Coastal 2: Some observations

In last week’s post on what I have called Coastal 2 (inaccurately, perhaps, as Coastal has since changed its name to Beacon Cymru Group Ltd), I set out the headline findings and made brief comment.  You can find the judgment here in English.  I have a copy in Welsh, but can’t find it on Baili (happy to provide it to anyone).

In this post, I am going to go a little deeper.  In summary, the issues in Coastal 2 arose because of the finding in Coastal 1 that the tenants were “not required to pay rent” in the several months between the coming into force of the Renting Homes (Fitness for Human Habitation) (Wales) Regulations 2022 – which required the housing associations to supply electrical condition reports to their tenants – and the actual supply of those reports to the tenants.  If the tenants were “not required to pay rent”, but they did pay rent, were they entitled to claim the rent back?  As we know now, the Divisional Court found that they were not so entitled.  Below, I consider various matters and raise a couple of queries

Appeal: Coastal 2

The first question that might be asked is whether there will be an appeal in Coastal 2.  I understand that is unlikely because of the way that the case was funded.  I suspect that will suit everybody.

Appeal: Coastal 1

Coastal 1 is due to be heard by the Court of Appeal early next year.  Given the findings in Coastal 2 that no money must be repaid to the Defendants, I understand from a few sources that this appeal may be discontinued.  That probably makes financial sense.  However, there may be a little niggle there because at least some of the arguments may continue.

Sectoral effects

That simple question does not do justice to the enormity of the problem if the social landlords were required to re-pay the rent.  As reported in Coastal 1, £50million was at stake just for the landlords party to the proceedings.  If the failure to provide the reports was replicated across the whole sector, one might suppose, there would be widespread financial problems at a time when the WG is relying on the sector to provide more social housing.  There is a massive sigh of relief in the sector among everybody to whom I have spoken.  I suspect also that the regulator will be delighted.  The counterfactual (or, I guess, counterlegal) would have been a financial disaster for the sector, to be sure, from which it may have recovered at some point with assistance from the WG, but it would also have led to pretty tricky possession days where the question of rent arrears would have required some disentangling, and caused some further issues of principle.  So, housing lawyers and accountants can breathe a sigh of relief too, assuming that Coastal 2 is the final word on this issue (which it may, or may not, be).

The facts are everything

(i) Divisional Court findings

The majority of the discussion, and the ratio of the case, depended on whether the tenants before the Court would have paid the rent if they had known of the mistake of law (ie that they were not required to pay).  If they would have paid the rent anyway, then there can be no claim based on mistake of law.  This is a question of causation.  The undisputed evidence before the court from the parties was that they would have paid even if they were not required so to do.  That is particularly surprising, at least to an economics student – Homo economicus would not make a payment they were not required to make.  Yet, the evidence before the court was as follows:

Withholding rent would harm my relationship with the First Claimant and that is not something I am easily willing to do. It wouldn’t be right; I am not able to set aside the feelings of loyalty and gratitude I have towards the First Claimant. … Even if I knew I was legally entitled to withhold my rent, this would not be my preferred course of action.(Mrs Mitchell)

Knowing what I know now about my ECR and my Property being or allegedly being unfit for human habitation would impact my decision to withhold rent. I would never withhold my rent unless I received written confirmation from the Second Claimant which stated that I did not have to pay it. (Mrs Jones)

I would feel a bit guilty and worried not paying rent and I would have kept the money to one side in case someone came back and said that I owed it. That is what I have done with the rent money I withheld in February 2025. (Mr Wadley)

What comes across from the discussion of the evidence is that all the tenant Defendants were happy with their landlord, and, indeed, grateful to them.  They would have paid their rent unless told that they did not need to do so (and, even then, might still pay).  Mr Wadley had withheld rent for one month when he was not required to pay it, but had done so essentially to facilitate the counterclaim, ie

He did this “in full agreement with the Claimant and purely in order that the Defendant can establish a debt for the purposes of his claim” (Agreed Fact 15(e)). His landlords wanted him to do it, because they wanted to create a debt from him to them “for the purpose of ventilating the arguments in this claim”

But, the Court found on the evidence that

Mr Wadley would have paid his rent even if he had known the full facts and the legal arguments which were open to him as a result of those facts. He would have paid his rent even if he had known the true position in law, unless his landlords positively asserted to him that he did not have to.

