Aodhcon LLP v Bridgeco Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. Jonathan Klein |
| Judgment Date | 06 March 2014 |
| Neutral Citation | [2014] EWHC 535 (Ch) |
| Docket Number | Claim No: HC12E03719 |
| Court | Chancery Division |
| Date | 06 March 2014 |
[2014] EWHC 535 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice,
Rolls Building,
Fetter Lane,
London, EC4A 1NL.
Mr. Jonathan Klein
(sitting as a Deputy Judge of the Chancery Division)
Claim No: HC12E03719
Mr. Lawrence Caun (instructed by Ronald Fletcher Baker LLP) for the Claimant
Mr. Stephen Innes (instructed by Brightstone Law LLP) for the Defendant
Hearing dates: 13 th– 17 th January 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr. Jonathan Klein SITTING AS A DEPUTY JUDGE OF THE CHANCERY DIVISION
This is a judgment in (i) a claim principally relating to a sale, by the Defendant ("Bridgeco") as mortgagee in possession, of 593–5 Roman Road, London, E3 5EL ("the Property") about which the Claimant ("Aodhcon") complains and (ii) a counterclaim by Bridgeco for what it alleges are outstanding sums under a bridging loan agreement between the parties because, it alleges, the sale of the Property left a shortfall on the sums due to it from Aodhcon.
Factual Background
Mr. Charles (Cathal) McNicholl is a property developer. In December 2006 Aodhcon was registered with the intention, as in fact happened, that it would be used as a special purpose vehicle for Mr. McNicholl's acquisition and development of the Property.
On 8 th March 2007 Aodhcon bought the Property for the price stated on the transfer to be £640,000.
The purchase price was raised in part by a loan of £437,267 from Bank of Scotland plc which loan was secured by a first legal charge over the Property.
On 27 th July 2007 planning permission was granted for the development of the Property into a complex of 6 flats and 2 ground floor commercial units.
On 15 th April 2009 the London Borough of Tower Hamlets ("LBTH") approved a discretionary Empty Property Grant ("the Grant") in the sum of £115,000 to assist the development on the following conditions amongst others:
"…8. You have agreed in a separate document (the certificates of intended letting) to let out the dwellings for 5 years following the final payment of the grant.
9. This grant will be registered as a local land charge against the property for 5 years following the final payment of the grant.
10. You must retain the ownership of the property for 5 years following the final payment of the grant.
11. The grant has been approved subject to you being an accredited landlord under the London Landlords Accreditation Scheme. You must maintain your accreditation throughout the grant condition period.…
If any of the grant conditions set out above are breached then the Council may recover the grant with interest…."
Aodhcon drew down £99,739.50 of the Grant and, in due course, but it is not clear to me when (although nothing turns on this), Aodhcon employed GD City Ltd. ("GD"), apparently under a JCT Design and Build Contract revision 1 2007, to carry out the development of the Property.
According to Mr. David Palumbo, who gave evidence for Aodhcon, in March or April 2010 Bank of Scotland was putting pressure on Aodhcon to repay the loan it had made, the term of which, Mr. McNicholl confirms, was due to expire some time in 2010.
On 26 th April 2010 a sale memorandum for the Property was issued by Look Properties, estate agents. The prospective purchaser was identified as Palmhurst Residential Property Fund Ltd. ("Palmhurst") and the sale price was said to be £1.02 million. The following were further terms of the sale as recorded in the memorandum:
"A deposit of 10% will be paid but held as stakeholder; however £50,000 of the said deposit will be released to the vendor in order for him to pay the contractor to complete the building works…Contracts will be exchanged subject to building work being completed and signed off. The Property will not be encumbered by any rights reserved by the grants that the vendors (sic) have had the benefit of….There is no CML approved warranty or guarantee in place."
At the same time, because the Bank of Scotland loan was due to expire, Aodhcon was trying to obtain a bridging loan to repay Bank of Scotland and to complete the development.
Aodhcon obtained a bridging loan from Bridgeco the terms of which are set out in an offer letter, dated 12 th April 2010, which was accepted by Mr. McNicholl on Aodhcon's behalf on 15 th April 2010. The following are some of the terms of the offer:
i) Bridgeco offered to lend Aodhcon £750,000 for 6 months;
ii) As security, (i) Aodhcon was to give a first legal charge over the Property to Bridgeco, (ii) (Mr. McNicholl was to give a personal guarantee and (iii) Aodhcon was to give a debenture over its assets;
iii) Interest on the outstanding balance of the loan "until such time as the loan has been repaid in full [was to be] at the rate of 1.35% calculated on a daily basis, payable monthly in arrears on the 5 th day of the month calculated from the date of advance of the loan and compounded on a monthly basis";
iv) "A facility fee of 1.25% per month calculated on the balance outstanding from time to time as at each monthly anniversary of the drawdown ("the Facility Fee") will be debited to your account and will be payable on redemption of the loan. However, we will waive our right to collect the Facility Fee if there are no arrears of interest or any other breaches of the terms and conditions set out in this offer letter or of the terms of the security including your failure to repay the loan at the end of the term".
The offer letter made clear though that the offer was subject to Bridgeco's due diligence amongst other matters.
