Category: Uncategorized

Hearings in the Supreme Court are now shown live on the Court’s website.

On Tuesday 24th and Wednesday 25th January 2023, the court will hear the case of Republic of Mozambique (acting through its Attorney General) v Privinvest Shipbuilding SAL (Holding) and others. The issue in this case is whether the Court of Appeal erred in its approach to section 9 of the Arbitration Act 1996 in finding that one of Mozambique’s claims were ‘matters’ outside the scope of the relevant arbitration agreements, when giving judgment at [2021] EWCA 329.

Also on Wednesday, the Court will hand down judgment in Barton and others v Morris and another in place of Gwyn–Jones (deceased), first heard on the 2nd November 2022. The Court will decide whether sellers have an obligation to pay reasonable renumeration to an introducer in circumstances where an oral contract provides for an introduction fee payable upon the sale of a property for an amount that was less than the specified conditional amount. Hand-down is at 09:45.

On Thursday 26th January, the court will hear Rakusen v Jepson and others, on appeal from [2021] EWCA Civ 1150. The court will consider the question: can a Rent Repayment Order only be made against an immediate landlord or can a superior landlord also be liable?

The following Supreme Court judgments remain outstanding: (As of 26/1/23)

The Law Debenture Trust Corporation plc v Ukraine (Represented by the Minister of Finance of Ukraine acting upon the instructions of the Cabinet of Ministers of Ukraine) Nos. 2 and 3, heard 9-12 December 2019
East of England Ambulance Service NHS Trust v Flowers and Ors, heard 22 June 2021
Fearn and others v Board of Trustees of the Tate Gallery, heard 7th December 2021
Canada Square Operations Ltd v Potter, heard 14th June 2022
R (on the application of VIP Communications Ltd (In Liquidation)) v Secretary of State for the Home Department, heard 4th October 2022
Unger and another (in substitution for Hasan) v Ul-Hasan (deceased) and another, heard 20th October 2022
Chief Constable of the Police Service of Northern Ireland and another v Agnew and others (Northern Ireland), heard 14th-15th December 2022
Smith and another v Royal Bank of Scotland, heard 12th January 2023
Moulsdale t/a Moulsdale Properties v Commissioners for His Majesty’s Revenue and Customs (Scotland), heard 17th January 2023
Republic of Mozambique (acting through its Attorney General) v Privinvest Shipbuilding SAL (Holding) and others, heard 24-25th January 2023

Rakusen v Jepson and others, heard 26th January 2023.

In this post, Ross Ludlow, Legal Support Assistant at Matrix Chambers, comments on the case of R v Maughan (Northern Ireland) [2022] UKSC 13. This case considered the Northern Irish approach to reduction in sentence for defendants who plead guilty to offences at an early stage of proceedings.

The Supreme Court was asked to consider two sentencing policies – firstly, that the stage at which the defendant indicates their intention to plead guilty is important, in that in order to be entitled to the maximum discount they must plead guilty at the earliest opportunity, and secondly, that the reduction should not be as great in cases where those defendants were caught ‘red-handed’.

Facts

The appellant and his brother were apprehended by police whilst fleeing in a stolen car containing a range of items that they had also stolen in a burglary earlier that day in Newcastle, County Down. Further enquiries ‘established compelling evidence including CCTV that in the previous three days the appellant and his brother had attempted to burgle’ and succeeded in the burgling of other properties.

Following his arrest, the appellant refused to leave his cell or to be interviewed by the police. He did not accept responsibility for any of the matters at hand. He was subsequently charged and brought before the Magistrates’ Court on the 26th of July 2016. He pleaded guilty at arraignment on the 14th of September 2016 to the charges which are the subject of this appeal. He had given no prior indication of an intention to plead guilty.

Judgments Below

The appellant was sentenced on the 21st of December 2016. The sentencing judge held that the appellant was entitled to a reduced discount to his sentence because he (i) failed to accept responsibility for his offending behaviour at interview or indicate an intention to plead guilty at any stage prior to arraignment and (ii) was caught red handed in respect of some of the offences.

The appellant appealed to the Court of Appeal in Northern Ireland, who dismissed the appeal but not without concluding that the sentencing policy on early admission ‘was more nuanced than described by the trial judge’. The appellant then appealed to the Supreme Court.

Judgment of the Supreme Court

The Supreme Court unanimously dismissed the appeal. The court considered the lawfulness of each of the sentencing policies in turn: referred to as the ‘earliest opportunity maximum reduction’ policy and the ‘reduction in discount when caught red-handed’ policy.

Underpinning the consideration of both policies was the fact that the administration of justice is a devolved responsibility in Northern Ireland, and that sentencing policy is largely set by the Court of Appeal in Northern Ireland. The Supreme Court recognised that the NI Court of Appeal was best placed to assess what policy changes were appropriate on account of the increased number of cases that it hears. The Supreme Court’s task was therefore not to comment generally on sentencing policies in Northern Ireland, but to decide whether or not the Court of Appeal had made an error of law on the facts of this case according to those policies.

(1) Earliest opportunity maximum reduction

Article 33 of the Criminal Justice (Northern Ireland) Order 1996 states that the court shall take into account the ‘stage in proceedings’ at which the defendant indicated their intention to plead guilty. The appellant argued that “proceedings” within the meaning of Article 33 did not include any stage prior to arraignment because in the Northern Irish criminal justice system, which still requires committal for trial, that was the first time the defendant was required to indicate whether they pleaded guilty. The appellant argued that the offender’s failure to admit wrongdoing prior to arraignment should therefore not be treated as relevant to the sentencing discount.

