Baker & Anor v Dunne & Ors

On 14 July 2016 I heard an application made by the claimants, as trustees of the trust of the will of Jean Montgomery, who died on 6 September 1997, for Beddoe relief. I will refer to the claimants as the Trustees. The three defendants are Jean Montgomery’s children who are equal beneficiaries under the trusts created by her will. The application was opposed by the first defendant but supported by his siblings, the second and third defendants. Throughout these and associated proceedings, the first defendant has been referred to as “Jonathan” and I will adopt the same abbreviation in this judgment.

At the end of the hearing I reserved judgment but indicated that I would give my decision by email in the following week and then hand down the judgment in due course. I confirmed by email on 21 July 2016 that the Trustees’ application was granted and an order confirming the relief sought was sealed the following day.

The relevant background facts are set out in a judgment handed down by Master Matthews in claim HC-2014-000274 brought by the Trustees against Jonathan and two companies associated with him. The judgment was given after a trial of the Trustees’ application for an order for possession against Jonathan in respect of the Albert Arms Public House, Esher, Surrey (“the Albert Arms”) which is the principal asset of the trust. I will refer to that claim as the (“Possession Proceedings”).

This claim was commenced by the Trustees in 2014 seeking a determination of an issue of construction concerning Jean Montgomery’s will and for directions about further action to be taken in relation to the Albert Arms. Shortly before the disposal hearing on 27 November 2014, Jonathan conceded the construction issue and the court granted Beddoe relief to the Trustees permitting them to issue the Possession Proceedings in the face of opposition by Jonathan. The order was limited in the first instance to taking the proceedings up to the stage of service of a defence and counterclaim. Subsequently, a further Beddoe order was made giving the Trustees permission to pursue the Possession Proceedings and also giving them an indemnity in respect to their costs out of the assets of the trust. The Trustees were required to report to the court after exchange of witness statements and to report if any events occurred which might alter the Trustees view to the merits of the claim. The Trustees remained authorised by the court to pursue the Possession Proceedings and obtained the order they were seeking.

Jonathan sought permission to appeal the possession order and on 4 January 2016 Briggs LJ granted limited permission to appeal on a new basis of claim which had not been raised at the trial, but refused permission to appeal on the principal ground for opposing an order for possession relied upon by Jonathan, namely proprietary estoppel. No stay of the possession order was granted. There followed extensive correspondence between the solicitors acting for the Trustees (“CRS”) and Jirehouse acting for Jonathan concerning the Trustees’ demand that Jonathan should give up possession of the Albert Arms. I will return to that chronology shortly. Two further procedural events are of note. First, on 26 April 2016 the Claimants were granted permission to issue a writ of possession. Jirehouse were put on notice of that application but Jonathan was not represented at the hearing before Master Matthews. Jirehouse indicated in writing that they did not consent to the order and said that they were putting the Trustees on notice that enforcing the writ of possession would place the Trustees in breach of trust. Notwithstanding that assertion, the order was made in favour of the Trustees. Secondly, the Trustees made a Beddoe application in relation to the hearing of the appeal. The Trustees’ application was issued and served on the 24 June 2016, at the same time as the application seeking Beddoe relief which I heard on 14 July 2016. The Beddoe application relating to the appeal was heard by me on 8 July 2016. Jonathan’s advisors did not attend the hearing, claiming that neither counsel nor solicitors were available. The relief sought by the Trustees was granted.

Jonathan’s appeal against Master Matthews’ order for possession came before the Court of Appeal on 30 and 31 July 2016 when the appeal was dismissed. That outcome was not, of course, known at the hearing before me on 14 July 2016.

In summary, therefore, the Trustees obtained an order for possession following a trial. The order for possession was not subject to a stay and the Trustees obtained permission to issue a writ of possession. At all stage the Trustees have acted with the approval of the court. Steps toward obtaining possession of the Albert Arms have, therefore, reached an advanced stage and Mr Moeran QC’s starting submission on behalf of the Trustees was that they did not require the court’s sanction to take steps to obtain vacant possession of the Albert Arms and to sell the freehold but were only doing so out of an abundance of caution in view of Jonathan’s threat to bring a claim for breach of trust.

