Serene Construction Ltd v Salata and Associates Ltd (formerly Salata & Company Ltd)
| Jurisdiction | England & Wales |
| Judge | David Cooke |
| Judgment Date | 02 September 2021 |
| Neutral Citation | [2021] EWHC 2433 (Ch) |
| Year | 2021 |
| Docket Number | Case No: E30BM500 |
| Court | Chancery Division |
[2021] EWHC 2433 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
Insolvency and Companies List (ChD)
Birmingham Civil Justice Centre
Bull Street, Birmingham B4 6DS
HHJ David Cooke
Case No: E30BM500
Ian Pennock (instructed by Glaisyers Solicitors) for the Claimant
Henry Bankes-Jones (instructed by Berrymans Lace Mawer LLP) for the Defendant
Hearing dates: 2–4 August 2021
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.
Introduction
On 31 January 2012 the second and third defendants (“the Receivers”) were appointed by Barclays Bank as fixed charge receivers over an unbuilt residential development site at Brierley Lane, Bilston owned by the claimant company. On 18 February 2013 they completed the sale of the site for £175,000. The claimant contends that this sale was made in breach of the fiduciary duty owed to it by the Receivers to take reasonable steps to achieve the best price available and that if they had complied with that duty they would have realised at least £575,000, which it says was the true market value. The claimant accordingly claims damages of £400,000 plus interest. The Receivers deny any breach of duty and contend that the price realised was the best realistically available in the circumstances.
The first defendant is a limited company through which the Receivers conducted their business. Though named as a defendant, no separate case is pleaded against it, and it is now accepted that the Receivers' appointment was a personal one and the duties relied on were owed by them personally and not by their company. Accordingly Mr Pennock accepted that no claim lies against the first defendant.
The Defence pleads limitation, asserting that any loss suffered by the claimant must have arisen no later than 22 October 2012 when the offer to buy for £175,000 was accepted. The claim was issued on 12 December 2018, more than 6 years after that date. However the defendants do not now pursue that defence because the acceptance on 22 October 2012 was “subject to contract” and the Receivers did not become obliged to sell the site, and so crystallise any loss to the claimant if they were in breach of duty, until a binding contract was entered into on 21 January 2013.
The allegations against the Receivers are in summary that they failed to obtain an independent market valuation of the site and so failed to understand its true value, and that they failed to advertise it generally or offer it for sale by auction, instead inviting offers only from about 20 developers selected by the agents they instructed and so failed to receive offers reflecting the true value. I should note that although the claimant's evidence and submissions contain hints at the possibility of connections between the Receivers' agents and the eventual buyer and references to allegations of fraud made against those agents in other cases, there is no pleaded case in this claim to any such effect, and no evidence shown to me that would support any such suggestion. Mr Pennock accepted that there was no proper basis for putting any such suggestion to any of the witnesses.
Factual background
The claimant company was incorporated in 2004 specifically to acquire the site at Brierley Lane, which it intended to develop by building 13 residential properties. Its directors initially were Mr Dess Raj, who was at the time the owner of the site, and his wife Mrs Santosh Kumari. Mr Raj resigned as a director in 2009 having been made bankrupt and disqualified from acting as a director, since when Mrs Kumari has been the sole named director. It is nevertheless clear from the documents and evidence that Mr Raj continued to play a substantial active role in the company's affairs.
On 7 March 2003 (Bundle p 287) Wolverhampton City Council granted planning permission for 10 semi detached houses, one detached house and two semi detached bungalows to be built on the site. That permission predates the incorporation of the claimant company and was granted to “Serene Homes”, presumably a trading name used by Mr Raj. The site was transferred, with the benefit of that permission, to the claimant company at some point in 2006. It was a condition of the permission that the development must “be begun” within five years of the date of grant, ie by 7 March 2008, and it is common ground that the permission would have lapsed if that condition was not satisfied. There is an issue between the parties whether sufficient work had been done to satisfy the condition and so whether or not the 2003 permission remained extant at the time the Receivers were appointed.
