We are delighted to announce the recruitment of Ashley Pappin as Senior Associate. Ashley becomes the fourth member of the Cripps LLP construction disputes team. Ashley joins us from Weightmans LLP in London, having previously worked at the London office of Herbert Smith LLP (now Herbert Smith Freehills), and the in-house legal department of Volkswagen AG in Wolfsburg, Germany. Ashley’s career to date has concerned contentious construction matters, international arbitration and a variety of UK and international commercial disputes. He has acted for a number of household name companies and high profile construction consortia. Ashley joining us is an important step in the ongoing growth of our construction disputes practice and enables us to service the ever increasing demand for our contentious construction services.
Gareth Southgate’s England squad went into the World Cup with expectations at an all time low. So what national joy there has been to have made it as far as the semi final.
Another first at this World Cup is the use of VAR, the video referee. In certain circumstances, the decision by the on-field referee may be reviewed by the video referee. The video referee has the advantage of multiple camera angles, slow motion and other technology. The result should be that there are no bad decisions and controversy should be a thing of the past. Well, it has not quite worked out like that.
Football is rules based. Unlike our legal system, it is entirely codified; and much less complex. The rules tell you what you may or may not do and what the consequences are if you break the rules. It should be simple. In football you guide the ball with your feet or head, not with your hands (unless you are the goalkeeper). So Rule 12 says about handling the ball:
“Handling the ball involves a deliberate act of a player making contact with the ball with the hand or arm.”
Immediately you can see how difficult it is to apply the rules to the facts. The referee may feel that a player did not ‘deliberately’ handle, he was close to the ball when it was played or he did not move his hand towards the ball. The video referee may come to a different conclusion. What is a clear and unambiguous ‘rule’ may be capable of different interpretations when applied to the facts.
Our legal system is similarly comprised of ‘rules’. The equivalent of the video referee is the judge’s decision may in turn be reviewed by a higher court. Convention has it that judges do not ‘make’ the law, they ‘find’ it. The exercise of the judicial process results in a deduction made from the pre-existing rules. This may be so in the most straight forward of cases but generally it is unrealistic to suppose that statutes or case law, the source of the ‘rules’, are capable of only one interpretation or meaning. It is at these ‘debatable edges’ that the courts operate.
In seeking legal advice, people want to know what the law is and how it applies to their particular circumstances. For the legal adviser the question can often only be answered by means of a prediction of what the court may decide.
So we know what the ‘rules’ of handball in football are, we know what the ‘rules’ relating to a particular legal issue are. In each case we may be able to predict with some accuracy how those rules will be applied by the referee or the video referee, the judge or the Court of Appeal. But predictions are not the same as certainties – as the manager of the Germany team will testify.
What do you picture when you think of a solicitor’s typical working day? The stereotype is often someone dressed in a suit, stuck in the office between 8:00am to 10:00pm. Perhaps that is the case for some, but here at Cripps this is becoming further from reality, not least because of our drive towards agile/flexible working and our smart/casual dress code. In fact, you will find that in addition to the day job of giving clients legal advice, many solicitors participate in extra activities that are completely non-law related.
For instance, many people are involved in charity work. At Cripps we have a charity committee which is comprised of people from all over the firm, ranging from partner level to trainees. Every year Cripps chooses a charity of the year and we create a packed calendar full of fundraising events that almost everyone gets involved with at some point.
Some events are relaxing, such as the 10k London Legal Walk, which was on a beautiful sunny day and essentially involved a stroll down the River Thames. It was also in the afternoon, so you could get a good half day’s work done beforehand. Other events, such as the SleepOut for LandAid that involved sleeping on the streets of London in -8 weather conditions to raise money for homeless people and help fund a new YMCA building, was far less enjoyable and not an experience many of us would like to relive.
