Insolvency


Creditors' voluntary winding-up - preferences - transactions at an undervalue - person receiving benefit from a preference given by company - defence of acting in good faith

In the matter of Sonatacus Ltd sum nom CI Ltd v Joint liquidators of Sonatacus Ltd: CA (Civ Div) (Lords Justice Smith, Hooper, Sir Martin Nourse): 25 January 2007

A company (C) appealed against the decision that a payment to C by an insolvent company (S) had been a transaction at an undervalue. The person (P) who controlled S was a friend of the person (R) who controlled C.



C had lent £65,000 to P. The money had been paid directly to S in circumstances that imposed an obligation on S to repay P.



Just before the term of the loan expired, S had repaid £50,000 to C. S was insolvent at that time or became insolvent as a result of the transfer. A few weeks later S ceased trading and went into creditors' voluntary winding-up.



The respondent liquidators of S issued an application against C claiming that the payment of £50,000 made by S to C constituted a preference under section 239 of the Insolvency Act 1986. C's evidence was that the loan had been made to P personally and that C was therefore a creditor of his and not of the company.



The liquidators then made an alternative application, claiming that the payment was, on that basis, a transaction at an undervalue within section 238 of the Act because C had not provided consideration.



The district judge held that the payment was a transaction at an undervalue. The judge upheld that decision on appeal. C submitted that S had given consideration of £50,000 and received the consideration of the pro tanto discharge or release of a debt due to P so that the value of the consideration given by S was identical to the value of the consideration received by S at the time the payment was made.



Held, on the payment of the £65,000 by C to S, P became a debtor to C for that amount and S became a debtor to P for that amount. On the payment of the £50,000 by S to C, the debts of S to P and of P to C were, to that extent, respectively discharged. In so far as the payment of the £50,000 discharged the debt of S to P, S gave a preference to P within section 239. The payment was therefore voidable by the liquidators. On that basis the judge had held, applying Phillips v Brewin Dolphin Bell Lawrie Ltd (formerly Brewin Dolphin & Co Ltd) [2001] 1 WLR 143, that that payment, since it fell within section 239, could not properly be treated as constituting valuable consideration for the purpose of taking the payment made by S to C outside the scope of section 238.



That reasoning had been challenged but it was not necessary to decide whether the consideration given by C should be left out of account as precarious because it was liable to be set aside as a preferential payment. The liquidators could rely on section 241(1)(d) to seek an order against C, even though it had not been given the preference, as a person which received a benefit from the preference given by S to P. Therefore if C was to retain the £50,000, it had to show that it had received that sum 'in good faith' within section 241(2).



C's evidence failed to establish good faith. With his previous knowledge that the £65,000 had been paid into

S's bank account and that P's companies had been in some financial difficulty, R must have known that it was likely that the £50,000 had been repaid by S and, moreover, at a time when

it was insolvent, or he must at the least have shut his eyes to that possibility.



An appropriate order for payment should be made and a declaration that the payment of £50,000 made by S to C constituted a preference given by S to C within section 239 to 241 of the 1986 Act.



Appeal dismissed.



Mark Cooper (instructed by Jolliffe & Co) for the appellant; Jeremy Cousins QC, Justin Kitson (instructed by Andrew Jay & Co) for the respondent.





Immigration



Administration of justice - legislation - asylum seekers - grounds for appeal - transitional provisions - ultra vires - amending grounds of appeal - restricting ambit of reconsideration to grounds on which immigration appeal tribunal granted permission to appeal - Wednesbury irrationality - appellate process

(1) AM (Serbia) (2) MA (Pakistan) (3) MA (Sudan) v Secretary of State for the Home Department: CA (Civ Div) (Sir Mark Potter (President Fam), Lords Justice Maurice Kay, Hughes): 25 January 2007
The appellant asylum seekers, in three transitional cases, appealed against decisions of the Asylum and Immigration Tribunal (AIT), refusing to permit amendments to the grounds on which the Immigration Appeal Tribunal (IAT) had granted permission to appeal.



