Monthly Archives: July 2014

Context & Special Conditions disapplied Property Sale General VAT Payment Condition

Where a property sale is liable to VAT the contract should contain a provision identifying the value of the supply and imposing upon the buyer an obligation to pay the VAT to the seller.

In CLP Holding Company Ltd v Singh & Anor [2014] the claimant exchanged contracts to sell 72 Rolfe Street, Smethwick (“the property”). Completion took place on the same day. Were the defendants liable to pay the claimant the VAT charge on that transaction?

The claimant was registered for VAT and, in 1989, it gave notice to HM Customs & Excise (“HMRC”) that it had opted to waive the exemption from VAT for the property. The claimant having exercised its option to waive the exemption, was liable to pay VAT upon the transaction, and in late 2007 HMRC raised a notice of assessment. In 2008, the claimant informed the defendants of the notice it had received and claimed that, under clause 1.4 of the general conditions, the defendants were liable to pay the claimant the sum it had to pay to HMRC in respect of VAT. They offered a VAT invoice. The defendants refused to pay VAT.

Clauses 1 and 2 of the special conditions covered the inter-relationship of the special and general conditions:

“1. The Seller [the claimant] will sell and the Buyer [the defendants] will buy the Property for the Purchase Price.

2. This Agreement incorporates the Standard Conditions of Sale (4th edition) (“the general conditions”). Where there is a conflict between the general conditions and this Agreement or the general conditions are not consistent with the express terms of this Agreement, this Agreement shall prevail…..”

Turning to the general conditions, clause 1.1.4 of the general conditions made it clear that they applied except as varied or excluded by the special conditions.

General condition clause 1.4 dealt with VAT as follows:

“1.4.1 An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment.

1.4.2 All sums made payable by the contract are exclusive of value added tax.”

General condition clause 7.4 provided:

“Completion does not cancel liability to perform any outstanding obligation under this contract.”

The Court of Appeal said the following points were material:

1. It had never been suggested that the claimant ever told the defendants that it had exercised the option to tax.

2. The defendants were individuals. Whilst the property comprised commercial premises, there had never been any suggestion that the defendants were aware, or had any reason to suppose, that the transaction might be subject to a VAT charge.

3. The purchase price for the property was agreed in principle a considerable time before completion. Moreover, the whole purchase price of £130,000 had been paid over by the defendants to the claimant by, at the latest, 2005. There was never any suggestion that VAT might be payable, still less that the defendants would be liable for it. Quite the opposite. In advance of the sale, the claimant’s solicitor’s letter expressly acknowledged that the claimant had received “all of the sale monies of £130,000 on this matter, subject to contract”. Apparently they were repaid to the defendants and then paid again to the claimant at exchange and completion.

4. The standard requisitions requested details of the exact amount payable on completion. The reply was: “Balance of purchase monies”, that is to say £130,000. No hint was given that VAT was or might be payable.

5. The special conditions specified that the “Purchase Price” was £130,000. They contained no indication that that price was exclusive of VAT. Additionally, the special conditions provided, in clause 2, and, implicitly, the general conditions in clause 1.1.4, that where there was any conflict with the general conditions (e.g. general condition clause 1.4 above), the special conditions were to prevail.

Taking all these factors into account and considering, the position from the standpoint of the reasonable person who had all the background knowledge which would reasonably have been available to the parties, placed as they were at the time of the contract, the Court of Appeal thought that person would almost certainly have inferred the parties to have intended that the defendants should not have had to pay the claimant anything over and above the specified purchase price of £130,000.

Here it was impossible to interpret “purchase price” as the price exclusive of VAT.

Or, putting it slightly differently, the reasonable person would think that the special conditions could not be reconciled with clause 1.4 of the general conditions and that the parties had, therefore, intended special condition clause 2 and general condition clause 1.1.4 to apply. So the special conditions would prevail i.e. without reference to VAT being paid additionally to the purchase price.

Therefore the court unanimously dismissed the appeal and left the claimant having to pay the VAT assessment.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Development management policies prevailed over socio economic policies

Where a planning application complies with some policies in the development plan, but is at variance with others, the decision maker’s task is to look at the whole plan and decide whether the application accords with it.

Development plans are full of broad statements of policy, many of these may be irreconcilable to each other, so that in a particular case one has to yield to another.

Also, many development plans’ provisions use language which requires the exercise of judgment before they can be applied to the facts.

Where policies pull in different directions the decision maker will have to decide which is the dominant policy, whether one policy compared to another is directly, as opposed to obliquely relevant, or should be the one to be given the greater weight.