Aodhcon drew down the bridging loan on 7 th May 2010 so that the term of the bridging loan expired by 7 th November 2010.
Glenny LLP ("Glenny") appears to have reported on the value of the Property to National Westminster Bank plc on 15 th January 2010. Neither party has taken me to a copy of that report. On 25 th March 2010 Glenny reported on the value of the Property to Bridgeco. By that report ("the March Glenny Report"):
i) Without re-inspecting the Property, Glenny valued the Property with vacant possession at £1.4 million and gave a projected value for the Property with vacant possession based on a 90 day period to market and sell ("a 90 day sale" – sometimes described as a "forced sale") of £1.25 million;
ii) Glenny reported that only minor cosmetic works were required to complete the development which was, in general, to a good modern standard;
iii) Glenny reported that the property market had been in a period of decline for the previous 2 years which had resulted in a "very cautious approach from investors" and yields moving "out" during that period but it detected now some modest growth in the market. During the period "the buy to let investment sector, which was particularly active prior to 2008, has fallen away. Where it does exist however, we understand that current investment demand is much more focused upon rental yields…". Glenny also recorded that there was strong competition which would "further suppress the opportunity for future investment growth" so that, on residential property, yields had increased in recent years. Glenny also noted that, if the Property was sold as a single unit to an investor, the yield would be expected to increase because of reduced market for such investments and because of the inherent risk. Glenny expressed the view that an appropriate All Risks Yield would be 7% — although it is not clear to me from the appendix to the report which purports to show how this figure was reached how, in fact, it was calculated;
iv) Glenny noted that there were "increasing numbers of void units available to let…" with the overall consequence that there would be downward pressure on rents;
v) Glenny seemed untroubled by the Grant requirement that the flats be let to tenants LBTH had selected because, it took the view, the minimum rents paid by such tenants would exceed, in the case of each of the flats to a greater or lesser degree, the amount which could be obtained in the open residential letting market.
In April 2010 Aodhcon engaged GB Fitzsimon LLP, quantity surveyors, who reported that the work then required to complete the development of the Property would cost £72,856 excluding VAT and fees.
On 1 st May 2010 Mr. David Williams wrote to Bridgeco, his principal, that:
i) The development of the flats was basically complete but that they would need to be redecorated;
ii) The development appeared not to have progressed for some months;
iii) The development displayed two serious defects; namely, the incorrect installation of the communal stairs which would ultimately require the first floor levels to be adjusted but that this defect would be remedied free of charge by the contractors and the flat roof had been formed incorrectly resulting in water penetration;
iv) He estimated the cost of finishing the work was £15,000 but "I would state that the costs would run to at least £50k but potentially £75k taking into consideration the above";
v) He valued that property at £1 million taking into account the remedial works.
On 20 th August 2010 Glenny reported again ("the August Glenny Report"). On that occasion Glenny valued that Property with vacant possession at £1.35 million and gave a projected value based on a 90 day sale of £1.15 million. The report continued:
"We would comment that the development does not appear to have moved significantly forward since our last inspection of the premises in January 2010 and indeed some elements of the property appear to have deteriorated so that a number of finishings will need to be undertaken afresh....
To continue reading
Request your trial
-
Bedford Investments Ltd v Mr Nicholas James Sellman
...to cite the words of HHJ Klein (then Mr Jonathan Klein sitting as a Deputy Judge of the High Court) in Aodhcon LLP v Bridgeco Ltd [2014] EWHC 535 (Ch) at [224]. That was a case in which the Judge held that the rule of penalty did not apply to a facility fee on a loan of 1.25% per month, wh......
-
Barnes Bay Development Ltd ((in Liquidation)) v Starwood Capital Group
...plaintiff at the end of March 1987 when the first plaintiff offered to purchase it. 83 Mr. Hare also relied on the decision in Aodhcon LLP v Bridgeco Limited. 22 According to Mr. Hare, the thrust of the English case law highlights the approach that the courts take when scrutinizing creditor......
-
[1] Lemon Grove Company 1st Claimant [2] Adam Bilzerian 2nd Claimant v [1] First Caribbean International Bank [2] Belmont Resorts Ltd [3] The Registrar of the High Court [4] Attorney General of the Federation of St. Christopher and Nevis [5] Kate Walwyn
...[1973] 1 WLR 349Cuckmere Brick Co. Ltd. v Mutual Finance Ltd. [1971] 1 Ch 949 [1971] 1 Ch 949, 966–969 and Aodhcon LLP v Bridgeco Ltd [2014] EWHC 535 (Ch) NATS (Services) Ltd v Gatwick Airport Ltd 2014 WL 4636860 Queen's Bench Division (Technology & Construction Court); Letting Internationa......
-
Lemon Grove Company et Al v First Caribbean International Bank et Al
...v Bertola [1973] 1 WLR 349Cuckmere Brick Co. Ltd. v Mutual Finance Ltd. [1971] 1 Ch 949, 966–969 and Aodhcon LLP v Bridgeco Ltd [2014] EWHC 535 (Ch)NATS (Services) Ltd v Gatwick Airport Ltd 2014 WL 4636860 Queen's Bench Division (Technology & Construction Court); Letting International Ltd v......