Striking out Action - Claimant bringing claim against defendant for collective enfranchisement

Westbrook Dolphin Square Ltd v Friends Provident Life and Pensions Ltd: ChD (Mr Justice Arnold): 14 September 2011

The underlying proceedings concerned a claim for collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 (the act).

The defendant was the freehold owner of a group of buildings on a large site in which there were 1,223 flats (the property). In January 2006, the claimant acquired the underlease of the property. In April 2007, a structure was put into place for the purposes of, inter alia, enabling a claim to collective enfranchisement to be made.

The claimant granted 1,223 underleases (special purpose vehicles – SPVs) to 612 Jersey companies, each of which, bar one, took two underleases, and one of which took a single underlease. In September 2007, the SPVs served an initial notice under the act on the defendant naming the claimant as the nominee purchaser.

The defendant subsequently served a counter-notice which did not admit that the SPVs were, on the relevant date, entitled to exercise the right to collective enfranchisement in relation to the property, because the defendant did not admit that there was, on the relevant date, a qualifying tenant of any of the specified premises.

It further disputed that the structure had been effective to make the SPVs qualifying tenants of the flats on a number of grounds. In December 2007, the claimant issued a claim (the first claim) seeking a declaration, inter alia, that the SPVs were entitled to exercise the right of collective enfranchisement in relation to the property. It subsequently discontinued the claim five working days before the trial, stating that the reason for the discontinuance was that, in the light of the significant fall in capital values since that date, it was no longer commercially appropriate to seek to determine a price as at September 2007.

By the time of its discontinuance, the issues in the first claim were, inter alia: (i) whether the initial notice had been validly signed by the SPVs; (ii) whether the underleases to the SPVs were genuine leases; and (iii) whether each of the SPVs was no more than a corporate name and therefore a mere facade. In April 2010, the SPVs served a new initial notice on the defendant which was identical to the first initial notice except that, inter alia, the notice had been signed in a different way.

In July 2010, the defendant served a counter-notice which did not admit that the SPVs were, on the relevant date, entitled to exercise the right to collective enfranchisement in relation to the property, because the defendant did not admit that there was, on the relevant date, a qualifying tenant of any of the flats. In August 2010, the claimant issued the present claim which, inter alia, sought permission under Civil Procedure Rule 38.7 to make the claim if, which it was denied, such permission was required. In September 2010, the defendant applied to strike out the claim, as well as objecting to the claimant obtaining permission under CPR 38.7.

The defendant submitted that the present claim should not be permitted to proceed, pursuant to CPR 38.7, since it arose out of substantially the same facts as the first claim, which had been discontinued after a defence had been filed. It further contended that the present claim would amount to an abuse of process under Henderson v Henderson.

The issues were accordingly: (i) what principles governed the application of CPR 38.7; (ii) whether the present claim fell within CPR 38.7, requiring the claimant to obtain permission to bring it; (iii) whether permission should be granted; and (iv) whether the action amounted to an abuse of process under Henderson v Henderson.

The court ruled: (1) The principles identified by the maxims nemo debet bis vexari pro una et eadem causa (no one should be vexed twice in respect of one and the same cause) and interest reipublicae ut sit finis litium (it is in the public interest that there be an end to litigation) should inform the court’s approach to CPR 38.7. It followed that there was an analogy between the principles to be applied to an application under CPR 38.7 and those applied by the courts under CPR 3.4(2)(b) with respect to Henderson v Henderson abuse of process.

The main difference was that, under CPR 38.7, the onus lay upon the applicant to show that it should be given permission to bring the new claim, whereas under CPR 3.4(2)(b) the onus lay upon the defendant to show that the new claim was an abuse of process (see [45] of the judgment).

(2) The present claim arose out of substantially the same facts as the first claim. The principal facts out of which both claims arose were, in particular, the facts relied upon by the claimant in support of its contention that, as a result of the structure, each of the SPVs was a qualifying tenant of the specified premises at the relevant date and hence entitled to exercise the right of collective enfranchisement. It was true that, by virtue of the different initial notices, the relevant dates for the purposes of the two claims were different.

However, it was not suggested that there had been any material change to the structure between those two dates and, accordingly, the difference in date made no difference to the facts which were relevant to the question of whether each of the SPVs was a qualifying tenant of the specified premises at the relevant date, and hence entitled to exercise the right of collective enfranchisement. Nor did it make any difference to the legal arguments advanced by the parties on the basis of those facts.

It was true that the difference in the relevant dates would have been material to the issue of valuation if the SPVs successfully established their right to collective enfranchisement; however that issue did not arise in either claim. It would only arise following the service of a further counter-notice by the defendant after the court set aside the existing counter-notice. In that event, the issue of valuation would be determined in fresh proceedings.

It was also true that there was a factual difference between the two claims with regard to the manner in which the initial notices were signed. However, that was a minor difference between the two claims and the major issues between the parties were those concerning the structure. It followed that CPR 38.7 applied and the claimant required ­permission to bring the action (see [47]-[51] of the judgment).

(3) The act expressly permitted a person claiming to be entitled to exercise a right to collective enfranchisement to serve successive initial notices. The effect of the act was that, where a first initial notice had either been withdrawn or had been deemed to have been withdrawn, the same person could serve a second initial notice after an interval of at least 12 months.

To that extent, the Act allowed for the making of successive claims.

However, it was not the case that the act contemplated the making of successive claims to be entitled to exercise the right to collective enfranchisement, that was to say, successive claims by a person to be a qualifying tenant of the premises in question, in the absence of some material change in the facts relied upon in support of that claim (see [55]-[56] of the ­judgment).

On the facts, the claimant had failed to show that it should be given permission to bring the present claim. It was open to persons in the position of the SPVs to obtain judgment under the act establishing their entitlement to exercise the right to collective enfranchisement, but then, if concerned by a fall in the value of the property market since the date of their initial notice, to withdraw that initial notice.

They could then serve a fresh initial notice 12 months later. Even if the reversioner were misguided enough to serve a counter-notice stating that it did not admit that the participating tenants were entitled to exercise the right to collective enfranchisement, the tenants would be able to obtain summary judgment since their entitlement to exercise the right would be res judicata.

In relation to the contention made by the claimant that its reason for discontinuing the first claim was that it no longer considered it commercially viable to pursue that claim because the first initial notice had been served at a time near the top of the property market, that constituted a perfectly legitimate reason for withdrawing the first initial notice and serving a second one at least 12 months later. It did not constitute a legitimate reason for discontinuing the first claim by the claimant that the SPVs were entitled to exercise the right to collective enfranchisement because they were qualifying tenants and then bringing a further claim to the same effect.

The claimant could have pursued the first claim to judgment, and then, assuming it was successful, withdrawn the initial notice after it had obtained a judgment in its favour establishing the entitlement of the SPVs to exercise the right of collective enfranchisement. Its legitimate desire to establish a new relevant date for valuation purposes did not justify forcing both the defendant and the courts to expend further time and resources relitigating that question a second time. That would expose the defendant to a further period of uncertainty and further irrecoverable costs and divert scarce court resources from other users of the system (see [56]-[59] of the judgment).

Permission would not be granted under CPR 38.7. It was therefore unnecessary to consider the Henderson v Henderson point separately and the claim would be struck out as an abuse of process, by the same reasoning.

Antony Radevski (instructed by Pemberton Greenish) for the claimant; Stephen Jourdan QC (instructed by Maples Teesdale) for the defendant.