L & N D Development and Design Ltd [2020] EWHC 2803 (Ch)

“4.1 A Development Appraisal comprising a development appraisal and cash-flow forecast in form and content satisfactory to the Lender in respect of the Project that contains: (a) a costed description and financial analysis of the Project, (b) Project Milestones; (c) comprehensive details of the budgeted costs for the Project, and (d) the works programme. 4.2 All necessary consents to enable the Project to be completed including any planning consent required for the Project and any other consents or authorisation, including under the Town and County Planning Act 1990, the Highways Act 1980, the Water Industry Act 1991, the Building Regulations 2010 (SI 2010/2214) and Regulatory (Fire Safety) Order 2005 (SI 2005/1541), each environmental licence and under any other statute, bye-law or regulation of any competent authority and which is reasonably necessary to enable the works to be lawfully commenced, carried out and completed. 4.3 The Property and the buildings to be constructed on it must comply with the Building Standards Indemnity Scheme requirements from time to time of the CML Lender’s Handbook as specified by the Lender. 4.4 A copy of the building contract to be entered into for the Project such contract to be with a building contractor approved by the Lender and otherwise in a form approved by the Lender and with a charge by way of assignment as security for the Lender over the Borrower’s rights under the building contract in respect of the Project to be granted in the from required by the Lender with confirmation when the building contract is entered into and completed. 4.5 Copies of the following, all of which (including, where appropriate, the parties and the respective professional indemnity insurance cover levels and assignment provisions) must be fully satisfactory to the Lender and the Project Monitor:- (i) completed appointment documentation for the Borrower’s professional team; (ii) a contractor’s all risks insurance policy and professional indemnity insurance cover for the contractor and each member of the professional team; (iii) collateral warranties in favour of the Lender issued by the professional team including contractors and/or sub-contractors (domestic and nominated) having significant design contribution to the Project in a form acceptable to the Lender.” contribution to the Project in a form acceptable to the Lender.”

“4. The Lender will make further advances to the Borrower under Facility up to the total amount of the Facility, provided that the Further Advance Conditions Precedent are first satisfied to the satisfaction of the Lender in every respect. The Lender may in the Lender’s discretion waive any one or more Further Advance Conditions Precedent in whole or in part. The Further Advance Conditions Precedent are in addition to any other requirement under this Agreement.”

“5. The Lender may instruct a Project Monitor to (a) monitor and report to the Lender upon the Project and/or (b) report upon the current market value of the Property with vacant possession immediately prior to any such proposed further Advance being made. The Borrower shall pay or reimburse to the Lender on demand the fees and expenses of the Project Monitor.” 6.1. the Lender receives from the Borrower a duly signed Drawdown Request for each further Advance; 6.2. no Event of Default has occurred: 6.3. the Lender receives the further report from the Project Monitor in a form satisfactory to the Lender 6.4. satisfaction of the Development related Conditions Precedent referred to at clause 4 of this Agreement or confirmation from the Project Monitor that these Conditions Precedent have been satisfied and remain satisfied. 6.5. none of the events mentioned in clause 7 below has occurred; and 6.6. The total amount of all Advances made under the Facility immediately after a further Advance is made will not exceed 70% of the current market value of the Property with vacant possession as revealed by the Project Monitor’s valuation made immediately prior to such further Advance.” 16. For the sake of completeness, I set out the additional events of default referred to at condition 6.5: “7. Each of the following events shall also constitute an Event of Default under this Agreement 7.1 the Borrower has failed to achieve any Project Milestone by the due date or in the opinion of the Project Monitor is more likely than not to fail to achieve any Project Milestone by the due date; 7.2 the Borrower has failed to achieve Practical Completion by the due date or in the opinion of the Project Manager is more likely than not to fail to achieve Practical Completion by the due date; 7.3 the Project Monitor shall report any material cost overrun with regard to the figures shown in the Development Appraisal; 7.4 the Development Appraisal shall be found to be inaccurate or misleading in any respect; and 7.5 The Project shall not proceed and be constructed in accordance with the Development Appraisal.”

“102. Further or alternatively, the August 2017 Loan was entered into as a result of Amicus’ economic duress and accordingly is voidable. 103. In particular, taking into account the matters raised at paragraphs 49 – 72 above, Amicus’s demands and/or threats of withdrawing finance in relation to the August 2017 Loan, having reneged capriciously and/or arbitrarily from the July 2017 Loan and having withheld the August 2017 valuation, thereby depriving L & ND of properly addressing the value of the Development and the funds required, did not constitute reasonable demands and further would not be considered by reasonable and honest people to be a proper means of reinforcing the demand. 104. Accordingly, as a corollary of the August 2017 Loan being voidable, the security that is sought to be enforced upon the same (the Mortgage) likewise cannot be enforced against Mrs Dixon.”

