Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Lewison |
| Judgment Date | 09 November 2004 |
| Neutral Citation | [2004] EWHC 2547 (Ch) |
| Docket Number | Case No: HC03C02092 |
| Court | Chancery Division |
| Date | 09 November 2004 |
[2004] EWHC 2547 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr. Justice Lewison
Case No: HC03C02092
Charles Purle QC, Christopher Russell & Shelley White (instructed by Edwin Coe) for the Claimant
Christopher Nugee QC & Joanne Wicks (instructed by Linklaters) for the Defendants
Hearing dates: 13 th, 14 th, 18 th, 20 th, 21 st, 22 nd, 25 th, 26 th, 28 th, 29 th, October 2004
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.
Introduction
Baskerville House, Centenary Square, Birmingham was one of Birmingham's great civic buildings. It is named after John Baskerville, a Birmingham printer and the eponymous designer of the famous typeface. It was designed in 1935 by T Cecil Howitt in the Monumental Classical style. Construction began in 1938, but the war delayed its completion. It was to have formed part of a new civic centre, but the civic centre was never completed. Birmingham City Council own the building, and occupied it as municipal offices until 1997, when it became surplus to requirements. It is a big building, potentially consisting of a little less than 200,000 square feet.
At about the time that it was moving out, the City Council put on the market a proposal for the grant of a 250 year lease of the building, with a view to its development. Mr Ardeshir Naghshineh got to hear about this in the early summer of 1997. Towards the end of 1997 he submitted a development proposal to the City Council; and in November 1997 he learned that he was on the short list of three developers. As part of the proposal he offered £10.5 million for the lease. He made a presentation to the City Council in January 1998, and in April 1998 he learned that his offer had been accepted.
Lengthy negotiations with the City Council followed, and on 7 December 1999 they culminated in the entry into an agreement for lease.
Mr Naghshineh and Targetfollow
Mr Naghshineh is a civil engineer by training. However, he has been involved in the property world since about 1986, initially as a property broker. In 1992 he set up a company as a vehicle for property acquisitions. The current holding company is Targetfollow Group Ltd ("TGL"). The directors of TGL were Mr Naghshineh himself, Mrs Vanessa Fletcher (who is a chartered accountant and the finance director) and (probably) Mr Shapoor Naghshineh, who is Mr Naghshineh's brother (although the documents are somewhat confusing about this).
TGL has a number of subsidiaries. One of them is Bloomsbury Property Investments Ltd ("BPIL"), which owns an interest in the Holiday Inn Hotel in Bloomsbury, and an adjacent office building. Another is Targetfollow (Birmingham) Ltd ("TBL"), which was set up specifically to acquire the lease of Baskerville House. Apart from its interest in Baskerville House it has no significant assets. TGL has other subsidiaries too, but the details of these do not matter. Where it is not necessary to differentiate between TGL and TBL I shall use the expression "Targetfollow".
As at February 2002 the asset value of the combined group was of the order of £189 million, although there was secured lending in place to the extent of £114 million. Morgan Stanley was the lender. Its lending was secured by a first charge on the assets of the group. Mr Naghshineh was the largest (though not the majority) shareholder in the group.
The agreement for lease
The agreement for lease was made between the City Council and TBL. Neither TGL nor any of its other subsidiaries was required to guarantee TBL's obligations. The purchase price for the lease was £10,500,000. Under clause 3.1 TBL paid a deposit of £100,000. Clause 13 made the agreement conditional on obtaining planning permission for the development and subsequent use of the premises as a hotel; and the grant of an on-licence. Completion was to take place seven working days after the condition had been satisfied. The form of the lease agreed to be granted was annexed to the agreement. It contained a tenant's obligation to redevelop the building as a hotel and to complete the works within 24 months of the grant of the lease (although the City Council had power to extend time). It also required the payment of the premium of £10.5 million in stages:
i) £1 million on the grant of the lease (i.e. on completion of the agreement for lease);
ii) £4.75 million within 10 working days after practical completion of the redevelopment; and
iii) the remaining £4.75 million within twelve months after practical completion of the redevelopment.
