bulletin - winter 201 5/16 commercial chance ry chan bulletin...endure for some time. i wish you all...

Commercial & Chancery - Specialising in the following areas:

Commercial &Chancery

AGRICULTURE & RURAL AFFAIRS • ALTERNATIVE DISPUTE RESOLUTION • BANKING, FINANCE & FINANCIAL REGULATIONCOMMERCIAL LITIGATION • COMPANY & PARTNERSHIP • COSTS & LITIGATION FUNDING • CREDIT HIRE • ESTATES, TRUSTS & TAXINSOLVENCY • INSURANCE • INTELLECTUAL PROPERTY & INFORMATION TECHNOLOGY • INTERNATIONAL ARBITRATION & TRADEMEDIATION • PROFESSIONAL NEGLIGENCE • PROPERTY • SPORTS & MEDIA • TECHNOLOGY & CONSTRUCTION

Bulletin - Winter 2015/16

It gives me great pleasure towelcome you to the first edition ofour Bulletin to be published in2016. Once again, I thank theindefatigable Nicola Preston, whooversees contributions (and appliessuch pressure as may be necessaryto obtain them) for her muchvalued role as editor. Reflectingupon the legal landscape over thepast year, there are a number ofprevalent themes, some would sayshoals, which I am sure affect anumber of our readers. Therelentless downward pressure on

Richard Jones QC Head of Group

continued…

THE SHOALSMUST GO ON!

A tenant’s defence under the EqualityAct 2010 to possession proceedings

first among equals

by Imogen Halstead by Christopher Snell

AVOIDING THE ACCIDENTAL SETTLEMENT

by Philip Mantle

WHOSE DUTYIS IT

ANYWAY?

Commercial & Chancery Bulletin - Winter 2015/16 2 3 C

WINTER 2015/16IN THIS ISSUEAvoiding the Accidental SettlementPhilip MantlePAGE 4

Whose Duty is itAnyway?Christopher SnellPAGE 8

First among equals: A tenant’s defenceunder the Equality Act2010 to possessionproceedings Imogen HalsteadPAGE 10

Ilott v. MitsonRevisited: What welearnt this time roundEmma WilliamsPAGE 14

Re-Opening UnfairCredit TransactionsSusanne MuthPAGE 16

If you would like to receivefurther copies of this bulletin,please [email protected] bulletin is also available inpdf format on our website atwww.No5.com

As an ongoing endeavour toprovide our clients with the bestpossible service, we welcomeyour feedback and comments onthis publication. Please [email protected]

Commercial &Chancery

THE SHOALSMUST GO ON! continued from front page…

money available within HM CourtService has made itself felt,especially in some areas (by nomeans all, though) whereefficiency has been leftbecalmed. A heavy percentagecharge related to the size of theclaim has undoubtedly causedsome eager litigators (bothprofessional and otherwise) topause and consider, and, insome instances parties havesuffered a degree of hardship.

Some of us are still wrestlingwith cost budgeting, whichseems to be met by a variedresponse from members of thejudiciary, some wildlyenthusiastic, and other distinctlyless so. It is a rare skill to be ableto predict with precision the likelycosts of different stages oflitigation, especially complex

litigation with all itsunforeseeable twists and turns.But at least the tide has turnedagainst the more draconianimplications of the Court ofAppeal’s unhelpful ruling inMitchell. While any publicity issupposed to be better than none,it is a curiosity that a cyclist inDowning Street has earned aform of notoriety which willendure for some time.

I wish you all a very happy andpeaceful 2016. As always, I hopethat we continue to provide afriendly, effective and costefficient service to all of ourclients. And that we help you toavoid, so far as is possible, thoseunwelcome shoals.

Richard Jones QC Head of Group

Mohammed Zaman QCappointed Deputy Head of TheCommercial & Chancery Group

Richard Adkinson appointed aDeputy District Judge of theNorth Eastern Circuit.

Imogen Halstead successfullycompletes pupillage and is nowa full tenant of chambers.

Mohammed Zaman QC joined No5 in 2014 and hasa broad commercial litigation and internationalarbitration practice covering a wide range of

contractual, property and regulatory disputes. His work includes aparticular emphasis on civil fraud, company, insolvency and regulatorymatters, as well as complex disputes generally. Mr Zaman is admitted asa practitioner in the Dubai International Finance Centre (DIFC) Court andhas regularly appeared before the Dubai World Tribunal.

THE COMMERCIAL GROUP ARE PLEASED TO ANNOUNCE…

2 3 Commercial & Chancery Bulletin - Winter 2015/16

PAUL BLEASDALE QC TO STEP DOWNAS No5 HEAD OF CHAMBERSOne of the country’s leading sets of barristers is to have a new Head ofChambers. Paul Bleasdale QC has held the post since 2010 and his termof office expires at the end of the month. He is to be replaced by Chancerysilk Mark Anderson QC who has been one of the deputy heads ofchambers since 2014. Mr Anderson is a leading specialist in commercialdispute resolution and professional liability as well as being authorised tosit as a Deputy High Court Judge.

> Paul Joseph and Shakil Najib appointed to theAttorney Generals B Panel, Richard Adkinson

re-appointed to regional panel, ChristopherSnell and Philip Dayle appointed to babybarrister panel.

> JOHN WEST REACHES LANDMARKOF 50 YEARS AT THE BAR.

> Louise Corfield is now the proudparent of Imogen Olivia Barlow. Louisewill resume practice in the Spring.

No5 Chambers and its sister company NoVate Direct LegalSolutions became a Diamond Partner of Birmingham CityFootball Club in June 2015. Ian Dutton, Birmingham City’sHead of Commercial, said: “This is fantastic news for the cluband its supporters. No5 is a high profile, local & nationalname and we’re thrilled to be associated with such asuccessful organisation.”

NEWS IN BRIEF…Clients and Barristers will battle it outonce again to compete for the glitterball trophy on the 10th June 2016.BBC Strictly’s very own Anton Du Bekejoins No5 as the event host atBirmingham Town Hall with allproceeds being donated to the ChildBrain Injury Trust. For informationabout how to donate for the charity auction or raffle, and for sponsorship and ticket enquiries, please contact [email protected]

The Commercial & ChanceryGroup is proud to be at theforefront of the developingrelationship between BirminghamCity & No5 Chambers

The development and excellence of No5 Chambers, recognised inboth Legal 500 2015 & Chambers and Partners 2016, havecontinued upwards with No5 being awarded Regional Chambersof the Year by Chambers UK this year. Chambers & Partners 2016comment “This set is increasingly prominent when it comes tohigh-value commercial work, with members regularly handlingcomplex contractual, corporate, trusts and insurance disputes.”

No5 WINSCHAMBERS BARAWARDS REGIONALCHAMBERS OF THEYEAR 2015!

Mr Anderson said: “It is a great honour to be asked totake over as head of such a progressive and successful setand I look forward to the challenge, but Paul Bleasdalewill be a hard act to follow. Paul has enjoyed conspicuoussuccess in the role, providing a rock of support tobarristers and staff alike, working selflessly, tirelessly and

uncomplainingly in all our interests with a sure touch andunfailing judgment. He has been outstanding. I amhumbled to be taking over an organisation that has suchan enviable reputation nationwide, a reputation due in nosmall part to Paul’s leadership."


AVOIDING THE

ACCIDENTAL SETTLEMENT

he question of whether two parties have entered in to a bindingsettlement compromising a case is often just (if not more) as

acrimonious a matter as the substantive case. In particular, as the devil is oftenin the detail of any settlement, the intention is often that even where settlementis agreed in principle, one party does not wish to be bound to the settlement until

all the terms are agreed and embodied in a signed document.

