Challenge to lockdown regulations heard by the Court of Appeal – Judgment

The Court of Appeal today handed down its judgment in respect of the proceedings brought by Simon Dolan and others (“the Appellants”) seeking to challenge the lockdown measures introduced in England in March 2020 via the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 (SI 2020/350) following the outbreak of COVID-19 (see our earlier post regarding this challenge here, and the judgment here).

Although as the Court said the proceedings were now academic, it considered that it was in the public interest to have the issues determined rather than left for potential argument in defence to criminal proceedings, and bearing in mind that the Government was continuing to use the powers at issue.

Accordingly, the Court granted the Appellants permission to bring their claim for judicial review but only in respect of their argument that the Government had no power to make the lockdown regulations under the legislation on which they were relying (the Public Health (Control of Disease) Act 1984, as amended by the Health and Social Care Act 2008). However, the Court held that this legislation did indeed give the Government the ability to make a public health response such as the lockdown in the context of a widespread epidemic.

The Court refused the Appellants’ permission to appeal against the Administrative Court’s decision on their other grounds, which included: that the Secretary of State fettered his discretion and failed to take into account relevant considerations when considering easing the lockdown; and that the Regulations were unlawful because they breached human rights and were contrary to section 6(1) of the Human Rights Act 1998. In considering that these grounds were not properly arguable, the Court emphasised the wide degree of latitude that the Government must have for decision-making in respect of public health.

The Court also gave a general caution against treating judicial reviews as evolving or “rolling” proceedings, and parties filing “excessively long” pleadings. It also criticised the Appellants for taking two months to start their claim, rather than very promptly following the making of the Regulations in March 2020.

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Challenge to lockdown regulations heard by the Court of Appeal

In an earlier post, we covered a challenge brought by the entrepreneur Simon Dolan and others (“the Claimants”) seeking to challenge the lockdown measures introduced in England following the outbreak of COVID-19 (“Dolan 1”). At that stage, the Administrative Court had refused permission to apply for judicial review in July on the basis that the Claimants’ grounds of challenge were either academic or could not be reasonably argued.

The Claimants launched an appeal against the decision, and the Court of Appeal (through an order of Hickinbottom LJ dated 4 August 2020) ordered that the grounds should be considered by the court at a rolled up hearing to give the Claimants an opportunity to make their case on arguability. The matter was heard yesterday and today (29 and 30 October), and judgment has been reserved.

Proceedings in the Court of Appeal

Hickinbottom LJ’s order did not itself grant permission for the appeal to be heard on the substantive issues. Hickinbottom LJ’s order observed that the appeal raised important issues as the challenged regulations “impose possibly the most restrictive regime on the public life of persons and businesses…outside times of war…” and that “they potentially raise fundamental issues concerning the proper spheres for democratically-accountable Ministers of the Government and judges”. On that basis­, he ordered a rolled up hearing i.e. a hearing where the court would consider permission first, and if permission were granted in any aspect of the case, for the substantive arguments to be heard at the same time. Hickinbottom LJ also agreed with the Claimants that the case warranted expedition – in fact, the case was originally listed for 23 September but was adjourned to this week.

In practice, the distinction between the permission stage and substantive stage was blurred during this week’s hearing and the Court heard some substantive arguments from both sides. That is likely to be reflected in the judgment. Indeed, even if permission is refused, the Court may end up commenting on substantive aspects of the claim rather than simply giving brief reasons for refusing permission.

In the course of their written and oral submissions, the Claimants argued:

  1. That each of their judicial review grounds challenging the regulations were in fact arguable and should be upheld. A summary of these grounds is set out in our previous post and can also be found at paragraph 24 of Mr Justice Lewis’ judgment in the Administrative Court. While the original claim was filed against the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 (as amended) (“the Lockdown Regulations”), the focus of the appeal is on the Health Protection (Coronavirus, Restrictions) (England) (No 2) Regulations 2020 (“the No. 2 Lockdown Regulations”) which came into force on 3 July 2020. The oral hearing also touched on the patchwork of regulations setting out the new three-tier system in England, which has superseded the No. 2 Lockdown Regulations to a large extent.
  2. That the Administrative Court erred in refusing the Claimants permission to amend their grounds to allow a challenge to the Secretary of State’s decision to instruct schools to close.
  3. That the Administrative Court erred in finding that certain grounds of challenge were ‘academic’, especially given the risks that restrictions (including a full national lockdown) could be re-imposed.

As we note above, the Lord Chief Justice, Lady Justice King and Lord Justice Singh have now reserved judgment after the two-day hearing.

Second challenge (“Dolan 2”)

In parallel, Mr Dolan has also launched separate proceedings against the Secretaries of State for Health and Social Care, the Home Department, and Business, Energy and Industrial Strategy. This claim has been brought by Mr Dolan along with Cripps Barns Group Limited (a wedding events organiser) and another individual (Lauren Monks). This claim targets specific regulations introduced by the Government – specifically the regulations introducing the ‘Rule of Six’, the 10 PM curfew, the restrictions on gatherings, the wearing of masks, and the restrictions on venues to not take bookings of more than six people and to prevent ‘mingling’. These measures were either introduced through standalone regulations or by amending the No. 2 Lockdown Regulations to introduce new provisions. It was also suggested during the proceedings in the Dolan 1 appeal that the grounds in Dolan 2 were being extended to cover the new regulations setting out the new three-tiered system in England.

The Claimants in Dolan 2 initially sought an interim injunction to prevent the Government from enforcing the two parts of the No 2 Lockdown Regulations and the associated guidance that restricts the numbers of those who may attend marriages and wedding receptions to 15. Swift J refused interim relief through an order of 15 October 2020.

