Pickenham Romford Ltd v Deville [2013] EWHC 2330 (Ch)

Case No HC12D04104[2013] EWHC 2330 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 31/07/2013
Before
SIR WILLIAM BLACKBURNE
Between
PICKENHAM ROMFORD LTDClaimantALAN CHARLES DEVILLEDefendant
Derrick Dale QC and Christopher Knowles (instructed by Eversheds LLP) for ClaimantRichard Millett QC and Tom Ford (instructed by Cartier & Co) for DefendantHearing Hearing dates: 11, 12 and 18 March 2013
JudgmentSir William Blackburne:Introduction
[1]Pickenham Romford Limited (“PRL”) is the registered proprietor of seven parcels of land in Romford (“the Site”). Some are freehold; others are leasehold. The Site is (or at any rate was earlier) in course of development. It is held by PRL subject to various securities given by it to Bank of Scotland plc (“BoS”) to secure lending provided to it by BoS on 29 March 2005. That was when the funding of the Site was refinanced by BoS replacing in large part the previous funder, Lloyds TSB plc (“Lloyds”).[2]PRL went into administration on 12 August 2009. Its administrators then took steps to sell the Site with a view to releasing the sale proceeds to BoS as a secured creditor. A purchaser was found and heads of terms were entered into aimed at a sale of the Site for between £8 and £10 million. But the further progress of the sale was brought to a halt by the action of the defendant, Mr Deville, in causing unilateral notices to be registered against the titles to five of the seven parcels. The notices were registered on 28 February 2012. The administrators’ pleaded case was that these notices were wrongly registered and should be vacated.[3]By these proceedings, issued on 9 August 2012, PRL (acting by its administrators) seeks a declaration that neither Mr Deville nor any party on whose behalf he is entitled to act has any interest in the properties that comprise the Site or its sale proceeds, a further declaration that any security rights held by BoS over those properties have priority to any rights in respect of them enjoyed by Mr Deville and an order that the unilateral notices be vacated. At the same time an application for summary judgment was issued. In order to avoid delaying a sale of the Site pending resolution of Mr Deville’s claims it was agreed that in return for the cancellation of the notices the administrators would retain the sale proceeds of the five affected properties. The notices have now been cancelled but, at the time of the hearing before me, the Site was still unsold.[4]The summary judgment application came before me for decision in March of this year. The administrators (formally it was PRL) were represented by Mr Derrick Dale QC and Mr Christopher Knowles, and Mr Deville by Mr Richard Millett QC and Mr Tom Ford. At the conclusion of the hearing I indicated, because the matter was of some urgency in view of the wish of the administrators to be free to proceed with the sale which the registration of the notices had been holding up, that I would grant the declaratory relief sought and give my reasons for doing so at a later date. What follows are my reasons. I have attempted to give them with as much brevity as the complicated background allows.

Setting the scene

[5]I must first set the scene. I start by explaining where Mr Deville fits into the picture. He was once a solicitor in private practice and, for a while at least, was Senior Partner and Head of Commercial and Development Property within his firm, Gisby Harrison Solicitors. He was a director of PRL and also of Samuel Beadie Properties Limited (“SBPL”), a company owned by him - as majority shareholder - and by his wife and son.[6]PRL was originally a party to a property development joint venture (“the Joint Venture”) carried out by companies controlled by Mr Deville, Nigel and Heather Lewis, and Richard Daniels and his family. The Joint Venture included SBPL and its subsidiaries (“the SBP Group”) and companies within a group controlled by Mr Daniels. PRL was formed as a special purpose vehicle to develop the Site. Until 2005 it was owned by members of the Lewis and Daniels families. From 1997 onwards PRL worked with SBPL to develop the Site. SBPL provided the funding.[7]The Joint Venture was not a success. The parties to it fell out. On 23 July 2001 they entered into a deed of dissolution for the purpose of terminating it. But many matters were left open by this deed, not least the terms of the (by now defunct) Joint Venture. Litigation ensued. It culminated in a judgment of Lindsay J delivered on 25 July 2008: see Daniels v Deville [2008] EWHC 1810 (Ch). In his judgment Lindsay J determined the nature of the Joint Venture, the interests of the corporate vehicles used in it and of the individual participants (such as Mr Daniels and Mr Lewis) and also the nature and effect of the deed of dissolution.[8]From 2001, Lloyds had provided funding to SBPL, inter alia, to develop the Site. That funding for the development of the Site - known as the Romford Loan - was secured by, among other instruments, a debenture dated 15 November 2001 over PRL’s assets and undertaking (“the Lloyds PRL Debenture”), a legal charge dated 3 May 2002 over one of the properties forming a part of the Site (“the Lloyds Charge”), and an intercompany omnibus guarantee and set off agreement dated 20 November 2002 by SBPL, PRL and four other companies, including Samuel Beadie (Investments) Limited (“SBIL”) and Samuel Beadie (Developments) Limited (“SBDL”) in favour of Lloyds (“the Lloyds OGSA”). In point of fact the Romford Loan was no more than an intercompany loan account between SBPL and PRL in that SBPL made money available to PRL to develop the Site albeit that the money in question had been lent by Lloyds to SBPL.[9]In May 2004 Lloyds indicated that it was no longer prepared to fund further development of the Site, which had continued despite the dissolution, and suggested that SBPL look instead to BoS for the funding that was needed. To this end discussions took place. They lasted many months. A condition of the facilities that BoS was willing to provide was that PRL should become a part of the SBP Group. The negotiations culminated in a series of agreements entered into with BoS on 29 March 2005 whereby BoS provided PRL with a facility agreement for a term loan of £17.3 million (“the PRL Facility”) and a working capital facility of £3 million to SBPL. The same day, 29 March, £9.75 million was drawn down under the PRL Facility and paid to Lloyds. Of that sum £7.6 million was used to discharge various pre-existing loans and other debts. Included in the £7.6 million was £2.1 million which was applied in reducing what was due to Lloyds in respect of the Romford Loan. The Romford Loan balance, namely £2,688,457.87, was transferred to SBPL’s continuing bridging loan account with Lloyds. The result was that the Romford Loan was wholly extinguished.[10]In order to fulfil the condition that PRL become part of the SBP Group, SBPL acquired the shares in Pickenham Estates Limited, of which at the time PRL was a wholly-owned subsidiary. The shares in question were held by the Daniels and Lewis families. Completion of the share acquisition also took place on 29 March 2005. Thereafter the Daniels and Lewis families ceased to have any interest in PRL. (I was told that there are issues over the purchase of the shares in that loan notes issued as part of the consideration for the shares acquired from the Daniels family were not redeemed. I am satisfied that such issues are irrelevant to the matters that arise on this application.)[11]Various securities and other agreements were entered into in order to document the arrangements and provide security for the financial assistance which BoS was providing. They included a debenture granted by PRL to BoS (“the BoS PRL Debenture”) and the grant over a period of time of first legal charges over five of the properties which made up the Site and equitable charges over the remaining two. To facilitate this, Lloyds released some of the securities it held. It is the extent to which this was successfully achieved and whether in some manner Mr Deville or entities controlled by him retained or acquired interests in the assets over which BoS obtained, or thought that it obtained, security rights when it refinanced the Site’s development that lie at the heart of these proceedings.