I turn to the steps taken by the Trustees after judgment for possession was granted by Master Matthews. The following is a summary and omits some of the less important events:

The correspondence continued and during the intervening period the Trustees were granted permission to issue a writ of possession. On 5 May 2016 the Trustees obtained specialist marketing advice from AG&G who advised the Trustees to sell the Albert Arms with vacant possession rather than sell to Jonathan. On 17 June 2016 the Trustees obtained valuation evidence and advice from Mr Trevor Watson of Coffer, another firm specialising in licensed premises. Mr Watson advised that with vacant possession, and as a fully equipped operational entity, The Albert Arms had a value of £2 million. However, he also advised that if Jonathan remained in occupation on the current basis (Jonathan had been in possession on an informal basis without paying any rent for 3 years) the value of the property would be nil. The market value of property occupied by publican on an FRI lease at a market rent was £1.6 million.

On 7 July 2016 Jirehouse wrote to CRS a letter expressed to be a letter for claim. It was, in reality, an open offer by Jonathan to acquire the freehold of the Albert Arms, accompanied by the threat of proceedings if the offer was not accepted. The letter enclosed draft particulars of claim setting out the claim Jonathan was threatening to bring against the Trustees for breach of trust and for passing off. It is, however, unnecessary to dwell on the calculation of the offer set out in the letter because, as Ms Stanley QC who appeared for Jonathan at the hearing accepted, the offer did not make arithmetical sense and cannot be relied upon by Jonathan. It is necessary, however to consider the threatened claim.

Jonathan and two of his companies are the proposed claimants and are collectively described in the particulars of claim as the “AA Group”. The claim asserts that the AA Group has run a pub and restaurant business from the freehold property, the business being known as “the Albert Arms” and “Albert Mews”. (For the purposes of this judgment, and to avoid confusion, I will refer to it as “the Business” and the freehold property as “the Albert Arms”). They plead that the AA Group has undertaken a range of activities under those names including the rearing of animals such as English Longhorn cattle, rare breed pigs and chickens, providing accommodation, conference services and other related activities. The AA Group claims to own the copyright and related rights in the Albert Arms logo and it is said the names have been used in a wide variety of contexts including on the website www.albertarms.com and on social media. Furthermore, the services provided by the AA Group have been reported in travel guides, a national newspaper internet sites such as tripadvisor. Based on these facts it is asserted that the AA Group acquired goodwill in the names used for the Business, the logo used for that business and acquired a reputation in the fields of hotelier services, conference services, restaurant catering, food and beverage services.

The heart of the passing off claim is set out in paragraphs 17 and 18 of the draft particulars of claim. The “scheme” referred to is the sale of the Albert Arms with vacant possession with the associated business as a going concern.

“17.

Should the Trustees follow through on their threatened scheme, any trading, marketing, and any sale purporting to be of a going concern would;

(1)

Represent that the business was trading through or with the AA Group’s approval or authority (and not that of another company);

(2)

Represent that the services were being provided, or made available, with the AA Group’s approval or authority (as not that of another organisation or group);

(3)

Represent that the Albert Arms business was continuously trading as part of the AA Group and that the same custom ought to be attracted;

(4)

Represent that any such marketing or sale was with the AA Group’s approval, authority, or sanction.

18.

However, the representations would not be true as;

(1)

Any such trading or provision of services would not be within the AA Group’s approval or authority;

(2)

The business would not have been continually trading as part of the AA Group;

(3)

Any trading as the ‘Albert Arms’ or anything colourably similar would not be affiliated with the AA Group;

(4)

There would be no ongoing link between the AA Group and the Freehold property.”

The breach of trust claim alleged in the draft particulars of claim is set out in paragraphs 34-36 of the draft particulars of claim. It is unnecessary to set it out in full. It suffices to say that a number of allegations are made against the Trustees including that they have failed to take any adequate advice, they have failed to take into account Jonathan’s position if vacant possession is given, they have given undue weight to the interest of his siblings and that they have introduced barriers to a negotiated sale of the property to Jonathan.

