivate parts of the waste, were no more than personal licences. They left the surface title in the appellants’ predecessors. The Court of Appeal found that by barring the appellants’ title to the surface, the respondent had also barred their title to sub-surface strata, even where the respondent’s predecessors had agreed that those strata should be excepted to a third party.

Other points

As a result, it was not necessary for the Court of Appeal to decide whether the judge’s alternative finding – that if the appellants had a paper title to the mudstone stratum in the A and D type cases, that title had been barred by adverse possession – was correct. Nor was it necessary to decide the second alternative point; that any such title had been barred by registration of the surface without any note on the register excepting that stratum from the effect of registration. Those points will, no doubt, be fought on another occasion. Nor does anything in the judgment deal with incorporeal mineral rights, retained on the enfranchisement of copyhold land, which are perhaps the most common type of right, in terms of numbers of titles if not in hectares.

Mark Wonnacott QC and Harriet Holmes acted for the respondent, instructed by Hugh James (the team led by Robert Phillips), both in the Court of Appeal and below.

Fenner Moeran QC acted for the appellants, leading Oliver Radley-Gardner QC of Falcon Chambers, in the Court of Appeal, and instructed by Forsters LLP.

A copy of the Court of Appeal’s judgment can be found here.

Al Jaber and others v Mitchell and others [2021] EWCA Civ 1190

Last Friday, the Court of Appeal handed down judgment in Al Jaber v Mitchell [2021] EWCA Civ 1190, a keenly awaited decision which considers with the application of the doctrine of immunity from suit to statements given by a former director during an examination under section 236 Insolvency Act 1986.

The case concerned re-re-amendments mid-trial to the liquidators’ misfeasance claim, which wished to allege that a former director had given inaccurate answers (on oath and by witness statement) in a s236 examination, and alleged that the company had a cause of action in respect of those answers.

At first instance, the judge had decided that these claims were not barred under the doctrine of immunity from suit, because the examination was not a “judicial proceeding” where the examinee was a “witness giving evidence”. The Court of Appeal overturned the Judge’s decision, holding that that the new claims were barred, and that the first instance judge had taken an overly narrow view of the immunity.

Lady Justice Asplin (with whom Sir Nicolas Patten and Lady Justice Carr agreed) noted that although immunity from suit had been expressed to apply to “court” proceedings, the rule was not quite so broad – the individual context where the rule was being applied needed to be examined.

Although an s236 examinee could not be equated with an ordinary witness, and although the examination was a “very different creature” from an ordinary trial, the examination took place as part of the general winding-up which was managed by the court and which gave rise to winding-up proceedings. The examination was one of the “procedural powers” which enabled a liquidator to locate the assets of the company as part of the compulsory winding-up procedure, during which the liquidator is acting as an officer of the court. These wider proceedings were “judicial proceedings” which benefited from the immunity; they were commenced with an order of the court and supervised by the court. The judge had therefore erred in focusing on the s236 examination itself: it was not necessary to decide whether during the examination, the examinee was a witness giving evidence because the wider context was sufficient to give the examinee protection. Further, the judge supervising the examination and the liquidator conducting the examination would both have the benefit of immunity from suit, which pointed towards the examinee also being protected.

Finally, the court was not convinced that providing an immunity would have any significant chilling effect as a matter of public policy. On the contrary, the fact that an open and honest examinee could (without immunity) be liable to civil claims based on their attempts to co-operate would undermine the usefulness of s236 as an information gathering tool. Further, although there would not be a cause of action arising from the examination itself, claims could still be made for a failure to disclose in breach of the duty under section 235 Insolvency Act 1986 where applicable.

Looking forward

As both courts noted, this was a novel situation which had not previously been considered – no doubt because claims strictly on the basis of what is said to a liquidator will be rare. This is a welcome clarification that answers given as part of a s236 examination will be protected, although examinees will of course have to be aware that the court’s general powers of contempt are still engaged, and that the Court of Appeal did consider that claims for failure to disclose (where such duties exist) would not infringe the principle.

