“1. External 20 cm thick brickwork; in transit from Beijing;£792,234.00 2. M&E order; at Manchester Warehouse & Issa Ltd Quay development;£1,456,000.00 3. All scaffolding; at Manchester Warehouse & Issa Ltd Quay development;£280,436.00 4. Windows Package; at Manchester Warehouse;£1,090,150.00 5. Glass Wall and all metal studs; at Manchester Warehouse;£434,980.00 6. Concrete floor slabs; at Salford Land;£619,470.00 7. Steel; 50% at site/Salford Land, rest is in transport;£1,200,000.00 ”
“Q. The warehouse was extremely congested, wasn’t it? A. Yes, that’s right, yes. Q. It was not easy to find a way through so you could look at everything, was it? A. That’s right, yes. Q. Not everything was boxed or packaged with labelling to indicate what it was or what it was for? A. Right, yes I would agree with that, yes. Q. And, as you put it in your witness statement, there did not appear to be an ordered distribution of materials within the warehouse? A. Right.”
“MR. JUSTICE EDWARDS-STUART. But you are saying here, as has just been pointed out, that you are confirming that the claimed materials were there in effect. A. Yes, I suppose that is true, yes, sir. MR. JUSTICE EDWARDS-STUART. Your confirmation seems to be going wider - A. Than what I actually saw. MR. JUSTICE EDWARDS-STUART. - than what you could actually verify. A. As I said, I think it needed to be read in conjunction with what I said afterwards. MR. JUSTICE EDWARDS-STUART. Nevertheless it could be read by the bank as saying it is in a bit of a muddle but we can confirm it is all there, rather than saying it is in such a muddle it may be there but we cannot be sure. A. Yes. MR. JUSTICE EDWARDS-STUART. You see the difference? A. Yes, I do.”
“13.3.1 I consider that advice on the expenditure incurred in relation to materials purchased, including cautionary notes, was given to [the Bank] by F+G which was based on the information which had been provided and the inspections/verifications carried out. 13.3.2 I therefore consider that the advice given by F+G complied with the requirements of [the Bank’s] Letter of Instruction and was advice that a reasonably competent monitoring surveyor, asked to undertake the tasks set out in [the Bank’s] Letter of Instruction, would have given if acting with the requisite amount of skill and care.”
“It should be noted that the above sum includes£493,234 for the purchase of doors, door frames, ironmongery and skirtings from China. The doors and frames are now in storage in the UK. The Borrower has confirmed that the skirtings are still in transit from the supplier to the UK. We have not received a vesting certificate for the materials. Given the above we would recommend that the Bank review whether or not they wish to include the value of these materials in the current drawdown.”
“1. Bank Appointed Valuer (Drivers Jonas) to confirm Gross Development Value on line with the Appraisal contained in their previous valuation report for Bank of Ireland dated March 2005 and likely uplift in site value once sub-structure/underground car park is complete. 2. A full feasibility report on the site/development costs from the Bank’s nominated Quantity Surveyor must confirm adequacy of detailed costings, acceptable provision for contingencies, plans in line with planning/building regulations, PI cover and appropriateness of collateral warranties and comment on construction timetable/ robustness of detailed development cashflow (to be provided by the Borrower) with regard to the build programme/peak debt requirement.”
“Double check any area schedules you have as they are constantly changing.”
“3. They have concluded a land value of 8.9 m which leaves the development really under geared & allow for a [sic] opportunity to explorer [sic] LTC farther 4. The GDV amount has increased to the right market level which would accommodate all the above. Bear in mind that£390 a feet [sic] seems high however 80% of the development capital values are between 130k-190k which is very affordable levels & achievable. That was driven by a developer designing the scheme efficiently.”
“Residual site valuations can be extremely sensitive to changes in the key assumptions and variables such as floor areas developable, sale prices, construction costs, timing, developer’s profit etc. The Bank will no doubt take account of this in its lending policy.”
“The valuation tells the lender how much, at current values, he is likely to recover if he has to resort to his security. This enables him to decide what margin, if any, an advance of a given amount will allow for a fall in the market, reasonably foreseeable variance from the figure put forward by the valuer (a valuation is an estimate of the most probable figure which the property will fetch, not a prediction that it will fetch precisely that figure), accidental damage to the property and any other of the contingencies which may happen. The valuer will know that if he overestimates the value of the property, the lender’s margin for these purposes will be correspondingly less. On the other hand, the valuer will not ordinarily be privy to the other considerations which the lender may take into account, such as how much money he has available, how much the borrower needs to borrow, the strength of his covenant, the attraction of the rate of interest or the other personal or commercial considerations which may induce the lender to lend.”