The legal and equitable charges

[12]The history of the legal and equitable charges which PRL granted to BoS is not entirely straightforward. I set out the material events by describing the parcels of land which were the subject of those charges simply by reference to their registered title numbers.[13]At the time of the refinancing on 29 March 2005 PRL granted BoS a first legal charge over just one property, EGL 439550 (a freehold estate). As I understand matters it had previously been the subject of the Lloyd’s Charge. BoS was registered as proprietor of the new charge on 21 April 2005. Subsequently, in May 2006, four other parcels of land were acquired by PRL and charged by first legal charges to BoS. They were: EGL 513017 (a freehold estate) charged on 19 May 2006 with registration of the transfer and charge effected on 14 November 2006; EGL 513021 (a leasehold estate) charged on 17 May 2006 with registration of the grant of the lease to PRL and the charging of it by PRL to BoS effected on 14 November 2006; EGL 513024 (a leasehold estate) charged on 17 May 2006 with registration of the grant of the lease and the charging of it by PRL to BoS effected on 14 November 2006; and EGL 513028 (a leasehold estate) charged on 17 May 2006 with registration of the lease and the charging of it to BoS effected on 14 November 2006. The remaining two parcels have a slightly complicated history. EGL 533060 (“title 060”) is a leasehold estate acquired by PRL under a lease to it dated 17 October 2007 but no first legal charge over it in favour of BoS was executed. Instead, under the terms of the BoS PRL Debenture BoS became entitled to a fixed equitable charge over the lease in question from the moment that it was granted. PRL was registered as proprietor of the lease on 6 February 2008. For a reason which is not apparent, on 26 May 2009 BoS was registered as proprietor of a legal charge over the lease. In fact PRL had not granted BoS any legal charge over it. The position is similar in the case of the seventh and last title, EGL 555694 (“title 694”). This too was a leasehold estate, in this case granted to PRL by a lease dated 17 May 2006. By virtue of the BoS PRL Debenture, BoS became entitled to a fixed equitable charge over the lease from the moment that it too was granted. PRL was registered as proprietor of it on 4 June 2009. As with title 060, so with this title: BoS was registered as proprietor of a legal charge over the lease on 9 June 2009 even though PRL had not executed any legal charge over it. I come later to the steps later taken on behalf of PRL to rectify the position and the case that Mr Deville has sought to mount on the basis of the steps so taken.[14]I pause to say that EGL 513017 and EGL 513028 were accidentally omitted from the claim form and summary judgment application. This is explained in the fourth witness statement of Brian Rawlings of Eversheds LLP, PRL’s solicitors, who receive their instructions from the joint administrators. Mr Dale applied for, and I granted, permission to add these two titles to the other five which are referred to in the claim form and application.[15]Notwithstanding the refinancing of 29 March 2005 and subsequent facilities, the successful development of the Site failed owing, among other matters, to a lack of resources. By August 2009 the monies owed by the SBP Group and other companies to BoS exceeded £91 million. Following demand of what was due and non-payment of what was demanded, BoS appointed administrators over SBPL on 10 August 2009 and over PRL (and other group companies) on 12 August 2009.[16]On 28 February 2012, as I have mentioned, Mr Deville filed unilateral notices at the Land Registry. He did so against titles EGL 439550, EGL 513021, EGL 513024 and titles 060 and 694. He did not do so against the other two titles. The notices, as registered, purport in each case to be “in respect of the beneficiary’s claim that a charge arises in his favour as a result of an Omnibus Guarantee and Set Off Agreement dated 20 November 2002 [i.e. the Lloyds OGSA] and a Debenture dated 15 November 2001 [i.e. the Lloyds PRL Debenture] that is said to be prioritised by an Intercreditor Deed dated 29 March 2005, which has been assigned or otherwise vested in him.” Mr Deville is the beneficiary referred to in the notices. As will appear, the argument for Mr Deville developed before me by Mr Millett took a rather different shape from the claim identified by the notices.[17]I have mentioned too that, by agreement, the notices were later cancelled. I can also add that following their cancellation BoS proceeded to register its own notices in respect of titles 060 and 694 in reliance on the BoS PRL Debenture. The result is that on 29 January 2013 the Land Registry entered notices of equitable charge in favour of BoS in respect of those two titles.

The principles applicable to summary judgment

[18]Mr Millett reminded me of the principles applicable to summary judgment applications by reference to passages from the judgment of Potter LJ in Partco Group Limited v Wragg [2002] EWCA (Civ) 594 at [28], and of Sir Andrew Morritt V-C in Celador Productions Limited v Melville [2004] EWHC 2362 (Ch) at [6] to [7]. He also referred me to observations of Eady J in Daniel Charles Cotton v Rickard Metals Inc [2008] EWHC 824 (QB) at [6] and [13]. I do not need to say more about the principles except that they are well known and that I have had them fully in mind.[19]Mr Millett’s broad submission was that, having regard to those principles, this was not an appropriate case for summary judgment(a) because Mr Deville’s defence has a real prospect of success,(b) because PRL (through its administrators) was wrongly seeking to lead the court into engaging in a “mini-trial”, and(c) because (echoing the remarks of Eady J in Daniels Charles Cotton) there is a strong possibility that disclosure and cross-examination in the course of a trial will lead to relevant evidence being adduced to support Mr Deville’s case. As I decided at the end of the hearing to accede to the claimant’s application for summary judgment it follows that I was against Mr Millett on each of those three points. I now proceed to explain why.

