Retrospectivity in Adriatic Land: breaching property rights under the ECHR?

The Court of Appeal recently held that important provisions in Part 5 of the Building Safety Act 2022 (BSA) operate retrospectively. In Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point this prevented the landlord recovering from protected leaseholders the costs (incurred before the BSA came into force on 28 June 2022) of a dispensation application; and in Triathlon Homes v Stratford Village Development Partnership it permitted remediation contribution orders to include costs incurred before the passage of the BSA. My previous blog-post discussed the retrospectivity issues; this post focusses on a further argument made by the freeholder in the Adriatic Land appeal, namely that if the provisions of the BSA were construed so as to have retrospective effect (and a majority of the Court of Appeal ruled that they did indeed have this effect), this would breach their property rights under the European Convention on Human Rights (ECHR) as their prior contractual rights to recover costs would be extinguished by primary legislation. Section 3 of the Human Rights Act 1998 (HRA)should therefore kick in, requiring the court to read the BSA in a way which does not breach their Convention rights.

As confirmed in recent case law, section 3 of the HRA will not have any relevance to statutory construction unless a prior breach of the ECHR can be shown. In other words, section 3 cannot be used to make a passage of legislation more Convention compliant if a natural reading would not involve any breach in the first place. The key question, then, was whether the provisions of the BSA, especially paragraph 9 of schedule 8 to the BSA, read naturally, would breach Article 1 of Protocol 1 of the ECHR (A1P1, the right to property). 

The test to be applied

Given that the Court of Appeal was dealing with a purported interference with a Convention right, the applicable test was that of proportionality: by depriving Adriatic of its ability to recover costs from leaseholders, did this constitute a disproportionate interference with its property rights? If so, this would constitute a breach of A1P1. As is now standard in proportionality cases, the four stages set out in the famous Bank Mellat case applied. The court must determine: (1) whether the objective behind the measure was sufficiently important as to justify the limitation of a right; (2) whether the measure is rationally connected to the objective; (3) whether a less intrusive measure could have been used; and(4) whether the measure achieves a fair balance between the aims of the measure and the rights of the affected persons (Bank Mellat at [para 74], applied in Adriatic Land at [para101]).

In some earlier cases involving rights under Article 1 of Protocol 1 of the ECHR, the Supreme Court suggested that a lower threshold ought to apply when it comes to the proportionality analysis: an interference would only be disproportionate if it was ‘manifestly without reasonable foundation’ (the MWRF formulation). The parties disagreed as to whether this formulation applied in the current case, and, if it did, whether it applied to some or all of the Bank Mellat stages.

Thankfully, the Court of Appeal correctly pointed out that in the case of SC a seven-member panel of the Supreme Court had denigrated the MWRF approach, in light of the European case law, and had put forward a more ‘nuanced approach’ which took into account a range of different factors, depending on the facts of the case at hand: see Adriatic Land at [para 109] and [para 114]. The Court of Appeal therefore did not commit the same mistake as other courts in recent years, which have continued to apply the now-defunct MWRF test. The question for the Court in Adriatic Land was not whether the measure was manifestly without reasonable foundation; the question must remain whether the measure in question is proportionate or not, taking into account the natural deference to be paid to the legislature when it lays down social and economic policy: [para 110].

Deprivation or control of use?

In order to assist with the proportionality assessment, the Court of Appeal considered whether any interference with Adriatic Land’s rights would constitute a ‘deprivation’ of property rights or merely a ‘control of use’. This terminology will be instantly familiar to those with a knowledge of the A1P1 case law (see Sporrong v Sweden). In short, it is easier to justify a control on the use of property than it is to justify a deprivation of property. For example, compensation is ‘normally’ required when the state deprives an individual of their property, but not when it merely puts controls on its use: see Friend v UK at para 57.

© Geralt Altman

Unsurprisingly, Adriatic Land sought to argue that if the legislation was construed retrospectively this would lead to a ‘deprivation’ of its property rights for the purposes of A1P1. It suggested that, if paragraph 9 of schedule 8 to the BSA were to apply in full, its ‘accrued and enforceable contractual rights’ would be ‘extinguished’ [para 116] and its proprietary rights would be ‘lost entirely’ [para 122]. The government, in contrast, argued that the interference merely constituted a control on the use of Adriatic Land’s property: no rights were extinguished or transferred away and, in line with the European Court of Human Rights case law, this pointed towards the interference being classified as a control on use of property rather than a deprivation of it.

Ultimately, the Court of Appeal preferred the government’s arguments; not only would there be no deprivation of Adriatic Land’s ownership, but even the service charge provisions would ‘still have a “meaningful use”’ [para 123]. It therefore agreed that retrospectively applying schedule 8 to prevent Adriatic Land from recovering service charges would merely constitute a ‘control of use’ on its property: [para 124].

Proportionality

In any A1P1 case, the state must establish that any interference with property rights is justified and proportionate in the Bank Mellat sense (see above), regardless of whether there is a deprivation or a control of use. It is easier to justify a control of use compared to a deprivation, but proportionality must be positively demonstrated in both cases.

© Gary Knight.

On the facts, the Court of Appeal in Adriatic Land was confident that there was a legitimate aim pursued by the measures, and that the measures struck a ‘fair balance’ between competing interests on the facts. Drawing on the evidence of Mr Murphy, the government’s expert witness, the Court noted that the legislation was enacted in response to a ‘real crisis’: ‘without intervention, leaseholders would have continued to face unaffordable bills, building safety defects would have gone unremedied, the lending market would have remained frozen, and leaseholders would have been forced to continue living in unsafe buildings, worried that they might be the victims of a catastrophic fire’ [para 130(i)]). The measures were enacted via primary legislation. The measures do not leave landlords entirely out of pocket [para130(iv)]. The measures concerned socio-economic matters, which attract a significant degree of deference as the legislature is considered better placed than the courts to determine their appropriateness [para 130(vi)]. Taken together, these factors led the Court of Appeal to conclude that the retrospective application of para 9 of schedule 8 to the BSA would not disproportionately interfere in Adriatic Land’s A1P1 rights [para 131].

The Court of Appeal’s decision regarding A1P1 was in one sense unsurprising – it is very difficult, but not impossible, to succeed with an A1P1 challenge before domestic authorities(although it is worth noting that retrospective changes to property rights led to the Supreme Court finding a positive breach of A1P1 in Salvesen v Riddell (2013)). Further, given its conclusion that there would be no breach of the ECHR, the Court did not need to go on to consider whether the wide powers under section 3 of the HRA would have permitted a Convention-compliant interpretation, or whether doing so would impermissibly go ‘against the grain‘ of the legislation. Had it needed to it would then be for the government to argue that the retrospective nature of the legislation constituted one of its ‘fundamental features’which could not be tinkered by judicial reinterpretation. Given that the question of how the provisions of the BSA should ordinarily be interpreted split the Court (Nugee and Holgate LJJ on one side, Newey LJ on the other), and given some notably wide uses of the interpretive power under section 3 in recent years, that question is not easy to answer.