“Dave I have now finalised the figures for the above site. Our site value is£8.9M and our GDV is£34,380,085 . I am progressing with the report and should have it with you next week. Should you need anything further just now please let me know. Kind regards Siobhan”
“Fraser Many thanks Do you have a breakdown of the GDV and ideally a copy of you (sic) appraisal sheet. I assume that the scheme appraised is the current one i.e. 130 apartments Regards Dave” (My emphasis) Many thanks Regards Dave”
“Verbal discussions with valuers have confirmed final report with (sic) reflect positive commentary on location/market demand.”
“Uplift from previous GDV£31,000k based on revised valuation undertaken by CBRE 12/06. Site value increased from£6,300k to£8,900k .”
“Approval is confirmed for drawdown of development funding to proceed, subject to: ● Completion of a vesting certificate to the satisfaction of the Bank’s QS ● Confirmation of insurance cover for materials now in the UK, to the satisfaction of the Bank’s QS ● Completion by the borrower of a “package cost breakdown” as required by the Bank’s QS ● Confirmation by the Bank’s solicitor that the borrower has ownership of the canal-side Other conditions will be as recommended in your application. Two key issues will require particularly close monitoring in the coming months: 1. Satisfactory completion of the substructure 2. The provision of an adequate power supply for the building by April 2008 Should developments arise that would give cause for further concern in relation to these matters, please report immediately to ACD. Our willingness to proceed (despite some uncertainty in relation to point 2 above) partly reflects the modest LTC and LTV, and this is something that we will be keen to maintain until these risks have been removed. A further report has been scheduled for 30/06/07.” (Original emphasis) ● Completion of a vesting certificate to the satisfaction of the Bank’s QS ● Confirmation by the Bank’s solicitor that the borrower has ownership of the canal-side Two key issues will require particularly close monitoring in the coming months: A further report has been scheduled for 30/06/07.”
“We were originally asked to participate at£15m in this transaction but held out for further equity (of c.£2m ). The development/ marketing risks have been closed out so far as is possible and the weight of equity renders the LTeV a strong insulator against downside. With family liquidity clearly evident we also can feel relatively protected against the risk of overruns.”
“Conclusion/Recommendation: The BCB proposal to fully fund a material costs over-run, combined with a lower cash equity level (both in real and % terms), against a back-ground of significant delays, and significant development/sales risks remaining is considered inappropriate. Key positive is the ability of the borrower to fund out the over-runs to date. (For discussion - my preference is to keep LTC at 55% (£15 m ). Would like to see sub-structure risk closed out. Maybe a trade-off against higher level of pre-sales.”
“The BCB proposal to fully fund a material cost over-run, combined with a lower cash equity level (both in real and % terms), against a back-ground of significant delays, and significant development/sales risks remaining is considered inappropriate. Key positive is the ability of the borrower to fund out the over-runs to date. Following discussion with the ECB, the following alternative proposal is put forward: ● Initial “step 1” increase in the facility to£15 m , with requirement for minimum equity of£11 m to remain. This level of funding will see the Bank maintain its original 55% LTC position, with the£3.4 m cost increase met Bank£1.9 m , Borrower 1.5 m, although it will also release out of the scheme equity of c£1.1 m based on the current level of equity funding. 110% pre-sale cover control for development facility drawings will remain. Based on updated BPV report, LTeV will be 46%. ● Step 2. Upon Bank QS confirming that the sub-structure work is complete (expected late 3/07), at which stage development risk is substantially reduced, facility limit to be increased to£17 m with two key structural amendments. to avail of the facility, firstly a higher pre-sale level will be required. For purposes of control of release of the development facility, the first£3 m of pre-sales will be excluded from the calculation of 1.1 x cover. Rational for this is that the extra£2 m funding is covered off by£3 m of pre-sales. In addition, BCB has agreed to CDL proposal that we seek a£2 m “top-slice”
“I am uncomfortable with the way this transaction is developing. We are two years into the deal, with two years still to run to its effective completion. There have been very significant delays reflected in the substructure delivered one year late. I’m still unclear as to what BI’s cash equity is -£12.8 m ,£9.2 m or£8.8 m . We have twice shifted on loan structure and reduced the pricing. BI’s competency to accurately price and build out the project is now under legitimate scrutiny. The cost overrun figure is substantial by any measure (what has given rise to it is not fully amplified), and how it slipped the net of our BPQS needs to be better understood. Bear in mind it was only£860K in October, now increased to£3.1 m . My worry, and it is a real one based on concerns as regards the “in-house” team, is that there may be further shocks ahead. Our position is that if we increase the line to£15 million , it must be on the basis that 1. Our BPQS confirms with a high level of confidence that together with the equity participation, the project will thus be fully funded. We will not further increase availability later in the project, no matter what the circumstances. 2. No equity is to be released and whatever additional equity may be needed (to balance the funding) is to be in/evidenced and used prior to our uplift. 3. Any anxieties over the efficacy of the electricity supply are to be dealt with now, rather than later. 4. Linkage of availability to pre-sales as reflected in the Credit Opinion should continue. This deal was promoted to us by BI as a comfortable, low ltc transaction, largely a case of fit out post superstructure, and this on the basis of strong pre-sales. We now have to ensure that the risk is re calibrated to reflect our original expectations. It would not at the outset have been approved at£17 m and will not now. Our task is to ensure that at£15 m , we can deliver a finished and largely pre sold infrastructure. Failure on our part to do this (prior to any further material drawing) should trigger a refinance.”
