Aurium Real Estate London Ultra Prime Ltd v Mishcon De Reya LLP
| Jurisdiction | England & Wales |
| Judge | Jonathan Richards |
| Judgment Date | 25 May 2022 |
| Neutral Citation | [2022] EWHC 1253 (Ch) |
| Docket Number | Claim No: PT-2020-000197 |
| Court | Chancery Division |
[2022] EWHC 1253 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PROPERTY, TRUSTS AND PROBATE LIST (ChD)
Rolls Building
Fetter Lane
London, EC4A 1NL
JUDGE Jonathan Richards
Sitting as a Deputy Judge of the High Court
Claim No: PT-2020-000197
Rupert Reed QC and Michael Walsh (instructed by Fieldfisher LLP) for the claimant
Ian Croxford QC, Jamie Smith QC and Michael Bowmer (instructed by DWF Law LLP) for the defendant
Hearing dates 21 to 25 March, 28 to 31 March, 1 April and 5 to 6 April 2022
Draft judgment circulated on 16 May 2022
APPROVED JUDGMENT
INTRODUCTION
Overview of the claim
The Claimant (“Aurium”) is a company incorporated in Jersey. The Defendant (“MdR”) is a firm of solicitors. Aurium claims that MdR provided negligent advice in connection with a real estate investment (the “Bayswater Project”) on a site on the Bayswater Road, London. I will make detailed findings, both of fact and law later in this judgment, but the following summary of the claim and its background will put the later discussion into context.
Aurium is a holding company. It incorporated a Jersey sub-holding company, Bayswater Road (Holdings) Limited (“BRHL”) and various property-holding subsidiary companies (the “Subsidiaries”) in connection with a substantial development project that was commenced in early 2014. The idea was that Aurium would “assemble” a collection of freehold titles that together covered a sizeable area of land near Hyde Park (the “Site”), with those freehold titles being conveyed to the Subsidiaries. Vacant possession of the Site would be secured, where necessary by offering tenants of leasehold premises inducements to surrender their leases, and planning permission would be secured for conversion of the Site into 55 high-end residential apartments and ancillary retail, restaurant and other accommodation. The desirable location of the Site and the increase in its value consequent on the grant of planning permission would, Aurium hoped, enable it to make a healthy profit on the venture although the precise way in which it expected to make that profit was the subject of some dispute.
The funding necessary to assemble the Site, and to pay necessary inducements to tenants, came from two principal sources:
i) Aurium's ultimate beneficial owners included two wealthy individuals, Mr Simon Pearson and Mr Joseph Penna who provided the equity capital for the project. Between 2014 and 2017 Aurium, largely using funds provided by Mr Pearson and Mr Penna, invested over £50m in BRHL and the Subsidiaries in the form of equity and subordinated loans.
ii) Cheyne Capital Management (“Cheyne”) provided an initial £75m of debt finance (the “Senior Debt”) to BRHL under the terms of a facility agreement dated 17 June 2014. Initially that finance was provided for a term of 18 months but the maturity of the Senior Debt was extended on various occasions. Cheyne advanced the Senior Debt at a time when the Bayswater Project was an uncertain and risky proposition. The interest rate on that debt was 10%, a high rate that reflected that risk. Cheyne took security for BRHL's liabilities including a charge over Aurium's interest in both (i) the shares in BRHL and (ii) loans that Aurium had made to BRHL.
Mr Pearson and Mr Penna were both directors of Aurium and of BRHL. Since both companies were intended to be resident outside the UK for tax purposes some care was taken to ensure that management of both companies was located in Jersey. To that end, a corporate services provider (“Crestbridge”) was engaged to provide management services in Jersey.
MdR gave legal advice in connection with the Bayswater Project. The extent of MdR's involvement, the duties it owed, and whether those duties were owed to Aurium or to BRHL, were in dispute. It suffices to note at this stage that MdR gave a significant quantity of advice and was involved in negotiating the legal documents under which the Senior Debt was advanced.
By a Development Management Agreement executed in June 2014, BRHL appointed Fenton Whelan Limited (“Fenton Whelan”), which carried on a property development business, to act as its agent on the Bayswater Project. Fenton Whelan had been founded by Mr Sanjay Sharma and Mr James Van Den Heule, and both Mr Sharma and Mr Van Den Heule would play a prominent role in the execution of the Bayswater Project.
