Hillyer McKeown Blog

Case Law Update –Enviroco Limited v Sartad Supply A/S –The meaning of “Subsidiary”
Considered by many as a shock decision, the Court of Appeal have handed down Judgment on the meaning of a subsidiary under sections 736 and 736A of the Companies Act 1985 (now section 1159 of the Companies Act 2006).
Facts
The case was concerned about whether a subsidiary company remained a subsidiary for the purposes of the Act after a parent company charged its shares in the subsidiary (“Enviroco”) to a bank.
The shares were registered in the name of the Lender’s nominee.
Enviroco argued that it was still a subsidiary of the parent company as its parent company was a member of it and controlled a majority of the voting rights in it.
Decision
The Court of Appeal rejected this argument holding that by virtue of registering its shares to a bank and putting it into the name of the bank’s nominee by way of security, Enviroco was no longer a subsidiary of the parent company for the purposes of the Act.
Impact
Whilst it is anticipated that an appeal will be made to the Supreme Court on this case, the potential impact of the Court of Appeal’s decision is likely to be substantial. In particular;
The provision of any contract by a company whose status as a holding company or subsidiary (for the purposes of the Act), and where it has sought to define concepts such as ‘subsidiary’, ‘affiliate’, ‘group’ and ‘holding company’ should be carefully scrutinised.
Clients are advised to err on the side of caution and seek advice as to whether or not the definition of subsidiary and holding company in the documents will need to be amended and redefined. Clients may also wish to obtain legal advice as to the best way in which alternative forms of security may be granted and to obtain further information as to the possible risks and implications of granting security by way of legal mortgage over shares. Clients are accordingly best advised to consult with our Corporate Department for further advice in his regard and how you may better protect your position moving forward.

Warning – Even long outstanding rent reviews can be actioned
The case of Bello v Ideal View provides a stark reminder that rent review provisions can still be exercised by a Landlord even after a very long delay.
Facts
The case relates to a 50 year Lease with the provision for a rent review at year 25 (exercisable in 1994). Mr Bello, acquired the Tenant’s interest under the Lease in 2005 and Ideal View brought the Landlord’s interest in the Lease in 2006. Some 14 years after the right became exercisable, the Landlord initiated the rent review procedure.
The rent was increased significantly from £60 per annum to £1,700 per annum in 2007. The Landlord also claimed payment of the back dated uplift in rent from 1994. Mr Bello did not discharge the arrears and possession proceedings were issued and granted in favour of the Landlord.
On appeal, the Court again found in favour of the Landlord stating that if the rent review provisions do not put a time limit on initiating the rent review process (as most invariably don’t), then even in cases of a substantial delay, such as to be unreasonable or even causing prejudice or hardship to the tenant, this did not in itself negate the Landlord’s contractual right to implement a review. The only exception to this is where the Landlord is said to act in some way so as to equate to a waiver of his right to review the rent and the tenant then acts in reliance upon it.
This is perhaps a surprising outcome for some but in any event drives home the notion that both landlords and tenants should be alive to the extent of their obligations and rights under a lease and the need to carry out careful due diligence, particularly if acquiring a leasehold interest by way of assignment. It also reminds landlords and tenants alike as to the importance of careful drafting when composing their Leases.

CHANGES TO SMALL BUSINESS RELIEF IN WALES FROM 1st APRIL 2010
SBR can provide certain businesses with a welcome reduction in their rates. Currently, SBR of:
• 50% is available for non-domestic properties with a rateable value of not more than £2,000.
• 25% is available for non-domestic properties with a rateable value of not more than £6,500.
• 25% is available for retail purposes with a rateable value of more than £6,5000 but not more than £9,000.
On 22nd December 2009, the Minister for Social Justice and Local Government wrote to Assembly members informing them that he proposed to amend the Non-Domestic Rating (Small Business Relief) (Wales) Order 2008 to increase the rateable value thresholds from:
• £2,000 to £2,400 for the general 50% relief.
• £6,500 to 7,800 for the general 25% relief.
• £9,000 to £11,000 for the 25% retail relief.
These changes have come into effect from 1st April 2010.

