Brian McDonagh v Bank of Scotland Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 30 November 2018 |
| Neutral Citation | [2018] EWHC 3262 (Ch) |
| Docket Number | Case No: HC-2017-001253 |
| Court | Chancery Division |
| Date | 30 November 2018 |
[2018] EWHC 3262 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Justice Morgan
Case No: HC-2017-001253
John Virgo (instructed by Blackstone Solicitors Limited) for the Claimant
Derrick Dale QC and Neil Levy (instructed by Foot Anstey LLP) for the First Defendant
Siân Mirchandani (instructed by Clyde & Co LLP) for the Second, Third and Fourth Defendants
Hearing dates: 15–19, 22–26 and 31 October 2018
Judgment Approved
The case in outline
In 2007, the Claimant, Mr McDonagh, wished to buy an investment property known as Sony House, on a technology park near Liverpool and he wished to enter into a loan agreement with the First Defendant, the Bank of Scotland (“the bank”), which would provide him with £7.5 million to buy the property.
In July 2007, Mr McDonagh and the bank entered into a loan agreement. Mr McDonagh borrowed from the bank a sum (there is a dispute as to whether he borrowed euros or pounds) which allowed him to have £7.5 million to buy Sony House. He then bought Sony House which was at that time worth £9.9 million. The parties disagree as to the meaning of that loan agreement. If the court were to construe the loan agreement as Mr McDonagh contends, then the bank seeks to have it rectified so that the agreement has the effect contended for by it.
In February 2010, Mr McDonagh and the bank entered into a second loan agreement. There is no dispute as to the meaning of the second loan agreement but Mr McDonagh has put forward various challenges to the bank's ability to enforce the second loan agreement against him. One of those challenges involves an allegation that he entered into the second loan agreement by reason of the bank's duress.
In due course, after the credit crunch of 2008, the value of Sony House fell. There is a dispute as to the amount of the fall in value. On one view, by October 2011, the value of Sony House was about £4 million or possibly less. If Mr McDonagh had borrowed from the bank in euros and was obliged to repay in euros, Mr McDonagh had suffered another reversal in his fortunes in that the pound had weakened significantly against the euro after July 2007.
The bank called on Mr McDonagh to repay the loan but he did not repay it. The bank then appointed receivers. The receivers who were first appointed were replaced by the Second, Third and Fourth Defendants as receivers. Those receivers proceeded to sell Sony House. They did not market Sony House separately but they included it in a portfolio of 38 (later 35) properties which were sold together in October 2011 for £41 million. The receivers have said that the apportioned part of the portfolio price attributable to Sony House is £3,780,215.45. The bank has given Mr McDonagh credit for this sum.
Mr McDonagh has brought these proceedings against the bank and has alleged wrongdoing by the bank, both in contract and in tort. The bank has counterclaimed for the sum which is said to be due to it. Mr McDonagh has also sued the receivers (but not the bank) alleging that they sold Sony House at an undervalue.
The two claims by Mr McDonagh were made in the same set of proceedings and have been tried together, although there is not much overlap between them. In this judgment, I will first describe the position in relation to Sony House and I will then deal with the facts relevant to the claims as between Mr McDonagh and the bank and I will make my findings on them. I will then deal with Mr McDonagh's claims against the receivers.
Sony House
Sony House is a detached three-storey building on the Wavertree Technology Park, Stephenson Way, Liverpool. That Technology Park is 2 miles from the City centre and 1 mile from the M62 motorway. Sony House was built in 1994. It has been described as a purpose-built office headquarters building.
The relevant title in relation to Sony House consisted of two leasehold interests. Both leases were for a term of 250 years from 10 August 2000 at peppercorn rents. The first of these leases was registered under Title Number MS459908 and demised the main building at Sony House. The second of these leases was registered under Title Number MS459907 and demised land used as a car park and further land adjoining the car park. The original lessee under both leases was Grangefield Estates Ltd (“Grangefield”) of which Mr McDonagh was a 50% shareholder. The terms of these two leases were assigned to Mr McDonagh in around July 2007. The two leases were subject to and had the benefit of two earlier occupational underleases which had been granted in 1995 and 1996, as referred to below.
