Supreme Court judgment handed down in Byers v Saudi National Bank
Brian Green KC, leading Alan Roxburgh of Brick Court, acted for the successful respondent before the Supreme Court (as they had previously in the Court of Appeal) in the now leading knowing receipt case of Byers v Saudi National Bank [2023] UKSC 51 (judgment handed down 20 December 2023), in which the Supreme Court has now definitively stated the proprietary basis of such relief, and rejected the submission that it is a remedial response to unconscionability. Lord Briggs explained that the case had “forced the court to revisit the most basic equitable principles which underlie a claim in knowing receipt, not least because it cannot be said that the issue has ever been squarely addressed by this court or its predecessor.”
Following a wide-ranging analysis, Lord Briggs concluded that a knowing receipt claim was based on the “vindication of an equitable proprietary right” (including in cases where such claims are brought by companies in respect of property hitherto beneficially owned by them). Lord Burrows who also gave a full judgment in which the proprietary basis of the claim was affirmed, categorised a knowing receipt claim as “an equitable proprietary wrong”. Lord Hodge (with whom Lords Leggatt and Stephens agreed) provided a summary of his own, preferring Lord Briggs’ categorisation, whilst leaving that of Lord Burrows for consideration on another day. Similarly left for another day was whether the appellants might have had more success had they pleaded their case in unjust enrichment, which they had not done and are now time-barred from doing. So ends 10 years of litigation with this matter, having started life as Akers v Samba Financial Group and in that form also previously having reached the Supreme Court [2017] UKSC 6 (where Brian and Alan also successfully appeared), now definitively concluded in favour of the respondent bank.
Brian was instructed by Oliver Browne of Latham & Watkins in this case.
Royal Court of Guernsey dismisses a substantial unfair prejudice application in CLO HoldCo Limited v Highland CLO Funding Limited [2023] GRC061
Judgment has been handed down by Her Honour Hazel Marshall KC Lieutenant Bailiff.
CLO HoldCo Limited (“CLOH”), a minority shareholder in Highland CLO Funding Limited (“HCLOF”), brought an unfair prejudice application pursuant to sections 349 & 350 of the Companies (Guernsey) Law 2008 against HCLOF itself, founded on various allegations of mismanagement by the company’s directors in relation to their strategy to recover investment redemption proceeds held by U.S Bank National Association (“US Bank”).
The Application was comprehensively dismissed.
The Court held that in circumstances where CLOH had expressly disavowed any allegation of bad faith against the company or its directors, it could not then allege that the company had breached its duty to act in good faith towards its members, contained in a clause of the members’ agreement. That is because “there is no conceptual space where actions can be a breach of a duty to act in good faith but simultaneously not amount to bad faith. Actions are either one or the other, albeit the mental element – and there must be one – may not amount to actual dishonesty.”
The Court also confirmed established English authority that there is generally no room for equitable considerations to modify or constrain a party’s reliance on its powers and rights embodied in the express terms of the relevant contracts (e.g. Articles of Association and any Shareholders’ Agreement) where the context is a commercial relationship, and the contractual documents are carefully drawn, after negotiation, with legal advice, and made between commercially sophisticated parties. Equitable principles might be invoked in such circumstances only in “a very extreme and very rare case”, an example of which was not given.
The Court held that in light of those findings, the application must fail because CLOH’s case was put on the basis that the various complaints amounted to a breach of either (i) HCLOF’s contractual duty to act in good faith towards its members or (ii) equitable constraints on HCLOF’s conduct.
However, the Lieutenant Bailiff went on in any event to find that none of the conduct complained of could be deemed unfairly prejudicial within the meaning of s.349 of the Companies Law. Furthermore, she held that none of the relief CLOH sought – orders that the company make a pro rata, in specie distribution of its assets to CLOH, or buy out CLOH’s shares at a certain price – was available as a matter of law, because neither option was supported by the majority shareholder, which had not been joined to the application.
Alan Gourgey KC and Sri Carmichael, together with Carey Olsen (Mark Dunster, Sarah Kett and Elliot Aron), acted for the successful respondent, Highland CLO Funding Limited. Anna Littler was instructed at an earlier stage in proceedings.
DIFC Court rejects $18.5 million damages claim in Kirtanlal International DMCC v State Bank Of India (DIFC Branch)
Judgment has been handed down in the Court of First Instance of the DIFC by Justice Sir Jeremy Cooke.
