Alice Kahrmann (as Administrator of the Estate of Rainer Christian Kahrmann) v Hilary Harrison-Morgan
| Jurisdiction | England & Wales |
| Judge | Lord Justice Henderson,Floyd LJ,King LJ |
| Judgment Date | 27 November 2019 |
| Neutral Citation | [2019] EWCA Civ 2094 |
| Date | 27 November 2019 |
| Docket Number | Case No: A3/2018/1928 |
| Court | Court of Appeal (Civil Division) |
[2019] EWCA Civ 2094
Lord Justice Floyd
Lady Justice King
and
Lord Justice Henderson
Case No: A3/2018/1928
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PROPERTY, TRUSTS AND PROBATE LIST (ChD)
HIS HONOUR JUDGE HACON (Sitting as a High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Ms Penelope Reed QC and Mr Luke Harris (instructed by Grosvenor Law) for the Appellant
Mr Clifford Darton QC and Mr Faisel Sadiq (instructed by WSM (Solicitors) LLP) for the Respondent
Hearing dates: 16 & 17 October 2019
Approved Judgment
Introduction and background facts
On 3 July 2014 Dr Rainer Kahrmann, a German businessman, died unexpectedly in Cologne at the age of 71. He left no valid will, and therefore died intestate. At the date of his death he was resident and domiciled in Germany, having moved to live there permanently between 2003 and 2005. Before then, he had lived and made his home for much of the time in London, where he owned various residential properties, including long leasehold interests in two properties in Belgravia, SW1: a substantial terraced house at 38 Wilton Crescent, and a much smaller mews property adjoining it at the rear, 38 Belgrave Mews North (“38 BMN”).
Dr Kahrmann did not own the freehold or upper-tier head leasehold interests in either property, which were vested in the Trustees of the Grosvenor Estate or connected entities (“Grosvenor”). But there were prospects of acquiring those interests by enfranchisement pursuant to the provisions of the Leasehold Reform Act 1967 (“the 1967 Act”), in the case of 38 BMN, and the provisions of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”), in the case of 38 Wilton Crescent, which was subdivided into three flats: Flat 1, comprising the lower ground and ground floors; Flat 2, on the first floor; and Flat 3, comprising the second and third floors.
The leasehold ownership structure of 38 Wilton Crescent and (to a lesser extent) 38 BMN was rather complex, but fortunately the details are not important. At this point it is enough to note that, by mid-2005, Dr Kahrmann evidently owned: (a) a long tenancy of 38 BMN at a low rent, which prima facie entitled him to exercise the right to acquire the freehold of that property pursuant to section 1(1) of the 1967 Act; and (b) qualifying residential tenancies under long sub-leases of Flats 1 and 2 at 38 Wilton Crescent, which would prima facie entitle him, through a nominee purchaser, to exercise the right to collective acquisition of the freehold of that property conferred by section 1(1) of the 1993 Act.
As the judge below (His Honour Judge Hacon, sitting as a High Court Judge) found in the judgment under appeal, Dr Kahrmann “became aware of the potential financial benefits of buying the freehold” of the two properties, with the idea of offering them “jointly onto a buoyant London property market”: see [2018] EWHC 1904 (Ch), at [4].
Dr Kahrmann discussed with a business partner, Mr Kim Hawkins, how this might best be done. The judge found, at [36], that the matter appears to have been considered in stages, starting with 38 BMN. As the judge found, Dr Kahrmann and Mr Hawkins reached an agreement in relation to this property (“the BMN Agreement”), the terms of which were recorded in a letter dated 22 June 2005 on the headed notepaper of Marlin Securities Limited (“Marlin”), which was one of Mr Hawkins' companies, addressed to Dr Kahrmann and countersigned by him. The letter purported to set out “the final agreed terms” in respect of a loan of £75,000 to be made by Marlin to Dr Kahrmann, and in respect of 38 BMN. Apart from the terms relating to the loan, upon which nothing turns, Dr Kahrmann undertook to serve notice to enfranchise the freehold of 38 BMN without delay, and then to assign the benefit of “the notice of claim for the freehold” to a new UK “off the shelf” company, which was in the event another of Mr Hawkins' companies called Themeplace Limited (“Themeplace”). It was expressly agreed that the “equitable interest of the property” would be owned as to 50% by Dr Kahrmann and 50% by Marlin (paragraph 5), and in the final paragraph (numbered 10) they were described, after the freehold had been purchased, as “the two equitable owners”. It was also agreed that Marlin would take over all responsibility for management of the property from the date of service of the notice, and would deal with all enfranchisement matters (paragraph 8).