It is understandable that Jonathan has wished to maintain his connection with the Albert Arms and the Business. He has been involved with the Business over a lengthy period of time and invested money both in it and the Albert Arms. However, he has never had any legal or personal interest in the Albert Arms and no right to possession of it. His entitlement as a beneficiary of the trusts created by his mother rank equally alongside those of his siblings and do not include any interest in the Albert Arms. It is also of some note that he has been able to run a profitable business from the premises for at least 3 years without paying any rent or other compensation to the Trustees.

The position is, at least superficially, complicated by a series of overlapping and entangled rights and entitlements. Master Matthews distinguished between the legal estate of the Albert Arms, which is vested in the Trustees, and the Business carried on at the property by Jonathan. It is a distinction which the Trustees have accepted for some time.

However, the Albert Arms has been operated as a pub since the mid 19^th century and the name of the property is the same as the main name used by the Business which Jonathan claims is his. Some of the goodwill relating to the Business is undoubtedly personal to Jonathan and his companies but, inevitably, much of the goodwill relating to the business of running a pub and hotel at the Albert Arms is adhesive to the property. The fixtures and fittings form part of the property and, as CRS have rightly pointed out, Jonathan has no right to remove them. By contrast, chattels which have been used for the purposes of running a pub and a hotel (chairs, tables, beds, optics and so on) may belong to the Business depending upon when they were acquired.

The Trustees have received unequivocal advice from Mr Watson of Coffer, who is a specialist valuer in the field, that the value of the property with Jonathan in occupation on the current basis is nil whereas the value of the property run as a business, without Jonathan in occupation is £2.1 million. In the light of that advice, Trustees seek the courts approval to enforcing the order for possession.

Jonathan’s passing off claim is based upon the premise that the inevitable consequence of selling the Albert Arms, with an associated business carried on there as a going concern, is that the representations set out in paragraph 17 of the draft particulars of claim will be made and such representations will not be true. Leaving aside whether it can be said that the representations would have been made by a trader in the course of a trade, it seems to me that the premise is fallacious. The right to use name of the property and the goodwill of the business was given to the Trustees by the will:

“I GIVE to my Executors all my interest in the freehold public house known as The Albert Arms … including the contents thereof the stock-in-trade and the goodwill of the business of publicans run from the premises ….”.

It is not open to Jonathan to appropriate that goodwill to himself by virtue by virtue of his occupation and use of the Albert Arms without legal entitlement. Such goodwill as is truly personal to him and his companies will remain his and may be taken with him.

It is possible to conceive of circumstances in which the sale as a going concern would, wrongly, represent that the Business is being sold but it is far from an inevitable consequence. The Trustees, if they obtain vacant possession, will be entitled to put in a manager to operate a business from Albert Arms but it does not follow that it will be the Business. Upon obtaining vacant possession the Trustees will create a new business and, as Mr Moeran QC points out, it will, in the usual way, be made clear that the Albert Arms is under new management. At that stage Jonathan and his companies will not have any business in the name of the Albert Arms to be damaged, save perhaps aspects of the Business, such as the pedigree herds, which are not adherent to the property. This is not a case of the Trustees appropriating Jonathan’s property but, rather, claiming back from property which he had no right to occupy for the purposes of a business. The idea of an unlawful occupier of premises developing goodwill in a business carried on in those premises and then asserting a right of passing off against the lawful owner is not an attractive one.

At the outset of the hearing Ms Stanley QC sought an adjournment on the basis that the 2 hour time estimate was inadequate and in the light of Mr Moeran QC’s challenge to the passing off claim outlined in his skeleton argument, she wished to consider it with the IP junior who had settled that part of the claim. The application was refused. It seemed to me that Jonathan’s advisors had had adequate notice of the time estimate of the hearing, had taken no objection to it and must have been aware of the likelihood of a challenge to his proposed claim. It was a matter for Jonathan’s advisors to decide upon the representation he required for the hearing and Ms Stanley QC’s professional difficulty in dealing with the IP aspect of the claim did not appear to me to provide a sufficient basis for an adjournment.

There was also concern expressed by Ms Stanley QC about the late provision of a bundle. However, the chronology provided by Mr Moeran QC clearly demonstrated that a draft index for the bundle had been supplied to Jirehouse on 5 July 2016 without any response being received from them. Furthermore, Jonathan’s advisors had had an adequate opportunity to obtain advice from Mr Willis in connection with the report from Coffer.

