Asprey Capital Ltd v Rediresi Ltd
| Jurisdiction | England & Wales |
| Judge | Sir Michael Burton GBE |
| Judgment Date | 07 October 2021 |
| Neutral Citation | [2021] EWHC 2662 (Comm) |
| Docket Number | Case No: CL-2020-000113 |
| Year | 2021 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 2662 (Comm)
Sir Michael Burton GBE
Sitting as a Judge of the High Court
Case No: CL-2020-000113
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Daniel Hubbard (instructed by Scott + Scott UK LLP) for the Claimant
Matthew Cook QC (instructed by Greenberg Traurig LLP) for the Defendant
Hearing dates: 19 – 23 July, 28 – 29 July, 14 – 15 September 2021
Approved Judgment
The claim by the Claimant arises out of an agreement dated 2 June 2017 (the “MOU”), and in particular a bullet point under clause 5 “ Economic and Cost Sharing” (which the parties have identified by the description “clause 5.1”). It reads: “ Rediresi and Asprey will share all proceeds of the properties above a 6% cap rate on a 50–50 basis”.
My task is to construe what the proper contractual interpretation is of those words, which are on any basis unclear, and which each side interprets differently, so that from the Defendant's point of view it justifies the payment that it made to the Claimant under it and from the Claimant's point of view there is a substantial further sum due.
The Claimant (“Asprey”) has been represented at the time and before me by its director Mr Christopher Downing and a former director (a director at the relevant time) Mr David Kingsnorth. The Claimant was additionally represented at the time by Mr Meyrick Cox, as consultant, who died in 2020. It was a company which specialised in creating opportunities for investment in housing which was to be sold or leased to housing associations and charities (“social renters”) and let by them to “social residents”, whose rents would be subsidised by central or local government so as to provide a guaranteed rental income. The Defendant (Rediresi) was a new company set up by Mr Anuuj Gupta, who had been for some time involved in residential property as a partner in Duet Asset Management Ltd (Duet), together, in relation to the events in question, with a Mr Thomasson, who has not given evidence.
It is common ground that the valuation of such properties is carried out in the business by reference to rental yield, and it is essential to appreciate that (counterintuitively to a layman) a higher ‘cap rate’ or yield % leads to a lower valuation and a lower cap rate to a higher valuation. Thus a buyer pays more (and the seller gets more) for a lower percentage yield, and a buyer pays less (and the seller gets less) for a higher percentage yield. Thus if a buyer is buying to make a profit on resale he will want to buy at a high cap rate (less money) and resell at a lower cap rate (more money).
In February 2017 Asprey introduced to Mr Gupta (through Mr Cox who had a previous relationship with him), who was then still with Duet, the opportunity to invest in two separate portfolios of properties consisting of social housing, a mix of existing buildings and new build with varying estimated dates of completion, which could be acquired with the benefit of the guaranteed rental stream. The two portfolios are the Hilldale property, owned by a Mr Dan Anders, and Houses for Homes, which latter in the event did not proceed, and I shall not mention this portfolio further. By reference to the state of completion of the properties in the Hilldale portfolio, they were split into tranches, the first of which consisted of three properties.