After reviewing case law on the definition of ‘criminal proceedings’ (most notably Attorney General’s Reference (No 2 of 2001) [2003] UKHL 68), a report by the Royal Commission on Criminal Justice and various statutory provisions, the Supreme Court held that “proceedings” within the meaning of Article 33 did not include the investigative process prior to charge or the issue of a summons. Crucially, it noted that:

“The term “proceedings for the offence” in article 33 contemplates an offence in respect of which proceedings have been issued. The police investigation by way of questioning is concerned with confirming or dispelling a suspicion that an offence has been committed. The offence which is the subject of proceedings only crystallises at the moment of charge, summons or, unusually, presentation of an indictment, in other words after the police interview.” [37]

The Court of Appeal in Northern Ireland is therefore entitled to adopt a sentencing policy which treats as relevant to the sentencing discount the failure to admit wrongdoing during interview, but the interview itself is not a part of ‘criminal proceedings’ (and so the impact on the discount is not automatic). The Court of Appeal in Northern Ireland made no error of law.

(2) Reduction in discount when caught red handed

The Supreme Court held that a reduction in discount where the offender has been caught red handed has long been recognised as a feature of sentencing practice throughout the United Kingdom. The purpose of the discount is to encourage guilty pleas to obtain the utilitarian benefits of saving time, cost, and providing reassurance for witnesses and victims.

However, where the prosecution case is overwhelming, the offender may be left with little realistic choice but to plead guilty. Such an offender might not deserve the same level of encouragement to plead guilty.

Although in England and Wales and in Scotland sentencing policy has changed in recent years so that full discount for an early plea is now given in cases where the offender has been caught red handed, this is not the case in Northern Ireland. That fact alone does not render unlawful the different policy adopted by the Northern Ireland courts, and there was nothing unlawful in applying a reduced discount in such circumstances.

Comment

The principal reasoning behind the court’s judgment is that sentencing policy in Northern Ireland is a matter for the Northern Irish courts, specifically the Court of Appeal. Northern Irish courts are not bound to follow the sentencing policies of England and Wales or Scotland.

Encouraging an early guilty plea is beneficial in terms of saving limited resources such as time and public funds, but more importantly saving witnesses and victims from the anxiety of testifying in what could be a lengthy trial; one which might not be for many months or years after the offence. An offender pleading guilty expedites justice, which is one of the overriding objectives of a criminal justice system.

However, caution ought to be exercised when considering the ‘earliest opportunity’ and the weight afforded to the interview before proceedings begin. In this particular case, the offender had been caught red-handed and knew very well the strength of the case against him even before the police interview. In other cases, the accused may not even be aware of the accusations against them until the interview itself. Offenders ought not to be punished for failing to admit wrongdoing until they were aware of the full case against them, and the evidence on which it was based. The stage at which this happens is fact specific and varies from case to case, and it is sensible that the wording in the judgment is only that failing to admit wrongdoing before proceedings is to be treated as ‘relevant’. This leaves room for discretion to be exercised on a case by case basis.

The decision on the first of the two policies is therefore a welcome one. Whilst failure to admit wrongdoing in interview is to be treated as ‘relevant’, this does not automatically mean that it will always prevent the full discount. A sensible balance is struck between encouraging offenders to admit wrongdoing as early as possible where the case against them is obvious (as in this case) whilst not automatically penalising those in other cases who are not aware of the full case against them until ‘proceedings’ begin.

It is sensible that Northern Irish Courts are free to employ their own sentencing policies. It was not the place of the Supreme Court to comment on the merits of the policy whereby those caught red-handed were entitled to a reduced discount; only to confirm that it was lawful for them to follow such a policy. Given that the Court of Appeal in Northern Ireland sees far more criminal cases than the Supreme Court, it best placed to identify which policies would be most appropriate in Northern Ireland.

Conclusion

It is worth noting that a review in 2019[1] into sentencing in Northern Ireland concluded that it would be desirable to have a clear understanding of the principles and purposes of sentencing in Northern Ireland, and criticised the then ‘piecemeal’ approach for impeding transparency and contributing to undermining public trust in the justice system. This led to the passing of the Judicial Council Act 2019 which sought to clarify sentencing policy in Northern Ireland. Whatever the merits of the sentencing policies themselves, the judgment in Maughan can be therefore be welcomed as one which provides certainty as to their scope, and to the Court of Appeal in Northern Ireland as the body with the prerogative to decide them.

[1] Department of Justice NI, ‘Sentencing Review: Northern Ireland. A Public Consultation’ (October 2019)

In this post, Neal Chandru, an Associate in the Tax team at CMS, comments on the case of DCM (Optical Holdings) Ltd (“DCM”) v Commissioners for his Majesty’s Revenue and Customs (“HMRC”) [2022] UKSC 26 – handed down on 12 October 2022.

The issues on appeal before the Supreme Court were whether HMRC:

were, on the facts of the case, constrained by the statutory time bar in s 73(6) of the Value Added Tax Act 1994 (”VATA”); and
can deny a self-assessment claim for payment of a VAT credit while HMRC validates the claim.