The issues

[20]A very large body of evidence was served together with very extensive exhibits. Further documents were served during the course of the hearing to deal with a contention by Mr Deville which sought to challenge the validity of the BoS PRL Debenture and, with it, the validity of the securities held by BoS over titles 060 and 694. I confine myself to the matters which remained in issue by the conclusion of counsel’s submissions. I start with the validity of the BoS PRL Debenture. I do so because, as the attack here is not just on the validity of the securities which BoS thought that it thereby acquired over those two titles but also on the validity of the Debenture itself, it necessarily puts in issue the appointment of the administrators (made by BoS in exercise of its powers under clause 7.1.2 of the Debenture) and thus the proper constitution of these proceedings.

The BoS PRL Debenture: is it valid?

[21]This point only emerged very late in the day. It is irrelevant to the basis on which Mr Deville sought at the time to justify registration of the unilateral notices. The point has its origin in the appearance in handwritten form of “EGL 555694” in the schedule to the original of the BoS PRL Debenture. The purpose of the schedule is to identify those estates or interests which are the subject of legal mortgages in favour of BoS. EGL 555694 is the title number of the lease which was granted to PRL on 17 May 2006 and of which PRL was registered as proprietor on 4 June 2009. I have referred to it for short as “title 694”. Three days later, on 9 June 2009, BoS was registered as proprietor of a legal charge over that title.[22]Mr Millett submitted that as title 694 was only opened on 4 June 2009 and it relates to an estate, a lease to PRL, which was only granted in May 2006, the manuscript insertion on the Debenture must have been made after the Debenture’s execution on 29 March 2005. He submitted that the insertion amounted to a material alteration to that instrument and that unless it was made with the approval of BoS and PRL as the parties to the instrument the consequence in law is that the instrument is rendered void. He referred me to Pigot’s Case (1614) 11 Co Rep 26B and to remarks by Potter LJ in Raiffeisen Zentralbank Osterreich AG v Crossseas Shipping Ltd [2000] 1 WLR 1135, 1142C to 1143B stating that the effect of an alteration is that the instrument sued on is no longer the instrument of the party charged and that the rule is a salutary one aimed at the elimination of fraud rather than requiring proof of it. Mr Millett submitted that PRL had failed to identify or explain the circumstances in which the insertion had been made. He submitted that the effect of the insertion was purportedly to create a legal mortgage over title 694 in that, by clause 2.1.1 of the Debenture, PRL charged “by way of legal mortgage all estates or interests in the freehold or leasehold property described in the Schedule” so that the insertion of title 694 into that schedule operated to all outward appearances to create a mortgage over it. This in turn resulted in the wrongful registration of that charge as a fixed legal charge. In truth, however, there could never have been more than an equitable charge over it. The effect in law of such an amendment to the Debenture was, he submitted, to render it wholly void so that BoS obtained no security over either title 694 or title 060 since it was only by force of the Debenture that BoS acquired any security over those two titles.[23]This result, said Mr Millett, was recognised by the Land Registry when, in response to a letter written to it by Mr Deville in which he objected to the registration of legal charges in favour of BoS over those two titles, the Land Registry, by letter dated 19 April 2012, wrote to say that the Debenture should only have been registered as an equitable charge against those two titles. This was reflected in the subsequent amendment of the two titles by the removal of the entries recording legal charges and their replacement by the entry of unilateral notices in respect, in each case, of an equitable charge.At the very least, Mr Millett submitted, there should be a trial to determine the circumstances in which the insertion came to be made.[24]I do not accept this analysis. As to the relevant law, the requirements which must be satisfied if the instrument is to be rendered void include the following. First, the alteration must be deliberate; it is not enough if it is made accidentally or mistakenly. See Vol 1 of Chitty on Contracts, 31st edition, at para 25-022. Second, the alteration must be material, i.e. an alteration to the legal effect of the instrument. This has been held to mean that the “would-be avoider should be able to demonstrate that the alteration is one which, assuming the parties act in accordance with the other terms of the contract, is one which is potentially prejudicial to his legal rights or obligations under the instrument.” (See Raiffeisen at [27] per Potter LJ). Third, the alteration must be without the consent of the other party to the instrument. This is self-evident. Fourth, it is at the very least questionable whether the rule applies to an alteration made by a stranger: see Chitty on Contracts, at para 25-023.[25]In the limited time available to them to investigate the point once it was fairly and squarely raised by Mr Millett the PRL’s administrators and their advisers were unable to say by whom and when the insertion had been made. It is likely, and certainly not impossible, that the insertion was made by someone at the Land Registry. The copy of the Debenture kept on file by Eversheds (acting for BoS) in relation to title 060 and certified to be a copy of the original has a blank schedule. The handwritten insertion of “EGL 555694” in the schedule to the Debenture as it appears on the copy of the Debenture received from the Land Registry when a copy was sought from the Registry after this point was first raised a few days before the hearing of this application is, I think it is reasonably clear, not quite the same as the appearance of that reference in the copy of the original of the Debenture retained by Eversheds at the time of the registration of title 694. There is no credible explanation for this discrepancy. Those at Eversheds who were involved in the matter at the time were unable to identify the handwriting as theirs or of anyone else in the relevant team at the Eversheds office. There is no good reason why anyone from Eversheds should have made the insertion.[26]This being an application for summary judgment there is plainly an issue over how the insertion came to be made which I am in no position to resolve. If it was made by someone at the Land Registry, who for this purpose would be a stranger to the Debenture, it is difficult to see why it had the effect of invalidating the document. If necessary I would hold that it did not. On the assumption, however, that the insertion was made by someone at Eversheds (no third possibility was canvassed or seems at all probable) I am of the view that it likewise did not affect the validity of the Debenture. My reasons are these.[27]First, I do not consider that the insertion was material. By that I mean that it did not affect PRL’s legal rights under the Debenture and certainly did not do so in a manner that was potentially prejudicial to it. The estate represented by title 694 was created after the date of the Debenture. The insertion in the schedule could not of itself have given rise to a legal charge but, at the most, to an equitable charge. As the Land Registry acknowledged in their letter of 19 April 2012, the Debenture should only have been noted as an equitable charge. The alteration did not and could not therefore affect the substance of PRL’s rights over that title given to it by the Debenture, and certainly did not do so prejudicially to PRL’s interests. Second, under clause 2.11 of the Debenture, PRL agreed on written demand by BoS to execute and deliver to BoS a legal mortgage of any of its property not already effectively charged by clause 2.1.1 and to execute such instruments and do all such other things as might be needed to protect any security created or intended to be created by the Debenture. Under clause 8, PRL irrevocably appointed BoS its attorney “in its name and on its behalf and as its act or deed or otherwise to execute and deliver… any deed…or instrument…which may be required of [PRL] under this Debenture or may be required or deemed proper in the exercise of any rights or powers conferred on BoS…hereunder or otherwise for any of the purposes of this Debenture.” Those provisions amply entitled Eversheds as BoS’s agent (and acting on its instructions) to do whatever was needed to enable a legal charge to be executed over title 694 once that title came into existence. If PRL had refused to execute the necessary charge there can be no doubt that BoS could have acted in its name to bring about the execution of the necessary deed to give effect to PRL’s obligation in that behalf. The fact, let it be assumed, that BoS (acting by Eversheds) achieved, or sought to achieve, this result by inserting the title number in the schedule and then submitting the Debenture to the Land Registry with a view to the registration of a legal charge over the title and that it did so without first requesting PRL to execute the necessary charge seems to me to be neither here nor there: the fact is that the end result – the registration of BoS as the holder of a legal charge over the estate comprised within the title – was no more and no less than what PRL was obliged to deliver under the terms of the security it had given to BoS. In short, even if Eversheds did make the insertion in the schedule the effect was as if the alteration had been made with the assent of both parties to the debenture.[28]Once it is clear that there is no basis for attacking the validity of the Debenture it is difficult to see what locus Mr Deville has for questioning the manner in which BoS came to be registered as the holder of security over properties comprised in titles 060 and 694 when PRL itself makes no objection. Subject to Mr Deville’s other claims (to which I next turn), it makes no difference to PRL’s unsecured creditors, much less to its shareholders, whether BoS has a legal or an equitable charge over those two properties: even if those charges are or should properly be regarded as no more than equitable in nature the claims of BoS secured by them have priority over the claims of those other persons.[29]In the result I am satisfied that the circumstances in which BoS came to hold security over titles 060 and 694 provide Mr Deville with no basis of complaint and none which is relevant to the validity of the unilateral notices which he caused to be registered and with which these proceedings are primarily concerned.