People often dismiss charity work because they “don’t have time to do it”. I think the point to note is that no-one working full time in a demanding job has time set aside for charity work. It is something you have to make time for. When considering whether to do charity work, it helps to focus on the benefit it will have on the recipient. This year, Cripps is fundraising for Rethink Mental Illness. Our funding will enable them to educate people on mental illnesses, provide support to those who need it and even offer housing services. We are enabling people, who may not otherwise be able to afford or access support, get the help they need.
Charity work can also be very rewarding and a nice distraction from law (not that I don’t obviously love my job). You network with a variety of people from all backgrounds and sectors, which may even lead to new instructions. When you think about it, I believe you would be hard pressed to find someone who regrets doing too much charity work.
That said, the next fundraising event Cripps employees are taking part in is a sponsored skydive on 22 July 2018. Perhaps ask me again if I regret doing charity work while I’m going up in the plane … If you are able to spare any change to support our charity of the year, we would be grateful for all donations, however small. The link to donate is https://www.justgiving.com/fundraising/cripps-skydive.
The recent case of Zinc Cobham 1 Ltd and others v Adda Hotels considered whether or not a tenant’s obligation in hotel leases to trade in accordance with certain (Hilton) brand standards could be enforced by the landlord; the remedy applied for by the hotel landlord being “specific performance”, a remedy which the courts can choose to award or not based on the facts of any particular case.
If enforced in this case, the tenant would have had to carry out over £100m of works to the hotels in question.
A mainstay of the landlord’s argument was that the loss it was now (and had been) suffering on account of the tenant’s breaches of lease was a fall in the value of the landlord’s reversionary interest and that it would be too difficult to ascertain that loss, so as to obtain adequate compensation, through an award of damages alone.
However, the court considered the commercial realities (which were that the landlord’s rent roll from the hotels was £26m pa and that that rental income was not going to increase even if the £100m works were done). The court accepted the tenant’s arguments that the valuation of the reversion was not overly difficult to do, could be done adequately, and that the likely true loss to the landlord (ie the diminution in value of its reversion) was likely to be far less than £100m.
The initial decision was that – for 13 reasons given in that judgment – specific performance was not appropriate and damages were an adequate remedy instead. That decision was upheld by the Court of Appeal.
Is this outcome surprising?
We have been here before, of course, with “keep open” covenants in leases – notably the House of Lords case of Co-Operative Insurance v Argyll Stores Holdings (1998). In that case, an order for specific performance of a “keep open” covenant in a lease was refused. Hoffman LJ stated “Specific performance is traditionally regarded in English law as an exceptional remedy, as opposed to the common law damages to which a successful plaintiff is entitled as of right … the general principle [is] that specific performance will not be ordered when damages are an adequate remedy”. In that case, there was also the issue that the “keep open” covenant applied to a loss-making business and so the court could not see that it would be equitable to impose an order to carry on a loss-making business resulting in an unquantifiable loss.
What else can a landlord investor do to enforce brand standards?
Other remedies are usually available to landlords depending on the wording of the relevant lease, for example entering to carry out repair works to premises where the tenant is in breach and recovering the cost, but ultimately this is likely to result in a damages claim anyway if the costs are not paid. Equally, such action would not assist in keeping the premises open for trade in accordance with those brand standards.
However, brand standards are important, particularly in the hospitality sector and so too is proactive management of an investment portfolio. It is surprising that a situation could arise whereby works to the value of anything like £100m were needed. Perhaps it could have been possible for the tenant’s breach to have been nipped in the bud at an earlier stage using other remedies as suggested above?
As for keep open covenants themselves, they are commonly avoided in lease drafting these days precisely because of the difficulty in enforcing them, as the above cases demonstrate.
On 15 May 2018 following its judgment in the two conjoined cases of P&P v Owen White and Dreamvar v Mishcon de Reya (2018) EWCA Civ 1082, the Court of Appeal has sent shockwaves in both the property and insurance markets, leaving major questions unanswered in relation to liability for property fraud.
