Below is a short note on the Court of Appeal decision in this case:
This is the much awaited decision of the Court of Appeal in the final round of the Mundy saga.
The right of appeal was confined to a point of law arising out of the Upper Tribunal (UT) decision. The Court clarified that the applicable test was the ordinary first appeals test. Mr Mundy had succeeded on obtaining permission to appeal on one ground and two more grounds were adjourned for consideration by the full court of appeal.
The Court set out the background to the key issue in Mundy, namely that pinning down relativity for the purposes of determining the amount of marriage value under Schedule 13 to the 1993 Act. It commented that ‘the holy grail would be a method of determining relativity that is both reliable and simple to apply.’ (para 13). The failure of the RICS working party to produce a standardised approach was remarked upon. Interestingly Jonathan Gaunt QC (who appeared for the landlords) chaired that group.
The court recited the historic, known issues with the Gerald Eve Graph. It was prepared using a set of settlements from around 1975 onwards agreed for the Grosvenor Estate.
In particular the Court looked at two of the transactions analysed in Mundy. Flat 3 and Flat 5. The UT had adopted the 2002 Savills enfranchiseable graph and made a deduction of 10% for Act rights.
The ground on which leave to appeal had been granted was the argument that the comparison between the value of the lease in the real world (with rights under the 1993 Act) and the value of the lease without such rights as shown by the Parthenia model was an illegitimate comparison. The legal effect of the Act prevents the valuer (and the UT) from having regard to any leasehold transaction in the real world where the lease attracts rights under the Act.
The court rejected this view. It said that it was a question of fact for the UT and not something that raised a point of law at all.
In addition, it was acceptable for the valuer to take real world items and make a comparison with adjustments. This is an accepted way of carrying out a valuation.
The court also looked at the so-called circularity argument. This is the idea that the Gerald Eve Graph has tainted all other market sales. The Court rejected this argument. The UT had considered the available evidence and had based its decisions on what it had considered the ‘least unreliable’ evidence. The court said that to describe the market as ‘corrupted’ was an overstatement. It was noted that markets sometimes behave irrationally, examples being the tulip mania and the South Sea Bubble. It was noted that ‘the open market may be a false market in that it is based upon false assumptions, but it is still the open market.’ (Lord Hoffman in Electricity Supply Nominees Ltd v London Clubs Ltd [1988] 2 EGLR 152).
The next point considered was the ‘no act world’ – the Court pointed out that the intention of parliament was to construe this narrowly. The flat itself is to be considered to be within premises to which the Act does not apply, but the restriction is not to apply to the world at large. No Act building would be a better short hand.
Finally, the Court concluded that the UT was entitled to state that the Parthenia model should not be used in its current form in any future cases. It is the function of the UT to provide guidance. ‘The UT was well within the scope of its functions in ruling out future use of the Parthenia model in its current form.’ (para 50).
The Court of Appeal recognised that at the invitation of the government the Law Commision is to consider the simplification of valuations under the Act, as the Court said, ‘It may therefore be that the holy grail will one day be found.’
Mark Chick
7.2.2018