Groveholt Ltd v Hughes

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Jonathan Parker,Lord Justice Dyson,Lord Justice Auld
Judgment Date18 July 2005
Neutral Citation[2005] EWCA Civ 897
Date18 July 2005
Docket NumberCase No: A3/2005/0283

[2005] EWCA Civ 897

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM HIGH COURT, CHANCERY DIVISION

Nicholas Underhill QC (Sitting as a Deputy High Court Judge)

HC04C00899

Royal Courts of Justice

Strand, London, WC2A 2LL

Before

Lord Justice Auld

Lord Justice Jonathan Parker and

Lord Justice Dyson

Case No: A3/2005/0283

Between
Alan Hughes
Appellant
Groveholt Ltd
Respondent

Charles Purle QC and Alex Hill Smith (instructed by DKLL) for the Appellant

Nicholas Strauss QC and Neil Kitchener (instructed by Lawrence Graham) for the Respondent

Lord Justice Jonathan Parker

INTRODUCTION

1

This an appeal by Mr Alan Hughes, the first defendant in the action, from an order made by Mr Nicholas Underhill QC, sitting as a Deputy High Court Judge in the Chancery Division, on 28 January 2005. By his order, the judge dismissed an application by Mr Hughes for summary judgment against Groveholt Ltd ("Groveholt"), the claimant in the action. The judge also granted declaratory relief. The second defendant in the action, Delbrook Properties Ltd, a company owned and controlled by Mr Hughes, has taken no part in the proceedings.

2

The action arises out of a scheme for the development of a brownfield site owned by Mr Hughes and known as Cawdor Quarry, Matlock, Cheshire ("the Site"). The Site is situated close to the town centre of Matlock, and the scheme for its development was a complex one, both in physical terms and in terms of the contractual history.

3

In physical terms, the development of the Site required major infrastructure works to provide access, including the diversion of the A6 trunk road and the construction of a new road bridge across the River Derwent. In addition, in order to enable the Site to be developed certain parcels of land not forming part of the Site itself had to be acquired from third parties (one of whom was Railtrack). This process was referred to as "site assembly". The costs of the infrastructure works and site assembly (the judge referred to them as "the preparatory costs", and I adopt that expression) were inevitably going to be very substantial. As such, they were a significant factor affecting the development value of the Site.

4

As to the contractual history, there was a sequence of contracts relevant to the action, involving (1) Mr Hughes, (2) J Sainsbury plc and/or one of its associated companies (since nothing turns on the identity of the particular company in the Sainsbury group I will refer to each of them as "Sainsbury"), (3) Chelverton Properties Ltd ("Chelverton") and (4) Groveholt.

5

The first contract in the sequence was an Agreement ("the Sainsbury Agreement") dated 23 December 1996 and made between Mr Hughes and Sainsbury whereby Mr Hughes sold part of the Site ("the Sainsbury Land") to Sainsbury. The Sainsbury Agreement was subsequently varied by a Loan Agreement ("the Loan Agreement") dated 10 March 1997 and made between Mr Hughes and Sainsbury.

6

The next relevant contract, and the crucial one for present purposes, was an Agreement ("the Chelverton Agreement") dated 9 April 1998 and made between Mr Hughes and Chelverton whereby Mr Hughes sold the remainder of the Site ("the Chelverton Land") to Chelverton. Clauses 5, 6, 8, 10 and 11 of the Chelverton Agreement are central to the present dispute. I shall come to the detail of these clauses in due course, but for the purposes of this introduction the following broad description of their effect will suffice.

7

Clause 5 of the Chelverton Agreement provided for payments to be made by Chelverton to Mr Hughes by way of addition to the purchase price for the Chelverton Land in the event of certain specified planning consents being granted for its development. Clause 6 provided that Chelverton's obligations under clause 5 should be secured by a charge over the Chelverton Land. Clauses 8 and 10 provided for payments to be made by Mr Hughes to Chelverton in certain events. Clause 8 provided for Mr Hughes to make a payment to Chelverton should the total of the preparatory costs, when finally ascertained, exceed a specified level. Clause 10 obliged Mr Hughes to contribute to the cost of purchasing the land owned by Railtrack ("the Railtrack Land"). Clause 11 contained a mechanism for setting off any sums due from Mr Hughes to Chelverton under clauses 8 and 10 against any sums due from Chelverton to Mr Hughes under clause 5.

8

The language of clause 11 has given rise to a question of construction which lies at the heart of the rival contentions advanced by the parties before the judge and in this court. The nature of that question will be apparent when I have completed this brief overview of the contractual structure and referred to certain subsequent events.

9

On completion of the Chelverton Agreement (on 16 September 1998) Chelverton duly executed a Legal Charge ("the Charge") over the Chelverton Land pursuant to clause 6 of the Chelverton Agreement.