The Court of Appeal did not give a view on whether immunity may attach to more informal demands made under s235 by liquidators. Certainly on the court’s reasoning, this remains a possibility since the liquidator will be utilising the same “procedural powers”, and there will be the same on-going judicial proceedings, which was the Appellants’ position at first instance. Further authority may be needed on this question in the future.

Clare Stanley QC and Lemuel Lucan-Wilson (instructed by Baker & McKenzie) acted for the successful appellants.

The full judgment is available to read and download here.

Capitol Park Leeds v Global Radio Services [2021] EWCA CIV 995

The Court of Appeal today handed down judgment in this high-profile case about tenant break clauses.

The case concerned a three-storey modern commercial unit, constructed in 2000, outside Leeds. It had been leased on 4 March 2002 for a term expiring 11 November 2025. The lease had been assigned to the current tenant, Global Radio Services Ltd, in 2014.

Clause 10 of the lease was a tenant’s break clause, giving the tenant the option to terminate the lease on 12 November 2009 or 12 November 2017, subject to certain conditions. One of the pre-conditions to the break clause, clause 10.1.4, was that the tenant should

“give vacant possession of the Premises to the Landlord on the relevant Tenant’s Break Date”.

Global sought to exercise the break clause on 12 November 2017. By that date it had stripped out of the unit a range of items including ceiling grids, ceiling tiles, fire barriers, floor finishes, pipework, lighting, smoke detection systems and radiators. The evidence showed that these items had been part of the original base build specification and so in law were landlord’s fixtures or elements of the building itself.

When the tenant sought to terminate the lease, the landlord contended that it could not do so because it had not given “vacant possession of the Premises”. “The Premises” was a defined term, which included both the original building and “all fixtures and fittings at the Premises whenever fixed”. The landlord therefore argued that, by removing significant elements of the building or fixtures, the tenant had failed to give back “the Premises” as required by clause 10.1.4.

At first instance, the Deputy Judge, Benjamin Nolan QC, agreed with the landlord. He also rejected a claim by the tenant that the landlord was estopped from relying on the alleged failure to comply with the break condition. He determined that the break condition was not satisfied and that the lease was continuing to run to its term date in 2025.

The tenant appealed and the Court of Appeal has overturned the Judge’s decision.

Newey LJ, with whom Elizabeth Laing and Moylan LJJ agreed, held that clause 10.1.4 was not concerned with the physical state of the unit but with whether the landlord was recovering it free of the conventional trilogy of “people, chattels and interests”. He contrasted clause 10.1.4 with break conditions considered in other cases which required tenants to have observed and performed their covenants. He also contrasted clause 10.1.4 with the yield up covenant, which did require the Premises to be yielded up “in a state of repair condition and decoration which is consistent with the proper performance of the Tenant’s covenants”. The fact that the break clause made no mention of repair or condition, when the yield up covenant did, added support to the tenant’s case that the break clause was not concerned with such matters.

The Court also considered that the landlord’s interpretation of the clause would have implications which the parties were unlikely to have intended, including an inconsistency with the yield up covenant if there were damage by an Insured Risk. It noted that the landlord was not left without a remedy, because it retained its right to damages for a breach of covenant.

Clause 10.1.4 therefore required the tenant to return the “Premises” as they were on the break date, free of people, chattels and interests. Whilst the building had been left in a dire state, that did not preclude valid exercise of the break clause and the landlord’s remedy was to seek compensation for whatever loss it may have suffered.

Joanne Wicks QC acted for the landlord both in the Chancery Division and in the Court of Appeal. A copy of the judgment can be found here.

