Quay House Admirals way Land Ltd v Rockwell Properties Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Simon Gleeson |
| Judgment Date | 11 March 2022 |
| Neutral Citation | [2022] EWHC 545 (Ch) |
| Docket Number | Case No: PT-2021-000971 |
| Court | Chancery Division |
[2022] EWHC 545 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND
AND WALES
PROPERTY, TRUSTS AND PROBATE LIST (CHD)
7 Rolls Buildings
Fetter lane, London
EC4A 1NL
Mr Simon Gleeson
Sitting as a Deputy High Court Judge
Case No: PT-2021-000971
Joanne Wicks Q.C and Jonathan Chew (instructed by Stephenson Harwood LLP) for the first and second Claimants
Jonathan Seitler Q.C. and Harriet Holmes (instructed by Gowling WLG (UK) LLP) for the Defendant
Hearing dates: 21 and 22 February 2022
APPROVED JUDGMENT
This case is but one stage of a larger dispute between the parties to a proposed property development. The development – Quay House — is a substantial project, which would have on completion a developed value in excess of £200m. The claimants are two investment vehicles administered by Firethorn Trust, a property investor. The first claimant is currently the owner of the property, the second is the business entity (referred to in the contract documents as the “DevCo”), and the defendant is the developer. The dispute arises out of the development agreement made between them (the Planning and Development Management Agreement, or “PDMA”). The claimants have purported to terminate the PDMA, and seek to continue the development with other developers, excluding the defendant.
The key provision of the PDMA for the purpose of this action is a provision requiring the entry in the land registry of a restriction on the title to the property which could, in some circumstances, give the defendant the power to restrain or prevent the project from proceeding. In this action, the claimants ask for that restriction to be removed, on the basis that the project cannot proceed whilst the risk of this power being exercised continues to exist. The defendant's case – in a nutshell – is that since what has happened is the very thing that the restriction was intended to protect them from, it would be wrong for it to be removed at this stage.
Before beginning, it may be helpful to set out the logical framework of what follows. This is an interim application, and the primary question of whether the PDMA is on foot or not is still to be decided. The claimants in this application therefore – quite properly – begin by assuming against themselves that they are wrong on their primary contention that the contract is terminated. In that case, they say, the express provisions of the contract itself require the defendants to consent to the removal of the restriction, and the court should therefore order the restriction to be removed. However, they also engage with the question of what the position is if the contract does not so provide – either because that is not the effect of its provisions, or because those provisions have fallen away along with the contract. They therefore ask, in the alternative, for an order removing the restriction to be granted as an interim remedy exercising the inherent jurisdiction of the court to amend the register. They therefore seek the same relief by two different logical routes.
It is first necessary to set out the factual background and the relevant contractual terms.
The Facts
On 29 June 2018 the claimants and the defendant entered into an agreement for the development of Quay House, near Canary Wharf in London (the “Property”). The Property is a half-acre site, and the development project (the “Development”) was to be a 400-bedroom hotel and a 279-bed serviced apartment 35-storey building. The first claimant (“C1”) is the landowner, and the second claimant (“C2”) is its parent company.
The agreement entered into was the PDMA This agreement was entered into between C1, C2 and the defendant. The essence of the PDMA was to appoint the defendant as developer, and specify the services which it was to perform in that role. These included formulating strategy, ensuring that the project documents represented a practicable plan for meeting critical dates, and, importantly, assisting with any Funding Arrangement (Schedule 2 Part 1 para 10). The agreement provided that the defendant would be paid fees of £1.5m. The “Business Plan” was annexed to the PDMA.
Importantly, the PDMA was a pure consultancy agreement. Profits were addressed in a separate agreement entitled the Profit Share Agreement (“PSA”). This was an agreement entered into between MCCI S.a.r.l., a company incorporated in the Principality of Monaco and the parent company of the defendant (“MCCI”) and C2, whose primary function was to set out a “profits waterfall”, which allocated profits on the development between the parties thereto in agreed proportions.
