Monthly Archives: May 2016

SDLT claimed from wrong party in case of Shari’a financing

In Project Blue Ltd v Revenue and Customs [2016] the issue for the Court of Appeal was whether Project Blue Limited (“PBL”) was liable for stamp duty land tax (“SDLT”) for its acquisition of the former Chelsea Barracks (“the Site”).

PBL was controlled by the sovereign wealth fund of the State of Qatar.

It agreed to buy the Site from the Ministry of Defence (“MoD”) for £959m.

It funded the purchase and development of the Site in a way which was compatible with Shari’a law.

A loan at interest secured by a legal charge on the Site would not have been Shari’a-compliant.

It therefore contracted to sell the site to Masraf al Rayan (“MAR”), a Qatari bank, for about £1.25bn being the £959m required to complete the purchase from the MoD plus substantial extra money to cover SDLT and future development costs.

The contract with MAR was completed contemporaneously with the completion of PBL’s contract with the MoD. On the same day MAR granted PBL a lease of the Site for 999 years and various put and call options were entered into which would entitle PBL in due course to re-acquire the freehold of the Site from MAR. Later PBL granted an underlease to Project Blue Development Limited (“PBDL”), a company in the same group.

The rent under the lease was calculated in such a way that the bank would receive a return on it’s investment.

It was “critical to appreciate that the bank [would] be the real owner of the asset for the term of the lease, and the customer [would] not.”

HMRC contended that PBL was the taxable party but that the chargeable consideration on which SDLT was payable would be the £1.25bn paid by MAR to PBL rather than the £959m paid by PBL to the MoD. This would result in a SDLT liability of £50m.

PBL said that the party liable for the tax was MAR but that HMRC was now out of time for making any determination or assessment in order to recover it.

The court said completion of the contracts between the MoD and PBL and between PBL and MAR engaged the provisions of ss.44 and 45 of the Finance Act 2003 which dealt with contracts for land transactions under which the contract was to be completed by a conveyance or transfer (s.44) and cases where the completion of the contract for a land transaction was effected by a “sub-sale or other transaction (relating to the whole or part of the subject matter of the original contract) as a result of which a person other than the original purchaser [became] entitled to call for a conveyance to him”: s.45(1)(b).

The effect of s.44 was that the contract was not treated as a land transaction unless completion did not in fact take place but the contract was nevertheless substantially performed.

This would normally include the payment of most of the purchase price. But when, as here, completion occurred in accordance with the contract then “the contract and the transaction effected on completion [were] treated as parts of a single land transaction. Here the effective date of the transaction was the date of completion”: s.44(3).

Therefore the contract between the MoD and PBL was not a land transaction nor was the contract between PBL and MAR nor was the lease agreement between MAR and PBL. The put and call options were land transactions under s.46 but they were granted for no consideration so no charge to SDLT arose.

So the only potential land transactions were the transfer of the Site between the MoD and PBL, the transfer from PBL to MAR and the lease from MAR to PBL.

s.45(1) applied in relation to the two contracts for the sale of the Site so the provisions of s.44 which treated the contract and conveyance as a single land transaction taking effect on completion were modified so as to prevent a charge to tax on both legs of the sub-sale or composite completion of the two contracts.

Here, the existence of the sale on to MAR meant that under s.45(3) the substantial performance or completion of the sale to PBL was disregarded leaving the completion or substantial performance of the deemed secondary contract to MAR as the only possible acquisition of a chargeable interest.

The next transaction to be considered was the acquisition of the Site by MAR.

S.71A accommodated Shari’a-compliant financing arrangements according to the Ijara model which depends upon the financial institution becoming the owner of the relevant property. Where, as here, the financial institution acquired the property from a third party owner the financial institution would be liable for SDLT on the purchase price whether or not that was undertaken at it’s customer’s request.

Cases falling within s.45(3) were intended to be treated as direct acquisitions by the financial institution from the third party vendor in terms of their tax consequences. MAR was therefore liable for SDLT on completion of the secondary contract under s.45(3) and was not entitled to claim relief elsewhere under s.71A.

So HMRC had pursued the wrong party for the tax.

Usually the customer will have some money of it’s own to put towards the purchase. So if SDLT was only charged on the amount provided by the bank there would be an undercharge.

In such cases the type of arrangement is called Musharaka financing. Here there is a form of partnership by which the partners jointly acquire an asset. The asset will be held by them as beneficial tenants in common in the proportions in which they contributed to the purchase price.

But under that kind of arrangement both the bank and the customer will be liable for the SDLT. However there is no risk of an undercharge as both will have contributed to the purchase from the third party vendor.

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

This case concerned the SDLT provisions of Finance Act 2003 which has undergone a series of amendments since 2003. This appeal was concerned with the legislation in force in January 2008.