Punter Southall Governance Services Ltd v Hazlett [2021] EWHC 1652 (Ch)

The High Court (Morgan J.) has delivered judgment in the above case, concerning the Axminster Carpets Group pension plan. It is now the leading judgment on limitation in claims by pension scheme beneficiaries for arrears. It also gives key guidance on the court’s power to award interest on such claims and on the interpretation and exercise of forfeiture clauses, and makes certain findings on the scope of s.37 of the Pension Schemes Act 1993. This summary only scratches the surface of a detailed 347-paragraph judgment covering several different areas of pensions and trusts law. A more flippant title might have been: “The Axminster Carpets case: a pile of issues…”

Limitation

As in Lloyds [2019] Pens LR 5, the Court found that a claim by a pension scheme beneficiary brought against a current scheme trustee seeking payment of arrears of pension was not a claim to which a statutory limitation period applied. Such a claim would be a claim for an account and order for payment, and fall within s.21(1)(b) of the Limitation Act 1980. This is because it is an action “to recover from the trustee trust property” within the meaning of s.21(1)(b). Those words import no requirement that the beneficiary has a proprietary interest in the arrears.

Interestingly, the Court accepted that scheme members have no proprietary interest in specific assets of the scheme, but added that they could be considered to have a “proprietary interest in the broader sense of the term” due to their right to enforce the trust and the possibility of asserting that right against those holding trust assets (at [71]).

Forfeiture

Two rules of the Plan were relied on as forfeiture clauses, the first in a 1992 Deed and the second in a 2001 Deed. The first enabled the Trustee to apply monies that had not been claimed within six years of their due date to other purposes. The second provided that such unclaimed monies “shall be forfeited” but gave the Trustee a discretion to pay them to the beneficiary regardless, or use them for other purposes.

The Court held only the second of these rules operated as a forfeiture clause as the former did not contain any wording which directly dealt with the forfeiture of an entitlement to benefits (at [175]).

Fetter on amendments

The effect of the Court’s construction of these clauses was that the 2001 Deed introduced an automatic forfeiture clause where none had existed before. The Court considered whether this was prevented by the Plan’s Courage proviso to its amendment power, which read “Provided that no such amendment or addition shall be made which would diminish the benefits .. already accrued .. under the Plan to the Member without his previous written consent”.

The Court held that the change to an automatic forfeiture rule was not an alteration which “would diminish the benefits .. already accrued”. It “might” do so, but it could not be said that it “would” because (i) the alteration did not affect the amount of the benefits to which a member was entitled and (ii) the forfeiture only occurred if benefits were unclaimed for 6 years, which might or might not happen (at [221]).

Exercise of Discretion

The Court expanded significantly on its guidance in Lloyds as to how trustees should exercise any discretion given to them under a forfeiture clause. In relation to claims for arrears of pension, the Court rejected an argument that it would be perverse to forfeit the arrears. This was because e.g. there might be administrative difficulties in paying them. However it said that the “first reaction” of the trustee where members were not at fault should be to pay arrears without delay. Various potentially relevant factors for the trustee’s exercise of discretion are listed in the Judgment, including the fact that the Plan was in a PPF assessment period. Nothing in ITS v Hope [2009] Pens LR 379 required that fact to be left out of account (at [293]).

Interest

Finally the Court considered whether claims for arrears by beneficiaries should bear interest. It is settled law that claims for arrears of an annuity do not bear interest. However the Court held that if a beneficiary claimed the arrears by way of a claim for equitable compensation for breach of trust, the court had its usual jurisdiction to award interest on equitable compensation (at [324]). The court also had jurisdiction to award interest under s.35A Senior Courts Act 1981. The appropriate rate in relation to arrears of pension increases was held to be 1% above base.

Section 37 PSA 1993

The Judgment records that the parties compromised a number of issues, including as to the scope and effect of s.37 of the Pension Schemes Act 1993. The 2001 Deed mentioned above did not have an actuary’s confirmation for s.37 purposes, leading to uncertainty as to the effect of some amendments that it made. The Court approved the parties’ compromise, including making Re Benjamin orders that gave the Trustee permission to administer the Plan on a certain factual footing. This is a useful tool in compromises, and is discussed at [32] and [38]. Further, the Court made declarations that s.37 PSA 1993 did not affect lump sum death benefits or benefits to survivors other than widows or widowers. This followed a consideration of s.12B(3) & (4) PSA 1993 and may prove relevant in other cases.

The Judgment is available here.

Tom Robinson acted for the Claimant, led by Henry Legge QC and instructed by Gowling WLG.

