Oak Forest Partnership Ltd ((in Liquidation)) v Mercantile Investment Holdings SA (a company incorporated under the laws of St Kitts and Nevis)
| Jurisdiction | England & Wales |
| Judge | Jones |
| Judgment Date | 27 July 2023 |
| Neutral Citation | [2023] EWHC 1903 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: BL-2021-000102 |
[2023] EWHC 1903 (Ch)
I.C.C. JUDGE Jones SITTING AS A HIGH COURT JUDGE
Claim No: BL-2021-000102
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (Ch D)
Remote Hand-Down
Matthew Collings K.C. and Tim Calland (instructed by Howes Percival LLP) for the Claimants
Clifford Darton K.C. and Eleanor Vickery (by direct access for the Defendants)
Hearing dates: 10–12 and 15–18 May 2023
This judgment was handed down remotely at 10.00 am on 27 July 2023 by circulation to the parties or their representatives by email and by release to The National Archives.”
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.
………….. 27/7/23 ……………
I.C.C. JUDGE Jones
A) Introduction
A1) The Claims
This case concerns transactions, the grant of 999 year common parts leases, which followed the freehold purchases of “Hever Hotel” (“ Hever”) on 5 August 2011 by Oak Forest Partnership Limited ( “C1”) and of “Needham House Hotel” (“ Needham”) by Oak Property Partners Limited ( “C2”) on 28 March 2013. The aim of the purchases was for the properties to be run as hotels/conference centres and for the rooms to be sold to investors (“ the Investors”) on terms that they would also receive a part of the income generated by their respective rooms from the running of the hotel.
Whether these were collective investment schemes which should have been but were not subject to the regulatory protection of the Financial Services and Markets Act 2000 is a matter for another case. However, it is clear that such investments should be for sophisticated investors or for those relying upon professional advice because of the inherent risks (including reliance upon the actions of the hotel owner and/or of any managers used) and the legal issues involved. Sadly the Investors, many of whom live in the Far East, have discovered the risks of such investments the hard way. So too other creditors including those who lent to C1 to purchase Hever. C1 was placed into creditors' voluntary liquidation on 13 February 2017 and C2 on 21 June 2017.
On 23 May 2013 the first of the challenged 999 year leases demised the common parts of Hever (“ the Hever Common Parts Lease”) to White Linen Hotels & Resorts Limited (“ WL”). On 1 April 2015 the common parts and facilities of Needham were demised ( “the Needham Lease”) to Stevenage Conference Centre Limited ( “SCCL”). The claims are brought against the Defendants as successors in title to those lessees: Mercantile Investment Holdings SA ( “1D”), Hever Hotel Management Limited ( “2D”) and Hever Spa and Wellbeing Limited (“ 3D”) for the Hever Common Parts Lease; and Blakemore Hotels Property Holdings Limited ( “4D”) for the Needham Lease.
Therefore, although there is one claim form, there are two claims independently affecting each of the two separate properties owned by different legal entities. Similarities concerning the facts and matters of the separate causes of action have caused them to be brought and to continue to trial in one set of proceedings. Whether that was correct procedurally is now water under the bridge subject to the issue of court fees which is also not the subject of this judgment.
The purchase price paid to the unconnected third party vendor for the freehold of Hever by C1 was principally raised from unconnected lenders ( “the Hever Lenders”): as to £1 million from Silver Birch Developments SA, repayable on demand after 1 February 2012, and as to £1,107,851 from Northern Placements Limited, repayable on demand after 1 October 2012. The loans were agreed to be secured by a legal charge over the freehold ( “the Hever Lenders' Charge”) but either no charge was executed or the executed charge was not registered at H.M. Land Registry prior to the grant and registration of the Hever Common Parts Lease. On 28 June 2013 part of the freehold estate known as “Dairy Cottage” was transferred to C2.
For the purpose of running Hever as a hotel, C1 had entered into “the Hever WL Management Agreement” with WL on 1 July 2011. Hotel rooms were demised (“ The Hever Room Leases”) on 999 year leases at premiums to Investors between 21 October 2011 and 4 July 2014. Buy-back rights were granted to the Investors to be exercised at the end of the 4 th or 5 th years of purchase.