In each case, an adjudicator had made a decision and the IAT had given leave to appeal but had not heard the substantive appeal because it had ceased to exist and had been replaced by the AIT, under a single-tier appeal structure. Accordingly, the transitional provisions under rule 62 of the Asylum and Immigration Tribunal (Procedure) Rules 2005 applied to the cases.



In each case, the AIT considered itself bound under rule 62(7) to hold that its reconsideration of the case was limited to the grounds on which the IAT had granted permission to appeal. The appellants submitted that given the policy of the immigration Acts and the overriding objective under the rules, the purpose of the statutory scheme would be seriously undermined if rule 62(7) was construed literally; rule 67(2) was beyond the powers on which the Lord Chancellor relied when laying it before Parliament because the enabling provision obliged him to aim to ensure that the rules were designed to ensure that proceedings were handled as fairly, quickly and efficiently as possible; alternatively, if rule 62(7) was intra vires, it was susceptible to a Wednesbury challenge as no reasonable Lord Chancellor or Parliament could promulgate a rule that had the effect of preventing an appellant to the AIT from raising by way of amendment or renewal an arguable and potentially meritorious point of law, in the context of the Convention relating to the Status of Refugees 1951 (United Nations) or the European Convention on Human Rights.



Held, it could not be said that the purpose of the statutory scheme was seriously undermined by a literal construction of the unambiguous language of rule 62(7). If Parliament resolved to replace a two-tier appeal structure with a single tier and made transitional provision for pending cases, it was not bound to carry forward into the new system every procedural protection that transitional appellants had under the previous system.



As a matter of construction, rule 62(7) meant what it said (JM (Liberia) [2006] UKAIT 00009 considered). The fact that reservations or exceptions were identified in JM did not mean that it could be turned on its head so that thesis became antithesis.



The formulation in the enabling provision, section 106(1A) of the Nationality, Immigration and Asylum Act 2002, made it difficult to say that rule 62(7) was out with the enabling vires. Accordingly, the court approached the matter on a Wednesbury basis.



Rule 62(7) was fundamentally flawed. An appellant may have the material to establish that a decision of an adjudicator that the secretary of state had not caused the UK to be in breach of its international obligations under the conventions was legally erroneous. Nevertheless, rule 62(7) would stand in his way. It was no answer to say that such an appellant may have had, but missed, an opportunity to apply for statutory review. That could only have arisen in relation to grounds wrongly rejected by the IAT. It was no answer to say that obvious points would be picked up by the AIT (R (on the application of Robinson) v Secretary of State for the Home Department [1997] 3 WLR 1162 considered).



Robinson was concerned with the judicial grasping of obvious points that have not been advanced by the appellant, not with points that he wished to advance. The significance of Robinson was in its demonstration of the role of the courts and the tribunal in ensuring that the UK did not fall foul of the refugee convention, even where an obvious point of convention law had been missed. If it was incumbent upon the AIT to consider Robinson obvious points that had not been advanced by the appellant notwithstanding rule 62(7), given the rationale of Robinson, there was no rational basis for excluding and deciding points of equal force that the appellant wished to advance, even though they were not embraced in the grounds of appeal sanctioned by the IAT.



Accordingly, when he promulgated rule 62(7), the Lord Chancellor had erred and the rule could not survive the Wednesbury challenge. It was not expected that the AIT would readily permit amendments save where it was persuaded that the proposed amendment related to a point of law that was clearly arguable and potentially meritorious in the context of a possible breach of international obligations under the conventions.



Appeals allowed.



Kathryn Cronin (instructed by Wilson & Co) for the first appellant; Upali Cooray (instructed by Thompson & Co) for the second appellant; Raza Husain (instructed by the Refugee Legal Centre) for the third appellant; James Eadie for the respondent in AM (Serbia) and MA (Sudan); Philip Coppel (instructed by the Treasury Solicitor) for the respondent in MA (Pakistan).





Personal injury



Civil evidence - personal injury - expert witnesses - medical evidence - opinion evidence - statements of fact - distinction between evidence of fact and opinion

Kirkman v Euro Exide Corporation (CMP Batteries Ltd): CA (Civ Div) (Lords Justice Buxton, Smith): 25 January 2007
K appealed against a decision to refuse him permission to adduce the evidence of an orthopaedic surgeon (B) in respect of his personal injury claim against the respondent company (E).



