Edward Astle & Others v CBRE Ltd
| Jurisdiction | England & Wales |
| Judge | Mr William Trower |
| Judgment Date | 05 November 2015 |
| Neutral Citation | [2015] EWHC 3189 (Ch) |
| Court | Chancery Division |
| Date | 05 November 2015 |
| Docket Number | Claim No HC-2012-000158 and HC-2013-000475 |
[2015] EWHC 3189 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. William Trower QC
(sitting as a Deputy Judge of the High Court)
Claim No HC-2012-000158 and HC-2013-000475
Claim No HC-2014-001666
Claim No HC-2014-001693
Claim No HC-2014-001055
Mr Philip Jones QC and Mr Giles Richardson (instructed by Harcus Sinclair) for the Claimants
Mr Ewan McQuater QC and Mr Matthew Parker (instructed by Jones Day) for the Evans Randall Companies
Mr Adam Kramer (instructed by Clyde & Co LLP) for CBRE Limited
Hearing dates: 20 th, 21 st and 22 nd July 2015
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A paragraph 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 WILLIAM TROWER QC
Mr William Trower QC:
Introduction
These are applications by Evans Randall Investment Management Limited ("ERIML"), Evans Randall (UK) Limited, Evans Randall International Limited (together the "Evans Randall Companies") and CBRE Limited ("CBRE") for summary judgment and/or to strike out all or part of the claims made against them. The Claimants are most but not all of the individuals (the "Investors") who invested in a Jersey-based trust, the Control Centre Exempt Unit Trust (the "Trust").
During the course of 2004, the Government launched a fire control centre project (the "Project"), part of which involved the acquisition and development of 5 sites to become regional fire and emergency rescue centres ("Fire Control Centres"). The sites were located in Cambridge, Castle Donington, Durham, Wakefield and Wolverhampton.
As part of the Project, the freehold or long leasehold interests in the Fire Control Centres were acquired by a Jersey limited partnership, the Control Centre Limited Partnership (the "Partnership") through its general partner The Control Centre General Partner Limited ("CCGPL"), a company owned by Evans Randall Limited. The limited partner in the Partnership was Bedell Corporate Trustees Limited ("BCTL") in its capacity as trustee of the Trust. I should add that, when the evidence refers to the Partnership, strictly speaking it is sometimes referring to CCGPL in its capacity as general partner of the Partnership. For the most part the distinction between the two does not matter.
The Trust also had an interest in another Jersey-based sub-trust, the Capital Unit Trust (the "CUT"), which itself held the freehold of a property in Cirencester (the "Cirencester Property"), which was to be developed into an office building to be leased to St. James' Place Wealth Management Group Plc, then majority owned by HBOS. The trustees of the CUT were BCTL and Atrium Trustees Limited.
In March 2006, Bank of Scotland ("BoS") advanced to the CUT a 5-year term loan of a sum in excess of £14 million in relation to the Cirencester Property. In July 2006, BoS advanced to CCGPL as general partner of the Partnership a 5-year secured term loan of a sum in excess of £100 million in order to finance the acquisition and development costs of the Fire Control Centres. The loan to value covenant under this facility was 82% of the open market value of the Fire Control Centres.
In addition to these facilities, fixed interest rate swaps were put in place and BoS advanced working capital facilities in relation to the Cambridge Fire Control Centre and separately in relation to the Cirencester Property. It also advanced bridging facilities and a mezzanine facility, both of which were intended to be repaid on the receipt of monies to be subscribed for the acquisition of units and Loan Notes to be issued by the Trust.
The units and Loan Notes were issued in accordance with the provisions of an Information Memorandum (the "IM") issued on 3 October 2006 by ERIML. The issue sought to raise £37,500,000. Investors were issued Loan Notes to the extent of 99.3% and units to the extent of 0.7% of their investment. The Loan Notes took the form of unsecured notes bearing a deferrable coupon of 6% and repayable in 2026.