If this is the intention then it is important that the same is made well known tothe other negotiating party, in order to avoid the pitfall of finding oneself having

inadvertently entered into a binding settlement, prior to concluding thosesubsequent negotiations

T

In Bieber & Ors v.Teathers Limited (InLiquidation) [2014] EWHC 4205 (Ch)the Court provided both a usefulreminder of the applicable principlesand highlighted the potential for suchinadvertent settlement to be reached, inthat case through the exchange ofemails.

The FactsBieber concerned an action by multipleinvestors in film and televisionproductions set up by the Defendants.The claim was valued at £20 million and,following the liquidation of theDefendants, approximately £10 millionwas available in assets in order to meetthe claims through an insurance policy.

Mediation was unsuccessfully attemptedand the matter was set down for a 15-day trial commencing 21 July 2014.

On 18 June 2014, solicitors for theClaimant's emailed the Defendant'ssolicitors indicating a willingness opendialogue between the parties with a viewto settling the proceedings. Negotiationsthen ensued between the parties, fromwhich (at trial) a key factual disputeemerged as to whether the parties hadnegotiated upon the basis that anyagreement reached would be subject toa formal written agreement beingconcluded. In particular, both at themediation and then in the subsequentnegotiation, the parties had been unableto agree on the inclusion of a termrelating to the Claimants providing anindemnity to the Defendants in respectof any third party claims against theDefendant that might arise postsettlement. The Defendants contendedthat it was understood that no bindingsettlement would be concluded until theParties had reached agreement on aformal written agreement, includingclauses relating to the provision ofindemnities.

Following further discussion, on 20 June2014 the Claimants made an offer tosettle the claim for the payment of asum (identified in the judgment as X-2)payable in 28 days. The payment soughtpursuant to this offer was described asbeing “in full and final settlement of allclaims…., including any claims for costsand counterclaims”. Further if the offerwas acceptable “in principle”, theClaimants proposed to produce a Tomlin

order recording the amounts due toeach of the Claimants but proposed toleave the question of the amount to beborne by the liquidator and insurerrespectively to the Defendant.

That offer was rejected by the Defendanton 23 June 2014, who made a counteroffer (for a sum described as Y+1)expressed to be a “cash payment madeto your clients within the 28 day period”.

Although the Defendant subsequentlyattempted to argue that the reference tothe offer dated 20 June 2014 as beingone that was acceptable “in principle”suggested that it was not intended thatthis offer was capable of acceptance, theCourt rejected that analysis determiningthat had the offer been accepted, theessential terms (the sum to be paid, thetime for payment and the effect on thelitigation of the agreement) would havebeen agreed and that this was sufficientto amount to a binding agreement.

Likewise the Court rejected thesuggestion that the simple cash offer tosettle in the terms of the offer of 20 June2014 could not have been intended(without further negotiation on specificterms including the indemnity position)to have been sufficient to resolve acomplex dispute. Although theunderlying dispute was complex theterms of the offer were not.

On 27 June 2014 the Defendants madewhat was described as a “take it orleave it offer” (at a sum described asY+2). The Claimants’ request that theDefendants seek further instructions (onan improved offer) was rejected by theDefendant. Accordingly on 29 June 2014the Claimants’ solicitor emailed in thefollowing terms;

“In the circumstances, my clients willaccept [the offer at Y+2]. We will sendround a draft consent order in themorning”.

Upon receipt, the Solicitor for theDefendant replied;

“Noted, with thanks”.

Thereafter on Monday 30 June 2014, theClaimant’s solicitor provided a draftconsent order incorporating the standardTomlin provisions. The draft Orderprovided for the payment of Y+2 within 28days, in full and final settlement of theclaim and counterclaims. TheDefendants were invited to sign andreturn the same. Instead of doing so, theDefendants circulated a longer formsettlement agreement (first prepared forthe unsuccessful May mediation), whichcontained, amongst other matters,clauses concerning the provision ofindemnities.

The parties remained at odds over theterms of the formal settlementagreement. The Claimants applied to theCourt seeking a declaration that abinding settlement was reached by theexchange of emails between thesolicitors on 29 June 2014, by which theClaimants had agreed to settle theproceedings for a payment of (Y+2).

The PrinciplesAlthough appearing prior to the Court’srecitation of the facts, the judgment inBieber provides a helpful summary (at[14]) of the principles that are to beapplied when considering whether abinding settlement has been concluded.

These are;

(a) The question of whether a bindingsettlement has been reached is to bedetermined objectively byconsidering the whole course of theparties’ negotiations. Importantlyonce, objectively considered, theparties concerned have reachedagreement in the same terms on thesame subject matter, a contract willhave been formed even though it isunderstood that a formal agreementwill be entered in to subsequentlythat records (or potentially evenadds) to the terms agreed;

(b) Generally the subjective state ofmind of the negotiating parties, andby extensive any subjective (but notcommunicated) reservations of oneparty will be irrelevant and evidenceas to the same is inadmissible;


continued…

The judgment in Bieberprovides a helpful summary(at [14]) of the principlesthat are to be applied whenconsidering whether abinding settlement hasbeen concluded.


(c) If, on an objective analysis of theparties’ conduct the parties intendedto conclude a legally bindingagreement, the fact that certainterms of economic or othersignificance have not been agreeddoes not prevent it being determinedthat the parties have reached aconcluded agreement. The minimumrequirement is that the parties shallhave agreed all the terms necessaryfor there to be an enforceablecontract- so a failure to agree termssuch as confidentiality clauses willnot prevent the conclusion beingreached that the parties have enteredin to a binding settlement;

(d) Where the parties wish to ensure thatan agreement that might be madeorally (or in the context of this caseby the exchange of email) does notbecome binding until all the termsare embodied in formal legaldocument, then they may do so byexpressly stipulating that theirnegotiations will take place “subjectto contract”;

(e) The express stipulation “subject tocontract” is not required where it wasthe mutual understanding of thenegotiating parties that this was howthe negotiations were beingconducted;

(f) Whilst “subject to contract”negotiations are most often found inthe context of land, the rule mayapply equally in any form ofcontractual negotiation;

(g) Whether there was a mutualunderstanding that negotiationswould proceed on a “subject tocontract” basis, is a question of factfor each case;

(h) Even where negotiations have beeninitially commenced on a “subject to

contract” basis, it is open to eitherparty to remove or otherwise waivethat stipulation.

The FindingApplying the above principles, the firstquestion for the Court was whether,considered objectively, the parties hadreached a concluded agreement in theexchange of emails on 29 June 2014. TheCourt concluded that they had. Althoughthe underlying litigation was complex theterms of the settlement- found initiallywithin the 20 June 2014 letter and laterrefined by the exchanges ofcorrespondence up to the emailexchange of 27/29 June 2014 - wascomparatively simple and evidently anoffer that was capable of acceptance,notwithstanding the outstanding issuebetween the parties as to the position onthe third party indemnities.

Further, the Court rejected theDefendant’s analysis that thenegotiations were to be concluded on a“two-stage” basis- with the amount to bepaid agreed first but no bindingagreement completed until the secondstage (where the precise terms of thesettlement) had been agreed upon. Hadthis been the position, then theDefendant’s email of 29 June 2014 wouldhave drawn attention to the fact that theparties now had agreement on thesettlement sum but further agreementwas needed on the precise terms beforea binding settlement was concluded. Thephrase “Noted, with thanks” did no suchthing.

Indeed the fact that the parties wereprepared to negotiate further as to theprecise terms of the settlement (it oughtto be noted that it was the Claimant whoproposed the circulation of a consentorder) did not prevent a bindingsettlement from arising. Firstly, neitherby use of the express term nor as amatter of objective observation was it thecase that the Parties had intended theirnegotiations to be “subject to contract”.In particular there was nothing in theemail exchange of 29 June 2014 that wassuggestive of crucial elements of thesettlement remaining outstanding.

