Eastern Pyramid Group Corporation SA v Spire House RTM Co Ltd [2021] EWCA Civ 1658; [2021] EGLR 49 is the latest in a steady stream of decisions on the consequences of failing to strictly comply with statutory procedure where landlords have sought to rely on technical defects to defeat leaseholders’ attempts to exercise their legitimate rights. The case concerned the right to manage legislation introduced by the Commonhold and Leasehold Reform Act 2002.
The facts
The RTM company served a claim notice on the appellant landlord seeking to exercise the right to manage. The appellant sent a counter-notice claiming that the notice was invalid. On checking the rules, the RTM company decided that, rather than argue the matter, it would withdraw this first claim notice and serve a new one. A letter withdrawing the first claim and serving the new claim notice was sent on 17 June. The qualifying tenants were notified of the withdrawal the following day. The appellant then served a second counter-notice claiming, among other things, that the second claim notice was also invalid because the first notice was still in force on the date of service and section 81(3) of the Act provides that only one valid notice can be in force at a time. It argued that, as section 86 required four classes of people to be given notice of withdrawal, the first notice was not withdrawn until the qualifying tenants were given the notice of withdrawal on 19 June, so the first claim was still “live” when the landlord was notified of the purported withdrawal.
The landlord argued its position in two ways. The first was that the RTM company had successfully withdrawn the first notice in compliance with section 86 but not until 19 June, by which time it was too late to save the second claim notice. There was therefore no “defect”. The RTM company submitted that this could not be right because it necessarily led to the result that the validity of an act on one date was capable of being undermined by an act later in time. The Court of Appeal agreed. This left the landlord’s second argument, which was that there had been a failure in compliance fatal to the claim because the notice of withdrawal was important to the statutory scheme. The relevant requirement was contained in the 2002 Act itself and could have been easily remedied by serving another notice. This argument takes us back to the principles concerning failures of compliance first set out in Natt v Osman [2015] EGLR 11 and expanded in Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89; [2017] PLSCS 46 .
The principles
Natt was a collective enfranchisement case. The error there was that the notice of claim specified the names and addresses of the tenants of three flats when there were, in fact, four. The notice did not therefore comply with the requirements of section 13 of the Leasehold Reform, Housing and Urban Development Act 1993. In deciding whether this defect was fatal to the validity of the notice, the Court of Appeal said:
- The old idea of distinguishing between directory and mandatory requirements in notices was no longer the law.
- There are two categories of case: one concerning public bodies and public law in which substantial compliance may be sufficient; the other, the acquisition of private rights, where there is no such concept – the notice either complies or it doesn’t.
- In the case of private rights (including RTM and enfranchisement claims) the question is whether, as a matter of construction, the legislature intended the error to render the notice invalid.
In Natt, the Court of Appeal found that the number of leaseholders went to the heart of the statutory scheme and the notice was invalid.
In Elim Court, Lewison LJ set out some further guidance on how the Natt principles should be applied in the context of various defects. He said the fundamental question is the role and importance of a step in the context of the statute as a whole – is the missing information of critical importance or merely ancillary? Useful pointers include whether:
(a) the step is provided for in particular or general terms;
(b) the requirement is in primary or subordinate legislation; and
(c) the person taking the step can immediately do it again if the impugned attempt is invalid.
In Eastern Pyramid, Birss LJ added two further points to these principles. First, he said, the legislator can be taken to have assumed that the courts would take a realistic and pragmatic approach in determining the significance of the various procedural steps. A result which is impractical or unrealistic is unlikely to be what was intended. Second, the pointers in Elim are just that, and cannot be put too high.
The outcome
Applying these principles, the Court of Appeal found that there was a difference in the importance of serving a notice of withdrawal on the landlord and any managers as compared to the qualifying tenants. The former alerted the landlord that the claim had been abandoned and failure to serve a notice on them would have been fatal. However, the notice to the qualifying tenants was merely for information purposes and any failure did not invalidate the new claim.
The outcome is a win for the respondent.
The future
The Law Commission recognised the shortfalls in the current procedure in its report published 21 July 2020 and has made extensive recommendations for reform. Parliament has been rather busy since then and it remains to be seen when there will be time to discuss the proposals.
Nicola Muir is a barrister at Tanfield Chambers and Anna Phillips is a legal director and Foot Anstey LLP