10

On the same day, a Deed of Novation ("the Deed of Novation") was entered into between Mr Hughes, Chelverton and Sainsbury whereby Mr Hughes' rights and obligations under the Sainsbury Agreement were transferred to Chelverton. In effect, Chelverton stepped into Mr Hughes' shoes vis-à-vis Sainsbury.

11

On 4 July 2001 Chelverton sold the Chelverton Land to Groveholt, subject to the Charge. In the meantime, Chelverton had entered into a number of agreements with Sainsbury relating to the development of the Site, the detailed terms of which are not relevant for present purposes.

12

On 15 October 2002 Chelverton was placed in creditors' voluntary liquidation. On 11 December 2002 the liquidator, in exercise of the power conferred on him by section 178(2) of the Insolvency Act 1986 ("the 1986 Act"), disclaimed the Chelverton Agreement and the Deed of Novation, thereby determining Chelverton's rights and obligations thereunder as from the date of the disclaimer.

13

It is common ground that as at the date of disclaimer planning consents had been granted for the development of the Chelverton Land which (leaving aside clause 11) entitled Mr Hughes to further payments under clause 5 of the Chelverton Agreement amounting to £3M.

14

So far as the preparatory costs are concerned, it is common ground that as at the date of disclaimer the total amount of the preparatory costs had not as yet been finally ascertained (and it has still not been finally ascertained). On the other hand, there is evidence before the court (which Mr Hughes accepts, albeit only for the purposes of his summary judgment application) that the preparatory costs are currently running at such a level that if there were to be a set off under clause 11 his entitlement to the £3M would be wholly extinguished.

15

Groveholt contends that on the true construction of clause 11 Mr Hughes is entitled to the £3M under clause 5 only after setting off his liability under clauses 8 and 10, once the total amount of the preparatory costs is finally known; and that it is only that net entitlement which is secured by the Charge. Groveholt further contends, relying on the evidence as to the current level of the preparatory costs, that nothing is or will in the future be secured by the Charge: i.e. that the secured debt is, and will remain, nil.

16

Accordingly in the action, which was commenced on 12 March 2004, Groveholt seeks a declaration "that no sums are due to Mr Hughes that are secured by the Charge".

17

Mr Hughes joins issue with Groveholt's contentions. He contends that on the true construction of the Chelverton Agreement (and in particular of clauses 5 and 11) his entitlement to £3M under clause 5 was an accrued (i.e. vested) right at the date of disclaimer and as such was not affected by the disclaimer; whereas the disclaimer (alternatively Chelverton's insolvency) had the effect of bringing to an end its right of deduction under clause 11. Hence, he submits, Chelverton owes him £3M. He further contends that, notwithstanding the disclaimer, the Charge remains on foot as security for that debt. He accordingly applies for summary judgment to that effect as against Groveholt (but subject to a deduction of £250,000 on account of his possible liability under another provision of the Chelverton Agreement as to which there is, as he acknowledges, a triable issue).

18

On 10 June 2004 an order was made by consent under section 50 of the Law of Property Act 1925 releasing the Charge on the payment into court of £3.4M (representing the £3M to which Mr Hughes claims to be entitled under clause 5, plus interest).

19

As noted earlier, by his order the judge dismissed Mr Hughes' application for summary judgment. He went on to make a declaration in the following terms:

"[Mr Hughes] does not, by reason of the disclaimer of the Chelverton Agreement by the liquidator of Chelverton or otherwise, have any right to the payment as debts of the sums of money referred to in clauses 5.1.2, 5.1.3 and 5.1.5 of the Chelverton Agreement [i.e. the £3M] and accordingly such sums are not secured by the Charge."

20

The judge refused permission to appeal. However, permission was granted by Jacob LJ on the papers on 4 March 2005.

THE RELEVANT CONTRACTS

21

I can now return to the relevant contracts in more detail.

The Sainsbury Agreement

22

The price for the Sainsbury land was £7.3M plus VAT. £2.3M of that price was payable (and was paid) on completion of the Sainsbury Agreement, which took place on 30 January 1997. The balance of the purchase price, amounting to £5M, was to be placed by Sainsbury on "security deposit" and applied in defraying the costs of the infrastructure works (which were to be undertaken by Sainsbury, using a suitable...

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2 cases
  • Groveholt Ltd v Hughes and Another
    • United Kingdom
    • Chancery Division
    • 20 June 2008
    ...by Mr Hughes was also dismissed by the Court of Appeal (both the first instance and the Court of Appeal judgments are to be found at [2005] 2 BCLC 421). 9 A major argument raised by Groveholt before me is that in the light of the judgment of Mr Underhill QC and the Court of Appeal it is no ......
  • Groveholt Ltd v Hughes and Another
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 20 May 2010
    ...of the Sainsbury Agreement in that regard. 20 The judgment of Mr Nicolas Underhill QC was affirmed on appeal by this court ( [2005] EWCA Civ 897), though the declaration was varied to exclude the words “and accordingly such sums are not secured by the Charge” for the reason that those sums......

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