In Arsenal Football Club Plc v Secretary of State for Communities And Local Government & Anor [2014] the claimant, Arsenal Football Club Ltd (“the Club”), applied under section 288 of the Town and Country Planning Act 1990 (“the 1990 Act”) to quash a Planning Inspector’s decision to refuse the Club’s application under section 73 of the 1990 Act to vary the conditions which Islington London Borough Council (“Islington”) had attached to two previous planning permissions for the Emirates Stadium. The application had been to increase from 3 to 6 the number of music concerts which may be held each year at the stadium and to allow the number of major events to be held on a Sunday to increase from 1 to 3.

Section 38(6) of the Planning and Compulsory Purchase Act 2004 provides that the determination of a planning application “must be made in accordance with the [development] plan unless material considerations indicate otherwise”. The Club’s claim was based on the single ground that the Inspector incorrectly applied section 38(6) in deciding whether the Club’s application complied with the development plan for the area.

As to the Development Plan policies Policy CS14 of the Islington Core Strategy supported retail and service providers for economic development and the enhancement of existing cultural uses.

Within the strategic part of the London Plan, Policy 4.6 stated that “the continued success of London’s diverse range of arts, cultural, professional sporting and entertainment enterprises and the cultural, social and economic benefits that they offer to its residents, workers and visitors” should be supported.

Development Management Policy DM4.10 favoured public houses.

However Islington’s Development Management Policies made entertainment and night-time activities generally inappropriate outside town centres where applicants would need to demonstrate that such uses would not result in such as noise and anti-social behaviour, particularly late at night, adverse to residential amenities.

Policy DM4.3, on the location and concentration of uses, stated that various leisure proposals would be resisted where they would cause unacceptable disturbance or would detrimentally affect the amenity, character and function of an area.

As to noise nuisance DM6.1, “healthy development”, stated:

“……….Noise generating uses should, where possible, be sited away from noise sensitive uses. Where noise generating uses are proposed within a residential area, applicants should demonstrate that the use will not give rise to noise nuisance.”

The notes to DM6.1 explained that where potentially noisy developments, such as entertainment venues were proposed within residential areas, Islington would expect the use not to give rise to noise nuisance.

The Club denied that there would be a breach of those development management policies. That was a major issue in the case.

On appeal the Inspector had taken into account all relevant planning policies within the development plan – Islington’s Development Management Policies DM4.2, DM4.3 and DM4.10 and DM6.1, Core Strategy CS14 and the London Plan. They were referred to in the decision letter itself.

The Inspector had stated that the scheme would give rise to economic benefits, albeit not as great as claimed by the club.

It had been for the Inspector to resolve the tension between the different policies. He had done this.

He had to contend with the Development Management Policies (with their supporting text), which he judged negatives for the proposal, and, what he judged positives for the proposal – namely the vaguer encouragement of economic and cultural activities in the Islington Core Strategy CS14 and London Plan. Development Management Policy DM4.10 favoured public houses.

As it turned out the Inspector had given greatest weight to the three Islington Development Management policies with reference to the noise and the impact of the proposal on the living conditions of nearby residents.

The Inspector found that there would be breaches of DM4.2, DM4.3 and DM6.

The Inspector did consider the policies on economic and cultural development, but concluded that the club’s case on these was overblown and the benefits limited.

The policies pulled in different directions and it had been the Inspector’s task to exercise his planning judgment and place such weight on them as he considered appropriate.

He had found the development management policies on amenity dominant and the fact the Club would be breach of them decisive. There was nothing wrong in him doing this.

Where there would be contravention of development management policies, planning permission should not be granted. Economic objectives ought not to be pursued at all costs and there had to be reasonable limits on the extent to which land can be used. Again the court could not disagree.

The High Court dismissed the Club’s application under section 288 of the 1990 Act.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Rectification of Land Register cost priority of derivative lease

The principle of the indefeasibility of the Land Register may be more qualified than had been thought as a result of the following Court of Appeal decision.

In Gold Harp Properties Ltd v Macleod & Others [2014] a freeholder wanted to see their property’s roof space developed so tried to forfeit the two existing leases of that undeveloped roof space by peaceable re-entry. The freeholder succeeded in getting the leases removed from the register and the roof space was relet. The new lease went through several assignments. From the available evidence, the new lease was neither granted or changed hands for valuable consideration appearing to move between the parties who were companies owned and controlled by the same family whose son owned the freehold.

The two tenants of the “forfeited” leases (the respondents) were later found, by a court, to have tendered the rent arrears in time and it was ruled that peaceable re entry had not occurred so the court ordered their leases to be restored to the Land Register as though they had never been forfeited.

The effect of the court’s order was that:

– The new lease remained in place and registered on the title but as a lease reversionary to the restored leases with those leases noted against its title.

– So, the ultimate tenant by assignment of the new lease (Gold Harp) became the new immediate landlord of the restored leases.

