Property – Stock transfer agreement – Same class principle – Claimant transferring part of housing stock to defendant under stock transfer agreement – Defendant selling individual dwellings to private buyers on open market – Claimant arguing defendant in breach of agreement – Whether restrictions on ability to enter certain transactions without claimant’s consent applicable to sales by defendant to private buyers – Claim dismissed
By a stock transfer agreement in 1998, the claimant local authority agreed to sell a substantial part of its housing stock to the defendant housing association. The agreement included a nomination rights deed, which gave the claimant the right to nominate tenants to 75% of “true voids” in the transferred stock.
Subject to exceptions, clause 6.1 of the NRD prohibited the defendant from entering into “any merger amalgamation transfer of engagements or any other transaction” without the disponee entering into a direct undertaking with the claimant to comply with relevant covenants and obligations in the NRD.
At the time of the agreement, section 133 of the Housing Act 1988 required the defendant to obtain the consent of the secretary of state to a subsequent disposal of any property from the transferred stock, subject to exceptions. From 6 April 2017, the Housing and Planning Act 2016 amended section 133 so that the defendant, as a private registered provider, was no longer required to obtain that consent.
The defendant then sold individual dwellings to private buyers on the open market. The claimant objected arguing that if the pool of housing stock transferred to the defendant was drained by the sale of individual dwellings to private purchasers, it would reduce the stock available for the exercise of the claimant’s nomination rights.
The claimant brought proceedings against the defendant on the ground that the individual sales were in breach of the restrictions in clause 6.1.
Held: The claim was dismissed.
(1) The ejusdem generis (same class) principle derived from a principle of statutory interpretation which could apply where there were several words of description followed by a more general description, which was taken not to extend beyond subject matter of the same type or class as the subject matter of the preceding words.
It was well-established that the same class principle could be applied to the construction of contracts. It depended on the assumed intention of the framer of the relevant instrument; namely that the relevant general words were only intended to guard against some accidental omission in the subject matter of the preceding words, and were not intended to extend to subject matter of a wholly different kind. The principle followed as a corollary of the principle that the whole of the relevant contract which fell to be construed had to be considered, so that every word was taken in conjunction with the words which accompanied that word: see Chitty on Contracts, 35th Edition, at 16-116 to 16119 and Magee v Crocker [2024] EWHC 1723 (Ch).
(2) The same class principle could only be applied where there was a class to which the relevant general words could be restricted. The principle was a canon of construction, and not a rule. It was a guide to be applied by the court when seeking to interpret the relevant contract. The words “any merger amalgamation transfer of engagements” constituted a class or type of transactions which clearly shared a common characteristic. There was nothing to displace the application of the same class principle in the present case.
The words “or any other transaction” had to be read with the triggering circumstances in the remainder of clause 6.1 which required that the relevant merger, amalgamation, transfer of engagements or other transaction involving the defendant had to be one which “would cause or require the transfer or disposal of the property or part thereof to a third party”. The key question was what was meant by the reference to “or any other transaction”. Such a transaction had to be one which caused or required the transfer or disposal of the property or part thereof, and such transfer or disposal might, in theory, be a transfer or a disposal involving a single dwelling.
(3) It was appropriate to apply the same class principle in the present case. It was common ground that “merger amalgamation transfer of engagements” constituted a class or type of transaction. That class or type was clearly not wide enough to encompass sales of individual dwellings to private purchasers. That class had a limiting effect upon the reference to “or any other transaction” which had to be read in the light of and subject to the class of transactions which preceded them. Those words constituted a sweeping up provision, as opposed to the introduction of a new class of transactions: Burrows Investments Ltd v Ward Homes Ltd [2017] EWCA Civ 1577; [2017] EGLR 47 and 89 Holland Park (Management) Ltd v Dell [2023] EWCA Civ 1460; [2024] EGLR 10 considered.
It was clear that the same class principle was a flexible aid to construction, which did not necessarily apply simply because one had limited words of description followed by a general word of description. In the present case, it was appropriate to apply the principle to give a limited meaning to the words “or any other transaction”: Burrows Investments and 89 Holland Park considered.
(4) The same conclusion could be reached without relying upon the same class principle. As a matter of textual and contextual analysis it was clear that the words “or any other transaction” were limited in their meaning, and did not extend to sales of individual dwellings to private purchasers. The words “or any other transaction” did not appear in isolation. They had to be read as part of clause 6.1 and, more widely, as part of the NRD. In turn, the NRD had to be read as part of the suite of agreements entered into by the parties in 1998.
“Any other transaction” had to be a transaction which “would cause or require the transfer or disposal of the Property or part thereof to a third party”. It was an unnatural use of language to describe the sale of an individual dwelling to a private purchaser as falling within that category of transaction.
Therefore, clause 6.1 did not apply to sales, out of the property, of individual dwellings by the defendant to private purchasers. The types of transaction which engaged the restriction in Clause 6.1 did not include such sales and the defendant was not required to procure the undertaking referred to in clause 6.1.
Kelvin Rutledge KC and Alistair Cantor (instructed by London Borough of Bexley Legal and Democratic Services) appeared for the claimant; Matt Hutchings KC (instructed by Trowers & Hamlins LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Bexley London Borough Council v London & Quadrant Housing Trust