Construction: Adjudicator’s powers survived “binding settlement”

Section 108 of the Housing Grants Construction and Regeneration Act 1996 says:

“(1) A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.”

Where there is a dispute as to whether there has been a full and final settlement agreement between the contractual parties does the dispute arise “under” the construction contract or under the alleged settlement agreement or both?

In J Murphy & Sons Ltd v W Maher and Sons Ltd [2016] Murphy issued proceedings seeking a declaration that the adjudicator had no jurisdiction to entertain a dispute arising out of an alleged final settlement since:
– the alleged settlement agreement was a standalone agreement and
– there was no adjudication agreement applicable to that agreement and
– the disputed claim did not arise “under” the original sub-sub-contract.

The High Court said that adjudicator had jurisdiction because the adjudication clauses in the sub-sub-contract survived and were broad enough to cover a dispute arising under the alleged settlement agreement because that later agreement undoubtedly arose in connection with the original sub-sub-contract.

“A dispute as to whether all or some of the alleged entitlements which one contractual party has against the other has been settled in a binding way arises “under” the original contract.”

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

“Private car park” sign: denied property rights by long use by customers

Where a neighbour claims a right of way over a landowner’s land by long use, does it matter that the use has not been by them, or their agents, but instead, for example, by their customers such that it would not have been possible for the landowner to sue the neighbour for trespass?

In fact there had been no trace in case law of a requirement that the use relied on by the neighbour must amount to a trespass by the neighbour against the landowner.

All that had been required was that the landowner should have been in a position to challenge or stop the use e.g by erecting a gate or barrier across the roadway.

It is enough that the use in question benefits the neighbour’s property for that property to acquire the right of way by long use. The fact that it was also beneficial to a customer to deliver or collect across the landowner’s land does not alter the fact that it is the neighbour’s property that benefits from that use.

‘It is sufficient that the use accommodates, or benefits, the dominant land, in the sense of being closely connected with the normal enjoyment of the dominant land’. (Lord Neuberger M.R in London Tara Hotel Limited v. Kensington Close Hotel Limited [2012] ).

So in the recent Upper Tribunal (Tax and Chancery) case of Bennett & Anor v Winterburn & Anor [2015] where a fish and chip shop claimed vehicular and pedestrian rights of way by 20 years’ plus use across a Conservative Club Car Park, the fact that it had been customers doing this was no barrier to their use gaining the fish and chip shop rights of way across the car park by long use.

However in Winterburn & Anor v Bennett & Anor [2016] the Court of Appeal has ruled that the acquisition of pedestrian and vehicular rights of way was prevented by the sign “Private car park. For the use of club patrons only. By order of the committee” plainly visible to anyone entering the car park from the road.

Circumstances must indicate to persons using the land that the owner objects and continues to object to the parking.

The issue is whether the owner has taken sufficient steps so as to effectively indicate that the unlawful use is not acquiesced to.

In this case, the presence of the signs clearly indicated the owner’s continuing objection to unauthorised parking.

The protest needed to be proportionate to the use. But the continuous presence of the signs asserting that it was private property for use by the Club’s patrons only was a proportionate protest.

The chip shop owners argued that the signs were being ignored and it had been incumbent on the owner of the land to take such further steps as were practicable to prevent the land being used for parking.

The Court of Appeal said nothing in legal precedent or in principle required an owner of land to erect a chain across the entrance to their car park, or object orally, or write letters of objection, or threaten or commence legal proceedings to prevent the wrongdoers from acquiring a legal right. Where the owner had made his position entirely clear through the erection of clearly visible signs, the unauthorised use of the land could not be said to be “as of right”.

Having made his protest clear, the owner need not take further steps of confronting the wrongdoers known to him orally or in writing, still less need they go to the expense and trouble of legal proceedings.

The majority of people do not seek confrontation, whether orally or in writing, and may indeed be concerned or frightened of doing so. Most people do not have the resources to bring legal proceedings. Unless absolutely necessary, the Law of Property should not require confrontation to enable people to retain and defend what is theirs. The erection and maintenance of an appropriate sign was a peaceful and inexpensive means of making clear that property is private and not to be used by others. People who chose to ignore such signs should not be able to obtain legal rights over land in that way.

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

Landlords should have given tenant new address for service

Many cases concern the validity of notices served by tenants where they seek to exercise a contractual break clause.

Leases frequently incorporate the regulations as to service of notices contained in section 196 of the Law of Property Act 1925.

Section 196 provides:

…(3) Any notice required or authorised by this Act to be served shall be sufficiently served if it is left at the last-known place of abode or business in the United Kingdom of the lessee, lessor, mortgagee, mortgagor, or other person to be served…

(4) Any notice required or authorised by this Act to be served shall also be sufficiently served, if it is sent by post in a registered letter addressed to the lessee, lessor, mortgagee, mortgagor, or other person to be served, by name, at the aforesaid place of abode or business…”

The principal purposes of a service provision are:

– to set out a practicable method by which a party serving a notice can be reasonably sure how he should do so, and

– that the party to be served can be reasonably sure he will receive it.

