Court of Appeal gives judgment on meaning of “ceases to own” in context of capital allowances legislative regime
Commissioners for HM Revenue and Customs v Altrad Services Limited [2024] EWCA Civ 720
Jonathan Davey KC has received judgment from the Court of Appeal in an appeal concerning a claim for capital allowances in respect of expenditure on plant and machinery.
The Court of Appeal held that, applying the Ramsay principle (WT Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300) and relying on the Supreme Court’s decision in Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16, on a purposive construction of section 61 of the Capital Allowances Act 2001 the statutory requirement, as a necessary condition of being eligible for the tax allowances, that the relevant person “ceases to own” the assets in question was not met in circumstances where, as part of a tax scheme, the taxpayer disposed of the assets only briefly before almost immediately reacquiring them, as had always been planned. The Court of Appeal considered that such a scenario did not constitute cessation of ownership “as a matter of ordinary language, and in a real and practical sense” as the legislation required (at [82]).
Accordingly, the Court of Appeal decided the appeal in the Appellants’ favour, overturning the Upper Tribunal’s decision ([2022] UKUT 185 (TCC)) to the contrary and agreeing with the decision of the First-tier Tribunal ([2020] UKFTT 62 (TC)). Jonathan Davey KC, David Milne KC and Barbara Belgrano (Pump Court Tax Chambers) act for the Appellants; Jonathan Peacock KC and Edward Hellier (11 New Square Chambers) act for the Respondents.
Supreme Court decision in Manchester Ship Canal Company Ltd v United Utilities Water Ltd (no.2) [2024] UKSC 22
The Supreme Court handed down judgment in Manchester Ship Canal Company Ltd v United Utilities Water Ltd (No. 2) [2024] UKSC 22 on 2nd July.
James McCreath appeared with Jonathan Karas KC (Falcon Chambers), James Maurici KC and Richard Moules KC (Landmark Chambers) representing United Utilities and instructed by Pinsent Masons.
The Supreme Court overturned the Court of Appeal’s judgment and held that where foul water was discharged into watercourses a common law claim for nuisance could be maintained. The Court, however, made clear that whether injunctive relief would follow would require consideration of the impact of such relief on the applicable regulatory framework. The Supreme Court also rejected the submission that Marcic v Thames Water plc [2003] UKHL 66 should be overruled: so, the only remedy for sewer flooding due to the inadequacy of sewerage infrastructure as described in Marcic was through the regulatory framework under the Water Industry Act 1991.
The judgment contains an important review of the law of nuisance and the case law dealing with the discharge of foul water into watercourses.
Judgment handed down in The Tropical Zoo Ltd v The Mayor and Burgesses of the London Borough of Hounslow
Last month, the High Court handed down judgment in the matter of The Tropical Zoo Ltd v The Mayor and Burgesses of the London Borough of Hounslow [2024] EWHC 1240 (Ch).
The case concerned approximately 45 acres of land close to Heathrow Airport of which the Defendant, a local authority, granted a 125-year lease to the Claimant, a zoo operator, in 2012. It was a term of the Lease that the Claimant would construct a zoo building (for which planning permission was simultaneously granted) on part of the land within 2 years.
In 2020, with the Zoo Building remaining unbuilt, the Defendant served two notices under s.146 of the Law of Property Act 1925 requiring the tenant to remedy its breaches of the Lease. The Claimant issued proceedings seeking declarations that the Lease was not liable to be forfeit because (among other matters) the Defendant was said to have waived any right of forfeiture by acceptance of rent, or alternatively that it should be granted relief from forfeiture.
Following a 5-day trial, Bacon J found in favour of the Defendant, holding that it was entitled to forfeit the Lease, and that the Claimant should not be granted relief.
The judgment will be of particular interest to practitioners for its discussion of the test to be applied in cases of waiver of the right to forfeit by delayed return of rent, the interaction between the law of agency and the law of waiver, the question of whether waiver can occur during the lifetime of a s.146 notice, and as an example of a case in which the court declined relief from forfeiture.
The Claimant has been granted permission to appeal to the Court of Appeal.
Julian Greenhill KC and Ernest Leung acted for the Claimant, instructed by Forsters LLP. Martin Hutchings KC and Daniel Petrides acted for the Defendant, instructed by Bevan Brittan.
Hong Kong Court of Final Appeal hands down judgment in China Life Trustees v China Energy Reserve and Chemicals Group
Jonathan Hilliard KC appeared successfully before the Hong Kong Court of Final Appeal, leading Laurence Li SC and Sik Chee-Ching, instructed by Grandall Zimmern Law Firm and working together with Kirkland & Ellis LLP.
