George Wimpey Manchester Ltd v Valley & Vale Properties Ltd [2011] EWHC 1833 (Ch)

Case No 9BM30566[2011] EWHC 1833 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue BIRMINGHAM DISTRICT REGISTRY
Civil Justice Centre
The Priory Courts
33 Bull Street
Venue Birmingham B4 6DSDate Friday 3 rd June 2011
Before
HIS HONOUR JUDGE PURLE QC(sitting as a Judge of the High Court)
B e t w e e n:
Between
GEORGE WIMPEY MANCHESTER LIMITEDClaimantVALLEY & VALE PROPERTIES LTDDefendant
(Transcribed from the Official Tape Recording by Cater Walsh & Co,Suite 410, Crown House Bull Ring, Kidderminster Worcs DY10 2DHTel: 01562 60921 Fax: 01562 743235)
MR ANDREW CHARMAN instructed by Gateley appeared for ClaimantMR EDWARD PEPPERALL instructed by Shoosmiths appeared for DefendantMR LANCE ASHWORTH QC instructed by Joanna C Day appeared for Third Party (The Bank)
JUDGMENTFriday 3 rd June 2011GEORGE WIMPEY MANCHESTER -v- VALLEY & VALE PROPERTIES LTDJUDGMENT

JUDGE PURLE:

[1]These proceedings relate to an agreement dated 19th December 2007 for the sale of land known as Area G, Middlewood Lock, Salford, Greater Manchester. The agreement was made between George Wimpey Manchester Ltd (“Wimpey”) and Valley and Vale Properties Ltd (“Valley & Vale”). As the date implies, that agreement was entered into at a time when the economic climate including the property market was in a somewhat more optimistic state than it is today, before the collapse of Lehman Bros, though I think probably after the warning shot of Northern Rock.[2]The purchase price of the property, which was a leasehold property, was stated to be £5 million. The leasehold was created by a lease dated 25th August 2004. Wimpey became the tenant under that lease. Valley & Vale was the landlord. Wimpey’s parent company gave a guarantee and a management company which also party to the lease. What Wimpey effectively agreed in the December 2007 agreement was to surrender to Valley & Vale the existing lease.[3]As well as the lease there was a prior agreement for lease dated 23rd February 2004. Its terms were expressed to survive the grant of the lease. The terms remain relevant today. They include obligations on the part of Wimpey to make overage payments upon completion of certain works and subject to various other conditions. There was an obligation on Wimpey to carry out and complete what were defined as the purchaser’s works within twelve months of the vendor having completed infrastructure works (which occurred). The purchaser’s works have not, however, been carried out and so at the date of the agreement of 19th December 2007 the parties were dealing with amongst other things what appeared on the face of it to be the defaulting position of Wimpey[4]Despite the failure to carry out the works, the price for the lease was £5 million in December 2007. There was a relatively small deposit of £50,000 which was paid and the balance was payable on completion which was to be on 28th February 2008 or at such other date as should be agreed. By virtue of the incorporation of standard conditions interest was payable on the outstanding purchase price. The outstanding purchase price has not been paid and the agreement of December 2007 has not been completed. What has happened is that Valley & Vale have gone into administration.[5]An early judgment was obtained in these proceedings before Wimpey realised that Valley & Vale had gone into administration. The judgment was set aside as irregular because to continue with the proceedings needed the permission of the court. The proceedings for specific performance which are now before me were commenced before the administration, but judgment was obtained after it. Permission was subsequently given to continue with the proceedings to the extent of obtaining specific performance of the obligation on Valley & Vale’s part to execute a deed of release as provided for in the December 2007 agreement. That deed was to release both the landlord and tenant covenants under the lease and, more importantly from Wimpey’s point of view, the obligations under the agreement for lease (clause 3.4). Before me, Wimpey have limited their immediate claim to release of the obligations under the agreement for lease.[6]The matter came on before me a few weeks ago and was argued initially upon the footing that it was open to the court to award a partial decree of specific performance. That caused me some difficulties. Moreover, in one sense that was not what Wimpey was seeking at all. Despite the service of a notice to complete Wimpey have not treated Valley & Vale’s failure to complete as terminating the agreement. As far as they are concerned, the agreement remains alive and they have expressed unambiguously in the evidence their readiness, willingness and ability to complete it. The limitation of the specific performance decree to enforcement of the relevant part of the deed of release was based entirely on pragmatic considerations because Wimpey appreciated that that was the most they could in fact get Valley & Vale to do. The reason for that is that the administration is one in which there is a significant deficiency and the only party who is interested for practical purposes is the bank, which has been caught up in the misfortunes of Valley & Vale. The bank is in it for many millions and will undoubtedly lose out whatever the result of this litigation.