Finally the Court considered the questionof whether the Parties’ conduct in the

period post 29 June 2014 was admissibleas a matter of law for the purpose ofdeciding whether a contract wasconcluded on that date. Citing Newburyv. Sun Microsystems [2013] EWHC2180 (QB)- itself a useful example of thefact that, if one wishes to negotiate on a“subject to contract” basis, adopting thatterm expressly removes all doubt- theCourt concluded that it was not. Once itoutwardly appeared that the parties to anegotiation had agreed, on a particulardate, in the same terms on the samesubject matter then conduct after thatdate will not be a legitimate aid indetermining whether or not the partiesreached agreement on that particulardate. Such conduct may be relevant if itis alleged that there has been a variationor new agreement and indeed may beadmissible where it is alleged that theagreement is partly in writing and partlyoral to test the question of whether theterms were agreed. However where it issaid that an agreement was reached,contained within documents, then once itis objectively considered (on thosedocuments) that agreement beenreached, evidence of conduct thereafteris inadmissible.

CommentSettling a claim can often be a morefraught and difficult process than fightingthe same to trial. In any settlementprocess there is often a considerabledesire (and indeed considerable utility) intrying to agree on the broader issuesbefore moving to concentrate on thedetail, with the hope that progress willbeget progress. This is particularly thecase on the Court steps, whereconsiderable efforts are often expendedto get agreement on the “big ticket”items thereafter leaving the detail forsubsequent negotiation. However merelybecause a party wishes to see progressdoes not mean that there is a desire tobe bound until all aspects of thesettlement have been agreed. This isparticularly the case in commercialmatters where clauses that might beconsidered to be ancillary those mattersthat Bieber identifies as the coreelements of any settlement (being thesum to be paid, the time for payment andthe effect on the litigation of the

Avoiding the Accidental Settlement continued

Firstly, neither by use of the express term nor as a matter of objectiveobservation was it the case that the Parties hadintended their negotiationsto be “subject to contract”.


The Beavis appeal involved a parkingcharge of £85 if the permitted periodof free parking was exceeded.

The Supreme Court held that thepurpose of the law relating to penaltyclauses was to prevent the recoveryof money under a term of a contractwhich bore little or no relationship tothe loss suffered. The law, therefore,regulated the remedies available forthe breach of a party’s primary dutybut not the primary dutiesthemselves. That was the essence ofthe classic distinction between apenalty and a genuine pre-estimateof loss.

Earlier decisions had held that“penal” meant “unconscionable andextravagant”. The Supreme Courtnow held that the true test waswhether it was a secondary obligationwhich imposed a detriment on thecontract breaker that was out of allproportion to the legitimate interestof the innocent party, which interestrelated only to the performance ofthe contract (or some alternative toperformance). There was no interestin simply punishing the defaulter.

Despite the fact that the law relatingto penalty clauses was open tocriticism, it was not appropriateeither to abolish or extend it.

The price adjustment in theCavendish appeal was a primaryobligation, despite the fact that it wasnot referable to the loss suffered.This was because the purchaser had

a legitimate expectation in theenforcement of the restrictivecovenants which extended beyond themere recovery of loss. In part, thiswas as a result of the specificwording of the clause and the factthat there was no mechanism forsubstituting a different price in theevent of a breach than the oneprovided for in the contract itself.

In the Beavis appeal, the parkingcharge had two main objectives, bothof which were reasonable. Thesewere: (1) to manage efficient use ofthe spaces and (2) provide an incomestream for ParkingEye to meet thecosts and make a profit. In thesecircumstances, the charge was not apenalty. The fact that motoristsregularly used the car park was itselfevidence of the reasonableness of thecharge. In other words, it was anacceptable price to pay for theconvenience of parking there. Merelybecause some customersunderestimated the time they neededto park there did not make thecharge excessive or otherwise apenalty. Nor did the charge infringethe Unfair Terms in ConsumerContracts Regulations 1999. To theextent that the courts below hadfound support in the Protection ofFreedoms Act 2012 for finding thatthe charges were unenforceable, thatwas a misreading of that statute asthe reference there to “obligation” didnot exclude the penalty doctrine.

Cavendish Square Holdingsv. Markessi; ParkingEyeLimited v. Beavis [2015] UKSC 67

In these conjoined appeals the Supreme Court consideredthe law relating to penalty clauses in contracts. TheCavendish appeal concerned an alleged penalty clause in ashare sale agreement which restricted competition by theseller of the shares and stipulated a reduced price in theevent of a default on his part.

agreement), such as indemnities againstthird party claims, confidentiality etc. canbe as, if not more, important to theclient’s broader commercial objectivesthan the compromise of the particularcase being negotiated.

Bieber and Newbury offer timelyreminders that, where that is theintention, it is vital that this is made clear.Although it is not necessary to explicitlyinclude the phrase “subject to contract”,as the absence of the phrase will notprevent the conclusion being drawn thatthe negotiations were being conductedupon that basis, both Bieber andNewbury make clear that the use ofthose words will remove any doubt as towhether agreement has been reachedprior to the execution of a formal writtenagreement. Furthermore, the Court inBieber placed considerable reliance uponthe fact that the Defendants, whenacknowledging acceptance of their offer,did not take the opportunity to remindtheir opponents that the detail of thesettlement remained to be agreed andthat no binding settlement would ariseuntil those details were agreed upon.Clearly if the desire is to negotiate on a“subject to contract” basis, then it isprudent to make this explicitly knownand if there is doubt as to whether youropponent is either genuinely unaware oris perhaps being “selective” in theirremembrance of how the negotiationsare being concluded- it never hurts toreiterate the point for the sake of clarity.

Settling a claim can oftenbe a more fraught anddifficult process thanfighting the same to trial.

Philip Mantle


he Excise Goods(Holding, Movement andDuty Point) Regulations

2010 are now wellestablished in domestic law,having been enacted,primarily, so as to implementthe European CouncilDirective 2008/118/EECconcerning the generalarrangement for excise duty.However, the correctinterpretation of variousaspects of the 2010Regulations remains an alltoo frequently litigatedmatter; characterised by thefirst-tier Tribunalpromulgating unhelpfullycontradictory decisions.

The most recent discord over thecorrect interpretation of the 2010Regulations arises out of Regulation 13,a Regulation frequently invoked byHMRC when it seeks to recover what itbelieves to be unpaid excise duty onallegedly ’smuggled’ goods.

Regulation 13 provides as follows:

“(1)Where excise already released forconsumption in another MemberState are held for a commercialpurpose in the United Kingdom inorder to be delivered or used in the

United Kingdom, the excise dutypoint is the time when those goodsare first so held.

(2) Depending on the cases referred toin paragraph (1), the person liable topay the duty is the person –

(a) making the delivery of thegoods;

(b) holding the goods intended fordelivery; or

(c) to whom the goods aredelivered.”

The correct interpretation of Regulation13(1) has, in and of itself, caused HMRCsignificant anxiety; however the Tribunalhas provided helpful guidance in thedecision of B&M Retail v. HMRC [2014]UKFTT 902 (16 September 2014).

Contrary to the contentions of HMRC, inB&M Retail the Tribunal held that theduty point pursuant to Regulation 13(1)could only arise once. The person liableto pay the duty is the person set out inRegulation 13(2) at the time when theduty point first arises. Prior to thedecision in B&M Retail, HMRC hadattempted to charge those further downthe supply chain excise duty, contendingthat as they were a person ‘holding thegoods’ (even though the duty point hadarisen much earlier), they remainedliable to account for the duty. That nolonger appears to be the case; howeverpermission to appeal to the UpperTribunal has been granted and theoutcome thereof is awaited.

