Multi Veste 226 B.v v Ni Summer Row Unitholder B.v and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lewison |
| Judgment Date | 29 July 2011 |
| Neutral Citation | [2011] EWHC 2026 (Ch) |
| Docket Number | Case No: HC10C01224 |
| Court | Chancery Division |
| Date | 29 July 2011 |
[2011] EWHC 2026 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr. Justice Lewison
Case No: HC10C01224
Mr. Alan Gourgey QC and Mr. Iain Pester (instructed by SJ Berwin LLP) for the Claimant
Mr. Jonathan Gaunt QC and Mr. James Cutress (instructed by SNR Denton UK LLP) for the Defendants
Hearing dates: 13,14,15,16,17,20,21,22,23,24,27,28,29,30 June, 1,4,5,13 July 2011
| Introduction | 3 |
| Multi's governance | 4 |
| Burden of proof | 5 |
| Approach to the evidence | 6 |
| Retailing in Wolverhampton | 7 |
| The factual background | 7 |
| The USA | 11 |
| Bank funding | 14 |
| Multi's assessment of the viability of the scheme | 14 |
| The run up to termination of the USA | 28 |
| The affordable housing | 34 |
| The Bank loan | 36 |
| Mezzanine finance | 39 |
| Appraisals and valuations | 40 |
| The DTZ Development Team | 40 |
| Cushman & Wakefield | 40 |
| Mr Harris | 41 |
| The DTZ Viability Appraisal | 41 |
| HBA-25 | 43 |
| The expert evidence | 43 |
| The outlines | 43 |
| Zone A rental values | 44 |
| Tenant incentives in December 2008 | 46 |
| Extent of pre-letting | 47 |
| Permanent voids | 47 |
| Mall Income | 47 |
| Car parking income | 48 |
| Yields | 48 |
| Residential | 49 |
| Purchaser's costs | 50 |
| Developer's contingency | 50 |
| Value in December 2008 | 51 |
| Viability | 51 |
| Did Multi lawfully terminate the USA? | 52 |
| If the NI Investors had provided the bank guarantees would the project have gone ahead? | 58 |
| Multi's position | 58 |
| Would the banks have lent at all? | 59 |
| If the banks had lent how much would they have lent? | 60 |
| Would Apollo have lent money? | 60 |
| Would the Council have agreed to waiver of the Commercial Conditions? | 61 |
| What would Multi have done? | 62 |
| If Summer Row had been build would Multi have made a profit? | 65 |
| The framework | 65 |
| Rental values in Q4 2011 | 65 |
| Tenant incentives in Q4 2011 | 67 |
| Permanent voids | 67 |
| Yields in Q4 2011 | 68 |
| Residential | 69 |
| Value | 69 |
| Finance costs | 69 |
| Interest | 69 |
| Multi's cost of capital | 69 |
| The £28 million subscription | 71 |
| The overall loss | 72 |
| Result | 73 |
Introduction
In February 2004 Wolverhampton City Council ("the Council") published a development brief for the regeneration of Wolverhampton Town Centre. In May 2004 Multi Development UK Limited ("Multi UK") were chosen as the Council's preferred developer. Multi UK worked up a scheme comprising two large units, five medium sized units (MSUs), 85 unit shops, an underground car park containing 758 spaces and 152 flats above the shops in the main shopping centre and above the shops fronting Victoria Street and Worcester Street. It was to be known as Summer Row. Multi UK entered into a Development Agreement, dated 4 October 2005 ("the Development Agreement"), with the Council. This provided that, subject to a number of conditions precedent, the Council would acquire the land needed for the site where Summer Row was to be built, and then grant a 250 year headlease, at a peppercorn rent, over the site to a special purpose vehicle limited liability partnership. In turn, Multi UK would carry out the "Development Works" (as defined in the Development Agreement). The Development Works as defined included the construction of the residential component, part of which was to consist of affordable dwellings.
One of the large units was intended to be a department store. Debenhams entered into a conditional agreement for lease of that store on 17 March 2006. On 27 July 2006 Multi UK were granted outline planning permission for the development. In the meantime Multi had been looking for investors to participate in the development. By October 2006 initial Heads of Terms were agreed between Multi and a consortium of Northern Ireland investors ("the NI Investors").