– The respondents, and their successors in title, would enjoy the right to occupy the roof space under their respective restored leases in priority to Gold Harp. It’s interest being reversionary only was now practically valueless save in the unlikely event of a future termination of the respondents’ leases before their terms expired.

The appeal here was against that part of the order.

As the new leasehold had neither been granted nor changed hands for valuable consideration passing between any parties the basic rule of Section 28 Land Registration Act 2002 (“2002 Act”) applied and the priority of the respondents’ interests derived out of the freehold was not affected by any of those dispositions.

At first sight the omens for the Gold Harp were good because Paragraph 8 of Schedule 4 of the 2002 Act headed “Rectification and derivative interests” says:

“The powers under this Schedule to alter the register, so far as relating to rectification, extend to changing for the future the priority of any interest affecting the registered estate or charge concerned.”

Gold Harp said the words “for the future” made it clear that, rectification of the Register cannot operate retrospectively to remove the priority that the new lease had acquired over the restored leases due to their absence from the register at the time the new lease was registered.

To give rectification retrospective effect was to undermine the basic rule that the state of the Land Register, at any given time, was conclusive and could be relied on and was indefeasible.

Consistently with this most of the texts took the view that rectification only operated in respect of future dealings and left any derivative interests created in the meantime alone.

The Court of Appeal said that the principle of the indefeasibility of the register had always had its qualifications.

Schedule 4 was concerned with “correcting” mistakes in the Register, and the power to do so extended to correcting the consequences of such mistakes.

That power was in some circumstances a duty.

Gold Harp’s interpretation would have meant that, wherever derivative interests have been created during the period of mistaken de-registration, that correction would be incomplete, and, in certain cases, such as this one, worthless.

In fact Paragraph 8 was entirely consistent with the opposing interpretation made by the court. Paragraph 8 permits (for the future) the “changing the priority” of an interest. The lead Appeal Judge said

“What an interest having priority means is that the owner can exercise the rights which he enjoys by virtue of that interest to the exclusion of any inconsistent rights of the owner of the competing interest. The concept of priority thus bites at the moment that those rights are sought to be enjoyed. Once that is appreciated the effect of the words “for the future” seems to me straightforward. They mean that the beneficiary of the change in priority – that is, the person whose interest has been restored to the Register – can exercise his rights as owner of that interest, to the exclusion of the rights of the owner of the competing interest, as from the moment that the order is made, but that he cannot be treated as having been entitled to do so up to that point.”

The order of the County Court Judge, restoring the respondents’ two leases in priority to Gold Harp’s new lease, meant that from then on the respondents were entitled to exercise their rights as leaseholders – mainly, to occupy the roof space – to the exclusion of Gold Harp. But until then they had no such right. For example, even if there had been any occupation by Gold Harp or its predecessors up to that point in time, the respondents could not have claimed “mesne profits” (compensation equivalent to rent) from them in respect of that occupation up to that date.

Schedule 4 openly appreciated that the rectification could prejudice the interests of third parties who had in good faith relied on the Land Register as not disclosing any previous land interests. However Paragraphs 2 and 3 of Schedule 4 (and their equivalents in the case of rectification by the Registrar), gave a special protection to a proprietor in possession, and allowed a fair balance to be struck between the competing interests in any particular case. Furthermore, Schedule 8 of the 2002 Act gave the loser the right to seek an indemnity from the public purse.

Nor were there any exceptional circumstances which would justify the court departing from the presumption in favour of rectification that would otherwise apply under paragraph 3 (3) of Schedule 4 of the 2002 Act. Not least with it being the case that Gold Harp was neither independent of the relevant family member who had devised the corporate arrangements for the freehold, and for taking over the roof space, nor had given any value for it’s interest in the new lease.

The decision construes the statute in an expansive and common sense way to bring about a just solution, safe in the knowledge that a disappointed party can, in an appropriate case, get compensation under the Land Registration indemnity provisions just mentioned.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Landlord didn’t participate or authorise so as to share tenant’s nuisance liability

The recent Supreme Court case of Coventry & Ors v Lawrence & Anor [2014] involved the claimants’ bungalow which was across some fields from a speedway track and raised a number of issues in the law of private nuisance.

One later issue in Coventry & Ors v Lawrence & Anor (No 2) [2014] was the extent to which the Landlords of the speedway track shared liability for their Tenant’s nuisance.

What follows is based on the judgment of Lord Neuberger supported by two of the other four Supreme Court Judges. Dissenting Lord Carnwath and Lord Mance delivered strong judgments whereby they would have found the Landlords here to share liability for their Tenant’s nuisance.

The idea that a distinction might be made absolving the Landlords from nuisance was particularly controversial for Lord Mance.

Landlords do not become liable for their tenant’s nuisance simply by failing to enforce a tenant’s lease covenant which would put an end to the nuisance. It would be wrong to “render [the landlord] a sort of trustee of [such a] covenant for the benefit of [a neighbour]”.