On the substantive case, there appear to be four principal grounds of challenge:

  1. That the regulations in question contravene the Public Health (Control of Infectious Disease) Act 1984 (“1984 Act”) under which they were made on the basis that a) the Government has made improper use of the emergency procedure under section 45R of the Act; and b) the regulations impose greater restrictions than permitted under the 1984 Act.
  2. That the measures introduced are disproportionate to the objective of reducing the transmission of COVID-19, and amount to a disproportionate interference with the Claimant’s rights under Articles 8, 9, 11 and Article 1, Protocol 1 of the ECHR.
  3. That the Government is effectively fettering its discretion by setting out ‘five tests’ for imposing and removing restrictions – none of which, the Claimants argue, factor in the serious harms caused by the regulations.
  4. A supporting witness statement from the Claimants’ solicitors also suggests that the Claimants intend to argue that the decision to introduce the regulations was not made on the basis of any specific scientific evidence.

We also understand that the Speaker of the House of Commons, Sir Lindsay Hoyle, has written to the Court to express concern that hearing certain parts of the claim could result in a breach of the principles of parliamentary privilege set out in Article 9 of the Bill of Rights 1689.

Comment

Mr Dolan’s challenges to the Government’s measures to tackle the COVID-19 outbreak have attracted considerable media attention, particularly as they attack a key aspect of the Government’s response.

The fact that the appeal in Dolan 1 was heard this week may have an impact on how the Court of Appeal deals with the grounds of challenge. At the time the Administrative Court refused permission in July, the national lockdown had been eased, and the No. 2 Lockdown Regulations had been put in place which contained far fewer restrictions on individuals and businesses. It was against this backdrop that the Court found some of the grounds to be academic. However, with the potential of a second wave over the winter, the Government has since significantly amended the No. 2 Regulations and also introduced the new three-tier system. There is also a prospect of a further national lockdown.

The Court of Appeal’s decision is also likely to have implications on how the Government coordinates its response to the crisis in the coming months, especially if the Court of Appeal deals with the Claimants’ arguments in relation to the limits of the emergency powers under the 1984 Act.

We do not yet know whether the question of permission in Dolan 2 will be dealt with by a judge considering the papers or whether there will be an oral hearing.

If you have any questions on the public law aspects of COVID-19, please contact Andrew Lidbetter, Nusrat Zar, Jasveer Randhawa, or Sahil Kher.

Please also visit our client COVID-19 Hub here for insight from Herbert Smith Freehills on the wider legal issues surrounding the current outbreak.

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James Wood
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Supreme Court challenge succeeds on the basis of unlawful delegation by a Minister

In R v Adams [2020] UKSC 19 the Supreme Court considered the nature and application of the principle established in Carltona Ltd v Commissioners of Works [1943] 2 All ER 560: where Parliament specifies that a decision is to be taken by a particular Minister, that decision may be taken by an appropriate person on their behalf.

Key points

  • It is possible to challenge decisions on the basis that they have been unlawfully delegated, including where the relevant provision specifies that a decision must be taken by a particular Minister.
  • Whether a statutory power must be exercised by a specified Minister personally should be approached as a matter of statutory interpretation, rather than the application of a presumption in law.
  • Factors relevant to that approach will include the language and framework of the legislation in question, the gravity of the consequences flowing from the exercise of the power and the practicality of the Minister exercising that power personally.

Background

In the 1970s former Sinn Féin President Gerry Adams was twice convicted for attempting to escape from lawful custody. He had been imprisoned under an interim custody order (“ICO”) made in 1973. Under the applicable legislation, the statutory power to make an ICO arose “where it appears to the Secretary of State” that a person was suspected of being involved in terrorism.

Decades later, in 2009, Mr Adams became aware of an opinion given in 1974 by the legal adviser to the Attorney General. That opinion concluded that a court would likely hold it to be a condition precedent to the making of an ICO that the Secretary of State should have considered the matter personally. There being no evidence that he had done so, Mr Adams sought to quash his convictions for attempting to escape on the basis that the ICO for his detention had unlawfully been made by a junior Minister.

Mr Adams obtained an extension of time to appeal against his convictions, though his challenge was initially unsuccessful in the Northern Ireland Court of Appeal, which unanimously dismissed the claim. The Court of Appeal nonetheless certified the question of whether the making of an ICO under article 4 of the Detention of Terrorists (Northern Ireland) Order 1972 (the “1972 Order”) required the personal consideration of the Secretary of State as one of general public importance – a question that fell to the Supreme Court to decide.

Judgment

In a unanimous judgment, delivered by Lord Kerr, the Supreme Court held that the Carltona principle did not apply on the particular facts and that the Secretary of State was required personally to consider the making of an ICO under the 1972 Order. As he had failed to do so, the ICO for Mr Adams’ detention was held to be unlawful and his convictions were quashed.

The court’s decision turned on its assessment of both the nature of the Carltona principle and the factors determining when it applies. The court acknowledged that, though a statutory provision may state that a particular power is to be exercised by a specified Minister, in Carltona the Court of Appeal had found that not every such exercise must – or, in practice, could – be carried out by that Minister personally. Often, civil servants or more junior Ministers can exercise such powers on the specified Minister’s behalf notwithstanding the absence of express wording to that effect in the relevant legislation.

The judgment demonstrates that there is some debate as to whether the Carltona principle amounts to a presumption in law or simply an insight into Parliament’s likely intention in respect of a particular statutory power. However in circumstances where the court held that the clear wording of the 1972 Order meant that it did not apply in this case, the court considered it unnecessary to reach a “firm conclusion” as to the nature of the principle. Nevertheless, it is clear that the court favoured approaching its application as a “matter of textual analysis, unencumbered by the application of a presumption”.

In line with this approach, the court undertook an “open-ended examination” of factors to determine whether the Carltona principle applied, including the framework of the legislation, the language of the relevant provisions and the gravity of the consequences flowing from the exercise of the power. In finding that Parliament had intended for the power to make an ICO under the 1972 Order to be exercised only by the Secretary of State, and not their junior Ministers, particular weight was given to two features of the wording of the Order. First, it distinguished the making of the ICO, to be carried out by the Secretary of State, from the signing of it, which could be done by the Secretary of State or their juniors. Second, it specified that the ICO was an order “of the Secretary of State”, before listing the various other Ministers capable of signing it.