“5. Referring to §40 – 46 of the Defence to the No.61 Claim, it was contended by L&ND prior to its administration, and is contended by Mrs Dixon now, that Amicus, in breach of the terms of the (February 2016 Loan) and (May 2017 Loan), failed to release funds properly due to L&ND, with the consequence that it was unable to progress the Development. 6. As a result of the delays, contractors could not be paid and materials could not be sourced. The success of the Development and Amicus’ repayment depended upon houses being completed and sold. It thus became impossible for L&ND to repay Amicus and/or make profit from the enterprise without further funding. L&ND had no option but to seek further finance. 7. Despite its earlier failings, Amicus had by July 2018 promised to make a £6.3m facility open to L&ND (a further £2.9m of funds), which would have provided sufficient capital (if timeously released) to enable significant advancement of the Development, sale of properties and repayment of Amicus and/or refinancing to complete the Development. 8. However, despite the (Aborted July 2017 Loan) having been all but signed, Amicus then reneged on the deal. It was L&ND’s position and is Mrs Dixon’s now, that this withdrawal was arbitrary and capricious and designed to place L&ND into a position where it had no option but to sign up to later, less favourable terms (August 2017 Agreement). 9. The August 2017 agreement, whilst giving L&ND an extra 9 months to repay the total amount, resulted in only £260,000 being actually released to L&ND (the rest being used to repay outstanding loans and on interest/fees). It was a deal that Amicus well knew would lead to nothing except for the downfall of L&ND, yet further profits for itself at L&ND’s expense. 10. L&ND sought further advances from Amicus to enable it to progress the Development, no progress having been made from August 2017 – July 2018. Amicus resolved in principle to grant a further loan (Aborted July 2018 Loan) to L&ND. This loan would not have resulted in L&ND receiving any further funds, but would have simply extended the date for repayment by 12 months. 11. However, it was part of the Aborted July 2018 Loan that Amicus would ‘behind the scenes’ charge monthly interest to L&ND at 0.5%, but the contractual documentation would state that monthly interest was 1.15%. This is confirmed in emails by Amicus employees. It is Mrs Dixon’s view that this was proposed in order to present a rosier picture to Amicus’ financial backers than was in fact the case. Mrs Dixon refused to be party to this, considering it to be a fraud, and as such Amicus refused to grant any further advances and on 31/7/18 called in the August 2017 Loan. … 15. It is Mrs Dixon’s position that Amicus has: a) Acted in breach of contract on numerous occasions by releasing funds late. b) Committed economic duress and/or the tort of intimidation by unlawfully and/or illegitimately reneging on promises to loan monies and/or resolving only to do so on terms that were improper. Such action was taken with the purpose of coercing L&ND to enter into unfavourable agreements with Amicus, which it then did. … 17. This is not a vexatious and/or frivolous claim and accordingly pursuant to Hockin v Marsden [2014] EWHC 763 (Ch) administrators are obliged to assign such claims on terms that would benefit the company, if they do not wish to pursue the claim themselves. 18. Please provide a substantive response to this letter within 14 days, indicating whether: a) You wish to pursue the claim for the benefit of L&ND; and, if not b) What terms you would require from Mrs Dixon to secure an assignment of the above claim, and any other claims against Amicus arising out of the parties’ relationship (wording to be negotiated).”

“As you will be aware the administrators of L&ND have only been appointed for a comparatively limited time and their investigations into the company’s activities and the circumstances surrounding the development in Carlisle are ongoing. At this stage the administrators have not yet considered the merits of pursuing a claim against Amicus Finance PLC and clearly a relevant factor in that decision will be the fact that Amicus Finance PLC is now in administration itself. Until a full and comprehensive review of the position is carried out it would be premature to assign a claim which could, if viable, potentially benefit the company and its creditors. For the above reasons an application to the Court to compel the administrators to assign any claims to Mrs Dixon at this stage is wholly inappropriate. We do not believe that such an application would have any prospect of success whatsoever.”

“I am as you are aware from the below emails, also waiting on Chris Wright of Brecher coming back to me on the assignment position.”

