Steven John Williams v Alter Domus Trustees (UK) Ltd (formerly Cortland Trustees Ltd)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Miles |
| Judgment Date | 18 July 2023 |
| Neutral Citation | [2023] EWHC 1820 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2020-002205 |
[2023] EWHC 1820 (Ch)
Mr Justice Miles
Case No: CR-2020-002205
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY & COMPANIES COURT (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Ian Tucker (instructed by Gateley Legal) for the Applicants
Matthew Smith (instructed by TLT LLP) for the First Respondent
Andrew Twigger KC and Oliver Hyams (instructed by Gordons Partnership) for the Third Respondent
Hearing dates: 28 and 29 June 2023
APPROVED JUDGMENT
Remote hand-down: This judgment was handed down remotely at 10:30am on 18 July 2023 by circulation to the parties or their representatives by email and by release to The National Archives.
Introduction
This is the resumed hearing of an application by the joint administrators ( the JAs) of Signature Living Residential Limited (in Administration) ( the Company) made under paragraph 71 of Schedule B1 to the Insolvency Act 1986. It concerns a property known as Ralli House, 60 Old Hall Street, Liverpool L3 9PP ( the Property). The Company bought the Property in October 2015 with a plan to develop it into a mixed-use building with 123 apartments and some commercial space. Some of the apartments were to be in new upper floors. A number of the apartments were sold off-plan to purchasers under agreements for lease ( AFLs) which specified a relevant apartment by number and description. The AFLs were described as “contracts for sale” but what was being sold was a lease.
After the development of some parts of the Property was completed, work ceased during 2020 and the project remains incomplete. The Company went into administration on 16 April 2020.
The JAs marketed the Property and ultimately agreed to sell it to a buyer, on the basis that it would be unencumbered by security interests.
The JAs' application sought orders: permitting the JAs to sell the Property free from various security interests; allocating the net sale proceeds ( the Sale Proceeds); and providing for the JAs to be paid their fees and expenses.
At a hearing of the application on 24 March 2023 ICC Judge Jones ordered that the JAs were at liberty to sell the freehold interest in the Property to a named buyer free from the security interests. The Judge was referred to confidential evidence about the sale price and valuations — confidential because dissemination might be against the interests of the administration if the sale does not complete. The Judge also gave directions for a further hearing to address distribution of the Sale Proceeds, and adjourned the issues about the JAs' fees to another occasion.
The First Respondent, Alter Domus Trustees (UK) Limited ( AD), is a secured lender with a mortgage over the Property. It registered its security against the Property at the Land Registry ( HMLR) on 14 February 2019. It was represented by Mr Smith.
The Second Respondents contracted to purchase apartments in the Property under AFLs ( the Purchasers). It is common ground that some of the Purchasers have equitable liens in respect of the deposits they paid, and that at least some of those Purchasers are entitled to some of the Sale Proceeds. The material groups of Purchasers broadly fall into three categories.
The Category A Purchasers entered into contracts for leases and protected their interests at HMLR by notices (mainly unilateral notices) against the registered title before AD registered its security on 14 February 2019. There are potentially 36 purchasers in this category — potentially because there are disputes about the treatment of a small number of cases (see below).
The Category B Purchasers entered into contracts for leases and protected their interests by unilateral notices against the registered title after AD registered its security. The Category C Purchasers did not protect their interests by notices at all.
The Third Respondent, ION Insurance Group, S.A. ( ION) entered into a deposit bond in August 2016 in favour of the Company and Purchasers to guarantee repayment of deposits to the Purchasers in certain events, and it may well be liable to the Purchasers to the extent that the Sale Proceeds are not used to repay their deposits (and it already has paid out to some of the Purchasers). ION is therefore able to step into the shoes of the Purchasers. It is the party with the real economic interest in the outcome. The position of the Purchasers has been argued before me by ION, represented by Mr Twigger KC and Mr Hyams.
The JAs, represented by Mr Tucker, were neutral on the question of distribution of the proceeds.