The trust claim

[30]I need only mention this very briefly. Quite a lot of Mr Deville’s evidence was directed to a claim that, for various complicated reasons going back to a time long before BoS came on to the scene, PRL held the Romford development and now holds the Site on trust for him (among others). The administrators have consistently disputed this claim. When the matter was opened to me at the start of the first day I was told that, at any rate for the purpose of this application for summary judgment, Mr Deville conceded that he had no pre-existing beneficial interest in the Romford Site and that he would not be contending that PRL was no more than a trustee for him. This meant that I was no longer concerned with this particular claim.

The subrogation claims

[31]Mr Deville advanced two separate but related contentions:(1) that by agreement with Lloyds and with the knowledge and assent of BoS he was granted rights of subrogation (alternatively, as it was described, “rights akin to subrogation”) in respect of Lloyds’ rights under the Lloyds PRL Debenture, the Lloyds Charge and the Lloyds OGSA (collectively “the Lloyds PRL Security”); and(2) that in circumstances where SBIL and SBDL (two of the companies in the SBP Group and mentioned in paragraph 8 above) repaid that part of the residual debt which, after the refinancing by BoS, remained owing by SBPL to Lloyds and related to the Romford Site, those two companies became equitably subrogated to the Lloyds PRL Security to the extent of the sums that they so paid.