Accordingly, if the claim in nuisance against a landlord is to succeed, the claimant must prove the landlord’s “active” or “direct” participation in the nuisance.

Whether a landlord directly participated in his tenant’s nuisance must mainly pivot on what happened after the grant of the lease, although the nature and circumstances of the grant and what preceded it may also provide pointers.

The fact that a landlord does nothing to stop or discourage a tenant from causing a nuisance is not tantamount to “participating” in the nuisance. Even if a person has the power to prevent the nuisance, inaction or failure to act could not, of itself, amount to authorising the nuisance.

The fact the Landlords had erected a hay-bale wall around the stadium to discourage complaints and to keep down the noise was hardly consistent with them authorising it. It was somewhat ironic that the appellants argued that the Landlords took no steps to prevent the nuisance, and then argued that their taking of steps to reduce the nuisance supported the contention that they were liable for it.

The Landlords seeking to persuade the local authority not to take nuisance abatement action in relation to alleged noise or other nuisance emanating from their Tenant’s activities or taking a leading part in fighting off the risk of claims in common law, had more force, but, did not show that the Landlords authorised or participated in the nuisance. They were bound to oppose the imposition of restrictions which would affect the value of their reversion. The most it could do was to reinforce any other factors, that might be present, which supported the view that the Landlords had authorised or participated in the nuisance.

Apart from the above during the time that the appellants alleged nuisance, the Landlords:

– had no involvement in the activities carried on at the Stadium and the Track;

– were not in possession of the Stadium or the Track;

– took no share of the profits from the activities at the Stadium and the Track; and

– could not be said to have caused the nuisance in any way.

The Supreme Court held the Landlords were not liable for their Tenant’s nuisance.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Planners’ juxtaposition of waste transfer station and new housing allocation not unreasonable

In Corrie, R (on the application of) v Suffolk County Council & Ors [2014], Hopkins Homes objected to the County Council’s planning application for a waste transfer station (“WTS”).

The case strongly indicates the reluctance of courts to impinge on the freedom of planning decision takers to take what some might find counter intuitive decisions.

Hopkins Homes claimed that the facility would have a negative impact on the quality and character and amenity of an area to the south zoned for future residential development and stated that the establishment of the WTS at Rougham Hill, Bury St Edmunds would be completely incompatible with the proposed residential development on that site. The juxtaposition of the main entrance to the new development to the waste facility would affect the saleability and viability of the project. The proposed WTS would negatively impinge on the amenity of future occupiers through noise, air quality, visual amenity and traffic generation.

While the officer’s report of the Borough Council did not envisage that the existing household waste recycling centre (“HWRC”) would contribute negatively to the site, that did not take into account the larger WTS facility contemplated in the County Council’s planning application. It would not be compatible with a high quality, new neighbourhood. Moreover a statutory consultee, the Environment Agency, had pointed out to the Borough Council that the nuisance factors mentioned above were likely to be a source of complaints from residents.

The claimants said no reasonable planning authority could conclude that the development “would not prejudice the urban extension proposed in the St Edmundsbury Vision 2013 draft Development Plan Document” it being the case that another 1,250 homes would inevitably result in new dwellings being closer to the facility site than the existing dwellings; that the County Council had information from Hopkins Homes that the planning application would result in a sterilisation of at least part of the strategic housing site; and that the County Council had no information as to the environmental and amenity impacts on the occupiers of the dwellings proposed for the strategic housing site. Hence the planning permission was unlawful both for failure to take into account material considerations and for having arrived at a “Wednesbury” unreasonable conclusion on the material that had been taken into account.

The legal test applied by the High Court was whether the inquiry made by the Council was so inadequate that no rational planning authority could suppose that it had sufficient material available upon which to make its decision to grant planning permission.

Here it had not been irrational of the County Council not to undertake a formal assessment of the noise impact of the facility on the new development. Nor could the court find that it was irrational for the County Council to conclude that granting planning permission for the new waste facility would not prejudice the potential housing development when:

– the plans for the new housing were so very “broad brush” and it was not certain exactly where the new houses would be;

– there was no Master Plan and still no application for planning permission for the new housing development, albeit that Hopkins Homes anticipated submitting one by the end of the year;

– an official plan showed a proposed green barrier between the waste facility and the housing. There was to be some employment along with the housing. That might be located along the border with the facility, as paragraph 111 of the planning officer’s report had suggested;

– the waste facility was assessed as having no impact on the existing housing 200m away. There was no Master Plan to suggest that the new housing would be any closer than that existing housing to the green barrier. Also, on the other side of the proposed WTS was the already heavily used and noisy A14 trunk road; and

– it could not be said that the County Council had failed properly to have regard to planning policies. The officer’s report to the planning committee had expressly referred to Policy NE5 of the St Edmundsbury Replacement Local Plan 2016 and PPS10. Also, the officer’s report had referred to the urban extension i.e. the new housing, and the potential impact of the new waste facility on it.