In February 2007 the claimant entered into the first of a number of loans with Barclays Bank, borrowing £250,000 which was used to repay previous finance. The Bank obtained a valuation of the site for the purposes of its loan from Aitchison Rafferty which was dated 26 February 2007 (p 29). The site is referred to as “a cleared site albeit prepared for residential development including the provision of services” (p 31 para 6.2). The services are said to be “connected… as developer's supply” (para 5.1), ie presumably to the site itself but not the individual plots. The valuers' opinion on developable value is based on the plans and designs they were shown. They were provided with copies of the 2003 planning permission and a Buildings Regulations approval of the design drawings, on which they made no comment; they did not refer to the five year commencement date which by then was only 9 months away. They concluded that the site value in its present state with the then existing planning permission was £1,027,000 and that if fully completed its value would be £2,500,000 (p 34).
The first loan agreement was superseded by a second in February 2008 under which the bank made available up to £1,038,000 to repay the first loan and finance the construction. The bank obtained a further valuation from Aitchison Rafferty dated 17 March 2008 (p 55) which stated that “there have been no material changes to the site since we last inspected” and referred to it as “an undeveloped site”. It stated that the planning position “has not changed” since the 2007 valuation. No reference was made to the five year date which had by then passed. The valuers evidently assumed the 2003 permission was still in force, but it appears they may have overlooked the five year point, since although they refer to some site preparation and infrastructure works as having been done they did not mention any information they had from which they were satisfied that this would be sufficient to satisfy the condition. Their opinion was that the value of the undeveloped site was £900,000, reflecting increased costs of building out the development, but they maintained their view that if completed it would have a value of £2,500,000 (p 58).
The second loan agreement was replaced by a third in July 2008, though the amount of the facility was not changed. The bank asked Aitchison Rafferty to confirm their valuation, no doubt because by then the impact of the now well known financial crisis was beginning to be felt. The valuers wrote a letter dated 7 October 2008 (p 71) noting “substantial fluctuations within the residential and financial markets which have resulted in what is referred to as ‘the credit crunch’”, that house prices had fallen by between 1.5% and 2% per month resulting in a reduction in their estimate of the value of the completed development being reduced to £2.2m which, with increased build costs resulted in a value of the undeveloped land of £516,000 in its existing state. There is no mention of the five year planning issue, though the assumption evidently remains that the planning permission is still in effect. It would appear from the documents in the bundle that this estimate takes no account of any possible continuation of the rapid falls in house prices noted.
On the basis of that value the drawings already made caused a breach of a loan-to-value covenant in the loan documentation, and the bank informed Mr Raj that it would not allow further drawings under the facility and intended to call in the loan, which it did by making demand on 29 October 2008. At that time the debt outstanding to the bank was £327,413.
It is not clear from the evidence what happened between then and the middle of 2011, though the bank must have been exploring its recovery options and it seems it obtained at least one “strategy/options” report from Lambert Smith Hampton in February 2009 (witness statement of Mr Jorden, p 221, Defendant's disclosure bundle DB/103). The witness statement of Mrs Kumari (which Mr Raj has confirmed but not amplified) does not disclose what if any efforts the claimant made in that period to find a buyer or to refinance the Bank's debt. Presumably it would have been in its interest to do so if, as it now says, the value of the site was well in excess of what was owed to the bank.
The Receivers' involvement began in July 2011 when Mr Jorden was contacted by Barclays Bank. He and Mr Salata are both Chartered Surveyors and Fellows of the RICS, and have worked together since the 1990s in relation to realisation of property security, in particular by taking receivership appointments. Their practice was to take a joint appointment, but that on any given appointment one of them (in this case Mr Jorden) would take the lead, supervising the staff allocated to the case, with the other being available as backup or in case of absence. Mr Jorden's health is now poor and he has retired from...
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Insolvency Team ' Recent Insolvency Case Update
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