[7]Accordingly, there is no realistic chance of Valley & Vale actually paying the balance of the £5 million. However, as another part of the consideration was a release of the obligations under the agreement for lease, Wimpey wants that obligation enforced so that if it comes to sell the property they will achieve a better price. As Mr Pepperall, who appears for the administrators, has demonstrated, the obligations under the agreement for lease probably run with the land because of section 28(1) of the Landlord and Tenant Covenants Act 1995. The agreement for lease was a collateral agreement and Wimpey’s obligations are given the status of covenants under the 1995 Act. Accordingly, their existence would be of potential discouragement to a purchaser. Their release now would not prejudice, on the face of it, Valley & Vale in the slightest because any claim that Valley & Vale might have for damages under the agreement for lease would immediately be met by a claim for damages in exactly the same amount (at least) because Valley & Vale, by failing to complete the agreement of December 2007, has failed not only to pay the balance of the purchase price but to release the obligations upon which Valley & Vale would rely for its claim. Therefore, there would be a complete set-off and, in all probability, a defence of circuity of action.[8]Accordingly, Wimpey’s obligations under the agreement for lease are of no realistic value now to Valley & Vale. They may, however, be a great disincentive to a purchaser from Wimpey. Ordinarily if Wimpey were to sell this would require them to terminate the agreement for breach (or under a contractual provision for termination) and re-sell free of the December 2007 sale agreement, which would come to an end. Wimpey could not in those circumstances require completion of any part of the agreement, because they would be bringing it to an end instead. Moreover, to the extent that there had been part-payment over and above the forfeited deposit, that would upon termination have to be repaid. because part payments (unlike deposits) are not forfeitable. By analogy with part payment, it is difficult to see how the court could properly order execution of the deed of release in circumstances where it remained open to Wimpey then to turn round, terminate the agreement and keep the benefit of the deed of release. The execution of the deed of release is not a free-standing obligation on Valley & vale’s part, but part of the consideration which it has contracted to provide in addition to the purchase price, for which it is entitled in return to a transfer of the Lease. Just as the court cannot order payment of the purchase price except in return for a transfer, so too it cannot order the execution of the deed of release except in the context of specific performance of the agreement as a whole.[9]As the argument developed, attention came to focus with my encouragement upon the unpaid vendor’s lien. The proposition as it came to emerge was this: Wimpey acquired an unpaid vendor’s lien on the leasehold property from the moment of exchange of contracts. That is both a legal lien, which protects them from a claim for possession and entitles them to retain the title deeds, and an equitable lien which takes effect by way of charge. Even were the transaction to be completed without full payment, the equitable lien would survive completion and continue to operate as an equitable charge upon the property conveyed. Even before completion there is an equitable charge. It is necessary to ask, “An equitable charge on what?” The equitable charge must before completion be upon the equitable title that Valley & Vale had to the lease upon exchange arising under a specifically enforceable contract. That is an interest which matures into a full beneficial interest upon completion, but exists before completion as well. It is recognised as a proprietary interest which (subject to the requirements of registration) binds purchasers from Wimpey.[10]Accordingly, it is open to Wimpey to seek specific performance of the entire agreement coupling that claim with a claim for a declaration that there is an unpaid vendor’s lien which they are entitled to enforce by way of sale to the extent that what they have bargained to receive remains unpaid or unsatisfied. What they have bargained to receive is not just £5 million but a release of, amongst other things, the obligations under the agreement for lease. Speaking for myself, I can see no conceptual or other difficulty in requiring in those circumstances the execution of the appropriate release as part of a decree of specific performance, coupling that with a declaration of lien which will enable Wimpey subsequently to seek a sale of the property, not as a party accepting a repudiation or otherwise terminating the contract, but by way of enforcement of the unpaid vendor’s lien to the extent of the outstanding purchase price. In those circumstances there seems to be no conceptual difficulty either in requiring the release to be executed because that is merely Wimpey receiving such part of the consideration as is due to them which can properly be gathered in without infringing the rights of third parties such as the bank. The bank obviously comes first so far as the fixed charge on the freehold is concerned but, as regards the agreement for sale of 19th December 2007, the bank as fixed chargee obtains an interest which is no better than Valley & Vale’s interest. That interest is conditional upon payment of the purchase consideration, and subject to an unpaid vendor’s lien in the meantime.