The background facts which gave rise to these issues are set out in more detail in the UKSC Blog post previewing this decision.  For present purposes, the background facts can be summarised as follows.

Background Facts

DCM is an optician that makes taxable and exempt supplies of medical services. In 2003, DCM entered into a settlement agreement with HMRC under which it agreed that 64 per cent of its supplies were exempt and the remainder taxable. In early 2004, HMRC told DCM that it had to use a full cost apportionment methodology of apportioning the consideration paid by customers between taxable and exempt supplies until a different separately disclosed charges methodology could be agreed with HMRC.

In the relevant periods, contrary to the settlement agreement, DCM treated 70 per cent of its supplies as exempt and the remainder as taxable. It also failed to use the full cost apportionment methodology HMRC said it needed to use.

The First Issue

VATA, s 73(6)(b) provides that:

“An assessment under subsection (1), (2) or (3) above of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following-

…

one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge”

DCM argued that HMRC knew from 29 January 2004 that DCM had not been using a full cost apportionment methodology to calculate the split between exempt and taxable supplies and that it was not adopting a 36:64 split between taxable and exempt supplies. Accordingly, pursuant to VATA, s 73(6)(b), 29 January 2005 was the last date on which HMRC’s assessments could be raised. As the assessments were raised on 20 October 2005, DCM argued that they were made out of time.

The Second Issue

In relation to the second issue, DCM argued that HMRC is required to pay a taxpayer VAT credits claimed by the taxpayer without first validating the claim; and HMRC has no power to pay an amount less than what the taxpayer claims in its self-assessment.

DCM argued that these requirements are grounded in VATA, s 25(3), which provides:

“If either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then … the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners; and an amount which is due under this subsection is referred to in this Act as a ‘VAT credit’.”

Conclusions on the Issues

The First Issue

The Supreme Court stated that VATA, s 73(6)(b), refers to the assessment that HMRC has actually made rather than a hypothetical assessment. This follows from the words “the assessment” in the subsection:

“one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment”

[emphasis added]

In the Supreme Court’s view, HMRC did not have sufficient evidence to make the 20 October 2005 assessment until it gained access for the first time to DCM’s VAT account during a visit to DCM’s premises on 31 August and 1 September 2005. Accordingly, the 20 October 2005 assessment was not out of time.

The Second Issue

The Supreme Court acknowledged that HMRC does not have an express power to refuse to pay a VAT credit to a taxpayer while it verifies the claim for that credit. However, the Supreme Court held that this power arises by implication. The Supreme Court’s reasons for finding this implication included the following.

First, the obligation in VATA, s 25(3) for HMRC to pay a VAT credit only arises once it is established that a VAT credit is in fact due. On that basis, the obligation on HMRC to pay the credit does not inevitably follow from the taxpayer’s claim for a credit.

Second, under VATA, Sch 11, para 1, HMRC are under a statutory duty “for the collection and management of VAT”.  It is implicit from this duty that HMRC has the power to refuse to pay a taxpayer a VAT credit not due to it.

Third, on the basis of fiscal neutrality, HMRC is tasked with verifying a taxpayers repayment claim.  Otherwise, taxpayers who regularly claim VAT credits from HMRC would have an unjustified cash flow advantage compared to taxpayers who pay a net sum to HMRC.

Comment

The Supreme Court’s decision in DCM importantly establishes that:

the time bar in VATA, s 73(6)(b), does not begin to run until HMRC has the last piece of evidence that justifies the making of the assessment that HMRC actually makes; and
HMRC has an implied statutory power to refuse to pay a VAT credit to a taxpayer.

DCM represents a victory for HMRC.  However, the conclusions on the first and second issues need not cause taxpayers excessive concern.  The Supreme Court’s construction of VATA, s 73(6)(b), does not allow HMRC to raise assessments excessively out of time as VATA, s 77, prohibits the making of assessments for the relevant accounting period after a particular period of years. The period of years is currently four.

In relation to the second issue, it must be said that DCM’s argument here was ambitious. It is difficult to see how the VAT regime could work if HMRC were obliged to pay VAT credits to a taxpayer simply because they claimed to be entitled to the credit.  On that basis, it is unsurprising that DCM did not succeed on this issue.

On appeal from [2020] EWCA Civ 1521

The Appellant (“Blacks”) rented commercial retail premises from the Respondent (“S&H”) under two successive leases dated 2013 and 2018 (the “leases”). The leases stated that S&H as landlord should provide a certificate each year “as to the amount of the total cost and the sum payable by the tenant” and that this was to be “conclusive” in the absence of “manifest or mathematical error or fraud” (the “certification provision”). Blacks refused to pay the service charge for the years 2017-18 and 2018-19, claiming that the service charge was excessive. S&H issued proceedings and sought summary judgment for the outstanding service charge, arguing that under the certification provision S&H’s certificate as to the sum payable was conclusive subject only to the defences that there had been a manifest error, a mathematical error or fraud (the “permitted defences”). Blacks argued that the true meaning of the certification provision was that S&H’s certificate was conclusive as to the amount of costs incurred by the landlord, but not as to Blacks’ liability for service charge. S&H’s application for summary judgment was dismissed by a Deputy Master in the High Court. A Deputy Judge of the High Court dismissed S&H’s first appeal. The Court of Appeal allowed S&H’s second appeal and entered summary judgment in S&H’s favour, remitting to the High Court the question of what, if any, counterclaims Blacks could pursue.

