DBF Law Discusses Bad Cases | Davis Blank Furniss Solicitors

As a commercial lawyer, cases sometimes come along that make you raise an eyebrow or even just sigh, as you realise a judge (quite unnecessarily) has just made your life more difficult.

Often this happens when the court is seeking to achieve a fair result in a specific case but doesn’t factor in the unintended consequences of the decision.

The recent tax case of McQuillan v HMRC ([2016] UKFTT 305) is a case in point: in order to help a husband and wife qualify for Entrepreneurship Relief, the First Tier Tribunal managed to decide that shares that don’t carry any dividend rights at all effectively carry a fixed zero percent dividend and are, therefore (as fixed dividend shares) not included in a company’s ordinary share capital.

Given that shares with voting and capital rights which don’t carry a dividend have always until now been regarded as ordinary shares – both by practitioners and HMRC themselves – and that all sorts of tax and other legal consequences can flow from the structure and ownership of a company’s ordinary share capital, it is to be hoped that this rather surprising decision is reversed when the matter gets in front of the Upper Tribunal. An appeal by HMRC is ongoing.

The other trigger for troubling case law tends to be judges living in Ivory Towers, far away from real world commercial practice. A recent example of this is the case of Dooba Developments Ltd v McLagan Investments Ltd ([2016] EWHC 2944 (Ch)), where the court was persuaded to listen to a clever grammatical argument and find ambiguity where none existed in commercial reality.

A contract related to the purchase of some land and its development as a superstore. The contract was based on a standard precedent often used in such developments. The buyer had a right to rescind a conditional contract where “all of the Conditions have not been discharged … by the Longstop Date”. There is no real commercial ambiguity as to what was intended here. However there is grammatical ambiguity. What happened was that some but not all of the conditions had been met by that date.

In the initial summary hearing the High Court had previously applied a commercial, common sense interpretation based on the principles set out in Arnold v Britton ([2015] UKSC 36) and decided that the clause entitled the buyer to rescind unless all of the contractual conditions had been satisfied by the longstop date. On appeal from the summary decision, however, it now applied a more literal approach based on grammatical correctness and determined that the right to rescind only applied where none of the conditions had been discharged by the longstop date.

The pendulum has been swinging between strict and purposive construction of documents for many decades now of course, but this particular decision doesn’t seem to assist in giving parties the certainty of interpretation which those who argue for stricter interpretation claim as the main benefit of such an approach.

The practical effects of this case – indicating as it does that the High Court will now ignore common sense interpretation to resolve an ambiguity in favour of applying strict grammatical construction – are to ratchet up the paranoia levels required when drafting any commercial contract (no doubt adding time and cost across the board) and, on a more general level, make it less likely that agreements (whether drafted by lawyers or not) will be enforced in line with the commercial intention of the parties at the time. Of course this is just a first instance decision, so it’s possible further guidance will come down from the higher courts in due course.

For more information about Andy and his work, please click here.

Testimonials

Read what our clients have to say...

View All

Excellent experience start to finish – always very responsive to any queries and the turnaround on the property I was buying was very quick, even in the busy time leading up to stamp duty deadline. Jenny was always very helpful and went above and beyond to close on a short timescale.

Ben Armitage

“Very approachable, practical solutions to problems, but most of all very responsive which I personally think is very important because if you need help, you need it quickly, or at least to know someone is looking at it for you”.

Joanne Rowe, Finance Director, Greater Manchester Chamber

“Always able to contact, very approachable, friendly and professional”

Nives Feely, JAM Recruitment

“I believe I have been able to establish a professional working relationship with everyone I have come into contact. Importantly, I sense the relationships which have been established give me the confidence that I can make contact with Davis Blank Furniss at any time and on any matter. I would also like to express my thanks to the very impressive “gatekeepers” who work in reception, not only for making me very welcome, but also for their professionalism”

Bill Pryke, CEO, Chartered Institution of Civil Engineering Surveyors

“Thank you for your efficient and friendly help throughout this process. We have had it easy but your approach has been part of that”.

Robert Amsbury (Conveyancing Client)

“I would like to take this opportunity to thank you personally for the ongoing support and assistance the firm has offered to our parents over the years. I hope also that we may be able to call on you if necessary in the future.”

Valerie Fisher (Probate Client)

“Jo always provides great service, understands our needs and delivers on her promises. Our needs are relatively simple but the complexity arises out of the volume of work and short time frames, Jo always delivers.”

Peter Fernandez, Corporate Director at Royal Bank of Scotland

“A big thank you to all who dealt with my wife’s claim… We would not hesitate to recommend Davis Blank Furniss to anyone that may be in a situation like we have been…”

Anon (Personal Injury client)

“Before putting my case in Kirsty (Morbey)’s capable hands I’ve met a couple of other solicitors. None of them listen to me as intently as Kirsty and showed me as much empathy and understanding as she did. Simultaneously she was able to look at my case from legal perspective, explain all the options and follow each of our meetings with written summary of the discussed matters (in timely manner). Her advice was invaluable and led me to successfully ending the case matter (hopeful for good). I’m forever grateful for he work and would definitely recommend her to anyone looking for reliable, knowledgeable and committed solicitor”.

Anon (Family client)
5 star service

Our Manchester office is rated 5 stars on Google