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A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27
Today, the Supreme Court has handed down a significant judgment in the second ever “leapfrog” appeal from the Upper Tribunal: A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27. The appeal concerns an issue of statutory interpretation that frequently arises across all areas of the law: where a statute lays down a procedural framework for exercising a statutory right, but is silent as to the consequences of a failure to comply with that framework, how should the court ascertain what Parliament intended should follow from the non-compliance?
The basic approach to that issue was established by the House of Lords in R. v Soneji [2006] 1 A.C. 340 (HL): “the emphasis ought to be on the consequences of non-compliance, and posing the question whether Parliament can fairly be taken to have intended total invalidity” at [23].
However, the approach established by Soneji developed from the public law context. The Court of Appeal, in Osman v Natt [2015] 1 WLR 1536, had previously suggested that there might be a distinction in the application of the Soneji framework between procedural requirements in the public law context - where substantial compliance with the requirements might be enough - and private law statutes which confer a property or similar right on a private person - in which case substantial compliance with the statutory procedure would not be enough, and the particular factual circumstances of the case are irrelevant to the exercise of statutory interpretation.
This appeal is the first occasion on which the Supreme Court has considered how the Soneji approach applies in private law, and, in particular, in the context of a property law statute which re-allocates private property rights.
The Court’s reasoning suggests that there is no principled distinction between the approach in public and private law, and its judgment will likely impact how courts and tribunals in future will ascertain the effects of non-compliance with a particular statutory framework in circumstances where Parliament fails to expressly state a consequence of such a failure.
Factual background
The statutory context to the appeal was the right to manage regime in the Commonhold and Leasehold Reform Act 2002. This is a right by which qualifying leaseholders of flats can, on a no-fault basis, acquire the right to manage the premises in which their flats are situated. A claim to acquire the right is made by serving a claim notice. By s. 79(6), the claim notice must be served by the RTM company on specified parties. Those parties include landlords under a lease of the whole or any part of the premises (s. 79(6)(a)).
The Appellant was a landlord under multiple intermediate leases in a block of student accommodation. It had no management responsibilities under those leases. The respondent RTM company, apparently intentionally, failed to serve the Appellant with a claim notice.
In Elim Court RTM Co Ltd v Avon Freeholders Ltd [2018] QB 571, the Court of Appeal decided that Parliament did not intend that a failure to serve the claim notice on an intermediate landlord who has no management responsibilities should invalidate the claim to acquire the right to manage. Although the acquisition of the RTM involved the loss of important rights by such a landlord (such as the right to give consents under covenants), the Court of Appeal in Elim Court considered that the transfer of those rights is ancillary to primary objective of the legislation - to enable a RTM company, simply and cheaply, to acquire the right to manage. That purpose was not defeated by a failure to serve the claim notice on an intermediate landlord with no management responsibilities.
In the present case, the FTT and UT were each bound by Elim Court and accordingly determined that the failure to serve the appellant was not fatal to the RTM process.
The Appellant obtained permission to appeal directly from the Upper Tribunal to the Supreme Court to argue that Elim Court was wrongly decided, or alternatively, that on the facts of this appeal, an intentional failure to serve the Appellant invalidated the claim.
Outcome
In its judgment today, the Supreme Court held that the result in Elim Court was correct, but much of the reasoning could not be supported. In particular, it considered that the Court of Appeal was wrong in Elim Court to say that a landlord’s right to participate in the RTM procedure may be ignored if they are an intermediate landlord with no management responsibilities. The effect of the exercise of the RTM is that “an existing sophisticated contractual regime with multiple aspects and ramifications is subject to significant disruption…” [67] The “ordinary expectation” must be that persons affected can participate in the procedure and oppose the claim. Further, the court did not consider that “the fact that the central concern of the regime is to effect the transfer of the right to manage premises mean that the impact on other contractual rights which are affected can be overlooked” [67].
However, on the facts of this case, the Supreme Court considered that Parliament did not intend that the failure to serve a claim notice on the Appellant should invalidate the claim to acquire the right.