The contractual claim

[32]The contractual claim was said to be based on two letters. Both were from Lloyds (signed by Mr Higbey of that bank) and both were addressed to “A. Deville…, Samuel Beadie (Properties) Ltd…” The first, dated 12 August 2004 and headed “Samuel Beadie (Properties) Ltd (“SBP”) and Pickenham Romford Ltd (“PRL”), read as follows:
“As you are aware, we are looking to you to clear the borrowing in the name of SBP in respect of the Romford site with this to be completed by 20th August. In order not to jeopardise other lending with us it is essential that it is to be completed on time or very quickly thereafter. As you are aware, this arrangement whereby the borrowing for this site was put into the name of SBP was purely due to the very weak balance sheet of PRL and the need for us to look to SBP to give financial support to the development in those circumstances. It was for that reason that our security package involved an Omnibus Guarantee and Set Off document and debentures from both companies, the debenture from PRL picking up the building contracts at Romford. In the circumstances, and given that SBP will need to settle the debt with us, we confirm that we will allow you rights of subrogation on our security once the debt is cleared. I look forward to hearing from you with your urgent confirmation and the action you are to take to comply with the request to clear this borrowing.”
[33]The second, dated 17 August 2004 and headed simply “Romford Loan”, was as follows:
“I write further to our telephone conversation to confirm that the Romford loan is capped at £4.3M, with interest covered separately. We will be happy to release all our charges on the site subject to receiving the sum of £4.3M from HBOS where completion was originally scheduled for 20th August, but where we now expect to see this debt cleared by 31st August. No doubt you will ask HBOS to expedite matters so that you can comply with your personal commitment to us without embarrassment. In view of the continuing delays here, which are not of your making, please ask HBOS to confirm directly to me a date by which they will definitely have cleared our debt. Thank you.”
Thank you.”[34]Mr Millett submitted that the letters were addressed to Mr Deville personally and that, by them, Lloyds was promising that in return for bringing about the discharge of the Romford Loan he, or those other persons or companies who discharged the Loan, would be entitled to stand in Lloyds’ shoes and enjoy the rights under the Lloyds PRL Security. He submitted that the agreement “contained in or evidenced by” the two letters (which he called “the Subrogation Agreement”) operated to vary the Lloyds OGSA which otherwise precluded PRL, SBPL, SBIL and SBDL from taking any security held by Lloyds until Lloyds had been paid all that any of them owed to it. He submitted that Mr Deville implemented the Subrogation Agreement by causing Lloyds to be provided with new security (in addition to a range of existing securities) in return for the grant by Lloyds to SBPL on 29 October 2004 of a new Romford development facility, available to 31 December 2004, which in effect increased the Romford Loan to £5.1 million and provided that the facility would by 31 December 2004 be reduced by at least £2.8 million (out of the then proposed BoS facility) with any balance then outstanding transferred to SBPL’s bridging loan with Lloyds. He submitted that Mr Deville satisfied the requirements of the Subrogation Agreement by securing(1) the repayment of £1.9 million out of asset sales between 29 October 2004 and 29 March 2005,(2) the drawdown from the facilities made available by BoS on 29 March 2005 of £4.3 million (of which, at that stage, £2.1 million was applied in reduction of the Romford Loan) and(3) the subsequent payment (by the end of December 2005) of the balance of the Romford Loan by asset sales of SBDL and SBIL. The result of all of this, Mr Millett submitted, was (and I quote from paragraph 16(j) of his skeleton argument) that by December 2005 (the date mentioned in the course of his oral submissions) “Mr Deville stood in [Lloyds’] shoes in respect of the PRL debt of £4.3 million and could exercise [Lloyds’] rights against SBPL (as the principal debtor) and as against all other guarantors of that debt under the [Lloyds’] OGSA, including PRL, SBIL and SBDL and accordingly as against the security that they provided to [Lloyds] under the [29] October 2004 facilities (which included the [Lloyds] PRL [D]ebenture). [Lloyds], for its part, still retained all its rights under the [Lloyds] OGSA, and the relevant security, in respect of the Residual Debt. [Lloyds] and Mr Deville each had their own rights in respect of the Debenture (and it is at least arguable that as between them, [Lloyds] had agreed that, so far as the PRL debt (£4.3m) was concerned, he should have priority).”[35]Mr Millett’s whole case was built on the significance to be attached to the two letters set out above. No other document or agreement was relied upon in support of the claim to contractual subrogation.[36]The claim is without foundation. The following are my reasons.[37]First, the two letters do not purport to set out any agreement but are proposals by Lloyds designed to obtain repayment of the Romford Loan. The context, as other documentation makes abundantly clear, was Lloyds’ unwillingness to provide further funding to enable the development to be pursued. The proposal in the letter of 17 August overtook the proposal in the letter of 12 August. The 17 August letter was saying no more than that if by 31 August following (i.e. two weeks later) BoS paid Lloyds £4.3 million it, Lloyds, would release its securities over the Site. The reference is to a release of the securities, not to their assignment, much less to their continued subsistence under which persons who are unnamed in the letter might in some way enjoy subrogated rights.[38]Second, and in any event, Lloyds was not paid £4.3 million by 31 August, much less (going back to the earlier letter) was it repaid all of SBPL’s borrowing in respect of the Site by 20 August. Indeed it was paid nothing by either date.[39]Third, it is abundantly clear that these letters were part of a continuing discussion between Lloyds and its debtor, SBPL, acting by Mr Deville as its controlling shareholder/director, on how Lloyds were to be paid what they were owed, at any rate in respect of the Site. The problem at that stage was that PRL was not owned or controlled by SBPL but, as I have mentioned, by the Daniels and Lewis families through their ownership of the shares in Pickenham Estates Limited, PRL’s parent company. By 29 October 2004 the discussions with Lloyds had resulted in a quite different agreement with SBPL, namely a further, albeit short-term, loan facility. Under its terms, so far from reducing, much less clearing, the Romford Loan (and doing so within at the most a few days), SBPL was being offered an increase in the amount of the Loan to £5.1 million (from its previously capped figure of £4.3 million). This was with a view to its reduction by at least £2.8 million on or by 31 December 2004 (to come out of an initial drawdown of the hoped-for replacement facility to be provided by BoS) and with any balance then being transferred to SBPL’s bridging loan account with Lloyds. Under this last arrangement, also the subject of a facility letter dated 29 October 2004, SBPL was provided with a facility of £8.578 million until 31 December 2005 but on the basis that it could be increased to no more than £10.578 million to allow for the transfer of the balance unpaid by that date of the Romford Loan. Even with that further breathing space there were delays in negotiating the terms of the BoS facility. In part at least this was occasioned by Mr Deville’s need to negotiate and complete terms for the acquisition by him of control of PRL. In the result the refinancing by BoS was not completed until 29 March 2005. By then the proposals in the two August letters had long since been superseded.[40]Fourth, the terms of the refinancing were inconsistent with any continuing subrogation agreement in respect of Lloyds’ security rights under any of its securities over the assets which were to provide BoS with its security for the facilities it was providing to PRL. Indeed it was a term of the refinancing that the Lloyds PRL Debenture and Lloyds Charge would be released and that Lloyds rights under the Lloyds OGSA would be varied by disabling Lloyds from enforcing its rights under it against PRL until PRL’s indebtedness to BoS had been cleared. The exchanges that culminated in these arrangements are illuminating, as are the steps taken to carry the terms into effect and the role that Mr Deville took in all of this. I start with the exchanges.[41]By an email dated 17 February 2005 to Gisby Harrison (acting for SBPL), BoS’s solicitors set out, both in the text of the email and in an attached schedule, the securities to be released by Lloyds on the completion of the refinancing. They included the Lloyds PRL Debenture, the Lloyds Charge and the Lloyds OGSA. This could have come as no surprise to Mr Deville as, on 1 February, Lloyds had emailed him to say that on completion of the refinancing Lloyds would be releasing, among other securities, the Lloyds PRL Debenture. A copy of the solicitors’ email of 17 February was forwarded by Gisby Harrison to Mr Deville. He responded by email to say that he had immediately forwarded the schedule of securities to Lloyds “requesting from them a letter confirming they will release all the security as listed in the schedule.” There was no suggestion that any of the security should be retained to enable him or others to have the benefit (whether by assignment or subrogation) of any of the security rights afforded by it. As it happens it was Lloyds that was unhappy at losing so much security. On 21 February Mr Hart of Lloyds emailed Mr Deville to say that he was surprised that BoS had asked for the Lloyds Charge and Lloyds OGSA to be released “as at no time have we agreed to release these items.” He thought it unreasonable to request a release of such additional security. So far from agreeing, Mr Deville’s secretary replied (obviously with Mr Deville’s knowledge) to say that the property which was the subject of the Lloyds Charge was “critical” to the development of the Site and that “without this security passing to HBOS the project will not proceed.” The email added:
