UBS AG v Rose Capital Ventures Ltd
| Jurisdiction | England & Wales |
| Judge | Chief Master Marsh |
| Judgment Date | 21 November 2018 |
| Neutral Citation | [2018] EWHC 3137 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2018000819 |
| Date | 21 November 2018 |
[2018] EWHC 3137 (Ch)
Chief Master Marsh
Case No: BL-2018000819
IN THE HIGH COURT OF JUSTICE BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES BUSINESS LIST (ChD)
Rolls Building, Fetter Lane, London EC4A 1NL
Thomas Grant QC and Benjamin Faulkner (instructed by Herbert Smith Freehills LLP) for the Claimant
Jonathan Gavaghan and James Kirby (instructed by Joseph Hage Aaronson LLP) for the Defendants
Hearing dates: 8 and 9 October 2018
Judgment Approved
This is my judgement on the claimant's application issued on 9 August 2018 by which it seeks orders striking out certain parts of the amended defence dated 11 May 2018. It is necessary to put the application in its relevant context by describing the background to the claim and the history of these proceedings to date.
The proceedings relate to 18 and 19 Cornwall Terrace London NW1 which forms part of a well-known terrace of Grade 1 listed buildings. The property was formerly used for offices and was purchased by the first defendant (“Rose Capital”) in October 2005 with a view to it being converted back to residential use. A charge in favour of Lloyds Bank, entered into on 23 February 2006, was registered against the title. At the time the property was acquired in 2005, Rose Capital had no direct, or indirect, connection with the second defendant or his family. During 2007, the shares in Rose Capital, which is a company registered in the British Virgin Islands, were purchased by Gladco Properties Inc which is owned by the Sileta Trust. The Sileta Trust is a Mallya family trust. The third defendant is said to have been the settlor.
In March 2012, Rose Capital borrowed £20.4 million from the claimant (“UBS”). It is common ground that the second defendant acted as agent for Rose Capital in its dealings with UBS.
The second defendant is the chairman of United Breweries Group and the ex-chairman of United Spirits Ltd. Those businesses either have or had interests in businesses such as Kingfisher beer, aviation infrastructure and real estate. The second defendant launched Kingfisher Airlines in 2003 which later collapsed. He is a former member of the Parliament of India. He is now accused of money laundering, forgery, criminal conspiracy, dishonesty and corruption and has been found guilty of contempt of court by the Indian Supreme Court. He is facing criminal proceedings in India and is subject to extradition proceedings. Furthermore, a judgement has been obtained in India against the second defendant for the sterling equivalent of over £1.1 billion at the suit of a consortium of Indian banks. In November 2017 the Commercial Court in London registered that judgement in England and granted an interim freezing injunction over the second defendant's and Rose Capital's assets in the sum of £1.145 billion. The second defendant's attempt to set aside the registration and the freezing order was unsuccessful and permission to appeal against that decision has been refused.
The third defendant is the second defendant's mother. She is aged about 92 years. The fourth defendant is the second defendant's son and he is aged about 31.
At the time the property came under the control of the Mallya family, it was in a derelict state. Refurbishment works were undertaken from about 2009 by Kier Construction but paused for a time in early 2011 when there was a falling out with the contractors. At that time the property remained a shell and uninhabitable. In 2011 a new building contract was entered into between Rose Capital and Quad Contracts Limited (“Quad”) for fitting out works and completion works for a high-class residential property. Following discussions between UBS and the second defendant, UBS made a mortgage offer dated 9 March 2012 to Rose Capital under which UBS offered to lend, on an interest only basis, £20.4 million subject to its standard conditions and a number of special conditions. One of the special conditions (unsurprisingly) was that the mortgage lending by Lloyds Bank was to be discharged. It will be necessary to consider the terms and conditions of the lending by UBS in more detail. The loan drawdown took place on 27 March 2012. The defendants say that the building contract between Rose Capital and Quad was entered into prior to the completion and draw down of the loan made by UBS.