In all those circumstances, the planning committee’s decision had not been irrational, nor could its planning judgment be challenged.

Other grounds for challenge were dismissed also and the application for judicial review dismissed.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Planning inspector should not have been influenced by Non Green Belt harms

Paragraph 88 of the National Planning Policy Framework (“NPPF”) requires a planning decision taker, whether the Secretary of State through his Inspector, or a local planning authority, to ensure that substantial weight is given to any harm to the Green Belt. The function of the Green Belt is vital to the planning system.

To what extent can planners take into account “any other harm”, not listed under Green Belt in the NPPF, when considering inappropriate development in the Green Belt under the NPPF?

The revised policy framework under the NPPF is much more prescriptive towards decision takers than the previous guidance in the PPGs and PPSs.

There has been a major change of policy there.

Next, where an individual material consideration is harmful but the degree of harm has not reached the level which the NPPF prescribes as warranting refusal, would it be wrong to include that consideration as “any other harm”?

In Redhill Aerodrome Ltd v Secretary of State for Communities and Local Government & Ors [2014] the High Court ruled that the answer was “yes”.

Here, the Inspector recognised that substantial weight should be attached to harm occasioned by the proposed development in the Green Belt. That conclusion was derived from her finding that

i) the development of the intended runway and related structures was inappropriate development in the Green Belt, and that

ii) there was a conflict with the Green Belt aim of preventing encroachment into the countryside.

The question was whether the Inspector was right to take into account other possible sources of harm?

The Inspector itemised those possible sources at paragraph 17 of her decision letter. They were landscape character and visual impact, noise and disturbance, highway capacity and safety, mode of travel, and the effect on airspace safety.

Given the clear guidance given in the NPPF It was not right for the Inspector to have taken the non Green Belt harms into account.

But could individual considerations be considered together as part of a cumulative consideration of harm even though individually each harm was evaluated to be at a lower level than prescribed for refusal in the NPPF?

It would not be right to do so. For the NPPF is a framework for clear decision making. There were no words in planning policy that permit a residual cumulative approach to Green Belt when each of the harms identified against a proposal is at a lower level than would be required for refusal if each harm was assessed on an individual basis.

In the absence of such wording, it was in clear conflict with current policy to allow a combination of adverse impacts, each at a lower level than prescribed for individual impacts, to be aggregated and cumulatively assessed as part of the harm of a Green Belt proposal.

It would re-introduce a possibility of cumulative harm which the NPPF does not provide for.

The NPPF did contemplate findings of residual cumulative harm in certain circumstances, as in paragraph 32, where it dealt with the residual cumulative impact of transport factors. However, that wording did not occur in the Green Belt section of the NPPF.

The decision of the Inspector was quashed.

This blog has been posted as a matter of general interest. It does not replace the need to get bespoke legal advice in individual cases.

No prospects of planning so negligence did not cause application expense losses

Where a claim for breach of contract is successful, the first set of principles concerns the date of assessment of damages:

1. The overriding principle is that contractual damages are compensatory. The damages should represent the value of the contractual benefit the claimant has been deprived of by the breach of contract.

2. Prima facie damages are to be assessed as at the date of breach without regard to later events.

3. You can depart from that rule where it is necessary to ensure that the claimant is not over-compensated or under-compensated having regard to events which have occurred since the date of breach, in particular where matters which were contingencies at the date of breach have become faits accomplis later.

4. Where this is necessary, one way of departing from the rule is to assess the damages as at a later date. Another approach is to assess damages as at the date of breach, but in the light of later events.

In claims for professional negligence against solicitors and barristers where the lawyer’s negligence has resulted in their client losing the chance to bring a claim against a third party, a second set of principles apply to the quantification of damages. Here, the court must value the chance which has been lost. That means the court must assess the client’s prospects of success. If the underlying claim was certain to fail anyway, it will have had no value and the claimant will have no loss as a result of the lawyer’s negligence.

In Ridgewood Properties Group Ltd & Anor v Kilpatrick Stockton Llp & Ors [2014] the First Claimant (“RPG”) entered into a series of 9 contracts with Texaco Ltd (in its then and later names) (“Texaco”), known as the Airspace Agreements. Here RPG acquired conditional options to buy sites used by Texaco that were or included petrol filling station shops. RPG would apply for planning permission for redevelopment to become a shop with flats above. On planning permission, RPG would take a building lease of the site and carry out the development, and then, RPG would either acquire the freehold or a long lease of the site, subject to Texaco retaining the shop.

