Lexi Holdings v Pooni & Anor [2008] EWHC 1143 (Ch)

Case No CC/2007/APP/0794[2008] EWHC 1143 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of JusticeDate Monday, 21 st April, 2008
Strand
London WC2A 2LL
Before
MR JUSTICE BRIGGS
Between
LEXI HOLDINGSClaimant-v-
Between
POONI & ANOTHERDefendant
Digital Transcript of Wordwave International, a Merrill Communications CompanyPO Box 1336, Kingston-Upon-Thames KT1 1QTTel No: 020 8974 7300 Fax No: 020 8974 7301Email Address: Tape@merrillcorp.com(Official Shorthand Writers to the Court)
Mr P Marshall QC and Mr A Bruce appeared for Claimant.Mr Uff appeared for Defendant.
J U D G M E N TMR JUSTICE BRIGGS
[1]This is a claim by Lexi Holdings plc (in administration) for summary judgment for possession of No Man’s Land fort in the Solent, of which it is the registered proprietor, against Mr Hamesh Pooni, who is alleged to be a trespasser in occupation. The claim was transferred to the High Court from the Portsmouth County Court by an order of His Honour Judge Jolly on 5th March 2008.[2]There is also an application by Bobs Leisure Limited (“Bobs”), a former registered proprietor of the fort, to be added as a defendant and permitted to counterclaim for an order that it (Bobs) be re-registered as proprietor, subject only to an equitable charge in favour of Lexi, and for damages for fraud and breach of duty and an account of what is due, if anything, by way of redemption. Mr Pooni is a director of Bobs and claims to be in occupation of the fort in that capacity.[3]The facts are very unusual but there is little dispute about them, save possibly as to the value of the fort from time to time. There is some obscurity as to certain aspects of the history which may never be unravelled, partly because of the destruction of documents by those responsible for the affairs of Lexi at the material time just prior to it going into administration and partly because of the fact that Bobs was, for a significant part of the relevant time, struck off and dissolved as a company.[4]No Man’s Land fort is one of four large, round, granite, armour-plated structures built in shallow water in the mid 19th Century to protect Portsmouth from a feared attack by French iron-clad warships. Originally armed with 11.5″ muzzle-loading guns, they remained in military use and occupation until the end of the Second World War and then, at least initially, became derelict. Obsolete within a few years of their construction, they were known as Palmerston’s follies after Lord Palmerston who ordered their construction. No Man’s Land fort takes it name from the sand and gravel bank on which it is built, lying about a mile off the Isle of Wight shore near the village of Seaview. It is a grade 2 listed building.[5]Prior to 2004 the fort was developed at considerable expense into hotel or conference centre facilities with swimming pools, games areas, a viewing platform, two helicopter pads and a landing stage, and three-bedroom residential accommodation on the top for the owner or manager of the fort from time to time, in the form of a reproduction lighthouse.[6]On 16th April 2004 Lexi offered a bridging loan to Bobs, and on 26th April a loan agreement was made between those two companies to enable Bobs to purchase the fort for the sum of £4 million, with an additional £1 million for fixtures and fittings, from Mondial Limited. The loan was made on the basis of a legal charge. The loan amount was £6.5 million, and interest on the loan was to be paid at 2.25% per month with a penal rate of interest on default of 3.5% per month. Repayment was to be made, as I have said, within three months from the making of the loan, and among the events of default identified in the loan agreement and giving rise to an enforcement date within the meaning of the legal charge there was included the giving of notice by Bobs to Lexi that it intended to appoint administrators. Following the enforcement date Lexi had the usual statutory power of sale and the usual right to possession. The loan was also secured by an unlimited personal guarantee by Mr Pooni.[7]The loan not having been repaid in August, as it should have been, on 8th October a demand was made on Mr Pooni, and on 19th October Bobs notified Lexi of its intent to appoint administrators. On 27th October a Mr Solomons of Poppleton & Appleby was appointed administrator of Bobs and on 14th December Lexi applied to appoint a receiver or to change the administrator. That application was heard on 12th January 2005 when a Mr James Denny was appointed as a Law of Property Act receiver. There is no evidence of what, if anything, he did while so appointed.