“6.3 The Bank’s calculations were consistently incorrect as a result of its decision to permit the initial drawing under the Development Facility based on errors made by Mr. Rainford, who had over-stated the Borrower’s equity by some£3.4 million . These errors were not corrected. 6.4 Had the Bank not acted on the incorrect analysis of Mr. Rainford referred to in paragraph 6.3 above and had the Bank carried out a correct evaluation of the sums eligible for drawing, no development funding would have been provided. Accordingly, the Bank’s total exposure would have been limited to 4.1 million plus interest.”
“If, as a matter of fact, which is for the Court to determine, the Bank relied upon CBRE’s valuation then we each make different comments as follows: Stewart Hamilton considered that the CBRE valuation had provided the impression of an increased contribution by the Borrower, which mitigated the effect of cost increases and provided more comfort to the Bank, first, to commence development funding and, secondly, decide to increase its facility to£15 million . Stephen Hiscock noted that, by the time the CBRE report was provided, the Bank had already financed the site acquisition and development of the substructure was under way. He considered that the new residual valuation had no bearing on the Borrower’s actual cash contribution to the project, nor on the contribution to the funding that would be needed from the Borrower to reach completion. However, it was reasonable for the Borrower to derive comfort from the increased GDV, in confirming that there was still a good margin between the anticipated costs and the anticipated sales receipts. That margin would have remained within the Bank’s guidelines (60% loan to end value) down to the value of£21,858,000 . Stephen Hiscock agreed that the Bank may have derived comfort from the GDV when increasing the limit to£15 million , but noted that the Bank should still not have allowed any drawing under the development portion of the facility, because insufficient contribution to the funding had been provided by the Borrower in order to complete the project (see Section 6 above).”
“The valuation by [CBRE], rather than Drivers Jonas, was referred to in the Credit Paper Memorandum dated8 December 2006 . This valued the site at£8.9 million , an increase from the figure of£6.3 million provided by Drivers Jonas, and substantially greater than the purchase price for the Site, thereby providing the impression of an increased contribution from the Borrower, mitigating the effect of cost increases, and providing more comfort to the [Bank].”
“I consider that there was a lack of coordination by the [Bank] in ensuring that its professional advisers were working with the same information; and that the [Bank] failed to question [CBRE] in relation to the lower levels of profit on cost and contingency assumed by [CBRE] in its appraisal and valuation, the effect of each of which was to inflate the residual value of the Site and to give the impression of the higher level of contribution by the Borrower.”
“Having required a report and valuation from [CBRE], I consider that the [Bank] was entitled to rely upon it and that it was reasonable for the [Bank] to have so relied.”
“... and, if such consideration had not taken place, I do not consider that the [Bank] acted as a reasonable and competent lender in permitting drawings prior to consideration of [CBRE’s] Report and Valuation. However, I note that all subsequent drawings after the first drawing under the Development Facility took place after receipt of [CBRE’s] Report and Valuation, upon which the [Bank] was entitled to rely.”
“The purpose of a facility letter or loan agreement is to record, in a contract with the borrower and other parties, such as a guarantor, the terms applicable to a lending arrangement; and a reasonable and competent lender should ensure that any material variation to an agreement is documented. The [Bank], however, failed to update its facility letter to reflect changes to the terms, which it had agreed, or to impose the terms contained in its facility letter, which it had not agreed to waive.”
