Scottish and Newcastle Plc v Raguz
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE HART,Mr Justice Hart |
| Judgment Date | 11 April 2006 |
| Neutral Citation | [2006] EWHC 821 (Ch) |
| Court | Chancery Division |
| Date | 11 April 2006 |
| Docket Number | Case No: BM 130255 |
[2006] EWHC 821 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
Mr Justice Hart
Case No: BM 130255
Mr. Christopher Stoner (instructed by Eversheds, Newcastle) for the Claimant.
Mr. Edward Bannister QC and Ms. Marion Lonsdale (instructed by LHP Law) for the Defendant.
Hearing dates: 30, 31 January, 1,2,3,6,7,8,9 February 2006
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.
THE HONOURABLE MR JUSTICE HART
This action concerns two underleases dated respectively 17 th March 1967 ("the 1967 Lease") and 7 th March 1969 ("the 1969 Lease") whereby Colston Property Holdings Ltd demised to the claimant hotel premises in Leicester for a term of years expiring on 22 nd March 2062. By each underlease the claimant covenanted to pay rent in advance on the usual quarter days, the rent being reviewable every 14 years of the term.
The claimant assigned the underleases to the defendant on 29 th September 1982 for a consideration of £1.00. At the same time the hotel business then carried on at the premises by the claimant was assigned to a company in which the defendant was interested, Impney Hotel Properties Ltd. The assignments of the underleases contained, by virtue of section 24 of the Land Registration Act 1925, a covenant by the defendant that he and his successors would pay the rent reserved by, and comply with the covenants and conditions contained in, the underleases and would indemnify the claimant in the event of breach ("the s.24 indemnity"). The precise terms of that covenant are examined in more detail below.
Not long afterwards, it would seem in about March 1983 but the defendant remembers it somewhat differently, the defendant assigned the underleases to a company called Villafield Ltd, which in turn gave covenants for indemnity to the defendant guaranteed by two gentlemen, apparently brothers, called Virani.
By March 1992 the underleases had become vested in a company called Hotel St. James Limited ("HSJ"). HSJ defaulted on payment of rent in June 1999 and its mortgagees appointed administrative receivers on 6 th October 1999, the administrative receivers being a Mr Kinlan and Mr Dattani, partners in the well-known firm of BDO Haywood.
By that time the reversioner to the underleases was National Car Parks Limited ("NCP"). Its inability to recover rent from HSJ meant that the claimant, as original underlessees, became a potential target of a claim by NCP for the rent under the lease so long as it remained unpaid. Subject to the provisions of the Landlord and Tenant (Covenants) Act 1995 ("the 1995 Act") the claimant had no answer to that claim.
The amount of NCP's potential claim against the claimant suffered from uncertainty in two respects. First, as regards the past, the accrued liability of HSJ in respect of rent was not known: the level of the passing rent had been the subject of an unresolved process of review since 1995 in the case of the 1967 Lease and 1996 in the case of the 1969 Lease. The amount of accrued liability in respect of the reviewed rent would only be known when that review process was completed. Secondly, so far as the future was concerned, there was potential liability for the claimant until 2062. The only way of mitigating that potential liability was to find someone who was prepared to take on the liability under the two underleases.
The defendant was similarly on the hook. To the extent that the claimant was made liable for the rents, it could prima facie pass on the liability to him.
An additional feature of this situation, horrid for both claimant and defendant, was that it was in the highest degree unlikely that NCP would resolve matters for both of them by forfeiting the lease. The claimant is a major quoted public company and, from the point of view of any landlord, a "blue chip" covenant. There are also peculiarities about the premises which can usefully be described at this stage.
The premises demised by the 1967 and 1969 leases comprise the top storey or two of a late 1960s multi-storey car park in what was once, but has ceased to be, the commercial heart of Leicester. Access to the premises under those underleases was by virtue of an easement from ground floor level by lift. There were, in addition, reserved parking spaces for the hotel in the upper storeys of the car park. From an aesthetic, planning or commercial point of view, the vision behind the development, clear and bright eyed as it may have been in the late 1960s, is difficult to re-capture through 21 st century spectacles which see only the multi-storey car park with, at street level, some down-market commercial premises (a sauna and massage parlour giving some indication of the overall tone). The original conception had no doubt been the creation of a high class hotel (as required by the user covenants) offering easy city centre parking with commanding views over the city. It was originally badged as The Abbey Motor Hotel.