Kirtanlal International DMCC (“Kirtanlal”), a steel trading company, brought a claim for damages of USD 18.51m in relation to what it said was the unlawful termination of its facility agreement with the Defendant bank (the “Bank”). Kirtanlal claimed that the Bank acted in breach of a duty of good faith and/or a Braganza duty, alleging malice on the part of the Bank. Kirtanlal also alleged that there were breaches of tortious, fiduciary and regulatory duties by the Bank.
The Claim was dismissed.
The claims in tort, fiduciary duty and regulatory duty were abandoned by Kirtanlal in closing submissions. The Claim in contract was rejected by the Court, as it held that the Bank was entitled to terminate the contract when it did.
The Court held that there was no duty of good faith or Braganza duty implied into the contract between the Bank and Kirtanlal, but that, in any case, the Bank’s decision was not only “rational but also reasonable” such that there would have been no breach of any such duty even if it existed.
In so finding, the Court rejected the assertions made that the Bank or its witnesses had acted in bad faith or with malice. However, the three witnesses tendered by Kirtanlal were all described by the Court as “dishonest” in their evidence.
In addition, the Court held that the Claim would have failed on the basis of causation and loss, with the Court concluding that there was “no basis on which it can properly be said that Kirtanlal suffered any loss at all from the suspension or termination of the SBI facilities, let alone any evidence of any such loss and damage which the Court could regard as established with a reasonable degree of certainty on the balance of probabilities for the purposes of Article 11 of the Damages Law”.
The judgment contains an interesting discussion in particular of the principles concerning good faith and the Braganza duty as a matter of DIFC Law, including in relation to Articles 57 and 58 of the Contract Law.
Bobby Friedman, together with David Holloway of Al-Tamimi & Company, acted successfully for the Bank.
Judgment handed down in Gill v Lees News Ltd
In Gill v Lees News Ltd [2023] EWCA Civ 1178 the Court of Appeal has today given important guidance on some of the grounds on which a landlord may oppose the grant of a new tenancy to a business tenant under the Landlord and Tenant Act 1954.
Three of the grounds of opposition – grounds (a), (b) and (c) – are concerned with tenant default or misbehaviour: ground (a) with disrepair; ground (b) with persistent delay in paying rent and ground (c) with other substantial breaches of the tenancy or with aspects of the tenant’s use and management. In each case the court is required to make a decision as to whether the tenant “ought not” to be granted a new tenancy in view of the default or misbehaviour.
The Court has decided that ground (a) does not confine the court to consideration of the state of repair of the holding at the date of the hearing. It is engaged by even minor disrepair at the date of the landlord’s s.25/s.26(6) notice and earlier in the term. The consequence of this decision is that a landlord may oppose the grant of a new tenancy on ground (a) even though the disrepair has been remedied, although the substantiality of the disrepair and whether or not the tenant has remedied it are both clearly relevant to the court’s judgment as to whether the tenant “ought not” to be granted a new tenancy.
The Court of Appeal has also confirmed that disrepair to areas of the premises other than the holding falls within ground (c).
Guidance has also been given about the width of the value judgment as to whether or not a tenant “ought not” to be granted a new tenancy. There are many factors of potential relevance to this decision. The court does not consider matters only from the perspective of the landlord but may consider the consequences for the tenant of refusing a new tenancy. The decision in Gill v Lees News also provides welcome clarification that the court does not take a compartmentalised approach to its value judgment, but should look at the grounds both individually and cumulatively. This clears up some previous tension in the authorities.
Joanne Wicks KC appeared for the successful Respondent with Ben Walker-Nolan of Thomas More Chambers, instructed by David Cooper of David Cooper & Co.
Judgment handed down in CPF One Limited & anor v Ortus Secured Finance I Limited
On 16 August 2023, Andrew Lenon KC (sitting as a Deputy Judge of the High Court) handed down judgment in CPF One Limited & anor v Ortus Secured Finance I Limited. Zoë Barton KC and Jia Wei Lee acted for the defendants, and were successful in obtaining summary judgment in their favour.
The parties were all participants or security trustees in a syndicated loan agreement. The borrower thereunder had defaulted. One of the defendants was a security trustee, who in that capacity entered into a settlement with the borrower. The settlement terms were such that the claimant, who was a junior participant in the syndicated loan structure, recovered nothing under the loan agreement.
The junior participant (and the former security trustee) sued the senior participant and the new security trustee, alleging that these defendants owed them fiduciary duties akin to those owed to successive mortgagors when exercising a power of sale and a duty of care pursuant to the Trustee Act 2000.
Their claim was struck out in its entirety. Andrew Lenon KC’s judgment contains important and interesting findings about the nature of a trustee’s duties when the trust instrument obliges them to act on the instructions of a beneficiary, as well as an extended analysis of the nature of both a mortgagee’s and a trustee’s duties in circumstances where there are other parties interested in the residue of a loan or security interest. It will therefore be of especial interest to commercial lenders, particularly those operating in the realm of property and development finance.