By an underlease dated 20 March 1995 and made between the Urban Regeneration Agency and Sony Electronic Publishing Ltd, Sony House was demised for a term of twenty years from and including 1 March 1995 at an initial yearly rent (after the expiry of a period at a peppercorn rent) of £325,000 subject to upwards only review to market rent every five years during the term. The lease permitted the premises to be used for a use within Class B1 of the Town and Country Planning (Use Classes) Order 1987. The lease contained an option for the lessee to determine the lease at the end of the 10 th and again at the end of the 15 th year of the term.
By a further underlease dated 8 July 1996 and made between the Urban Regeneration Agency and Sony Electronic Publishing Ltd, an area of land adjoining the land demised by the underlease dated 20 March 1995 was demised at an initial rent (after the expiry of a period at a peppercorn rent) of £3,950 on essentially the same terms and conditions as those contained in the underlease of 20 March 1995, save that the rent payable under the underlease dated 8 July 1996 would be increased on each rent review by the same percentage increase as took effect on each rent review under the underlease of 20 March 1995.
Prior to 2006, the terms of the two underleases were assigned to Psygnosis Ltd. On 16 March 2006 Grangefield, Psygnosis Ltd and Nationwide Building Society entered into a deed of variation of the two underleases. The deed of variation referred to works involving the installation of an air conditioning system in Sony House, which work had been completed in May 2005. The deed provided that in consideration of Grangefield paying for or indemnifying Psygnosis Ltd against the cost of these works, the rents payable under the two underleases should be increased. As increased, the yearly rent payable under the underlease dated 20 March 1995 was £525,650 although the yearly rent payable was then reduced to £505,650 until 28 February 2010 and the yearly rent payable under the underlease dated 8 July 1996 was £6,137. The parties also agreed to remove the lessee's option to determine the terms of the underleases at the end of the 10 th and 15 th years of the terms. Finally, the deed of variation contained an unusual provision whereby the parties agreed that the lessor could at its option demand payment of the rents in euros instead of in pounds sterling and provided that the relevant exchange rate for this purpose would be calculated by reference to the average exchange rate prevailing during the first two months of the quarter immediately preceding the date on which the rent was due under the underleases.
The documents before me included a form which had been completed in order to register a charge over the leasehold titles of Grangefield. That form discloses that Grangefield had entered into three facility letters dated 20 February 2006 with IIB Bank Ltd, which was a bank with an address in Dublin and that, on 30 March 2006, Grangefield had charged its leasehold titles to IIB Bank Ltd to secure its indebtedness. This indebtedness was in euros and not in sterling.
In November 2007, Psygnosis Ltd assigned the terms of the two underleases to Sony Computer Entertainment Europe Ltd.
At all material times, Sony House was used for the development and testing of computer games and had been fitted out accordingly.
The first loan agreement
The first loan agreement was entered into by the bank and by Mr McDonagh on 3 July 2007. It contained the following material provisions:
“1. THE LOAN
1.1. Amount
Seven Million Five Hundred Pounds [sic] (£7,500,000) to be drawn down in Euros (the “term loan”).
1.2. Purpose
You may only use the term loan to assist with the purchase of [Sony House] (the “Property”).
The term loan will be drawn down into your Euro account with us (to be opened) which will operate as the servicing account for the term loan.
1.3. Interest
You will pay interest on the term loan at the annual rate equal to one point two per cent (1.2%) over the cost of funds incurred by us for making the term loan available, such interest being payable quarterly in arrear …
The relevant cost of funds will be set by us on or before the date of drawdown of the term loan and will be based on the Euro fixing rates provided by the British Bankers Association on the relevant date which shall be the date of drawdown or such earlier agreed date.
…
Interest will be debited to your servicing account quarterly in arrears unless that day is not a Business Day, in which case it will be applied on the next Business Day.
…
All sums payable under this letter, with the exception of the arrangement fee and the interest rate contract fee, shall be paid in Euros. If you fail to pay any amount due under the term loan when due, we may at any time purchase an equivalent amount of Euros as we consider necessary or desirable to cover the amount due and payable under the term loan at its...
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