Apple sues mobile phone giant HTC over iPhone patents
Apple is suing Taiwanese mobile phone manufacturer HTC, claiming it has infringed 20 patents relating to “the iPhone’s user interface, underlying architecture and hardware”.
The key element believed to have triggered the lawsuit is that HTC released handsets in February which used ‘pinch to zoom’ functionality resembling that of the iPhone.
Apple’s chief executive, Steve Robs issued a statement saying; “we can sit by and watch competitors steal our patented inventions, or we can do something about it. We’ve decided to do something about it. We think competition is healthy, but competitors should create their own original technology, not steal ours”.
If successful, Apple’s action would result in HTC being banned from selling phones with the contentious features in the USA.
In its response to legal action, HTC said it had only just learned about the allegations and was investigating the matter.

The Duty to Mitigate

The Court of Appeal recently considered an innocent party’s duty to mitigate its loss and confirmed that it was for a party in breach of contract to demonstrate that there has been a failure to mitigate but that the duty to mitigate was not a demanding one.

Lombard North Central Plc provided finance for the Defendant (“the Purchaser”) to purchase a Mercedes Benz X600 Pullman with a basic price of £194,000.00. The Purchaser paid a £24,000.00 deposit, and agreed to pay 60 instalments of £3,061.28 with a final instalment of £60,000.00, a total purchase price of £267,678.80.

The Purchaser fell in default and Lombard eventually repossessed the vehicle, which was sold at auction realising a net sale proceeds of £50,829.72. The balance therefore due under the contract was £204,713.31 and proceedings were commenced to recover that amount.

The Purchase argued that there had been a failure to mitigate as the car had not been sold for an appropriate amount. The seller had not appreciated the nature of the car that had been repossessed, it was a rare car and should have been properly marketed with specialist dealers.

The Court rejected the argument because it accepted the evidence of the seller that he was aware of the car he was dealing with and he explained why he was prepared to accept the relatively low offer. Additionally the Purchaser did not adduce any expert evidence regarding the appropriate value that should have been obtained and the Judge properly found that ordinarily in a case that turns on valuation expert evidence as to the inadequacy of the price obtained should be adduced.

The Court of Appeal has accordingly reaffirmed that the duty to mitigate was not a demanding one and that the innocent party merely has to do what is reasonable in the circumstances. It was up to party in breach of contract to prove that this standard has not been met, not an easy task.

Labour has pledged not to introduce a compulsory ‘death tax’ to help pay for long-term elderly care for at least five years.

Unveiling the White Paper on social care, Health Secretary Andy Burnham siad the plan would be delyed until at least 2015. He insisted government was undertaking a ‘massive reform’ and played down Mr darling’s apparent ruling out of a tax on estates during a debate last night.

Instead he outlined a watered down list of funding proposals. A National care Commision will now be appointed to consider detailed plans.

Welsh Assembly Government – Plans for improving private rental
A review of the private rented sector recently undertaken in England identified a number of proposals for change on which the Department of Communities and Local Government has consulted. Whilst a number of the proposals in review have already been introduced in Wales, the Welsh Assembly Government had published a consultation paper on additional measures to improve standards in the Welsh private rented sector.
The proposals include;
•    A national online register of private Landlords.
•    A regulatory regime for Letting and Management Agents.
•    Improved Tenancy frameworks.
•    An increase in the upper limited for assured tenancies.
•    Improving the evidence base on the private rented sector.
The idea is that these proposals will eventually apply to both England and Wales.
Watch this space, the consultation period ends 14th May 2010.

Disputed Debts – Can the Debtor Company be Wound Up?

It is a legal truism a Winding Up Petition will be dismissed if there is a genuine dispute between a debtor and the petitioning creditor.

However there is Case Law that confirms that the Court does have discretion in exceptional circumstances to place a company into compulsory liquidation despite there being a dispute about the petition debt. This has recently been re-affirmed and the Court has set out the factors to be taken into account:-

1. Does the petitioning creditor have an adequate alternative remedy? If it does then the debtor company will not be placed into compulsory liquidation.

