A decision of consequence: A1 Properties (Sunderland) Ltd v Tudor Rose Studios RTM Company [2024] UKSC 27 and the Soneji approach to statutory construction

In the context of a dispute over the right to manage in the Commonhold and Leasehold Reform Act (‘CLRA’) 2002, the Supreme Court has given potentially far-reaching guidance as to the correct approach to statutory interpretation where legislation prescribes certain procedural requirements but does not specify what the consequence of failing to adhere to those requirements will be.

Charles Shwenn of our Real Estate team summarises the decision of consequence in A1 Properties (Sunderland) Ltd v Tudor Rose Studios RTM Company [2024] UKSC 27 and the Soneji approach to statutory construction.

Summary

• The CLRA 2002 enables a company comprised of qualifying leaseholders in a block and others (an ‘RTM company’) to take over certain management responsibilities for that block from their landlord (‘the right to manage’).
• As part of the process of acquiring the right to manage, section 79 CLRA 2002 requires the RTM company to serve a claim notice on, among others, each person who is a landlord under a lease of the whole or any part of the block.
• Against a factual background where one such landlord was not served with a claim notice and the CLRA 2002 not specifying the consequences of this, the question for the Supreme Court in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27 was what Parliament intended the effect of a failure to comply with this statutory requirement to be. Would it always invalidate the acquisition of the right to manage, and did it do so on the facts of this case?
• A great many statutes specify statutory procedural requirements and often do not specify the consequences of non-compliance, which has led to a great deal of litigation. This appeal was also an opportunity to clarify the correct approach in such cases.
• The Supreme Court has confirmed that the starting point for answering these questions is the approach set out by of the House of Lords in R v Soneji [2005] UKHL 49 in which Lord Steyn said (at paragraph 23): “…the emphasis ought to be on the consequences of non-compliance and posing the question whether Parliament can fairly be taken to have intended total invalidity.”
• In light of A1 Properties, one might summarise the correct Soneji approach to objectively inferring Parliament’s intention in this context as follows (see paragraphs 61 and 68): where a statute prescribes procedural requirements and makes no express statement of the consequences of non-compliance, one should:

(i) Assess the purpose served by the requirement in light of a detailed analysis of the particular statute.

(ii) Consider the specific facts of the case, having regard to whether any (and what) prejudice might be caused or whether any injustice might arise if the validity of the statutory process is affirmed notwithstanding the breach of the procedural requirement.

(iii) Ask what consequence of non-compliance best fits the statutory structure as a whole.

• The Supreme Court was clear that, in some cases, this approach may well lead to a conclusion that Parliament intended to create a bright line rule resulting in total invalidity in the event of procedural non-compliance (paragraph 62). One example the court gave is a failure to comply with the notice requirements for extending business tenancies under the Landlord and Tenant Act 1954. On the other hand, an example of a less clear-cut result was said to arise on the facts of Soneji itself which involved the making of confiscation orders under the Criminal Justice Act 1988 against convicted defendants where the statutory time limit had been exceeded. The Supreme Court said, of such a situation, at paragraph 63:

“The statutory regime may reflect, and balance, a number of intersecting purposes, both as to substantive outcomes and as to the procedural protections inherent in the regime. In that situation, a more nuanced analysis may be called for.”

• These two examples serve to illustrate the potential breadth of the Supreme Court’s decision. There appears to be no conceptual difference in approach between the public and private law context, as had been indicated in previous Court of Appeal authority. However, that is not to say there would not necessarily be similar considerations and results, having conducted a Soneji analysis.
• Applying this to the procedural failing on the facts, the court recognised that the CLRA 2002 right to manage regime had potentially significant effects for landlords’ interests however noted that the appellant landlord in this case had suffered no prejudice in circumstances where it could not have raised a valid objection to the claim notice had it been correctly served. The appeal was therefore dismissed.

Further Detail

The CLRA 2002[1]

1. Chapter 1 of Part 2 of the CLRA 2002 sets out a scheme by which an RTM company can acquire the management functions of a landlord.
2. In brief, in order to acquire the right to manage, an RTM company must normally serve a claim notice in a prescribed form (see sections 80 – 81 CLRA 2002). Section 79(6) CLRA 2002 specifies to whom a claim notice must be given. This includes, under section 79(6)(a), a “landlord under a lease of the whole or any part of the premises…” and under section 79(6)(b), a “party to such a lease otherwise than as landlord or tenant”.
3. A person served with a claim notice has a right to serve a counter-notice objecting to the transfer of the right to manage on certain grounds (see section 84 CLRA 2002). If such a notice is served, the RTM company can apply to the First-tier Tribunal (Property Chamber) to determine the validity or otherwise of the objection.

