Queen's Moat Houses Plc and Another v Capita IRG Trustees Ltd
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Lightman,Mr Justice Lightman |
| Judgment Date | 27 April 2004 |
| Neutral Citation | [2004] EWHC 868 (Ch) |
| Docket Number | Case No: HC 04C0052 |
| Court | Chancery Division |
| Date | 27 April 2004 |
[2004] EWHC 868 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Honourable Mr Justice Lightman
Case No: HC 04C0052
Mr Ewan McQuater QC (instructed by Freshfields Bruckhaus Deringer, 65 Fleet Street, London EC4Y 1HS) for the Claimants
Mr Gabriel Moss QC and Ms Felicity Toube (instructed by Slaughter and May, One Bunhill Row, London EC1Y 8YY) for the Defendant
Hearing dates: 24 th-25 th March 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
Mr Justice Lightman:
PRELIMINARY
This action is a claim by the Claimants Queen's Moat House Plc ("QMH") and Norfolk Capital Hotels Limited ("Norfolk"), which is one of the subsidiaries of QMH, for a declaration that upon the true construction of a Trust Deed dated the 12 th December 1983 as subsequently amended ("the Trust Deed") they are entitled to withdraw as security from the charge created by the Trust Deed the lease of the Royal Court Hotel in Sloane Square London ("the Sloane Property") which is vested in Norfolk. The Defendant Capita IRG Trustees Limited ("the Trustees"), which is the recently appointed replacement trustee of the Trust Deed, opposes the application.
The Trust Deed is a deed entered into by QMH (therein referred to as "the Company") and subsidiaries of QMH to secure the issue of debenture stock by QMH which matures on the 1st October 2020. The Trust Deed contains detailed provision for maintenance of a security cover for stockholders of the value between 150% and 175% of the nominal stock outstanding ("the Relevant Security Percentage"), for topping up the security cover if the value of the security falls below the minimum 150% cover, for withdrawal of security to the extent that the value of the security cover exceeds 175% cover and (in clauses 11A and 11B) for substitution of alternative security approved by the Trustees of equal value for property charged. Clause 1 of the Trust Deed is a definition clause and in that clause there is the critically important definition of the term "value". In a word the clause defines value as the value ascribed by a valuation subject to a proviso ("the Proviso") that no value shall be attributed to any leasehold property provided as security if the term of the lease expires before the date that is 45 years after the final maturity of the stock in 2020. Such a leasehold is referred to as "a short leasehold".
The lease of the Sloane Property is for a term of 65 years expiring on the 24 th June 2042 and is accordingly a short leasehold. The current security cover for stockholders provided by a portfolio of hotels is 153% of the nominal stock outstanding. This level reflects the open market value of the portfolio of hotels on a going-concern basis.
In dispute in this action is whether the Claimants are entitled under the terms of the Trust Deed to substitute nil for the Sloane Property and obtain its withdrawal from the charge subject only to paying the costs of the transaction.
The Claimants are in financial difficulties and are anxious to be able to deal with the Sloane Property free from the constraints imposed by the Trust Deed and in particular in a manner enabling QMH to raise the wherewithal to make payments due to stockholders. The Trustees are anxious to retain the Sloane Property as security because the present level of security cover, though above the minimum 150% cover, is inadequate in case of a hotel group in financial straits, for forced or distress sale prices are unlikely to be obtainable which anywhere approach the current open market going-concern value of the hotels.
In this judgment I shall first give an overview of the relevant history and facts. I shall then give detailed consideration to the terms of the Trust Deed and consider in turn the issues of construction and estoppel.
FACTS
On the 4th November 1993 a valuation was completed by Jones Lang Wootton ("JLW") at the request of the Trustees, which valued the property mortgaged under the Trust Deed ("the Specifically Mortgaged Property") at £137.5 million. Clause 10 of the Trust Deed provided that, if the value of the Specifically Mortgaged Property was less than 150 per cent. of the nominal value of the stock outstanding and QMH did not within 6 months make good the deficiency, there should be a default entitling the Trustees to enforce the security. The valuation of JLW indicated that there was a shortfall of £178.5 million.