K had had an accident while working for E, which caused damage to his right knee. K had a history of problems with his knee and had been consulting B for a number of years.



After the accident, B advised K that he should have reconstructive surgery. At hospital, K developed an infection and despite extensive treatment was subject to an above-knee amputation of his right leg. K brought proceedings against E for damages.



Liability was not disputed but the issue was whether the need for surgery was necessitated by the accident or was inevitable given K's previous problems. It was ordered that each party to the proceedings could rely on only one expert medical witness each. K sought to rely on the evidence of an orthopaedic surgeon other than B but also

to introduce a witness statement from B as evidence of fact as opposed to evidence of expert opinion.



The relevant passage of B's witness statement made clear that B would not have advised surgery if it had not been for the accident. The judge refused permission to adduce B's statement on the basis that it was in fact expert opinion rather than factual evidence. K submitted that B's witness statement only contained evidence of fact. E contended that because B's witness statement related to a hypothetical situation, it was evidence of opinion and K's attempt to rely on it was a means of subverting the order that the parties could only call one expert witness each.



Held, B's witness statement was clearly evidence of fact. He was relying on his knowledge but he was not expressing an expert opinion. B was merely stating what he would have done if the accident had not occurred.



Unlike the experts who were called at the trial, B was not expressing a view as to what most competent surgeons would have said in the same situation; he was speaking only for himself. The correctness or accuracy of his advice was not in issue. His statement merely said that rightly or wrongly, that is what he would have advised.



Furthermore, the judge followed too rigidly the order made requiring equality of expert evidence. The desirability for such equality was not an absolute rule and the instant case was a good example of where it should have given way in the interests of justice. It was directed that B be permitted to give evidence and for the development of that evidence to be left to the trial judge.



Appeal allowed.



Christopher Limb (instructed by Fieldings Porter) for appellant; Dominic Nolan (instructed by Langleys) for the respondent.





Landlord and tenant



Real property - collective enfranchisement - counter-notices - mandatory requirement on reversioner to specify leaseback proposals in counter-notice

(1) Betty Audrey Cawthorne (2) Simon James Maurice (3) Nicola Ann Maurice (4) Guity Saadat (5) M&P Properties Ltd v Micha'al Hamdan: CA (Civ Div) (Mummery LJ, Rix LJ, Lloyd LJ): 24 January 2007
The reversioner (H) appealed against a decision of the Lands Tribunal that a leaseback notice he had served on the respondent leaseholders (R) under section 36 of the Leasehold Reform, Housing and Urban Development Act 1993 was not valid.



H was the reversioner of premises that comprised six flats and came within the collective enfranchisement provisions in the Act. There were five qualifying tenants, four of whom had given H notice exercising their right to collective enfranchisement. The tenancy of the sixth flat did not qualify.



H served a counter-notice under section 21 of the Act, in which he specified that there were no additional leaseback proposals. The parties disagreed on the terms of the acquisition and the Leasehold Valuation Tribunal determined the price payable, which was a substantial sum on the basis that one of the flats was subject to an assured shorthold tenancy, meaning that H would be able to gain possession of it and sell it on a long lease at a premium.



R appealed on the ground that the flat was subject to an agreement between H and a third party for the grant of a tenancy to that third party for five years with an option to renew for a further ten years and therefore the premium should be lower. Some time later, and shortly before the appeal hearing, H served a leaseback notice under section 36, which if it was valid entitled him to a long lease of the top flat at a peppercorn rent.



The Lands Tribunal found as a preliminary issue that the notice was not valid and therefore H was not entitled to a leaseback of that flat.



Held, the statutory provisions did not at first sight sit well together. Section 21(3) had a mandatory provision requiring that, if the reversioner wished to put forward a leaseback proposal, he had to identify it in the counter-notice. That suggested that, if he did not do it there and then, it was too late.