The court supported its decision that the Carltona principle did not apply by reference to the gravity of the consequences flowing from the exercise of the power to make an ICO. It held that the 1972 Order gave “the Secretary of State the task of deciding whether an individual should remain at liberty or be kept in custody, quite possibly for an indefinite period”. The court considered that this factor “[provided] an insight into Parliament’s intention and that the intention was that such a crucial decision should be made by the Secretary of State”.

Finally, the court considered the practicality of the Secretary of State attending to the making of each ICO personally. It found that, at the time the 1972 Order was enacted, this would not have placed an “impossible burden” on the Secretary of State. This was taken as further support for the conclusion that Parliament had intended that the Secretary of State should personally have considered the making of each ICO.

Comment

Whilst the Supreme Court has not ruled conclusively on the nature of the Carltona principle, this decision nonetheless has significant implications for the lawful exercise of statutory power by Ministers. In doubting that there is a presumption that such powers may be exercised by others on a Minister’s behalf, the court has emphasised that the question of whether the Carltona principle applies should be determined by the proper interpretation of the legislation at hand. Going forwards, this decision may encourage those drafting legislation to specify more clearly whether decisions must be made personally by Ministers or whether they may be delegated. However in the meantime it may mean that there is heightened uncertainty – both for Government and for those affected by its decisions – in relation to whether decisions can be lawfully delegated. It will be important that close attention is paid to the underlying legislation, including by reference to the factors set out by the Supreme Court (the language and framework of the legislation in question, the gravity of the consequences flowing from the exercise of the power, and the practicality of the Minister exercising that power personally).

Andrew Lidbetter
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Nusrat Zar
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Administrative Court refuses permission to legal challenge to the UK Government’s lockdown regulations

Dolan & Ors v Secretary of State for Health And Social Care & Anor [2020] EWHC 1786 (Admin)

A claim brought by the entrepreneur Simon Dolan and others (“the Claimants”) seeking to challenge the lockdown measures introduced by the English Government following the COVID-19 outbreak has been refused permission in the Administrative Court. The claim attracted considerable attention as it was crowdfunded and challenged a key aspect of the Government’s response.

The Claimants challenged the provisions of the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 as amended (the “Lockdown Regulations”) on the basis that they were unlawful on various grounds. Following a hearing on 2 July 2020, Mr Justice Lewis refused permission to the Claimants.

Background

Following the outbreak of the virus and the consequent risk to public health and safety, the Secretary of State for Health and Social Care, Matt Hancock (“the SoS”), made the Lockdown Regulations on 26 March 2020, which introduced a number of restrictions and requirements on those living and working in England. This included the requirement for certain businesses to close during the emergency period, and also imposed strict restrictions on movement and gatherings (referred to colloquially as the ‘lockdown’).

The Lockdown Regulations have been amended a number of times since they were first made. These Regulations were also applicable only in England as the governments of Wales, Scotland and Northern Ireland made separate regulations using their devolved powers. Our previous blogposts on the Lockdown Regulations are available here and here.

The challenge

Following a major crowdfunding campaign that saw them raise over £200,000, the Claimants sought permission to challenge the Lockdown Regulations. The Claimants argued that the Lockdown Regulations were unlawful on a number of public law grounds, including that they were ultra vires and irrational. The Claimants also suggested that specific provisions of the Lockdown Regulations breached the European Convention on Human Rights (“ECHR”). These grounds are summarised in paragraph 24 of the judgment.

It is worth noting that by the time the challenge was heard on 2 July 2020, a number of the restrictions set out in the original Lockdown Regulations had been replaced and were no longer in force. In fact, on 3 July, the Lockdown Regulations were superseded in most parts of England by The Health Protection (Coronavirus, Restrictions) (No. 2) (England) Regulations 2020 along with a separate set of regulations applicable to Leicester.

Issues and judgment

The Court considered nine separate issues as part of the application for permission.

  • The first issue was whether the claim had been brought ‘promptly’ as required under the Civil Procedure Rules and whether the claim was academic as a result of the relevant provisions of the Lockdown Regulations no longer being in force. On the question of promptness, Mr Justice Lewis concluded that there was no failure to act promptly given the “complexity and importance of the issues” and that the Claimants were not prevented from bringing the claim on that basis. However, on the second question, the Court found that the claim for judicial review of the original regulation 6 (the prohibition on a person leaving home without reasonable excuse) and the original regulation 7 (the prohibition on more than two people gathering in public) was academic, and that there would be no practical purpose served through a claim for judicial review of those specific regulations. The Court observed that:

The fact that restrictions may be imposed in future, depending on the progress of the pandemic, does not provide a good reason for reviewing the original versions of the regulations now. Any challenge to a subsequent or replacement regulation would necessarily involve considering the content of that regulation and the circumstances leading to its imposition.

This observation may be of relevance to any future challenges to the Government’s response to the pandemic.

  • The second issue before the Court was one of vires – specifically, whether the SoS had the legal power to make regulations applying to all persons in England under the powers conferred by the Public Health (Control of Diseases) Act 1984 ( “the 1984 Act”). The Court concluded that section 45C of the 1984 Act did in fact confer power on the SoS to make regulations that applied to persons, premises and things in England as a whole in appropriate circumstances (and on the basis that the restrictions would be kept under review in line with the provisions of the 1984 Act). Consequently, permission on that ground was also refused.
  • The third issue focussed on the Claimants’ argument that the making of the Regulations was unlawful for four reasons of domestic public law. First, that the SoS had fettered his discretion by requiring five tests to be met before the Lockdown Regulations would be replaced. Secondly, it was argued that the SoS failed to have regard to relevant issues when making the Lockdown Regulations. Thirdly, the Claimants submitted that the Regulations were irrational, and finally, that they were not proportionate under the 1984 Act. The Court analysed these grounds in some detail in paragraphs 47-63 of the judgment, and concluded that there was no basis on which these four sub-grounds could be reasonably argued. Permission was accordingly refused on this issue.
  • The fourth, fifth, sixth, seventh, and eighth issues all revolved around the Claimants’ arguments that the Lockdown Regulations imposed various requirements and restrictions that were contrary to a number of Articles of the ECHR. The relevant articles included the right to liberty and security (Article 5), the right to private and family life (Article 8), freedom of religion (Article 9), freedom of peaceful assembly and association (Article 11), and the right to property (Article 1 of the First Protocol). The Court considered the scope of the rights under these Articles, and concluded that it was not arguable that these rights and freedoms were affected. Even where specific rights were affected – for instance, in the case of the freedom of assembly and association – the Court concluded that the restrictions were justified and proportionate. The Court went as far as saying that “in all reality in those circumstances, there is no realistic prospect of a court deciding in these, possibly unique, circumstances that the regulation was a disproportionate interference with the rights guaranteed by Article 11 of the Convention.