 

Held – Appeal dismissed in part. By a majority the Supreme Court dismissed Blacks’ appeal against the grant of summary judgment but held that this does not preclude Blacks from pursuing a counterclaim in the High Court in relation to its underlying liability for the disputed service charge payments. Lord Hamblen gave the lead judgment with which the majority agree. Lord Briggs gave a dissenting judgment.

The majority of the Supreme Court held that neither party’s proposed interpretation of the certification provision was satisfactory.

S&H’s case is that its certificate is conclusive as to Blacks’ service charge liability, subject only to the permitted defences. Whilst that fits well with the wording of the certification provision, it is inconsistent with other provisions of the leases. Under the leases, the amount of service charge payable depends partly on the proportion of the overall premises that the tenant rents under the agreement. The leases contain a detailed dispute mechanism in relation to the assessment of that proportion, which may alter the amount payable by the tenant (the “proportion adjustment”). The certificate cannot, therefore, be entirely conclusive as to the sum payable by Blacks. S&H’s interpretation also does not fit well with Blacks’ rights to inspect S&H’s receipts, invoices and other evidence relating to the service charge for up to 12 months after the certificate is provided.

There are, moreover, many potentially arguable issues which may arise as to liability for service charge under the leases. The permitted defences are narrow and do not include an arguable error, however well founded the allegation of error may ultimately prove to be. It would be surprising for the parties to agree that arguable issues as to liability could be determined conclusively by the landlord, as judge in his own cause, without any opportunity for the tenant to challenge the determination.

Blacks’ case is that the certificate is conclusive only as to the landlord’s costs and not as to the sum payable by the tenant. However, this interpretation contradicts the natural and ordinary meaning of the certification provision that the certificate is conclusive both as to the “amount of the total cost” and “the sum payable by the tenant”. There is also force in S&H’s submission that allowing Blacks to challenge payment of the service charge undermines the commercial purpose of enabling the landlord to recover costs and expenses with minimal delay and dispute.

The majority finds that there is an alternative interpretation that avoids these difficulties. That interpretation is that S&H’s certificate is conclusive as to what is required to be paid by Blacks following certification, subject only to the permitted defences. S&H is thereby assured of payment of the service charge without protracted delay or dispute. However, payment of the certified sum does not preclude Blacks from later disputing liability for that payment. This gives full effect to Blacks’ inspection rights and entitles Blacks to pursue arguable claims as to service charge liability. Adopting an iterative approach, this interpretation is consistent with the contractual wording, it enables all the provisions of the leases to fit and work together satisfactorily and it avoids surprising implications and uncommercial consequences.

The majority therefore dismissed the appeal but held that this does not preclude Blacks from pursuing its counterclaim.

Lord Briggs dissented. In his view, the structure of the service charge regime in the leases and the ordinary meaning of the words used are irreconcilable with the majority’s judgment. There is no reason why the provision for a dispute mechanism in relation to proportion adjustment should mean that the landlord’s certificate is not conclusive as to all other aspects of the tenant’s service charge liability. Blacks’ inspection rights provide it with reasonable access to relevant documents in order to identify manifest errors, mathematical errors or fraud. The existence of those rights does not indicate that S&H’s certificate is not conclusive as to service charge liability. Service charge disputes commonly result in complex and costly litigation. It is not uncommercial that S&H should have insisted on limiting the available grounds for litigation to the permitted defences. Lord Briggs would therefore have accepted S&H’s proposed interpretation of the certification provision.

To read the judgment, please see:

Judgment (PDF)
Judgment on The National Archives (HTML version)
Judgment on BAILII (HTML version)

To read the Press Summary, please see:

Press summary (HTML version)

To watch the hearing, please see:

Watch hearing

8 November 2022
Morning session
Afternoon session

 

Hearings in the Supreme Court are now shown live on the Court’s website.

On Wednesday 18th January the Court will heard the case of Moulsdale t/a Moulsdale Properties v Commissioners for His Majesty’s Revenue and Customs (Scotland), on appeal from [2021] CSIH 29. The appeal concerns whether the taxpayer’s sale of certain property was a supply exempt from value added tax (“VAT”). More specifically, whether the taxpayer intended or expected that the property sold was or would be a capital item in the hands of the purchaser under Schedule 10 of the VAT Act 1994, resulting in the taxpayer’s option to tax being disapplied. The hearing will begin at 10:30 in Courtroom 2.

On Thursday 19th January the Court will hand-down judgment in Sara & Hossein Asset Holdings Ltd (a company incorporated in the British Virgin Islands) v Blacks Outdoor Retail Ltd [2023] UKSC 2, on appeal from [2020] EWCA Civ 1521. The key issue is whether the Court of Appeal erred in its construction of a provision in a commercial lease concerning service charges. The hand-down will take place at 9:45 am in Courtroom 2.

