The Co-Operative Bank Plc v Hayes Freehold Ltd ((in Liquidation)) and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henry Carr |
| Judgment Date | 20 July 2017 |
| Neutral Citation | [2017] EWHC 1820 (Ch) |
| Docket Number | Case No: HC-2016-000674 |
| Court | Chancery Division |
| Date | 20 July 2017 |
[2017] EWHC 1820 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
7 Rolls Buildings, Fetter Lane,
London, EC4A 1NL
The Hon Mr Justice Henry Carr
Case No: HC-2016-000674
Jonathan Gaunt QC and Mark Sefton (instructed by Forsters LLP) for the Part 20 Claimant Deutsche Bank AG
Ben Valentin QC and Gary Cowen (instructed by White & Case LLP) for the Part 20 Defendant Sentrum Holdings Limited
Hearing dates: 16,17,18,19,23,25 May, 12 and 13 June 2017
Introduction
This judgment is in respect of a Part 20 Claim by Deutsche Bank AG ("Deutsche Bank") against Sentrum (Hayes) Limited ("Sentrum Hayes") and Sentrum Holdings Limited ("Holdings"). The claim relates to a deed dated 6 August 2015 ("the Deed"), which was entered into by Deutsche Bank, Hayes Freehold Limited ("Hayes Freehold") and Sentrum Hayes. Sentrum Hayes and Hayes Freehold are in liquidation and did not participate in these proceedings.
The claim concerns a data centre known as the Digiplex Megaplex Centre, Brookfields, Beaconsfield Road, Hayes, Middlesex ("the Property"). By a lease dated 29 June 2001 made between Digiplex UK Limited and Deutsche Bank ("the Headlease"), the Property was demised to Deutsche Bank for a term expiring on 14 September 2021. By an underlease dated 26 February 2010 and made between Deutsche Bank, Sentrum Hayes and Holdings, ("the Underlease"), the Property was demised to Sentrum Hayes for a term expiring on 11 September 2021.
The explanation for these arrangements is as follows. Deutsche Bank had originally entered into the Headlease because it wished to occupy the Property. By 2009, Deutsche Bank no longer had any occupational need for the Property. However, the rent under the Headlease was rising, by fixed increments, to an eventual figure of more than £2.6 million a year. Therefore, Deutsche Bank sub-let the Property to Sentrum Hayes, at a rent which matched the rent under the Headlease. Holdings was the guarantor of Sentrum Hayes' obligations under the Underlease, and in particular the obligation to pay the rent.
On 26 June 2012, the shares in Holdings were sold to Digital Stout Holding LLC ("Digital") under a share sale agreement ("the SSA"). Holdings ceased to be a part of the same group as Sentrum Hayes and Hayes Freehold, which were not acquired by Digital. The Property was also excluded from the acquisition.
It was a term of the SSA that Sentrum Construction Management Limited (a company in the seller's group) would procure the release of Holdings from its liability as guarantor of Sentrum Hayes' obligations under the Underlease. The SSA also provided that an escrow amount of £10 million was to be held back pending, amongst other things, the procurement of a release of the guarantee. Provided that 36 months had elapsed since completion of the SSA, on release of Holdings' guarantee, the balance of the escrow amount, less certain deductions, would be released to one of the seller companies, Glen Moar Properties Limited ("Glen Moar").
On 18 December 2012:
i) the freehold interest in the Property was transferred to Hayes Freehold;
ii) by a facility agreement ("the Facility Agreement") the Co-Operative Bank plc ("the Co-Op") granted a lending facility of over £25m to Hayes Freehold, which was guaranteed by Sentrum Hayes;
iii) Hayes Freehold entered into a debenture with the Co-Op whereby Hayes Freehold charged the freehold interest in the Property to the Co-Op ("the Hayes Freehold Debenture"). Under the Hayes Freehold Debenture, Hayes Freehold granted a charge to the Co-Op over the Headlease ("the Headlease Charge"); and
iv) Sentrum Hayes entered into a debenture with the Co-Op ("the Sentrum Hayes Debenture") whereby it charged its interest as tenant in the Property created by the Underlease to the Co-Op ("the Underlease Charge"). I shall refer collectively to the Headlease and Underlease Charges as "the Co-Op Charges".
Clause 22.2(a)(ii) of the Facility Agreement provided that:
"No Obligor [which included Hayes Freehold and Sentrum Hayes] shall without the prior written consent of the Lender (such consent not to be unreasonably withheld or delayed): …
(ii) agree to any amendment, waiver or surrender or take any action to lead to forfeiture in respect of any Lease Document".