“The fact at that stage is that the bank would have had outstandings of just over£4 million ,£4.5 million to be precise, round figures. The value of the asset charged to it would have been some£4.2 million . Its loan to value would have been in excess of 100%, rather than the 70% which applied at the outset. And that together with the various difficulties which had been experienced on this account I think would have led ACD to have ruled that it was not prepared to go ahead without further investigation into the transaction. It might have gone ahead on the basis that there was a restructuring of it. For example the availability of additional guarantees or security. But I think that in the circumstances there would have been considerable concern as to whether a young and inexperienced developer like Mr. Issa could carry on with this development against a background of significant delays, cost increases, and now it would appear a much reduced value of the site compared to what he had invested in it.”
“The difficulty with development loans is that, once work starts on site, the original value of the site plus the cost of the work to date cannot necessarily be recouped at any given time. The site only acquires a clear value again once it is complete and the units are being sold. It is with this in mind that the textbook approach sets lending ratios at 2/3rds of cost, applied individually to the land value and the infrastructure cost, and 50% of the building work in progress. Steady increases in house prices and increased competition have meant that this general rule of thumb has been relaxed. In the absence of any evidence to the contrary, I believe that the ratios set by [the Bank] of 70% LTC and 60% LTeV would have reflected market rates at the time and that there would have been pressure on these if the Bank wanted to continue winning business.”
“The CBRE valuations did not change the LTC ratio. At£26,250,000 the residential GDV would have given an LTeV ratio of 50%. That compares with the Bank ratio of 40%, using the CBRE figure, and the policy maximum of 60%. A site value as low as£4,000,000 would have indicated that the Bank would have struggled to get back the money already committed, if it sought to realise its security without completing the development. Given that work had already started on site, and the Bank had convinced itself that Issa had adequate resources available to it, I believe it would have concluded that it had more, not less, reason to carry on and would have allowed draw down to commence based on the lowest range of figures in the table above.”
“Everything I have seen indicates that they believed they were in this project. And getting out of it, bearing in mind that it could still be completed at a reasonable cost and within the GDV that was acceptable to them, was the most effective way forward.”
“I don’t believe that that was a particularly strong concern at that point, because they had already lent the money, they were committed to the project. The essence of the project was to get to the end when they could sell the apartments to repay the loan in full.”
“1. Entitlement to contribution (1) Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise). ... (4) A person who has made or agreed to make any payment in bone fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established. 2. Assessment of contribution - (1) Subject to subsection (3) below, in any proceedings for contribution under section 1 above the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person’s responsibility for the damage in question. ... (3) Where the amount of the damages which would or might have been awarded in respect of the damage in question in any action brought in England and Wales by or on behalf of the person who suffered it against the person from whom the contribution is sought was or would have been subject to - (a) any limit imposed by or under any enactment or by any agreement made before the damage occurred; (b) any reduction by virtue ofsection 1 of the Law Reform (Contributory Negligence) Act 1945 orsection 5 of the Fatal Accidents Act 1976 ; (c) any corresponding limit or reduction under the law of a country outside England and Wales; the person from whom the contribution is sought shall not by virtue of any contribution awarded under section 1 above the required to pay in respect of the damage a greater amount than the amount of those damages as so limited or reduced.” (a) any limit imposed by or under any enactment or by any agreement made before the damage occurred; (b) any reduction by virtue ofsection 1 of the Law Reform (Contributory Negligence) Act 1945 orsection 5 of the Fatal Accidents Act 1976 ; (c) any corresponding limit or reduction under the law of a country outside England and Wales; the person from whom the contribution is sought shall not by virtue of any contribution awarded under section 1 above the required to pay in respect of the damage a greater amount than the amount of those damages as so limited or reduced.”
“49 ‘The same damage’ in section 1(1) means the damage, suffered by another person, for which both the person seeking contribution and the person from whom contribution is sought are liable. When section 2(1) speaks of ‘the damage in question’ it must be referring to the ‘same damage’, as specified in section 1(1), in respect of which rights of contribution arises the draughtsman cannot have intended the word ‘damage’ to have a different meaning in section 2 to that which it has in section 1. Further it is only section 1(1) which puts ‘the damage in question’ at all. 50 It is, however, necessary to distinguish between three different circumstances viz: (a) D1 and D2 are not liable for the same damage because they are responsible for different things; (b) D1 and D2 of both liable for the same damage and in the same amount; (c) D1 and D2 are liable for the same damage but D2 is liable for less than D1, e.g. because he has available to him defences which reduce what would otherwise be his liability for the damage in question e.g. contributory negligence and contractual or statutory limitation.”