The following Supreme Court judgments remain outstanding: (As of 20/01/23)

The Law Debenture Trust Corporation plc v Ukraine (Represented by the Minister of Finance of Ukraine acting upon the instructions of the Cabinet of Ministers of Ukraine) Nos. 2 and 3, heard 9-12 December 2019
East of England Ambulance Service NHS Trust v Flowers and Ors, heard 22 June 2021
Fearn and others v Board of Trustees of the Tate Gallery, heard 7th December 2021
Canada Square Operations Ltd v Potter, heard 14th June 2022
R (on the application of VIP Communications Ltd (In Liquidation)) v Secretary of State for the Home Department, heard 4th October 2022
Unger and another (in substitution for Hasan) v Ul-Hasan (deceased) and another, heard 20th October 2022
Chief Constable of the Police Service of Northern Ireland and another v Agnew and others (Northern Ireland), heard 14th-15th December 2022
Smith and another v Royal Bank of Scotland, heard 12th January 2023
Moulsdale t/a Moulsdale Properties v Commissioners for His Majesty’s Revenue and Customs (Scotland), heard 17th January 2023

On appeal from [2020] CSIH 51

This appeal is concerned with the provision of community care services to disabled persons pursuant to the Social Work (Scotland) Act 1968 (the “1968 Act”) and the charges made for such provision.

The appellant is acting as guardian for her son. At the time of the hearing, Mr McCue was 27 years old. He has Down’s Syndrome and lives with his parents. He is disabled within the meaning of section 6 of the Equality Act. As a result of his disability, he is provided with community care services by the respondent, Glasgow City Council (the “Council”). Under section 87 of the 1968 Act, the Council has assessed Mr McCue’s means and levied charges for the community care services provided to him, taking into account the appellant’s means and making corresponding deductions in the amount charged. Over several years, the appellant made representations to the Council that higher amounts should be deducted, but the Council was not persuaded by these representations. In these proceedings, the appellant claims that by failing to make greater deductions for disability related expenditure, the Council unlawfully discriminated against Mr McCue on grounds of his disability, within the meaning of section 15 of the Equality Act. She also submits that the Council acted in breach of its duty under section 20 of the Equality Act, which requires it to make reasonable adjustments to take account of Mr McCue’s disability. The claim was dismissed at first instance and the Inner House of the Court of Session dismissed the appellant’s appeal. The appellant now appeals to the Supreme Court.

Appeal unanimously dismissed.

The operation of section 87 of the 1968 Act: levying of a charge for community care services

Where a local authority provides services under the 1968 Act, then by virtue of section 87(1) it has a discretion whether to charge the recipient for those services and at what level any charge should be set. By virtue of section 87(1A), if the individual satisfies the authority that his means “are insufficient for it to be reasonably practicable for him to pay” the amount which would otherwise be due, then the authority may not charge more “than it appears to them that it is practicable for him to pay”. The onus is on the individual to satisfy the local authority that his means are insufficient to the extent that it is not “practicable” for him to pay.

The relevant question under section 87 is whether the Council is satisfied that Mr McCue has shown that his means are insufficient for it to be reasonably practicable for him to pay without deductions.

In relation to the disputed items of disability related expenditure, the Council’s assessment under section 87 was that they had not affected his means in such a way that would reduce what was practicable for him to pay by way of charges. The Council had properly applied section 87(1) and (1A).

 

Section 15 of the Equality Act: unfavourable treatment

The principal question here was whether the Council had treated Mr McCue “unfavourably” because of something arising in consequence of his disability, within the meaning of section 15(1)(a) of the Equality Act.

A comparison is required between two states of affairs: what has happened to the complainant in fact and what would have happened to him without the treatment alleged to have been unfavourable.

The relevant treatment in the present case was the Council’s evaluation as to what deductions should be made in calculating Mr McCue’s available means and what sum it was practicable for Mr McCue to pay.

The Council charges both disabled and non-disabled persons according to the same basic scheme applying s 87. The Council extends this general approach in a way which is more generous to disabled persons to take account of disability related expenditure, being costs over and above those which non-disabled persons must bear. The Council’s approach could not therefore be said to be unfavourable to disabled persons: in fact, it is favourable to them, since it allows for a greater range of possible deductions to be made in calculating their available means. The true nature of the appellant’s complaint was therefore that the treatment of Mr McCue was not generous enough, even though it benefits persons with disabilities; this is not a proper ground of complaint under section 15.

 

Section 20 of the Equality Act: duty to make reasonable adjustments

The appellant needed to show that a provision, criterion or practice of the Council put Mr McCue at a substantial disadvantage in relation to a relevant matter in comparison with persons who are not disabled.

The court was willing to infer that the Council had adopted a practice according to which expenditures are rejected if they do not relate to disability; or if, while relating to disability, a person receives a benefit to meet the cost in question; or if the expenditure represents discretionary spending and is not necessary to meet the disabled person’s needs. The practice did not put a disabled person at a disadvantage in comparison with non-disabled people for the simple reason that the practice only applies to disabled people. It does not allow for any comparison to be made with the treatment of non-disabled persons, so there is no scope for the application of section 20(3).

 

 

For the judgment, please see:

Judgment (PDF)
Judgment on The National Archives (HTML version)
Judgment on BAILII (HTML version)

For the press summary, please see:

Press summary (HTML version)

To watch the hearing, please see:

Watch hearing

18 October 2022
Morning session
Afternoon session

 

Hearings in the Supreme Court are now shown live on the Court’s website.

On Wednesday 11 January the Court will hand-down judgment in McCue (as guardian for Andrew McCue) (AP) v Glasgow City Council (Scotland) [2023] UKSC 1, on appeal from [2020] CSIH 51. The key issue concerns whether the Respondent’s charging policy for community care services is discriminatory. The Respondent, a local authority, has the power to charge for its services, though certain deductions may be applied to reduce the contribution payable. This appeal concerns the Respondent’s decision to allow only certain deductions together with the validity of the charging policy. The hand-down will take place at 9:45 am in Courtroom 2.

