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Everything including the kitchen sink 12 September 2014

The case of Hirtenstein v Hill Dickinson LLP [2014] EWHC 2711 (Comm) is worth a read for a number of entirely unconnected reasons.

First, it gives an insight into a life that few of us will ever achieve, revolving as it does around the purchase of a 46m motor yacht for the sum of 4.5m euros (originally on the market for 17m euros hurry hurry hurry sale must end soon). 

Secondly, it demonstrates that LLPs cannot assume that a limitation of liability in their terms and conditions will be effective.  In this case, the solicitors did not send their terms to the client until after the transaction had already started (since the transaction was super-urgent), and failed to draw the limitation (contained in the small print) to his attention in the retainer letter (contrary to the Solicitors’ Code of Conduct 2007**).  The judge held that the limitation of liability was not reasonable under the Unfair Contract Terms Act 1977, and was therefore ineffective.

Thirdly, the case demonstrates that a professional who makes a mistake will not necessarily be legally liable for a client’s losses.  This is only a reflection of the general law but it must come as a surprise to the client.  The solicitor believed that he had obtained a personal guarantee to support a warranty of condition.  The guarantee was illusory, and the judge said that the guarantor would not have agreed to give a guarantee in the form that the solicitor was trying to obtain.  The judge went on to say, however, that the client would have proceeded with the purchase whether or not there had been a guarantee, and therefore his losses were not a consequence of the solicitor’s error.

And finally, if you are going to act as an expert witness, do it properly.  According to the judge, Mr Smith (the client’s expert) utterly failed to discharge his duties and he did “not consider that he [was] a fit person to act as an expert witness.”  

One of Mr Smith’s duties was to classify various costs contained in a schedule as either “repairs” (claimable in the action) or “upgrade” (not claimable).  As the judge said:

“… it is only necessary to read through the schedule of purported repair costs appended to Mr Smith’s report for it to be obvious that they include numerous items such as attorney’s fees (which Mr Smith was completely unable to explain) and a vast array of fittings and accoutrements, computer equipment and office supplies etc which are palpably unjustifiable. As these items evidently include a complete refit of the galley, it may truly be said, as Mr Tozzi, acting for the defendant, observed, that the claim includes the kitchen sink.”

Emphasis added, obviously.

The transcript is available on BAILII here.

Addendum

This extract from para [107] raises a chuckle as well:

“The port engine was examined by metallurgical consultants, Applied Metals Science Inc, who prepared a report dated 4 December 2010.  The report states that the lower bearings appeared to be almost new with no significant deterioration but the upper bearings were worn out.  The experts agreed that this makes no sense because the lower bearings have the heaviest load and will almost inevitably show signs of wear before the upper bearings.  It is likely that the report stated the findings the wrong way round, possibly because the engine was turned upside down at the time of the inspection.”

** The Solicitors’ Code of Conduct 2007 was replaced on 6 October 2011 by the SRA Code of Conduct 2011 as part of the introduction of outcomes-focused regulation.

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Reminder: no court has yet decided that a guarantee of an AGA is valid 8 September 2014

This is an article about the case of Tindall Cobham 1 Ltd v Adda Hotels (an unlimited company) [2014] EWCA 1215, decided on Friday last week.  Except that it isn’t about the decision in that case, but more about one statement made by Patten LJ in the case.  (Patten LJ gave the only judgment, with which Longmore and Ryder LJJ agreed.)

The case itself is interesting, but I will not discuss it in massive detail because there will be plenty of other commentaries.  There is a good summary on Lawtel today, for example (subscription needed) and I am sure that Practical Law (subscription also needed) will have a legal update on the case very shortly (now available here). 

In summary, the Court of Appeal had to decide how to interpret a provision in a lease that stated that the tenant could assign to an associated company with the landlord’s consent, but so long as the existing guarantor (the parent company) and any other guarantor provided a new guarantee of the assignee’s liabilities, and the assignee gave notice of the assignment within ten days, “the landlords consent shall be given”.  (There is no apostrophe in “landlords” in the version of the clause set out in the Court of Appeal’s judgment, but perhaps there was an apostrophe in the lease itself.  There were in fact ten leases, one for each of ten hotels let to the Hilton Group.)

The issue, of course, is that the repeat guarantee from the parent company would be invalid, as a result of the operation of section 25 Landlord and Tenant (Covenants) Act 1995.  We know that from K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904.  The lease in this case was granted in 2002, after the 1995 Act came into force but before the world realised that repeat guarantees could be caught by section 25.

