Westbrook Dolphin Square Ltd v Friends Life Ltd (Rev 1)

Collective enfranchisement is not excluded merely because companies were created and leases granted to facilitate the claim. The statutory tests in the Leasehold Reform, Housing and Urban Development Act 1993 must be applied according to their enacted wording. A purposive construction cannot fill an alleged legislative gap where the proposed reading requires judicial legislation.

“Residential purposes” is an objective concept covering ordinary living activities, including occupation in serviced apartments for short periods. It does not require use as an occupier’s only or principal home, or any minimum period of occupation. Commercial facilities within a residential complex are not common parts merely because residents use them or benefit from them.

A tenant’s proposed purchase price under section 13 must be a genuine, bona fide opening offer, not a nominal or absurd figure. It need not fall within a reasonable valuation range.

The claimant, nominee purchaser for more than 600 special purpose companies, sought declarations under Chapter I of the Leasehold Reform, Housing and Urban Development Act 1993 that it could acquire the freehold of Dolphin Square.

The freeholder challenged the claim on several grounds: the participating companies were allegedly associated companies; the corporate and lease structure was said to be an artificial avoidance scheme; the proposed enfranchisement was said to engage the Human Rights Act 1998; the freeholder sought to raise the statutory non-residential-use objection despite omitting it from its counter-notice; the proposed purchase price was challenged; and relief was sought under section 423 of the Insolvency Act 1986.

The central questions concerned the meaning and application of the statutory qualifying-tenant, residential-use, common-parts, notice and undervalue provisions.

1. Associated companies. The SPVs were not associated companies through the discretionary trust structure. Section 1159 of the Companies Act 2006 required legal rights of control. The trustees’ independent discretion was not converted into a nomineeship merely because they might prudently seek a beneficiary’s concurrence. The misdescriptions in accounts and loan documents could not alter the legal relationships.
2. Artificial structure and statutory purpose. The structure had been created to facilitate enfranchisement, but that did not remove the SPVs from the statutory meaning of tenants under long leases. The Ramsay approach is a method of statutory construction, not a general power to invalidate artificial transactions. The language of sections 5(5) and 5(6) was specific and could not be expanded into a broad anti-avoidance rule. The court could not fill a supposed legislative gap.
3. Human rights. The freeholder failed to show that the ordinary construction of the Act infringed Article 1 of the First Protocol. A failure by Parliament to achieve an asserted policy objective did not itself establish an infringement requiring a different interpretation.
4. Counter-notice. The freeholder was entitled to rely on the section 4 non-residential-use objection although it had not specified it in its counter-notice. The statutory scheme did not expressly confine the court’s jurisdiction to the reasons stated in the counter-notice, and such a restriction would create anomalies, particularly under section 25.
5. Residential purposes and common parts. “Residential purposes” was assessed objectively by reference to the nature of the accommodation and its use for ordinary living activities. Dolphin House and corporate-housing flats therefore qualified, despite serviced arrangements and, in many cases, short occupation. Common parts required common use or service of residents in common. Commercial facilities such as the gym, spa, restaurant, bars, offices, laundrette and storage areas did not qualify merely because residents could use or benefit from them.
6. Section 13 price. The proposed price had to be a genuine opening offer made in good faith. It did not have to be objectively within the range of Schedule 6 valuations or be based on a valuation that a reasonable valuer could justify. The stated price was substantial, bona fide and capable of initiating sensible negotiations, and was therefore valid.
7. Section 423. Section 423 of the Insolvency Act 1986 addresses transactions where undervalue and the statutory purpose of prejudicing a relevant claimant form part of the same vice. Friends Life was not a victim of any alleged undervalue and had no relevant claim against Westbrook. The alleged undervalue was incidental to the asserted prejudice. Neither the leases nor the guarantee was shown to constitute a relevant undervalue for the purposes of the section.
8. Disposition. All challenges failed. The claimant was entitled to declarations and other relief confirming its entitlement to enfranchise.

First-instance decision. The proceedings had begun in the county court and were transferred to the High Court because of the scale of the transaction and the issues of principle.