The facts in the two conjoined cases on appeal were broadly similar. In each case, (i) the buyer was genuine and instructed solicitors to buy a residential property, (ii) a fraudster purported to be the genuine owner/seller and instructed solicitors to handle the sale, (iii) the buyer’s solicitors sent the completion monies to the seller’s solicitor who then forwarded those monies to the fraudster seller and (iv) the fraudster fled with the cash while the true owner was oblivious throughout.
In the Dreamvar case; Dreamvar as buyer sued its solicitors, Mishcon de Reya (MDR), for negligence (in contract and tort) and for breach of trust. Dreamvar also sued the seller’s solicitors, Mary Monson Solicitors (MMS), in negligence, for breach of warranty and for breach of trust. The High Court rejected negligence claims against MDR, and all claims against MMS, but found MDR liable for breach of trust in paying away the purchase monies as there was no genuine completion as the sale contract was a nullity. The High Court then ordered MDR to pay Dreamvar £1,080,200 plus interest (being the purchase price paid, less the commission charged by the estate agent), mainly because MDR was best insured to deal with the shortfall.
In P & P conversely, the buyer sued the imposter’s solicitors for breach of warranty of authority, negligence, breach of trust and breach of undertaking. It also claimed that the estate agent was liable for breach of warranty of authority and negligence, having marketed the property. The High Court dismissed all these claims.
The Court of Appeal Decision
The Court of Appeal reversed the High Court on a number of issues:
(a) Breach of Warranty of Authority
Having spent considerable time traversing the law, the court reversed the High Court and found that when the Seller’s solicitor signed the Sale Contract on behalf of the seller, she was warranting that she acted for the true owner of the Property. No liability was found however as MDR had given witness evidence that they had not relied on this warranty.
(b) Breach of duty
The Court of Appeal upheld the High Court decision in that that the seller’s solicitor does not owe a duty of care to the purchaser to competently carry out its Money Laundering checks. An assumption of responsibility could potentially arise depending on the facts but where the buyer had its own solicitors, it would not be fair to impose a duty.
(c) Breach of undertaking
The question here was whether the seller’s solicitor had undertaken that he had authority of the fraudster or the genuine registered owner. The Court of Appeal held that on a proper interpretation of The Law Society Code for Completion by Post 2011, the seller’s solicitor was in breach of undertaking. Their reasoning being that the only person who could give that authority for the purposes of completion of a genuine sale would be the true owner of the property.
(b) Breach of Trust
It was not disputed that when releasing completion monies MDR were in breach of trust. MDR held the completion monies on trust and it was an implied term of the retainer to release monies for a genuine completion only. However the main issue on both appeals was whether or not the seller’s solicitor was in breach of trust. The Court of Appeal analysed the Law Society Code for Completion by Post 2011 and concluded that the seller’s solicitor was in breach of trust when they paid away the monies that they had received from a purported completion to their fraudster client.
S61 Trustee Act 1925
The most surprising aspect of the Court of Appeal decision involved the effect of section 61 under the Trustee Act 1925. The operation of the Act allows the court to relieve a trustee for breach of trust if they acted honestly and reasonably and ought to be fairly excused for the breach. However the Court of Appeal refused to grant such relief to MDR. In other words, although MDR did nothing wrong, it must suffer the consequences of a fraud perpetrated by an imposter client of an opposing solicitor. While MDR remains liable to its buyer client for its shortfall, MDR can seek contribution from MMS on a Civil Liability (Contribution) Act claim basis.
The ramifications of this decision will need to be worked through. The key message is that the failure to carry out due diligence checks on behalf of the seller will have potential liabilities to the purchaser as breaches of warranty of authority, trust or undertaking. Conveyancers and insurers will have to approach each transaction carefully, particularly watching out for high-risk transactions which may encumber the conveyancing process. Each case will also differ depending on the terms of the client retainer, the contractual promise made between parties and their solicitors and the conveyancing mechanics adopted. Permission to appeal has been granted and it will be interesting to see how the intervention of The Law Society will play out in seeking to protect the interests of the profession, before the Supreme Court.