So the tenant argued that the landlord could not prevent the assignment of the lease to an associated company even without the parent company guarantee – meaning that the lease could be assigned to a £1 company and the landlord would be powerless to prevent it.

Fortunately (for the landlord, and for landlords everywhere), on the drafting of this particular lease, the Court of Appeal was able to sever the offending provision so as to leave a conventional alienation provision.  The tenant could assign to an associated company with the landlord’s consent.  This did not matter for the past, as the assignment had already taken place (and was held at first instance to be an “excluded assignment”, as landlord’s consent had not been obtained).  But it mattered a lot for the future.  If the tenant’s argument had succeeded, it could have assigned the lease once again to a company with no assets.

Obiter or what?

I see that by accident I have in fact provided a commentary on the case.  It’s a sound decision and it is difficult to see the Supreme Court agreeing to hear an appeal even were the tenant to ask for leave.

The point that struck me when reading the transcript on Friday was this paragraph:

“16.   The only exception to the operation of ss. 5 and 24(2) [ie the automatic release following an assignment of the tenant and any guarantor respectively] is an authorised guarantee agreement (“AGA”) under s.16 (referred to in s.25(3)) under which the existing tenant whose covenants would be released under s.5 agrees to guarantee the performance of those covenants by the assignee only until any subsequent assignment of the lease: see s.16(4). In K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904; [2012] Ch 497 this Court decided that in a case where the existing tenant entered into an AGA in respect of the covenant liabilities of the assignee, it was permissible under s.25 for the tenant’s liabilities under the AGA to continue to be guaranteed by the existing guarantor.  This was consistent with rather than a frustration of the provisions of s.24(2) which, as mentioned earlier, release the guarantor only where the tenant is himself released from his own covenants under the tenancy agreement.  Beyond this limited exception, however, the provisions of s.25 are absolute in their effect and require an objective determination of what provisions of the relevant agreement fall within the scope of s.25(1)(a).”

My concern is that the wording that I have highlighted by italics is in fact wrong.  The Court of Appeal did not decide in the House of Fraser case that a guarantee of an AGA (GAGA, or repeat guarantee, some call it) is valid.

Lord Neuberger did discuss the point, and concluded that a guarantee of an AGA does not infringe the anti-avoidance provision in section 25.  However, this was not part of his decision.  It was an obiter dictum (which is a Latin phrase meaning “a comment made in passing”).  That means that it is strictly speaking not binding on courts in the future.

Sometimes it is difficult to tell in a judgment which sections form part of the decision (ratio decidendi or “reason for the decision”) and which parts are obiter.  Lord Neuberger made it easy for us in the House of Fraser case, as this extract from [30] illustrates:

“The foregoing discussion is enough to dispose of Victoria’s appeal against the decision of Mr Randall.”

In spite of that, Lord Neuberger went on to consider Newey J’s first-instance decision in a completely different case, Good Harvest Partnership LLP v Centaur Services Ltd [2010] EWHC 330 (Ch), for a further 24 paragraphs.  (This was the case in which the appeal was settled on the steps of the court, to the dismay of landlord and tenant lawyers.  Could these 24 paragraphs possibly be extracts from the decision that Lord Neuberger would have made, had he been given the opportunity actually to hear the appeal?)   He concluded that he agreed with Newey J’s analysis of the 1995 Act, except that he concluded that a guarantee of an AGA is not invalidated by section 25.

Rejoicing all around.  Lord N says that a guarantee of an AGA is valid !!!

But remember that this was obiter, and so a court in the future – even at first instance – is not bound by it.  Agreed, it would take a confident judge to disagree with Lord N, one of the leading landlord and tenant lawyers of our generation.  But there are one or two confident judges out there, one of whom might feel it was worth a go.  And I have seen at least one commentary on the House of Fraser case (I cannot remember by whom, unfortunately) that suggests that Lord N’s argument is not 100% watertight.

Look at it this way.  Let’s assume that you are advising a company that has given a guarantee of an AGA in relation to a lease that is a new tenancy.  Outstanding rent of £10m is due, and the landlord is now pursuing you for the rent under the guarantee of the AGA.  Would you advise your client to pay up, or to challenge the validity of the guarantee of the AGA under section 25?  It’s a pretty easy decision, isn’t it.

Similarly, would you advise your investor client to buy a building let to a single tenant, where the only covenant of value comprises a guarantee of an AGA – the corollary of the above situation?  Another easy decision.