In September 2007, a Jersey Unit Trust was established to hold the development; and Multi Veste 226 BV ("Multi 226") and the NI Investors entered into a Unit Sale Agreement ("the USA"). Under the terms of the USA Multi 226 was entitled to sell a half share in the development at a price to be determined by multiplying rental income at Summer Row by a fixed yield of 5.85%, up to an agreed rental figure on a unit by unit basis. The buyer was to be NI Summer Row Unitholder BV ("the NI Unitholder"). The USA also provided for the funding of the development. This was originally contemplated as being a mixture of bank borrowing and equity participation by Multi 226 and the NI Unitholder respectively. Multi 226 and the NI Unitholder were to contribute £27 million each. If these contributions plus the bank lending turned out not to be enough, Multi was required to make up the shortfall. The USA provided for the NI Unitholder to provide bank guarantees to support the guarantees of the NI Investors themselves that the NI Unitholder would perform its own obligations.
By 3 February 2009 the bank guarantees had not been provided. The NI Investors now admit that that was a breach of contract. On that day Multi 226 alleged that the failure to provide the guarantees was a repudiatory breach of contract, and terminated the USA. The NI Investors retorted that Multi 226's purported termination of the USA was itself a repudiatory breach; and they in turn terminated the USA. The project to build Summer Row has since been abandoned. Multi 226 now sues for damages for breach of contract. Although the parties have identified no less than 31 issues, in essence they boil down to three:
i) Was Multi 226 entitled to terminate the USA when it purported to do so?
ii) Would the development have been built out if the bank guarantees had been provided?
iii) If the development had been built out would it have been profitable?
The story involves a number of interlocking themes. Unusually, I think that it is best understood in part thematically rather than strictly chronologically, although I will begin the narrative with a general view of the facts.
Multi's case was presented by Mr Alan Gourgey QC and Mr Iain Pester; while the NI Investors' case was presented by Mr Jonathan Gaunt QC and Mr James Cutress.
Multi's governance
Multi 226 and Multi UK are part of a group of companies, which are ultimately owned by Multi Corporation B.V. It is not usually necessary to discriminate between them; and except where it matters I use "Multi" interchangeably for all of them. The group's head office is in Gouda, the Netherlands. The group has developed and built over 150 developments, involving both offices and shopping centres and has won over 60 major international awards. As at December 2010, it was the second largest retail developer in Europe. Since January 2006 it has been largely owned by Morgan Stanley Real Estate Funds.
For each country in which Multi operates it has a country manager. The country manager for the UK was Mr Paul Sargent. Above the country manager is a regional manager. In the case of the UK the regional manager was Mr Glenn Aaronson, who was also Multi's CEO. Above the regional managers was the Executive Committee (or ExCom), on which Mr Aaronson also sat, together with other Multi personnel. Above the ExCom was the Investment Committee (or ICom), on which Mr Aaronson also sat together with other Multi personnel and representatives of Morgan Stanley. At the very top of the hierarchy was the Board of Directors on which Mr Aaronson also sat.
The various committees consider a formal investment proposal. Each investment proposal remains current until it is either approved or rejected. An investment proposal takes the form of a written presentation, backed by spreadsheets showing the financial implications of the proposal in question. A project of the size of Summer Row would have needed the approval of ExCom, ICom and the full board.
Burden of proof
It is common ground that the burden lies on Multi to show that the breach of contract by the NI Investors caused a loss. Whether Multi would or could have built out the development was not just a question of Multi's own wishes and capabilities. It would have needed to borrow money. There are two potential sources of lending which I will have to consider in due course: banks and mezzanine financiers. It is also common ground that the conditions precedent in the Development Agreement had not in fact been satisfied when the USA was terminated; and that the Council would have had to consent to their waiver. Thus Multi's ability to build out the development would have depended, in part, on decisions made by third parties.
In Allied Maples Group Ltd v Simmons & Simmons [1996] 1 WLR 1602 Stuart-Smith LJ explained that:
i) Where the wrong consists of an omission (as in the present case) causation depends, not upon a question of historical fact, but on the answer to the hypothetical question, what would the claimant have done if the wrong had not been committed? This can only be a matter of inference to be determined from all the circumstances. The claimant's own evidence that he would have acted to obtain the benefit or avoid the risk, while important, may not be believed by the judge, especially if there is compelling evidence that he would not. Although the question is a hypothetical one, the claimant must prove on balance of probability that he would have taken action to obtain the benefit or avoid the risk. But if he does establish that, there is no discount because the balance is only just tipped in his favour.
ii) In many cases the claimant's loss depends on the hypothetical action of a third party, either in addition to action by...
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