Top 3 Cases - August 2022

In this series of articles, we aim to highlight 3 of the most interesting cases in our field decided in the past month. This month: the Court of Appeal on good faith, CFAs and privilege; the first award under the Commercial Rent (Coronavirus) Act 2022 scheme dealing with viability; and a telecoms decision dealing with renewals where there is an intermediate landlord.

AUGUST 2022

Candey Ltd v Bosheh and Salfiti [2022] EWCA Civ 1103

Summary

The Court of Appeal upheld the Judge’s decision that solicitors acting under a CFA had no real prospect of establishing that the clients were subject to an implied obligation of good faith. The solicitors could not therefore complain (save under the express terms of the CFA) if former clients, acting in bad faith, settled their claim on terms that did not entitle the solicitors to costs. No obligation of good faith could be implied because the usual tests for an implied term were not met, and the solicitor’s fiduciary duty displaced the possibility that the retainer was a relational contract.?

Why it’s important

The decision reiterates that an implied term of good faith is rare.?

In addition, it reviews the extent to which solicitors can use privileged material in actions against former clients. Such cases are limited: for example, particular exceptions where a solicitor sues a client for fees, and applications to come off the record. The implied waiver which occurs when a client sues its former solicitor does not apply where the solicitor sues the client: aside from these exceptions, the solicitor can only use material which would otherwise be privileged if the client is involved in a serious perversion of justice which amounts to an abuse of the usual solicitor-client relationship.

The decision also provides useful guidance for any solicitor intending to enter a CFA.? The Court of Appeal clearly stated that where a CFA was in place, it did not alter the duties owed by the solicitor to the client or vice versa, or the position relating to privilege. Further, clients were entitled to consider only their own interests (both financial and emotional) when assessing settlement offers. Accordingly, solicitors should draft CFAs to protect themselves against the risk of a conflict between the client’s interests and their own interests in recovering fees.??

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KXDNA Ltd v 60 SA Ltd, FCA, 11 August 2022

Summary

An arbitrator made an award under the Commercial Rent (Coronavirus) Act 2022 scheme requiring the landlord to accept 57% of the agreed protected rent debt by instalments over a 2-year period, as per the terms of the landlord’s revised formal proposal.

The landlord’s solvency was not in issue and the parties had agreed both that there was a protected rent debt and that the tenant’s viability should be assessed looking at the group as a whole. The arbitrator considered only the question of whether relief should be granted and on what terms. Section 15 of the Act provides that the aim of an award is that the tenant should pay as much of the protected rent debt as it was able to pay whilst preserving its own viability.

The arbitrator found that the tenant’s formal proposal was not consistent with the s.15 principles. The cash flow figures it was based on were not defensible, and the tenant's own evidence indicated it would generate significantly more profit over the relevant period than it had offered to pay its landlord.

Why it’s important

This is the first arbitration under the Commercial Rent (Coronavirus) Act 2022 scheme in which a viability assessment has been made.? Although not binding in other cases, it provides long-awaited guidance on how ‘viability’ might be approached.

The award also determined that:

1.??? The arbitrator only has jurisdiction to determine points which have not been agreed between the parties.? Where the parties have reached agreement in relation to particular matters, the arbitrator should not go behind that .

2.??? A party who alleges that the other party has sought to manipulate its financial affairs so as to improve its position in the arbitration should produce evidence and request an oral hearing unless it would be disproportionate to do so.

3.??? The possibility that shareholders might invest more money to keep the tenant’s business afloat must be ignored. ?

4.??? The Act requires the arbitrator to start by considering the minimum and maximum amounts which would be consistent with the principles in section 15, and to determine whether the parties’ proposals fall within that range. Where, as here, only one party’s proposal did so, that determines the award that the arbitrator much make.?

---------------------------------------------------------------------------------------------------------------Vodafone Limited v (1) Gencomp (No 7) Limited (2) AP Wireless II (UK) Limited

Summary

The Upper Tribunal determined a number of preliminary issues relating to the means by which operators can obtain renewed rights under the Electronic Communications Code, in the situation where the operator’s immediate landlord is the holder of a concurrent lease.

The operator’s lease had been granted under the old Code by the freeholder of the site. Since that time, the freehold had been transferred to the first respondent, and a concurrent lease had been granted by the freeholder to the second respondent..

After the contractual term of the lease expired, the operator served a number of notices under paragraphs 20 and 33 of the Code, to cover all possible ways to obtaina new or renewed agreement.

The Tribunal determined various preliminary issues relating to those notices and held that:

1.???The requirement for rights to have been granted by an ‘occupier’ applies to the old Code as it does to the new Code. Accordingly, for the lease to be a ‘subsisting agreement’ within the meaning of the transitional provisions, it was necessary to for the freeholder to have been the occupier of the site at the time of grant. However, that was a proper inference to draw from the existence of a formal agreement such as a lease. In such a situation, the burden of proof would be on the party asserting that the grantor was not the occupier to show that was the case.

2.?Neither the freeholder nor the concurrent lessee could confer rights under paragraph 34. The freeholder could not because (disregarding the occupation of the operator itself) the occupier of the site would be the concurrent lessee. The concurrent lessee could not because it did not fit any of the categories of ‘parties to the code agreement’ identified in paragraph 10 of the Code and was therefore not the appropriate recipient of a notice under Part 5.

3.??However, since a renewal under Part 5 was not available, the concurrent lessee could (being the occupier) grant new rights for the purposes of Part 4, and the Tribunal could order that the freeholder be bound by those rights.

4.?The Tribunal had jurisdiction to order the parties to enter into either a bipartite or tripartite agreement.

Why it’s important

As the Tribunal noted, ‘this reference demonstrates that the task of understanding the Code’s complicated structure is not yet complete’. The highly technical decision has a number of ramifications for operators and site providers alike.

Operators whose immediate landlord is a concurrent lessee cannot obtain renewal under part 5 of the Code. Rather, they must seek a new agreement under part 4. That process involves not only different timescales and the service of different notices, but also different legal considerations – rather than taking into account the matters identified in paragraph 34, the Tribunal will be required to consider whether the operator has passed the paragraph 21 test.

As for site providers, the Tribunal’s judgment recognised that the result of the ‘small but potentially important structural defect’ it had identified in the Code was that holders of concurrent leases are not able to serve termination notices under paragraph 31 of the Code. As a result, such landlords ‘will find themselves in difficulty, and with no obvious means of bringing the code rights to an end’. While future redevelopment plans may be structured in a way which avoids this issue, other would-be developers may be faced with significant problems.

STEPHANIE TOZER Q.C

FERN SCHOFIELD