In apparent repudiatory breach of the options Texaco sold the 9 sites, to Somerfield Stores Ltd (“Somerfield”) and Azure Properties LLP (“Azure”), without reserving to RPG the power to compel Somerfield or Azure to perform Texaco’s obligations to RPG under the Airspace Agreements.

RPG claimed that their solicitors had negligently failed to advise RPG about their right to terminate the Airspace Agreements prior to March 2006. RPG said that, if the solicitors had advised that Texaco’s apparent repudiatory breach of the Airspace Agreements enabled RPG to terminate the Agreements and claim damages for loss of opportunity to perform them, RPG would have done so, and would not have continued to seek planning permissions.

The court concluded that irrespective of any repudiation of the Agreements by Texaco, RPG had never had a real prospect of successfully obtaining the planning permissions anyway, so any claim for wasted costs would fail. Going ahead with something which (independently of any Texaco breach or solicitor’s negligence) they had no chance of getting had broken the causal link between any Texaco breach of contract/solicitor’s negligence and their loss incurred in wasting expenditure on planning applications: as that loss was always bound to occur if they went ahead with applications which had no prospects of success – regardless of the status of the Airspace Agreements.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

“Friendly discussions” could be valid precondition to arbitration

Could a first instance Judge in England, rule that a time-limited obligation in a dispute resolution clause, to seek to resolve a dispute by friendly discussions, is enforceable, or would he or she be obliged by precedent to rule that it is unenforceable?

The requirement to try to settle a claim by friendly discussions might be considered, by the law, a mere agreement to negotiate and therefore unenforceable.

As an unenforceable condition precedent to arbitration it may be that, notwithstanding the commercial sense underlying the clause, a party was free to commence arbitration without having sought to resolve his claim by friendly discussions.

In Emirates Trading Agency Llc v Prime Mineral Exports Private Ltd (“PMEPL”) [2014] a clause obliged the parties to seek to resolve a dispute by friendly discussions and provided for the parties to see if they could resolve it within 4 weeks before arbitration could be commenced.

The court decided that precedent did not bind it to rule to be unenforceable a dispute resolution clause which required the parties to seek to resolve a dispute by friendly discussions, in good faith, and within a limited time, before the dispute might be referred to arbitration.

Such an agreement was complete – no essential term was lacking. Since it is an obligation to seek to resolve a dispute arising under the Long Term Contract dated 20 October 2007 (“LTC”) the discussions would concern the rights and obligations under the LTC so as to try to reach a compromise of the dispute which reflected the bargain the parties had entered into. It would not entail an open-ended discussion of each party’s commercial interests without regard to their rights and obligations under the LTC.

So the agreement had sufficient certainty to be enforceable.

A court should be able to identify behaviour at variance with the conduct anticipated of parties who had agreed to seek to resolve contractual disputes by friendly discussions. For example, a party who refused to discuss his claim at all could easily be shown to have breached the obligation to seek to resolve his claim by friendly discussion.

Problems proving breach, sometimes, did not mean that the clause lacked substance.

If a party sought damages for breach of the obligation it might be difficult to establish what the result of the discussions would have been, had they taken place, in accordance with the clause, but damages could be awarded for “loss of a chance”.

Besides, concluding that the obligation was enforceable would match the public policy of encouraging parties to resolve disputes without costly arbitration or litigation.

The obligation to seek to resolve disputes by friendly discussions must imply an obligation to try to do that in good faith. Conventionally such an obligation went without saying and was necessary to be implied to give “business efficacy” to the contract.

Friendly discussions had taken place in Goa on 1 and 2 December 2009 in which the parties sought to resolve PMEPL’s claim for US$45 million. The giving of a actual notice to enter into friendly discussions was not a mandatory requirement here. If notice to resolve the dispute by friendly discussions had been a mandatory requirement in this case enough notice must have been given in circumstances where the parties had assembled in Goa to discuss the issues between the parties. If the relevant clause of the LTC had required a written notice such requirement must (in those circumstances) have been waived.

So the arbitrators had jurisdiction to decide the dispute between the parties because the condition precedent to arbitration, although enforceable, had been satisfied.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

2nd customer could recoup tax paid despite VAT supply also to non payer

In most cases for VAT charged to be “input tax” recoverable from HMRC, it must be “VAT on the supply to the input reclaimant of any goods or services”.

Consideration of economic realities is fundamental as regards the identification of the person to whom services are supplied.

Whilst commercial businesses do not usually pay suppliers unless they themselves are the receiver of the supply they are paying for (even if it may involve the provision of goods or services to a third party), that possibility cannot be excluded.

There may be two or more distinct supplies within the same transaction and “a single course of conduct by one party may constitute two or more supplies to different persons.”

Lord Millett in CCE v Redrow Group plc [1999] said the benefit to the taxpayer:

“will normally consist of the supply of goods or services to the taxpayer. But it may equally well consist of the right to have goods delivered or services rendered to a third party. The grant of such a right is itself a supply of services.”

