Daventry District Council v Daventry & District Housing Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE VOS,Mr Justice Vos |
| Judgment Date | 30 July 2010 |
| Neutral Citation | [2010] EWHC 1935 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC09C01840 |
| Date | 30 July 2010 |
[2010] EWHC 1935 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: Mr Justice Vos
Case No: HC09C01840
Mr Ian Croxford Q.C. and Mr Jonathan Evans (instructed by Sharpe Pritchard) for the Claimant
Mr Nigel Jones Q.C. and Ms Alison Meacher (instructed by Wright Hassall LLP) for the Defendant
Hearing dates: 7–9, 12–15, 19–20 July 2010
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 Justice Vos:
Introduction
The Claimant, Daventry District Council (“DDC”), is a local authority that owned some 3,000 council homes. On 5 th November 2007, after many months of negotiation, DDC entered into a contract (the “Transfer Contract”) to transfer its stock of council housing and garages to Daventry & District Housing Limited (“DDH”), a specially-formed Registered Social Landlord or “RSL”, which had been incorporated on 10 th April 2006, and was registered as a charity on 21 st September 2007. Such a transaction is widely known as a Large Scale Voluntary Transfer or “LSVT”.
In the run-up to the Transfer Contract, the newly formed DDH was managed by a board comprising 4 councillors from DDC, 4 independent directors, 3 tenants and one co-optee. Amber Valley Housing Limited (“AVHL”) was involved in the negotiation of the Transfer Contract, since several of its staff were acting for DDH at the relevant time. AVHL was a RSL operating in a different geographical area, the intention being that DDH and AVHL would become sister companies, each owned by a new parent RSL group, which was ultimately called Futures Housing Group (“FHG”) and was incorporated on 26 th June 2007. Each of FHG, DDH, and AVHL is a company limited by guarantee.
Alongside the transfer of DDC's housing stock, DDC agreed also to transfer its housing department staff to DDH. The staff were members of the section of the Local Government Pension Scheme (“LGPS”) administered by Northamptonshire County Council (“NCC”). It was part of the arrangement between DDC and DDH that staff should remain members of the LGPS and that DDH should become a participating employer in that scheme. In common with many pension schemes, the part referable to the transferring employees was at that time under-funded. Actuarial estimates revealed that a payment of some £2.4 million was necessary to make up its deficit. It is common ground between the parties that DDC bore the primary responsibility to make up the deficit, and that it was envisaged that, going forward, DDH would be embarking upon its new activities with a fully funded pension scheme.
Notwithstanding this understanding, the parties engaged in complicated negotiations concerning the calculation of the price that DDH would pay DDC. This calculation involved a number of elements, the most important of which, for present purposes were (a) the value of the rental stream to be obtained from the housing stock, (b) the costs of upgrading the housing stock to an agreed improved standard, (c) the set up costs to be incurred by DDH, (d) the costs of making good the pension deficit, and (e) a fund called the “VAT shelter” expected to amount to some £8.4 million that was to be produced from VAT concessions on the upgrading works that DDH would, in due course, undertake.
In the broadest of outline, the parties signed a document entitled “ Valuation Negotiations” dated 11 th October 2007, containing a table that supposedly showed what had been agreed as to these calculations. I shall return to the precise terms of that document (the “Valuation”), which is acknowledged not to have been intended to be legally binding.
Alongside the preparation of the Valuation, the parties and their solicitors were negotiating the complex and detailed Transfer Contract, which was obviously intended to be the definitive instrument containing the terms on which the housing stock would be transferred to DDH. When the Transfer Contract came to be executed on 5 th November 2007, it contained the following simple clause 14.10.3 (which is accepted to be unambiguous) that had been added only a few days before on 1 st November 2007 (“clause 14.10.3”):—
“Without prejudice to the provisions of clause 14.10.2, in relation to the Transferring Employees the Council [DDC] shall make a payment of £2.4 million pounds (being the amount calculated by Mercers as representing the deficit in the funding of the Transferring Employees pension benefits up until the Completion Date) within five business days of the Completion Date”.