The Court considered that the correct approach in a case where there is no express statement of the consequences of non-compliance with a statutory requirement is first to look carefully at the whole of the structure within which the requirement arises and ask what consequence of non-compliance best fits the structure as a whole: [68].
The Court considered that in assessing whether a procedural failure under the RTM regime has the effect of invalidating the process, the question to be asked is whether a relevant party has been deprived of a significant opportunity to have their opposition to the making of an order to transfer the right to manage considered. Two matters should be considered in that:
(a) what objections the party affected could have raised and would have wished to raise; and
(b) whether, despite the procedural omission, the party affected in fact had the opportunity to have their objections considered in the course of the process leading to the making of the order to transfer the right to manage. If that party could have raised no substantive objection, or if their objection has been considered even though the claim notice was not served, the inference is that Parliament intended that the transfer of the right to manage should be effective notwithstanding the omission: [91].
In either case, the relevant focus is on the person directly affected by the failure: [92]. The omission does not give other persons who are not directly affected (e.g., other landlords who have been properly served with a claim notice) a right to object to the making of a transfer order if the party who is directly affected has not sought to take the point.
Applying those matters to the present appeal, whilst the Appellant was denied the chance to serve a counter notice disputing the claim, a counter notice was, however, served by another party. That led to a hearing before the FTT at which the Appellant was able to make submissions about the validity of the RTM claim (none of which succeeded on the facts). The Court considered that those were significant features of this appeal which pointed to the conclusion that Parliament did not intend that the Respondent’s failure to serve a claim notice on the Appellant should invalidate the claim.
Implications
At the most narrow level, this judgment means that the frequent resort to Elim Court in RTM cases involving procedural failings must now be regarded as an unsafe practice.
The Supreme Court’s decision does, however, also have significant wider importance.
First, it cannot be said that there is any principled distinction between private and public law in the approach that should be taken to ascertaining the consequence of failing to comply with a statutory framework where Parliament has failed to expressly specify the consequence. To the extent that Osman v Natt suggested that there might be a difference, the Supreme Court cautioned that “needs to be considered and applied with some caution” [61]. The governing case is Soneji, as explained in this case, rather than any decision of the Court of Appeal.
Second, in the application of Soneji in the private law context, it cannot be said that it is necessarily more likely that Parliament intended invalidity to follow because private law rights will be affected. However, that private rights are affected is a relevant consideration. In particular, the Supreme Court considered that it is appropriate to “have regard to the effect which the operation of a statutory process might have on property and contractual rights, and to draw such inferences as to Parliament’s objective intention as might be appropriate in the circumstances” [64]. To that end, “[i]t is usually to be inferred that Parliament intends that there should be a reasonable degree of certainty regarding property rights and contractual rights” and that it is “usually to be inferred that Parliament intends that a person should not be deprived of property or contractual rights without being afforded a fair opportunity to enter objections” [64].
But none of that necessarily means that it must be concluded that Parliament intended invalidity to follow should the person seeking to acquire or vary the private law right not comply with the statutory procedure. It always remains necessary to conduct the Soneji analysis on the facts of the case.
Third, whether there has been “substantial compliance” with a statutory requirement is not the correct approach in determining what Parliament intended should follow from the failure to strictly comply. In the same vein as the court’s previous cautioning against distinguishing between “mandatory” and “directory” requirements, in this appeal the Court considered that a test of “substantial compliance” expressed a conclusion as opposed to answering the question of what parliament intended should follow from non-compliance. The Court considered that
“…. If there has been substantial compliance with the rule, so that the purpose served by it has largely (if not completely) been fulfilled, it may more readily be concluded that fulfilment of the competing substantive purpose of the legislation should be given priority. But we would observe that reference to “substantial compliance” begs the question of what purpose was supposed to be served by the rule and expresses a conclusion arising from the relevant analysis, rather than stating a test in itself. Statutory regimes involving procedural obligations are many and are highly varied, and there is no simple shortcut which avoids the need to undertake the analysis referred to in Soneji having regard to the particular provisions, scheme and purposes served by the statute in question” [63] (emphasis added).
The judgment is available here.
Justin Bates KC and Harley Ronan acted for the Appellant, instructed by Brethertons LLP.