The only exception was the sixth issue on the freedom of religion. Specifically, the Claimants argued that the prohibition on the use of places of worship for communal acts of worship involved a breach of Article 9 of the ECHR. Mr Justice Lewis was minded to let that specific issue proceed to a full hearing in light of a previous decision on a similar issue (R (Hussain) v Secretary of State for Health and Social Care [2020] EWHC 1392 (Admin)). However, following the making of new regulations on 3 July 2020 permitting acts of communal worship for up to 30 people, this issue was considered to be academic. Nevertheless, as the new regulations were made after the hearing on 2 July, the parties have been given the opportunity to make further submissions on this point.

  • The final issue was directed at the Secretary of State for Education (the second Defendant), and focussed on the Government’s 18 March 2020 announcement that education should not be provided at school premises in England save for the children of key workers and vulnerable children. The Claimants suggested that this announcement was in effect a direction for schools to close, and therefore amounted to a breach of Article 2 of Protocol 1 to the ECHR which protects the right to education. However, the Court concluded that there was no legally enforceable measure made by either SoS preventing attendance at school. Further, the Court noted that the current policy of the Government was to encourage the return of pupils on a phased basis. Consequently, any claim in relation to schools and Article 2 Protocol 1 was academic. Permission was therefore refused on this ground as well.

Summary

Through this detailed judgment refusing permission, the Administrative Court has firmly rejected the Claimants’ submissions that the Government (acting through the two Secretaries of State) acted unlawfully in making the Lockdown Regulations. The Claimants are considering appealing the decision. It is unclear whether they intend to make further submissions to the Administrative Court on the freedom of religion issue.

It is worth noting that while the judgment relates to the most prominent aspect of the Government’s response i.e. the decision to introduce the lockdown, other decisions taken by the Government either previously or going forward can still be challenged. However, in circumstances where the regulations and guidance are changing on a day-to-day basis, Mr Justice Lewis’ comments on ‘academic’ claims may turn out to be relevant to any current and future challenges.

Separately, this claim was notable for being the biggest of the crowdfunded cases threatened or brought against the English Government so far in the COVID-19 context. Crowdfunding of judicial reviews provides an opportunity for political participation from the public at large, but we can see it throwing up numerous issues around how the money raised is being used, and whether funders are fully aware of the legal merits of challenges. The costs implications where a crowdfunded claim for judicial review fails are also as yet unknown, and Mr Justice Lewis made no comments on costs in this judgment.

If you have any questions on the public law aspects of COVID-19, please contact Andrew Lidbetter, Nusrat Zar, Jasveer Randhawa or Sahil Kher. You can listen to our podcast on various public law issues surrounding COVID-19 here, including our latest episode on regulators and their response to the pandemic.

Please also visit our client COVID-19 Hub here for insight from Herbert Smith Freehills on the wider legal issues surrounding the current outbreak.

Andrew Lidbetter
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Nusrat Zar
Nusrat Zar
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Jasveer Randhawa
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Sahil Kher
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The Commercial Court holds contract with public body to be ultra vires and void

In School Facility Management Ltd & Others v Governing Body of Christ The King College & Isle of Wight Council [2020] EWHC 1118 (Comm), the High Court found that a contract was ultra vires and therefore void unless written consent was given by the Secretary of State.

KEY POINTS

  • A contract with a public authority will be void if that public authority entered into it without capacity to do so.
  • Where there is capacity: whether a finding of public law unlawfulness constitutes a defence in private law depends on factors such as the nature of that unlawfulness and whether the private counterparty is on notice of the public law breach.
  • The “major risk” identified in Credit Suisse v Borough Council of Allerdale [1995] 1 Lloyd’s Rep 315 of private institutions finding out that they have entered into unenforceable contracts rests not only with banks and other lending and credit providing institutions but also with others, such as those who lease equipment, goods or buildings to local authorities.
  • In the absence of clear factual evidence showing a relationship of agency, the court will be cautious about interpreting a legal framework to create a deemed one.

BACKGROUND

In 2009, the Isle of Wight Council (the “Council”) approved a request from the Governing Body of Christ the King College (the “College”), a voluntary-aided school maintained by the Council (a “VAS”), to open a sixth form. The College did not have sufficient capital to build accommodation for this sixth form and so entered into a 15-year hire contract (the “Contract”) in 2013 with School Facility Management and others (the “Claimants”) for the construction and hire of a building and associated equipment (the “Building”). The Claimants sought, and were provided with, letters from both the College and Council which stated that the College had the ability to enter into the Contract (the “Letters”).

Financial difficulties made it increasingly difficult for the College to meet its payments under the Contract. In September 2017 it failed to make its annual payment. This ultimately led to the Claimants terminating the Contract on 11 April 2018, informing the College that it no longer lawfully possessed the Building and should cease using it.

Proceedings commenced from 8 November 2018, involving various claims and counterclaims (the main ones of which are outlined below). These were considered in a two-week trial before the Commercial Court, with Foxton J giving judgment.

JUDGMENT

Had the College contracted as the Council’s agent?

It was clear that the College had not been acting as the Council’s agent as a matter of fact. The Contract named the College as the contracting party and “numerous contemporaneous documents” indicated the same. As such, the issue was whether the relevant legal framework created a deemed relationship of agency.