This was the first case before the HKCFA to consider the important and much debated practical question of the test for whether a Quistclose trust exists. Such trusts are capable of arising where assets are transferred by one person to another to be used only for a specific purpose, and can therefore can in principle arise in a variety of commercial and other contexts. The decision sets out a clear test and guidance that will be important in future cases, along the way dealt with the recent Privy Council decision in Prickly Bay Waterside Ltd, and explains when such trusts can arise in the absence of express restrictions on the purpose for which the funds can be used by the recipient.
In China Life, the China Energy Group, on finding itself in financial difficulty, had paid $120m from a group treasury company into one SPV to meet the bond payments owed by another SPV. The payments were not made onwards to the bondholders and, after the group cross-defaulted, the question was whether the first SPV held the money on Quistclose trust for the treasury company.
The first instance Court and Court of Appeal had both found that no such trust existed on the facts. The HKFCA disagreed, holding that the Court of Appeal had wrongly considered that it was necessary to find an intention in the transferor to retain the beneficial interest. That was incorrect. The question in each case was whether there was an intention agreed to or acquiesced in by the recipient that the property not be at the free disposal of the recipient but instead only be used for the specified purpose.
Upper Tribunal decides tax and trusts appeal in respect of gilt strips
Watts v Commissioners for HM Revenue and Customs [2024] UKUT 00168 (TCC)
Jonathan Davey KC has received judgment from the Upper Tribunal in an appeal concerning a claim for tax relief on losses said to arise on the sale of gilt strips.
In circumstances where the taxpayer had acquired the gilt strips, granted an option over the strips to a trust of which he was life tenant, and then sold the strips to an investment bank which had acquired the benefit of the option from the trustees, the Upper Tribunal held that the taxpayer had not sustained a loss on the transfer (other than a loss of less than 1% of the amount claimed) for the purposes of the phrase “the amount payable on the transfer” (paragraph 14A(3) of Schedule 13 to the Finance Act 1996).
Accordingly, the Upper Tribunal upheld the First-tier Tribunal’s finding that on a purposive construction of the relevant legislation, the statutory language was to be interpreted more broadly than the Appellant contended for, and, therefore, on the facts of the case, the “transfer” in question comprised the aggregate of two amounts including, significantly, a payment made for the assignment of the option (as contended for by the Respondents) rather than just one amount (as contended for by the Appellant).
The Upper Tribunal therefore determined the appeal in the Respondents’ favour.
Jonathan Davey KC acts for the Respondents with Joshua Carey (Devereux Chambers); Aparna Nathan KC and Colm Kelly (Devereux Chambers) act for the Appellant.
Judgment handed down in Re BHS Group Ltd
The much-anticipated BHS judgment is here.
For those without the time to digest all 533 pages immediately, we have summarised the key points below:
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- The Court dismissed the Joint Liquidators’ primary case on wrongful trading, namely that the directors knew or ought to have known that insolvent administration/liquidation was inevitable within just 1 month of their appointment; and dismissed the claim in respect of 4 further dates of knowledge. It is good news for directors that the Court took into account the reality on the ground for the BHS directors during a challenging period.
- The Court accepted that by 8 September 2015 (the very last of the alternative dates of knowledge pleaded by the JLs) the directors ought to have known that insolvent administration/liquidation was inevitable. In doing so, the Court attached little weight to the top tier professional legal and accounting advice received by the BHS Group and the fact that none of those professionals advised insolvent administration/liquidation inevitable. Throughout the relevant period, the BHS Group instructed and worked closely with some of the most well-regarded and experienced legal and accountancy firms in the UK. The Companies sought and received advice on cash flow, wrongful trading, directors’ duties and in relation to certain transactions. The judgment therefore raises very serious questions of wider importance about the utility of (very expensive) professional advice if directors are unable to rely on it in precisely the circumstances of this claim.
- The Court did however agree with the arguments made on behalf of the directors that liability should be several due to differing levels of involvement/culpability. Mr Henningson was found liable for 15% of the IND after September 2015 – which meant that he was ordered to pay £6.5m in respect of the wrongful trading claim (as opposed to circa £160m claimed by the JLs).
- The Court dismissed 5 of the 8 misfeasant transactions claimed by the JLs because they failed to persuade the Court that any breaches of duty were causative of the loss suffered. Mr Henningson did not ‘cause’ the transactions in any real sense and, where it was alleged that he ‘permitted’ the transactions (i.e. a failure to act), the Court had to consider what would have happened if Mr Henningson complied with his duties. The Court accepted that, had Mr Henningson protested or refused to authorise the transactions, the dominant director and majority shareholder (Mr Chappell) would simply have engineered his removal and the transactions would have taken place in any event. This aspect of the judgment is therefore an important reminder to give causation real thought in “nonfeasance” claims where the allegation is effectively that a passive director permitted a transaction.