“So far as the guarantees are concerned under the [Lloyds OGSA] the problem with HBOS is that if these residual guarantees remain you can call the guarantees and destabilise the position.”
Lloyds relented. By email dated 22 February it sent Mr Deville a list of the securities it would release on receipt of £9.75 million on completion of the refinancing by BoS. The list included the Lloyds PRL Debenture and the Lloyds Charge. It offered to agree not to enforce the Lloyds OGSA against PRL until the Romford development had reached practical completion. This last matter was not satisfactory to BoS. By an email to Mr Deville dated 23 February BoS’s solicitors stated that BoS required confirmation that Lloyds would not enforce its guarantees against, inter alia, PRL and SBPL “until the relevant company’s indebtedness to BoS has been repaid (rather than confirmation that Lloyds will not enforce until after practical completion).” On 24 February Lloyds provided the confirmation which BoS was seeking: it emailed Mr Deville to say that it “…would not seek to enforce the guarantee against [PRL] until all that Company’s indebtedness to HBoS has been cleared.” On 23 March Lloyds emailed Mr Deville to confirm that upon receipt of the £9.75 million it would release the various securities detailed in their emails of the previous month. The position could not have been clearer.[42]Six days later, on 29 March 2005, the refinancing was completed, and SBPL purchased PRL’s parent company. Among the documents executed that day was a facility letter – the PRL Facility - by BoS in favour of PRL. It was signed by Mr Deville in his capacity as a director on behalf of PRL. By so doing the letter and its schedules were stated to constitute the agreement between PRL and BoS for the overall facility (which was in the sum of £17.3 million). Under the terms of the PRL Facility PRL represented and warranted (by clause 2 of schedule 2) that no security right existed over its property or assets other than what was referred to as a “Permitted Security Right”. “Permitted Security Rights” was defined to mean security rights granted in terms of the “BoS Documents” or with BoS’s prior written approval. In turn, “BoS Documents” was defined in a manner which excluded any security of the kind that Mr Deville now claims that he obtained (whether by way of subrogation or otherwise). By clause 6 of the same schedule PRL represented and warranted that execution of and compliance with the BoS Documents would not result in the imposition of any security right (other than under a BoS Document) on any of its assets. By clause 6.1 of schedule 1 (setting out conditions precedent to the drawdown of the facility) it was provided that PRL would provide satisfactory evidence to BoS of the discharge of, among other matters, all “Existing Security”, an expression which was defined as including the Lloyds PRL Debenture and the Lloyds Charge.[43]Drawdown took place that same day by BoS paying £9.75 million into SBPL’s current account with Lloyds. The amount of the Romford Loan was reduced by £2.1 million and the balance of £2,688,457.87 (it included interest) debited to SBPL’s bridging loan account so that, as per the facility agreement which SBPL had with Lloyds, the sum due under that account increased accordingly. From that moment onwards the Romford Loan ceased to exist.[44]Fifth, the Lloyds PRL Debenture and the Lloyds Charge were released. This was in accordance with the terms of the refinancing and, as the contemporary correspondence made clear, was carried out with the full knowledge of, among others, Mr Deville. The sequence of events was as follows. On 5 April 2005, Lloyds’ Securities Centre wrote to Gisby Harrison enclosing a form DS1 in respect of, among others, the Lloyds Charge. The letter stated that the Centre had instructions to discharge three debentures, including the Lloyds PRL Debenture. A copy of this letter was forwarded to Mr Deville under cover of a letter from the partner in the firm dealing with the matter. In it the partner suggested that Gisby Harrison should insist that Lloyds “formally discharge the debentures and return them to us” adding that he assumed that in the meantime Mr Deville would arrange for certificates of satisfaction to be lodged. The copy of the letter has annotated upon it in manuscript the words “dealt with by telephone” followed by Mr Deville’s initials. There was no suggestion that it was not Mr Deville who had so annotated the letter. On 8 April the partner in Gisby Harrison replied to the Securities Centre to say that the three debentures (including therefore the Lloyds PRL Debenture) were discharged and should be released and returned. On 21 April the partner in Gisby Harrison wrote to Mr Deville to say that the three debentures had been delivered by Lloyds’ solicitors and that he enclosed them for Mr Deville’s retention. The Lloyds PRL Debenture contains a formal deed of release executed by Lloyds. It is undated.[45]For some reason Mr Deville failed to lodge the necessary forms (form 403a) with Companies House to secure the formal entry on the register of charges of memoranda of satisfaction of the three debentures. It was not necessary that this should happen for the securities provided by the debentures to cease to have effect: it was sufficient that Lloyds as the holder of the security signed a release. As I have mentioned it did so in the case of the Lloyds PRL Debenture by executing the deed of release (for which the debenture made printed provision). It is irrelevant that the deed was undated. The contemporary exchanges between the parties make it abundantly clear that the release was intended to have immediate effect once the refinancing took place. What is more, on 21 July 2008 Mr Deville emailed BoS to say that he had “checked PRL and will lodge satisfaction re Debenture dated 15.11.01/registered 17.11.01 and Mortgage Deed dated 3.5.02/registered 17.5.02...” These referred to the Lloyds PRL Debenture and the Lloyds Charge. In these circumstances it is, to say the least, difficult to see how Mr Deville can maintain that he was contractually entitled to the benefit of the Lloyds PRL Debenture and (if he does) to the benefit of the Lloyds Charge when those two securities were released on the refinancing by BoS and, what is more, when this happened with his full knowledge and approval.[46]Sixth, the monies used to discharge the Romford Loan were provided by BoS. Clause 3.1 of the PRL Facility stipulated that Tranche A (amounting to £6.5 million) of the £17.3 million facility thereby made available should be applied, among other matters, “to wholly refinance the Existing Facility.” “Existing Facility” was defined as “the facility letter dated 29 October 2004 between the Borrower and Lloyds…, pursuant to which £5,050,000 loan facilities remain outstanding.” Despite the mention of “the Borrower” in that definition it is clear that the reference is to the facility letter of that date provided to SBPL. That facility letter (I have referred to it earlier) increased the Romford Loan to a maximum of £5.1 million and specified that it was in connection with the development of the Site. In fact, by agreement between SBPL and Lloyds, Tranche A was applied somewhat differently: by letter dated 1 April 2005 Lloyds reported to Mr Deville that of the £9.75 million received from BoS £2.1 million had been applied in reduction of the Romford Loan with the Loan balance, including accrued interest, of £2,688,457.87 transferred to SBPL’s bridging loan account. I have referred to this above. This mode of application cannot detract from the fact that what secured the release by Lloyds of the Lloyds PRL Debenture and the Lloyds Charge (held by Lloyds to secure the Romford Loan) was the provision by BoS to PRL of Tranche A of the BoS facility. As Mr Dale observed, there is no room in these circumstances for Mr Deville to seek to maintain that either he or one of the other companies in the SBP Group discharged either in whole or in part what was owed on the security of the Lloyds PRL Debenture and the Lloyds Charge. The fact that they, for example SBDL or SBIL, contributed to any extent to the discharge of SBPL’s bridging account with Lloyds does not enable them to mount some kind of claim to be entitled to the benefit of the securities which Lloyds previously held for the repayment of the Romford Loan.[47]Seventh, the claim is by Mr Deville. It is not evident that he has made any payment which would entitle him to exercise any right of subrogation.[48]For all of these reasons – I need not mention others, for example estoppel - it is abundantly clear that there is simply no scope for Mr Deville to contend that it was agreed between him and Lloyds that he should be subrogated to Lloyds’ rights under the Lloyds PRL Debenture and Lloyds Charge. There is equally no scope for him to maintain, in the teeth of the documentation between PRL and BoS and the steps taken to give effect to what was agreed, not least the steps taken to release those two securities, to all of which he was fully privy, that in some way he can assert either that those two securities remained in full force and effect or that he enjoys rights of security over the assets of PRL on the terms of one or other of those two securities, let alone that he enjoys such rights in priority to BoS. The volume of the documentary evidence against such contentions is too overwhelming to provide Mr Deville with any real prospect of establishing that the documentation does not mean what it plainly does or that at trial something might turn up to lead to a different conclusion.