Supreme Court and Privy Council simultaneously deliver important judgments on arbitration stays
In FamilyMart Holding v Ting Chuan [2023] UKPC 33 delivered simultaneously with the decision in Republic of Mozambique v Credit Suisse International [2023] UKHL, Lord Hodge delivered two important judgments on how to define and identify the “matters” which give rise to stay of legal proceedings in favour of arbitration (in England under Section 9 Arbitration Act 1996) and certain other related issues. In doing so, these Courts have dropped the overly “granular” approach adopted by English Courts recently and opted for a more nuanced and analytical approach favoured by the Australian courts. The legal analysis in the two decisions is more or less identical.
Section 9 of the UK Arbitration Act requires the Court to stay “any matter which is to be referred to arbitration”. Stage 1 of the inquiry requires a Court to identify “the matter” (stage 2 is to determine whether that matter was covered by the arbitration agreement). In recent years, this has been defined to allow issues to be very “granular”, most notably by Popplewell J in Sodzawiczny v Ruhan [2018] EWHC 1908 where he said that “the court should treat as a ‘matter’ in respect of which the proceedings are brought any issue which is capable of constituting a dispute or difference which may fall within the scope of an arbitration agreement. ([43] emphasis added)”. This definition had been adopted by many others and was cited with approval and seemingly applied by the Court of Appeal in Mozambique (see [2021] EWCA Civ. 329 [63]). It is now clear that this statement is incorrect.
Borrowing from Australia decisions from the High Court (see Tanning Research Laboratories Inc v O’Brien (1990) and Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514) and from Foster J in WDR Delaware Corpn v Hydrox Holdings Pty Ltd [2016] FCA 1164169 CLR 332 the Privy Council and Supreme Court emphasised that at the first stage “a matter” was more than a mere “issue”. The Court must look at the substance of the dispute by reference to the pleadings without being overly respectful. The guidance based on international jurisprudence is that (1) a “matter” is a reasonably “substantial issue”, (2) the issue must be “legally relevant to a claim or a defence, or foreseeable defence” and an essential element of the outcome of the action, (3) the issue must be susceptible to be determined by an arbitrator as a discrete dispute, (4) a stay cannot extend to an issue that is peripheral or tangential to the subject matter of the legal proceedings, (5) a “matter” is something more than a mere issue or question that might fall for decision in the court proceedings or in the arbitral proceedings. This inquiry requires careful evaluation and common sense (see FamilyMart [63]-[65], Mozambique [72]-[77]).
Neither case deals at any length with the issue of construction at Stage 2, although Lord Hodge explained (see Mozambique [80]-[82]) that the context in which the matter is addressed, may show that it is not one which the parties have agreed to be referred to arbitration agreement. Applying these principles at Stage 2 in the context of Mozambique meant that the validity or commerciality of the supply contracts which would have been covered by the arbitration agreement were not “matters” which arose by way of claim or defence in connection with the claims for bribery, dishonest assistance and conspiracy at issue in the legal proceedings. In other words, on their true construction the arbitration agreements did not cover the matters in dispute. The fact that the funds flowing from the price payable under those supply contracts were the alleged bribes showed that the issues were connected but not that the agreements covered the dispute. Similarly, the Supreme Court also held that “the matter” raised by way of partial defence to quantum was not covered.
Another point of interest was that FamilyMart confirms that, in certain circumstances, a Court may dismiss the application as an abuse of process. Ordinarily, if the applicant for a stay satisfies the Court at Stages 1 and 2 the Court has no discretion. Lod Hodge nevertheless warned that in dealing with applications for a stay Court should be “careful to prevent an abuse of process.” (see FamilyMart [64]). There may be an abuse if the party seeking the say has no desire to progress an arbitration or the real purpose is delay. Thus, although the procedural complexity that may result from a stay is not a valid objection to the enforcement of an arbitration agreement, procedural complexity is not irrelevant in the context of abuse of process. Fragmentation may demonstrate that the application for a stay is part of a strategy of delay.
Lord Hodge also appeared to suggest that an arbitral tribunal does not necessarily take automatic precedence when fragmentation of arbitrable and non-arbitrable disputes occurs. Although Lord Hodge accepted that case management represents one solution to fragmentation, he described “effective case management” as being required by both the Court and the arbitral tribunal (see FamilyMart [66]). In appropriate circumstances the arbitration may itself be paused. This might occur if certain important matters falling outside the arbitration agreement are ready to be addressed by the Court. The previous assumed default position had been that the case management stay was always to be granted by the Court rather than the arbitral tribunal. FamilyMart suggests that should not automatically be the case.