“Mr Dixon, I did not realise you were awaiting a response from me on the assignment point. I had thought my email of 22 May made the assignment position clear. There is no prospect of any potential claim, even if there is one, which is not accepted, being assigned by the Administrators. With Amicus Finance PLC itself in administration the Administrators of L&ND Development and Design Limited will not incur costs investigating an alleged potential claim which would have no financial benefit to creditors. Even if successful the claim would be an unsecured claim in the Administration and would rank alongside other unsecured creditors. Such action would merely incur additional costs and prejudice the position of creditors. I trust the position is now clear.”

“It appears you have mistaken the content of my email and come to an unsupported and incorrect conclusions. I did not say that no investigations had been carried out previously simply that the Administrators would not incur further costs investigating this possibility. There is no obligation on the Administrators to assign any potential claim to you or anyone else and my instructions are that they will not do so.”

“33. This consists of three allegations, which are in summary: a. The fact that Amicus did not complete the July 2017 Draft Loan b. The way that Amicus behaved in the run up to the August 2017 Loan c. Amicus’s refusal to disclose a valuation it had independently obtained of the Development. 34. To operate as a defence, economic duress must comprise illegitimate or wrongful pressure (my emphasis). 35. The allegations made by the Defendants here amount to no more than tough negotiation between commercial entities/business people, and/or a refusal by Amicus to contract on terms agreeable to the Defendants. There is no threat by the Claimants to act in breach of contract. In the circumstances described by the Defendant there was no obligation on Amicus to contract with them at all or to disclose the valuation it obtained. The July 2017 draft loan document makes it clear that completion was subject to credit approval – which was not forthcoming”

“That being said, were the Claimant to offer a reasonable sum of the purchase and assignment of this claim, then we would have taken this considerably more seriously, and would likely have conceded to it.”

“unequal or differential treatment to the disadvantage of the applicant (or applicant class).”

“a lack of commercial justification for a decision causing harm to the creditors as a whole may be unfair in the sense that the harm is not one which they should be expected to suffer”

