Month: April 2024

In this post, Sarah Coates-Madden, Senior Associate at CMS, and Fiona Dalling, Associate at CMS, preview the decision awaited from the Supreme Court in Davies v Bridgend County Borough Council.

Introduction

9 August 1850 saw the arrival at Kew Gardens of a set of 40 new plants from Leiden, Germany. Among them, a discovery from a recent trip to Japan. Named Polygonum sieboldii (the discoverer, Herr Siebold, apparently not shy of self-promotion), this is the first record available of the appearance of Japanese knotweed in Britain.

A commercial success, knotweed was exalted by vendors for its good looks and strength. It wasn’t then, as it is now, a shrub, the mere suggestion of which conjures images of green shoots bursting through ceilings and property values plummeting through floors.

A RICS paper, published in 2012, is generally associated with a peak in knotweed hysteria. Although the institution has since diluted its original findings, reassuring the public that knotweed is not the “bogey plant” it was once thought to be, it is nonetheless an organism of formidable resilience and propagational power (even a lava flow would not successfully exterminate its rhizomes!).

Without narrating the history and management regime required for knotweed (for which, do see this excellent longread: The war on Japanese knotweed | Invasive species | The Guardian) the issue of knotweed, and its absolute resistance to conventional methods of weed-management, is a serious problem for affected property owners.

The case

Mr Marc Davies is the respondent to the Supreme Court appeal. Bridgend County Borough Council (the “Council”) is the appellant in the Supreme Court.  Mr Davies originally brought a claim against the Council  in nuisance, as knotweed on the Council’s land had encroached on his land.

First Instance and First Appeal

The timeline is important for the appeal currently before the Supreme Court. Mr Davies bought his property in 2004. Sometime prior to that, the knotweed had encroached from the Council’s land.  Underground rhizomes were present on Mr Davies’ land before 2004.

It was not until 2017 that he became aware that the knotweed might be a problem. A letter of claim was not sent until 2019.

At first instance, District Judge Fouracre decided that the date of the Council’s knowledge of the foreseeable risk of harm was 2012.  The date of knowledge was linked to the 2012 RICS information paper mentioned above.   DJ Fouracre decided that from 2013 the Council should have treated the knotweed, and that therefore the Council’s breach of duty was from 2013 to 2018, at which point they started to treat the knotweed effectively.

The Council contended that as the knotweed was already present on Mr Davies’ land (from at least 2004), any damage arose before the breach of duty, and therefore the fact the property is affected by knotweed is not due to any breach by the Council, and the claim must be fatally flawed on causation. The District Judge rejected this argument and decided it was answered by the fact that there was a continuing nuisance and breach of duty as a result of persisting encroachment. While the initial encroachment was historic, any loss suffered by Mr Davies in principle continues and will accrue by the continuation of the breach in the Council’s failing to treat the knotweed.

District Judge Fouracre went on to consider the damages arising from the breach of duty.  The judge dismissed Mr Davies’ claim for general damages for distress and inconvenience. His evidence that he was immensely distressed by the presence of the knotweed on his land was not accepted. Mr Davies had delayed in finding out who owned the neighbouring land and contacting the Council after it came to his attention that the knotweed might be problematic. 

Most elements of his claim for diminution in the value of his property also failed. The cost of treatment was not recoverable.  The Council successfully argued that this cost would always have been necessary, even before their delay in treating the knotweed, because it had spread before the Council’s breach. Mr Davies dropped his claim for disturbance and inconvenience arising from the knotweed treatment because by the time the joint expert inspected his land there was no knotweed to see, and for the same reason that the treatment would have been required regardless of the Council’s breach. Claims for the cost of neighbour cooperation and temporary loss of land were also irrecoverable.

The only element of loss remaining was what was referred to as residual diminution in value.  That is, an enduring stigma or ‘blight’ affecting the land due to its association with Japanese knotweed. The reduction in value can be around 3-7% of the value of the land, for several years after the knotweed has been treated. 