On Thursday 12 January the Court will hear the case of Smith and another v Royal Bank of Scotland, on appeal from [2021] EWCA Civ 1832. The appeal concerns the proper interpretation of section 140A of the Consumer Credit Act 1974. The key issue is whether, in assessing the fairness of a relationship between a debtor and a creditor, the court can compartmentalise the relationship and, accordingly, consider whether the relationship is unfair at a given point, rather than at the end of the relationship. The hearing will begin at 10:30 in Courtroom 2.

 

The following Supreme Court judgments remain outstanding: (As of 13/01/23)

The Law Debenture Trust Corporation plc v Ukraine (Represented by the Minister of Finance of Ukraine acting upon the instructions of the Cabinet of Ministers of Ukraine) Nos. 2 and 3, heard 9-12 December 2019
East of England Ambulance Service NHS Trust v Flowers and Ors, heard 22 June 2021
Fearn and others v Board of Trustees of the Tate Gallery heard 7th December 2021
Canada Square Operations Ltd v Potter, heard 14th June 2022
R (on the application of VIP Communications Ltd (In Liquidation)) v Secretary of State for the Home Department, heard 4th October 2022
Unger and another (in substitution for Hasan) v Ul-Hasan (deceased) and another, heard 20th October 2022
Chief Constable of the Police Service of Northern Ireland and another v Agnew and others (Northern Ireland), heard 14th-15th December 2022
Smith and another v Royal Bank of Scotland, heard 12th January 2023

In this post Rebecca Khan, a Legal Support Assistant at Matrix Chambers, comments on the case of Khan v Meadows [2021] UKSC 21 – handed down on the 18th of June 2021. This appeal raised important questions about the application of the scope of duty principle in clinical negligence cases. The judgment is handed down together with the court’s judgment in Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20.

The Facts

The appellant, Ms Meadows, is the mother of a child with haemophilia and autism. Prior to her pregnancy, the appellant consulted her GP practice in 2006 to establish whether she carried the haemophilia gene. The appellant should have been referred to a haematologist for genetic testing. Instead, following blood tests, Ms. Meadows was negligently led to believe by the respondent Dr Khan, a general practitioner in the same practice, that she was not a carrier of the gene. As a result of this advice, and earlier consultations, Ms. Meadows was wrongly led to believe that any child she had would not have haemophilia.

Ms. Meadows became pregnant with her son Adejuwon in 2010, who was diagnosed with severe haemophilia shortly after his birth. Had Ms Meadows known that she carried the haemophilia gene, she would have undergone foetal testing for haemophilia while pregnant. This would have revealed the foetus was affected, and the appellant would then have chosen to terminate her pregnancy.

In 2015 Adejuwon was also diagnosed with autism, an unrelated condition. However Adejuwon’s autism made the management of his haemophilia more complicated. He is likely to be unable to manage his own treatment or administer his own medication. In itself, Adejuwon’s autism is likely to prevent him being in paid employment.

There is no dispute that Dr Khan is liable in negligence for the costs of bringing up Adejuwon attributable to his haemophilia. The issue in this case arises from the question of whether Dr Khan is liable for all costs related to Adejuwon’s disabilities arising from the pregnancy or only those associated with his haemophilia.

The judgments below

The High Court held that Dr Khan was liable for costs associated with both Adejuwon’s haemophilia and autism.

The Court of Appeal allowed Dr Khan’s appeal, finding her liable for costs associated with Adejuwon’s haemophilia only. It considered the scope of a defendant’s duty of care laid down in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 (“SAAMCO”) as determinative of the issue. In concluding that Dr Khan should be liable for a type of loss which did not fall within the scope of the their duty to protect the Ms. Meadows against, the High Court judge had applied the “but for” causation test.

The Court of Appeal took the view that it was insufficient for the court to find that there is a link between the breach and the stage in the chain of causation, in this case the pregnancy itself, and thereafter to conclude that the appellant is liable for all the reasonably foreseeable consequences of that pregnancy. The High court had referred to one link in the chain of causation depriving the Ms. Meadows of the opportunity to terminate the pregnancy. The SAAMCO test requires the link to be between the scope of the duty and the damage sustained.

Supreme Court

Unanimously dismissing the appeal, the Supreme Court addressed the following issues:

The legal issue of whether in a clinical negligence case the court should follow the approach of ascertaining the scope of a defendant’s duty of care laid down by the House of Lords in the SAAMCO test, and, if it should, how that approach is to be applied.

The Supreme Court applied a six stage model to analyse the place of the scope of duty principle in the tort of negligence [28]. The model served to demonstrate that the questions of factual causation and foreseeability cannot circumvent the questions which must be addressed in determining the scope of the defendant’s duty [30].

The appellant submitted that the scope of duty principle in SAAMCO does not apply in clinical negligence claims, and is only applicable in cases of pure economic loss [61]. The court could not accept this submission, as there is no principled basis for excluding clinical negligence from the ambit of the principle. Holding that the scope of duty in question must consider the “nature of the service which the medical practitioner is providing” in order to determine what risks “the law imposes a duty on the medical practitioner to exercise reasonable care to avoid” [63].