[11]This is, as one would expect, reinforced by the terms of the agreement for sale itself. In clause 5.2 under “Completion” it is provided; “Unless otherwise agreed in writing between the parties’ respective solicitors monies payable at Completion shall be paid by telegraphic transfer to the Specified Bank and Actual Completion shall not occur until all such monies payable at Completion have been received into such account and are available as cleared funds.” “Actual Completion”, unsurprisingly but not particularly revealingly, is defined as the time at which the completion of the sale of the purchase of the property actually occurs and “Completion” is defined as the time at which completion is scheduled to take place which was 28th February 2008.[12]It seems to me that Wimpey, under this agreement, is entitled to require both the payment of the money and the execution of the deed of release at the same time as they execute and tender (subject to payment) an executed transfer. It is common for transfers to be executed in advance of completion. They take effect as escrows. The transferor is not bound to hand it over until payment. That is not because of any lien but because the escrow condition is not satisfied and the deed does not take effect until then. However, once executed in escrow, the transferor cannot withdraw the transfer unilaterally. If the condition is satisfied the transfer takes effect retrospectively. It seems to me that were Wimpey, who claim to be ready, willing and able to complete, to execute such a transfer in escrow then they would be entitled to require completion of the other side to the extent that it can be enforced, which would include release of the agreement for lease obligations. If, as is practically certain, the purchase price is not paid, the escrow condition would not be satisfied, the equitable lien would subsist and Wimpey could come to the court and seek an order for sale enforcing its lien at any time thereafter. The sale would extinguish Valley & Vale’s equitable title and Wimpey could keep the sale price to the extent of its charge for the unpaid balance. Thus, Wimpey would receive money over and above the forfeited deposit and would be under no obligation to repay, except in the unlikely event of the sale proceeds exceeding the unpaid balance and interest. The practical effect would be that Wimpey would receive part of the purchase price, through enforcement of the lien, which it would be free to keep, being owed the balance. I do not see why, in the same circumstances, Wimpey should not also retain the benefit of any deed of release, and why the court should not order its execution and handing over.[13]The court would, however, require in those circumstances some protection for Valley & Vale in the event that Wimpey, instead of selling pursuant to a court order in exercise of the lien, subsequently terminated the contract and sold or developed the land on their own account. It seems to me that the court could achieve such protection by incorporating within the release deed provisions negating the effect of the deed in the event of Wimpey terminating the contract, or providing that the release should itself be conditional on the earlier of payment of the purchase price or enforcement of the vendor’s lien. Ultimately, this is a matter of drafting, preventing Wimpey from having it both ways.[14]It is said in this case that no unpaid vendor’s lien arises because what was contemplated was a merger, as witness clause 3.2 of the agreement which provides as follows:
“The buyer is the reversioner and will apply to HM Land Registry in the Transfer for the merger of the freehold and leasehold interests in the Property in order to effectively release the Seller and the Guarantor from their obligations in the Lease.” in the Transfer for the merger of the freehold and leasehold interests in the Property in order to effectively release the Seller and the Guarantor from their obligations in the Lease.”

in the Property in order to effectively release the Seller and the

[15]That is reinforced by the actual draft transfer incorporated into the agreement, which embodied an application by both parties to merge the leasehold title with the freehold title. I[16]It is entirely correct that merger was contemplated, but no merger was contemplated except in the circumstances set out in condition 5.2, namely that there would be no actual completion until all monies had been received in cleared funds. Once that happened then the execution of the escrow, which would ordinarily be completed before execution, would become unconditional and there would be merger by operation of law, but not otherwise. Accordingly, there can be no merger until payment and until then there is nothing in the agreement, in my judgment, to take away the implication of an unpaid vendor’s lien which ordinarily arises.[17]I was referred extensively to Barclays Bank Plc v Estates & Commercial Ltd [1997] 1 WLR at page 415 and in particular the passage at page 420, which says as follows, reading from the judgment of Millett LJ:
“The lien arises by operation of law and independently of the agreement between the parties. It does not depend in any way upon the parties’ subjective intentions. It is excluded where its retention would be inconsistent with the provisions of the contract for sale or where the true nature of the transaction is disclosed by the documents. It is also excluded where, on completion, the vendor receives all that he bargained for.”