District Judge Fouracre had to consider a key principle of damages in the tort of nuisance, namely that pure economic loss is not recoverable.  The purpose of nuisance is to protect the owner or occupier of the land in their use or enjoyment of that land. The judge found that the residual diminution was pure economic loss, so was irrecoverable.

HHJ Beard upheld that decision at the first appeal.  This meant that there was no remedy for landowners whose property valuation was affected by encroaching knotweed. This modest value case has attracted considerable attention because of the implications for both landowners and local authorities.

Mr Davies pursued a second appeal to the Court of Appeal on this pure economic loss point.

Court of Appeal

The Court of Appeal was tasked with considering the point of recoverability of diminution of value, as well as two discrete points of appeal by the Council, to which we will return below.

The Council contended that Diminution of Value amounted to Pure Economic Loss, which is irrecoverable under the tort of nuisance. Their position had, as its foundation, the case of Williams v Network Rail [2018] EWCA Civ 1514, [2019] QB 601. In his lead judgment, Birss LJ spent considerable time examining this judgment – the correctness of which was not called into question – and determining its correct construction.

While the Council had proposed that economic loss was not recoverable on the basis that “the purpose of the tort of nuisance is not to protect the value of property as an investment or financial asset”, the Court of Appeal disagreed that Williams was authority for such a position.

It was not the case that the diminution of value in Mr Davies’ case was Pure Economic Loss, unrelated to actual damage and therefore too removed from the tort of nuisance to be considered recoverable. The diminution of value attributable to the encouragement of knotweed – which no party contended to be trivial or de minimis – was economic loss stemming from actual damage. As such, it was a recoverable damage and the appeal was allowed.

The Council’s two additional points were as follows: (i) The causation point which had been raised by the Council but lost in previous hearings; and (ii) a submission as to the quality of Mr Davies’ evidence of diminution of value.

The Court of Appeal dismissed each of these grounds. The Council is taking the first point on causation, to the Supreme Court.

Supreme Court

The question for the Supreme Court is: were the lower courts correct to decide that loss suffered by Mr Davies, in the form of diminution in value of his property as a result of the encroachment of Japanese knotweed from the Council’s land, was caused by the Council’s breach of duty in failing to treat the knotweed, in circumstances where the encroachment first arose before the Council’s breach?

The Court of Appeal judge noted the “attractive simplicity” of the Council’s argument (that the diminution of value cannot be attributed to a breach by the Council as the relevant encroachment occurred prior to Mr Davies’ ownership of the property). However, finding Delaware Mansions [2001] UKHL 55 to be instructive, he held that “the fact the encroachment was historic was no answer when there was a continuing breach of duty as a result of persistent encroachment”. We shall see if the Supreme Court concurs.

In this post, Holly Ranfield, Associate at CMS, preview the decision awaited from the Supreme Court in RTI Ltd v MUR Shipping BV.

Factual Background

MUR Shipping BV (“MUR”), the shipowners, and RTI Ltd (“RTI”), the charterers, entered into a contract of affreightment in June 2016. Under the contract, RTI agreed to ship and MUR agreed to carry bauxite from Guinea to Ukraine.  It was a term of the contract that RTI would pay freight in the sum of US $12 per metric ton.

The contract provided that “neither Owners nor Charterers shall be liable to the other for loss, damage, delay or failure in performance caused by a Force Majeure Event…while such force Majeure Event is in operation the obligation of each Party to perform this Charter Party … shall be suspended”. A Force Majeure Event was defined as an event (i) outside the immediate control of the party giving notice, (ii) which prevented or delayed the loading or discharge of the cargo, (iii) was caused by one or more of a number of specified reasons, and (iv) which could not be overcome by the reasonable endeavours of the affected party.