The Servicing Agreement

[49]Mr Deville contended that BoS had agreed that it would make available sufficient monies to enable the residual debt owed by SBPL to Lloyds to be serviced. This was a reference to the interest and charges becoming payable to Lloyds as a result of SBPL’s continuing indebtedness to that bank. This agreement, which was referred to in argument as “the Servicing Agreement”, was said to be found in the PRL Facility (of 29 March 2005). The administrators denied that any such agreement existed.[50]The basis for the existence of the Servicing Agreement was, as I understood the argument, the following. At various points the PRL Facility refers to a “Financial Appraisal” which is defined in the Facility as meaning a “Development Cashflow” for differing phases of the Romford Development. The Financial Appraisal, which was apparently an attachment to an email dated 25 February 2005 from Mr Deville to the BoS, is in the form of a cashflow. It sets out (among many other items) a line of figures representing interest, another representing working capital and yet another representing charged deposits. The assumptions and projections contained in the Appraisal, which BoS approved, were said by Mr Deville to be a crucial part of the BoS drawdown. It was said that the Appraisal was provided to Lloyds and that the agreements made by Lloyds and SBPL to enable the refinancing by BoS to take place were, as Mr Millett put it, “on the basis of the clear financial representations and understandings” in the cashflows and that these only “worked” if BoS funded the interest and costs out of what was described as the SBPL Working Capital account. It was said that SBIL and SBDL relied on the Appraisal and that the Appraisal contemplated that by September 2006 the aggregate of certain charged deposits would have reached about £24.9 million and that PRL would have spent £17.3 million on the first and second phases of the Romford development. These figures were explained in the course of Mr Millett’s oral submissions. They are also mentioned in a complicated footnote on page 16 of his skeleton argument. The significance of all of this, according to Mr Millett, was that on 16 April 2005, BoS made clear that it would not increase the so-called SBPL Working Capital Facility. I understood Mr Millett to mean that BoS would not increase that facility beyond the amount of £17.3 million ceiling set out in the PRL Facility. The nub of Mr Deville’s complaint was that, instead of permitting SBPL to service its residual indebtedness to Lloyds (i.e. the interest and, I understood, other charges arising out of the existence of that residual indebtedness) at the expense of BoS, BoS in effect required SBPL to look to other monies, in particular certain cash deposits, to do so. By so requiring BoS was said to have breached the Servicing Agreement.[51]The apparent significance of this – the existence of the Servicing Agreement and its later breach by BoS – was, according to Mr Millett, that it “falsified” reliance by BoS and PRL (and others) on the release by Lloyds of the Lloyds PRL Debenture and, instead, triggered Mr Deville’s right to enforce his subrogated rights in that security so that, if they did not already do so, those rights ranked ahead of BoS’s security over the Site. I hope, but I am far from confident, that I correctly understood the submission.[52]Mr Dale submitted that this further agreement, involving it would seem substantial sums of money, made no commercial sense. He advanced several reasons for submitting that no such agreement existed. First, it ran contrary to the terms of the PRL Facility and other formal documentation entered into by BoS on 29 March 2005. Second, it amounted to an open-ended commitment on the part of BoS to fund various payments connected with the development of the Site over and above what it was explicitly committed to under the PRL Facility and obliged it to do so apparently without regard to the adequacy of the security it was receiving under the formal arrangements it was entering into with PRL and others. Third, and not least, there was not one document which remotely supported the existence of the agreement; its existence was based entirely on the appearance of the cashflow set out in the Appraisal. There was vague mention of other cashflows and credit approvals but, as Mr Dale submitted, no reasonable person could conclude that such documents contained or evidenced a contract between the parties, particularly give the detailed documentation that then followed and was entered into where no servicing requirement was mentioned.[53]I am of the firm view that there is no arguable basis for the existence of the Servicing Agreement. In the light of the very considerable documentary material I have been shown and the submissions I have heard, I am of the view that this is a conclusion which I can safely reach on an application of this kind. It follows that there can be no question of any breach of that agreement or, in so far as I was able to follow the submission, of the “falsification” of any reliance by BoS or PRL (or others) on Lloyds’ release of the Lloyds PRL Debenture. In any event I would not have accepted that breach by BoS of its obligations to PRL or SBPL or any other entity involved in the continued development of the Site would mean that neither BoS nor PRL could rely on the release by Lloyds of its security over any part of the Site or that it would somehow give to Mr Deville or others security rights over the Site in priority to BoS.

