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:

  1. 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).
  2. 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.

Mitchell v Al Jaber [2021] EWHC 912 (Ch)

The High Court has had to grapple with the application of witness immunity and the unique examination process under section 236 Insolvency Act 1986. Witness immunity (or immunity from suit) provides that no witness, party, counsel or judge may be liable for words spoken or evidence given in court proceedings; it is an absolute immunity from any civil proceedings based on such conduct. Immunity was removed from barristers in 2002[1], and for expert witnesses being sued by their own clients in 2011[2], but no authority has dealt with the position of examinees under section 236 until now.

Mitchell v Al Jaber [2021] EWHC 912 (Ch) was the hearing of an amendment application made by the liquidators to plead claims including (amongst others): misrepresentation; negligent misstatement; and conspiracy, alleging that a company director had knowingly given false information to the liquidators in the course of a section 236 examination.

Accordingly, the question arose as to whether the examination was a “judicial proceeding” for the purposes of the witness immunity rule, and whether the examinee was merely giving information (which would not attract the protection of the rule), or whether they were giving evidence as a witness.

The liquidators argued that although examination itself took place in court, it lacked the hallmarks of judicial proceedings: no issue was under consideration by the court on a s236 examination to arrive at even a non-binding determination – indeed, no decision was taken by the court on the basis of the examination itself; there was no usual procedure of examination-in-chief and cross-examination; and the examination was confidential and took place in private. Nor could the examinee rely on the privilege against self-incrimination. The liquidators further argued that as case law has referred to s236 as solely providing information, and that the examinee is different from the “ordinary witness”, no immunity arose.

The respondents argued that whilst the examination itself does not resolve a dispute, it takes place in circumstances where the examinee is a party to an action, gives evidence in court and is subject to court control, which are the key elements of the immunity. The examinee gives evidence on oath, may be arrested for refusing to attend the examination, and may be committed for contempt of court for refusing to answer questions. In any event, the examination is part of wider insolvency proceedings which determine the issue of the dissolution of the company and the distribution of its assets. Accordingly, this meant that either (i) the examination was a judicial proceeding; or (ii) that it fell within the extended immunity as a preliminary step to a judicial proceeding.

The Decision

In a meticulously written judgment, Mrs Justice Joanna Smith DBE held that the witness immunity rule did not apply for the following reasons:

  • Firstly, whilst a section 236 examination had many characteristics of a judicial proceeding, it was not one. The Judge held that there were too many points of difference between an ordinary judicial proceeding and the process of examination under section 236. In her view, the fact that the court during the examination was not resolving an issue or inquiring into a specific issue in dispute was fatal. Nor were there sufficient legal consequences flowing from the section 236 examination itself.
  • Secondly, as the section 236 power is designed as a means for the liquidator to acquire sufficient knowledge about a company to fulfil their duties and determine their next steps, it would be inappropriate to characterise the examination as a judicial proceeding where the witness gives evidence; the authorities suggested it was a quite different procedure. There was also a need to encourage co-operation between those with knowledge of a company’s affairs and the liquidator which would be undermined if an examinee under s236 was protected, but the voluntary discloser of information was not.
  • Thirdly, although some s236 examinees might come under the extended immunity, there was insufficient evidence for that to be available to the director here. It was not clear that proceedings had been contemplated when the examination took place, and the causal link between the examination as an investigatory step and the eventual proceedings was insufficient.
  • Fourthly, the existence of general insolvency proceedings was not enough to make the examination a judicial proceeding, or to engage the extended immunity.

Permission to appeal has been granted, more decisions are therefore likely.

A copy of the judgment can be found here. Clare Stanley QC and Lemuel Lucan-Wilson acted for the respondent director.

[1] Arthur JS Hall v Simons [2002] 1 AC 615

[2] Jones v Kaney [2011] 2 AC 398

Dalkilic and Pekin v Pekin and Paragon Property Investments Limited [2021] EWHC 219 (Ch)

On 8 February 2021 Mrs Justice Bacon handed down judgment in Dalkilic and Pekin v Pekin and Paragon Property Investments Limited [2021] EWHC 219 (Ch), a shareholder dispute concerning the ownership of a valuable manufacturing company, Paragon Quality Foods Limited.

The matter was heard in a four-week remote trial in late 2020. The Claimants were successful in their claims that they were the beneficial owners of 25% and 10% of the company respectively, based on events that took place in the 1990s and early 2000s. In addition to orders for the transfer of shares, the Claimants obtained orders for substantial payments in respect of dividends that had been declared over the years. The Defendants were also ordered to pay costs on the indemnity basis.

Bobby Friedman (led by Michael McParland QC) acted for the successful Claimants.