“54. The origin of the suggestion that an administrator is under a positive duty not to assign a cause of action that is without merit was said to be the following passage in the judgment of Browne-Wilkinson J in In re Papaloizou [1999] BPIR 106, 112: ‘Although it is not necessary for me to decide the point, I should sound a note of warning to trustees. At best the transaction here was very close to the line of what is permissible. Although I loyally accept the decision of the Court of Appeal in Ramsay v Hartley that the sale of a bare cause of action by the trustee in bankruptcy back to the bankrupt is not per se contrary to public policy, I think trustees should exercise their power to take such a step with great circumspection. It must not be forgotten that by so doing they are enabling the bankrupt to conduct possibly vexatious litigation against third parties who will have no effective remedy in costs against him, since all his assets have been vested in the trustee. There may be cases in which this is an appropriate course to adopt, for example if immediate substantial assets are made available for the creditors. But in general the policy of the bankruptcy legislation is for the trustee – and not any one else – to get in the assets of the bankrupt and for that purpose to decide whether causes of action should be pursued, if necessary with funds provided for that purpose by the creditors in the bankruptcy. Before abdicating this responsibility by putting the bankrupt back in the saddle, the trustee should bear in mind the consequences to the other parties in litigation of so doing. My present view is that it should not be done unless clear and certain benefits are obtained for the creditors.’ 55. This passage does not identify the legal principle which produces the result that the office-holder should be circumspect before assigning a cause of action. As the office-holder has a statutory power to assign the cause of action and has a duty to act in the interests of the creditors, it might be thought that if the assignment produced a benefit for the creditors then the office-holder should be prepared to receive that benefit, unless the case came within the principle in Ex p James, In re Condon (1874) LR 9 Ch App 609. That principle might mean that it would not be honest and fair for the office-holder to assign an alleged cause of action where a claim by the assignee would be frivolous or vexatious. … 57. The approach of an office holder asked to assign an alleged cause of action was considered in detail by the Federal Court of Australia in Citicorp Australia v Official Trustee in Bankruptcy [1996] FCA 1115. This case was referred to in the English case of Cummings v The Official Receiver [2002] EWHC 2894 (Ch) to which I was referred, although it was referred to by a different name, namely, Re: the Bankrupt Estate of Serillo with no citation given. In fact, ‘Serillo’ was a misspelling of the name ‘Cirillo’. The Citicorp case contains a valuable discussion of the approach to be adopted by the office holder and by the court. Having considered a number of authorities, including Stein v Blake, the court held: ‘The foregoing authorities do not deny that in a case where it is clear that the claim sought to be pursued by the bankrupt or other proposed assignee is frivolous or vexatious, the trustee or the court should not allow the assignment to occur. A claim with no reasonable prospect of success would be a frivolous one, and the prosecution of such a claim would be vexatious. As earlier noted, in most cases it will not be clear that an alleged claim has no reasonable prospect of success. However when a clear case arises, the trustee as an officer of the Court, and the Court itself, in the public interest, should not allow the assignment to occur, even where an immediate sum of money is offered as consideration that would benefit the estate of the bankrupt.’ 58. It was argued in the Citicorp case that if there were an issue as to whether a claim was frivolous or vexatious, the burden was on the person seeking to take an assignment of the claim to satisfy the court that the claim was not frivolous or vexatious. This submission was rejected. The court put the matter the other way around and said: ‘Where a creditor or intervening party contends that an assignment should not be authorised because the proposed claim has no prospect of success it is for that party to demonstrate the absence of any prospect of success. This follows from the general principle that a party who asserts a proposition carries the evidentiary onus of establishing the necessary facts to support it.’ … 63. Apart from the Citicorp case which was not cited to me, these are the cases which are said to support the principles relied upon by the Deputy Judge and the further proposition put to me that when it is not clear whether the cause of action has merit, the administrator ought not to assign it and should instead place a burden on the party seeking the assignment to demonstrate that the claim is not frivolous or vexatious. I consider that this approach reads far too much into the remarks in Papaloizou and Cummings v Official Receiver and is wrong in principle. I also consider that the most helpful authority is the decision in Citicorp which contains an accurate statement of the principles to be applied. 64. The administrator’s power to assign a cause of action is conferred by paragraph 2 of schedule 1 to the 1986 Act, as a cause of action is ‘property’ within that paragraph. That paragraph is not limited by any words which require the administrator to satisfy himself as to the arguability of an alleged cause of action. 65. A viable claim by the company against a third party is an asset of the company. A claim which is arguably viable, is a potential asset of the company. In principle, an administrator ought to be ready to investigate whether such an asset should be preserved and pursued. Of course, there may be obstacles in the way of doing so. The administrator may have no funds with which to take legal advice. In such a case, it may be open to the body of creditors to provide the necessary funds. 66. If the administrator has no funds to investigate a possible claim against a third party and he receives an offer from a potential assignee of the claim to pay for an assignment, that offer will potentially constitute an asset of the company. The administrator should normally wish to preserve and pursue that asset. If it is clear to the administrator that the claim would be hopeless and that the potential assignee is bent on pursuing a hopeless claim in order to harass the third party, then the administrator should normally decline to assign the hopeless claim. The administrator is an officer of the court and the court expects him to behave honestly and fairly. In the same way as the court would not direct an assignment of a hopeless claim where the court was of the view that the assignee’s intention was to use the hopeless claim to harass a third party, then the administrator might well take the same view as to his own participation without finding it necessary to seek a direction from the court. 67. But there will be other cases. One such case is where the administrator does not have a clear view that the proposed claim would be vexatious and he is offered a sum of money for the assignment of the claim. In such a case, the administrator should be prepared to obtain a proper payment for the assignment. If it is not clear that the offer reflects the true value of the cause of action, then the administrator may well be advised to conduct some process of inviting rival bids or to hold an auction of the cause of action. The receipt of a sum of money for the claim would be likely to benefit someone, whether it is the administrator (as a contribution to his expenses) or the creditors. 