Grupo Hotelero Urvasco SA v Carey Value Added SL
| Jurisdiction | England & Wales |
| Judge | Mr Justice Blair |
| Judgment Date | 24 June 2013 |
| Neutral Citation | [2013] EWHC 1732 (Comm),[2013] EWHC 1039 (Comm) |
| Docket Number | Case No: 2009 FOLIO 931 & 2009 FOLIO 1692 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 24 June 2013 |
[2013] EWHC 1039 (Comm)
Mr Justice Blair
Case No: 2009 FOLIO 931 & 2009 FOLIO 1692
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Duncan McCall QC and Mr Tom Smith (instructed by Hogan Lovells LLP) for the Claimant in Folio 931 and the Defendant in Folio 1692.
Lord Grabiner QC, Mr Manus McMullanQC, Mr Andrew De Mestre and Mr Douglas Paine (instructed by Mayer Brown LLP) for the Defendants in Folio 931 and the Claimant in Folio 1692.
Hearing dates: 29-31 October 2012; 2, 5-9, 12-16, 19-23, 26, and 30 November 2012; 3-6, 10-13, and 17-18 December 2012; February 6-8 2013
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.
CONTENTS
| Paragraph Numbers | |
| What the case is about | 2 |
| The proceedings | 11 |
| The parties | 30 |
| The project starts | 42 |
| The worsening economic climate | 72 |
| Carey comes on the scene | 94 |
| The agreements are entered into between GHU and Carey | 111 |
| The first part of 2008 | 126 |
| Carey suspends payment | 215 |
| Events following suspension of the advances | 242 |
| Issues of Spanish law | 286 |
| Material adverse change (MAC) | 321 |
| Alleged default in beginning negotiations for rescheduling | 559 |
| Further alleged BBVA defaults | 599 |
| Carey's case as to alleged "development defaults" | 613 |
| 626 |
| 673 |
| 738 |
| 741 |
| 811 |
| GHU's relief from liability to repay in case of Carey's breach | 826 |
| Carey's claim: quantum | 831 |
| GHU's damages claim | 841 |
| Overall conclusion | 957 |
| Annex – Letter agreements of 21 October 2008 and 21 November 2008 |
This is a claim by Grupo Hotelero Urvasco S.A. ("GHU"), which is a Spanish hotel company, against Carey Value Added, S.L. ("Carey"), which is a Spanish fund which invests in hotels. Carey has a counterclaim, and it has also brought its own claim against Grupo Urvasco S.A. ("GU") as guarantor.
What the case is about
The dispute arises between GHU as borrower and Carey as lender. It relates to the development of a hotel and apartments on the site of the old Marconi Building, which is a prime site on the corner of Aldwych and the Strand in central London. The site was bought in 2004 by Urvasco Ltd, an English subsidiary of GHU which was set up as the vehicle for the development. Carey came on the scene in 2007, when GHU had difficulties increasing its bank finance. Various agreements were entered into on 21 December 2007, including a Loan Agreement. Had the agreements run their course, at completion, Carey would have acquired the property under a Share Purchase Agreement, subject to a leaseback to GHU, which would have had an option to repurchase after seven years.
In short, GHU claims damages against Carey for failing to advance funding under the Loan Agreement. (The other defendant is Carey's nominee company London Value Added I Ltd which plays no independent role in the proceedings.) Lending stopped in June 2008. GHU says that the failure to lend any more money was in breach of contract, and that it starved the development of funding at a time of tight credit and thereby caused its failure. Work on the development stopped in September 2008.
GHU's claim is based on the premise that, but for Carey's breaches of the Loan Agreement, completion would have taken place under the contractual arrangements between the parties on time. GHU says it lost the profits it would otherwise have earned on the hotel's operation, and incurred extra loss over and above the loss that it accepts would have been incurred on the development anyway. Its damages claim was valued in closing (on the basis of an exchange rate of £1 = €1.16) at about £71.38m.