At some point in the history of the premises the access arrangements had been improved by the acquisition of an alternative access at street level through a lobby. The lease of this access ("the Lobby Lease") post-dated the involvement of either the claimant or the defendant but had, by 1999, become integral to the way in which the hotel actually operated. The Lobby lease had also expired by that date, and HSJ had only the benefit of a continuing lease under the Landlord and Tenant Act 1954.
What has given rise to the dispute between the parties to this action is the steps which the claimant took in order to protect its own position in the unpleasant situation with which it was faced. In very summary form the claimant's approach was as follows:
i) it decided that the solution was that the administrative receivers should be supported in their attempts to dispose of the underleases as soon as possible to a person who would then assume responsibility for the rent;
ii) it hoped that such a person ("the purchaser") would pay a premium to the administrative receivers sufficient to enable HSJ to discharge its liability for any accrued liability in respect of rent;
iii) it was persuaded that those aims were more likely to be achieved if the hotel business kept running while the premises were being marketed;
iv) in the face of a threat by the administrative receivers that they would have to close the business before the purchaser could be found, it agreed to assist the administrative receivers in keeping the business running.
That policy had some merit. The decision to support the administrative receivers was taken in May 2000 (although not formalised until August 2000) and by October 2000, a purchaser had been found at a premium of £200,000 who appeared anxious to complete quickly. This was a company (Skymede Enterprises Limited) of whom the moving force was a Mr Rizvi. As a result, however, of a chapter of unforeseen events, the sale to Mr Rizvi's company was not completed until 28 th February 2003. In the meantime HSJ had paid no rent. On 13 th June 2001 NCP had served statutory demands on the claimant for sums totalling £346,313.32 (£323,515.96 under the 1967 Lease and £22,797.36 under the 1969 Lease) which it claimed then to be owing in respect of rent. The claimant paid that sum to NCP on 5 th July 2001.
By 28 th February 2003 further rent (and other sums) had accrued due under the leases (including the Lobby lease). NCP made it a condition of the assignment that those sums (which included £245,714.55 in respect of rent arrears under the 1967 Lease and the 1969 Lease) should be paid off. The claimant took steps to ensure that this happened, providing the necessary sums from its own resources.
Those proceedings were commenced on 17 th September 2001. As originally formulated they sought payment of the sum of £346,313.32 and declaratory relief as regards future liabilities. By amendment made on 30 th January 2006 they were amended by the addition of a claim to the £245,714.55.
A summary judgment application made by the claimants in November 2001 and not determined at first instance until 9 th December 2002 yielded the claimant only a limited success. In his judgment dated 9 th December 2002, HHJ Norris held that a distinction had to be drawn between rent for which the claimant had become liable prior to 3 rd August 2000 and that which had accrued subsequent to that date. The significance of the date was that it was the date on which the claimant (or more accurately its subsidiary S&N Pubs and Restaurants Ltd ("Pubs")) formally entered into the agreement with the administrative receivers which was intended to enable the latter to continue trading the hotel business while the purchaser was being sought ("the Maintenance Agreement"). The judge held that the question whether the defendant should be liable to the claimant in respect of rental demanded after that date had to go to trial. But he held that the defendant had no answer to the claim for rent demanded before that date, a sum claimed to be £39,978.08. He rejected the defendant's argument that the s.24 indemnity was in the nature of a guarantee and therefore discharged altogether as a result of the arrangements entered into between the claimant and the administrative receivers. Judgment was therefore given for the £39,978.08 and interest, and directions given for trial of the balance of the claim. That judgment was upheld on appeal: see Scottish & Newcastle v. Raguz [2004] L&TR 11 (Sir Andrew Morritt V-C, May and Sedley LJJ.).
Issues
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