Lucas v Gilbert [2022] 2 WLUK 177
Judgment has been handed down in Lucas v Gilbert [2022] 2 WLUK 177.
A solicitor and his client entered into a joint venture in respect of the development of a property, by which the solicitor provided the purchase costs and the client agreed to develop the property. The parties agreed to mutually share in the profit generated. The agreement was not reduced to writing. The parties subsequently fell into dispute as what was agreed, and whether the agreement was vitiated by alleged breaches of fiduciary duties or alleged undue influence.
These were the basic facts. The trial took place before HHJ Saggerson. The Judge held that that the Claimants’ case on the agreement was correct; the parties had agreed that the solicitor would be entitled to a 50% shareholding in the property-owning company. In so holding, the Judge referred to and applied the well-known guidance in Gestmin [2013] EHHC 3560 (Comm) and Natwest Markets Plc v Bilta (UK) Ltd (In Liquidation) [2021] EWCA Civ 680 as to the correct approach to witness evidence, in particular where there are gaps in the documentary evidence.
Of more general interest were the Judge’s observations as to whether the agreement was vitiated by alleged breaches of fiduciary duty and alleged undue influence. The basis of these arguments was that the agreement was unenforceable by reason of the solicitor’s fiduciary position, which, it was said: (a) prevented him from profiting under the agreement; and/or (b) meant that the agreement had been entered into by reason of undue influence.
The Judge robustly rejected the Defendants’ argument as to fiduciary duties, citing academic and case-law authority for the (principled) proposition that the scope of fiduciary duties is moulded according to the nature of the relationship and the facts of the case, and the court must be careful not to distort the contractual agreement arrived at between commercially contracting parties by superimposing (strict) fiduciary obligations inconsistent with the contractual bargain. On the facts, the agreement was outside the scope of any fiduciary relationship between the solicitor and client.
The Judge also dismissed the suggestion that the agreement was entered into by any undue influence, no presumption of which arose because the transaction could readily be accounted for by the ordinary motives of the parties.
There was therefore judgment for the Claimants, and the Court ordered specific performance of the agreement (on the usual basis that the agreement was for the transfer of shares in a private company).
The decision is therefore a salient exemplar of the application of principles applicable whenever a fiduciary and his principal enter into a contractual relationship.
James Goodwin was instructed by IBB Law on behalf of the Claimants.
Click here to view the judgment.
Punter Southall Governance Services Ltd v Benge [2022] EWHC 193 (Ch)
Judgment has been handed down in Punter Southall Governance Services Ltd v Benge [2022] EWHC 193 (Ch).
This decision of Chief Master Shuman concerns the circumstances in which the Court might refuse to bless a decision of pension scheme trustees, with particular reference to the meaning of “necessaries of life”, the conflicted position of member-trustees, and the relevance of disputed matters of fact. It will be important both for those considering the payment of discretionary benefits from pension schemes, including the interrelationship of scheme rules and the authorised payments regime under the Finance Act 2004, as well as more generally in relation to the robust approach the Court should take to beneficiaries seeking to oppose the blessing of trustee decisions.
Following the death of Mr Thomas Benge, Punter Southall Governance Services Ltd, the independent trustee of the BST Group Pension Scheme, decided to exercise its discretion to pay a death benefit to Mrs Barrett, a member and trustee of the scheme, as a dependant of Mr Benge. This was vehemently opposed by Mr Benge’s son, Mr Nigel Benge, and consequently the trustee sought the Court’s blessing under the Public Trustee v Cooper jurisdiction. Giving judgment for the trustee, the Chief Master addressed three points of wider relevance.
First, the trustee’s power to pay the death benefit to Mrs Barrett was contingent upon her qualifying under a provision of the trust deed as a person “who in the opinion of the Trustees is (or was at the date of his death) dependent or interdependent on [Mr Benge] for all or any of the necessaries of life”. In announcing their decision to members, the trustee had referred not to the provision in the trust deed, but to the HMRC definition of dependant in schedule 28 paragraph 15 of the Finance Act 2004: a person is a dependant of a member “if, in the opinion of the scheme administrator, at the date of the member’s death (a) the person was financially dependant on the member, (b) the person’s financial relationship with the member was one of mutual dependence, or (c) the person was dependant on the member because of physical or mental impairment.” It was argued for Mr Nigel Benge that this test was different, and the trustee had been wrong to apply the HMRC test rather than the test in the trust deed.
The Chief Master considered the Court of Appeal’s decision in Simmons v White Brothers [1899] 1 QB 1005, where Romer LJ held (at 1008) that a “dependant” is someone who is dependent on another “for the ordinary necessaries of life, having regard to his class and position in life.” She considered the term “necessaries” to be fact sensitive in relation to “class and position in life” and that being dependant on someone for the necessaries of life, as required by the trust deed, was “materially the same” as the definition of dependant under the FA 2004. As a result, there is helpfully no difference between what is permitted by the trust deed, and the authorised payments regime under the FA 2004.
Second, there was clearly a potential conflict owing to Mrs Barrett’s position as trustee, member, and potential object of the trustee’s discretion in relation to the death benefit. This was managed by the appointment of the claimant as trustee, and the complete exclusion of Mrs Barrett from any decision-making in relation to the death benefit. It was nevertheless complained that this exclusion meant that she had failed “to perform the duty of a trustee to ensure that all information required for the making of a properly informed decision is available” and that the Court should apply the more onerous test set out by Briggs J in Jones v Firkin-Flood [2008] EWHC 2417 that where there is a conflict the trustee must prove that the transaction was “fair and reasonable”. The Chief Master rejected this, considering that Jones v Firkin-Flood was concerned with a conflict which had not been managed – it was only revealed in the course of evidence at trial. Mrs Barrett could not be “’Schrödinger’s’ trustee”, criticised both for acting as trustee and for not so acting.