[8]On 1st February Lexi obtained judgment against Mr Pooni for some £7.69 million, and on 23rd January 2006 Mr Pooni was made bankrupt. Meanwhile, on 14th November the administration of Bobs (which I have described) expired by effluxion of time, and on 29th August 2006 Bobs was struck off the Register of Companies and dissolved.[9]Meanwhile, on 11th February 2006 Lexi purported to transfer No Man’s Land fort to a company called Charyn for £500,000. The sale to Charyn was one of a large number of fraudulent or otherwise highly questionable transactions made purportedly on Lexi’s behalf by its Managing Director, Shaid Luqman. Those transactions have been the subject of substantial proceedings in the High Court from 2006 to date, and those proceedings are ongoing. They were commenced shortly after the appointment of administrators to Lexi itself on 5th October 2006. In the course of those proceedings there has been a very substantial judgment running to many millions against Mr Luqman, and Mr Luqman is currently in prison serving a sentence for contempt of court.[10]Among the many matters pursued by the administrators was a claim to set aside the sale to Charyn as a sale contrary to section 320 of the Companies Act 1985 due to Charyn’s connection with Mr Luqman himself.[11]On 30th April 2007 Lexi obtained by way of a default judgment an option either to pursue by way of quantification of damages or to have set aside the transfer to Charyn and, in the event of having it set aside, to be registered as the proprietor of the fort. On 25th October, Lexi having in the meantime elected to pursue the second of those courses, in proceedings between Lexi and Mr Luqman and many others including Charyn, I made an order setting aside the sale and for the registration of Lexi as proprietor of the fort. Neither Bobs nor Mr Pooni were at any time parties to those proceedings.[12]I made that order because, on the evidence and submissions presented by Lexi at that time, it was suggested that the sale had been a sale by Lexi as proprietor rather than merely as mortgagee. I am told by Mr Marshall QC, who appears for Lexi, that that is how the matter then appeared on the scanty records still available to the administrators after the departure of Mr Luqman and the others previously responsible for the affairs of Lexi, but it is now acknowledged and it is common ground before me that Lexi had at no time obtained the status of registered proprietor rather than merely mortgagee of the fort prior to the sale to Charyn.[13]On 29th October, pursuant to the order which I made on 25th October, the Chief Land Registrar registered Lexi as the proprietor of the fort. Mr Pooni claims to have retaken possession of the fort by 27th November 2007. It is said that he obstructed the helicopter landing pads and, since the boatlift at the fort is inoperable, effectively excluded the administrators and their agents from taking possession of the fort for the purposes of sale. On 29th November Lexi began possession proceedings in the Portsmouth County Court so as to enable it to pursue its intention to market the fort for a sum in the region of £1 to 2 million. On 6th December those proceedings were adjourned. On 18th December Bobs was restored to the Register of Companies and then sought to intervene in these proceedings. On 20th February 2008 Lexi applied to strike out Mr Pooni’s Defence and to obtain summary judgment and on 5th March, as I have said, the case was transferred to the High Court.[14]The proceedings upon transfer to the High Court appeared to me to give rise to an initial difficulty of jurisdiction arising from the provisions of section 21 of the County Courts Act 1984 in which subsection (3) provides that:
“Where a mortgage of land consists of or includes a dwelling-house and no part of the land is situated in Greater London then, subject to subsection (4), if a county court has jurisdiction by virtue of this section to hear and determine an action in which the mortgagee under that mortgage claims possession of the mortgaged property, no court other than a county court shall have jurisdiction to hear and determine that action.”
The reference to a county court having jurisdiction is a reference back to section 21(1), which provides that:
“A county court shall have jurisdiction to hear and determine any action for the recovery of land.”
The matter has proceeded thus far on the assumption that the Portsmouth rather than Isle of Wight County Court had the relevant jurisdiction in relation to the fort. Subsection (4) provides that:
“Subsection (3) shall not apply to an action for foreclosure or sale in which a claim for possession of the mortgaged property is also made.”
