PETROL (PASSIVE EMISSIONS TESTING RESEARCH ORGANISATIONS LABORATORIES) Ltd v INDUSTRIAL PROPERTY INVESTMENT FUND
| Jurisdiction | England & Wales |
| Judgment Date | 15 March 2006 |
| Neutral Citation | [2006] EWHC 2219 (Ch) |
| Docket Number | TLC/490/05 |
| Court | Chancery Division |
| Date | 15 March 2006 |
[2006] EWHC 2219 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
His Honour Judge Weeks QC
(Sitting as a Deputy Judge of The High Court)
TLC/490/05
MR STEPHEN RUBIN QC & MR DAVID MURRAY appeared on behalf of the CLAIMANT
MR TIMOTHY FANCOURT appeared on behalf of the DEFENDANT
Folios: 113
Words: 8,193
THE DEPUTY JUDGE: This case concerns, first, the effectiveness of a notice to exercise an option and, secondly, a claim to rectify the written terms of the option itself.
Mr Noel Carroll is a very successful Australian inventor and entrepreneur. He and his two brothers have various businesses in the UK, the US and Australia, primarily in the field of petrochemicals. The claimant, which I shall call Petrol, is a UK company set up by Mr Carroll in 2003 to provide specialist testing services in the UK to assist the other businesses.
Petrol needed space for a laboratory in the UK, preferably in London. In October 2003 Mr Carroll told Mills and Wood, commercial estate agents, of Petrol's requirements. Mr O'Donovan of that firm took him to see two properties in Park Royal. One turned out fairly quickly to be too small to be suitable, but Mr Carroll continued to be interested in the other one, at Whitby Avenue, which was for sale at £1.2 million. Mr O'Donovan then showed Mr Carroll Unit 1 on Northolt Trading Estate, owned by Legal and General through the defendant, which I shall call IPI. Mr Carroll quickly offered £1.5 million for the property at Northolt, which IPI rejected. On 24 March Mr Carroll offered £1.75 million, which was accepted.
Mills and Wood prepared a memorandum of sale of the Northolt property which they sent on 22 April to McFarlanes, IPI's solicitors, and Howard Kennedy, Petrol's solicitors. The memorandum identified the vendor, the purchaser and their respective solicitors, described the property demised as Unit 1 at Northolt, including a triangular plot at the side, gave the term as a new 999-year lease at an annual rent of £100 and the purchase price as £1.75 million plus VAT. Exchange of contracts was to take place by 30 April with completion on 7 May. Mr Carroll paid a reservation fee of £5,000 and McFarlanes sent a draft lease to Howard Kennedy on 29 April. On 4 May Howard Kennedy asked for a reply to standard inquiries.
In June Mr Carroll began to get cold feet, partly because of difficulties with the site at Northolt and partly because of the need to use his available funds elsewhere. However, he e-mailed Mr O'Donovan on 9 June:
"We had a good meeting with the bank and things are looking favourable. Due to the high environmental conditioning charges, air conditioning and humidity legislation, we are running over budget with this project and more funding is required. We are also intending to add a second sale earlier than was originally budgeted for. Low acoustic sound levels imposed by the London Borough of Ealing add further financial commitments for us to meet the low levels imposed. The prospect of us taking the building still looks good." [Quotation unchecked.]
Mills and Wood told him that if contracts were not exchanged by 23 July the papers would be withdrawn. On 12 July Mr Carroll obtained a valuation of the Northolt property from Savills in the sum of £1.8 million. He sent it to the Royal Bank of Scotland but the bank would only lend £1 million, saying in an e-mail of 12 July:
"The valuation has now been received. This matches the purchase price of £1.8 million, which at least allows you a degree of confidence that you are paying the correct price for the asset. Whilst this is obviously of importance, the main figure I was waiting for, which will influence the level of our advance, is the open market rental value. In the absence of trading information, this is the figure which I must take to marry up with ( inaudible) servicing costs for the loan. The figure in question comes out at £103,000 per annum, which matches almost exactly the servicing requirement for £1 million over a 15-year term." [Quotation unchecked.]
