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Michael Walsh acts for successful Claimants in landmark decision of the High Court

The High Court (Richards J) has handed down its second judgment in Prescott Place Freeholders Limited v Batin & Donovan [2023] EWHC 1445 (Ch), in which Michael Walsh acted for the successful Claimants. This judgment deals with the consequential matters arising from the findings of fact at trial (see [2023] EHWC 435) (the “Trial Judgment”).

The Court agreed with the Claimants’ submissions that order under section 19 of the Landlord and Tenant Act 1987 is an interest in land. This is the first time the High Court has had to decide this point and it is an important decision for tenants who are enforcing their rights of first refusal under the 1987 Act against a recalcitrant landlord.

The effect of the Court’s decision was that the proprietary right created by the section 19 order (which was protected on the register by a notice) had priority over the equitable leases that were granted by D1 to D2, about which they had both lied at trial, claiming they were granted in 2014, when in fact they were granted in 2019, after the section 19 order was made.

The equitable interest created by the section 19 order also gave the Claimants standing to claim injunctions restraining D2 from registering notices to protect equitable leases and further injunctions preventing him from going into actual occupation prior to C1 (the nominated purchaser) being registered as proprietor, and thereby claiming that he had an overriding interest as a person in actual occupation.  The Court said at paragraph 67 of the judgment:

Having granted the Equitable Leases after the Section 19 Order was made, with a purpose of devaluing the freehold interest that C1 was entitled to acquire (see [139] of the Trial Judgment) D1 and D2 between them are seeking to “invade” C1’s rights. That invasion can be effective only if D2 is able to protect the Equitable Leases either by registering a notice against the freehold title or by going into actual occupation. The Claimants have standing to request the court to restrain D2 by injunction from taking these steps.

In the Trial Judgment ([2023] EHWC 435), the Court found there was no statutory restriction in the 1987 Act preventing new interests being granted out of the freehold after a section 19 order is made. D2 tried to rely on this point in resisting the injunctions but the Court dismissed this argument at paragraph 70:

The fact that there is no statutory restriction on new interests being granted after the making of the Section 19 Order does not mean that D1 and D2 have free rein to create whatever interests they choose in order to frustrate the effect of the Section 19 Order. By way of analogy, there is no statutory restriction on a potential defendant to civil proceedings dissipating assets as that defendant sees fit. However, a court can act by making a freezing injunction to prevent a defendant from depriving a future judgment of practical effect by unconscionable dissipation of assets.

D2 also complained that the effect of restraining him from registering his leases was to give the Claimants a windfall because they would obtain two unencumbered flats worth approximately £1.5 million for the consideration paid by D1 of £125,000 on the relevant disposal (which was a huge undervalue).  The Court found that “Even if this can be referred to colloquially as a “windfall”, it is nothing more than the result for which Parliament has legislated.” (para. 74).

In exercising its discretion to grant the injunctions, the Court had this to say about the Defendants’ behaviour:

79. This was not simply a matter of giving untrue evidence to the court. After the Section 19 Order was made, D1 and D2 strung out compliance with that order, including by failing to co-operate with the FTT Proceedings, so as to delay unjustifiably a transfer of the Property to C1 which the court had ordered D1 to execute. D1 and D2 used the time that they bought themselves with this conduct to mount a rearguard action against the Section 19 Order by executing the Equitable Leases in order to reduce the value of the interest that C1 was entitled to acquire pursuant to that order. That conduct is unconscionable not because the court disapproves of it on a moral level, but because it represents a concerted attempt to deprive the Section 19 Order of a good part of its intended effect. It is appropriate for the court to exercise discretion to make injunctions that would prevent this behaviour from achieving its desired result.

81… Given the propensity that both D1 and D2 have already shown for seeking to frustrate the effect of the Section 19 Order, I regard both a continuation of the existing injunctions, and an extension of those injunctions to prevent D2 from going into actual occupation, to be a proportionate and equitable remedy.

The judgment can be read here.