Is the medical practitioner liable in negligence for the costs of bringing up the disabled child who has both conditions or only for those costs which are associated with the hereditary disease?

Applying the principles above, the court concluded that the losses relating to Adejuwon’s autism were outside the scope of Dr Khan’s duty of care [77]. Lord Leggatt considered the scope of duty principle’s application in this case to be straightforward. The only purpose of the appellants consultation was to learn if she carried the haemophilia gene. There was no finding that Dr Khan should or ought to have been aware of any fact which gave rise to a duty to advise on any other matter [84].

As the House of Lords made clear in SAAMCO, a professional whose duty is limited to advising on a particular subject matter is not responsible for all foreseeable adverse consequences to the claimant of giving negligent advice. They are only liable for losses which are “within the scope” of the adviser’s duty of care. In this case, the subject matter of the respondent’s advice was limited to whether the appellant carried the haemophilia gene and therefore only losses causally connected to that subject matter are within the scope of the their duty to the appellant [98].

Comment

This case highlights an important distinction in wrongful birth cases between medical services intended to prevent the birth of any child, and services advising on a specified risk connected to the birth.

The judgment serves as a reminder that the simple ‘but-for’ test is not always a sufficient condition for the imposition of liability, and only forms a precondition to legal causation. The importance of the scope of duty cannot be ignored, and has potential to play a significant role in limiting the defendant’s exposure to liability.

 

Rebecca Khan is a Legal Support Assistant at Matrix Chambers.

Candey Ltd, the appellant, acted as a solicitor for Peak Hotels & Resorts Ltd (“PHRL”) between April 2014 and March 2016 in respect of worldwide litigation and various other matters. One such matter was an action in the High Court in London, referred to as “the London Litigation”.

On 21 October 2015, PHRL entered into a fixed fee agreement (the “FFA”) with the appellant, under which the appellant agreed to continue to act for PHRL in return for a fixed fee (the “Fixed Fee”). Payment of the Fixed Fee was deferred until the handing down of judgment on liability or settlement of the London Litigation, PHRL entering an insolvency process, or PHRL receiving funds. A deed of charge (the “Deed of Charge”) was entered into on the same day as the FFA, which granted a floating charge (a form of security) over PHRL’s assets.

PHRL was placed into liquidation in the British Virgin Islands (“BVI”) on 8 February 2016. The Respondents (the “Liquidators”) were appointed by the BVI court as liquidators of PHRL. The Fixed Fee became payable and the appellant lodged a proof of debt.

The London Litigation was settled by PHRL shortly before trial and the appellant was dis-instructed by the Liquidators on 3 March 2016. The monies PHRL received in relation to the settlement are referred to collectively as the “Settlement Proceeds”.

The appellant contended that its outstanding fees were payable in priority to sums payable to other creditors in PHRL’s liquidation and asserted an equitable lien over sums of money recovered or preserved in the course of the London Litigation. This lien is a form of security that arises by operation of equity for solicitors to be paid their proper fees for the successful conduct of litigation out of the money the client recovers or preserves through that litigation (or its settlement). The appellant also argued that the lien ought to be converted to a charge over that money under section 73 of the Solicitors Act 1974 (the “1974 Act”).

The deputy judge, amongst other matters, found that the appellant had waived its entitlement to an equitable lien when it renegotiated its retainer and accepted additional security for its fees in October 2015. The Court of Appeal agreed with the deputy judge on this point.

HELD: The Supreme Court unanimously dismissed the appeal.

Whether a solicitor’s equitable lien has been waived depends on the intention of the parties. The question is whether it is to be inferred that it was the intention of the parties that the lien should no longer exist. The intention must be assessed objectively in light of all the circumstances. Where solicitors take additional security, a relevant factor will be to what extent the taking of new security is inconsistent with the lien. A further relevant factor is whether, considering the professional relationship between solicitors and their clients, the solicitors explained to the clients that they were reserving their rights to an equitable lien. The authorities illustrate that if solicitors take additional security which is inconsistent with the lien and do not explain that the lien is being retained, then it is likely to be reasonable to infer that the lien is surrendered. This is particularly so where the solicitors take new security over the same property that the lien would apply to.

Applying these principles to the present case, the FFA and the Deed of Charge form a package of rights and obligations and new security arrangements which are inconsistent with the equitable lien. This is for two reasons. First, the new security created by the Deed of Charge extends over the same property as the equitable lien would do (being the Settlement Proceeds). This is regardless of the fact that the Deed of Charge also covers other property. Second, the FFA and the Deed of Charge expressly confer priority, in the event of insolvency, to one of PHRL’s backers, and therefore create different priorities than that of an equitable lien which would rank first. However, the provisions in the FFA for the earning and securing of interest on the Fixed Fee are not inconsistent with an equitable lien.

The professional obligation on solicitors to give express notice if they intend to retain an equitable lien where the new security is inconsistent with the lien is not displaced by the client obtaining independent legal advice. Therefore, the fact that the appellant required PHRL to take independent legal advice in relation to the FFA and the Deed of Charge does not change the court’s conclusion.

There is no express or implied assertion in the FFA or the Deed of Charge that the appellant reserved its lien, and evidence of communications between the appellant and PHRL take the matter no further.