The proposed course of the transaction was one common to most large developments of this kind. The first stage involved the completion of a significant amount of paperwork; obtaining the necessary licences, leases and – critically – planning and other governmental permissions for the project. This was to be paid for by the parties to the PDMA. This stage has been completed. The second stage is the actual construction phase. This involves making an agreement with a construction company for the construction, and raising the finance necessary for that construction from external financiers. It is the commencement of this second stage which the Claimants say is held up by the existence of the defendant's restriction.
Funding for the second phase of a development of this kind can be structured in a number of different ways. However, in this case the parties agreed that it should be raised through “forward funding”. In a forward funding transaction, the building concerned is prelet or presold to the eventual occupier. The finance required for construction is then raised from a bank or other financial institution, secured on the value of the building itself and the revenue streams to be derived from the forward letting or sale. The pre-let or pre-sale agreement will contain terms which permit the eventual occupier to charge penalties if construction is delayed, or, in extremis, to terminate the arrangement altogether.
As noted above, the Quay House development itself is intended to have two distinct parts, one of which is to be built as a hotel, and the other as flats. The hotel part has been pre-let to Premier Inn, a member of the Whitbread group. The agreement to enter into this lease (the “AfL”) was signed on the same day as the development agreement — 29 June 2018.
The AfL contains obligations to commence and diligently proceed with the development works with a “Target Date” for completion 54 months from the “Unconditional Date”. Thereafter liquidated damages are payable at £30,000 per week. If completion has not occurred by a longstop date 78 months from the Unconditional Date, Premier Inn can terminate the AfL. The Target Date is the 30 th June 2025 and the longstop date the 30 th June 2027. The estimated build time (without contingency) is 2.5–3.5 years.
These terms therefore create significant financial risks if the project is not completed in a timely manner.
By 2 June 2021 the parties had fallen out, and the claimants served notice on the defendant that they regarded it as in breach of its obligations under the PDMA, and that that contract had therefore terminated. The defendant denies that there has been any breach of the contract, or that the claimants have any basis on which to serve such a notice, and regard the contract as ongoing.
Since the claimants own the Property, they have continued to progress the development, and have appointed another developer. The problem that they face is that the construction stage cannot be commenced until the necessary finance is raised.
The obstacle to the raising of this finance is, they say, the existence of a restriction on the title to the property at the land registry. The registration of this restriction was agreed between the parties in the PDMA. The relevant provision of the PDMA (in which the “Developer” is the defendant, and the “Owner” is the first claimant) reads in its entirety:
6.2 The Owner shall not sell the whole or any part of the Property otherwise than:
a) 6.2.1 in accordance with this Agreement and the Business Plan;
b) 6.2.2 as directed by the DevCo in accordance with clause 5.4;
c) 6.2.3 as directed by the Developer in accordance with paragraph 2.1 of Schedule 5.
6.3 The Owner agrees with the Developer for a restriction to be entered onto the proprietorship register of the title to the Property in the form of the restriction set out below (or as close thereto as the Land Registry shall permit):
d) “No disposition of the registered estate by the proprietor of the registered estate or by the proprietor of any registered charge, not being a charge registered before the entry of this restriction, is to be registered without a certificate signed by solicitors acting for the Owner and the Developer that the provisions of clause 6.2 of an agreement dated [•] made between [the Owner], [the DevCo] and [the Developer] have been complied with or that they do not apply to the disposition”;
As the draftsmen seem to have anticipated, this form of words was challenged by the land registry, and the restriction eventually registered read as follows:-
“No disposition of the registered estate by the proprietor of the registered estate or by the proprietor of any registered charge, not being a charge registered before the entry of this restriction is to be registered without a certificate signed by a conveyancer that the provisions of clause 6.2 of [the PDMA] have been complied with or that they do not apply to the disposition.”
It is, I think, accepted by both parties that a forward funding arrangement in respect of the Property could only be completed...
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