- Perhaps the most surprising aspect of the judgment is the Court’s acceptance of the Joint Liquidators’ novel claim for “misfeasant trading” from June 2015 in circumstances where it also held that Companies were not cash flow insolvent at this date and insolvent administration/liquidation was not inevitable at this date. Confusingly, the Court found that, had the directors complied with their CA 2006 duties, they would have put the Companies into administration/liquidation in June 2015 (despite finding that insolvent administration/liquidation was merely probable in June 2015 and that wrongful trading did not commence until September 2015).
- The judgment also currently leaves open the critical question as to the appropriate level of compensation for this claim of misfeasant trading. It is suggested here that the directors cannot sensibly be held responsible for the entire increase in the net deficiency in circumstances where they are found to have breached their duty in respect of individual transactions only (one would assume the loss would be the discrete loss caused as a result of entering into those transactions) and the Court has found that insolvent liquidation/administration at that time was not inevitable. Loss based on the entire increase in the net deficiency would allow liquidators to shoe-horn wrongful trading into a misfeasance claim and by-pass the stringent knowledge test i.e. that liability only follows where a director knew or ought to have known that insolvent administration/liquidation was “inevitable” (not “probable”).
Lexa Hillard KC and Rachael Earle acted for Mr Henningson.
Commercial Court judgment handed down in Gordiy v Dorofejeva & another
On Friday 24 May 2024, judgment was handed down by Foxton J in Gordiy v Dorofejeva & another [2024] EWHC 1273 (Comm).
The Claimant advanced fraud claims in deceit, the tort of causing loss by unlawful means and unlawful means conspiracy arising out of the failure of a share purchase agreement. The judgment addresses the Second Defendant’s challenge to jurisdiction on the basis that the claims did not satisfy the merits threshold that the Claimant had to show a real prospect of success on the claim. Having considered the contemporaneous documentation, the judge found that the Claimant had no real prospect of establishing the factual allegations that underlay her claims. Permission to serve out of the jurisdiction was therefore refused. The case shows that, in appropriate circumstances, a court will find that a claim has no real prospect of success even where allegations of fraud are made.
Tim Matthewson successfully acted for the Second Defendant, instructed by Alston & Bird (City) LLP.
Judgment handed down Cowan v Equis Special LP and others
Judgment has been handed down, following a 3-day hearing, in Cowan v Equis Special LP by Parker J sitting in the Financial Services Division of the Grand Court of the Cayman Islands. Some interesting observations about the meaning of ‘written agreement’ for the purpose of amendment of statements of case, the Cayman law of security for costs, and the identification of funders.
Thomas Grant KC, leading Stuart Cribb of Essex Court Chambers, acted for the Plaintiffs, instructed by Walkers.
Court of Final Appeal judgment on Proper role of the first assignment in delineating common parts
In Donora Company Limited v The Incorporated Owners of Tsuen Kam Centre [2024] HKCFA 3, a judgment handed down on 8 February 2024, the Hong Kong Court of Final Appeal allowed the appeal and held that, on the proper construction of the deed of mutual covenants (DMC), the external walls are common parts in that multi-storey building.
The Court examined the significance of a first assignment in deciding whether the external walls are common parts. The Court held that a reservation clause (reserving the right to exclusive use of the external walls to the developer) in the first assignment at most only amounts to a covenant by the first purchaser to restrict the exercise of his right of possession regarding the external walls. There is no covenant by the developer as to how the external walls were to be used and the reservation clause in the first assignment could not be construed as a covenant excluding the possibility of the external walls being demarcated as common parts in the DMC.
Instead, it is the DMC that demarcates the common areas and facilities and these covenants are mutual covenants by every co-owner to other co-owners on common areas and facilities.
Therefore, the relevant character of the external walls is to be determined by reference to the DMC, though the first assignment may be referred to as an aid to construction in case of ambiguity in the DMC.
James Man acted for the appellant and was instructed, in his capacity as a barrister at Temple Chambers, by Mayer Brown. James Man and Jonathan Ng (Temple Chambers) were led by Benjamin Yu SC.
Court of Appeal dismisses appeal in Navigator Equities Ltd & Vladimir Chernukhin v Oleg Deripaska
The Court of Appeal’s judgment in Navigator Equities Ltd v Deripaska [2024] EWCA 268 (Civ) was handed down earlier this week. The claimants brought an application seeking to commit the defendant for breach of an undertaking he had given to the court. At a trial in March 2023 HHJ Pelling KC, sitting in the Commercial Court, dismissed the application. The Court of Appeal dismissed the claimants’ appeal, emphasising the need to focus on the breach as actually alleged in the application notice and the importance of procedural fairness when a defendant is facing a committal application.
Thomas Grant KC and Caley Wright (Maitland Chambers) acted for the Respondent and were instructed by Mark Hastings, Abigail Healey and James Clark of Quillon Law LLP.
Thomas Grant KC acted for the successful Respondent.