2. Would the debtor company be solvent if the Court was to discount the petition debt?

3. What prejudice if any would the debtor company suffer if the Court made the Winding Up Order?

In the recent case the High Court held that it was appropriate to make a Winding Up Order despite the debtor company’s defence of the petition.

Whilst it will still be rare that a company will be liquidated on the basis of a disputed debt the recent case is a useful reminder that in exceptional cases it is an option to be considered. If a debtor’s balance sheet is not looking healthy then it may be at risk at of being wound up, and a Court will consider the most appropriate course of action for both a debtor and creditor. The threat to wind up on a disputed debt is not necessarily an idol one.

PLANNING A CRIME

The Court of Appeal has overturned a High Court ruling that had refused to grant a Certificate of Lawfulness to an owner who had built a property with the outward appearance of a barn, for which he had planning permission, but internally it was fitted out as a house. The owner moved into the property and then four years later applied for a Certificate of Lawful Use.

The High Court refused to grant the Certificate and the Judge in fact indicated that he felt that the owner may well have committed a criminal offence and as such he faced the prospect of having the property subjected to a Confiscation Order.

The Court of Appeal has now overturned that decision. The planning permission was for the erection of a hay barn and the construction had been in breach of that permission and the uses of the property as a dwelling house was a change of use. In both cases it was too late for the Council to take enforcement action. The four years allowed to take action under Section 171 of the Town & Country Planning Act 1990 was applicable.

It mattered not that the dwelling had been obtained by deceit, the test to be applied was an objective test and the conduct of the applicant was not relevant. If a third party would have been entitled to the Certificate of Lawfulness then the applicant must also be entitled to that Certificate.

The Court noted that whilst the legislation as it currently stands is open to abuse that is a matter for Parliament and that the lesson to be learnt by Local Planning Authorities is to look carefully at the inside of buildings not just the exterior.

Readers may have noted the case of Dr Christine Gill v The RSPCA and others in the news towards the latter part of 2009, as the High Court have now released the transcript of the case we are able to better understand as to why RSPCA were unsuccessful in their Defence of Dr Gill’s claim.
In 1993 Dr Christine Gill’s parents made will’s which left their Estates to each other and on the death of the survivor passed their Estate in its entirety to the RSPCA. Dr Gill disputed the validity of her mother’s will on two grounds;
1. that at the time Mrs Gill executed the will she did know and approve of its contents, and
2. that she executed the will as a result of coercion or pressure exerted by Mr Gill.
Dr Gill also advanced an alternative claim in proprietary estoppel based on the assertion that she expected to inherit Potto Carr Farm, the family business carried on from that address and the assets of the business including the money that it generated. It was claimed that this expectation was encouraged by Mr and Mrs Gill during their lifetime and Dr Gill acted to her detriment in reliance that encouraged expectation.
The Third Defendant, the RSPCA put forward various witnesses to contest the evidence of Dr Gill both with respect to the claim for equitable estoppel and a lack of knowledge and approval of the will and indeed coercion or pressure exerted by Mr Gill. In the vast amount of witness evidence put forward it was noted that Dr Gill’s mother had referred to the RSPCA as “a bunch of townies” which amongst members of the Yorkshire farming community is not a complimentary description. Evidence also suggested that Dr Gill’s mother had described the RSPCA as a “waste of time” or words to that effect.
Ultimately the Court decided the case based on the claim for proprietary estoppel and as such granted transfer of the farm and the farming business including agricultural equipment and money in the farm account to Dr Gill. The Court also found for Mrs Gill in respect of her claim for undue influence with respect to the drafting of the will and also therefore set aside the will of Dr Gill’s mother of the 27th April 1993.
The RSPCA are taking the matter to Appeal, and claiming costs of £400,000 from Dr Gill on the basis that they offered to settle for a payment to them of £650,000 them earlier in the matter.
The farm is valued at £2.3 million, to date legal fees of more than £1.3 million have been incurred. As such the lesion to be learned is that if you wish to make a will which may be seen as controversial after your death that you should ensure that you provide a signed letter or similar detailing the reasons for that decision in order to counter any suggestions of undue influence and foul play when you are no longer around to explain your reasoning. Failure to do so could leave your beneficiaries embroiled in costly litigation.