It is said here, both by reference to the express terms of the agreement, namely clause 3.2 and the draft transfer to which I have referred, and by reference to the true nature of the transaction, which was the sale of a lease to a freeholder, that the implication of a vendor’s lien is excluded. I do not agree, largely because of the reasons I have given, namely that completion and merger pre-supposed the payment of the purchase price. agreement between the parties. It does not depend in any way upon the parties’ subjective intentions. It is excluded where its retention would be inconsistent with the provisions of the contract for sale or where the true nature of the transaction is disclosed the vendor receives all that he bargained for.”

for sale or where the true nature of the transaction is disclosed

[18]Even were there now to be an unconditional transfer (rather than an escrow, which, for the reasons I have given, is in my judgment sufficient) it seems to me that until payment of the purchase price the contemplation was that the estates would not and could not merge. Thus, the equitable interest arising under the contract for sale, previously defeasible upon non-payment of the purchase price, would continue and not merge with the legal title, whether of the lease or the freehold, because it remained subject to the equitable charge arising under the lien.[19]In addition, that charge (arising by operation of law) would come ahead of the interests of the bank as chargee. This is subject to one other point concerning the bank’s security to which I will come later, but which is a slightly different point.[20]Accordingly, on that analysis it is unnecessary for me to consider the precise ambit of the two further cases referred to me by Mr Charman, namely Chattey & Anr v Farndale Holdings (1996) 75 P&CR 298 and the unreported decision, at least so far as the researches of counsel have revealed, of Coleman J in International Finance Corporation v DSNL Off Shore Ltd [2005] EWHC 1844 (Comm). Those cases were different from the present case. They concern the ability for a lien to arise out of an interest which was intended to be granted as opposed to here, when the ultimate intention was that the estate should be merged and, therefore, the interest in the lease would come to an end. The reason why I say those cases do not apply is because, as I have held, the interest only comes to an end upon and therefore continues until payment of the purchase price. Until then it is a subsisting equitable interest.[21]In those circumstances it seems to me that Wimpey have an unpaid vendor’s lien which it is entitled to enforce as part of the machinery for a decree of specific performance. The question is: should I allow that claim to be brought because it is said to be wider than the existing permission given under paragraph 43(6)(b) of the Insolvency Act 1986?[22]To counter that submission, Wimpey have made an application for an extended permission. The bank have appeared on that application, though not on the application for specific performance, by Mr Ashworth QC. They say, supported by Mr Pepperall for the administrators, that the court in the exercise of the balancing exercise described in cases such as Re Atlantic Computer Systems Plc [1992] Ch 505and Innovate Logistics Ltd v Sunberry Properties Ltd [2009] BCC 164 should not grant permission because it would allow Wimpey to steal a march on the only other relevant creditor, namely the bank, and get ahead of them. My attention was also drawn to the provisions of the bank documentation which grant the bank a charge not just over the freehold property but in a range of agreements which would include the agreement for lease. The extent to which consent may have been given to the agreement of December 1997 has not been explored and it was common ground before me that questions of priority cannot be resolved on the present state of the evidence on this application.[23]At the end of the day, either the bank has priority or it does not. If it were clear that the bank had a priority that could not be displaced then it would be pointless, it is said, to give permission to proceed with the specific performance proceedings, although it would also follow that the permission previously given was pointless. If it is clear that the bank does not have priority then there is no reason why the permission should not be given. If the position remains to be clarified then the bank’s position would not be worsened by permission being given. That is what I propose to do. .[24]It seems to me that it may well be that strictly speaking the existing permission covers what it is that Mr Charman is now seeking to do, because it was sought in the context of a party who was ready, willing and able to complete, and who remains so. To put the matter beyond doubt, however, it is desirable to give the broader permission which Mr Charman now seeks, which is to continue with the proceedings for specific performance. It seems to me that for the reasons I have given the defendants are not prejudiced. It may well be that the bank’s interests, if it is established that they have a right to object to this transaction, would be prejudiced by the ultimate grant of relief in the specific performance proceedings. In those circumstances it seems to me to be desirable that the bank should be made a party to the proceedings, an application which has not yet been made. I am, however, satisfied that subject to that point this is a case where specific performance ought to be granted with the declaration of lien that I have mentioned and with the safeguards built into the release which will be limited to the obligations under the agreement for lease which I have mentioned.