The Facts of A1 Properties [2]

4. The appeal in A1 Properties concerned the acquisition of the right to manage by the Respondent, an RTM company comprised of tenants in a large block of 240 flats in Leicester.
5. The flats in the block were let to investor tenants by the freeholder under the terms of long leases. The communal areas of the block were let to the Appellant pursuant to four leases for 999 years at a peppercorn rent. The Appellant had in turn underlet the communal areas to a management company by underleases which conferred no management responsibilities on the Appellant as an intermediate landlord.
6. The Respondent served a claim notice on the freeholder and the management company, but not on the Appellant, as required under section 79(6)(a) CLRA 2002. The management company served a counter-notice relying inter alia on this procedural failure.
7. The Respondent applied to the First-tier Tribunal under section 84(3) CLRA 2002 for a determination of the issue. The tribunal joined the Appellant as a party to the proceedings and rejected the management company’s objections. Importantly, it was agreed before the Supreme Court, that the Appellant could not have raised any other further objection (had it been served with a claim notice) that the management company did not pursue.
8. The CLRA 2002 does not stipulate in terms what the effect of non-compliance with section 79(6)(a) should be, so Parliament’s intention in that regard has to be inferred. The Appellant argued that the failure to serve them invalidated the process of acquiring the right to manage, the Respondent contended that it did not.

Earlier approaches to Inferring Parliament’s Intention

9. The Court of Appeal in Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89 dealt with a similar situation where an intermediate landlord who also had no management responsibilities had not been served with a claim notice. Though a detailed analysis of the reasoning in Elim Court is not provided here,[3] it is sufficient to mention two elements: firstly, the court purportedly applied a test set out in the earlier case of Osman v Natt [2014] EWCA Civ 1520 (discussed below); secondly, the court considered that “the transfer of an intermediate landlord’s non-management functions [was]… ancillary to the primary objective of the legislation” (Elim Court, paragraph 73).
10. In Osman, Sir Terence Etherton C referred to the decision of the House of Lords in Soneji, which proposed an approach focussed on the practical consequences of non-compliance with a requirement (see Soneji, paragraph 23 – quoted above). The Court of Appeal in Osman however identified two categories of case at paragraph 28 and suggested different approaches may be justified in each:

“28. The cases cover a very broad spectrum of legislative and factual situations. For the purposes of this appeal, a distinction may be made between two broad categories:

(1) those cases in which the decision of a public body is challenged, often involving administrative or public law and judicial review, or which concern procedural requirements for challenging a decision whether by litigation or some other process, and

(2) those cases in which the statute confers a property or similar right on a private person and the issue is whether non-compliance with the statutory requirement precludes that person from acquiring the right in question.”

11. One might broadly refer to these as ‘public law’ and ‘private law’ cases. Sir Terence Etherton appeared to suggest that the Soneji approach would be confined to the public law sphere in view of the greater imperative for certainty when private law rights are potentially affected (see Osman, paragraph 29).
12. At paragraphs 29 – 34 of Osman, the court said that, when considering public law category (1) cases, the relevant question is whether the statutory requirement can be fulfilled by substantial compliance and, if so, whether on the facts there has been substantial compliance even if not strict compliance. In contrast, a more restrictive approach was said to apply when considering private law category (2) cases: here, considering a statutory requirement to serve a notice, it was suggested that there was no scope for considering substantial compliance, rather:

“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…” (Osman, paragraph 31).

13. It was further said that in those category (2) cases:

“…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…” (Osman, paragraph 32).

14. Therefore, bound by Elim Court, applying Osman, the Upper Tribunal in A1 Properties dismissed the appeal but granted a ‘leapfrog’ certificate to the Appellant to appeal to the Supreme Court. In the Appellant’s Permission to Appeal form, the wider question for the court was characterised as:

“Where a statute concerning the acquisition of rights relating to property and similar rights is silent as to the effects of procedural non-compliance how should the consequences of such failure be determined by the court without impermissibly rewriting the statute?”

The Supreme Court’s Decision

15. The Supreme Court has affirmed the approach set out by the House of Lords in Soneji as the starting point and, insofar as Osman suggested a difference between the analysis adopted when interpreting statutes in the public and private sphere, has rejected that approach.
16. Referring to the judgment of Lord Styen in Soneji, the Supreme Court agreed that:

“The correct approach to a failure to comply with a provision prescribing the doing of some act before a power was exercised was to ask whether it was a purpose of the legislature that an act done in breach of that provision should be invalid.” (A1 Properties, paragraph 58).