Subsection (7) defines “dwelling house” as including “any building or part of a building which is used as a dwelling”. Subsection (7) defines “dwelling house” as including “any building or part of a building which is used as a dwelling”.[15]The jurisdiction difficulty arises principally from the fact that what I have described as the “reproduction lighthouse” on top of the fort is arranged in the form of a three-bedroom dwelling house and Mr Pooni claims to be in periodic occupation of it as his main residence.[16]Mr Marshall suggested three solutions to the jurisdiction difficulty. The first was that for as long as Lexi remained a registered proprietor it had no effect on Lexi’s claim against Mr Pooni as a trespasser, and if the court was minded to dismiss Bobs’ claims and refuse its application to be joined as a party no further difficulty arose.[17]His second submission, based upon the judgment of David Richards J in National Westminster Bank v King [2008] EWHC 280 Ch was that, by parity of reasoning with that case which concerned section 40(2) of the County Courts Act, section 42(2) of the same Act, which provides that a county court may order the transfer of any proceedings before it to the High Court, was a sufficient provision to override the exclusive jurisdiction provision of section 21(3).[18]Mr Marshall’s third submission was that the difficulty could be overcome by adding by amendment a claim for the sale of the fort so as to bring the proceedings within section 21(4).[19]The parties have sensibly been concerned to avoid any delay occasioned by this apparent jurisdictional difficulty and Mr Uff, who has appeared for Mr Pooni and Bobs, made no opposition to that proposed amendment, and I gave permission for it to be done and it has been done.[20]I should add that, but for that amendment, I would not have been satisfied with either of Mr Marshall’s first or second alternatives as a means of dealing with the jurisdictional difficulty which I have described, and the remaining alternative under section 5 of the County Courts Act is one which would have necessitated a brief adjournment of these proceedings.[21]In my judgment, Bobs is plainly entitled to be re-registered as the proprietor of the fort. This seems to me to be the inevitable consequence once the facts have been ascertained as to the setting aside of the sale from Lexi to Charyn in the proceedings which I have described. Counsel before me agreed that such a setting aside avoids the sale ab initio once it has been ordered. Since the sale, now the facts have been ascertained, was only a sale by Lexi as mortgagee, the consequence is that Bobs’ title, once that sale is avoided, was not overreached by the sale, so that Bobs must be entitled to be re-registered as proprietor of the fort. Bobs was not at any time a party to those proceedings and in my judgment its right to be re-registered as a result of the setting aside of the sale was not adversely affected by the order for the registration of Lexi as proprietor, made as it was upon a misapprehension of the underlying facts.[22]Lexi submits, in that event, that the court should therefore restore the status quo ante, i.e. as it existed prior to the purported sale to Charyn, with the consequence that Lexi should be reregistered as legal mortgagee under the legal charge which I have described, such that it now has both a right to possession and a right to sell the fort, it being common ground that the mortgage debt has not been repaid. Lexi claims that the amount of the debt now outstanding is, because of the accrual of default interest, something in the region of £26 million, giving credit for the £500,000 received by Lexi from Charyn on the now avoided sale in February 2006. That figure is not challenged by Mr Uff as a matter of mathematics. Nonetheless, for Bobs and Mr Pooni, Mr Uff submits as follows.[23]Firstly, the sale to Charyn was a fraud on Bobs since the fort was then worth more than the mortgage debt and, relying upon a 2004 valuation by Debenhams, Mr Uff suggests that at trial it may be established that the fort was worth as much as between £10 and £14 million. Bearing in mind that, at the same time, Bobs acquired it for £4 million plus £1 million for fixtures and fittings and that all the furniture has since been removed, that seems to me to be rather an optimistic view, but my view that it is optimistic forms no part of the reasons for this judgment.[24]Mr Uff continues, secondly, that even though the sale has been avoided, Lexi was under a duty to achieve a sale at a proper price once it decided to sell the fort, and its failure to do so in 2006 has caused a continuing loss, compensation for which Bobs is now entitled to pursue against Lexi.[25]Thirdly, he submits that when setting aside a sale at an undervalue the court has discretion to impose terms as to the reconstitution of the status quo ante, and here the court should reflect the attempted fraud on Bobs by giving Lexi only an equitable charge for £6.5 million.[26]Fourthly, Mr Uff submits that Bobs should be allowed to retain possession of the fort and to allow Mr Pooni to stay in occupation of it pending trial, at which Bobs’ claims, once quantified, can be set off against Lexi’s claim and Bobs be permitted to redeem if there is any shortfall.