However, paragraph 5 of schedule 9 provided for him to serve a leaseback notice requiring the grant of a leaseback in relation to any flat that was not, immediately before the time when the nominee purchaser acquired the freehold, a flat let to a qualifying tenant. Therefore, H argued, because the test of eligibility was applied at that late stage, it had to be open to the reversioner to serve such a notice at any time up to the moment before the nominee purchaser acquired the freehold. However, that could cause serious practical problems and delay, as well as being potentially unfair to the acquiring tenants, because by that time the price to be paid for the freehold would have been agreed or decided by the Leasehold Valuation Tribunal and would be invalidated by a valid leaseback notice.



On the facts, H could have specified in his counter-notice a proposal that the top flat be the subject of a leaseback. It was already then the subject of a tenancy under which the tenant was not a qualifying tenant. The reference in paragraph 5 of schedule 9 to 'the appropriate time', and thereby to the moment before acquisition of the freehold by the nominee purchaser, did not show that a leaseback notice might be served at any time up to that moment. The consequences of such a reading would be extremely inconvenient and likely to be unfair to the acquiring tenants, and would leave the process open to manipulation by the reversioner.



The words of schedule 9 did not compel a reading that would have that result. The way the statutory scheme worked without giving rise to unreasonable consequences was that, if the reversioner wanted a leaseback of a flat in respect of which, at the time of the counter-notice, there was not a qualifying tenant, he had to say so in his counter-notice. If he did so, then he would be entitled to the leaseback, so long as there was still no qualifying tenant immediately before acquisition by the nominee purchaser.



The reference to 'the appropriate time' did not extend to that moment the opportunity for the reversioner to serve a leaseback notice if he had not made proposals to that effect in the counter-notice. In effect, the sanction for failing to comply with the mandatory requirement to specify leaseback proposals in the counter-notice, at least if the reversioner could at that time have done so, was that he could not seek a leaseback thereafter. Therefore H's leaseback notice was not valid.



Appeal dismissed.



Nicholas Berry (instructed by OJS Law) for the appellant; Stan Gallagher (instructed by Osler Donegan Taylor) for the respondents.





Agreements - business tenancies - interpretation - effect of settlement agreement on break clause - interpretation

Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd: CA (Civ Div) (Sir Anthony Clarke MR, Lords Justice Sedley, Lloyd): 24 January 2007
A landlord (L) appealed against a decision ([2006] EWHC 1008 (Ch)) that two commercial leases with the respondent tenant (E) had ended pursuant to the exercise by E of a break clause.



After service by E of notices to exercise the break clause, the parties had reached a settlement about the amount to be paid to L for dilapidations. The settlement agreement recorded that E was released from its obligations under the leases in relation to the state and condition of the premises, save that E had to keep the premises in no worse condition until the end of the lease.



The settlement figure also included provision for reinstatement work that E would have only been liable for at the expiration of the leases, and for a period for loss of rent whilst L had to carry out the works of repair after the expiration of the leases. E failed to give vacant possession at the agreed date.



The judge found that E had failed to comply with the conditions of the break clause in the leases but that the conditions had been modified by implication by the settlement agreement, so that the break notices were still effective to terminate the leases. L argued that the settlement agreement was short, to the point, professionally drafted and said nothing about the break clause provisions in the leases.



Furthermore, L argued that, even though both parties had proceeded on the assumption that E would give vacant possession by the relevant date, there was no reason to suppose that L would have been willing to convert that assumption into a contractual term that the leases would terminate regardless of whether vacant possession had been given, and the judge had been wrong to imply such a term.



E argued that the calculation of the settlement sum had assumed that the leases would terminate, because it included sums for liabilities that only arose on expiration of the leases, and that L could not go back on that.



Held, (Lord Justice Lloyd dissenting), whether by construction or by implication, the effect of the settlement agreement was that the leases were to end on the agreed date regardless of whether E had given vacant possession. The intrinsic assumption was that the right of possession was irrevocably set to expire on the agreed date, so that any consequences of failure to yield possession would lead to a right to claim damages for trespass but could not constitute a breach of the conditions of the break clause.



It was clear that the purpose of the agreement had been to reach a final agreement about the parties' mutual rights and obligations as at the date that the break notices were to take effect.



Appeal dismissed.