Third, Mr Nigel Benge repeatedly made serious but unsubstantiated factual allegations against Mrs Barrett, extending to dishonesty and other criminal conduct, and complained that the trustee had not taken this material into account when he latterly produced documents which were alleged to support these allegations. The Chief Master held that if Mr Nigel Benge had wished to pursue such allegations he could have done so in Part 7 proceedings, before the Pensions Ombudsman, or elsewhere. In circumstances where the trustee confirmed that it had considered this new material but remained of its prior view that the death benefit be paid to Mrs Barrett, there was no basis to refuse blessing, the Chief Master re-stating the Public Trustee v Cooper orthodoxy that “[t]he court does not forensically examine from the start of the process but rather looks at the end result, the decision, and asks itself whether there is a sufficiency of evidence to support this. I am satisfied that the claimant, and Dentons before, have taken account of only relevant matters and reached the decision which is squarely within the range of decisions which a reasonable trustee could make on the basis of this evidence.”
Following the handing down of her judgment, the Chief Master ordered both the trustee’s and Mrs Barrett’s costs to be paid by Mr Benge, on the footing that his hostile approach to Mrs Barrett in particular had taken this case out of the ordinary case of a trustee blessing (where all parties’ costs are normally paid from the fund) and had given it the character of hostile litigation (where the loser pays the winner’s costs).
Paul Newman QC was instructed on behalf of the successful trustee. Michael Ashdown was instructed on behalf of Mrs Barrett.
The full judgment can be found here.
Goodrich v AB [2022] EWHC 81 (Ch)
Judgment has been handed down in Goodrich v AB [2022] EWHC 81 (Ch).
A decision of Chief Master Shuman, this case is an important decision concerning the construction of settlements created prior to the Human Rights Act 1998, the Civil Partnership Act 2004 and the Marriage (Same Sex Couples) Act 2013.
Following an application brought by the trustees of two employee trusts seeking approval to complete a share buyout under Public Trustee v Cooper principles, which approval was given in February 2020, the trustees sought directions concerning, inter alia, the construction of the terms “spouses” and “children” contained in a settlement deed dated April 1990. The Court determined that (i) civil partners and same-sex spouses were included within the beneficial class but (ii) step-children were excluded.
The judgment considers the approach to construction of employee trusts given their commercial purposes. The Chief Master also considered whether it was possible to read down the CPA 2004 and the MSSCA 2013 compatibly with ECHR Convention rights, specifically articles 8 and 14, to eliminate potentially discriminatory outcomes between spouses and civil partners and between opposite sex and same sex spouses in older settlements.
This is an important decision for those considering the interpretation of older settlements and the impact of human rights legislation upon them.
Simon Atkinson was instructed on behalf of the trustees who, despite being neutral, were directed to advance arguments in support of narrow constructions of these terms in order that the Court had the benefit of full argument.
The judgment can be found here.
Bath Rugby Ltd v Greenwood & Ors v Bath Recreation Ltd [2021] EWCA Civ 1927
On 21 December 2021, the Court of Appeal handed down judgment in this case concerning the enforceability of a pre-1925 Act restrictive covenant. The court has allowed the appeal, overturning the judgment of HHJ Matthews (sitting as a Judge of the High Court) dated 13 October 2020.
Martin Hutchings QC and Harriet Holmes (instructed by Clarke Willmott LLP) acted for the successful second appellant and intervener, Bath Recreation Limited.
The case concerned a covenant entered into in a conveyance dated 6/4/1922 of the Recreation Ground in Bath, a large open space which was formerly part of the Bathwick Estate, and part of which has been the home of Bath Rugby since about 1896.
Bath Rugby, as tenant of part of the Recreation Ground, had sought a declaration pursuant to s.84(2) of the 1925 Act that the covenant in question was not enforceable.
The court below decided that the covenant was enforceable on the basis the covenant had been annexed to ‘adjoining land or the neighbourhood’ as referred to in the conveyance, which could be interpreted as a reference to ‘buildings and land of the vendor…adjoining or near to’ the conveyed land.
The court of appeal disagreed, deciding instead that there must be a ‘sufficient indication’ of the land intended to be benefited by the covenant, either expressly or by necessary implication, and, crucially, that the words ‘adjoining land or the neighbourhood’ were neither sufficient, nor could they be construed in the artificial way that the Judge below had done. This was particularly so in the context of the restrictive covenant itself, which prevented nuisance and annoyance etc, given that the words ‘adjoining land or the neighbourhood’ were more apt to describe the area that the prohibited activities were not to affect, rather than being a description of the benefited land.
The decision is one of both legal and practical significance. For lawyers practising in this field, it provides consideration and clarification of matters relating to the annexation of both pre and post 1925 Act covenants and some noteworthy disagreement between members of the court about whether a condition of annexation for such covenants, is that the land intended to be benefited by the covenant has to be ‘easily ascertainable’. As for the practical significance of the decision, it may well make the difference between the Bath Rugby club being able to remain on the Recreation Ground as the club looks to redevelop its now out-dated stadium.
Some might say, therefore, that the judgment is a welcome Christmas present for fans of Bath Rugby and those who would like the Recreation Ground to continue providing an open space for recreational purposes.
A copy of the full judgment may be found here.
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.