Downing LLP v Sanguine Hospitality Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Adam Johnson |
| Judgment Date | 11 November 2020 |
| Neutral Citation | [2020] EWHC 3011 (Ch) |
| Court | Chancery Division |
| Date | 11 November 2020 |
| Docket Number | Case No: CH-2020-000108 |
[2020] EWHC 3011 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS OF ENGLAND & WALES
CHANCERY APPEALS
Royal Courts of Justice
7 Rolls Building
Fetter Lane
London EC4A 1NL
Mr Justice Adam Johnson
Case No: CH-2020-000108
Erin Hitchens (instructed by Fladgate LLP) for the Appellant
Jack Watson (instructed by Freeths LLP) for the Respondent
Hearing dates: 9 October 2020
Judgment Approved by the court for handing down
Introduction
The Petitioner and Appellant, Downing LLP (“ Downing”), seeks an Order for the winding-up of Sanguine Hospitality Limited (“ Sanguine”). Downing's Petition is based on a debt said to be owing under a Corporate Guarantee & Indemnity given by Sanguine dated 18 March 2013 (the “ Guarantee”).
At a contested hearing of Downing's Petition on 19 March 2020, ICC Judge Burton dismissed the Petition and made ancillary orders including an Order for the payment of costs by Downing on the indemnity basis. She thought that the debt allegedly due under the Guarantee was disputed by Sanguine on grounds which appeared to be substantial. Permission having been given by Falk J. on 5 June 2020, Downing now appeals the decision of ICC Judge Burton.
Background
I will set out some background before summarising the reasoning of ICC Judge Burton. This borrows from the witness statements served by Mr Colin Corbally for Downing and by Mr Matthews-Williams for Sanguine.
The Facility
Downing and Sanguine have had a business relationship stretching back over a number of years in connection with a number of property developments.
On 18 March 2013, Downing, Sanguine, and seven companies associated with Downing (referred to as “ the Lenders”) entered into a Facility Agreement (“ the Facility”) under which the Lenders agreed to advance loan funding to two companies involved in ongoing property developments, namely Dominions House Limited and London City Shopping Centre Limited (“ Dominions” and “ LCSC” respectively).
The Lenders – I will refer to them in this Judgment as the “ Original Lenders”, for reasons which will appear below – were defined in the Facility as “… the lenders set out in Schedule 2 … (Lenders and Lender means any of them as the context requires).” Schedule 2 listed the seven relevant companies by name, all of them venture capital trusts associated with Downing.
As to the borrowers, Dominions was a company associated with a property development in Cardiff, and LCSC a company associated with a shopping centre development in London, which the parties have referred to as the “ Barbican project”. According to Mr Matthews-Williams' evidence, both the Cardiff project and the Barbican project were undertaken by Downing and Sanguine in connection with another individual, Mr Paul Bolton.
Under the Facility, the seven Original Lenders agreed to advance a total of £1.25m, split as to £890,000 for Dominions and £360,000 for LCSC. Each Lender advanced a discrete amount in relation to each project. Under the Facility these sums were repayable on the “ Final Repayment Date”, defined to mean:
“… the earlier to occur of:
(a) the date falling 18 months after the date of this agreement; and
(b) the date falling 4 weeks after Planning Permission is granted and any judicial review period has expired.”
Under (a), the relevant date 18 months after the date of the Facility was 18 September 2014.
It is clear from a review of the Facility document that it was part of an overall package of commercial arrangements entered into at about the same time, including a series of security documents.
The Guarantee
Among these security documents was the Guarantee. The Guarantee was executed between Sanguine on the one hand, and Downing as “ Security Trustee” on behalf of the Original Lenders on the other.
Clause 2 of the Guarantee set out Sanguine's principal undertaking, as follows:
“In consideration of the Security Trustee and the Lenders entering into the Facility Agreement, advancing monies or giving credit or affording other banking facilities to the Borrowers, or continuing to do so, or otherwise giving effect to the Facility Agreement, and subject always to clause 8.1, the Guarantor irrevocably and unconditionally guarantees to and agrees with the Security Trustee and the Lenders to pay to the Security Trustee within 10 Business Days of demand in writing all the Liabilities together with all costs, fees and expenses due or incurred by the Security Trustee resulting from a breach of the Guarantor's obligations under this guarantee.”