The evidence supporting the application was provided in the fifth witness statement of James Lister which helpfully sets out the background and exhibits the relevant documents. One of the exhibits is the witness statement made by the third defendant, Jonathan’s brother, in the possession proceedings. He points to the long delay between Bruce Montgomery’s death in February 2013, which ended his life interest, and the realisation of the principal asset of the trust. He sets out clearly the prejudice which that has caused to him and his sister. They are each entitled to one third of the assets of the trust and the long delay in realising that interest has caused financial difficulty for him. Mr Mullen, who appeared for the second and third defendants, points to the history of very unsatisfactory conduct on the part of Jonathan including that he:

I would add that it does not help Jonathan’s cause that the open offer made on 7 July 2016 which was accompanied by the draft particulars of claim, cannot be relied upon as plainly it has not been fully and carefully thought through.

It seems to me that the Trustees were perfectly entitled to proceed cautiously. At the time their application was issued, Jonathan’s draft particulars of claim had not been provided but, plainly, the issue of the application was prescient. Ms Stanley QC criticised the form of the application as failing to comply with paragraph 7. 2 of the Practice Directions 64B. In particular, the application was not supported by advice from an appropriate qualified lawyer about the prospect of success. To my mind such a complaint misses the point. The Trustees obtained the court’s approval prior to issuing the Possession Proceedings and subsequently when a key stage in the Possession Proceedings had been reached. Having been successful in that claim, they obtained an order from the court giving permission to issue a writ of possession, an application which was not actively opposed by Jonathan. The proceedings are at a stage well beyond the need for advice about the prospects of success. The Trustees now seek approval from the court to implementing the order for possession and, in effect, seek from the court protection against any claim Jonathan might wish to bring arising from that step.

The Trustees were also criticised for failing to provide evidence that the advice from AG&G and Coffer had been considered by the Trustees. Again, it seems to me such a criticism is without any real substance. The advice is expressly relied upon by the Trustees and is put forward by Mr Lister in his witness statement made on behalf of the Trustees as their authorised legal representative. It would be professionally improper for them to do so without having obtained the authority and approval from the Trustees and I am satisfied that I could safely assume that this basic step has been undertaken.

The real issue in the application for Beddoe relief is how the Trustees should realise their interest in the Albert Arms and whether the sale should be undertaken with vacant possession. In seeking approval to obtaining vacant possession they rely on the advice they have received which has not been contradicted. The advice from Coffer, that the value of the Albert Arms with Jonathan in occupation is nil, is underpinned by the enthusiasm Jonathan has shown for litigation. He has made it plain that he wishes to continue to operate the Business at the Albert Arms. He conflates the two and proceeds on the basis that because he has been carrying on the Business he has acquired rights which affect the Trustees’ ability to undertake their duty to realise the principal asset of the trust to the best advantage of all the beneficiaries. It is, to my mind, inconceivable that Jonathan could safely be left in occupation of the property while a sale was taking place. He has no legal arrangement with the Trustees. They have no legal means to regulate his activity and there is a very real risk that were he to remain in possession the Trustees would not be able to realise the full value of the property. The Trustees plan, on advice from Coffer, is to, immediately upon obtaining vacant possession, create a “pop up” pub and hotel business at the Albert Arms with the assistance of a professional manager. The property, with that business as a going concern, will not be Jonathan’s Business but a new business run from the property, and will be sold. Jonathan will be free to bid for that business and an interest in the property along with third party purchasers. As Mr Moeran QC pointed out, if it transpires that there is a lack of market interest in the Albert Arms that will be to be Jonathan’s advantage in that he can, effectively, obtain the property at a under value, or at least at value less than that indicated by Coffer. In short, the Trustees case is that there are strong practical and financial reasons for vacant possession to be given and it will not necessarily be to Jonathan’s disadvantage if that occurs.

Mr Mullen, on behalf of the second and third defendants strongly supported the Trustees case. He submitted that a sale with vacant possession was required not just to maximise the value but to, in reality, make any sale at all as the market for the Albert Arms with Jonathan in situ running the business was non-existent.