Planning permission for the redevelopment and change of use was granted on 25 May 2000. In the events the agreement for lease was due for completion in February 2001. However, it was not then completed in accordance with its terms. On 28 February 2001 TBL paid the City Council a further £900,000, expressed to be a further deposit, in exchange for the postponement of the completion date to 28 September 2001. All this money was borrowed money, mostly from outside sources. By a further agreement made on 23 October 2001 the completion date was again extended, this time to 4 January 2002. In exchange for this extension, TBL agreed that:
i) The first instalment of the premium, payable on the grant of the lease, would be increased from £1 million to £3 million;
ii) The second instalment of £4.75 million would be paid by 1 July 2003; and
iii) The balance (now reduced to £2.75 million) would be paid by 1 July 2004.
However, since TBL had paid a deposit and further deposit totalling £1 million, the balance of the first payment of the premium due on the grant of the lease was in fact £2 million. TBL had also spent money on professional fees and finance costs. The total costs committed amounted to some £2.3 million by February 2002.
In the meantime (on 2 May 2001) the building had been listed as a building of special architectural or historic interest.
Completion
TBL did not complete on the contractual completion date of 4 January 2002. So on 9 January 2002 the City Council served notice to complete, specifying a completion date of 31 January 2002, and making time of the essence of the contract. TBL did not have the £2 million it needed to complete. It needed to find it by the expiry of the notice to complete (which was in the event extended until 4 and then 5 February), otherwise it was at risk of losing its deposit and the development opportunity afforded by the deal.
Completion finally took place on 5 February when TBL paid the City Council the balance of the first instalment of premium amounting to £2 million. As I have said, TBL did not have £2 million. TGL also needed a further £500,000 for working capital. The money came through the good offices of Mr Malvinder Singh from two companies called Kilcarne Holdings Ltd ("Kilcarne") and Rosedale Ltd ("Rosedale"), which are ultimately owned by trustees of an offshore trust under which Mr Singh is one of the class of beneficiaries.
The issues
This case is concerned with the basis on which the money was made available to TBL, and the legal consequences following from that. I am concerned with questions of liability only. Mr Charles Purle QC, Mr Christopher Russell and Ms Shelley White appeared for Kilcarne; and Mr Christopher Nugee QC and Ms Joanne Wicks appeared for Targetfollow.
More specifically, the main issues I have to decide are:
i) Whether the dealings in early February 2002 between Mr Naghshineh and Mr Singh constituted a legally enforceable agreement between Kilcarne and Targetfollow for a joint venture for the development of Baskerville House;
ii) Whether any equity has arisen in Kilcarne's favour as a result of those dealings and, if so, how it should be satisfied;
iii) Whether TBL is under a duty to Kilcarne to progress the development with due dispatch;
iv) Whether Kilcarne is entitled to compensation (on a quantum meruit) for services provided by Mr Singh in connection with the development of Baskerville House.
There were other issues raised on the pleadings, but these fell away in the course of the trial.
Mr Singh, Kilcarne and Rosedale
Mr Singh's academic background is in commerce and business administration. He has been in the property world for some time. For many years he ran a large construction company in Iraq. His and his family's business interests are organised through off-shore trust arrangements. The principal trust is the Jadriya Trust. It is a discretionary trust for Mr Singh and his family and was established by Mr Singh as settlor. He also wrote a letter of wishes to the trustees, indicating that he wished them to administer the trust during his lifetime in accordance with his wishes. At the time of the events in question the trustee of that trust was Standard Chartered Grindlays Trust Company. The trust owns the share capital in a BVI company called Daphne Caprice Company Inc. The shareholders in Kilcarne are two nominee companies bearing names associated with Standard Chartered. It is said that Daphne Caprice is the ultimate owner of both Kilcarne and Rosedale; but the precise structure of ownership is obscure. Daphne Caprice is also said to own another company called Josten Ltd, which features briefly in the story. The principal activity of these companies in the UK (when they are active at all) is investing in property (not development). Mr Singh is at pains to point out that he does not control Daphne Caprice and is not a director of or otherwise connected with Kilcarne or Rosedale. Although Kilcarne and...
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