[25]One additional point taken by Mr Pepperall related to whether or not the December 2007 agreement was void as an agreement to surrender a business tenancy. On that point, given that the application before me was one for summary judgment, it was accepted by Mr Charman that the effect of the agreement was to surrender a lease which would (at least arguably) be void if Wimpey had occupied the subject matter of the lease, Area G, for business purposes.[26]It was stated shortly but unequivocally in the evidence that the land was not being used for any purpose. However, Mr Pepperall was able to point to a report in Wimpey’s own evidence suggesting that at some time in the past, though not, it would appear, in December 2007, Area G was used for car parking and as a marketing suite. That was then met by evidence of a Mr Davies who said that the report in question was mistaken and that the car parking and marketing suite was on adjacent land, not Area G. There is a plan attached to the 2007 agreement which is at page 104 in the bundle, and there is a similar one at page 105, which confirms Mr Davies’s statement.[27]Accordingly, there is no evidence which presently raises even a triable issue, in my judgment, as to whether or not the land was used for business purposes. The fact that it is fenced off and kept secure is, it seems to me, neither here nor there. There are many cases where property is kept secure but that does not amount to running a business.[28]It is also pointed out that there was provision in the agreement of December 2007 for the grant of a compound lease in relation to Area G which, had that been granted, would have amounted to a business use though in fact the proposed lease would have excluded the terms of the Landlord & Tenant Act. In fact the lease was not granted and will not now be granted. It is doubtful indeed whether that provision could have been enforced because it seems from the terms of the agreement inherently uncertain. As in fact the compound lease never occurred, I do not think it is appropriate for me to infer that something similar must have been going on on the land at the time of the agreement in 2007. Accordingly, it seems to me that for summary judgment purposes there is nothing in that point and I would not regard that as standing in the way of an order for specific performance.[29]What does, in my judgment, stand in the way of an order for specific performance at this stage is the unresolved position of the bank. If the bank presently has a right to prevent the grant of the deed of release, it is conceivable that its position would be worsened by its execution because it might thereby lose some advantageous position which it would otherwise have. The evidence is not complete on this point. It seems to me, therefore, that I cannot grant summary judgment as of today. Mr Charman’s suggestion was that I should grant summary judgment and deal with that position if and when the defendant failed to carry out my order. If I make an order I would expect the defendant, governed as it is now by officers of the court, to comply with it. The administrators are well able to execute a deed of release even if that puts the company in breach of some obligation towards the bank.[30]It seems to me, therefore, that the bank’s position may be materially prejudiced and that there may be a defence of unfairness to the bank or something similar which would be taken away if I were now to order specific performance. It seems to me that the question of the bank’s position ought to be looked into properly before any order for specific performance is made. It may well be, even if the bank’s contractual rights are infringed, that Mr Charman will be able to persuade me that his clients should still have the order which they seek under their contract because the bank will, on the face of it, suffer no loss because the bank as chargee would stand in the same position as Valley & Vale and, as I have already mentioned, any claim that may arise under the agreement for lease would immediately be met by a claim for breach of contract of at least that amount, leaving aside any shortfall in the purchase price. But that is not appropriate for me to decide today in the absence of proper argument and in the absence of the bank as a party to the specific performance proceedings. I will therefore now hear counsel on what directions should be made in relation to the specific performance proceedings and summary judgment application.[31]There is, I should mention, an application for permission to amend to raise the question of the lien and to seek various declarations. The application seems to me in principle to be valid though one of the declarations, which suggests in terms that Wimpey are entitled to be released from any obligation, even as tenant under a continuing lease, to Valley & Vale, is too wide. I would ask Mr Charman to revisit it. Subject to that I am prepared in principle to grant permission to amend. I will now, as I say, hear counsel on what further directions should be made, whether for the trial or for the resumed summary judgment application.

Cited in 1 later judgment