On 6 April 2018, the US Department of the Treasury’s Office of Foreign Assets Control imposed sanctions on RTI’s parent company such that the parent company was added to the Specially Designated Nationals and Blocked Persons List (the “Sanctions”). As a consequence, on 10 April 2016 MUR sent a Force Majeure Notice to RTI, stating that the continuance of the contract would be a breach of Sanctions and that Sanctions would prevent the payments in US dollars, which was required under the contract. The notice further stated that RTI itself should be treated as included on the Specially Designated Nationals and Blocked Persons List.

RTI rejected the Force Majeure Notice stating that Sanctions would not affect the performance of the contract and that RTI, being a Dutch company, was not a US person caught by the Sanctions. It proposed settling the freight payment in Euros instead and undertook to bear any currency exchange loss resulting from the different currency. MUR did not accept RTI’s proposal, stating that the contract required payment in US dollars, that there had been a force majeure event and consequently suspended vessel nomination under the contract on the basis of the force majeure clause. RTI obtained alternative tonnage and brought a claim by way of arbitration against MUR seeking the additional costs incurred.

The Arbitral Tribunal held that the exercise of reasonable endeavours required MUR to accept RTI’s proposal to make payment in Euros and that adopting this alternative would have resulted in no detriment for MUR. In the circumstances, MUR was not entitled to rely on the force majeure clause as the force majeure event could have been overcome by the exercise of reasonable endeavours.

MUR brought an appeal under the Arbitration Act 1996, s 69 as to whether reasonable endeavours extended to accepting payment in a non-contractual currency instead of the currency stipulated in the contract.

High Court

The High Court found that the exercise of reasonable endeavours under the force majeure clause did not require MUR to sacrifice its contractual right to payment in US Dollars under the contract.

The court remarked that the exercise of reasonable endeavours required endeavours towards the performance of the parties’ bargain and did not extend to requiring the affected party to accept non-contractual performance (being the payment of freight in a different currency) which did not form part of their agreement.

Court of Appeal

The Court of Appeal reversed the High Court’s judgment by a 2:1 majority. The court considered that the question was whether, in order to overcome the state of affairs caused by the Sanctions, it was essential for the contract to be performed in strict accordance with its terms.

The judgment provided that terms such as “overcome” and “state of affairs” were broad and non-technical, and that the force majeure clause should be applied in a common sense way to achieve the purpose underlying the parties’ obligations.

The court held that RTI’s proposal to pay in Euros and to cover the conversion costs would have achieved the parties’ obligations without detriment to either party.

The judgment set out that that it was apparent from the arbitral award that the reason MUR had refused to accept payment in Euros was that the contract had become disadvantageous to it.

However, the judge stressed that the case was not concerned with reasonable endeavours or force majeure clauses in general and that each clause should be considered on its own terms.

MUR appealed the decision and a hearing took place before the Supreme Court on 6 and 7 March 2024 for which the judgment is awaited.

Comments

Standard form force majeure and reasonable endeavours clauses are frequently included in contracts. Whilst a party may hope not to need to rely on such provisions, sanctions and the changing geopolitical landscape have resulted in these clauses being of increased interest.

Against that background, and given the differing approach taken by the High Court and Court of Appeal, the Supreme Court’s decision is keenly awaited.  Whilst it is unlikely that the Supreme Court’s decision will provide universal guidance to interpreting these clauses (given the emphasis from the Court of Appeal that each clause should be considered on its own terms), the decision will hopefully provide useful guidance as to how parties can ensure clarity in drafting reasonable endeavours clauses. In the meantime, parties drafting these clauses will want to ensure they are as specific as possible as to what equates to reasonable endeavours in order to reduce ambiguity.

In this post, Pippa Borton, Associate at CMS, previews the decision awaited from the Supreme Court in Hirachand v Hirachand and Anor.

Factual Background and First Instance Decision

This case concerns an appeal to the Supreme Court against an award granted pursuant to the Inheritance (Provision for Family Dependents) Act 1975 (“the 1975 Act”). Mr Navinchandra Hirachand (“the Deceased”) died in 2016, leaving his entire estate to his wife, Mrs Nalini Hirachand (“the Appellant”). Mrs Hirachand’s estranged daughter (“the Respondent”), who suffers from severe mental illness and does not work, made a claim against Mr Hirachand’s estate for reasonable financial provision for her maintenance.