68. There may also be practical considerations and time pressures which the administrator has to take into account. If the administrator is considering whether the company has a potential claim and there is a high risk that the limitation period for the claim may be about to expire, the administrator may have to take immediate action to protect a potential asset of the company. The administrator may have to cause the company to issue a protective claim form or even to conduct some rapid negotiations to obtain the best available offer for an assignment of the cause of action. 69. The focus of the submissions on behalf of the administrators in this case was on protecting a third party from the possibility of being harassed by litigation rather than (as it should be) on the administrators realising the assets or potential assets of the company for the benefit of the creditors. It must be remembered that if the alleged claim is assigned and the assignee then issues a claim form, the defendant will be able to apply to strike out the claim form or to seek a reverse summary judgment if the defendant wishes to contend that the claim is frivolous or vexatious.” ‘Although it is not necessary for me to decide the point, I should sound a note of warning to trustees. At best the transaction here was very close to the line of what is permissible. Although I loyally accept the decision of the Court of Appeal in Ramsay v Hartley that the sale of a bare cause of action by the trustee in bankruptcy back to the bankrupt is not per se contrary to public policy, I think trustees should exercise their power to take such a step with great circumspection. It must not be forgotten that by so doing they are enabling the bankrupt to conduct possibly vexatious litigation against third parties who will have no effective remedy in costs against him, since all his assets have been vested in the trustee. There may be cases in which this is an appropriate course to adopt, for example if immediate substantial assets are made available for the creditors. But in general the policy of the bankruptcy legislation is for the trustee – and not any one else – to get in the assets of the bankrupt and for that purpose to decide whether causes of action should be pursued, if necessary with funds provided for that purpose by the creditors in the bankruptcy. Before abdicating this responsibility by putting the bankrupt back in the saddle, the trustee should bear in mind the consequences to the other parties in litigation of so doing. My present view is that it should not be done unless clear and certain benefits are obtained for the creditors.’ ‘The foregoing authorities do not deny that in a case where it is clear that the claim sought to be pursued by the bankrupt or other proposed assignee is frivolous or vexatious, the trustee or the court should not allow the assignment to occur. A claim with no reasonable prospect of success would be a frivolous one, and the prosecution of such a claim would be vexatious. As earlier noted, in most cases it will not be clear that an alleged claim has no reasonable prospect of success. However when a clear case arises, the trustee as an officer of the Court, and the Court itself, in the public interest, should not allow the assignment to occur, even where an immediate sum of money is offered as consideration that would benefit the estate of the bankrupt.’ ‘Where a creditor or intervening party contends that an assignment should not be authorised because the proposed claim has no prospect of success it is for that party to demonstrate the absence of any prospect of success. This follows from the general principle that a party who asserts a proposition carries the evidentiary onus of establishing the necessary facts to support it.’ 37. As to the application of the principle in Ex parte James Mr Bailey drew my attention to recent consideration of its application in Lehman Brothers v MacNamara [2020] EWCA Civ 321. The following passages from the judgment of David Richards LJ (with whom Newey and Patten LJJ agreed) described the principle as follows: “35. The principle established by the decision of the Court of Appeal in Ex parte James is that the court will not permit its officers to act in a way which, although lawful and in accordance with enforceable rights, does not accord with the standards which right-thinking people or, as it may be put, society would think should govern the conduct of the court or its officers. The principle applies to a failure to act, as much as to positive acts: see Re Hall [1907] 1 KB 875, a decision of this court. As a public authority and given its role in society, the court is expected to apply standards to its own conduct which may go beyond bare legal rights and duties. A specific example is a sale of property made by the court in accordance with its powers: Else v Else (1872) LR 13 Eq 196. Trustees in bankruptcy, liquidators in compulsory liquidations and administrators are all officers of the court. In the case of administrators, this is expressly provided by paragraph 5 of schedule B1. As such, they are acting on behalf of the court and they will accordingly be held to these standards by the court. 36. That the governing principle is that the court should apply to its officers those standards of conduct that society expects of the court itself is made clear in the authorities: see Ex parte James at 614; Ex parte Simmonds (1885) QBD 308 at 312 per Lord Esher MR; Re Tyler [1907] 1 KB 865 per Vaughan Williams LJ at 869, Farwell LJ at 871 and Buckley LJ at 873. … 38. Before looking at the terms used by courts over the past 165 years, a general point should first be made. The court applies the standard on an objective basis. It is not concerned to ask whether the officeholder is consciously proposing to take a course which falls below the standard set by the court. It asks only whether the course proposed would or would not, on an objective basis, meet that standard. As a regulated profession, insolvency practitioners may feel aggrieved at a challenge to their conduct or proposed conduct on this basis and may be tempted to argue that the challenge is an attack on their personal integrity. This would be a misapprehension on their part.”

“better for the administrator to leave the third party to seek security from the assignee of the claim for the costs of the claim against the third party rather than for the administrator to take on the task of arguing, on an application under paragraph 74 of schedule B1, that the applicant has not discharged the burden of showing that the claim is not frivolous and vexatious”

“Please can you speak to Amicus and see what their position is because we do not wish to see any delays in being able to drawn down further funding in advance of it being required. I fully expect we would like to draw down another 200k within the next ten days and thereafter 200k monthly of the next five / six months.”

“196. I consider these two grounds of claim together because they overlap substantially both in law and in fact. The claimant asserts that the disputed agreements were procured by threats amounting to the tort of intimidation, sounding in damages; or that they were entered into under economic duress and liable to be set aside; and that the court has power to award, and should award, damages in lieu of rescission of those agreements.”