Stock transfer agreements and the ability to enter transactions
A High Court judge has coined a new legal stock phrase in a judgment about the meaning of a stock transfer agreement. Matt Hutchings KC explains the ruling.
On 18 December 2024, in the case of London Borough of Bexley v London & Quadrant Housing Trust [2024] EWHC 3295 (Ch), Mr Justice Edwin Johnson handed down judgment in a dispute about the meaning of a stock transfer agreement.
In 1998, Bexley transferred in excess of 4,000 dwellings to L&Q under a stock transfer agreement (STA). One of the schedules to the STA was a Nomination Rights Deed (NRD), which gave Bexley the right to nominate tenants to 75% of “True Voids” in the transferred stock.
At the time of the STA, s.133 of the Housing Act 1988 required L&Q to obtain the consent of the Secretary of State to a subsequent disposal of any property from the transferred stock, subject to exceptions. With effect from 6 April 2017, the Housing and Planning Act 2016 amended s.133 so that L&Q, as a private registered provider, was no longer required to obtain the Secretary of State’s consent to disposals. L&Q began a managed programme of sales of individual, vacant dwellings to private buyers on the open market.
As the number of sales under L&Q’s programme increased, Bexley objected on the basis that they resulted in a reduction of the size of the pool of dwellings over which it had nomination rights. Following pre-action correspondence, Bexley brought a claim against L&Q in the High Court, Chancery Division, on the ground that the sales were in breach of the NRD.
At the centre of the case is an issue of interpretation of clause 6.1 of the NRD, which contains restrictions on L&Q’s ability to enter into certain transactions without Bexley’s consent. The question is: what kind of transactions?
Subject to exceptions, clause 6.1 of the NRD prohibits L&Q from entering into “any merger amalgamation transfer of engagements or any other transaction” without procuring that the disponee enters into a direct undertaking with Bexley to comply with relevant covenants and obligations in the NRD.
L&Q contended that the words “or any other transaction” should be construed ejusdem generis or, as Mr Justice Edwin Johnson put it, apparently coining a new legal phrase, in accordance with the “Same Class Principle”. More prosaically, L&Q submitted that they were a “sweeping up provision”. Bexley argued, to the contrary, that these words introduced an alternative and open category.
In a judgment containing a detailed analysis of the text and internal and external context of the relevant clause, Mr Justice Edwin Johnson concluded that L&Q’s argument was correct. In particular, he reasoned that there was nothing to displace the application of the Same Class Principle in the present case; and that in respect of other phrases within clause 6.1 Bexley’s construction resulted in an unnatural use of language, or they made less sense on Bexley’s construction. Accordingly, clause 6.1 did not apply to L&Q’s programme of sales of individual dwellings.
Matt Hutchings KC is a barrister at Cornerstone Barristers. He was instructed by Lindsey Whittle and Douglas Rhodes, of Trowers & Hamlins LLP, London, for L&Q.