With clarity, for the moment, in respectof Regulation 13(1), HMRC has nowturned its attention to Regulation 13(2).

On its face, Regulation 13(2) appears toprovide HMRC with a choice as to theperson whom it considers to be liablefor any unpaid duty. One might foresee,therefore, a disgruntled Appellantarguing before the Tribunal that HMRC’sdecision to charge it excise duty was‘unreasonable’ as it was, for example,merely an innocent party. Thatargument stands no prospect ofsuccess; indeed it was dismissed withbrevity in the recently argued case ofLeicester Express Logistics Limited v.HMRC [2015] UKFTT 476 (TC). TheTribunal commented thus:

“…we consider the intention of reg 13(2)– and art 33(3) from which it is derived –is to establish a liability on all (myemphasis) those persons for the exciseduty, and it is open to HMRC to assessany liable person.”

That view, the Tribunal contended, isbolstered by the CJEU decision isStanislav Gross v. HauptzollamtBraunschweig (case C/165/13).

However, of more interest to theTribunal is the question of how oneinterprets Regulation 13(2)(a) and13(2)(b. It is here where the dichotomyin judgments arises. “Holding” is notdefined by either the Regulations or theFinance Act; and the EU Directive is oflittle assistance.

In recent times, the concerned

WHOSE DUTY IS IT

T


Christopher Snell

Appellants have been lorry drivers;largely ignorant of the fact that theirload may be non-duty paid (and thusindicative of a smuggling attempt).Rather than assessing the drivers’employers, HMRC has chosen to assessthe drivers themselves as being eitherthe person: (a) making delivery of thegoods; or (b) holding the goods intendedfor delivery.

In Carlin v. HMRC [2014] UKFTT 782(TC), a case concerning a disgruntledlorry driver, the Tribunal held that: “MrCarlin was not holding the goods for thepurposes of the legislation. Followingthe decision of Lord Justice Hooper in Rv. May the tribunal believes Mr Woodsor Woods Transport was the holder ofthe goods and Mr Carlin was merely thecourier.”

That is a perfectly sensible analysis.Extending HMRC’s reasoning, if a TNTdriver crossed the border with a lorryfull of individual packages to deliver to anumber of individuals, and one of thosepackages was non-duty paid, the driverwould be liable for duty. That is anillogical position.

Nonetheless, the decision in Carlin isdirectly contradicted by the Tribunal’sdecision in McPeake v. HMRC [2015]UKFTT 0356 (TC). There the Tribunalfound that a lorry driver was “holding’within the meaning of Regulation13(2)(b) merely because he was: (i)unsupervised; (ii) not subject to thecontrol of any other person; and (iii) hadresponsibility for the goods.

The decision in McPeake, however, failsto address the most pertinent point thatunderpins the present argument. BothCarlin and McPeake appear to placereliance on the Court of Appeal’sdecision in Taylor & Wood [2013] EWCACrim 1151. Discussing the correctinterpretation of Regulation 13(1), theCourt of Appeal decided that thewording of the Regulation and therelated Article 7(3) of the Directive:

“strongly support[s] the conclusion thata person who has de facto and legalcontrol of the goods at the excise dutypoint should be liable to pay the duty.That conclusion is all the morecompelling where the person in actualphysical possession does not know, andhas no reason to know, the (hidden)nature of the goods being transportedas part of a fraudulent enterprise towhich he is not a party. To seek toimpose liability on entirely innocentagents . . . would no more promote theobjective of the Directive that those ofthe Regulations.”

Thus, the correct assessment underRegulation 13(2) is not restricted to whowas in actual possession of the goods at

the time when the duty point arises.HMRC must go further if it is to be ableto assess the person holding thosegoods: it must establish that the personholding had actual or constructiveknowledge of the fact that the goodshe/she/it was transporting were to bediverted with the intention that duty isevaded. Absent such knowledge, it ishard to see – following the Court ofAppeal’s reasoning – how HMRC canassess a driver as the transporter’sinnocent agent.

Permission to appeal to the UpperTribunal in respect of the decision(s), itis understood, in both McPeake andanother related case, has recently beengranted. One further case before thefirst tier Tribunal – Perfect v. HMRC – isdue for decision in the interim.

It is to be hoped that following theUpper Tribunal’s determination in bothB&M and McPeake; the current surge oflitigation surrounding Regulation 13 canbe quashed.

ANYWAY? THE CORRECT INTERPRETATIONOF REGULATION 13(1) HAS, INAND OF ITSELF, CAUSED HMRC

SIGNIFICANT ANXIETY

“To seek to impose liabilityon entirely innocent agents .. . would no more promotethe objective of the Directivethat those of theRegulations.”

Commercial & Chancery Bulletin - Winter 2015/16 10 1

A tenant’s defence under the Equality Act 2010 to possession proceedings

first among equals


Aster Communities Ltd (formerlyFlourish Homes Ltd) v. Akerman-Livingstone (Equality and Human RightsCommission intervening) [2015] UKSC15 has provided some much neededclarity on the courts’ approach todefences under the Equality Act 2010 asopposed to defences brought underarticle 8 of the ECHR. While bothdefences involve a consideration ofproportionality, it has been confirmedthat the two must be approached indifferent ways; more specifically, adiscrimination defence will not need topass the high test of being “seriouslyarguable” to survive summary disposal.While it might seem at first a fairly subtledistinction, it is likely to change thelandscape of litigation in this area andwill set a much higher bar for the sociallandlord seeking to evict its tenant.

Mr Akerman-Livingstone, aged 47, hadbeen diagnosed with prolonged duressstress disorder or complex post-traumatic stress disorder as a result ofsustained childhood physical andemotional abuse by his parents. When hebecame homeless in 2010, MendipCouncil found him temporaryaccommodation with the claimanthousing authority, Aster Communities.Over the next nine months the localauthority made several offers ofpermanent accommodation but thesewere all turned down by Mr Akerman-Livingstone either because the propertieswere too close to where he had beenabused as a child, or too far from his GPupon whom he relied, or for otherreasons relating to his disability. In 2011,the local authority, having declared that ithad discharged its duty under section193 Housing Act 1996 and that MrAkerman-Livingstone was nowintentionally homeless, terminated itsprovision of temporary accommodationand initiated possession proceedings.

Mr Akerman-Livingstone argued that the

possession proceedings amounted todisability discrimination within sections15 and 35 (1) (b) Equality Act 2010 andthat they also violated his article 8 rights.

At first instance the judge, applying theapproach outlined in Manchester CityCouncil v. Pinnock (Secretary of Statefor Communities and Local GovernmentIntervening) [2011] 2 AC 104 andHounslow London Borough Council v.Powell (Secretary of State forCommunities and Local GovernmentIntervening) [2011] 2 AC 186, decidedthat, as he considered neither defence tobe seriously arguable, he was entitled totake a summary approach and make anorder for immediate possession. Onappeal, this approach was upheld ([2014]EWCA Civ 1081).

The Supreme Court was asked toconsider whether the principlesapplicable to article 8 defences, laiddown in Pinnock and Powell, should alsoapply to discrimination defences underthe 2010 Act.

The position under Pinnock and PowellThe cases of Pinnock and Powell will bewell known to housing practitioners.Since those decisions the courts onlyhave to consider the issue ofproportionality under article 8 at trial if itis specifically raised by the occupier and

if it crosses the barrier of being seriouslyarguable, a necessarily high threshold asthe proportionality of making apossession order in favour of thelandlord is supported by the fact it would(i) vindicate the landlord’s property rightsand (ii) enable the landlord to complywith its statutory duties in the allocationand management of its limited housingstock. In most cases these twin aims aretaken to trump any article 8 right owed tothe occupier. In all but very exceptionalcases the courts are therefore able todismiss summarily under CPR 55.8 anyargument that seeking possession isdisproportionate.