Clauses 6.1 of the Hayes Freehold and Sentrum Hayes Debentures provided that:
"Except with prior written consent of the Lender (such consent not to be unreasonably withheld or delayed), the [Borrower/Guarantor] shall not enter into a single transaction or a series of transactions (whether related or not) and whether voluntary or involuntary to sell, lease, transfer or otherwise dispose of any Secured Assets."
The freehold interest in the Property and the Headlease were "Secured Assets" within the meaning of clause 6.1 of the Hayes Freehold Debenture. Sentrum Hayes' interest in the Leasehold was a "Secured Asset" within the meaning of clause 6.1 of the Sentrum Hayes Debenture.
At that stage, the freeholder of the Property and the sub-tenant under the Underlease were part of the same group. Deutsche Bank had opposite but matching obligations under the Headlease and the Underlease and had no use for the Headlease. Holdings was looking to get out of the guarantee. The aim of the Deed was to release Hayes Freehold, Sentrum Hayes, Holdings and Deutsche Bank from their respective obligations in this structure. Therefore, the Deed purported to effect a surrender of the Headlease, a surrender of the Underlease, and a release of Holdings from its guarantee.
However, the consent of the Co-Op was required for the surrender of the Headlease due to the existence of the Headlease Charge. The Co-Op did not consent to such surrender. The absence of consent from the Co-Op meant that the surrender of the Headlease was not effective, with the result that Deutsche Bank was not released from its liability to pay the head-rent.
In its evidence and in its opening skeleton (at [4]) Deutsche Bank claimed that the relevant individuals who advised and authorised the bank to enter into the Deed were not aware, when making that decision, of the Headlease Charge; of the Underlease Charge; and that the Co-Op had not consented to the surrenders provided for in the Deed. Holdings submits that relevant individuals within Deutsche Bank did know about these facts. It claims that the problem arose because Deutsche Bank, in the words of one of its witnesses, failed to get its own " ship in order", and chose to rely upon the advice of its solicitor, who negligently failed to perform a title search on the Property and advised that the surrender of the Headlease would be effective, and that Deutsche Bank could therefore execute the Deed. It submits that it was for Deutsche Bank, as tenant under the Headlease, and not Holdings, as guarantor of the Underlease, to ensure that the surrender of the Headlease was effective. Holdings submits that in these circumstances Deutsche Bank's remedy (if any) is against its solicitor.
Findings of fact
Before considering the claims advanced by Deutsche Bank, I shall make various findings of fact that are relevant to the analysis of these claims. In particular, I will look at: i) the state of knowledge within Deutsche Bank about the Co-Op Charges, ii) the involvement of Deutsche Bank's solicitor, Mr Miscampbell, iii) the relevant decision maker within Deutsche Bank, and iv) the state of knowledge within Holdings about the Co-Op Charges.
The state of knowledge within Deutsche Bank about the Co-Op Charges
Various witnesses gave evidence on behalf of Deutsche Bank about their knowledge of the existence and effect of the Co-Op Charges. Certain witnesses were on secondment to Deutsche Bank from specialist property advisers, Jones Lang LaSalle ("JLL"), at the relevant time and others were employees of Deutsche Bank. All of these witnesses gave frank and fair evidence under cross-examination and were doing their best to assist the Court. Unfortunately, the written statements of certain of Deutsche Bank's witnesses were not accurate about their state of knowledge on this issue.
Allen White
Mr White was an Estate Manager, seconded from JLL to Deutsche Bank between July 2012 and the end of 2013, who was responsible for the Property during that period. At [17] of his witness statement, he said that " We were not aware that the [Co-Op] had security over [the Underlease]." This statement was not accurate, as Mr White frankly acknowledged during cross-examination:
"Q. And in paragraph 17 of your statement you say: "We were not aware that the bank had security over the Underlease." Is the truth really — I'm not saying that you were not telling the truth, or didn't believe you were telling the truth when you wrote that, but the reality is it is just not right, is it, because in April you had learned that the Co-Op had security over the Underlease, because that's what the letter says at 693?
A. Absolutely, yes."
This acknowledgement was inevitable in the light of documents provided on disclosure by Deutsche Bank. In particular, on 14 February 2013, Mr White learnt that Deutsche Bank had received a notice from Sentrum Hayes dated 18 December 2012, which expressly referred to the Co-Op's interest in the Underlease. Further notices of the Co-Op's interest, both in respect of Hayes Freehold and Sentrum Hayes, were received by Mr White in April 2013, and were retained within Deutsche Bank's files. The documents...
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