[2024] UKUT 335 (LC)

The House of Lords’ decision in R v Soneji [2006] 1 AC 340 was about the effect of a procedural defect in the process leading to a confiscation order made by the Crown Court pursuant to the proceeds of crime legislation. Remote, one might think, from the acquisition of the right to manage a block of flats, but Lord Steyn’s observation at paragraph 14 points to the common ground:

“a recurrent theme in the drafting of statutes is that Parliament casts its commands in imperative form without expressly spelling out the consequences of a failure to comply.”

Their lordships agreed that in such a case the correct approach was to examine the legislation in order to ascertain whether Parliament intended that the non-compliance in question was intended to invalidate the confiscation proceedings. The problem in R v Soneji was that a time limit had been missed. Lord Carswell said at paragraph 67 that the court must ask whether there had been “substantial observance of the time limit”, and that that would:

“depend on the facts of each case, and it will always be necessary to consider whether any prejudice has been caused or injustice done by regarding the act done out of time as valid.”

The first decision we have to look at in the context of the right to manage itself was made by the President of the Lands Tribunal (George Bartlett QC) in Sinclair Gardens Investments (Kensington) Limited v Oak Investments RTM Company Limited) [2005] RVR 426 (“Sinclair Gardens (2005)”), an appeal from the Leasehold Valuation Tribunal. The issue was as in the present appeal: a landlord sought to resist the acquisition of the right to manage because a qualifying tenant had not been given a notice of intention to participate. The President said that the purpose of the service of that notice was to ensure that all qualifying tenants have the opportunity to participate in the process. Where that has not been done::

“… the principal question for the Tribunal will be whether the qualifying tenant has in practice such awareness of the procedures as the statute intended him to have.”

The tenant in question had, by the time of the proceedings, become a member of the RTM company so there was no question of his being prejudiced or of any failure in the purpose of the requirement that he be given a notice; and there was no question of the landlord’s having been prejudiced. The LVT’s decision that the claim notice was valid was upheld.

In 2014 the Tribunal (the President, Sir Keith Lindblom) had to consider the same question; he referred to Soneji and to Sinclair Gardens (2005), and followed the same approach:

“47.

What one ought to do, I believe, is to ascertain – so far as one can – the true effects of the failure to give notice in accordance with the statutory provisions on all those affected by that failure. The question here is not whether a significant number of tenants have been prejudiced, but whether any or all of the tenants not given notice in accordance with section 111 has been caused such prejudice through the RTM company’s default as to justify denying the RTM company the right to manage. … Each case will turn on its own particular facts.”

The President concluded that the tenants who had not been given the notice had not been prejudiced and that the procedure was not invalidated.

So far, then the focus is on the purpose of the statutory provision and on whether any prejudice was actually caused to the person directly affected by a procedural failure.

In 2014 the Court of Appeal’s decision in Natt v Osman [2014] EWCA Civ 1520 [2015] 1 WLR 1536 took a new approach to cases of procedural failure. The Chancellor, Sir Terence Etherton, took the view that they fell into two groups; challenges to the decision of a public body, and cases where a property right is being acquired. In the former case, substantial compliance with the statutory procedure may well be sufficient. In the latter case, it will not:

“31.

… The Court of Appeal cases show a consistent approach in relation to statutory requirements to serve a notice as part of the process for a private person to acquire or resist the acquisition of property or similar rights conferred by the statute. In none of them has the court adopted the approach of "substantial compliance" as in the first category of cases. The court has interpreted the notice to see whether it actually complies with the strict requirements of the statute; if it does not, then the Court has, as a matter of statutory interpretation, held the notice to be wholly valid or wholly invalid…

32.

On that approach, the outcome does not depend on the particular circumstances of the actual parties, such as the state of mind or knowledge of the recipient or the actual prejudice caused by non-compliance on the particular facts of the case.”

However, that did not mean that non-compliance with any and all stipulations in the statute means invalidity. Instead, further analysis is needed to discover what are the “strict requirements” such that if they are not complied with the notice is invalid:

“33.

…  the intention of the legislature as to the consequences of non-compliance with the statutory procedures (where not expressly stated in the statute) is to be ascertained in the light of the statutory scheme as a whole.”

Natt v Osman was concerned with the validity of a notice claiming the right to acquire the freehold of property, pursuant to section 13 of the Leasehold Reform, Housing and Urban Development Act 1993. The notice did not give the name of one of the qualifying tenants, as required by the statute. This was a procedure for the acquisition of property rights so substantial compliance would not do; and in light of the importance of the notice (going “to the very heart of the right to collective enfranchisement”, paragraph 36), and of the fact that the tenants could start again and serve a fresh notice, the notice was invalid.

The words in parenthesis in paragraph 33 of Natt v Osman alert us to the possibility that sometimes the consequences of non-compliance may be set out in the statute. In Triplerose Limited v Mill House RTM Company Limited [2016] UKUT 80 (LC) (“Triplerose (2016)”) the Tribunal had to consider the implications of Natt v Osman, not on the failure to serve a notice of invitation to participation, but the failure to include in the notice all the notes from the prescribed form. So the following observation by the Deputy President was obiter, but important:

“35.

In light of the specific prohibition in section 79(2) on the service of a claim notice until 14 days after a notice of invitation to participate has been given to everyone required to be given one, I do not think it can be suggested that the provisions designed to ensure that every qualifying tenant has the opportunity to participate are inessential, or can be substituted by some alternative means of knowledge.”