Mr Moeran QC submitted that the court could safely disregard the proposed claim set out in the draft particulars of claim because it would be an abuse of the court’s process for Jonathan to pursue it but given that he has had an ample opportunity to pursue a breach of trust claim and a passing off claim since at least October 2015 when Master Matthews judgment was handed down. Although indications of a breach of trust claim that have been given in correspondence, they were never fully particularised. I accept the process of drafting the proposed claim started before the Trustees application was issued however, the draft claim was put forward at a very late stage. Ms Stanley QC submitted that Jonathan could not be criticised for failing to put forward and to bring a claim for passing off as he was unaware of that possibility until fairly recently.

The principles relating to abuse of process are set out in the White Book (2016) Vol 1, at 3.3.3.2. Ms Stanley QC relied on the summary of the principles set out in Stuart v Goldberg Linde [2008] 1 WLR 823 CA which are summarised in the White Book as follows:

“The Court of Appeal made four points of general application: [1] if the prospects of success are uncertain but the case is not suitable for summary judgment for either party, it is inappropriate to weigh the prospects of success in the balance in deciding whether it is an abuse of process to bring the claim in the later proceedings …; [2] delay, of itself, is not relevant to whether the second claim is an abuse of process; [3] a claimant’s failure to use reasonable diligence in finding out facts relevant to whether they had a possible claim might be relevant to the abuse of process issue, but there was no general principle that a potential claimant was under a duty to exercise reasonable diligence to find out the facts relevant to whether they had or might have a claim; [4] a claimant who keeps a second claim up their sleeve while prosecuting the first is at high risk of being held to have abused the court’s process. Furthermore, as was stated in Aldi Stores, the proper course is for the claimant to raise the possibility of the second claim with the court so that appropriate case management directions can be given.”

On any view, the proposed claim, which has not been issued, has come forward at an extremely late stage of the proceedings after the Trustees have succeeded in obtaining an order for possession and permission to issue a writ of possession. It has all the hallmarks of a last desperate attempt to prevent a sale taking place in the light of the advice the Trustees have received about the best course of action for them to adopt to realise the maximum value in the Albert Arms. Indeed, the claim was provided in draft with an offer (albeit a defective one) with a view to putting pressure on the Trustees to accept the offer.

In the absence of any real alternative to obtaining vacant possession and selling in accordance with the advice obtained, it is difficult to see how they could be a claim for breach of trust against the Trustees. The claim for breach of trust amounts to little more than a complaint that the Trustees have chosen not to sell the Albert Arms to Jonathan, whereas the true position is that the offer he has put forward is not one that can properly be taken into account. On a sale with vacant possession, he is entitled to bid along with other potential purchasers. His wish to remain in occupation of the Albert Arms and in control of it is understandable but he simply has no legal basis for doing so.

In my view the passing off claim has no substance and no real prospect of success for the reasons I have given.

In neither case is the court falling foul of the first of the four principles derived from Stuart v Goldberg Linde because the court is in a position to form a clear view about the merits of both claims.

Although delay is not of itself sufficient to amount an abuse of process, the late discovery by Jonathan of the possibility of bringing a claim for passing off, does not assist him because he has known the facts upon which such a claim is based from the outset. He has had access to legal advice throughout and the fact that his advisers had no raised the possibility of bringing a claim for passing off does not help him. Clearly there has been very extensive delay and the proper time for bringing forward the proposed claim was, at the latest, when the Trustees sought permission to issue a writ of possession. Although Jonathan has not been the claimant, he has made positive claims. Even if he has not held the passing off claim up his sleeve because he was unaware of it, he failed to investigate the legal position adequately. And the breach of trust claim is one which has been asserted on several occasions but not explained or pursued despite Jonathan having had an ample opportunity to do so. Allied with the approach to litigation Jonathan has shown, which I have summarised, I am satisfied that the attempt to bring a claim against the Trustees at this stage is an abuse of the court’s process and should not be permitted.

The Trustees are authorised to proceed to obtain vacant possession of the Albert Arms against any persons in occupation and to sell the property and are entitled to an indemnity in respect of their costs from the trust.