Asprey were agents for the sale of the Hilldale properties (at a 2% commission), but the MOU constituted a partnership intended to form the basis of future collaboration between Asprey and Rediresi in relation to the two then portfolios and any other portfolios, and in the event that 2% commission was shared between them; and the relationship was to be, as described in Recital A of the MOU, that “ Rediresi and Asprey have entered into discussions to partner to acquire and exit affordable housing projects across the UK”. It is common ground that, by (now numbered) clause 5.2: “ Rediresi and Asprey will share all Rediresi approved costs for the following but not limited to travel expenses, legal costs, accounting costs and tax costs on a 50–50 basis”. The properties, consisting as they did of social housing, were valued, as discussed above, on the basis of the capitalisation of the rental yield. As will be seen, the purchase of the Hilldale portfolio from Mr Anders was to be at a yield of 6% for the first tranche. The Defendant interprets clause 5.1 above to entitle the Claimant only to 50% of any saving on the acquisition cost by virtue of the purchase price being above a cap rate of 6% (i.e. a lower purchase price) and accounted accordingly. The Claimant contends that the clause provides that it was not only to receive half of any saving if the purchase price was less by virtue of the cap rate being higher than 6% but also half of any gain by virtue of the resale price of the properties being at a lower cap rate (i.e. a higher resale price). In the event, unknown to the Claimant at the time, the Defendant resold at a cap rate of 4.75%. The Defendant contends that the Claimant is entitled to no share of such substantial profit on the resale. There is no doubt that the acquisition and resale of the Hilldale portfolio was very profitable. The Claimant claims £2.5 M. The result is that the Claimant made a return of 3.43% and the Defendant obtained 30.39% (90% of the total profit). The outcome hangs upon my construction of clause 5.1, but there is a fallback defence of estoppel by convention, by virtue of the Claimant having agreed the calculations at the time.
I have been addressed by both counsel on the basis of the well-known authorities in relation to construction of a commercial contract, and both parties agree that the most relevant passage is in the speech of Lord Neuberger in Arnold v Britton [2015] AC 1619:
“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd… [2009] 1 AC 1101 para 14. And it does so by focussing on the meaning of the relevant words… in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions”.
The facts and circumstances not only arise out of communications which have ‘crossed the line’ in communications between the parties, but include matters which I am satisfied were, as Lord Neuberger put it in ‘Neuberger (iv)’, known or assumed by both parties. My aim is to get as close as possible to what I am satisfied the parties intended, and, particularly in the absence of any claim by either side for rectification, in a case such as this in which the words do not immediately conform with either side's interpretation, to interpret the words as best I can so as to decide which party's construction accords best with the words actually used so as to best reflect what they agreed.
I am therefore entitled and obliged to take into account the factual matrix, but I must first decide what that factual matrix is, and that requires my making some evidential decisions. I must also emphasise that I must be careful, for the purpose of the main issue in the case, being the construction of clause 5.1 (i.e. leaving aside for the moment the disputed issue, if it arises, of estoppel by convention), in the context of Neuberger (iv) to consider only matters prior to or substantially contemporaneous with the MOU. There was much evidence given before me relating to events after June 2007, and in particular relating to what occurred when the Claimant discovered in December 2018 the fact of the resale and confronted the Defendant, which would not be admissible in relation to construction but only at best to credibility, and of course in particular in relation to the estoppel claim.
There is an obvious problem by virtue of the fact that Mr Cox, who actually negotiated the MOU with Mr Gupta, has died, and died before he had made a witness statement, though after he had made some disclosure of his documents, including a WhatsApp message dated August 12, 2017, which is not easy to construe, and a WhatsApp message of 27 March 2017, which I shall address below. Where there is evidence of relevant conversation by him with the Defendant I can at treat that as ‘crossing the line’. Mr Thomasson was less involved, and although he might have been able to give some relevant evidence, he has not been called by the Defendant, and his conversations with Mr Kingsnorth of which the latter gave evidence are before me.
I consequently heard evidence from three witnesses, Mr Downing, the principal witness for the Claimant, and Mr Gupta, the principal witness for the Defendant, and Mr Kingsnorth. I did not find the evidence of either Mr Downing or Mr Gupta impressive, and counsel on both sides, Mr Hubbard for the Claimant and Mr Cook QC for the Defendant, did not place much if any reliance on the evidence of either of them (much of which was in any event subjective) in...
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Asprey Capital Ltd v Rediresi Ltd
...awarded at a rate of 8% over base rate. 3 This judgment should be read in conjunction with Sir Michael Burton GBE's trial judgment ( [2021] EWHC 2662 (Comm)) (“the Trial Judgment”) and the transcript of his judgment on the consequential matters on 25 October 2021 (“the Consequentials Judgm......