Network Rail Loses Japanese Knotweed Appeal

Network Rail has lost its appeal in NetworkRail Infrastructure Limited v Stephen William and Robin Waistell [2018] EWCA in a judgment handed down by the Court of Appeal on 3 July 2018.

Neighbours Stephen Williams and Robin Waistell, who own adjoining semi-detached bungalows in South Wales, issued private nuisance claims in 2015 against Network Rail (NR), arguing that the Japanese knotweed on its land encroached on their properties and, by being within 7 metres of them, interfered with their quiet enjoyment of, and caused a loss of amenity in respect of, their properties by reducing their market value.

Japanese knotweed is designated as ‘controlled waste’ by the Environmental Protection Act 1990 with the consequence that if you want to move it off site, only licensed organisations can remove and dispose of it. This makes treatment expensive.

According to the Council of Mortgage Lenders’ policy, where Japanese knotweed is within seven metres of a habitable space, the valuation of a property can be affected and some lending institutions make special provision in their lending policies for this.

The County Court at first instance found that the claimants were entitled to succeed in a claim for private nuisance because of the reduced market value of their respective properties caused by the close proximity of Japanese knotweed. NR had knowledge of the presence of Japanese Knotweed and their treatment was found to be inadequate and unreasonable and in breach of their duty as landowner, causing a continuing nuisance and diminution in the value of the properties.

The Court of Appeal has unanimously upheld that decision, but for different reasons.

The Court of Appeal has ruled that the claimants cannot claim in private nuisance merely because of the diminution in the properties’ market value.

They can claim however in respect of the encroachment of Japanese Knotweed rhizomes because they have diminished the claimants’ ability to enjoy the amenity and utility of their properties.

Success for the claimants then, but what about the wider implications for the law of private nuisance?

Sir Terrence Etherton, Master of the Rolls, said It was wrong in principle for the Recorder to hold that the presence of knotweed on NR’s land within seven metres of the claimants’ properties was an actionable nuisance simply because it diminished the market value of the claimants’ respective properties because of lender caution in such situations. He went on to say:

“This is because the purpose of the tort of nuisance is not to protect the value of

property as an investment or a financial asset. Its purpose is to protect the land’s intangible amenity value which concerns landowners’ use and enjoyment of the land. The

amenity value of a property, for the purposes of actionable private nuisance, does not include the right to realise or otherwise deploy the value of the property in the owner’s financial interests. To extend the tort of nuisance to include such a claim for pure economic loss would be a radical and unprincipled reformulation of the purpose and scope of the tort.”

Critical in this case was the encroachment of Japanese knotweed on to the neighbouring properties.

“Japanese knotweed, and its roots and rhizomes, does not merely carry the risk of future physical damage to buildings, structures and installations on the land; its presence imposes an immediate burden on landowners who face an increased difficulty in their ability to develop, and in the cost of developing, their land, should they wish to do so, because of the difficulties and expense of eradicating Japanese knotweed from affected land. In this way, Japanese knotweed can fairly be described as a natural hazard which affects landowners’ ability fully to use and enjoy their property and, in doing so, interferes with the land’s amenity value.”

Following the ruling, a Network Rail spokesperson said:

'As many gardeners know, Japanese knotweed is invasive and requires several years of treatment to remove. Once identified, Japanese knotweed growing on our land is entered into a treatment programme. We will continue with this established regime, which complies with legislation and helps us run a safe, reliable railway. Network Rail is aware of today’s ruling by the Court of Appeal and is considering its implications.'

The Law Society Gazette quotes Lincolnshire firm JMP Solicitors, which represented Williams, as saying it has hundreds of cases against public bodies and new home builders who have not addressed the knotweed problem.

The Court of Appeal refused to give NR permission to challenge the ruling in the Supreme Court.

Property lawyers must ensure they carry out adequate due diligence on Japanese knotweed.

Sellers of residential property must confirm (on the standard property information form TA6) whether the land is affected by Japanese knotweed and, if it is, whether there is a management plan in place to control it. The replies given to such enquiries must be considered very carefully.

There’s a greater risk for buyers of new build homes however, as builders and developers are not obliged to complete Form TA6. A specific enquiry should therefore be made.

For commercial property, standard property enquiries CPSE 1 were updated on 13 March 2018 to Version 3.7, which adds to enquiry 8.1 a specific enquiry asking for details if the property has been affected by Japanese knotweed (enquiry 8.1 (e)).

When buying any property, as well as making sure the relevant enquiries are raised, you should also make your own site investigations to satisfy yourself whether there is any Japanese knotweed present. If it is, a proper management plan backed by a transferable guarantee or warranty ought to satisfy most lenders and should be obtained before completion.

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Property Fraud – Dreamvar Appeal

The Court of Appeal has handed down its eagerly awaited judgment in Dreamvar v Mischon de Reya and, in the same appeal, P&P Property Limited v Owen White & Carlin LLP.