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

Dion Friedland v Charles Hickox

On 1 February 2021 the Privy Council delivered judgment in the appeal Dion Friedland v Charles Hickox in which David Phillips QC represented Mr Friedland.  A copy of the judgment can be found here.  Described by Lady Arden as being “the latest round in long-running litigation between Mr Dion Friedland and Mr Charles Hickox” the appeal involved the construction of a New York mediator’s Award arising out of New York commercial proceedings generated by a series of Anguillan contracts.  The subject matter of the dispute was the Cap Juluca resort in Anguilla, one of the Caribbean’s premier resorts.  The parties and their associated companies have now been in dispute for almost 35 years, generating litigation and hearings in Anguilla, Antigua, St Lucia, London and New York.

Estate Management and Business Development Co Ltd v Namalco Construction Services Ltd & Ors

On 11 January 2021 David Phillips KC appeared before the Court of Appeal in Port of Spain, Trinidad & Tobago, in the latest round of the hard-fought Contractors’ Conspiracy claims.  David had successfully resisted the Contractors’ strike-out and related applications, Mr Justice Aboud having handed down a 122 page judgment in August 2020.  Amongst the many grounds of appeal the Contractors challenged the adequacy of the pleaded case on unlawful means conspiracy, and boldly challenged the existence of the tort of an unlawful means conspiracy in Trinidad & Tobago.  Further written submissions are to be filed within the next month, after which a reserved judgment will be delivered.  A report of the hearing on 11 January 2021 can be found here.

Fishbourne Developments Limited v Stephens [2020] EWCA Civ 1704

The Court of Appeal has underlined the importance of the factual context and commercial common sense when interpreting the trigger for the exercise of an option over development land.

Fishbourne Developments Limited v Stephens [2020] EWCA Civ 1704 was an expedited appeal about the interpretation of an option agreement to acquire a 117-acre farm (“the Farm”) in the village of Fishbourne, near Chichester in West Sussex. The Farm comprised open fields with a cluster of farm buildings. The option was due to expire on 31 December 2020. It entitled the option holder to acquire the Farm at a 30% discount from its open market value. The trigger for the option was the obtaining of a “Planning Permission” which was defined to mean “a planning permission granted by the Local Planning Authority permitting any development of the Property”. In 2016, Fishbourne Developments Limited (“FDL”), the option holder, obtained planning permission to erect a new pitched roof on one of the existing farm buildings and in 2018 gave notice to trigger the option over the Farm on the basis that it had obtained a Planning Permission.

Argument focussed on the meaning of the words “any development of the Property”. The Judge below held that this meant the erection of new buildings involving a change of use from agricultural use of the whole, or substantially the whole, of the Farm. Accordingly he held that FDL had failed to trigger the option. FDL appealed arguing that “development” could only bear the meaning it is given in section 55 of the Town and Country Planning Act 1990, that the Judge had been wrong to construe the option consistently with a series of earlier option agreements relating to the Farm and that the Judge had also been wrong to hold that a Planning Permission had to relate to the whole or substantially the whole of the Farm: a Planning Permission over part only of the Property was sufficient, it was said.

The Court of Appeal dismissed FDL’s appeal and upheld the Judge’s interpretation. The CA interpreted the word “development” in the particular context of the Farm and of the option as a whole, and held that its meaning did not in that context encompass all of the wide range of activities within the scope of section 55 of the 1990 Act. They concluded that an interpretation that enabled the option holder to trigger the option with an inconsequential planning permission made little commercial sense in circumstances in which the option holder would be entitled to purchase the Farm at a discount of 30% from its open market value. And they held that “any development of the Property” meant that planning permission had to be obtained in relation to the whole or substantially the whole of the Property, not part only of the Property. This was consistent with the definition of “the Property” in the option and its deployment in the option as a whole, despite the fact that this required them to conclude that another term in the option must contain a mistake. The CA did not find it necessary to place reliance on the previous option agreements.

Julian Greenhill QC acted for the Respondent, Mrs Stephens, instructed by Irwin Mitchell LLP. You can read and download the judgment here.

Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45

On 6 November 2020 the Supreme Court handed down judgment in Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd, the first ever case in which the highest court (whether House of Lords or Supreme Court) has considered s.84(1) of the Law of Property Act 1925 –  the power of the Upper Tribunal (Lands Chamber) to modify or discharge restrictive covenants. The appeal concerned the public interest limb of the most commonly relied on ground: s.84(1)(aa). The decision has important implications, legal and tactical, for developers seeking to rely on the public interest limb, and particularly the effect that a developer’s breach of the relevant covenant might have on the success of its application for modification.

Martin Hutchings QC and James McCreath acted for the appellant social housing provider and will be discussing the case in an upcoming “Hot Topic” Webinar. For further details, including how to RSVP, please click here.

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