By reason of its financial difficulties QMH was unable to make good the deficiency. QMH was therefore in default. As an inducement for the agreement by the stockholders to agree a waiver of the default and as consideration therefore, shortly before the 5 th November 1993 QMH agreed with the Trustees to procure the grant to the Trustees as part of the Specifically Mortgaged Property of fixed first legal charges over four properties which were the subject of floating charges and were valued on an open market existing use value at £7.2 million. The grant of the fixed charges would reduce the shortfall in security by this sum. One of these four properties was the Sloane Property which was vested in Norfolk. The view of QMH and Norfolk was that, since the four properties were already the subject of floating charges, there was little to be lost by giving the Trustees the benefit of fixed charges. But the provision of the fixed charges was perceived to be a gain by the Trustees and the stockholders. At a meeting on the 30 th November 1993 the stockholders, informed of the agreement of QMH to procure the grant of these fixed charges, voted to direct the Trustees to waive until March 1994 their right to enforce the security on the grounds of the default.
Both the Trustees and QMH wanted the four properties brought into charge as soon as possible notwithstanding that the certificates of title were not available at the date of charge, and the Trustees accordingly agreed that the properties could be brought into charge with no certificates of title or valuations. On this basis the four properties were charged to the then current Trustees (Guardian Royal Exchange Assurance plc) by a Deed of Assurance made on the 8th March 1994 between QMH, Five Star Inns Limited, Norfolk and the Trustees ("the Deed"). The Recital to the Deed stated that the Deed was supplemental to the Trust Deed and in clause 2 the Deed provided that the four properties were charged by way of first legal mortgage "to the intent that the same shall henceforth form part of the Specifically Mortgaged Property and be held by the Trustees upon and subject to the trusts and provisions declared by and contained in these presents relating to the Specifically Mortgaged Property".
In March 1994 the stockholders voted to extend the waiver of the default until the end of June 1994. It may readily be inferred that the execution of the Deed was part of the inducement for such extension.
In May and June 1994, JLW provided the Trustees with a valuation of the properties then charged by QMH and its subsidiaries to the Trustees for the purposes of assessing the security cover. The 1994 Valuation included the Sloane Property. Subsequent valuations valued the Sloane Property separately and a draft circular to shareholders dated the 7 th March 1994 stated that for technical reasons it was not included in the valuation of the Specifically Mortgaged Property or the Relevant Security Percentage.
Thereafter there were on-going negotiations between QMH and its subsidiaries, the Trustees and the stockholders for the financial restructuring of QMH. An agreement in principle was arrived at on the 1 st July 1994, and at a duly convened meeting of stockholders held on the 27 th April 1995 the stockholders authorised the Trustees to enter into the Fourth Supplemental Trust Deed which in clause 3 waived all breaches of covenant and events of default occurring on or prior to the date thereof in connection with the value of the Specifically Mortgaged Property being less than 150% of the nominal value of the stock outstanding.
Various documents have been put in evidence. First and foremost is a draft "Questions and Answers" for the stockholders' meeting held on 27 April 1995, which was apparently supplied by QMH to the Trustees for use at the meeting. It was not apparently used, but the information contained was information communicated by QMH to the Trustees. Two draft Answers are relied on by the Trustees.
Answer 5 reads as follows:
"The [Sloane Property] along with various other properties, was added to the Specifically Mortgaged Property last year to improve the underlying value of the Stockholders' security by upgrading to fixed charge properties those properties which were only subject to a floating charge. The hotel is held on a lease which expires in 2042 and therefore cannot be included within the value of the Specifically Mortgaged Property for the purposes of the security cover covenant. However, the underlying value of the fixed charge on the hotel is of course held for the benefit of Stockholders."
The answer plainly recognises the application of the Proviso in respect of the Sloane Property, for it is the reason why the value of the Sloane Property could not be included within the value of the Specifically Mortgaged Property.
Answer 16 reads:
"[The security granted by the Deed] was over the various properties that were already subject to floating charges in favour of the Trustees. They were upgraded to fixed charges in respect of such...
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...passages at length, to Lord Hope's concurring judgment at paragraphs 55 to 56. 29 Finally, by way of authority, in QUEEN'S Moat Houses Plc v. Capita IRG Trustees Limited, a case upon which Ms Ife placed particular reliance, Lightman J said after the Agnew decision but before the Spectrum de......