Capitol Park Leeds Plc v Global Radio Services [2020] EWHC 2750 (Ch)

Capitol Park Leeds Plc v Global Radio Services [2020] EWHC 2750 was concerned with a tenant’s conditional break clause. The lease gave the tenant the right to determine it if, amongst other things, it “gave vacant possession of the Premises to the Landlord on the relevant Tenant’s Break Date”. “The Premises” was a defined term, including the original building on the property and landlord’s fixtures, whenever fixed.

The tenant started dilapidations work and in that context stripped out significant elements of the base build and landlord’s fixtures including radiators, lighting and ceiling tiles and grids. It stopped work in the hope of negotiating a settlement and surrender with the landlord, but was unable to do so. It did not replace the elements of the building which it had removed, leaving it, in the Judge’s words, “an empty shell of a building which was dysfunctional and unoccupiable”.

The tenant argued that it had complied with the break condition because it left the premises empty of people, chattels and other interests and had therefore given up vacant possession. The Judge, Deputy High Court Judge Benjamin Nolan QC, however, held that the tenant had not complied with the break condition. What it had delivered up on the break date was not “the Premises”, as that term was defined in the Lease. He also held that the tenant had not established, on the facts, that the landlord was estopped from relying on the failure to comply with the break condition.

Permission to appeal to the Court of Appeal has been granted.

Joanne Wicks QC acted for the landlord. You can read and download the final judgment here.

TN Ramnauth and Company Ltd v Estate Management and Business Development Company Ltd

In August 2020, the High Court of Trinidad and Tobago handed down a long-anticipated judgment in TN Ramnauth and Company Ltd v Estate Management and Business Development Company Ltd  exploring the tort of an unlawful means conspiracy in the context of civil fraud claims brought by the government and government organisations against a large number of defendants, including former government ministers and public officials.

David Phillips QC represented the claimants in successfully resisting the procedural and substantive challenges brought against the claims.

One of the challenges that was successfully resisted was that the tort of an unlawful means conspiracy is one that is not recognised in Trinidad and Tobago – a very important decision in the context of these particular claims.  Of interest beyond Trinidad and Tobago is the judge’s detailed review of the ingredients of a variety of civil fraud claims, and the level of particulars that must be pleaded to establish those claims.  The decision is based on a widescale review of authorities from many Commonwealth jurisdictions, including the decision in Three Rivers, and draws those principles together in one integrated judgment.

Click here to download and read the judgment.

Raiffeisen International Bank AG v Scully Royalty Ltd – FSD 162 of 2019 (RPJ)

On 7 July 2020 Parker J, sitting in the Grand Court of the Cayman Islands, handed down his written reasons for orders that he had made earlier this year in favour of Raiffeisen International Bank AG (‘RBI’), which amongst other things continued a worldwide freezing order (“WFO”) and notification injunction against the NYSE-listed Cayman parent company, Scully Royalty Limited (“SRL”), of the MFC Group.  RBI had obtained ex parte relief against SRL in September 2019 and following a hearing in January 2020, Parker J continued that relief in addition to, amongst other things, granting similar injunctions against a further Cayman company, and rejecting a jurisdiction challenge brought by a further Canadian defendant.

By way of background, RBI alleges that it is the victim of a fraudulent conspiracy intended to asset-strip the former parent company of the MFC Group against which (the former parent) RBI has the benefit of a number of guarantees.  RBI claims €43.7m under one such guarantee in the underlying Cayman proceedings in which RBI seeks that a number of transfers, including of a Canadian mine, a Maltese merchant bank, and the transfer of a number of further companies by way of a dividend, are reversed to restore those assets from the new parent (SRL) to the former parent, so as to enable the debt under the guarantee to be satisfied.

The judgment provides Cayman law guidance (in some instances to the relevant threshold for this stage of the proceedings) as to (a) claims pursuant to the Cayman Fraudulent Dispositions Law (“FDL”), (b) claims pursuant to the tort of unlawful means conspiracy, including as to the availability of mandatory injunctive relief, declaratory relief, and damages payable to a party other than the claimant, (c) the governing law and proper jurisdiction of both such claims, including in particular under the ‘necessary and proper party’ gateway for service out, (d) the scope of the rule against the recovery of reflective loss, (e) the threshold standard for establishing a good arguable case , (f) the test to establish a real risk of dissipation for a WFO, and (g) the terms and scope of WFO’s, including that in the circumstances there should be no maximum sum ‘cap’ on the WFOs.

Two of the more notable features of the judgment include:

• First, guidance on a number of aspects of claims pursuant to the FDL, on which there is little prior authority. The FDL was held in a number of respects to be analogous to the Insolvency Act 1986, s423, including (a) that it has extra-territorial effect, and as to the proper approach to the exercise of the court’s discretion in this regard, (b) that it can apply to set aside a dividend, and (c) that the claimant need only show that a purpose of the transfer was to defeat creditors and not that this was the sole or dominant purpose.  Further, (d) setting transfers aside “to the extent necessary” pursuant to FDL, s6 may require a sum greater than that claimed by the particular creditor-claimant to be set aside, in light of the company’s insolvency and the total debts owed to the company’s creditors.
• Second, guidance as to the scope of the rule against reflective loss. This has been overtaken to some degree by the recent decision of the UKSC in Marex, assuming that is followed in Cayman as the decision of the EWCA had been (Elizabeth Houghton’s article on the UKSC decision in Marex can be found here).  Prior to the UKSC decision in Marex having been handed down, Parker J found there was a good arguable case that the rule did not apply to (a) a claim that was not based on alleged breaches of duty by the company in question’s directors and was instead based on alleged corporate acts of the company in question, or (b) a claim that sought the assets in question be restored to the company, rather than damages payable to the claimant, whether by way of (i) the FDL, (ii) a mandatory injunction, or (iii) damages payable to the company.  Nor did it apply to the declaratory relief sought against the eighth defendant.

The judgment of Parker J can be found here.

Tim Penny QC (appearing in the Cayman Islands) and Jamie Holmes acted with Ogier and Mishcon de Reya for RBI, the successful claimant/applicant before the Cayman Court.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The full judgment can be downloaded here.

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

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

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

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

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

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

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

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

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

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

The Court of Appeal were unanimous in accepting these arguments.

It concluded that the Claimant was right in contending that:

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

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

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

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

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

Please click here to download a copy of the judgment.

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

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

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

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

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

The judge held:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The full judgment can be read here.

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

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

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

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

The Court rejected each claim.

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

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

Fenner Moeran QC acted for the Defendant.

The full judgment can be handed down here.

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

Download the full judgment here.

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

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

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

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

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

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

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

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

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

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

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

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

The full judgment can be downloaded here.

Joanne Wicks QC and Emer Murphy acted for the appellant.