The address given by a party as his own address serves both these purposes- it gives clarity to the party serving.

In giving that address, the party to be served has made his own decision as to the likelihood of documents sent to that address actually coming to his attention.

If circumstances change, he has the capacity to inform the other party of any new address.

If he does not do so, it is not unreasonable that any risk that the documents do not actually reach him falls on him.

He cannot be heard to object that an address might not be considered to be a “place of abode or business”.

Terms like that are to be construed in the context against which they are used. “Abode” may include premises at which an individual carries on business but does not reside, so it is not necessarily resticted to residential premises.

Where the intended recipient is a company, it cannot mean a residential address.

There is no reason why that term should not extend to an address nominated by a person.

If a party nominates a residential property to receive a notice, it is then a matter for him and not his contractual counterparty whether he in fact lives there.

If a party nominates non-residential property, it is equally a matter for him what connection he has with it, and whether it relates to any business of his or not.

Nor can he be heard to object that he in fact carries on little or no business there. If he chooses to describe it as his address, the nature or quality of his business activity is a matter for him and not the other party.

He may for instance elect to nominate a particular address not because he himself lives or goes there for business purposes, but because he has confidence that those who do will pass on any communication they receive.

In the High Court case of Levett-Dunn & Ors v NHS Property Services Ltd [2016] the leases named three people and a professional pension trustee company “all of 75 Tyburn Rd Erdington Birmingham B24 8NB” to be the Landlord. The Tenant served break notices on them individually at that address. To be valid the notice would have had to be “given” before 11 January 2013, ie six months before the break date. The notices were expected but did not come to the Landlords’ attention until after 10 January 2013. The Landlords sought declarations that the notices were not properly served on them so that the relevant leases still existed.

The leases incorporated the regulations as to service of notices contained in section 196 of the Law of Property Act 1925 and said service on any one of the parties comprising the Landlord should be deemed to be service on all of them.

By the date of the break notice Simon Levett-Dunn had ceased being a Landlord and had transferred the freehold to the complainant Landlords in this case but had continued with a new company at 75 Tyburn Road.

Of the three continuing Landlords Frederick Levett-Dunn had not operated from 75 Tyburn Road since 1999. Mr Evans did not run a business from that property and the professional trustee company had never run a business from that property. At the date of the leases in 2010 Simon Levett-Dunn was the only one of the persons comprising the Landlord with any ongoing business connection with the premises at 75 Tyburn Road. If Frederick Levett-Dunn and Mr. Evans were prepared to continue to give 75 Tyburn Road as their address after they ceased to attend there, they must have assumed or been content that Simon Levett-Dunn would pass them anything addressed to them.

Had they wanted the notices to be served at another address they should have informed the tenant. So the break notices were validly served on them.

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

Contractual requirement for notice to remedy breach did not apply to repudiation

A contractual termination clause may impose a requirement first to give the other party notice to remedy the breach if it can be remedied.

Will this apply to a contractual termination clause where a party terminated at common law following the other party’s repudiatory breach of contract?

In Vinergy International (PVT) Limited v Richmond Mercantile Limited FZC [2016] the High Court) said clause 17 provided 6 contractual rights to terminate, including on insolvency. So it was to be inferred that the 20 day notice requirement only applied to the specific right to terminate under clause 17.1.1 (a breach which could be remedied) and not to any other express rights to terminate under clause 17, nor to the common law right to accept a repudiatory breach of contract as ending the contract.

However the case turned on the interpretation of the clause. Other clauses may be interpreted differently so it would be dangerous to think the notice procedures can be bypassed in every case involving a repudiatory breach of contract.

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

Contract: party had effectively waived the requirement for it’s signature

In what circumstances will a contract result when a written offer document states that it is not binding until signed by the offeree and the offeree does not sign but nevertheless performs in the manner contemplated by its terms?

A party’s consent to a contract is by the acceptance of an offer.

That acceptance can be by the conduct of the offeree so long as that conduct, objectively interpreted, is intended to constitute acceptance.

Acceptance can be of an offer on the terms set out in a draft agreement drawn up between the parties but never signed.

If a party has a right to sign a contract before being bound, it is open to it by clear and unequivocal words or conduct to waive that requirement and to conclude the contract without insisting on it’s signature.

If signature is the prescribed mode of acceptance an offeror will be bound by the contract if the offeree waives that requirement and acquiesces in a different mode of acceptance.

It follows that where the requirement to accept a contract by signature is intended for the benefit of the offeree, and the offeree accepts in some other way, that should be treated as effective unless it can be shown that the failure to sign has prejudiced the offeror.