A change in approach…In Akerman the Supreme Court heldthat, while the twin aims will in mostcases be sufficient to trump a tenant’sarticle 8 rights, it cannot be taken forgranted that they will likewise overreacha tenant’s 2010 Act rights. Consequently,a different approach has to be taken inassessing proportionality under the 2010Act such that summary disposal ofdiscrimination defences will rarely beappropriate and in the vast majority ofcases it will be right to allow the defenceto run to trial for a full consideration ofthe evidence.

Is it right?On technical analysis, the distinctiondrawn between the two forms of defencemust be correct: they spring from twovery different pieces of legislation whichin turn have very different purposes.While it might be superficially attractiveto have a universal method in dealingwith that most elusive of terms“proportionality”, such an inflexible andundiscerning approach has to be flawedinsofar as it fails to take account of thediffering aims of the Convention on theone hand, and the Equality Act 2010 onthe other.

continued…

The Supreme Court wasasked to consider whetherthe principles applicable toarticle 8 defences, laiddown in Pinnock andPowell, should also apply todiscrimination defencesunder the 2010 Act.

A recent ruling provides greater protection to tenantsseeking to raise discrimination defences but where doesthis leave the social landlord seeking to repossess?


Born out of the back-drop of World WarII, the Convention rights were intendedto provide a broad code by whichdemocratic societies could regulatepublic powers and ensure the ultimateprotection of the individual. Theyprovide overarching protection to theordinary man from the misuse of powerby the state. The Equality Act 2010, onthe other hand, has a different aim: toshield those with protectedcharacteristics against unequaltreatment. To this end, it is far morefocussed in its provisions, prohibitingspecific discriminatory acts andproviding in some cases that particularpositive steps must be taken to ensureequality. As per Lady Hale’s assessmentat [25]:

“…the substantive right to equaltreatment protected by the Equality Act2010 is different from the substantiveright which is protected by article 8. Alloccupiers have a right to respect fortheir home. Parliament has expresslyprovided for an extra right to equaltreatment – for people to be protectedagainst direct or indirect discriminationin relation to eviction. Parliament hasfurther expressly provided, in sections15 and 35, for disabled people to haverights in respect of the accommodationwhich they occupy which are differentfrom and extra to rights of non-disabled people”

Section 35 (i)(b) in particular providesspecific security to tenants, singled outby that provision as a class deserving ofspecial protection. It is a right that isstronger and more specific than thatafforded by the sweeping provisions ofarticle 8. It has to follow, therefore, thatwhile the broad-brush approach ofsummary assessment might lend itselfto the disposal of an article 8 defence,where the twin aims of the social

landlord can be taken as a given, it isnot appropriate in assessing a defenceunder the 2010 Act where the particularcircumstances of the case have to be socarefully taken into account to ensureequality. It cannot have beenParliament’s intention that suchfundamental and specific rights shouldbe dealt with by way of summarydetermination without a thoroughconsideration of the evidence.

Moreover, when one considers how adiscrimination defence operates inpractice, it is clear that summarydetermination is unequal to the task of

assessing the switching burden ofproof, codified in section 136.

Under section 15 of the 2010 Act, it isfor the defendant to establish factswhich enable the court to decide threethings (i) he is disabled; (ii) in beingevicted he has been treatedunfavourably; and (iii) the eviction isbecause of something arising inconsequence of his disability. It is likelyto be the case in most cases that thedefendant will have to adduce medicalevidence to discharge this burden, suchevidence dealing with the diagnosisunder the first limb, and the far morecomplicated issue as to causationunder the third, showing a clear linkbetween the unfavourable treatmentand the disability. This will rarely be astraightforward connection andcertainly not one which can be readily

assumed. Provided that the tenantdischarges this burden, it is then for theclaimant landlord to establish that itstreatment of the tenant was in theproportionate pursuit of a legitimateaim. Sections 15 and 35 of the 2010 Actdo not lend themselves therefore to aprocess of summary determination asthe proportionality of the landlord’sactions cannot be so readily taken as agiven, as per Lady Hale at paragraph35:

“It simply does not follow that, becausethose twin aims will almost alwaystrump any right to respect which is dueto the occupier’s home, they will alsotrump the occupier’s equality rights.”

This decision hauls possessionproceedings back in line with otherareas of discrimination law. It feelswrong (and post Ackerman it is wrong)that a tenant faced with eviction fromhis home should have to overcomesuch a high hurdle before being allowedto pursue a discrimination defence at afull hearing when he would face nosuch barrier were he to allege unfairtreatment in his workplace or any otherarea of his life.

So while many will see Ackerman asthe Supreme Court retracing its stepson the issue of proportionality, in all ithas to be a welcome decision. Itrealigns discrimination defences withtheir statutory aims and, in so doing, itunderlines the distinction withconvention rights. Unyoked, the twodefences can now develop separatelyand on their own terms.

The Equality Act 2010, onthe other hand, has adifferent aim: to shieldthose with protectedcharacteristics againstunequal treatment.

It simply does not follow that, because those twinaims will almost always trump any right to respectwhich is due to the occupier’s home, they will alsotrump the occupier’s equality rights.”


What are the implications for landlords?Many social landlords will see theresult in Akerman as opening the doorto discrimination defences being run asa matter of course, complicating andprotracting what ought otherwise to beroutine possession proceedings. It isright that many social landlords findtheir means considerably stretched:they are tasked with the difficult job ofallocating scarce and precious socialhousing in accordance with theirstatutory duties while juggling thevarious and competing needs of thevulnerable whom they are asked tohouse. It certainly would be salutary forthe landlord, and no doubt muchcheaper, if the courts were prepared todismiss these defences summarily.

It must be remembered, of course, thatsummary disposal of a discriminationdefence is still an option for the courtsunder CPR 55.8 applying the test ofwhether the claim is “genuinelydisputed on grounds that appear to besubstantial”. This might be the casewhere the landlord can show, forexample, that the defendant has no realprospect of proving a disability, or thatit was plain that possession was notbeing sought because of somethingarising in consequence of his disability;however, such cases are likely to berare.

In the majority of cases where a 2010Act defence is raised the landlord willnecessarily face a significantly morearduous task in having to convince thecourt of the proportionality of its actionsthan if faced with an article 8 defence.Assuming that the tenant has providedthe court with prima facie evidence of adisability and causation, the landlordwill have to put time and effort into

addressing the defence and providingevidence to justify its claim.

The outcome for Mr Akerman-LivingstoneUnfortunately for Mr Akerman-Livingstone, his appeal was dismissedon the basis that events had moved onso significantly from the earlierhearings that a rehearing would befutile. The claimant landlord had beenserved with a notice to quit by thefreeholder and been informed byMendip Council that it was no longerrequired to provide accommodation inthat building. In light of this, it wasdecided that a rehearing wouldinevitably result in a possession orderbeing made and it would therefore not

be a kindness to the defendant toprolong the unavoidable.

While the decision was too late toprotect Mr Akerman-Livingstone fromeviction it will from now on provide amuch firmer shield for other tenantswho allege that they are sufferingunequal treatment by reason of theirdisability.

Assuming that the tenant has provided the court with prima facie evidence of adisability and causation, the landlord will have to put time and effort intoaddressing the defence and providingevidence to justify its claim.

Imogen Halstead

Commercial & Chancery Bulletin - Winter 2015/16 1

Few cases can lay claim to being beforethe Court of Appeal twice. Yet, Ilott v.Mitson [2015] EWCA Civ 797 can do justthat. On its second airing before the LordJustices we find the statutory frameworkof the Inheritance (Provision for Adultsand Dependants) Act 1975 (“the 1975Act”) almost strangely straightforward;yet, as is often the case, poorly appliedin the courts below.