On its side, Carey says that it was not in breach, because it was not obliged to continue to lend. This is because GHU was in default within the terms of the Loan Agreement. Carey's case at trial had two parts. The first part concerned alleged "financial defaults" arising from the financial difficulties in which it says the Urvasco group found itself in 2008. These were associated with the collapse in the property market in Spain. This part of the case raises significant issues as to the application of the "material adverse change" clause that routinely appears in corporate loan agreements internationally. The second part concerns alleged "development defaults" relating to the London development, which is effectively a construction case added during the course of the litigation.
Carey counterclaims against GHU for repayment of €55.4m advanced under the Loan Agreement (a figure that includes interest up to 23 December 2009). It also claims against GU under a guarantee. It is not in dispute that GU's liability is coterminous with that of GHU, and no separate issues arise in this respect.
There were, therefore, three cases within this trial, each of which was substantial in its own right. However, there was no doubt as to the central battleground. In opening, both sides were agreed that the main issue was whether or not GHU was in default within the terms of the Loan Agreement as at 6 June 2008 when Carey was due to advance a tranche of the loan, but did not do so.
If GHU was not in default, it says that Carey was in breach of contract and is liable to pay damages. Further, GHU was relieved of the obligation to repay what had been advanced under an exculpatory clause in the Share Purchase Agreement (clause 6.17). (Carey says that the clause in question is void as a penalty.) It has an alternative case to the effect that it can set off its damages claim to extinguish any liability to repay the sum advanced.
If GHU was in default, Carey says that it was entitled to withhold further advances, and is entitled to repayment of what it had advanced by 6 June 2008.
Within these apparently straightforward parameters a large number of issues and sub-issues have been raised arising under both English and Spanish law, involving complicated factual and expert evidence, some relating to the financial state of the Urvasco group, some relating to the building project. Each side submits that the other is precluded under Spanish law from relying on points that might otherwise be open to them. The case is notable for the number of issues, both factual and legal, advanced by the parties at trial (particularly Carey).
The proceedings
There are two actions, and they have been ordered to be heard together. On 9 July 2009, GHU commenced the first action against Carey (2009 Folio 931) though it was not served until later in the year. The claim is for declaratory relief in respect of GHU's right to rescind the Share Purchase Agreement pursuant to the exculpatory clause 6.17. If successful, the effect is to cancel the indebtedness under the Loan Agreement. GHU also claims damages in respect of Carey's breaches of the Loan Agreement which exceed the sums advanced in respect of which it claims a set off. Carey filed a counterclaim claiming repayment of the sums which it advanced under the Loan Agreement.
On 29 December 2009, Carey commenced the second action against GU (2009 Folio 1692) claiming payment under a guarantee also dated 21 December 2007. GU's defence to this claim is that, as guarantor, it is entitled to avail itself of the defences which are available to GHU, as principal debtor. On 23 July 2010, I dismissed Carey's application for summary judgment which had been made on the basis that the guarantee was a first demand guarantee and therefore payable without regard to the underlying contract (see [2011] 1 B.C.L.C. 352). As already indicated, it is not now in dispute that GU's liability under the guarantee is coterminous with that of GHU.
The summary judgment proceedings were the first of a considerable number of interlocutory disputes between the parties. The start date of the trial was postponed on two occasions. GHU says that to a large extent these difficulties have been caused by the changing, and expanding, case which GHU has had to face, involving an increased reliance on construction-based as opposed to financial issues. It is correct, it appears to me, that Carey's construction-based case has arisen and been developed substantially during the course of the proceedings. Carey responds that so far as this is so, it is because of late disclosure of matters about which it should have been told at the time. I do not intend to debate this further in the present judgment, in case it is relevant to the question of costs.
The trial
Although well over two hundred bundles were prepared for the trial, in the event the documentary evidence consisted of those documents referred to during the hearing. In accordance with my direction at a preliminary hearing on 25 October 2012, these were extracted from the trial bundles as the evidence progressed and put into (eleven) core bundles. In their closing submissions, both GHU and Carey made reference to further documents (in GHU's case, running to two files).
There are a few points to make on the documents. When reading the text of emails and so forth referred to in this judgment it should be borne in mind that...
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