S Franses Ltd v The Cavendish Hotel (London) Ltd

HHJ Parfitt handed down judgment today in “round two” of this well-known case under the Landlord and Tenant Act 1954. S Franses Ltd having established its right to new tenancies of premises on Jermyn Street in the Supreme Court, this was the trial to determine the terms and rent of the new tenancies and the amount of interim rent – the latter payable over a particularly long period because of the time the litigation has taken.

The parties had substantially agreed the terms of the new leases and further agreements were reached during the trial, so that only four disputed terms remained. These were resolved substantially in the tenant’s favour.

The rent for the new tenancies was a major battleground and made more difficult by upheaval in the property market due to the Covid-19 pandemic and the absence of comparables. By the time of trial, both valuers had reduced their rental valuations from their original expert reports, in light of the large number of vacancies on Jermyn Street and the limited transactional evidence there was. The Judge found that good points had been made in cross-examination of both valuation experts but his ultimate rental value (£102,000 p.a.) was substantially closer to the valuation of the tenant’s expert witness (£96,500 p.a.) than the landlord’s (£174,750 p.a.). This valuation was approached using the traditional zoning methodology rather than assuming any particular percentage reduction in rental valuations attributable to Covid.

On any basis, the new rent is a very large drop from the previous passing rent of £220,000 p.a. This had been set on a rent review in 2011 on an artificial hypothesis which required the user and alienation covenants in the leases to be ignored.

The valuation date for the interim rent was as long ago as January 2016. Here, a major problem for the Landlord was that its valuation expert witness had not properly valued a year-to-year tenancy, as required by the Act as the starting point for the interim rent decision. Because the Tenant had in fact had more than 5 years’ of occupation, he had approached the valuation as if it were of a 5-year term, ignoring the fact that the Act intends the interim rent figure to reflect the uncertainty to a tenant of not knowing whether or when its tenancy will be reviewed. The Judge accepted the Tenant’s expert’s valuation of £140,650 p.a. but held that needed to be adjusted to take into account various factors, including the difference between that figure and the passing rent of £220,000 p.a. He determined an interim rent of £160,000 p.a.

Whilst this decision – unlike the Supreme Court in “round one” – does not make new law, it will be of interest to the market, which is keen to understand how the courts are likely to approach the valuation challenges that the pandemic (and resulting steep decline in West End rental values) has brought.

Joanne Wicks QC, instructed by David Cooper & Co, acted for S Franses Ltd.

The judgment can be downloaded here.

Britvic PLC v Britvic Pensions [2021] EWCA CIV 867

The Court of Appeal has just handed down its decision in Britvic PLC v Britvic Pensions [2021] EWCA CIV 867, overturning the first instance High Court decision. It is a major decision on interpretation (applying principles applicable to contracts and other documents, and not just pension schemes). This note focuses on the interpretation issue of general application; a second note will touch on the pensions-specific aspects.

The decision is a clear restatement of the current primacy of the words used by the parties and the limits on what is called “corrective” construction. The prospect of successfully using background context to get a “sensible” or “commercial” outcome which strains the natural meaning of contractual words has receded further.

Those with an interest in the developments of construction may note this Panel has a long history with this issue: Vos MR was (successful) leading counsel in ICS v West Bromwich [1998] 1 WLR 896 and Nugee LJ was (again successful) leading counsel in Chartbrook v Persimmon Homes [2009] 1 AC 1101. The Master of Rolls said “It does not seem to me to be profitable to consider whether or not the applicable principles have developed over the years…”.

The Main Issue

Simplifying the drafting background hugely, the Britvic Pension Plan contained provisions for members’ pensions to increase in accordance with inflation. Those provisions were subject to a power of the employer to set the rate: the dispute was how to interpret that power. There are certain statutory protections providing for pension increases (relevantly under s51 Pensions Act 1995) which gives further limited protection.

The pension increase rule (C.10) had a sub- rule first providing that each pension increases in each year starts to be paid, then:

“C.10(2) The part of a pension which exceeds any guaranteed minimum pension in payment is increased on 1 October in each year. The rate of increase is the percentage increase in the retail prices index during the year ending the previous 31 May but subject to a maximum of 5 per cent… (or any other rate decided by the Principal Employer).” (emphasis added)

The issue related to the words in brackets. Did it mean the Principal Employer could set any other right, higher or lower, or (as the members argued) did it mean the Principal Employer could only set a higher rate.