By August 2014, the assembly of the freehold titles on the Site was significantly complete. Attention turned to obtaining vacant possession. I need say little about those negotiations for vacant possession that proceeded smoothly. However, the present dispute between Aurium and MdR arises out of a negotiation for vacant possession that proceeded far from smoothly. The relevant tenant was Berkeley Credit & Guarantee Limited (“BCG”), which was a business tenant of a bureau de change located at 125 Bayswater Road under a lease (the “Lease”) which was due to expire in December 2021 and so had some six years to run in 2015. The relevant Subsidiary owning the freehold was Alderton Park Limited (“APL”). By the end of 2015, BCG (which was apparently owned and operated by a Mr Felix Grovit) had rebuffed offers made to it by Aurium to pay a premium in return for BCG's surrender of the Lease.
BCG was a prolific correspondent, and ultimately became a litigant, on matters concerning rights and obligations under the Lease. Two issues in particular are worth highlighting in this introduction. First, BCG had formed the view that, by acquiring the freehold reversionary on the Lease, APL had inherited an obligation to pay for remedial works to the front of BCG's shop. That dispute (the “Shopfront Dispute” which was to become the “Shopfront Litigation”) concerned a relatively modest sum of money in the context of the Bayswater Project as a whole, at around £40,000. APL was ultimately successful in the Shopfront Litigation, obtaining summary judgment in its favour in 2016.
The second issue that BCG articulated in correspondence needs to be understood in the context of the geography of the Site and the terms of the Lease. BCG's bureau de change (the “Shop”) was located on the corner of Bayswater Road and Queensway. The Shop constituted the demised premises under the Lease but was part of a larger building (the “Building”). Above the Shop were a further four storeys of the Building (the “Upper Parts”) which were not demised under the Lease and which were also owned by APL. A number of issues in this case arise from the fact that the landlord's repairing covenant in Clause 4.2.6 of the Lease (“Clause 4.2.6”) was expressed to apply, not just to the Shop, but to the Building as a whole as follows:
throughout the Term to keep the main structure of the Building and in particular the roof void and main structural walls thereof and all common parts in good and tenantable repair and condition.
This wording raised a question of construction of the Lease, namely whether if the Upper Parts were demolished and replaced with new residential units, there would be a breach of Clause 4.2.6. If attention was focused on the end result of this process, it might be said that the Upper Parts (in their new form) would be in good repair and condition. However, there was a clear concern that the intermediate demolition of the Upper Parts could be seen as involving a failure to “keep” them in good repair and condition. It was common ground that this question of interpretation is “nuanced”, with no straightforward answer to it.
By late 2015, Fenton Whelan considered that BCG was being intransigent in not engaging with negotiations for surrender of the Lease. BCG also commenced proceedings in respect of the Shopfront Litigation on 9 December 2015. Fenton Whelan started to wonder whether it might be possible to “build around” the Shop in some way so as to the obviate the need to reach agreement with BCG on a surrender of the Lease.
On 21 January 2016, MdR gave some advice (the “Advice”) about the extent of BCG's rights under the Lease. The interpretation and scope of the Advice are matters of considerable dispute. However, Aurium's case is that in the Advice, MdR failed to advise that a proposed “build around” strategy carried a material risk of infringing Clause 4.2.6 given the “nuanced” position described in paragraph 10. MdR denies that it was asked to advise on any “build around” scheme that was articulated with sufficient precision to enable it to advise on the applicability or otherwise of Clause 4.2.6.
Little progress was made in negotiations between Aurium and BCG for the surrender of the Lease in 2016. Aurium's case, which is disputed, is that it no longer felt it necessary to engage in such negotiations because it considered that the Advice had confirmed to it that a “build around” strategy was viable.
Obtaining planning permission from Westminster City Council (“WCC”) was central to the Bayswater Project. That process proceeded far from smoothly. The planning application was not made until 9 November 2015, just a month or so before the Senior Debt was due for repayment, making an extension to the term of the Senior Debt necessary, with a consequent increase in BRHL's obligation to pay Cheyne the high rate of interest due under that debt. On 12 April 2016, WCC resolved to grant planning permission, but Mr Boris Johnson, then the Mayor of London, indicated that he was minded to exercise his power as Mayor to direct refusal....
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