CBRE had been engaged by BoS to provide expert valuations of the Fire Control Centres and the Cirencester Property (together "the Properties") for loan security purposes. The valuations were provided to BoS on various dates between December 2005 and June 2006. CBRE's conclusions were then summarised in the IM, such that in a section entitled "Investment Overview" it was disclosed that CBRE had valued the Fire Control Centres at £126,350,000, and the Properties as a whole, taking into account the value of the Cirencester Property, at £143,910,000.
One of the terms of the offer made in the IM was that the Investors were required to accede to an intercreditor agreement by which they were prevented from demanding repayment of any sum due and owing under the Loan Notes until all amounts outstanding under the senior facility, the bridging facility, the mezzanine facility and the various agreements between Evans Randall and the Trust had been discharged in full. This subordination reflected the fact that the terms of the Limited Partnership Agreement provided for all gross receipts of the Partnership to be distributed in a waterfall under which its obligations (including CCGPL's obligations to BoS) were to be paid before discharging any obligations or making any distributions to the limited partner (i.e. the Trust acting through BCTL).
The extent and effect of this subordination was also spelt out in the body of the IM as follows:
"Investors cannot demand repayment of sums due and owing under the Loan Notes until all amounts outstanding under the Senior Facility, the Bridging Facility, the Mezzanine Facility the Advisers' Agreements and amounts owing to unsecured creditors are fully discharged to the satisfaction of [BoS] and [ERIML] respectively.
"No income will be distributed to Unitholders and no interest arising will be paid to Loan Noteholders until such time as the obligations within the Intercreditor Agreement are discharged.
"Unitholders and Loan Noteholders are required to accede to the terms of the Intercreditor Agreement so that they are bound by it."
Copies of the IM were provided by ERIML to a firm of independent financial advisers, then called Bespoke Financial Planning LLP ("Bespoke") for provision to Bespoke's own clients. Bespoke did this in return for the payment of fees in respect of any investors which it secured to invest in the Trust and was paid approximately £2.3 million in this regard. The Claimants are all clients of Bespoke, or other financial advisers introduced to the investment opportunity by Bespoke.
The IM contemplated minimum investment participations of £500,000, although in the events that occurred significantly smaller participations (some of no more than £50,000) were accepted. The total amount actually raised from Investors was £33,775,000. Of this total £26,775,000 was invested by the Claimants.
Evidence adduced on behalf of ERIML asserts that the provision of the IT infrastructure for the Project was a shambles, and following a series of delays and difficulties the Project was cancelled in December 2010. The effect of the Project's cancellation was that the relevant public sector tenants never occupied the Fire Control Centres, and there was no longer a prospect that the leases would be renewed on the terms contemplated by the IM. Meanwhile, following the 2008 financial crisis there had been a collapse in commercial property values.
When the Partnership term loan fell due for repayment in July 2011, the outstanding indebtedness to BoS was approximately £100 million. The Partnership was unable to refinance the debt, which led to an event of default in February 2012, followed by the appointment of receivers over the Properties on 10 February 2012. Shortly thereafter, pursuant to a letter of request issued by the Royal Court of Jersey, CCGPL entered administration in England. By the time of the default the Partnership's outstanding indebtedness, including the significant liabilities owed under the swaps, totalled £123.3 million.
The evidence does not identify the true value of the Fire Control Centres at the time of the default. I have, however, seen a CBRE desktop valuation of the Properties as at 31 December 2010. This valued the Fire Control Centres at £108,520,000 and the Cirencester Property at £14,100,000. If these figures are correct, this means that by the end of 2010 the aggregate value of the Fire Control Centres was £17,830,000 less (and the value of the Cirencester Property was £3,210,000 less) than the value ascribed to them in the IM. On 9 September 2011 the Cirencester Property was sold for £14,350,000, a marginal increase over the figure in the desktop valuation.
I have also seen evidence which indicates that, based on these valuation figures, the Partnership would have required a further £34.3 million of equity to ensure that the loan to value ratios in the BoS facility were achieved. If, as may have been required, the loan to value ratios were reduced to 70% (or even lower), the figure for new equity would apparently have increased to £47.4 million (or even higher). This explains why there were difficulties in refinancing the debt,...
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