The Claimants and College both argued that the College had entered into the Contract as the Council’s agent by virtue of sections 22(1) and 49 of the School Standards and Framework Act 1998 (“SSFA”). It was suggested that “such an agency was implicit” in the Council’s duty to fund VASs set out in section 22(1) SSFA. They also relied on section 49(5) and (6) SSFA to establish this relationship. Section 49(5)(b) stated that “any amount made available by a [local authority] to the governing body of a maintained school…when spent by the governing body or the head teacher, shall be taken to be spent by them or him as the authority’s agent.” However, section 49(6) added that “subsection (5)(b) does not apply to any such amount where it is spent – (a) by way of repayment of the principal of, or interest on, a loan, or (b) (in the case of a [VAS]) to meet expenses payable by the governing body under [various provisions concerned with capital expenditure]” (emphasis added).

The court rejected these arguments. The Council’s general duty under section 22(1) SSFA to support VASs did not support the view that such schools always contracted as the Council’s agent. In this instance, this was particularly so as funding for sixth form education was the responsibility of the Young People’s Learning Agency and, therefore, the Education Funding Agency, not the Council. In addition, the court held that the College and Claimants had incorrectly construed section 49 SSFA. Section 49(5) did not create an agency relationship between the College and Council and, even if it had, this would have been excluded by the exceptions set out in section 49(6) SSFA.

Did the College have the power to enter into the Contract?

The College maintained that it had not had the statutory power to enter into the Contract and, as such, it was void and of no effect. It advanced a number of arguments on this basis, the primary one being that paragraph 3 to Schedule 1 of the Education Act 2002 (“EA02”) prevented the College from borrowing money and granting security without written consent from the Secretary of State – which had not been sought in this instance. The Court agreed with the College: it considered expert accounting and valuation evidence and accepted that the Contract constituted a finance lease rather than an operating lease. It therefore fell within scope of “borrow[ing]” at paragraph 3(1) to Schedule 1 EA02 and was prohibited without the Secretary of State’s consent.

The Court set out some significant principles. Foxton J thought that it was “clear that if a public body lacks statutory power to enter into a contract of a particular kind, then it will not have contractual capacity to do so as a matter of private law” (emphasis added). However, this did not mean that any decision by a public authority which might be impugned or quashed on public law grounds would serve as a defence to private law matters. Foxton J considered the extensive case law on this point. Looking at the issue from first principles, he concluded that “public law invalidity and private law incapacity [were] not co-extensive”. Where, for instance, a public body had capacity or vires to enter into a contract but acted unlawfully in reaching its decision to contract, the contract would not necessarily be voided. This could arise, for example, where a public authority acted irrationally or for an improper purpose. The private law consequences of this public law unlawfulness would depend on factors such as the nature of that unlawfulness and whether the private counterparty had notice of the public law breach.

Misrepresentation and misstatement

The court rejected the Claimants’ claims in the tort of negligent misstatement and under section 2(1) of the Misrepresentation Act 1967. The Claimants argued that they had entered into the Contract in reliance on the Letters and, if it were found that the College did not have capacity to enter into the Contract, these Letters had not been accurate. However, the court noted that the Claimants were well-informed about the risk prior to entering into the Contract and had not relied on the statements from the Council or College. Although the court accepted that the Claimants would not have gone ahead with the Contract had the Letters not been provided, this was simply because the Letters were required to secure investment. This was not enough to constitute reliance. Ultimately, “this was not a case in which [the Claimants] looked to the College for advice on the law, or for information as to what the legal constraints on the College’s power to contract were.

Unjust enrichment

The Claimants and College each advanced an unjust enrichment claim against the other. The Claimants argued that the College had been unjustly enriched at their expense through the retention and use of the Building. The College claimed reimbursement of the payments it had already made on the same basis. The Claimants’ claim against the College was successful but the payment was quantified at the market value of the Building which was significantly less than the value of the Building under the Contract. Conversely, the College’s claim was unsuccessful as it was subject to a change of position defence. The Claimants had already spent the sums it had received from the College to date on its financial obligations in respect of the Contract in good faith that the Contract was valid. The judge decided that it was therefore inequitable to ask the Claimants to repay these sums to the College.

COMMENT

This judgment has significant implications for the growing number of companies who engage in construction and / or hire arrangements with public bodies. This particular market has built up in response to the financial limits that are placed on public authorities seeking to make capital payments. Such arrangements are intended to allow the private company to meet the capital costs, which will then be paid back periodically by the public authority in order to ensure that it is not classified as capital expenditure. Classifying such arrangements as “borrowing” therefore exposes public bodies’ counterparties to an increased risk that they will be considered void. The market will need to consider whether arrangements will need to be structured differently in order to mitigate such risks or if they are even still possible.

More broadly, the judgment clarifies the extent to which public law defences can operate in a private law context. Foxton J has analysed in detail the wealth of (sometimes conflicting) case law in the area and his clear conclusion is that only public law breaches on the basis of capacity will necessarily constitute a defence in private law: in other cases, it depends on the circumstances of the public law breach. This is a reminder of the wide-ranging implications across the board for cases which involve both private and public law issues.

Andrew Lidbetter
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Nusrat Zar
Nusrat Zar
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Jasveer Randhawa
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Anna Eliasson
Anna Eliasson
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Anisa Kassamali
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Statutory guidance must remain within the purpose of the primary legislation

In R (on the application of Palestine Solidarity Campaign Ltd) v Secretary of State for Housing, Communities and Local Government [2020] UKSC 16, the Supreme Court demonstrates that statutory guidance will be considered unlawful if it does not remain within the scope of what Parliament intended when it was conferring the power to issue that guidance.

Key points

  • If a statute gives a public authority a discretion it is important to look at the wording of the legislation as a whole to see the purpose which Parliament had in mind.
  • A public authority should not use a statutory discretion so as to thwart or run counter to the policy and objects of the Act.