The mortgage loan is stated to be for a period of five years and subject to early termination on the part of the claimant by three months' notice. On 9 March 2016, some four years after the loan drawdown, UBS served notice demanding repayment with the notice due to take effect on 9 June 2016. On 30 August 2016 UBS appointed fixed charge receivers and on 8 November 2016 the receivers commenced proceedings for possession of the property in the County Court at Central London (“the Receivers' Claim”). The proceedings, however, were met with a defence served on 13 January 2017 which raised three issues. In summary form they are:
(1) The notice served by UBS to call in the loan was defective because three months' notice had not been given: (“the Notice Issue”).
(2) UBS was not entitled to call the loan in early, on the basis that it was unreasonable and/or irrational and/or arbitrary and/or capricious for it to do so: (“The Early Termination Issue”).
(3) The individual defendants were entitled to occupation rights as against Rose Capital, and therefore also against the receivers who act as agent for Rose Capital. The occupation rights are said to arise from representations made by Rose Capital to the individual defendants that they could remain in the property for as long as they liked and in reliance upon those representations they provided or secured the provision of guarantees and procured the continued funding of the construction works at the property through a family trust: (“the Occupation Rights Issue”).
The defence to the Receivers' Claim, which has a statement of truth signed of the behalf of the defendants, admits that the term of the mortgage was 5 years. A different position has been adopted in this claim. This point has not been taken formally by UBS, but the inconsistency is a matter of concern to the court. The term of the loan goes to the heart of this claim and the inconsistency is material. It is an abuse of the court's process, without there being compelling reasons, for a party to make entirely inconsistent statements, both supported with a statement of truth, in different proceedings.
At the time the defence was served in the Receivers' Claim, the five-year term of the mortgage was shortly due to expire. UBS formed the view that it was preferable for fresh proceedings to be brought and the claim by the receivers stayed. The thinking behind this approach was that the issues in a claim brought by the claimant after the expiry of the five-year period of the loan would be uncomplicated, or at least less complicated than those raised in the Receivers' Claim. The assumption at the time was that neither the Notice Issue, the Early Termination Issue nor the Occupation Rights Issue could arise in the fresh proceedings. In the case of the Occupation Rights Issue, it was assumed that the case made by the personal defendants in the Receivers' Claim was that any rights they might have would only bind Rose Capital but not UBS as mortgagee.
The decision to stay the Receivers' Claim was the subject of correspondence between the parties' solicitors (then Denton's acting for the claimant —who also acted for the receivers —and Blake Morgan acting for the defendants). It was agreed between the parties that a stay was appropriate. Naturally, the stay was the subject of an order made by consent. This claim was issued in the County Court at Central London on 5 September 2017. The particulars of claim refer to the Receivers' Claim in the course of reciting the relevant history but make it clear that UBS does not rely upon the notice to terminate the loan early. In their original form, the particulars of claim are entirely straightforward and are based upon the five-year term of the loan having expired by effluxion of time. UBS seeks an order for possession against all the defendants and an order for payment of the sum due against Rose Capital. On 23 November 2017 a defence was served. UBS says that the terms of the defence took them by surprise because it resurrects the Early Termination and the Occupation Rights Issues. It is now said that the second to fourth defendants' occupation rights took priority over UBS' mortgage on the basis that they were in actual occupation of the property at the time of the loan, their occupation being through the building contractors employed by Rose Capital. The defence also raises new issues, in particular that the term of the loan was at least 10 years and that the claimant had deliberately delayed and frustrated Rose Capital's attempts to refinance the loan.
The remaining procedural steps can be set out in summary form:
• On 29 November 2017 the County Court gave directions for the continuation of the claim.
• On 5 February 2018 the defendants responded to the claimant's request for further information.
• On 5 March 2018 UBS served its reply.
• On 23 March 2018 UBS served amended particulars of claim introducing a subrogation claim in response to the defence.
• Following an application to the High Court, an order was made on 28 March 2018 transferring the claim to the High Court.
• On 19 April 2018 trial listing directions were given. The claim is due to be tried with a time estimate of 10 days starting on 7 May 2019.
• An amended defence was served on 11 May 2018 and an amended reply on 1 June 2018.
• Directions for the procedural steps up to the trial were the subject of...
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