The Hever Common Parts Lease granted to WL just under two years later was made without a premium for a term of 999 years and seven days from 24 June 1997. The rent provisions can be summarised as £50,000 a year for five years, £100,000 for the next five, and annual increases of 12.5% for the remainder of the term. By a deed of variation ( “the Hever CPL Variation”) made 30 March 2015 the rent was reduced to a peppercorn if demanded. This too is a challenged transaction.
Four subsequent Hever transactions are also challenged: On 26 June 2015 1D was granted a charge over the Hever Common Parts Lease ( “the WL:1D Hever Charge”) as security for some £1.6 million lent to WL and for further advances. The monies lent were the sums collected by WL from Investors pursuant to purported lending by 1D to assist them purchase their respective Hever Room Leases. That lending was secured by legal charges over the demised rooms. On 29 December 2016, 1D in reliance upon the WL:1D Hever Charge took possession of the Hever Common Parts Lease demise. WL was placed into creditors' voluntary liquidation on 6 January 2017. On 15 June 2017 1D, as mortgagees in possession, sold the Hever Common Parts Lease to 2D.
On 10 August 2017, 2D transferred part of the demise used principally for the purposes of a spa to 3D (“ the Anne Boleyn Lease”). On 17 October 2017 the remaining Hever Common Parts Lease was transferred to 3D except for its demise of Dairy Cottage which remains registered in D2's name. All of those estates have been registered at H.M. Land Registry except, as mentioned, the Hever Lenders Charges and the Anne Boleyn Lease, although a separate title number for the latter has been conferred.
The pleaded claim resulting from the challenged transactions can be summarised as follows:
a) The Hever Common Parts Lease was granted without authority. As a result it was not granted by C1 and should be declared void. That is because those who executed the lease were not exercising the powers of directors for the purposes for which those powers were conferred and did not act in the way that they considered, in good faith, would best promote the success of C1 for the benefit of its members having regard to the matters listed within s.172 of the Companies Act 2006 ( “section 172 CA”). Instead, its grant was to prevent the Hever Lenders obtaining security of any value through the Hever Lenders Charge. There was no commercial purpose for the Hever Common Parts Lease on the terms granted. There was no premium paid.
b) In any event the Hever CPL Variation by reducing the rent to nil was for the purpose of depleting and depleted the value of C1's assets. Its only benefit was for WL. It too was an abuse of power and executed without authority.
c) The legal consequences of a void transaction flowed through to 1D, 2D and 3D in turn notwithstanding the registration of their title at HM Land Registry. That was because none of them can rely upon apparent or ostensible authority. None were purchasers for value acting in good faith and without notice of the fact that their predecessor held the title on trust for C1 absolutely. This arose due to their respective connections with C1 and its appointed director and shadow or acting director. In particular because all the companies concerned were run by Mr Ron Popely whose project this was and who controlled every aspect of it.
d) Even had that not been the position, the transfer of the Hever Common Parts Lease was void because C2 was not a party despite being the owner of part of the interest in reversion on the Hever Common Parts Lease as a result of the transfer of Dairy Cottage.
e) In the further alternative, an absence of consideration and the circumstances of the execution and assignment of the Hever CPL Variation meant it is a transaction for which the court should grant relief under section 423 of the Insolvency Act 1986 ( “section 423 IA”). It should be set aside taking into consideration the role and knowledge of the subsequent lease owners.
Insofar as those claims need to prove knowledge on the part of the Defendants, the Particulars of Claim assert:
a) Mr Ron Popely as a shadow director of C1 was at the centre of the decision to grant the Hever Common Parts Lease and of all later relevant decisions. Mr Paul Gould was an appointed director from incorporation to 28 July 2010, Mr Darren Popely (Mr Ron Popely's son) from 28 July 2010 to 11 July 2013, and Mr Stephen Dickson from 11 July 2013 until liquidation. They were accustomed to act in accordance with Mr Ron Popely's directions and instructions.
b) Mr Darren Popely was the director of WL who executed the Hever Common Parts Lease on its behalf, and Mr Paul Gould was its company secretary at the time. Mr Ron Popely was also a shadow director of WL. The knowledge of WL was the same as the knowledge of C1. The same applied when the Hever CPL Variation...
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