“ Liabilities” was defined broadly to mean:
“… all monies and liabilities which from time to time … are due and owing or incurred from the Borrower to the Security Trustee and the Lenders ….”
I should also mention clause 6.1.1 of the Guarantee which provides:
“The liability of the Guarantor under this Guarantee will not be discharged or otherwise affected by … any arrangement, including any extension, modification or renewal of the Facility Agreement or change in the Liabilities which the Security Trustee or Lenders may make with either of the Borrowers or with any other person …”
Maximum Limit
The Guarantee also had an unusual feature, and in order to understand it, it is necessary to mention a further property development which Downing and Sanguine were involved in at the time, i.e., in 2013.
This was a development in West Bar, an area of Sheffield, known as the “ Hampton by Hilton Hotel Development”, but it is easier to refer to it as the “ Sheffield Development”. A limited liability partnership was incorporated in relation to the Sheffield Development, in which both Downing and Sanguine were members. That company was called WB Developments LLP (“ WBD”).
The reason for mentioning WBD is that the extent of Sanguine's commitment under the Guarantee was fixed by reference to the value of its interests in WDB.
This limitation was expressed in a number of provisions of the Guarantee, referred to in the Judgment of ICC Judge Burton. They start with clause 8:
“8.1 The liability of the Guarantor to make payments to the Security Trustee accordance with clauses 2 and 3 of this guarantee shall be limited in respect of each demand to the Maximum Limit on the relevant Demand Date as determined by the Security Trustee.
8.2 Within 5 Business Days of a Demand Date, the Security Trustee shall notify the Guarantor in writing of the Maximum Limit.”
I have already explained that Downing was the Security Trustee referred to in clause 8. “ Demand Date” was simply the date of a demand made under the Guarantee. “ Maximum Limit” was defined as follows:
“… the amount determined by the Security Trustee to be the aggregate on any Demand Date of the value, as at the Demand date, of the Member's Interests, and
LESS
the aggregate of all previous payments received by the Security Trustee pursuant to this guarantee.”
“ Member's Interests” was defined to mean:
“… all the member's interests and any other rights, title and interests that the Guarantor may from time to time have (whether directly or indirectly) in [WBD].”
Clause 16 of the Guarantee provided as follows:
“… any … notifications given by the Security Trustee … under this guarantee will be conclusive and binding as to the items stated in it, except in the case of manifest error.”
Finally, I should mention that in addition to the Guarantee, it is common ground that on 18 March 2013, Sanguine also entered into a “ Charge Over Member's Interest” (the “ Charge”), by which it charged to Downing its interests in WBD. The Charge was registered at Companies House on 23 March 2013.
The Amendment and Restatement
That was the original position in early 2013, but some changes came to be made in 2014. The background has not been fully examined, but these seem to have been prompted by at least two factors. One was the decision by Mr Bolton, one of the original participants, to retire; the other was slower than expected progress in relation to the Cardiff and Barbican projects.
Thus, the Facility was the subject of an “ Amendment and Restatement” in August 2014. A number of changes were effected:
i) An Amendment and Restatement Agreement was entered into on 7 August 2014.
ii) Although originally the Facility had been one agreement, by means of the Amendment and Restatement, the arrangements were formally divided, and in addition to the Amendment and Restatement Agreement, two separate facility agreements were entered into, one covering the advances to Dominions (the “ Dominions Facility”) in respect of the Cardiff development, and one covering the advances to LCSC (the “ LCSC Facility”) in respect of the Barbican development.
iii) The group of Lenders under these arrangements was different (the “ New Lenders”). The overall number of Lenders was reduced from 7 to 6, and of those 6, only 5 had been Original Lenders under the Facility, with one new Lender added. The six New Lenders were each parties to both the Dominions Facility and the LCSC Facility.
iv) Presumably to reflect the different stages of the two projects, the overall amount advanced to Dominions for the Cardiff project was reduced from £890,000 to £700,000, whereas the overall amount advanced to LCSC for the Barbican project was increased from £360,000 to £550,000.
v) Additionally, however, as regards LCSC, the LCSC Facility provided for the payment of further sums by LCSC to the New Lenders, namely a “ Renewal Fee” of £400,000, and a “ Redemption Fee” of £300,000. This brought the total amount payable by LCSC to £1.25m.
vi) The overall amount...
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