Background

The Public Services Pensions Act 2013 (the “2013 Act”) governs the establishment and management of certain pension schemes by local authorities for the benefit of their employees. The 2013 Act empowers the Secretary of State for Housing, Communities and Local Government (the “Secretary of State”) to issue more detailed regulations and guidance regarding the schemes. The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 (the “2016 Regulations”) and a guidance document entitled the Local Government Pension Scheme: Guidance on Preparing and Maintaining an Investment Strategy Statement” (the “Guidance”), were then issued pursuant to Regulation 7(1) of those 2016 Regulations.

The Guidance noted that local authorities were not trustees of these pension schemes and so were not subject to trust law. It nonetheless stated that those responsible for making investment decisions “must comply with general legal principles governing the administration of scheme investments”. These principles included a requirement to consider various factors including “social, environmental and corporate governance considerations” – wording which had appeared in the 2016 Regulations.

The Guidance included a caveat to this obligation for the purposes of ethical investments. It permitted local authorities to take non-financial considerations into account when determining which investments to make as part of their pension schemes as long as: (1) there was good reason to think that the scheme members would support the investments; and (2) the investments did not involve significant risk of financial detriment to the scheme. These two tests for non-financial considerations had in fact already been set out in a 2014 report by the Law Commission which the Secretary of State drew from when preparing the Guidance. However, unlike the Law Commission’s report, the Guidance went onto state that “using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are (sic) inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government”. In other words, the Guidance required local authorities to only make or continue to hold ethical investments which were in accordance with the United Kingdom’s foreign and defence policies.

The lawfulness of the Guidance was challenged by the Palestine Solidarity Campaign Limited and Ms Jacqueline Lewis (the “Appellants”). Ms Lewis was an executive committee member of the Palestine Solidarity Campaign as well as a local authority employee. Although the Appellants were initially successful in the High Court in 2017, the Court of Appeal overturned that decision in 2018 and held that the Guidance was lawful. The Appellants therefore brought the case before the Supreme Court.

Judgment

The Supreme Court found the relevant section of the Guidance to be unlawful by a majority of three to two. Lady Hale, Lord Wilson and Lord Carnwath constituted the majority whilst Lady Arden and Lord Sales provided the dissenting opinion.

The fundamental finding in the judgment prepared by Lord Wilson and agreed by Lady Hale was that certain sections of the Guidance were unlawful on the basis that they were ultra vires i.e. they went beyond the Secretary of State’s powers. Lord Wilson and Lady Hale reached this conclusion through applying the Padfield principle[1], where it was held that an unfettered statutory power could only be exercised to promote the policy and objects of the statute. Discerning the policy and objects of an Act must be determined by construing the Act as a whole and construction is always a matter of law for the Court.

Lord Wilson and Lady Hale therefore considered the 2013 Act in order to identify exactly what Parliament had intended regarding the scope of the Secretary of State’s discretion when issuing the 2016 Regulations and the Guidance. Sections 1(1) and 3(1) of the 2013 Act permitted the Secretary of State to make further provisions as the Secretary of State “consider[ed] appropriate”. Section 3(2)(a) and Schedule 3 read together indicated that the Secretary of State was permitted “in particular” (i.e. not exclusively) to make provision regarding the “administration and management of the scheme”.

It is established[2] that unchallenged secondary legislation can serve as a guide to the interpretation of an enabling Act. Lord Wilson and Lady Hale therefore also considered the 2016 Regulations, specifically the fact that Regulation 7(e) mandated a local authority’s investment strategy to include the authority’s policy on “how” it took non-financial considerations into account.

Finally, Lord Wilson and Lady Hale reviewed other unchallenged sections of the Guidance itself. They noted that the Guidance, the 2013 Act and the 2016 Regulations and the Guidance contained a number of words such as “administration”, “management” and “strategy”. They found that all of these words, considered in their contexts, pointed in the same direction: that Parliament had intended to identify the procedures and strategy that administrators of schemes should adopt in the discharge of their functions. Importantly, Lord Wilson and Lady Hale did not consider that this included a discretion to direct what investments they should make or not make. By seeking to restrict the schemes in such a way that they could only make ethical investments which were in accordance with the United Kingdom’s foreign and defence policies, the Secretary of State was unlawfully exceeding his powers.

Lord Wilson and Lady Hale also made direct reference to the Secretary of State’s justification for those challenged sections of the Guidance. They disagreed with the Secretary of State’s “misconception” of the investment decisions as a function of local government and the pension funds as public money. They found instead that the funds properly belonged to the local authority employees whose pensions it would pay and that investment decisions were made by administrators who were acting in the role of quasi-trustees acting in the best interests of their members. They noted that this misconception might have emboldened the Secretary of State to exceed his powers when issuing the Guidance.

Lord Carnwath gave a separate judgment reaching the same outcome as Lord Wilson and Lady Hale. He disagreed with the Secretary of State’s argument that the Guidance was intended to deal with concerns about the specific Boycott, Divestment and Sanctions movement rather than ethical investments as a whole. Even if this were the case, he said that forbidding local authorities to invest in one particular movement was not related to a pensions purpose and thus was unlawful in any event on the basis of improper purpose.

Lady Arden and Lord Sales dissented from the majority – they considered that it fell within the Secretary of State’s broad discretion under the 2013 Act to promulgate the Guidance in its existing form. They similarly considered the Padfield principle and agreed that the Courts were the “authoritative organ for the interpretation of a statutory power”. However, they did not read the same limitations into the 2013 Act from its wording and context as the majority did. The Secretary of State could make further provision regarding non-financial considerations as he “consider[ed] appropriate” – they did not limit this to provisions regarding only the administration and management of the scheme as the majority did. They agreed with the Court of Appeal that it was “plainly within the scope of the legislation for the guidance to cover the extent to which such non-financial considerations may be taken into account by an authority”.[3]

Moreover, the 2013 Act permitted the Secretary of State to take “wider considerations of public interest” into account when preparing this Guidance. Lady Arden and Lord Sales recognised that this gave wide discretion to the Secretary of State but found the reasoning for this in the context of the Act. They noted that it had emerged as part of a package of measures which were intended to reform public service pensions so that they took due account of beneficiaries’ interests but also the public interest and the role of central Government in relation to such pension schemes. The Government underwrote funded schemes such as this and, if necessary and subject to a cap, would compensate for any shortfall. The Government therefore had a legitimate interest in ensuring that the schemes, which might potentially require public funding, pursued the public interest.

