Barrowfen Properties Ltd v Girish Dahyabhai Patel

JurisdictionEngland & Wales
JudgeMr Justice Leech
Judgment Date22 June 2022
Neutral Citation[2022] EWHC 1601 (Ch)
Docket NumberBL-2018-002028
CourtChancery Division
Between:
Barrowfen Properties Limited
Claimant
and
(1) Girish Dahyabhai Patel
(2) Stevens & Bolton LLP
(3) Barrowfen Properties II Limited
Defendants

[2022] EWHC 1601 (Ch)

Before:

Mr Justice Leech

BL-2018-002028

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

Mr Jonathan Dawid (instructed by Withers LLP) appeared on behalf of the Claimant.

THE FIRST DEFENDANT appeared in person.

Mr Roger Stewart QC and Mr Joshua Folkard (instructed by Reynolds Porter Chamberlain LLP) appeared on behalf of the Second Defendant.

Hearing dates: 10–12 May 2022

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

I. Preliminary Matters

1

On 21 July 2021 I handed down a reserved judgment on liability, causation and most issues of quantum (to which I will refer as the “ Judgment”): see [2021] EWHC 2055 (Ch). I found that the Claimant (“ Barrowfen”), succeeded on its claims against both the First Defendant (“ Girish”) and the Second Defendant (“ S&B”) and I provisionally awarded damages or equitable compensation of £1,388,768.05 against both Defendants.

2

I now address three matters which I reserved for further argument and determination (the “ Reserved Matters”) and an application to correct the award of damages or equitable compensation in two respects. I am also asked to decide the principal sum on which interest should be awarded and the rate which should be applied. In this judgment, I continue to adopt the defined terms and abbreviations which I used in the Judgment itself. Moreover, where I cite paragraphs in square brackets below, I refer to paragraphs in the Judgment unless I identify another decision or authority from which that citation is taken.

3

I heard evidence and argument on these issues over three days between 10 and 12 May 2022. Mr Jonathan Dawid (who had not appeared at the trial) appeared for Barrowfen, Girish appeared in person and Mr Roger Stewart QC and Mr Joshua Folkard appeared for S&B (as they had done at the trial). I am grateful to them for their detailed and comprehensive submissions and I gratefully adopt Mr Dawid's terms for identifying the relevant issues:

(1) The Financial Costs Issue: This issue arises out of my finding that Barrowfen was required to give credit for the increase in the developer's profit due to the adoption of the Revised Development Scheme: see [672]. I gave permission to Barrowfen to argue that the developer's profit should be reduced or eliminated because of the increased financial costs of the scheme and to adduce further evidence for that purpose: see section III (below).

(2) The Loss of Chance Issue: I held that loss of a chance principles applied to the assessment of both damages and equitable compensation: see [327] and [328]. In relation to the Company Claims, I also held that there was a 60% chance that Prashant and Suresh would have taken control of Barrowfen and proceeded with the Amended Original Development Scheme by January 2015 if the Defendants had not committed the relevant breaches of duty: see [620] to [622]. I expressed the provisional view that I should deduct the credit for the increase in the developer's profit before applying the loss of a chance percentage: see [677]. However, the point was not argued and I therefore gave permission to the parties to do so: see section III (below).

(3) The Cumulation Issue: In relation to the Administration Claim, I held that there was an 80% chance that Barrowfen would have avoided administration and begun the Amended Original Development Scheme by April 2016 if the Defendants had not committed the relevant breaches of duty: see [630]. However, I expressed the provisional view that the Company Claims and the Administration Claim were true alternatives and that Barrowfen was not entitled to recover damages or equitable compensation in relation to both claims: see [681]. But this point was not argued either and I gave permission to both parties to do so too: see section III (below).

(4) The Girish Liability Issues: I found that in breach of duty Girish failed to accept S&B's advice to pay the costs of £28,000 the Bedford Rectification Claim personally: see [355]. But although I held that S&B were not liable for these costs at [372] to [376] I failed to make a separate award of damages or equitable compensation against Girish for this sum. Barrowfen now invites me to do so. It also submits that I should not have assessed damages or equitable compensation against Girish on a loss of a chance basis in the light of my finding against him on the Company Claims: see [579]: see section IV (below).