The letter envisaged that each party would sign a copy of it and have the signature witnessed, and that the copies would then be exchanged before Marlin made the loan of £75,000 to Dr Kahrmann. These formalities do not seem to have been followed, because the only version of the letter in evidence was signed by Dr Kahrmann alone and not witnessed. But it was common ground that Dr Kahrmann and Mr Hawkins had reached an agreement on these terms: see the judgment at [37].
The enfranchisement of 38 BMN must have gone ahead smoothly, because on 22 September 2006 Themeplace was duly registered as the transferee of the freehold. Thus the legal title to the property became vested in Themeplace, as envisaged by the BMN Agreement, but the parties had expressly agreed that they would then be equitable co-owners of the property in equal shares.
Meanwhile, the first steps towards a future enfranchisement of 38 Wilton Crescent appear to have been taken a year earlier on 22 September 2005, when Dr Kahrmann assigned to Mr Hawkins his “beneficial interest” in Flats 1 and 2, together with his beneficial interest in what was described as the “Head Lease” of that property (probably, in fact, a superior Underlease (“the Underlease”) which he had bought in 2002 and which was due to expire on 26 March 2009). At the same time, Dr Kahrmann assigned to Mr Hawkins beneficial interests which he owned in adjoining properties at 37 and 39 Wilton Crescent. Each assignment was made by Dr Kahrmann in Cologne, duly notarised, and addressed “To whom it may concern”. It effected the immediate transfer of the relevant beneficial interest to Mr Hawkins, and authorised him “to initiate and take all decisions and actions including hypothecation or sale concerning this property, as Mr Hawkins so decides”. As a matter of English law, each assignment was clearly effective to transfer Dr Kahrmann's beneficial interest in the relevant property to Mr Hawkins, because his signature satisfied the formal requirements of section 53(1)(c) of the Law of Property Act 1925 (which states that “a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same…”). Equally clearly, however, the assignments would not have been effective to convey Dr Kahrmann's legal estates in the properties to Mr Hawkins, because they were not made by deed: see section 52(1) of the 1925 Act. As a matter of English law, the effect of the assignments appears to have been equivalent to declarations of trust made by Dr Kahrmann, declaring that he would thenceforth hold the relevant leasehold legal estates on trust for Mr Hawkins beneficially.
The judge found, at [39], that “[t]he reason for these assignments was not made clear”, but he rejected a suggestion that Dr Kahrmann had been “intent on divesting himself of assets” in response to an investigation into his financial affairs by the Swiss authorities. The judge said (ibid):
“There was no documentary support for this and it makes no obvious sense. A more likely alternative reason is that the assignments were done so that Mr Hawkins could arrange (and pay for) the application for the freehold of 38 [ Wilton Crescent], later done through his nominee company Cravecrest. Dr Kahrmann would be protected if there was also an agreement by which he retained an interest in the freehold once acquired and/or the proceeds derived from its sale.”
Mr Hawkins subsequently assigned his beneficial interests in Flats 1 and 2 and the Underlease to Cravecrest, and on 13 March 2009 Mr Hawkins arranged for the service of an initial notice under section 13 of the 1993 Act claiming to exercise the right to collective enfranchisement in relation to 38 Wilton Crescent. The claim was then admitted by Grosvenor, in a counter-notice under section 21 served on 29 May 2009. Thereafter, as the judge recorded at [42], the matter “became bogged down over the price to be paid” to Grosvenor. The freehold value of the property, subject to all subsisting leasehold interests, was agreed, but there was a dispute about the value to be attributed to two intermediate head leasehold interests, one of which was vested in a Grosvenor entity and the other in a third party. The question, shortly stated, was whether the price payable by Cravecrest should reflect the development or “hope” value which could be realised by uniting those intermediate leases with the freehold, thereby enabling the nominee purchaser to sell the property with vacant possession or otherwise develop it for use other than as a building containing separate flats.
The dispute was referred to the Leasehold Valuation Tribunal for the London Rent Assessment Panel, which on 12 September 2010 determined that the price to be paid on enfranchisement for the two intermediate leases had to take into account the hope of realising the development value. Cravecrest's appeal against this determination to the Lands Chamber of the Upper Tribunal was dismissed on 28 June 2012: see [2012] UKUT 68 (LC). Cravecrest's further appeal to the Court of Appeal was in turn dismissed on 19 June 2013:...
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