In this action, DDC contends that clause 14.10.3 of the Transfer Contract should be rectified to read as follows:—
“Without prejudice to the provisions of clause 14.10.2, in relation to the Transferring Employees the Council [DDC] Company [DDH] shall make a payment of £2.4 million pounds to the appropriate administering authority or the administrators of the Superannuation Scheme for immediate credit to the Scheme in respect of the liabilities for the benefits accrued by Transferring Employees (being the amount calculated by Mercers as representing the deficit in the funding of the Transferring Employees pension benefits up until the Completion Date) within 5 days of the Completion Date”.
What makes this case somewhat unusual is that DDC does not deny that its solicitors and lead negotiator consented in emails to the inclusion of clause 14.10.3 on 1 st November 2007. It says instead that it was mistaken in giving that consent, and that both parties intended that clause 14.10.3 should have provided for DDH, not DDC, to make the deficit reduction payment to NCC. In the alternative, DDC says that DDH knew that DDC so intended. In the result, DDC seeks rectification on the grounds of mutual, alternatively unilateral, mistake. In the final alternative, DDC seeks damages from DDH for breach of a duty of care allegedly owed to it whereby DDH would not seek to benefit from DDC's misunderstanding or mistake in the process of finalising the contractual documentation.
Background to the conclusion of the Transfer Contract
The conclusion of any LSVT is intended to be a collaborative exercise. The parties are generally well known to one another, and, in any event, are intending to forge a relationship whereby they will work closely together for 30 or more years in the future. Each side is generally advised by consultants and solicitors, and there is a funder financing the acquisition. In this case, DDH's intended funder was the Royal Bank of Scotland plc (“RBS”).
The main players for DDC in these negotiations were Mr Nigel Bruno (“Mr Bruno”) and Ms Judith Grgeory (“Ms Gregory”), and their advisers, Mr Mark Longhill (“Mr Longhill”) and Mr Keith Finch (“Mr Finch”) of Tribal Consulting (“Tribal Consulting”). DDC's solicitors were Cobbetts, from whom Mr Philip Heath (“Mr Heath”) and Ms Elizabeth Hargreaves (“Ms Hargreaves”) played the leading roles.
DDH had numerous representatives and board members, but Mr Brian Roebuck, AVHL's director of finance (“Mr Roebuck”), was central amongst them. It is no exaggeration to say that his role was pivotal in DDH's conclusion of the Transfer Contract. Alongside Mr Roebuck, acting on DDH's behalf, was Ms Hayley Davies (“Ms Davies”), the manager of the Transfer Team, and, less conspicuously, Mr Mark Blyton (“Mr Blyton”), AVHL's finance manager, and Mr Peter Deacon (“Mr Deacon”). DDH was also represented by its adviser, Mr Nigel Page (“Mr Page”) of PriceWaterhouseCoopers (“PwC”). There is a dispute as to Mr Page's precise role: DDC contends that he was DDH's “lead consultant”, and DDH says that he was only one, amongst several, advisers, providing help where necessary. I shall deal with this conflict of evidence in due course. DDH's solicitors were Wright Hassall LLP, and Ms Carol Matthews (“Ms Matthews”) was the partner in charge.
It is important to understand at the outset the shape of the negotiation. DDC and DDH needed to agree the valuation of the council homes and garages that were to be transferred before the deal could proceed. That valuation was, in the broadest terms, determined by subtracting the costs of upgrading the housing stock from the value of the rental stream to be derived from it. There were, however, numerous variables to be considered in evaluating each figure. The valuation is, therefore, also described as the ‘ price’.
In negotiating the valuation, DDH's status has to be considered. DDH was a shell company limited by guarantee, and was constrained by Government regulation as a potential RSL, and by the requirements of its funders, RBS. Throughout the process, DDH was preparing a business plan to show what it would receive by way of funding and what it would spend. There were, it appears, numerous incarnations of the business plan, which was an evolving document as the negotiations continued. DDH never shared its business plan with DDC, but repeatedly asserted that the business plan could only support payments of particular amounts. Plainly, whatever DDH may have said about what its business plan could or could not support, DDH could only sensibly agree to make payments that it was funded to make. Thus, any payment it contracted for had either to be in its business plan, as being financed by its funders RBS, or had to be met from some other defined source. The only possible such source discussed in the negotiations was the VAT shelter, to which I have already referred. The intended VAT shelter was estimated to yield some £8.4 million over a period of some 10 years from the date of the intended contract, but that figure was only an estimate, and was...
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