Mr Carroll then spoke to Mr O'Donovan who advised him to contact Julian Benkert of the Eastern Group who were developing the Northolt Estate for IPI. Mr Carroll did contact Mr Benkert and went with his brother Bill and Mr Benkert to see the Northolt property again in the summer of 2004. Bill Carroll thought the property was too expensive and said so to Mr Benkert. Mr Benkert suggested an occupational lease with delayed completion. On 15 July Mr Carroll e-mailed Mr O'Donovan at Mills and Wood:
"Thank you for putting me in touch with Julian Benkert. As I mentioned to you, we were intending to purchase this property in June without the use of bank finance. However, because of a political event that happened in the Middle East in June this caused us to have a protracted cash flow. To get the programme going to put together the world's foremost vehicle emissions lab we approached RBS re financing the building purchase. They agreed to a 77 per cent loan subject to valuation. We paid their valuers, Saddles, £3,500 to have the valuations completed.
"You have received the report from the RBS re the valuation. The rental figure was nowhere in line with your thinking so they have asked us to place £400,000 in escrow to support the loan. This has provided us with a shortfall of £400,000. The suggestion by Jules [Mr Benkert] yesterday was considered by our directors and we feel there is a deal to be done to get the project rolling.
"Our observations are: (i) the document exchange with delayed completion is a reasonable idea provided we do not run up against a time barrier of getting the project installed. For this reason we feel that to have completion nominated date being 1 April 2005 instead of 1 January is essential.
"(ii) The daily rent of £350 per day is not in line with the figures of £9.75 per square foot that you expect to get on the high ( inaudible) project. If we take the £9.75 and discount it by 10 per cent, as we will have to pay you 10 per cent up front on document exchange, then £8.77 per square foot works out at £289 per day until final completion.
"(iii) If a delay occurs on completion from either side what will be your position? This was not clear and we need some guidelines if a breach occurred. We do not intend to be able in November to complete, however, we do not want to be in a position of wipe out if delays occur, keeping in mind we will need to spend £370,000 on the air conditioning and are fitting the building with over £1,660,000 of computing equipment." [Quotation unchecked.]
Mr O'Donovan replied on 20 July suggesting deferring completion to 25 March 2005 and a daily rent of £300 in the meantime. He said:
"To accommodate you my client is willing to consider the following deal: to exchange contracts on the purchase a payment of 10 per cent must be made. Thereafter you will be granted a tenancy at will paying a rent equal to £300 per day. This will allow you to occupy and fit out the unit and thus start your new business. You will also have to deposit £50,000 in an escrow account if you default on completion. Completion no later than 25 March 2005. However, to proceed you must also pay a further reservation fee of £10,000. This will be deducted from the purchase price, thus granting you until 13 August 2004 to exchange contracts." [Quotation unchecked.]
The original time limit of 24 July arrived and Howard Kennedy returned the documents to McFarlanes. On 27 July Mr Carroll told Mr O'Donovan that he still wanted to proceed with the purchase of the Northolt property. Mr O'Donovan told Howard Kennedy that his clients had lost patience, but he, Mr O'Donovan, still wanted to do the deal. Howard Kennedy told McFarlanes that Mr Carroll did still hope to proceed. McFarlanes asked for a further reservation fee. Mr Carroll then had further discussions with Mr O'Donovan and on 31 August sent him an e-mail:
"I have spoken to our shareholders [by which Mr Carroll meant his brothers] re the proposal. (i) I suggest £115,000 per year lease plus VAT, service charge, et cetera. (ii) A 20-year lease. (iii) Option to buy for ten years but fixed at £1.75 million for three years. The price increase past that date would be at independent valuation by three valuers. (iv) Deposit would be £60,000 plus VAT, of which £5,000 already paid. Finish contract as soon as possible by the lawyers but actual start date 31 August 2004. This is in the ballpark. We can conclude right away." [Quotation unchecked.]
Mr O'Donovan replied on Friday 3 September:
"I set out below my reply to your counter offer using the same numbering for ease;
Subject to contract and landlord's board approval:
(i) agreed,
(ii) agreed,
(iii) not agreed. My clients will grant you an option to purchase on 25 March 2005 or earlier at £1.75 million plus VAT or at a later date. Purchase price will be calculated by applying an interest rate, for a finite date must be stated as we are offering an option.
(iv) Not agreed. Our clients require £115,000, one year's rent, as Petrol is a new company. Please note that the £5,000 paid was to reserve the unit until 30 April 2004. That date has now expired and therefore the reservation fee has reverted to my clients, of which the majority will have gone to pay the aborted legal costs incurred.
(I am still eager to close a deal with you, but you must appreciate that four months have passed with no action so let us try and agree points (iii) and (iv) in the...
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