“It is necessary to recapitulate what this House has laid down in relation to the assessment of damages in cases of the present kind. Two calculations are required. The first is a calculation of the loss incurred by the lender as a result of having entered into the transaction. This is an exercise in causation. The main component in the calculation is the difference between the amount of the loan and the amount realised by enforcing the security. The second calculation has nothing to do with questions of causation: see the Nykredit case, at p. 1638, per Lord Hoffmann. It is designed to ascertain the maximum amount of loss capable of falling within the valuer’s duty of care. The resulting figure is the difference between the negligent valuation and the true value of the property at the date of valuation. The recoverable damages are limited to the lesser of the amounts produced by the two calculations.”
“... B’s right to contribution by C depends upon the damage, loss or harm for which B is liable to A corresponding (even if in part only) with the damage, loss or harm for which C is liable to A. This seems to me to accord with the underlying equity of the situation: it is obviously fair that C contributes to B a fair share of what both B and C owe to A, but obviously unfair that C should contribute to B any share of what B may owe in law to A but C does not.”
“An accountant had negligently valued the shares at£7.5 m . The vendors warranted that the shares were worth the price of£10 m . In truth the shares were worth only£5 m . The vendor was liable for damages in the sum of£5 m . Counsel for the contractor said that the accountant could only be liable to the extent of the common liability i.e.£2.5 m . Counsel for the architect accepted this analysis is correct. Again, the architect is in difficulties because the example demonstrates the unavailability of a right of contribution to the extent that there is no common liability.”
“Thus, the first step is to establish what was the basic loss of the lender. The second step is to see whether that basic loss exceeds the amount of the overvaluation and, if it does, the lender’s right of recovery from the valuer is limited to the extent of the overvaluation. The issue in the present case is whether the reduction in the plaintiffs’ damages on account of their contributory negligence, here as usual expressed as a percentage, should have been applied to the plaintiffs’ basic loss or to their loss as limited by the application of the [SAAMCO] principle ...”
“23. First, where a party settles a claim made against it by a third party and in doing so pays costs to that third party, the court has a discretion and may order that a party liable to make a contribution to that other party should pay those costs under section 51 of the 1981 Act: BICC at [115]. 24. Secondly, those costs may also give rise to a contribution under the 1978 Act. In BICC the Court of Appeal held that where there was an overall settlement figure in respect of all claims which included a sum attributed by the paying party to costs, such a payment could found a contribution claim under sections 1(1) and 1(4) of the 1978 Act: see BICC at [120] and [123]. That principle was adopted by Christopher Clarke J in Nationwide Building Society and by Judge Thornton QC in Bovis Lend Lease.”
“I also consider that under the 1978 Act a ‘contribution’ is not limited to being a contribution in respect of ‘damages’ but includes a contribution based on ‘liability for damage’. This can be derived from the wording of the following provisions: (1) Section 1(1) states ‘any person liable in respect of any damages suffered by another person may recover contribution from any other person liable in respect of the same damage…’. That is not expressed in terms of contribution for liability for damages but contribution for liability in respect of damage. (2) Section 1(2) deals with the case where the contributing party has ceased to be liable in respect of the damage but states that a contribution can still be recovered ‘provided that he was so liable immediately before he made or was ordered or agreed to make the payment in respect of which the contribution is sought’. Again the use of the phrase ‘the payment’ is not limited to the payment of damages in respect of liability for damage. (3) Section 1(4) provides that ‘a person who had made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage … shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage…’. Again the use of the word ‘payment’ in settlement of a claim is not limited to damages and a contribution can be recovered in respect of that payment. (4) Section 2(3) deals with the effect of any limit imposed by statute or agreement or any statutory reduction upon the amount of contribution. This subsection does refer to ‘damages’. It states ‘where the amount of the damages which have or might have been awarded in respect of the damage in question ... was or would have been subject to [a limit or reduction] the person from whom the contribution is sought shall not by virtue of any contribution awarded under section 1 above be required to pay in respect of the damage a greater amount than the amount of those damages as so limited or reduced.’ This provision evidently limits the contribution so that only the damages, so limited or reduced, can be recoverable. I do not consider that that means that in other cases the contribution could not include both damages and costs. This is merely to give effect to agreed or statutory limitations or reductions on damages so that any contribution is similarly limited to that amount of damages so limited or reduced. Whilst it could be argued that this indicated that the contribution was always limited to damages, I do not consider that to be correct. The contribution required to be paid “in respect of the damage” is limited or reduced to the amount of damages. Whilst that might exclude a contribution for costs in excess of the limited or reduced damages, I do not consider that is inconsistent with there being the entitlement for a contribution of costs and damages in respect of liability for damage under the other provisions of the 1978 Act.”