The 1975 Act The 1975 Act provides a coherent andsensible method of assessing whetherreasonable provision for a claimant has,or has not, been made. Reasonableprovision (in respect of claimants otherthan surviving spouses or civil partners)means:

‘such financial provision as it would bereasonable in all of the circumstancesif the case for the application to receivefor his maintenance’ (section 1(2) 1975Act)

Maintenance is a tricky word. Ostensiblystraightforward and yet defined, vaguely,in Re Dennis deceased [1981] 2 AER 140at 145-6 as follows: ‘the word“maintenance” connotes only paymentswhich, directly or indirectly, enable theapplicant in the future to discharge thecost of his daily living at whateverstandard of living is appropriate to him.’

It is, I suggest, this vagueness whichaccounts for much of the difficultyexperienced by the courts below in Ilott.

Section 2 1975 Act provides that wherethe disposition of the deceased’s estateeffected by his will or the law relating tointestacy is not such as to makereasonable financial provision for theclaimant then the court may:

“(a) Make an order for the making to theclaimant out of the net estate of suchperiodical payments and for such termas may be specified in the order; and/or

(b) Make an order for the payment to theclaimant out of that estate of a lumpsum of such amount as may bespecified…”.

Section 3 1975 Act lists the wide range offactors which the court shall take intoaccount in deciding whether reasonablefinancial provision has been made. Inshort, those factors are:

(a) The financial resources and financialneeds the claimant has or is likely tohave in the foreseeable future

(b) The financial resources and financialneeds which any other claimant hasor is likely to have in the foreseeablefuture

(c) The financial resources and financialneeds which any beneficiary of theestate of the deceased has or is likelyto have in the foreseeable future

(d) Any obligations and responsibilitieswhich the deceased had towards anyclaimant or any beneficiary

(e) The size and nature of the net estate

(f) Any physical or mental disability ofany claimant or any beneficiary

(g) Any other matter, including theconduct of the application or anyother person, which in thecircumstances of the case the courtmay consider relevant

One of the peculiarities of claims underthe 1975 Act is the way in which courtmust necessarily examine, so thoroughly,a great range of factors before it. Thecourt examines the internal mechanismsof a family; often, a sort of post mortemis performed as to where relationshipsbroke down – as they often have done soin such claims. The minutiae of the

The court examines theinternal mechanisms of afamily; often, a sort of postmortem is performed as towhere relationships brokedown – as they often havedone so in such claims.

What we learntTHIS TIME ROUND

ILOTT v. MITSON REVISITED

15 Commercial & Chancery Bulletin - Winter 2015/16

claimant’s life, too, is considered.Litigation is often fraught, often stressful;but, this is especially true is 197 Actclaims. True, too, is the exactingexamination required of a family – bothbefore and after a deceased’s passing.

The facts of IlottThe claimant in Ilott was estranged fromher mother – the deceased. Blame lay,the court found, on both sides for theestrangement. Primarily, theestrangement was caused by theclaimant’s decision, at the age of 17, toleave home in 1978 and move in with theman who would become her husband.Although happy, the life that they madefor themselves was relatively meagre.Both relied heavily on state benefits. DJMillion, in the court at first instance,found that the deceased hadunreasonably excluded the applicantfrom any financial provision in her willdespite the claimant’s needy financialcircumstances.

So far, so straightforward. An awardought to be made to the claimant underthe Act. Where problems arose, however,was in assessing what that award shouldbe.

The award – first instanceThe judge at first instance, DJ Million,directed himself that a capitalised summust be based on an income need. Ofparticular note, DJ Million rejected theclaimant’s claim for £186,000 topurchase the family home and othersums to improve the property. DJ Millionconsidered all of the suggestions putforward by the parties as unsuitable andsettled upon an award of his owncalculation.

Part of DJ Million’s own calculation wasa number of considerations. DJ Millionconcluded that the claimant had someearning capacity but that would not beenough to meet her financial means. Hetook the claimant’s share of the tax creditreceived by her and her husband andused that as a ‘ceiling’ beneath which anaward should be made.

Crucially, DJ Million found that theamount of tax credits received by theclaimant represented the amount ofmaintenance which the governmentaccepted as necessary to provide theclaimant with a basic, but reasonable,standard of living. In other words, DJ

Million concluded that the level of statebenefits as ‘the ceiling on the amount hecould award for the [claimant’s]maintenance’ (at [25]). The DJ then tookinto account the ‘At a Glance’ tables andconcluded that £69,200 would provide theclaimant with an income of £4,000 peryear. He then capitalised the sum as£50,000, whilst emphasising that thiswas a rough approximation.

The award – on appeal to the High Court

Parker J did not find error in DJ Million’sreasoning.

The award – on appeal to the Court ofAppeal

On appeal Arden LJ found three issuesfell for considerations:

i. Were there any errors in thereasoning of DJ Million on financialprovision which result in hisjudgment being set aside?

ii. If so, should the Court of Appeal re-exercise the discretion of DJ Millionor remit the matter once more backto the trial court?

iii. If this court is to re-exercise thediscretion, how should it do so?

Arden LJ, with whom Ryder LJ and SirColin Rimer agreed, found that therewere errors within the district judge’sreasoning. In particular, the district judgewrongly equated the level of statebenefits with reasonable financialprovision. He took state benefits torepresent a ‘ceiling’ as to whatreasonable financial provision meant andthat such a ceiling could not beexceeded. DJ Million appeared to findthat the claimant’s living could not beimproved but only, in the strictest sense,maintained or continued. In addition DJMillion had failed to consider the effectthat an award would have upon theclaimant’s state benefits. And, althoughsuch information was not before him, hehad failed to ask for such information tobe provided.

On appeal, the Court of Appeal wasinformed that a capital sum would notaffect the claimant’s state benefits (see[43]).

Arden LJ concluded that the correctaward was an award of £143,000 – thesum required to purchase the claimant’shome and the reasonable expenses ofacquiring it. Owning the property wouldalso allow the claimant to release itsequity and to raise capital in the future;such a consideration was important asthe claimant did not have a pension. Inaddition, Arden LJ gave the claimant anoption to receive £20,000.

ConclusionsIlott demonstrates the importance thatpractitioners fully apprise themselves ofthe effect an award will have upon statebenefits.

Of note, too, is the thinking found in Ilottthat state benefits do not necessarilyequate with reasonable financialprovision. State benefits do notrepresent a ceiling under whichreasonable financial provision ought tobe made. Reasonable financial provisioncan, in some circumstances, representan improvement to a claimant’s financialposition.

Although a highly useful authority, myview is that Ilott only takes us so far inunderstanding the real workings of the1975 Act. The vagueness with which‘maintenance’ is defined remainsproblematic. There is still room formuch debate as to what ‘maintenance’within the context of the 1975 Act shouldbe taken to mean. As Ryder LJremarked in Ilott: ‘I have not found itnecessary to comment further upon howmaintenance is to be construed for thepurposes of s 1(2) of the 1975 Act. In sofar as there is a debate about that, it canawait a case in which the circumstancespermit of a broader discussion’. Weawait such a case with interest.

Emma Williams

DJ Million concluded thatthe claimant had someearning capacity but thatwould not be enough to

meet her financial means.

Re-Opening Credit Transactions

UnfairCommercial & Chancery Bulletin - Winter 2015/16 16 1

Section 140A-CThe Consumer Credit Act 2006 addedsections 140A to 140C to the ConsumerCredit Act 1974. The new sections cameinto force on 6 April 2007 in substitutionfor the earlier “extortionate creditbargain” provisions, formerly enshrinedin sections 137-140 of the 1974 Act. Theold regime had set the bar to relief toohigh and had proved largely ineffectualin providing a remedy to debtors andsureties wishing to challenge the termsof their agreements. Section 140A canbe relied on by a debtor or a suretyprovided they are natural persons.Significantly, access to the relief undersection 140A is not limited by referenceto the amount advanced under the creditagreement.