(5) Interest: Barrowfen claimed interest at 3% over base rate. S&B argued that the Court should award interest at 1%. There was also a dispute about the principal sum and whether Barrowfen was entitled to recover interest on the income losses which it had incurred before applying the credit for the increase in the developer's profit was applied: see section V (below).

4

Both the Financial Costs Issue and the Loss of Chance Issue arise out of the credit which I applied for the increase in the capital appreciation of the Revised Development Scheme by comparison with the Amended Original Development Scheme. I determined this issue by reference to the developer's profit which Barrowfen would have earned or received on the completion of each development scheme. This issue arose as a result of S&B's application to re-re-amend to take the point shortly before trial. It is unnecessary for me to set out the procedural history because I set it out in detail in a judgment dated 3 February 2022 dealing both with the amendment application and S&B's application to exclude evidence: see [2022] EWHC 207 (Ch).

5

I gave permission to Barrowfen to amend to plead the financial costs which it had incurred in relation to the Revised Development Scheme including the opportunity cost to Barrowfen of injecting more equity into the Revised Development Scheme: see [2022] EWHC 207 (Ch) at [23]. S&B's objection to that amendment was that Barrowfen had not identified any specific alternative investment and, if it had, it would require further disclosure to properly test the allegation. This issue was resolved on the basis that Barrowfen confirmed that it was not relying on any specific investment opportunity and this was recorded in a recital to the Order.

6

In section II (below) I deal with the evidence from the trial which is relevant to the Reserved Matters and other issues which I have to determine. I also set out the new evidence given by the witnesses at this hearing which I found to be of importance in deciding those issues. In section III I address the Reserved Matters, in section IV I deal with the Girish Liability Issues and in section V I deal with interest before setting out my final disposal of the claim in section VI and my directions for the resolution of any consequential issues.

II. The Evidence

A. The Evidence at Trial

7

Mr Alford and Mr Clarke both gave expert valuation evidence at trial: see [636]. They agreed that the development costs of the Revised Development Scheme were £27,212,388 although I accepted Mr Alford's evidence that those costs should also include additional sales costs of £364,941 producing a total of £27,585,064: see [663]. The expert valuers also agreed the development costs for the Amended Original Development Scheme at £17,187,793: see [665]. After resolving a number of fairly narrow issues between them I found that the developer's profit for the Residential Development Scheme was £2,508,182 greater than the equivalent profit for the Amended Original Development Scheme. I did so on the following basis:

Table 1

Element

Revised Development Scheme

Amended Original Development Scheme

Retail

£8,688,885

£7,565,556

Community

£717,930

£940,478

Hotel

£9,463,181

£9,502,618

Residential/Student Housing

£21,343,480

£9,299,371

GDV

£40,213,476

£27,308,023

Construction Costs

£27,585,064

£17,187,793

Developer's Profit

£12,628,412

£10,120,230

Increase

£2,508,182

8

Both experts had included finance costs in their calculation of the development costs although on a slightly different basis. Mr Alford had included finance costs at a debit rate of 6.00% and Mr Clarke had done so at 4.00%. Mr Alford's spreadsheet described this as debt finance and Mr Clarke's as equity finance. But it was common ground that both had calculated a figure for funding the entire development costs (whether as debt or equity). However, because the experts agreed about the overall figures, it was not necessary for me to make any findings in relation to the costs which they had included or their methodologies.

9

Mr Nick Powell, Barrowfen's accountancy expert for the Reserved Matters, exhibited to his supplementary report a copy of a global guidance note headed “Valuation of development property” and published by the RICS in October 2019 (the “ RICS Guidance Note”). Appendix B, §B2.2.2 deals with the treatment of interest or financing costs and it provides as follows:

“B2.2.2.1 In a basic residual valuation, finance is assumed at 100 per cent of both land and building costs.

B2.2.2.2 The development property/land value finance costs are included by reference to the residual value being discounted by the borrowing costs over the development period.

B2.2.2.3 There are three ways to determine the amount of interest paid on the cost of borrowing the building related costs:

• The first is to set out the costs as a cash flow and determine the total interest payments. These are then included as a cost to be deducted from the development proceeds. Some residual valuation proprietary software adopts this approach....

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