Guy Fetherstonhaugh QC (instructed by Halliwells) for the appellant; Timothy Dutton (instructed by Druces & Attlee) for the respondent.





Contract



Shipping - arbitration agreements - charterparties - discretion - jurisdiction - separate contracts - stay of proceedings - claim to rescind charters and arbitration agreements for bribery - application to stay proceedings for arbitration - separability of arbitration agreement

Fiona Trust & Holding Corporation & 20 Ors v Yuri Privalov & 17 Ors: CA (Civ Div) (Lords Justice Tuckey, Arden, Longmore): 24 January 2007
Charterers (P) appealed against a decision ([2006] EWHC 2583 (Comm)) that a claim by the respondent shipowners (C) to rescind certain charterparties on grounds of bribery should not be stayed for arbitration by virtue of the arbitration clause in the charters.



C were one-ship companies in the Russian Sovcomflot group of companies that had entered into charters on the Shelltime 4 form. C claimed that the charters had been procured by bribery and contained terms highly favourable to P. C claimed that the charterparties had been rescinded and that restitution of benefits should be made.



The charterparties contained a 'law and litigation' clause, which provided for any dispute under the charter to be decided in England and conferred on either party the right to elect to have any such dispute referred to arbitration in accordance with the rules of the London Maritime Arbitrators Association. A further sub-clause referred to a dispute 'arising out of' the charter.



P appointed an arbitrator under the charters. C made an application under section 72 of the Arbitration Act 1996 seeking to restrain the arbitration proceedings on the basis that they had rescinded both the charters and the arbitration agreements in them. P then sought a stay of C's rescission claims under section 9 of the Act.



The judge declined to stay the claims for rescission and restrained the arbitration proceedings pending the trial of the action. P submitted that 'out of' was a wider phrase than 'under' and that the parties therefore intended a wide meaning to be given to the arbitration clause.



Held, any jurisdiction or arbitration clause in an international commercial contract should be liberally construed. The words 'arising out of' should cover every dispute except a dispute as to whether there was ever a contract at all.



Although previously the words 'arising under the contract' had sometimes been given a narrower meaning, that should no longer be so. The words 'out of' and 'under' should be widely construed (Mackender v Feldia [1967] 2 QB 590 applied, Ashville Investments Ltd v Elmer Contractors Ltd (1987) 37 BUILDLR 55 considered, and Fillite (Runcorn) Ltd v Aqua-Lift (1989) 26 Const LR 66 doubted).



One of the reasons for a liberal interpretation of an arbitration clause was the presumption in favour of one-stop arbitration. No commercial man would knowingly create a system that required that the court should first decide whether the contract should be rectified, avoided or rescinded before the arbitrator could go on to resolve the dispute that had arisen.



The logic of C's case was that the claim for rescission would not be within the English jurisdiction clause because it would not be a claim under the charter. The dispute as to whether the charters should be set aside or rescinded for alleged bribery did fall within the arbitration clause on its true interpretation.



The arbitration agreement was separable from the charterparty. It was not enough to say that the contract as a whole was impeachable. There had to be something more than that to impeach the arbitration clause. Section 7 of the Act codified the principle that an allegation of invalidity of a contract did not prevent the invalidity question being determined by an arbitration tribunal pursuant to the separate arbitration agreement. There was no reason why arbitrators could not decide whether a contract had been procured by bribery, if they could decide whether it was void for initial illegality (Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1993] 3 WLR 42 applied).



The judge had been wrong to hold that he would have restrained the arbitration proceedings under section 72, even if the arbitrator did have jurisdiction to decide the bribery issue, so that there could be a one-stop hearing of the issue. If there was a valid arbitration agreement, proceedings could not be launched under section 72 at all.



Accordingly, section 72 had no application to the instant case. Where court proceedings had been instituted and an application had been made for a stay, section 9 governed the position. Therefore, the judge did not have the discretion that he thought he had. In the instant case, it was clear that a stay should be granted.



Appeal allowed.



Nicholas Hamblen QC, Vernon Flynn (instructed by Lawrence Graham) for the appellants; Christopher Butcher QC, Philip Jones QC (instructed by Ince & Co) for the respondents.