Section 140A confers a wide discretionon the court to make an order undersection 140B in connection with a creditagreement. That discretion is engaged ifthe court determines that therelationship between the creditor andthe debtor is unfair to the debtor byreason of (a) any terms of the agreementor of any related agreement and/or (b)the way in which the creditor hasexercised or enforced his rights underthe agreement or any related agreementand/or (c) any other thing done (or notdone) by, or on behalf of the creditor,either before or after the making of theagreement or any related agreement.

Once a debtor or surety alleges that therelationship is unfair, section 140B(9)requires the lender to prove that it is not.Section 140B lists a menu of orders thecourt may make if it finds the debtor-creditor relationship unfair.

So far the majority of reported casesunder section 140A have involved claimsby debtors for the recovery of PPIpremiums. These claims were beset bythe dampening effect of the Court ofAppeal’s decision in Harrison v. BlackHorse Ltd [2012] Lloyd’s Rep IR 521. In

that case Tomlinson LJ delivering theonly reasoned judgment commentedthat he found the commission taken bythe lender (87%) “quite startling” andadded that there would be “many whowould regard it as unacceptable conducton the part of the lending institutions tohave profited in this way”. Neverthelesshe declined to find that the relationship

was thereby rendered unfair because thelender had committed no breach of theICOB rules either in charging thecommission or in failing to disclose it. Inparticular, he rejected resort to “visceralinstinct that the relevant conduct isbeyond the Pale” and stated that thetouchstone had to be the standardimposed by the regulatory authoritiespursuant to their regulatory duties.

The impact of the Court of Appealdecision in Harrison was that section140A unfairness could not beestablished unless the debtor or suretycould rely on some breach of a legal orregulatory duty on the part of the lender.It was that apparent requirement whichled the Court of Appeal to dismiss MrsPlevin’s appeal (in Plevin v. ParagonFinance Ltd) because her principalcomplaint that Paragon’s unfairness wasnon-disclosure of the amount ofcommissions could not be said to involveany breach of ICOB (or any other) duty.In the conjoined appeal of Conlon v.Black Horse1 Briggs LJ expressed hisdiscomfort about the principle laid down

in Harrison and stated that, had he beenfree to do so, he would have regarded a“visceral instinct that the relevantconduct was beyond the Pale” as apersuasive starting point in the analysiswhether such conduct gave rise to anunfair relationship.

Plevin in the Supreme Court[2014] 1 WLR 4222On Mrs Plevin’s appeal to the SupremeCourt, Lord Sumption2 turned the tableson the potential reach and utility ofsection 140A for debtors and suretieswhen he overruled Harrison as wronglydecided. Lord Sumption accepted thatthe view which a court may take of thefairness or unfairness of a debtor-creditor relationship might be influencedby the standard of the commercialconduct reasonably expected by thecreditor, and in this particular instancethe ICOB rules were some evidence ofwhat that standard was. But he wasequally clear that the content of theICOB rules could not be determinative ofthe question posed by section 140A,because the regulatory requirementsand section 140A were doing differentthings.

The fundamental difference was that theICOB rules imposed obligations oninsurers and insurance intermediaries,whereas section 140A did not imposeany obligation, but was concerned withthe question whether the creditor’srelationship with the debtor was unfair.Further differences flowed from thisstarting point. The regulatory rulesimposed a minimum standard ofconduct applicable in a wide range ofsituations, enforceable by action3 andsounding in damages. Section 140A bycontrast introduced a broader test offairness to be applied to the particulardebtor-creditor relationship, which in theappropriate case would lead to thetransaction being re-opened as matter

1 [2013] EWCA Civ 1658 2 with whom Lady Hale, Lord Clarke, Lord Carnwath and Lodge Hodge agreed3 then s.150, now s.138D FSMA 2000

continued…

The impact of the Court ofAppeal decision in Harrisonwas that section 140Aunfairness could not beestablished unless thedebtor or surety could relyon some breach of a legal orregulatory duty on the partof the lender.

Once a debtor or surety alleges that therelationship is unfair, section 140B(9)

requires the lender to prove that it is not.



Susanne Muth

of judicial discretion.

While the standard of conduct expectedfrom practitioners by the ICOB rules waslaid down in advance by the FCA, thestandard of fairness in a debtor-creditorrelationship was a matter for the court,on which it had to make its ownassessment in each particular instance.It followed from these considerationsthat the question whether the debtor-creditor relationship was unfair was notthe same as the question of whether thecreditor had complied with its ICOBobligations, and the facts which wouldbe relevant to answer each questionwere manifestly different.

Indicia of an UnfairRelationshipLord Sumption remarked that section140A was deliberately framed in wideterms with very little guidance about thecriteria for its application. As suchsection 140A was undoubtedly intendedto introduce a broad definition ofunfairness, in place of the narrowlyframed provisions, which had previouslygoverned “extortionate credit bargains”.The scope of the section extended to anycase in which human action or inactionproduced unfairness.

The question of fairness involves a largeelement of forensic judgment, but thereare some pointers that a relationshipmight be unfair. Lord Sumption identifiedas foremost among these a relationshipwhich was so one-sided as substantiallyto limit the debtor’s ability to choose. Herecognised that large differences infinancial knowledge and expertise (andan inherently unequal relationship inthat regard) were probably a feature ofthe great majority of relationshipsbetween commercial lenders and privateborrowers, and that it could not havebeen Parliament’s intention that thegenerality of such relationships shouldbe reopened for that reason alone. In hisview it was a question of degree.

The provision to a financiallyunsophisticated debtor of bad advice, or

no advice, about the suitability of arelatively complex product (like PPI)would commonly result in a one-sidedrelationship substantially limiting thedebtor’s ability to choose. In Mrs Plevin’scase there existed a sufficiently extremeinequality of knowledge andunderstanding. Any reasonable person inMrs Plevin’s position who had been toldthat more than two thirds of the PPIpremium was going to intermediaries,would have been bound to questionwhether the insurance presented value

for money and whether it was a sensibletransaction to enter into. The fact thatshe was left in ignorance made therelationship unfair.

Utility of Section 140AThe main interest of the Supreme Courtdecision in Plevin (including casesoutside PPI litigation) lies in opening theway for a debtor or surety to argue that alender has acted unfairly in all thecircumstances, even if it has compliedwith its regulatory obligations. LordSumption opined that once the decisionin Harrison was discarded, section 140Acan be seen to give extensive protectionto the debtor (or surety) extendingbeyond the right to enforce the lender’slegal duties, in any situation where thelender or its associates (or their agents)have made the relationship unfair.

Conduct which is “beyond the Pale”,although strictly legal, may give rise toan unfair relationship and afford adebtor or surety a remedy under s.140B.While in each particular case the courtwill seek to make an order which isproportionate to the nature and extent of

the unfairness, the range of possibleorders in the s.140B menu is extensive.In an appropriate case the court willorder the lender to repay sums paid bythe debtor or surety by virtue of thecredit agreement or any relatedagreement or make an orderdischarging or reducing any sumpayable by the debtor or surety. Thecourt can further direct the return to thedebtor or surety of any property providedfor the purposes of security.

The court is also enabled to alter theterms of the credit agreement or anyrelated agreement and to direct anaccount to be taken between the lenderand the debtor. These are formidablediscretionary powers, and it remains tobe seen how the courts will deploy themto rectify the consequences of an unfairrelationship. In Plevin, the section 140Bexercise was remitted to ManchesterCounty Court.