The members succeeded below ([2020] EWHC 118 (Ch), [2020] Pens LR 11). The judge relied on a range of factors, including the background documentation provided to members when they joined the scheme (which proceeded on the basis of RPI increases and a discretion to award increases above 5%)(see the appeal decision at [5]-[7]). According to a strong Court of Appeal Panel (Vos MR, Coulson LJ, Nugee LJ), he was wrong to do so: other meant other, not higher.

The Court of Appeal Leads with the Words

Vos MR traced the well-known history of interpretation cases from ICS and Chartbrook through Rainy Sky [2011] 1 WLR 2900, Arnold v Britton [2015] AC 1619 and Wood v Capita [2017] AC 1173. He derived from those cases the key proposition that where the parties have used unambiguous language it must be applied (at [29]-[30). Since “any other rate” is unambiguous and naturally means “higher or lower”, the Court applied it. All of the Panel adopted that approach.

Two points warrant emphasis:

This decision makes it clear that “corrective construction” is functionally treated by the Courts as a different exercise to the construction exercise of working out what the words mean. A “corrective construction” exercise “is only normally adopted where there really is an obvious mistake on the face of the document” (Vos MR at [33], and similarly Coulson LJ at [60]-[61] and Nugee LJ at [75], [77]) – such as the wrong date in Mannai, or wrongly naming a pub when it was clear which pub was referred to. The cure for the mistake also needs to be clear: [32]. So, it appears rather than there being a spectrum of interpretation having regard to literal wording at one end, and emphasising background context at the other, the exercises of “what do the words mean” and “was there a mistake” are different. Importantly, all of the Panel proceeded on the basis that unless there is ambiguity, there is no scope for use of context to “rewrite” the clear words (Vos MR [29]-[30]; Coulson LJ [56]-[57]; Nugee LJ at [70] There needs to be “a basis in the words used and the factual matrix for identifying a rival meaning” (see Coulson LJ at [57] quoting Rainy Sky).
The Panel applied the strict words even though they recognised that this result “may or may not give the transferring members grounds for complaint” (Nugee LJ at [74]) and that “I can quite see there may have been a mistake” (Vos MR at [32], original emphasis). Certainly, by allowing the appeal, the Court of Appeal gave full effect to the words used, and was not swayed from that outcome by the explanations in relation to the factual background and other materials that arise. As counsel for the Trustee, it would be inappropriate to comment further.

Jonathan Chew acted for the Britvic Trustee, instructed by Gowling WLG (UK) LLP (the team led by Ian Gordon), both in the Court of Appeal and below. The Court of Appeal’s judgment is available here.

TFS Stores Ltd v Designer Retail Outlet (Mansfield) General Partner Ltd [2021] EWCA Civ 688

Judgment was handed down today by the Court of Appeal in TFS Stores Ltd v Designer Retail Outlet (Mansfield) General Partner Ltd [2021] EWCA Civ 688. Joanne Wicks QC appeared with Mark Galtrey for the appellant, a fragrance retailer and tenant of six shops in discount outlet centres. The tenant was seeking to challenge a finding by the Judge below that its leases had been successfully contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954. In particular, it contended that the forms of statutory declaration it had made when entering into the tenancies did not satisfy the requirements of the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 because none of them accurately recorded the date on which the term of the lease commenced. The Court of Appeal dismissed the appeal, holding that the declarations, which gave the commencement of the term either as “a date to be agreed”, “the date on which the tenancy is granted” or which specified the date from which access would be given to the premises under an agreement for lease, were sufficient.

Whilst many landlords of business premises will breathe a sigh of relief that these commonly-used forms of words have been held to be effective to prevent business tenants claiming a new lease, questions still remain about the purpose of this part of the declaration and exactly how Parliament intended it to be completed.

The full judgment can be downloaded here.