Further background
The Company was incorporated on 28 July 2015 and acquired the freehold interest in the Property in October 2015. The freehold is registered at HMLR with title number MS285438.
The Company planned to convert the Property into a mixed development with commercial units on the ground floor and basement and flats on the floors above that. Initially there were to be 116 apartments, but planning permission was eventually obtained for 123.
The flats were sold off-plan to investors, who were required to pay a deposit (typically 25%) on exchange of the AFL.
Completion was intended to be achieved between April and August 2017. The earliest AFL was exchanged in late May 2016.
The Company originally obtained finance to develop the Property in October 2015 from a funder known as Amicus. That debt was secured over the Company's freehold interest. In October 2016, the Company re-financed with another lender called Saving Stream. In late November/early December 2018, the Company re-financed its existing debt through AD and obtained new borrowing facilities from AD up to a total of £12.9 million plus a fee of approximately of £130,000.
The Company granted AD a mortgage over the Property and a debenture (which does not matter for this application). AD advanced a capital sum in excess of £10.15 million to the Company. The sums lent by AD were due for re-payment on 29 November 2019 but have not been re-paid and the debt with interest now stands at more than £40 million.
Following the presentation of a winding up petition by another creditor, and a demand made by AD, the JAs were appointed on 16 April 2020. Their term of office has been extended more than once.
The Property is the Company's only valuable asset. There is no prospect of any return to unsecured creditors and a number of secured creditors will also suffer a shortfall.
At the date of the JAs' appointment the Property was at various stages of development, with significant amounts of outstanding work remaining to reach practical completion. The work carried out on the ground floor commercial space and to the fifth floors and above was relatively minimal. A commercial space in the basement had been completed and was being operated as a gym by a tenant under a five year lease expiring in December 2023. The tenant under that lease was dissolved on 30 November 2021.
Twenty of the apartments had reached practical completion, and leases had been granted to the relevant Purchasers. A number of these apartments were indeed occupied. After the administration the JAs obtained vacant possession. The sale of the Property pursuant to the order of ICC Judge Jones is subject to these twenty leases.
The AFLs included a plan showing the floor plan and location of the relevant apartment.
The key terms of AFLs may be illustrated by taking a sample agreement (for apartment 004). The agreement included the following terms – with some comments in square brackets:
a. The Purchase Price was “£113,000 + the Furniture Pack Payment”. [The price of the Furniture Pack was not a payment towards the apartment being purchased but, as its name shows, was for furniture.]
b. The £113,000 was split into a Reservation Fee of £2,500, a Deposit of £25,750, and a Completion Payment of £84,750. [It is common ground that the Reservation Fee is part of the purchase price and is therefore added to the Deposit for the purpose of the issues discussed below about purchaser's liens.]
c. The Deposit was paid to the Company's conveyancers, as agent for the Company. The Buyers consented to the Company using the deposit in building the Property or for other reasonable purpose connected with the Property.
d. The purchase was of the “Leasehold property known as Apartment 004 on the ground floor of the Building and more particularly referred to in the Lease”. [The draft Lease was a separate document annexed to the AFL.]
e. Interest ran at 5% above Barclays Bank Base Rate.
f. Completion was to take place within 10 days of service of a Completion Notice. If this had not happened by 31 August 2017 the buyer was able to rescind the agreement.
g. The Company as Seller agreed as a condition precedent of the Agreement to put on risk Deposit Insurance to protect the Deposit paid by the Buyer under the terms of the Agreement.
In the case of three of the agreements, for apartments nos. 004, 008 and 910, there was an additional rider. This provided that the Deposit would be held by the Seller's Conveyancer as stakeholder until Satisfactory Planning Permission had been granted and the Deposit Insurance had been placed on risk, at which point the Deposit would be released to the Seller.
As to ION's documentation, pursuant to a Master Bond dated 16 August 2016, ION guaranteed to the Purchasers that in the event of a breach of the AFLs and/or any default of the Company of its performance of...
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