Equitable subrogation

[54]I can deal briefly with this. Mr Deville’s further, and alternative, case was that as SBIL and SBDL repaid some of the balance of the Romford Loan which had been transferred to SBPL’s bridging loan account with Lloyds on the completion of the BoS refinancing they became subrogated to the security which Lloyds had held over PRL’s assets for the payment of that Loan. This entitlement arose, it was contended, either in equity or pursuant to section 5 of the Mercantile Credit Act 1856. Mr Millett submitted that, absent subrogation, BoS would be unjustly enriched at the expense of those two companies in that they had agreed to assist and did assist in the Loan’s repayment in the belief that they would be subrogated and that the Servicing Agreement was in place with the result that the Security was or must be treated as kept in being for their benefit. He submitted that as Mr Deville had procured the payment of £4.3 million towards the discharge of the Romford Loan he too was entitled to be subrogated in equity to the Lloyds PRL Security. That, at any rate, was how I understood the submission.[55]The short answer to the contention was that the Romford Loan was extinguished by the loan to PRL of the amount needed to discharge that debt which, by agreement with Lloyds, had been capped at £4.3 million. No part of the money that was needed came from SBIL or SBDL, much less from Mr Deville. It is irrelevant that, by agreement between Mr Deville (on behalf of SBPL) and Lloyds, the monies from BoS were applied differently with the result that the balance of the Romford Loan was transferred to SBPL’s bridging loan account and that the payments made by SBIL and SBDL, upon which the claim to equitable subrogation is based, went in reduction of the balance due on that account. Mr Millett drew my attention to passages from the judgments in Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 and Anfield (UK) Ltd v Bank of Scotland Plc [2011] EWHC 2374 (Ch); [2011] 1 WLR 2414 and to para 11-021 of the 6th edition of Law of Guarantees, co-authored by himself and Geraldine Andrews QC. Nothing in those references persuades me that the payments made by these two companies to reduce SBPL’s residual indebtedness to Lloyds provides any basis for a claim to subrogation, whether in equity or otherwise.[56]There was in any event another obstacle in the way of such a claim. The claim was to stand in Lloyds’ shoes as regards the (discharged) PRL Security to the extent of the payments that they made and to enforce the security rights thereby given. The further obstacle was that by clause 12(d) of the Lloyds OGSA those two companies, along with SBPL, PRL and two others, had agreed with Lloyds that until all liabilities and sums due by each of those companies to Lloyds had been discharged, none should by any means “be entitled to claim or have the benefit of any security…now or hereafter held by [Lloyds] for any money or liabilities or other sums due or incurred by [any of them] to [Lloyds] or to have any share therein.” It is not evident whether and if so when Lloyds’ claims were fully paid. Until this should happen neither SBIL nor SBDL was entitled to claim or have the benefit of any security held by Lloyds for those claims.[57]Mr Millett sought to counter the effect of this provision by submitting that the agreement reached by Mr Deville with Lloyds in August 2004 implicitly varied clause 12(d), presumably to avoid this consequence. I do not accept the submission. Apart from the fact that there never was any agreement with Lloyds in August 2004 on which Mr Deville could rely, the two letters on which that agreement is based do not begin to justify the implication which he urged.[58]There is a further obstacle in Mr Deville’s path. This is that Lloyds had agreed with BoS (see paragraph 41 above) that it would not seek to enforce its rights under the Lloyds OGSA until all PRL’s indebtedness to BoS had been cleared. It has not been. Until it is cleared Lloyds stands postponed to BoS’s rights. Mr Millett submitted that the agreement between Lloyds and BoS did not bind either SBIL and SBDL or even SBPL. He submitted that, by entering into the postponement agreement with BoS, Lloyds must be taken to have intended only to postpone its own rights against PRL under the Lloyds OGSA in respect of SBPL’s residual debt with the bank and that this did not extend to any part of the Romford Loan capped at £4.3 million. He submitted that such an implication was necessary in order to make commercial sense to the arrangements made for the payment of that sum. He submitted that the subrogated rights of Mr Deville and SBIL and SBDL were not to be diluted by the action of Lloyds agreeing with BoS to a postponement of its rights under the Lloyds OGSA. Lloyds, he said, was disabled from postponing any part of its rights under that instrument to the extent that they were the subject of subrogation to others.[59]In my judgment such a view of the agreement between BoS and Lloyds, (brokered, as the correspondence entered into at the time makes clear, through Mr Deville) is untenable. Lloyds was clearly postponing its right to enforce its security as a whole; it is quite impossible to spell out of the agreement that the postponement was qualified in the way that Mr Millett suggested. Nor does it lie in Mr Deville’s mouth to say that this was the intention when his communications with BoS failed to spell this out.

Result

[60]The administrators amply established PRL’s entitlement to the relief sought on their summary judgment application. I add only that this conclusion was one I was pleased to be able to reach as it struck me that from start to finish there was not the least merit in Mr Deville’s attempts to steal a march on the primacy of BoS’s security over PRL’s assets.

Cited in 1 later judgment