17. Alluding to the approach in Osman, the Supreme Court said at paragraphs 61 – 62: 

    
    “61. The point of adoption of the revised analytical framework in Soneji was to move away from a rigid category-based approach to evaluating the consequences of a failure to comply with a statutory procedural requirement and to focus instead on (a) the purpose served by the requirement as assessed in light of a detailed analysis of the particular statute and (b) the specific facts of the case, having regard to whether any (and what) prejudice might be caused or whether any injustice might arise if the validity of the statutory process is affirmed notwithstanding the breach of the procedural requirement…

62. This does not mean that application of procedural rules in every statutory context turns on detailed examination of the consequences arising from the particular facts of the case, nor that a test of substantial compliance is properly to be applied in relation to every procedural rule. Examination of the purpose served by a particular statutory procedural rule may indicate that Parliament intended that it should operate strictly, as a bright line rule, so that any failure to comply with it invalidates the procedure which follows…”

18. Clearly this is a highly circumstance-dependent approach, however the court did give some broad indications as to inferences that may be relevant within a Soneji analysis in certain contexts at paragraphs 64 – 65.

“64. … It is usually to be inferred that Parliament intends that there should be a reasonable degree of certainty regarding property rights and contractual rights. It is also usually to be inferred that Parliament intends that a person should not be deprived of property or contractual rights without being afforded a fair opportunity to enter objections…

65. These points do not, in and of themselves, mean that the wider inquiry indicated by the approach in Soneji is unnecessary. The confiscation orders in Soneji affected property rights, but that did not lead ineluctably to the conclusion that the statutory requirement had to be strictly observed in order for the orders to be valid. It remained relevant to investigate the extent of any prejudice that the individuals might suffer if the orders were upheld. It also remained relevant to balance any prejudice suffered by the individuals against the general public interest intended to be promoted by the operation of the statutory regime.”

19. Having confirmed the correct approach, Supreme Court proceeded to undertake a detailed Soneji analysis (paragraphs 68 – 86). The court acknowledged the prejudice that may be suffered by a failure to serve a person that section 79(6) CLRA 2002 requires to be served and considered the purpose that the claim notice procedure serves more broadly within the statutory scheme. The court did not agree with the characterisation of the Court of Appeal in Elim Court that the transfer of non-management functions is ancillary to the statutory purpose and that such an intermediate landlord’s right to participate could simply be ignored (A1 Properties, paragraphs 67 and 89). The Supreme Court expressed its conclusion in the right to manage context in the following terms at paragraph 87:

“87. We consider that the simplest way to provide a legal formula to give effect to Parliament’s intention as to the consequences of the failure to give a claim notice to a visible landlord or other stakeholder under section 79(6) flowing from analysis in accordance with the approach in Soneji is that the failure renders the transfer of the right to manage voidable, at the instance of the relevant landlord or other stakeholder who was entitled to, but not given, a claim notice, but not void. It is voidable unless, or until, the tribunal approves the transfer scheme, as the outcome of the resolution of the dispute as to entitlement caused by a counter-notice by a person actually given a claim notice, or as the result of an application by the RTM company under section 85. If the scheme is disapproved by the tribunal, the RTM company will have to start again in any event.”

20. The court further commented at paragraph 91 that, in this context, “the question to be addressed is whether a relevant party has been deprived of a significant opportunity to have their opposition heard…” Focussing on the position of the party directly affected by the procedural omission, on the facts, the tribunal had approved the scheme notwithstanding the fact that the Appellant was not afforded the opportunity to serve a counter notice itself. However, given the management company’s objection had been heard and the Appellant could have raised no further grounds of objection, there was no prejudice to the Appellant. Accordingly, the appeal was dismissed.

Wider Significance

21. Look again at how the Supreme Court described the situation in which Soneji applies at paragraph 58:

“…the correct approach to a failure to comply with a provision prescribing the doing of some act before a power was exercised was…” [emphasis added].

22. The generality of this description indicates the breadth of potential application of the Soneji approach to statutory interpretation. It is clear, both from Soneji itself (see Soneji, paragraphs 14 – 23) and the present case, that conceptual distinctions in approach are generally to be avoided in this context. Soneji therefore represents the correct analytical framework whenever one looks to determine the consequences of non-compliance with a procedural requirement when a statute is silent – whether in the public law sphere or where one is considering a statute affecting private law rights, as here.
23. This result does not necessarily mean that the courts will now be any less forgiving when, say, non-compliance with a statutory procedure affecting property rights is considered – but it is clear that a bright line rule such as that is not the correct starting point. The more nuanced Soneji analysis is required. Of course, the fact that private rights are affected will be a relevant consideration under that framework (see A1 Properties, paragraph 64 – quoted above).
24. Whilst the Soneji approach does not seek to be prescriptive, it nevertheless provides a useful means for practitioners to assess the likely consequences of non-compliance with the requirements of a statutory scheme. To this extent, the endorsement by the Supreme Court in A1 Properties provides an important measure of predictability in what has sometimes proven a problematic area to navigate.

[1] The Supreme Court outlines the statutory scheme at paragraphs 27 – 45 of the judgment.

[2] The Supreme Court sets out the background to the appeal at paragraphs 7 – 20 of the judgment.

[3] The Supreme Court considers Elim Court and Osman at paragraphs 46 – 56 of the judgment.