In relation to the landlords’ evidence, the Court found that, given the contestation about the Regulations in Coastal 1, the housing associations themselves could not have provided a clear steer to their tenants.

Accordingly, there could be no mistake of law, which was, as the Divisional Court found, fatal to the counterclaims.

(ii) The Counterfactual

All of this raises the question of whether a tenant who was less enamoured with their social landlord – and who might be more, shall we say, economically rational – would have been, perhaps, a better litigant.  That goes back to how the litigation came about, being manufactured to test the issue.  But it does leave the question open.  Further, there is a question about the DWP.  If rent was not required to be paid, but was paid by the DWP either directly to the landlord or through the contract holder, might they seek to reclaim the amounts paid?  It is not noted in Coastal 2 whether any of the contract holder Defendants were in receipt of social security.  That is no criticism – the DWP were not a party to the case, and there was no need to consider the source of the contract holder Defendants’ rent.

Unjust enrichment

The counterfactual just mentioned is what makes what follows in the Coastal 2 judgment even more important, even though strictly it is what lawyers call obiter (which broadly translates as meaning that it is persuasive only for future courts but from which they can deviate).  A judgment of the Divisional Court, though, which considers points of law argued before it by outstanding Counsel, is always going to be highly persuasive.

Unjust enrichment is a general restitutionary based claim.  It requires the enrichment (as it says on the tin) to be unjust.  And, the Court found that it was not unjust for the landlords to retain the money paid to them.  The reason why is because the statutory purpose behind the requirement to provide the ECR reports was for landlords to comply with their ECR obligations.  It is a “powerful incentive” on landlords to get the report and provide it to the contract holder:

However, once the ECR has been provided, the statutory purpose has been met. The statutory purpose is not served by allowing contract-holders to reclaim their rent after the event, if they have in fact paid it. That would go further than is necessary to achieve the statutory purpose.

The legislature had not made provision for the rent to be reclaimed in these circumstances, in which contract holders received what they had contracted for, ie a property which had an ECR and was safe from that perspective.  Accordingly, it was not “unjust”.  As the Divisional Court put it:

It is not unjust for the landlords to retain the rent paid to them in consequence of a breach of duty which has caused the defendants no loss. The landlords have conferred substantial benefits upon the defendants in exchange for the rent. The defendants have suffered no loss as a result of the non-provision of the ECR (hence the abandonment of their damages claims). The defendants did not care about physical receipt of the ECR although they would no doubt care about the electrics being safe (which they were).

In any event, as the Divisional Court went on to find, the existence of the ongoing contract between the parties, and the lack of any significant contractual claim by the contract holders (because this would result in only minimal damages: “They have suffered no loss, and no damage”) meant that the restitutionary claim was wrong:

It is wrong in principle, because no right to repayment of the rent is given to them by statute, and no right to repayment of the rent is given to them in their contracts, and it is not usual for restitution to be available when the parties are in a subsisting contractual relationship … (citing the leading text, Goff and Jones, and a paper by Prof Beatson, subsequently Beatson LJ)

The Defendants’ argument was that, as rent was not required to be paid, it was not paid under the contract.  The Divisional Court disagreed, on the basis that rent was paid in advance and due under the contract; and, secondly, it was paid under the contract even when not required to be paid.  That second point does require some mental gymnastics on which the Court says:

The rent was stipulated in the contract and it was because of the contract stipulations that it was paid. It was not contrary to the contract that it should be paid. It was not required to be paid, but it was open to the defendants to pay it if they chose. When they made the payments, they made them pursuant to their contracts and for no other reason.

Further, other parts of the statutory scheme do allow for a claim for compensation, but not breach of this Regulation.  Accordingly, it was not in accordance with the statutory scheme.

I wonder what a restitution scholar would make of all this.  However, that does not really matter because what matters is that this part of the judgment is highly persuasive and, although one can expect it to be argued (perhaps in possession cases based on rent arrears), it might be determinative of any such claims.