Despite obtaining legal advice, the Appellant did not cooperate with the proceedings and failed to file an acknowledge of service or defence to her daughter’s claim, including following the granting of relief from sanctions in her favour. Accordingly, the Appellant was permitted to attend the hearings but was not allowed to take part in them or rely on written evidence.

The Judge concluded that the Deceased’s will did not make reasonable financial provision for the Respondent. Accordingly, a total of £138,918 was awarded to the Respondent. The award included £16,750 in respect of the fees payable under a conditional fee agreement (“CFA”) that the Respondent had entered into in order to fund the claim (“the CFA Success Fee”). The award did not cover the full CFA success fee, which was 72% and would have amounted to £48,175. The inclusion of this sum in the award formed part of the appeal.

Decision of the Court of Appeal

The Court of Appeal dismissed the Appellant’s application to set aside the CFA Success Fee.

The Court of Appeal acknowledged that, in accordance with s 58A(6) of the Courts and Legal Services Act 1990 (“the 1990 Act”), a costs order “may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement”. Therefore, it was not possible for the Respondent to recover the success fee as part of an order for costs.

The question before the Court of Appeal was therefore whether the CFA Success Fee could be held to come within the Respondent’s financial needs under s 3(1)(a) of the 1975 Act by virtue of the fact it was a debt incurred since the passing of the Deceased.

The case law on the 1975 Act has been cautious not to define “maintenance” too narrowly or prescriptively. In the case of Ilott v Blue Cross and Others (No 2) [2018] AC 545, the Supreme Court held that debt may form part of maintenance if it is a financial need of the claimant. However, a financial need does not extend to everything the claimant wants, so for example, in re Jennings Deceased [1994] Ch 286 the claimant adult son of the deceased was denied provision to pay his mortgage because he lived a comfortable life with a good income.

Another important consideration in deciding to award the CFA Success Fee was that the Respondent would not have been able to afford litigation without the CFA. Moreover, the Court of Appeal agreed with the judge at first instance that not allowing the Respondent to recover the CFA Success Fee from the Deceased’s estate would mean that a substantial part of the sum awarded would go to paying the Respondent’s solicitors fees and her financial needs would, therefore, not be met by the award.

Appeal to the Supreme Court

The Appellant appealed the Court of Appeal’s decision to the Supreme Court. The appeal was heard on 18 January 2024 and the judgment is awaited.

Comment

This is an important decision for claimants and defendants alike who are facing claims under the 1975 Act. If the Supreme Court upholds the Court of Appeal’s judgment, this would put claimants under the 1975 Act in an advantaged position when compared to other litigants since they would have recourse to recover success fees under a CFA, which is specifically prohibited under the 1990 Act. Conversely, defendants in such cases, in the knowledge that an award in the claimant’s favour could include the uplift under a conditional fee arrangement, would be put at a significant strategic disadvantage because any damages awarded could be bolstered by a success fee.

Allowing claimants to recover a success fee as part of a reasonable provision for maintenance could also cause procedural difficulties. The amount of the success fee would have to be disclosed to the court in advance of any judgment, which could be problematic because (1) the full extent of the legal fees would not be known until the conclusion of the proceedings and (2) there would have been no assessment as to the reasonableness of the level of costs having been incurred. Questions also arise over treatment of the Part 36 regime (regarding offers to settle): if the claimant had failed to obtain a judgment more advantageous than a defendant’s Part 36 offer, this would not be known until after judgment was handed down. The Court of Appeal judge in the Hirachand case felt that this was likely to be less of a risk than might first appear, since most CFAs oblige claimants to accept reasonable settlement offers.

As a final consideration, if the judgment in this case is upheld, there is a question of whether future claimants should be subjected to costs management measures, something that is not currently a requirement for claims under the 1975 Act.