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Representative action allowed

17 May 2011

Millharbour Management Ltd & 79 ors v Weston Homes Ltd & anr [2011] EWHC 661 (TCC), 22 March 2011

In Millharbour Management Ltd & 79 ors v Weston Homes Ltd & anr [2011] Akenhead J distils some general principles regarding the operation of CPR Part 19.6 (Representative Proceedings) in this property defect dispute between leaseholders and developers of a block of flats in the Docklands, London.

The court should use assumed facts, as set out in the pleadings, when deciding whether a purported representative has the “same interest” as the class which it purports to represent. The court ordered that the claimants could act in a representative capacity. In order that the defendants did not lose any limitation defence in respect of parties not yet joined to the claim, the court should limit the representative capacity to a particular date so that any non-parties, whose claims expire by that date, would be statute barred.

The defects related mainly to excessive heat in the corridors, communal areas and flats caused by the hot water system. Only a portion of the leaseholders were named as claimants, along with the management company (Millharbour Management Ltd) and also a housing association (which acted for 88 social housing tenants). Two of the claimants sought a declaration under r19.6 from the court that they acted in a representative capacity for all leaseholders. The reason for there being two purported representatives was that one (Ms Hills) sought to represent all other leaseholders who had bought their flat from the developers. The other (Ms Truchan) sought to represent all other leaseholders who had not (they had bought their flat from a previous leaseholder).

CPR Part 19.6 provides that where more than one person has the same interest in a claim a claim can be begun, or the court may order that a claim be continued, by or against one or more persons who have the same interest as representatives of any other persons who have that interest.

The defendants argued that:

  • the two individual claimants, whilst having some common interests with the other leaseholders, did not have the “same interest”; or alternatively
  • the court should exercise its discretion against making the order sought because of the weakness of the claimants’ claims, the apparent lack of willingness of some tenants to come forward, lack of particularity in the Particulars of Claim and the possibility that they would be deprived of a limitation defence at least for some parties who had not joined in as actual claimants.

Akenhead J derived the following general principles from the wording of CPR Part 19.6 and the authorities.

  • To enable a party to claim, or be claimed against, in a representative capacity for other parties, that party must have the same interest in the claim in question as those who are to be represented. That is a threshold point which must be established by reference to the facts so far as it is possible to ascertain the facts at the time when the court considers the representative capacity of any party. It is legitimate to proceed by reference to the proposed or actual pleadings to ascertain at least what the facts are assumed to be.
  • It must be possible at any stage during the proceedings to ascertain whether any given person qualifies for membership of the represented class of persons as having the same interest as the party which seeks to represent them.
  • The question of whether and the extent to which parties have the same interest can only be answered by reference to the facts of the particular case, albeit that it will be necessary to determine, amongst other things, whether the representing party and the represented parties in effect have the same cause of action or liability as the case may be, subject of course to the relevant facts ultimately being found to be true.
  • It will be inappropriate, before the final judgement on the issues resolved in relation to the represented parties, for the court to decide the issues or, indeed, to indicate in some obiter way what the answer may well be. That is simply because the court will not have heard full argument and will only have unchallenged written evidence before it at that stage.
  • Once it is clear that there is the same interest, the court has a discretion whether to allow the relevant party to act or to continue to act in a representative capacity. Indeed, the court retains a discretion even at and after the judgment to direct that a judgment is not binding or is not to be enforced. Thus, it is conceivable that, if in the judgment, findings of fact or other law are such that it emerges that one or more of the represented persons does not have the same interest, the judge could well direct that the judgment is not to be enforced against them.
  • The overriding objective must always play an important part in the exercise of the discretion. Thus the saving of cost and time to the parties, and indeed to the court, must be factors in appropriate cases to take into account.
  • Limitation defences could be a factor to take into account depending on when the representative character is sought to be imposed. In general, however, it would be open to a defendant to run a limitation defence in relation to represented parties who were not actual parties to the litigation. If such a defence was established against certain persons, it would be a wholly exceptional case in which the judge allowed the judgment to be enforced by a person who had not been a party to the claim and against whom the limitation defence had been established.

The nature of the claims was legally different for the two represented classes (one was based on straight breach of the sale agreements, the other was based on the Defective Premises Act 1972). However, it was the same defects, the same causes of action and the same loss in respect of which each representative and those whom they represented claimed and would claim if they were parties. At any one time the identity of those represented could be established (via the Land Registry). There was no evidence to suggest that there would be other than generic defences relating to the defects, the causes of action or the loss. Thus the threshold of “same interest” was established.

Turning to the question of whether the court’s discretion should be exercised, Akenhead J considered:

  • the cumbersome and costly procedure of having multiple-claimant property disputes of this kind (ie non-representive proceedings);
  • there was little cost risk to the defendants (the claimants having already taken out an After the Event insurance policy); and
  • the natural and understandable disinclination of some of the leaseholders to become involved in the litigation represents, in many cases including this one, a good reason for allowing the action to proceed in a representative way.

Akenhead J was sympathetic to the defendants’ concerns relating to the loss of limitation defences in relation to leaseholders who were not yet named as parties. However, this issue could be dealt with by limiting the representative capacity to a given date. This date should be the date that, by way of amendment, Ms Truchan, a named claimant, first claimed to be a representative claimant (this was before adding another proposed “representative claimant” – Ms Hills). Thus the defendants could argue that any causes of action by non-claimant leaseholders which were barred by limitation by that date would fail. If there were any such causes of action, any judgment will not be enforceable by such non-claimant leaseholders.

Beverley Vara, Partner in the Real Estate Litigation Group comments: As Akenhead J found in his judgment there are obvious practical, procedural and financial advantages of having a limited number of claimants rather than a huge number of claimants. It is not uncommon for the tenants of substantial blocks of flats to have a common grievance, particularly in the construction context, and parallels in the commercial property arena obviously exist. In the existing market, where professional negligence actions against property professionals are on the rise, this judgment is bound to attract substantial interest.

Michelle de Kluyver, Senior Associate comments: In this case the court was satisfied that the proposed representatives had the “same interest” as those they were seeking to represent and therefore that the court had jurisdiction to order that the claim be continued as a representative claim. The court nonetheless considered whether it should exercise its discretion to refuse to allow a representative claim. The point that most concerned the court in carrying out this balancing exercise was the potential prejudice to the respondents by allowing non‑party leaseholders to become joined to the action where their claims would otherwise be time barred. Where a court allows a representative claim to proceed, a non‑party who is bound by the judgment may only enforce it with the permission of the court (r19(4)(b) CPR). The court considered that this gave the respondents sufficient protection against time-barred claimants and that a representative claim should proceed. Interestingly, the court gave curt treatment to the respondents’ argument that a representative action would (unfairly) involve in litigation scores of leaseholders who did not want to be involved: “the fact that a number of persons … are not particularly keen to become involved in litigation actually represents, in many cases … a good reason for allowing the action to proceed in a representative way”. This case suggests that it may be difficult to convince a court to exercise its discretion not to allow a representative claim to proceed where the court is satisfied that the “same interest” test has been met.

Further information

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution.  For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 (0)20 3088 3710.