[27]I reject all those submissions. In my judgment, the correct legal analysis is as follows: 1. The sale to Charyn may well have been in fraud of Bobs regardless whether or not the fort was then worth enough to enable a sale at market value to discharge the debt. On any view, Bobs had an interest in having its debt reduced by a proper sale even if the debt was not extinguished. 2. But it was also a fraud by Mr Luqman on Lexi and was avoided ab initio on that basis. It only damages Bobs if it caused some harm not undone by the later avoidance. In my judgment, there is no real prospect that Bobs will prove any such loss. There is simply no evidence of it. The effect of the avoidance is, therefore, as if there had been no sale. 3. The claim that Lexi committed a breach of duty as mortgagee by failing to achieve a valid sale of the fort is, in my judgment, misconceived. A mortgagee owes no duty to sell and may consider its own interests when deciding whether and, if so, when to sell. The only authority relied upon by Mr Uff, namely Barclays Bank plc v Kingston [2006] 2 Lloyds Rep 59 contains at paragraph 16 of the judgment of Stanley Burnton J a statement directly contrary to Mr Uff’s own submission. 4. While textbooks on mortgages, and in particular Fisher and Lightwood, show that a sale must generally be preceded by proper marketing and that there may, in exceptional cases, be a duty to delay a sale, for example in a strongly rising market, no authority contradicts the basic principle that sale is a mortgagee’s right which he may choose not to exercise for as long as he wishes. It follows that the status of non-sale between October 2004 when Lexi’s right to sell arose and now, as a result of the setting aside of the purported sale to Charyn, gives rise to no claim for damages by Bobs. Bobs’ remedy if the fort was falling in value or deteriorating due to disuse was to redeem. Mr Uff disclaimed any suggestion that the receiver, Mr Denny, committed any relevant wrong for which Lexi could be held liable. 5. The result is that Bobs has, in my judgment, no real prospect of a cross claim sufficient to justify its pursuit of a counterclaim for damages to trial. 6. Even if I were wrong about that and Bobs had such a prospect, then such a cross claim is no answer to a mortgagee’s claim for possession. For that purpose National Westminster Bank v Skelton [1993] 1 WLR 72 at 76 to 78 per Slade LJ and Ashley Guarantee v Zacaria [1993] 1 WLR 62 per Nourse LJ at 66 constitute almost contemporaneous binding Court of Appeal authorities. I found Mr Uff’s valiant attempts to distinguish those cases to be wholly unpersuasive. 7. There is nothing in the facts proven nor any issue of fact which gives rise to a real prospect that at trial Bobs might persuade the court not to reinstate Lexi’s legal charge as the means of restoring the status quo ante arising from the setting aside of the sale to Charyn. It follows that there is no basis for permitting Bobs to plead a counterclaim by amendment to Mr Pooni’s Defence seeking that result. The relevant facts are common ground and Mr Uff agreed that if, as I have held, there was nothing in Bobs’ damages claim, the case is fit to be dealt with now, summarily. 8. It was not suggested that there is any basis in Mr Pooni’s Defence to the possession claim beyond Bobs’ own claim to possession on being re-registered as proprietor, but since Lexi is, in my judgment, entitled to be re-registered as a legal mortgagee with an incontestable right to possession, Mr Pooni’s Defence has no real prospect of success either.[28]Treating this case as an action for sale as a result of the amendment to which I have referred ( together with a claim for possession) so as to provide jurisdiction notwithstanding section 21 of the County Courts Act, I propose therefore to make the following orders subject to submissions as to their detailed drafting. 1. Bobs is to be joined as a second defendant. 2. Bobs is to be re-registered as proprietor of the fort. 3. Lexi is to be re-registered as legal mortgagee under its legal charge of 11th May 2004. 4. There is to be an order for sale of the fort with vacant possession. 5. Lexi is to have the conduct of that sale by its administrators. 6. Both Bobs and Mr Pooni are to give possession to Lexi for that purpose and, if necessary (I will hear submissions about this), there should be an injunction restraining either Bobs or Mr Pooni from entering the fort or impeding that sale in any way. 7. Save as to the re-registration of Bobs as proprietor, Bobs is to be refused leave to amend the existing Defence so as to pursue a claim in the proceedings. 8. Also save as to Bobs’re-registration as a proprietor, Lexi is to have summary judgment both against Bobs and against Mr Pooni. 9. There should be a further hearing to enable the court to consider all orders made for the rectification of the register by substitution of Lexi as proprietor in the High Court proceedings Lexi Holdings (in administration) v Luqman & Others at which those orders are to be reviewed, as to which, after hearing Mr Marshall, I will give appropriate directions.