Finally, in FamilyMart the Privy Council reviewed an aspect of non-arbitrability. It concluded that the complaints on which the just and equitable petition were based could be arbitrated but they disagreed with Patten LJ’s suggestion in Fulham Football Club that the arbitral tribunal could deal with the menu of other facts that were relevant to whether it was “just and equitable” to wind up a company or form a judgment as to what alternative remedy should be granted as these findings had to be made in exercising the Court’s statutory jurisdiction, an example of what the Privy Council described as “remedial non-arbitrability”.
Thomas Lowe KC represented the petitioner in the FamilyMart Privy Council case along with Hilary Stonefrost, Gemma Lardner and Corey Byrne, instructed by Sharpe Pritchard LLP and Ogier (Cayman) LLP.
Tax Tribunal decision on whether partnership structure involved trading
The First-tier Tax Tribunal has given judgment in the case of Gala Film Partners LLP v HMRC [2023] UKFTT 699 (TC). The case concerns a number of issues of general importance relating to the activities of a film-related limited liability partnership, including, among others, whether or not the activities of the partnership amounted to a trade; if so, whether the partnership’s expenditure was tax deductible as wholly and exclusively for the purpose of the trade; whether the partnership’s activities were carried on with a view to profit; and whether or not the partnership’s accounts complied with generally accepted accounting practice (GAAP). The Tribunal found, among other things, that the partnership was not trading and dismissed the appeal.
Jonathan Davey KC acted for the successful respondents along with Imran Afzal (Field Court Tax Chambers), Nicholas Macklam (Radcliffe Chambers) and Sam Chandler (5 Stone Buildings).
Judgment handed down: Invest Bank v El Husseini
In Invest Bank v El Husseini [2023] EWHC 2302 (Comm), in a judgment handed down on 20 September 2023 following the trial of preliminary issues, the Deputy Judge of the Commercial Court held that it is not a rule of private international law that a final and binding foreign judgment on the merits must be enforceable in the foreign jurisdiction before it could be the subject of an application to ‘enforce’ the foreign judgment in this jurisdiction by a claim at common law, and dismissed the sixth defendant’s application to set aside a default judgment the claimant had obtained against the first defendant, as (i) there was accordingly no arguable defence, and (ii) the sixth defendant had not satisfied the Denton criteria.
Tim Penny KC of Wilberforce Chambers acted for the successful Claimant, leading Marc Delehanty of Littleton Chambers, instructed by Trevor Mascarenhas of PCB Byrne.
Tax Tribunal’s latest decision on home loan inheritance tax schemes
The First-tier Tax Tribunal has given judgment in the case of Elborne v HMRC [2023] UKFTT 626 (TC). The case concerns whether or not a home loan inheritance tax scheme designed to remove the value of a freehold interest in real property from an individual’s inheritance tax estate whilst at the same time enabling the individual in question to continue to live in the property rent-free achieves its intended effect. The Tribunal found that on the proper construction of the applicable legislation, including section 103 of the Finance Act 1986, which deals with the treatment of certain debts and incumbrances, the scheme failed to achieve its intended effect. The Tribunal’s conclusion, which is in line with its decision of earlier this year in the case of Pride v HMRC [2023] UKFTT 00316 (TC), is of wide importance given the use of home loan inheritance tax schemes in relation to real property over several years up and down the country.
Jonathan Davey KC acted for the successful respondents along with Barbara Belgrano of Pump Court Tax Chambers.
Judgment handed down: British Broadcasting Corporation v BBC Pension Trust Ltd
On 28 July 2023, Mr Justice Adam Johnson handed down judgment in British Broadcasting Corporation v BBC Pension Trust Ltd [2023] EWHC 1965 (Ch).
Michael Tennet KC and Edward Sawyer acted for the BBC, instructed by PricewaterhouseCoopers LLP.
Brian Green KC and Joseph Steadman acted for the Trustee, instructed by Slaughter and May.
The Court considered the scope of a fetter on the scheme amendment power in the BBC pension scheme and found that it prevented the power from being used to change future service benefits and/or member contributions for Active Members unless certain conditions were satisfied. However, the Court accepted the BBC’s submission that if the specified conditions were satisfied, then the use of the scheme amendment power in that way would not involve a breach of the proper purpose doctrine.
Further details are available in a case note written by Joseph Steadman, first published on pensionsbarrister.com, available to read here: Fetters on pension scheme amendment powers.