The headline is that solicitors representing fraudulent property sellers should share responsibility for any resulting losses along with solicitors acting for the duped buyers.

I mentioned the High Court Dreamvar judgment in a blogpost last year, so I won’t go over the facts of the case again.  The facts of P&P are summarised in the judgment.

Last year's ruling caused much concern as the High Court found the buyer’s solicitors, MdR, liable for the loss suffered by their client on grounds of breach of trust. MMS, acting for the seller, were not held liable notwithstanding inadequate client identity checks. This was on the basis that MdR’s insurers were best able to bear the loss.

On appeal, MdR did not contest the breach of trust finding, although sought relief under Section 61 of the Trustee Act 1925.

The Court of Appeal ruling means that if sellers’ solicitors fail to carry out sufficient checks on their clients, they must share in the responsibility for the loss – it cannot fall solely on the buyer’s solicitors.

This seems fair, as the solicitor acting for the seller is after all in the best position to carry out these checks.

There will be some however who argue the liability should fall entirely on the seller’s solicitors, rather than be shared between those acting for the seller and those acting for the buyer, and the dissenting judgment of Lady Justice Gloster in the Court of Appeal is interesting in supporting this view.

Lady Justice Gloster considered that the Court should grant relief to MdR under Section 61 of the Trustee Act 1925 because MdR did not act dishonestly; had acted reasonably; and “on the facts, primary responsibility for checking the true identity of the fraudster lay with the latter’s solicitors, namely MMS”.

Lady Gloster further comments:

“I do not consider that the fact that MdR is insured should in the circumstances of this case lead to the conclusion that MdR should bear financial responsibility for Dreamvar's loss. Dreamvar was entering into what was for it a relatively substantial property development as a business transaction. I do not consider that the Court's sympathy should be with one commercial party (in reality with its loan creditors, given its insolvency) rather than another, simply because one, and not the other, has insurance. It is irrelevant, in my view, that Dreamvar was a newly formed company or that its beneficial owner was a young man… There was no suggestion that MMS' insurance would not be adequate to cover the loss”.

This was not however the majority view of the Court of Appeal (2-1).

The fact that solicitors acting for both sides in a transaction could be held liable in the case of fraud could have significant impact on the cost of indemnity insurance for those firms carrying out conveyancing.

Simply following established “Know Your Client” and money laundering procedures won’t be enough to escape liability if the fraudsters succeed.

It remains unclear as to what firms should do to avoid this risk.

As far as the detailed issues under consideration in Dreamvar, they can be briefly summarised as follows:

·       Failure to Warn – at first instance it was held there was no duty to warn a client of the potential risk of identity fraud, and this was not discussed further on appeal. Firms will nevertheless want to develop a risk assessment framework in the light of the latest judgment (eg if the property is vacant with no mortgage and the transaction must be done double quick, alarm bells should start ringing).

·       Identity Undertaking – there is no such undertaking under the Code for Completion by Post (the Code) or the Conveyancing Protocol.

·       Breach of Trust by Buyer’s solicitors (MdR) – this was conceded on appeal based on MdR’s release of the purchase monies to MMS. The Court of Appeal would not grant relief under Section 61 of the Trustee Act 1925.

·       Negligent client verification by seller’s solicitors – this was admitted at first instance but did not affect where the Court found the liability should fall.

·       Breach of Trust by Seller’s solicitors (MMS) – the High Court rejected this allegation, but this was overturned on appeal, with the Court of Appeal ruling there had been breach of trust by MMS.

·       Breach of undertaking by Seller’s Solicitors (MMS) – the Court of Appeal ruled there had been a breach of the undertaking by MMS (under paragraph 7 of the Code) that it had the seller’s authority to receive the purchase money on completion. This overturned the High Court’s decision. In the circumstances, Dreamvar’s alternative argument that MdR were negligent by failing to obtain such an undertaking from MMS was dismissed.

·       Warranty of Authority – this was held at first instance as being limited to having the authority of the client – ie the fraudster – rather than the authority of the true registered proprietor. The claim for breach of warranty of authority in P&P failed on appeal due to lack of reliance being found to have been placed on the warranty.

It will be interesting to read the many commentaries that will emerge on this case over the coming days once the terms of the judgment have been digested.

I’ll continue to tweet links to any that catch my eye– do follow me on twitter if you don’t already.

UPDATE 16 May 2018

The more I think about it the more I am persuaded by and agree with the argument of Lady Justice Gloster in her dissenting judgment - basically that the seller's solicitors (or in practice their insurers) should bear financial responsibility for the buyer's loss in cases such as this as they are the ones who have primary responsibility for verifying the identity of the purported seller. I wonder, in view of her concise and well-argued dissenting judgment, whether the Court of Appeal's ruling will be appealed to the Supreme Court?

In the meantime, it would be prudent when acting for a buyer to ask for a specific signed statement or warranty from the seller's solicitors that they have carried out all appropriate identification and verification of their client, and to confirm that the buyers are relying on that statement or warranty.