Comment

The Supreme Court’s decision serves as a reminder of fundamental public law principles. It is well-established that public bodies’ actions, including the preparation of documentation such as secondary legislation and statutory guidance, will be considered unlawful if they exceed the powers afforded to them by statute. However, what those powers might be is not always easy to divine. The Padfield principle tells public authorities to limit themselves in accordance with the policy and objects of an Act. This is to be ascertained by construing that Act as a whole. Public authorities should look to the context surrounding the passing of that statute by Parliament. This might include Parliamentary debates and any relevant reports from select committees or otherwise. Given the split across judicial opinion in the Supreme Court in this case, it is clear that this is not necessarily a simple task.

[1] See Padfield v Minister of Agriculture, Fisheries and Food [1968] UKHL 1

[2] See Hales v Bolton Leathers Ltd [1951] AC 33

[3] See paragraph 20 of R (on the application of Palestine Solidarity Campaign Ltd) v Secretary of State for Housing, Communities and Local Government [2018] EWCA Civ 1284

 

Andrew Lidbetter
Andrew Lidbetter
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Nusrat Zar
Nusrat Zar
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Jasveer Randhawa
Jasveer Randhawa
Of Counsel
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Anisa Kassamali
Anisa Kassamali
Associate
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COVID-19: Pressure Points: The UK’s legislative response to the crisis

In this special episode of our Public Law Podcast, Andrew Lidbetter and Nusrat Zar discuss the UK’s legislative response to the COVID-19 crisis.

 

Listen to the latest episode on SoundCloud, Apple and Spotify and don’t forget to subscribe to the channel to receive updates on future episodes.

You can read more about the topics discussed in this episode in the following blog posts:

We will continue to develop insights to keep you abreast of legal issues arising from COVID-19 that are impacting your business now and those you may face next. You can find further resources on our COVID-19 Hub.

We welcome feedback and if you would like us contact us in connection with the topics discussed in this podcast or to suggest particular topics for future episodes please use the contact details below to get in touch.

Andrew Lidbetter
Andrew Lidbetter
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Nusrat Zar
Nusrat Zar
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Jasveer Randhawa
Jasveer Randhawa
Of Counsel
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Sahil Kher
Sahil Kher
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High Court finds that the suspension of pension benefits breaches the Human Rights Act

In R (on the application of British Medical Association) v Secretary of State for Health and Social Care [2020] EWHC 64 (Admin) the British Medical Association (the “Claimant”), a trade union and professional body for doctors, successfully challenged the National Health Service Pension Schemes, Additional Voluntary Contributions and Injury Benefits (Amendment) Regulations 2019 (the “Regulations”). These brought in a new power of the Secretary of State (the “Defendant”) to suspend the payment of benefits under the NHS Pension Scheme where a member of the scheme was charged with certain offences.

The court found that the Regulations breached Article 14 of the European Convention on Human Rights (the “ECHR”), the right against discrimination, when read with Article 1, Protocol 1 (“A1P1”) ECHR, the right to property. In addition, it was found that there was an absence of appropriate procedural safeguards as required by Article 6(1) of the ECHR, the right to a fair trial, and the principles of natural justice.

Key points

  • Public bodies must ensure that during the development of policy they have due regard to any fundamental rights which they might be engaging to ensure that their actions are appropriately justified.
  • Decision makers must properly consider all the outcomes and consequences of their proposed decisions including any unintended consequences.
  • Although there is often a wide margin of appreciation afforded to the State, and procedural flaws can sometimes be cured, where a measure is manifestly without reasonable foundation the court will usually have no option but to quash the relevant measure.

Background

This claim challenged the lawfulness of certain provisions of the Regulations by which amendments were made to the terms of the NHS Pension Scheme.

Before the Regulations were brought in, the Defendant had the power to forfeit a pension after a member or beneficiary of the pension scheme had been convicted of a prescribed criminal offence which was committed before the benefit became payable. Most, if not all, public sector pension schemes contain similar provisions. However, the hiatus between the conviction and the certification and forfeiture decisions, even if short, gave rise to the risk of the individual concerned using an accrued entitlement to a lump sum drawdown as a means of circumventing the effects of forfeiture. The aim of the Regulations was to reduce this risk by conferring upon the Defendant an additional power to suspend payment of pension benefits where a person was charged with certain serious offences.

There was nothing in the Regulations that entitled a person affected to appeal the decision to suspend their benefits. Suspension did not terminate automatically upon acquittal or in other circumstances in which forfeiture could no longer take place. Also, there was no limit in terms of time or amount, except that in most cases the guaranteed minimum pension could not be forfeited or suspended.

Most of the Claimant’s members belong to the NHS Pension Scheme. The Claimant had serious concerns about the potential impact on its members of the introduction of the suspension power.

Judgment

Mrs Justice Andrews held that the Claimant was entitled to declaratory relief and to a quashing order on the basis of a number of grounds of challenge.

Article 14 and A1P1 of the ECHR: Interestingly, for the purposes of the discrimination test, it was found that there was a sufficient analogy between the position of a current NHS employee and that of a retired NHS employee for a comparison to be made between them for the purposes of Article 14 read with A1P1. The suspension power subjected retired NHS employees to an immediate financial detriment which was not imposed on NHS employees who faced similar criminal charges.

The court considered it unnecessary to decide what the appropriate standard of review was for a case of this kind, because whichever of the tests was applied and however wide the margin of appreciation afforded to the State, the result was the same: this measure was found to be manifestly without reasonable foundation. It was not simply capable of causing hardship in individual cases; it was inherently unfair. This was because it offended against the presumption of innocence, which could not be put right. There was no objective rational justification for it. This finding was all the more forceful given that there was no evidence that anyone had turned their mind to how this new power might impact upon the presumption of innocence.