The next milestone is the Court of Appeal’s decision in Elim Court RTM Company Limitedv Avon Freeholds Limited [2017] EWCA Civ 89. Lewison LJ, with whom Proudman J and Arden LJ agreed, applied the principles in Natt v Osman to the failure by the RTM company to give a claim notice to an intermediate landlord with no management responsibilities. He explained that this was a procedure for the acquisition of a property right, and therefore substantial compliance would not do. The RTM company in the present case had failed to comply with the requirement of section 79(6)(a). At paragraph 52 he said:

“The outcome in such cases does not depend on the particular circumstances of the actual parties, such as the state of mind or knowledge of the recipient or the actual prejudice caused by non-compliance on the particular facts of the case…. The intention of the legislature as to the consequences of non-compliance with the statutory procedures (where not expressly stated in the statute) is to be ascertained in the light of the statutory scheme as a whole …. Where the notice or the information which is missing from it is of critical importance in the context of the scheme the non-compliance with the statute will generally result in the invalidity of the notice. Where, on the other hand the information missing from the statutory notice is of secondary importance or merely ancillary, the notice may be held to have been valid …. One useful pointer is whether the information required is particularised in the statute as opposed to being required by general provisions of the statute. In the latter case the information is also likely to be viewed as of secondary importance. Another is whether the information is required by the statute itself or by subordinate legislation. In the latter case the information is likely to be viewed as of secondary importance. In this connection it must not be forgotten that while the substantive provisions of a bill may be debated clause by clause, a draft statutory instrument is not subject to any detailed Parliamentary scrutiny. It is either accepted or rejected as a whole. A third is whether the server of the notice may immediately serve another one if the impugned notice is invalid. If he can, that is a pointer towards invalidity.

On that basis he concluded that the notice was not invalidated.

Thus so far as service of the claim notice under section 79(6) is concerned, despite the fact that substantial compliance is not acceptable, it may still – if I may put it colloquially – be ok to get it wrong. But whether or not that is the case depends upon the construction of the statute, and not upon the circumstances in a particular case. Moreover, that exercise in construction is only required where the consequences of non-compliance are not expressly stated in the statute (see the words in parenthesis in paragraph 52 of Elim Court, echoing those in paragraph 33 in Natt v Osman, which as we saw were applied by the Tribunal in Triplerose 2016 in the context of a failure to serve a notice of invitation to participate).

The failure to serve a notice of invitation to participate was considered in the Tribunal’s decision in Avon Ground Rents Limited v Canary Gateway (Block A) RTM Company Limited [2020] UKUT 358 (LC). The President (Fancourt J) considered the meaning of section 79(2) (set out at paragraph 71 above):

“83.

The purpose of s. 79(2) is not to require a notice of invitation to participate to be given, or to specify to whom it must be given or what it must say. That is done by s.78.  The purpose served by s.79(2) is either to specify the consequence of non-compliance with s. 78, or to specify the time that must elapse before a claim notice may be given, or both.  On the face of it, s. 79(2) does both, but that is an issue of interpretation that requires the context and implications of the provision to be taken into account in construing it.

84.

It is therefore material to consider, as part of the exercise of statutory interpretation, the objective importance to the statutory scheme of notices of invitation to participate being given to every qualifying tenant; the relative ease or difficulty of compliance; the risk of non-receipt in any event, and the likely consequences of invalidity resulting from non-compliance.  The reason for that is that if such notices were unimportant, full compliance would be difficult to achieve, or would have no effect anyway, and failure to comply could prejudice the substantive rights of the RTM company, there would be real reason to doubt that Parliament meant to specify that a valid claim notice required the prior service on each and every qualifying tenant of a notice of invitation to participate.”

The President went through that analysis (some of which we have already looked at in the context of the first issue in this appeal, namely the fact that the qualifying tenants will normally be easy to identify (see paragraphs 45 and 46 above)), focusing in particular on the importance of the notices in the statutory scheme, and he concluded:

“90.

Bearing all these points in mind, it appears to me that Parliament did intend failure to give s.78 notices as required to invalidate a claim notice and that s.79(2) should not be interpreted as merely a stipulation as to when a claim notice may be served.  The natural and ordinary reading of s. 79(2) is that a purported claim notice that is served otherwise than in accordance with its terms will be invalid.”

It is interesting that in Canary Gateway the President applied the reasoning in Elim Court (set out by the Chancellor in paragraph 52 of his decision, set out above at paragraph 84) in order to determine whether the statute specified the consequences of non-compliance, whereas that reasoning was intended to determine the consequences of non-compliance “where not expressly stated in the statute”. Be that as it may, the Tribunal’s conclusion was clear: section 79(2) provides that a purported claim notice served when section 79(2) has not been complied with will be invalid (and although his decision was appealed, the appeal was not on this point. The President went on to say that the Tribunal’s decision in Regent Court should no longer be regarded as an authority in this context.

That was the state of the authorities when this appeal was heard, and the appellant’s argument relied upon Canary Gateway; Mr Bates KC argued that “this is not an Elim Court case … where one must hunt for signs of Parliamentary intent in order to ascertain the consequences of failure. For the reasons given in the two previous Upper Tribunal decisions, a failure to serve a notice of invitation to participate is always fatal.”

And so the stage is set for the most recent authority, which trumps all the decisions since R v Soneji, namely the Supreme Court’s decision in A1 (Sunderland). As I said above, it was handed down after the hearing in the present appeal, and I have delayed my decision in order to wait for it and for the parties’ observations on it.