The Court of Appeal was therefore entitled to find that the appellant’s equitable lien was waived when the parties entered into the FFA and the Deed of Charge.

 

For the judgment, please see:

Judgment (PDF)
Judgment on BAILII (HTML version)

For the Press Summary:

Press summary (HTML version)

To watch the hearing: 

2 March 2022     Morning session               Afternoon session

3 March 2022     Morning session               Afternoon session

On appeal from: [2021] EWCA Civ 535

The Appellant (“SIB”) is a company incorporated in Antigua and Barbuda that went into liquidation in 2009. Most of SIB’s business was selling investment products to international customers. However, during 2003 to 2009, SIB was being run as a large Ponzi scheme. Customer withdrawals and payments when investment products supposedly matured were being made from capital invested by other customers rather than investment proceeds. In 2008, many customers requested withdrawals from SIB fearing that it may become insolvent.

SIB had four bank accounts with the Respondent (“HSBC”). These accounts were frozen by HSBC on 17 February 2009 following SIB’s owner, Mr Robert Stanford, being charged by the US Securities and Exchange Commission. Prior to the accounts being frozen, from August 2008, Mr Stanford purportedly authorised various payments from the accounts. This appeal concerns payments from the accounts totalling £116 million which were used to pay SIB’s customers, some directly and some after money was transferred by HSBC to SIB’s account with a different bank in Toronto (the “disputed payments”).

SIB’s claim is that HSBC was on notice that the instructions to make the disputed payments may have been part of a fraud. Accordingly, it is alleged that HSBC was under a duty of care, known as the Quincecare duty, to refuse to accept Mr Stanford’s instructions to pay out money from the accounts (the “Quincecare claim”). HSBC’s application for summary judgment to strike out SIB’s Quincecare claim was refused by the High Court. However, on appeal HSBC was successful.

This appeal is concerned solely with the following question: even if HSBC did owe SIB the Quincecare duty and was in breach of this duty, did the breach give rise to any recoverable loss by SIB?

 

HELD – Appeal dismissed by a majority. Lady Rose gave the lead judgment, with which Lord Hodge and Lord Kitchin agreed. Lord Leggatt, in agreement with Lady Rose, gave a concurring judgment. Lord Sales gave a dissenting judgment.

 

The Supreme Court distinguished between two sets of SIB’s customers. First, customers who escaped without loss because they withdrew their funds (as they were contractually entitled to do) before the SIB scheme collapsed and so were paid from the disputed payments (referred to as the “early customers”). Second, customers who risk losing almost all their money because they did not withdraw their funds before the collapse (referred to as the “late customers”).

The majority held that the disputed payments which relieved SIB of its liability to its early customers do not amount to a monetary loss. In the hypothetical scenario where HSBC had complied with its Quincecare duty, SIB might have had an extra £116 million on liquidation. However, it also would not have discharged any of the debts it owed to the early customers so they would also claim a dividend in the insolvency alongside the late customers. As there would be an extra £116 million for the liquidators to distribute, all the customers would get, say, 12 pence in the pound rather than the early customers getting 100 pence and the late customers only five pence. But precisely the same amount of SIB’s debt would be extinguished when the company is dissolved in both the hypothetical and real-world scenario. There is therefore no recoverable loss.

Addressing a sub-issue, the majority held that where a director, in breach of their fiduciary duties to a company, causes an insolvent company to pay off certain company debts, there may be cases where the director can be required to repay the insolvent company in respect of the payments. However, this fiduciary liability does not mean there is a more general principle that a person who is negligent can be liable where the negligence results in no monetary loss.

Lord Leggatt agreed with Lady Rose that SIB has not suffered loss because of the disputed payments. He holds that the fundamental principle of separate corporate personality means the interests of a company are in law distinct from those of the persons who have economic interests in the company. Thus, the losses suffered by a company are not the same as the losses suffered by its creditors. While there may be correlation between these different losses, in order to keep the law coherent, the distinction between them should not be blurred. Lord Leggatt also agreed with the majority with regard to the sub-issue on the liability of directors.

Lord Sales dissented. In his view SIB has suffered a loss. At the relevant times SIB was hopelessly insolvent. Therefore, SIB could not lawfully have paid the early customers the face value of the debts and, if it had not been deceived by Mr Stanford, it would not have chosen to do so; instead, it would have retained its money to spend on other, lawful purposes. Payment of more than was necessary to the early customers depleted SIB’s assets which constitutes a loss to SIB. It is not correct to treat the company as a pure abstraction. When SIB paid the early customers, its corporate personality in law was a vehicle to protect the general creditors as a whole. The funds used to make the disputed payments will not be used to pay the general creditors as a whole, as they should have been. This diversion of funds is a loss to SIB. In relation to the sub-issue, Lord Sales held that his view provides a clear explanation as to a director’s liability in this context. In law, the interests of a company which is hopelessly insolvent are fully aligned with those of its creditors as a general body. If a company’s money, under the control of the directors, is paid out to discharge the debts of some creditors out of the general body of creditors, the interests of the creditors as a general body, and hence the interests of the company, are prejudiced and this can give rise to recoverable loss.

For the judgment, please see:

Judgment (PDF)
Judgment on The National Archives (HTML version)
Judgment on BAILII (HTML version)

For the Press Summary:

Press summary (HTML version)

To watch the hearing: 

Watch hearing

19 Jan 2022
Morning session
Afternoon session