Article 6(1) of the ECHR: The court acknowledged that the power to suspend following charge was expressed in extremely broad terms, such that it would be difficult to challenge by way of judicial review. Therefore, the court took the view that nothing less than a full right of appeal to a court on the merits would suffice to satisfy the requirements of Article 6(1) and the principles of natural justice.

It was notable that in determining whether the discriminatory effect of the suspension power was justified and assessing the lawfulness of the measure challenged, the court stated that it must take a holistic view by considering the presence or absence of procedural safeguards. Nonetheless, it found that the introduction of a full right of appeal to a court would be insufficient to cure the breach of Article 14 read with A1P1. The breaches of Article 6(1) simply made an inherently unfair measure even more unfair.

Comment

The High Court found that the development of the new power had not taken into account serious consequences on individuals’ rights. Some issues might have been curable, for example by providing appropriate procedural safeguards. Nonetheless, the cornerstone of this judgment was the lack of consideration of the presumption of innocence which rendered the Regulations “manifestly without reasonable foundation”. The judgment also found that the justifications advanced by the Secretary of State for this were “woefully inadequate”. This case is therefore a reminder of the need for decision makers to think through all the consequences of their actions, including any unintended consequences, and appropriately assess those consequences before finalising their decisions.

In terms of the case’s wider application, the Defendant raised the issue of how the court should approach a challenge to the legality of a measure of general application which permits, but does not compel, a breach of the common law or the ECHR. While the court accepted that it is obliged to interpret legislation compatibly with the ECHR insofar as that is possible, it must also focus on whether there is something inherent in that measure that makes it incompatible with a fundamental right. If a measure appears to be incompatible there are limits to how far the court will be able to use its powers to read in provisions to make it compatible.

Andrew Lidbetter
Andrew Lidbetter
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Nusrat Zar
Nusrat Zar
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Jasveer Randhawa
Jasveer Randhawa
Of Counsel
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Shameem Ahmad
Shameem Ahmad
Associate
+44 20 7466 2621

Important decision on privilege in a regulatory context

In a judgment handed down yesterday, the Court of Appeal found that an audit client could not be compelled to produce its privileged documents to its auditor’s regulator: Sports Direct International plc v The Financial Reporting Council [2020] EWCA Civ 177.

The case concerned the construction of the Financial Reporting Council’s (“FRC“) information-gathering powers (specifically those set out in paragraph 1 of Schedule 2 to the Statutory Auditors and Third Country Auditors Regulations 2016 (“SATCAR“)). The FRC has the power under SATCAR to require both auditors and audit clients to provide it with information, with the carve out that it cannot compel the production of documents which the auditor or client could refuse to provide in High Court proceedings on the grounds of legal professional privilege.

As is explained in our litigation notes blog post on the first instance decision, the High Court had relied on Parry-Jones v Law Society [1969] 1 Ch 1 (and Lord Hoffmann’s comments on that decision in R(Morgan Grenfell & Co Ltd) v Special Commissioners of Income Tax [2002] UKHL 21) and found that privilege belonging to the audit client (Sports Direct International, “SDI“) would not be infringed by requiring production of the privileged material to the FRC as the auditor’s regulator.

The Court of Appeal overturned the High Court’s decision and found that the “no infringement”  principle arising from Parry-Jones had no relevance to the construction of the FRC’s information-gathering powers under SATCAR given the clear words of that statute. The effect was that neither SDI (nor, for that matter, its auditor) could be compelled to hand over privileged documents, regardless of whether the person entitled to the privilege is the auditor or audit client. Our Litigation Notes blog post sets out more detail on the judgment.

This decision has largely been welcomed by those who might be compelled to disclose documents to regulators on the basis that it reinforces the protection of privilege in a regulatory context. However it is not without its difficulties. In particular it may prejudice those under investigation if they (or their client) hold privileged documents which might help their defence as they will be unable to produce that material to their regulator (even on a confidential basis) without the consent of the privilege holder.

Andrew Lidbetter
Andrew Lidbetter
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Nusrat Zar
Nusrat Zar
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Jasveer Randhawa
Jasveer Randhawa
Of Counsel
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James Wood
James Wood
Senior Associate
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The FRC and enforcement action – what next?

Over the last year, three key reports have been published on the future of the audit and accountancy professions. These reports together propose significant reforms to audit and the manner in which it is regulated, including the replacement of the Financial Reporting Council (the “FRC”) with a new regulator with enhanced powers.  While the reviews have focussed on audit, many of the recommendations similarly affect accountants who are not providing audit services. Similarly, one of the most eye catching recommendations, and one with a potentially enormous impact beyond the audit profession, is the proposal to extend the new regulator’s disciplinary powers to company directors who are not accountants (and so not currently subject to the FRC’s enforcement jurisdiction).

In the December 2019 Queen’s Speech, the Government promised to “develop proposals on company audit and corporate reporting, including a stronger regulator with all the powers necessary to reform the sector”. Despite broadly accepting the reports’ recommendations, the Government might in this statement be taking a more limited approach than fully to implement all of the recommendations. In the interim, the regulatory burden on regulated firms and individuals has nevertheless increased significantly, with the FRC continuing to impose sanctions and levy fines at record levels.

We have prepared a paper focusing on the professional disciplinary implications of these reports, taking stock of the current position and assessing what the reforms might mean for regulated firms, individuals, and the wider business community. We note that none of the reports expressly consider how the recommendations proposed would comply with the rule of law and other public law principles. In circumstances where regulatory action can have serious implications for individuals and firms, in our paper we also consider where current or proposed practice might conflict with the requirements of the rule of law and other public law principles.

Please click here to read our paper on these issues.

Andrew Lidbetter
Andrew Lidbetter
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James Wood
James Wood
Senior Associate
+44 20 7466 2306