And once you reach that conclusion, the issue becomes much the same however much or little rent is owing.  Despite Lord Neuberger’s best intentions (and he made it clear that he was trying to assist the legal profession), he did not have the opportunity to “decide” in House of Fraser that a guarantee of an AGA is valid, simply because the question was not relevant to the issue before him.  This remains the case regardless of what Patten LJ may have said about it in Tindall Cobham

Just don’t forget: we still don’t actually know that a guarantee of an AGA will survive the anti-avoidance provisions in section 25.  In that respect we are as ignorant today as we were when the 1995 Act came into force almost twenty years ago.

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London Open House weekend – 20/21 September 2014 6 September 2014

This year’s London Open House weekend takes place in two weeks’ time, on Saturday
20 September and Sunday 21 September.

Here is the text of an e-mail that I have just received, with details of particularly tall buildings:

Plan your weekend …

This is your opportunity to visit over 800 buildings in London – both in the centre and in the surrounding boroughs.  Many are not normally open.  Some charge for entry during the rest of the year but are free this weekend.

Some buildings are ridiculously popular.  In the past I have walked along the length of a queue outside the Gherkin that stretched for about three-quarters of a mile.  The Government’s buildings in Whitehall are deservedly very popular.  For others there are no queues at all.  Especially in the suburbs.

All the buildings are listed on the London Open House website, listed in the Guide (available for purchase) and also now available on an app (available from app stores).  Some buildings require advance booking – and you might be too late for this year.  But most buildings are “first come, first served”.

Volunteering

London Open House relies on volunteers to assist the building owners to manage the crowds.  My friend Chris and I have been volunteering for London Open House for about 15 years.  Acting as a volunteer steward or (even more fun) guide gives you a badge that allows you to jump the queues at virtually all of the buildings (although you need to overcome a very British aversion to queue-jumping to make use of it).  So we visit buildings on Saturdays and volunteer on Sundays.  We have probably visited more than 60 buildings over the past 15 years.

This year Chris is a volunteer guide at Finsbury Town Hall.  I am helping out as a steward at the Pimlico District Heating Undertaking.  In the past I have worked as a volunteer at (among many other places) Harmondsworth Great Barn (near Heathrow), University College London (with the weird auto-icon of Jeremy Bentham on display), the Brunel Museum in Rotherhithe (for several years) and the Garden Museum in Lambeth.  I cannot recommend volunteering strongly enough.  It is great fun meeting (and trying to arrange into queues) the Great British Public, and a good number of tourists as well.

To join in the excitement in two weeks’ time, get hold of a copy of the Guide and start making your plans (volunteers are given a free copy of the guide as well as a queue-jumping badge).

To volunteer as a guide or steward next year, visit this “How to volunteer” web page on the London Open House website.

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Last chance to respond to Minimum Energy Efficiency Standard consultation 1 September 2014

There are only two days left to respond to the Minimum Energy Efficiency Standard (MEES) consultation – today and tomorrow.  The consultation period ends at 23.45 on Tuesday 2 September 2014, which is tomorrow.

As I said in my previous posts on this topic, I have written my own response to the consultation.   I am very happy for people to respond by reference to it, either in whole or in part, or to reproduce in their own responses any parts of my response that they wish to adopt.

The final version of my response is here

Final version of consultation response

and this comparison document shows the changes since the draft response that I posted on this website on 23 August 2014.

Complaint about the inadequate period allowed for the consultation

I have prefaced my consultation responses with this complaint about the inadequate period allowed for the consultation.  I encourage everyone to include comments along the same lines.

As you are already aware, I believe that the six-week period for consultation has been insufficient, particularly as it fell exactly over the school holiday period.  Few committees and groups meet during that period, so you will be receiving fewer, and less considered, responses to the consultation than would have been the case had you consulted for a longer period.

The difficulties tend to emerge from the detail in this type of legislation, so I am also concerned that the draft regulations are being made available only to a select set of lawyers (of whom I am one).  Having studied the draft regulations, I believe they would benefit from being the subject of a wider consultation, once the principles of MEES have been established through the current consultation.

The spring 2015 deadline for making the regulations is no doubt well-intended, but it is an entirely arbitrary deadline.  This policy is too important for the process to be rushed through merely to ensure that the regulations are in place before the 2015 general election.  If it turns out that further time is needed, it should be provided. I fear that it will otherwise be a case of more haste, less speed. 

Previous articles on this topic

Previous articles on this topic can be found on these links:

Minimum Energy Efficiency Standard consultations published (22 July 2014)

Minimum Energy Efficiency Standard – thoughts on the consultation proposals (28 July 2014)

Three weeks left to respond to Minimum Energy Efficiency Standard consultation (13 August 2014)

Ten days left to respond to Minimum Energy Efficiency Standard consultation (23 August 2014)

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