However consideration paid in respect of the provision of a supply of goods or services to a third party may sometimes constitute “third party consideration” for that supply, either in whole or in part.

For example, a business may meet the cost of a supply, that it cannot realistically be said to be the recipient of, to discharge an obligation owed to the recipient or to a third party.

In such cases the payment probably constitutes “third party consideration” for the supply and is not reclaimable by the payer as input VAT.

Lord Hope in the leading Redrow case said:

“Payment for the mere discharge of an obligation owed to a third party will not…………give rise to the right to claim a deduction. A case where the taxpayer pays for a service which consists of the supply of goods or services to a third party requires a more careful and sensitive analysis, having regard to the economic realities of the transaction when looked at as a whole. It may lead to the conclusion that it was solely third party consideration, or it may not.”

The application of VAT is highly dependent upon the facts and they and all the circumstances must be looked at. A small modification can make all the difference.

It is necessary to look at the contractual relationships as a whole in order to determine its economic reality.

The contractual position is generally the most useful starting point. The terms of any contract between the parties are an important factor, but not necessarily determinative, of whether in “economic reality” taxable supplies are being made as between any particular participants.

In the Court of Appeal case of Airtours Holidays Transport Ltd v Revenue And Customs [2014] the issue was whether the appellant, Airtours Holidays Transport Limited (formerly MyTravel Group plc) (“the appellant”), was entitled to recover (as input tax) value added tax (“VAT”) charged by PricewaterhouseCoopers LLP (“PwC”) in respect of services PwC provided – and for which the appellant was invoiced by PwC and, under contractual obligation to PwC, paid.

The services related to a large-scale restructuring of the appellant, in conjunction with over 80 banks and other financial institutions it was indebted to, some of which the case calls “Engaging Institutions”.

The case had to decide whether, for VAT purposes, PwC “supplied” services to the appellant.

This in turn depended on whether the arrangements as between the Engaging Institutions, PwC and the appellant involved the supply of services to the appellant or merely third-party consideration provided by the appellant for services rendered by PwC to the Engaging Institutions alone.

PwC worked on this case between November 2002 and January 2005 in five phases based on a November 2002 Letter of Engagement, followed by four further engagement letters, dated respectively 14 January 2003, 7 March 2003, 21 July 2003, 15 December 2003 (“the Engagement Letters”). They were in similar terms and were signed (a) by the appellant, (b) on behalf of the Engaging Institutions, and (c) by PwC.

Phase 2 of the PwC work comprised “monitoring the Group and reporting monthly to the Engaging Institutions …………… and a review of the Strategic Plan including analysis of the options facing the Engaging Institutions.” Ultimately, the restructuring of the appellant’s business was achieved successfully. The appellant contended that this was only achieved with the assistance of the work undertaken by PwC.

The appellant sought to deduct the VAT on PwC’s fees as input tax in its VAT returns for the relevant periods.

The respondents HMRC accepted that the arrangements were of commercial benefit to the appellant. However, they said that PwC’s services were not supplied to the appellant, so the appellant had not been entitled to deduct the VAT on PwC’s fees as input tax.

The court said that in the present case, like strong>Redrow, PwC was making two distinct supplies of services within the same overall transaction “in both directions” – i.e. both to the Engaging Institutions and to the appellant as follows:

1. The Engagement Letters conferred a contractual right on the appellant to have PwC, liaise with the appellant’s directors and senior management, and then review, monitor, and validate (if appropriate) its financial statements, budgets, financial performance, EPM, arrangements with the CAA etc. and report on such matters to the Engaging Institutions. The grant of such a right (i.e. the right to have services rendered to a third party) was itself a supply of services to the appellant. The supply of that service, pursuant to the Engagement Letters, was for a consideration payable by the appellant.

2. The supply by PwC to the Engaging Institutions of the service of reporting on, monitoring and advising in relation to, the appellant’s financial statements, budgets, financial performance, EPM, arrangements with the CAA etc. – in other words the provision to them of “the Services” as defined in the Engagement Letters – in order to enable the Engaging Institutions to decide if they should carry on their credit facilities to the appellant. This supply was also made pursuant to the Engagement Letters but without the Engaging Institutions having incurred any liability or contractual obligation to PwC to pay for the supply made to them.

The appellant having established that it was the recipient of services for which it could reclaim in input VAT, HMRC tried to argue that in calculating the appellant’s entitlement to input VAT recovery there ought to be some apportionment of the VAT payable on the consideration to reflect the extent to which PwC supplied services to the appellant, on the one hand, and to the Engaging Institutions, on the other.