In the meantime debtors and suretiesshould be aware that they are able toseek section 140B relief by way ofmaking an application under section140A. They can also raise a claim forrelief in any proceedings brought by thelender to enforce the credit agreementor guarantee. As such it is to beexpected that section 140A claims willfeature predominantly defensively. A welldrafted unfair relationship claim forrelief under section 140B should, as aminimum, facilitate and strengthen theposition of the debtor or surety insettlement negotiations with the lender.

Re-Opening Unfair Credit Transactions continued

Conduct which is “beyondthe Pale”, although strictlylegal, may give rise to anunfair relationship andafford a debtor or surety aremedy under s.140B.

The question of fairness involves a large elementof forensic judgment, but there are somepointers that a relationship might be unfair.


The facts of this case were that Ms Menelaouwas bought a property by her parents as (asshe thought) an unencumbered gift. In fact, herparents had been indebted to the defendantbank in the sum of £2.2 million which had beensecured by two charges on the family home.

The family home had been sold to enable Ms Menelaou’shouse to be bought. When Ms Menelaou’s parentsbought her the property, the bank agreed to release thecharges on the family home in return for being granted anew charge over Ms Menelaou’s house. The claimantwas entirely unaware of the charge and when she foundout about it she sought rectification of the register on theground that the charge was invalid. As Ms Menelaou’ssolicitor had failed to obtain her signature on the chargeform, the defendant bank conceded the invalidity butcounterclaimed on the basis of unjust enrichment.

The Supreme Court, applying Benedetti v. Sawiris [2014]AC 938, held that on a claim of unjust enrichment thecourt had to ask whether (i) the defendant had beenunjustly enriched, (ii) the enrichment had been at theclaimant’s expense, (iii) the enrichment was unjust and(iv) there were any defences available to the defendant.Provided that there was a sufficient causal connectionbetween the payment and the enrichment there was noreason why a claim for unjust enrichment could notsucceed against an indirect recipient.

Ms Menelaou was found to have been unjustly enrichedas she had become the owner of a property the value ofwhich was considerably greater than it would have beenbut for the avoidance of the charge. If the charge wasavoided, the bank would be left without security whichwas central to the whole arrangement.

Menelaou v. Bank of Cyprus UK Ltd [2015] UKSC 66

The members of Coniston Hotel (Kent) LLP (“theLLP”) appealed against the decision of the HighCourt ([2014] EWHC 1100 (Ch) where theadministrators had been granted summaryjudgment by Morgan J. The LLP was formed sothat a hotel could be built and run.

Prior to opening, the LLP encountered financialdifficulty. The LLP’s bank requested a second valuationwhich, ultimately, was much lower than the firstvaluation which had been sought by the LLP.Consequently, the bank refused to provide additionalfunding. The appointment of the administratorsfollowed. The hotel was sold to a company associatedwith the bank. The members of the LLP issued claimsagainst the administrators for mismanagement andmisconduct. The allegations raised by the memberwere manifold. However, it is possible to divide theallegations into two broad tranches. Firstly, themembers of the LLP alleged that the administratorshad failed to secure the additional funding required toprevent the hotel project from collapsing. Secondly, themembers of the LLP alleged that the administratorshad been party to a pre-determined arrangement so

that the bank would be able to purchase the hotel at anundervalue. The allegations raised were, undoubtedly,serious.

Notably, the allegations raised by the members of theLLP were similar to cases analysed in a reportauthored by the Entrepreneur in Residence at theDepartment for Business, Innovation and Skills into thelending practices of banks. There were, therefore,issues within the case of substantial public importance.However, the facts in the present case did not give riseto issues which ought to go forward to trial once thewell-trodden test for summary judgment was applied.

On applying that test, the Lord Justices concluded thatthe court below had been correct. The members of theLLP had not put forward evidence which suggested thatadditional funding was, indeed, available from othersources. Nor had the members put forwarding seriousevidence of the alleged conspiracy. It followed thatthere was no real prospect of the members of the LLPsuccessfully bringing their claim. Although of greatseriousness, the allegations were not borne out by theevidence. Accordingly, the appeal was dismissed.

Re Coniston Hotel (Kent) LLP (In Liquidation) [2015] EWCA Civ 1001

No5 Chambers provides services onan equal opportunity basis

Commercial & Chancery BulletinEditor - Nicola PrestonCase notes provided by Nicola Preston, ImogenHalstead and Emma Williams

This bulletin does not contain legal advice. Whilst everyeffort is made to ensure its accuracy, No5 Chambers, itsindividual members and the authors of the articles do notassume for, and cannot be held liable in respect of, thecorrectness of its contents or for any reliance placedupon them.

Commercial & ChanceryPractice DirectorTony McDaid

Senior Practice ManagerJames Parks

Practice Group ClerksDaniel Griffiths, Adam Mountford, James Ashford and Mitchell Nash

Tel: +44 (0) 845 210 5555 Fax: +44 (0) 0121 210 7312 Email: [email protected]

www.No5.com

BirminghamFountain CourtSteelhouse LaneBirmingham B4 6DR

DX 16075 Fountain Court Birmingham

LondonGreenwood House4-7 Salisbury CourtLondon EC4Y 8AADX 449 London Chancery Lane

Bristol38 Queen SquareBristol BS1 4QSDX 7838 Bristol

East Midlands5 Museum SquareLeicester LE1 6UFDX 17004 Leicester 2

@No5Chambers

This was an appeal from a decision HHJ SimonBarker QC, sitting as a Judge in the ChanceryDivision, by Mrs Sharma, who was the liquidator ofMama Milla Ltd (“MML”). She had been ordered topay £548,074-56 (“the Sum”) by way ofcompensation for her breach of duty as liquidatorpursuant to section 212 Insolvency Act 1986.

The company had been involved in VAT fraud. Just prior tothe liquidation, MML had placed orders with Top Brands andLemoine Services for the purchase of goods, which were tobe delivered to its customer, SERT, which they were. SERTpaid the Sum into MML’s account with NatWest. Shortlythereafter was the creditors’ voluntary winding up of MMLand the account was frozen. The Sum was transferred intoMrs Sharma’s account with Barclays. Between November2011 and April 2012, Mrs Sharma repaid the Sum intovarious accounts for the benefit of SERT, in the belief thatthe goods had not been delivered to it.

The Judge had decided that Mrs Sharma was liable as shehad failed in her core duties under section 107 InsolvencyAct 1986, in that she had not applied the property insatisfaction of MML’s liabilities pari passu (subject to anypreferential payments). Thus the payments by her to SERTwere in breach of duty and were negligent.

An argument based on illegality was first raised in herskeleton argument at trial. The Judge found that waspermissible but that any such argument was peripheral onthe facts, especially as Mrs Sharma was oblivious of thefraud despite the existence of circumstances that ought tohave alerted her.

Mrs Sharma’s appeal failed. The Chancellor, giving thejudgment of the court, said that judgments of the SupremeCourt in Les Laboratoires Servier v. Apotex Ltd [2014] 3WLR 1257; Hounga v. Allen [2014] 1 WLR 2889 and Bilta v.Nazir (No 2) [2015] 2 WLR 1168 gave rise to uncertainty onthe proper approach to a defence based on illegality and thatneeded to be addressed by the Supreme Court. That,however, did not hamper the Court of Appeal in this casebecause it was found that, on any approach, there simplywas no causal connection or link between the claim and theillegality. In other words, it had not been necessary for theRespondents to rely on anything illegal in order to foundtheir claim against Mrs Sharma. As there was no causativerelationship to the loss claimed, the appeal failed.

Sharma v. Top Brands Ltd [2015] EWCA Civ 1140

bulletin - winter 201 5/16 commercial chance ry chan bulletin...endure for some time. i wish you all...

Documents