Is a serving a fresh notice an abuse of process?

The answer to this question in the recent case of Westbrook Dolphin Square Ltd v Friends Provident Life and Pensions Ltd [2011] EWHC 2302 (Ch) has suggested that in certain circumstances serving a new enfranchisement notice (under section 13 of the Leasehold Reform Housing and Urban Development Act 1993) after express or deemed withdrawal of a first notice could be an abuse of the court process under the provisions of the Civil Procedure Rules.  Further, as with so much of the case law in the field of enfranchisement, it would also seem to hold true in the case of lease extensions as well where the situation is similar.

The Dolphin Square case related to an enfranchisement claim for a group of buildings in Pimlico, London consisting of over 1,200 flats.  However, the leases of all of the flats were held by only three special purpose vehicles which were understood to be owned and controlled by the same offshore parent entity.  The ownership structure that had been put in place was designed to allow the parent company to conduct a claim to acquire the freehold from Friends Provident, specifically to avoid the effect of section 5 (5) of the Act which excludes owners of more than one flat in the block from being a qualifying tenant and thus entitled to enfranchise.

The premium in the initial notice served in September 2007 was a staggering £95 million but Friends Provident disputed that there were any qualifying tenants allowed to pursue a claim and their counter noitce was served denying it.  Directions were given for a trial on the issue of whether the enfranchisement could proceed. 

5 days before the trial was due to take place, the nominee purchaser discontinued the proceedings apparently because in the two years that had passed since the claim was issued (which was the valuation date for the purposes of the claim) the decline in property values meant that they believed that they could save money by serving a fresh notice which would have a new valuation date. 

As an aside, Philip Rainey QC discussed this case at the ALEP Conference and said that in his experience the strategy of withdrawal and re-service after the decline in property values from 2007 had rarely generated the savings that the tenants had hoped for.

The issue of whether there were in fact any qualifying tenants was never decided in those first proceedings.  Once the second notice was served, it was met with a similar response from Friends Provident.  However, they went one step further and when the nominee applied to Court to again determine the issue of whether the right to enfranchise applied Friends Provident met that with an application to strike out the claim on the basis that it was an abuse of process and that the permission of the Court was needed to pursue a claim arising out of substantially the same set of facts.

Friends Provident succeeded in having the claim struck out (the premium proposed was by now around £115 million) as the Hon Mr Justice Arnold considered that by discontinuing the first claim without allowing the Court to determine whether the SPV structure gave rise to the right to enfranchise, the Claimant could not now bring a second claim based on substantially the same facts.  It should have been decided the first time around and he would not give permission for that claim to be brought now. 

In my view while this is an important case, it has stopped short of applying a blanket ban on repeat claims for the acquisition of the freehold or the extension of a lease where there was a technical deficiency or qualification issue with the first notice, unless that issue has not been determined or resolved in or by the time of the second claim.  Westbrook Dolphin Square Ltd lost because while the legislation permits repeat claims in general, the scheme does not override the general legal principle that a party should not be troubled by the same cause of action twice.  Had the Court made an initial determination on the eligability issue and the claim then dropped, then the abuse of process argument would have had a great deal more difficulty in succeeding.  It was the fact that there was an additional legal question in dispute which was abandoned in earlier proceedings that proved fatal to the nominee purchaser.

What now for Westbrook Dolphin Square Ltd? Well permission has been given for an appeal and it would seem to me that whoever advised on the discontinuance of the first claim may not be sitting very comfortably at the moment unless the nominee purchaser went against advice in discontinuing.  If the appeal goes against them, then it seems that until there is a binding decision on the ability of a similar / identical leasehold ownership structure to enfranchise or a (perhaps costly) redesign of the existing scheme then the door would seem to be closed to the current purchaser.


About leaseholdlawyer

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