However the court said there was no question as to the adequacy of the consideration paid by the appellant to PwC, and no contractual apportionment of the consideration as between the two services mentioned above in the Engagement Letters, so it was difficult, if not impossible, to understand on what basis such an apportionment should take place.

HMRC could neither point to any statutory basis or to any relevant authority to support the view that where:

1. no monetary consideration had been paid by one contracting party; and

2. there had been “a single course of conduct by one party” (i.e. the work carried out by PwC) that constituted “two or more supplies to different persons”,

there should nonetheless be some notional apportionment. So there could be no question of apportionment.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Challenge to Development Plan Document too late in process

Under the statutory scheme a Development Plan document (“DPD”) is submitted by a Local Planning Authority when it is of the view that the document is ready for independent examination.

The examination then occurs into the DPD which is under the control of a Planning Inspector throughout. If a Local Planning Authority request an Inspector to do so he must recommend modifications to the DPD to make it sound.

Section 23 of the Planning and Compulsory Purchase Act 2004 (“the 2004 Act”) deals with the question of adoption of local development documents. It provides,

“(2) The authority may adopt a development plan document as originally prepared if the person appointed to carry out the independent examination of the document recommends that the document as originally prepared is adopted.

(3) The authority may adopt a development plan document with modifications if the person appointed to carry out the independent examination of the document recommends the modifications.”

In the Planning Court case of IM Properties Development Ltd v Lichfield District Council & Ors [2014] the Lichfield Local Plan Development Strategy was undergoing the process of examination.

The Inspector had concluded that it would not be sound to adopt the plan as presented to him and so had recommended that modifications be carried out to enable it to meet the statutory requirements.

So, the process of examination was suspended whilst further work was being carried out on the main modifications for the Inspector to examine further when the examination process had resumed.

During the consultation period on the main modifications the claimant and first and second interested parties (both national builders) had all submitted further representations.

The Inspector may or may not be satisfied by the main modifications in the examination process. It followed that Lichfield had reached an integral part of an advanced local plan process.

The defendant, the first interested party and the second interested party all said that the claimant was barred by reason of section 113(2) of the 2004 Act.

Section 113 is headed ‘validity of strategies, plans and documents’ and the relevant parts say:

“(1). This section applies to-…

(c) a Development Plan document;

(2) A relevant document must not be questioned in any legal proceedings except in so far as is provided by the following provisions of this section.

(3) A person aggrieved by relevant documents may make an application to the High Court on the ground that-

(a) The document is not within the appropriate powers;

(b) A procedural requirement has not been complied with.

(4) But the application must be made not later than the period of six weeks starting with the relevant date…

(11) Reference to the relevant date must be construed as follows-

(c) For the purposes of a Development Plan document (or a revision of it), the date when it is adopted by the Local Planning Authority or approached by the secretary of state (as the case may be);…”

The claimant contended that a Local planning authority resolution to adopt main modifications may be quashed firstly, through Section 113 and second by an application for judicial review. One did not exclude the other.

The claimant said that the submissions of the defendant, first interested party and second interested party were all predicated on the basis that the application was to quash a DPD. It was not. The claimant was seeking a quashing order of the main modifications.

However what was at issue were the main modifications which had been endorsed by the council within a local plan process approaching its end.

The court was not dealing with an early claim for judicial review testing the lawfulness of decision taking in the run up to a statutory process. Instead the court was dealing with a claim for judicial review taken during the statutory process. Far from saving time and expense that could add time and expense to the process then underway.

Although the claimant said it did not seek to question a document covered by Section 113, the claimant was actually seeking a quashing order of main modifications. If successful such a claim would abort the current plan making process when it was at an advanced stage.

That would lead to considerable delay and expense not only to the participants in that case but also to others who had made representations on the modifications which would be considered by the Inspector at the resumed examination.

The effect of a successful challenge would be to start that process off again: a re-making of main modifications, further consultation, further representations which would then be considered at a deferred examination.

Parliament had inserted the section 113 ouster in the statutory provision, precisely because of the potential chaos that could be caused by a successful challenge at that stage in the plan making process.

Once a document becomes a DPD within section 113 of the 2004 Act it must not be questioned in any legal proceedings except in so far as is provided by the other provisions of the section.

Sub-section (11)(c) makes it clear that for the purposes of a DPD or a revision of it the date when it is adopted by the Local Planning Authority is the relevant date from when time runs to bring a statutory challenge.

Once a document had been submitted for examination it is a DPD. The main modifications which have been proposed and which will be the subject of examination are potentially part of that DPD.

Any other interpretation would licence satellite litigation at an advanced stage of the Development Plan process.

The claimant’s suggestion that at such a stage the claimant had a choice whether to challenge by way of judicial review or to await the adoption and then challenge under Section 113 was invalid.

The claim was not one that can be lawfully brought by reason of the operation of Section 113(2).

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.