A draft agreement can have contractual force, although the parties do not comply with a requirement that to be binding it must be signed, if all the terms have essentially been agreed and their subsequent conduct indicates this. Though a court may be hard to persuade of this.

The later conduct of the parties is admissible to prove the existence of a contract, and it’s terms, although not as an aid to it’s interpretation.

In the Court of Appeal case of Reveille Independent Llc v Anotech International (UK) Ltd [2016] the provision that the contract would not be binding on Reveille, unless it signed, was obviously for it’s benefit. It was almost certainly Reveille’s standard form contract.

In not signing, Reveille as offeree was waiving a prescribed method of acceptance, set out for it’s benefit. That was effective so long as there was no prejudice to Anotech as offeror.

The only prejudice Anotech could point to was the commercial uncertainty as to whether it was bound by the contract. That was miniscule when Anotech was receiving all the benefit of Reveille’s performance of the contract’s terms.

In fact, viewed objectively Anotech could not have thought that it was prejudiced when from the outset it actively facilitated performance by Reveille of what Reveille was doing under contract in integrating products into the recording of a famous TV show and licensing Anotech to use the programmme’s brand in marketing its cookware products.

In short, Reveille waived the clause that there would be no binding contract in the absence of it’s signature on the contract, and this did not prejudice Anotech.

Reveille accepted the terms of the contract by conduct, leading to a binding contract.

Subsequent conduct by both sides had confirmed the existence of that contract.

Reveille’s failure to sign the contract just meant uncertainty as to the exact date the contract was formed.

However, Reveille had performed all it’s obligations as set out in the contract with Anotech’s participation and to Anotech’s benefit.

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

Service of Enforcement Notice: owner’s address could be from Land Register

In the High Court case of London Borough of Newham v Miah & Anor [2016] it was ruled that if a local authority is not provided with a current address by the owner of property, it is entitled to use the proprietor’s address on the Land Registry’s Land Register, for the land, as the proper address to serve an enforcement notice.

Thus Mr Miah was properly served with the enforcement notice by the Council.

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

Out of date assessments no barrier to development plan or CIL Schedule

Challenges to a local planning authority’s adoption of a development plan document will rarely succeed. The task of testing the soundness of a development plan document is a matter for planning judgment, exercised within the relevant statutory scheme and against the background of relevant policy and guidance, rather than for the court.

In the Court of Appeal case of Oxted Residential Ltd v Tandridge District Council [2016] :the issue was: was it lawful for a local planning authority to adopt a development plan document and a Community Infrastructure Levy (“CIL”) charging schedule to underpin a core strategy prepared under national planning policy for housing land supply that had been superseded by the National Planning Policy Framework (“the NPPF”) in March 2012?

The first issue

In Gladman Developments Ltd. v Wokingham Borough Council [2014] Lewis J. had concluded that the inspector was “not required by reason of [the NPPF] to consider an objective assessment of housing need in order to assess whether this development plan document was sound”.

The Court of Appeal said whether a particular policy of the core strategy, or of the local plan was up to date within paragraph 49 of NPPF was a question that would arise in the making of a decision where an application had been made for planning permission for housing development – when it might be contended that the council is unable to demonstrate a five-year supply of housing land so that it’s “[relevant] policies for the supply of housing should not be considered up-to-date”.

So the council had not been required to consider an objective assessment of housing need before adopting the local development plan document.

The second issue

Given that there was no up to date local plan the appellant said:

1. it was impracticable for a charging authority to make a rational assessment of the need for infrastructure in it’s area.

2. Any calculation of the contributions to be made by developers in the form of CIL would depend on the amount of development properly planned for.

3. If there was no up to date local plan, with the required five-year supply of housing land, and the authority continued to rely on an out of date plan, the CIL charging schedule would bear no reasonable relationship to the infrastructure required or the source of contributions to that infrastructure.

Disagreeing the court said there was no statutory obstacle to the adoption of a CIL charging schedule when a relevant development plan document is, or may be considered, out of date in the light of subsequently issued national policy or guidance.

There is no requirement in the legislative framework which required a recently adopted plan to be in place before a CIL Schedule can be adopted, and there is no legal reason why a charging authority can only produce a CIL schedule if it has recently produced a plan.

Far from it being necessarily unreasonable for a charging authority to adopt a CIL charging schedule in such circumstances, it would often be the most practical approach to take

It had not been unreasonable for the examiner to accept the council’s argument that, although a review of the core strategy was now anticipated, in the meantime, it would be logical and sensible to have a CIL charging schedule in place to deal with the development planned in the core strategy as adopted, and to revise the CIL charging schedule in the light of the review of the core strategy, or earlier, under the legislative power to do so in section 211(9) of the Planning Act 2008.

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