Westbrook Dolphin Square Ltd v Friends Life Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Mann,MR JUSTICE MANN |
| Judgment Date | 17 July 2014 |
| Neutral Citation | [2014] EWHC 2433 (Ch) |
| Docket Number | Case No: HC11C00069 |
| Court | Chancery Division |
| Date | 17 July 2014 |
[2014] EWHC 2433 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane
London EC4A 1NL
Mr Justice Mann
Case No: HC11C00069
and
Nicholas Dowding QC, Richard SnowdenQC and Anthony Radevsky and Andrew Thornton (instructed by Stephenson Harwood LLP) for the Claimant and Third Party
Stephen Jourdan QC and Mark Sefton (instructed by Maples Teesdale LLP) for the Defendant
Hearing dates: 6 th, 7 th, 10 th, 11 th, 12 th, 13 th and 26 th February 2014
| Table of Contents | 1 |
| Introduction | 3 |
| Physical nature of the property | |
| The property arrangements affecting the premises | |
| Financial matters | |
| The corporate structure | |
| Statutory provisions | |
| The notices | |
| The issues | |
| Witnesses | |
| The facts—what Ms Ellis and Mr Donnor did | |
| Issue 1 — associated companies | |
| Issue 2 — the effect of the creation of the property and the corporate structure | |
| Issue 3 — the effect of the Human Rights Act 1998 on the interpretation of the Act | |
| Issue 4 — the residential purposes point — is the freeholder entitled to take it? | |
| Issue 5 — Residential and non-residential purposes—which premises qualify and how do the percentages work out? | |
| Residential purposes — what is the test? | |
| Common parts | |
| Residential purposes — the bulk of the flats | |
| Residential purposes – Dolphin House | |
| Corporate housing | |
| Other areas — generally | |
| Circulation space and cleaner stores at Rodney House | |
| The basement garage | |
| The 33 vacant car parking spaces | |
| Bays used by Dolphin House residents/fitness club members | |
| Staff parking | |
| The fitness club and spa area | |
| The club lounge and the champagne bar, and the Bar and Grill | |
| Mantilla's first floor admininstration office | |
| The Dolphin House reception area and office | |
| Ground floor meeting room | |
| Rooms used in conjunction with various aspects of the activities conducted at Dolphin Square | |
| Vacant tenants' lockers | |
| Four tenants' storerooms | |
| Other vacant areas | |
| Rooms and areas occupied by Mantilla for storage and archive purposes | |
| Areas occupied by residents without permission | |
| Rooms used by thir party contractors | |
| Keyes Conference Room | |
| Launderette | |
| Rooms occupied by Dolphin Square 2005 Ltd | |
| Long corridor in the basement — the shooting gallery | |
| The residence/non-residence/common parts point — conclusion | |
| Issue 6 — The section 13 notice point | |
| Is there valuation a test for a section 13 notice? | |
| What is the test? | |
| Does the claimant's notice pass the test in this case? | |
| Adjustments to the value of Dolphin House | |
| What deferment rate should be applied to the FHVP figure? | |
| Discount for holding costs or scale | |
| Other points on the value figure in the notice | |
| Conclusion on the tenants' notice — valuation figure | |
| Issue 7 — The Insolvency Act 1986 section 423 point | |
| Section 423 generally | |
| Undervalue | |
| Is there a relevant claim within the meaning of section 423? | |
| Is Friends Life a victim? | |
| Is there a relevant transaction with a relevant purpose? | |
| Was there an undervalue for the purposes of the section? | |
| Undervalue and the leases | |
| Undervalue and the guarantee | |
| Overall conclusion |
Introduction
This is an action in which the claimant ("Westbrook") seeks a declaration that it is entitled to acquire the freehold of a large residential complex (with limited commercial parts) built in the 1930s and known as Dolphin Square, London SW1. The application is made under the Leasehold Reform, Housing and Urban Development Act 1993 ("the Act"). The claimant, as a nominee for tenants claiming the right, has served a notice under that Act and the defendant, which is the freeholder of the property, challenges the validity of that notice and the entitlement of the claimant (which is a nominee purchaser under the Act) to purchase. Under the Act such a challenge is to be made to the court. The county court has jurisdiction, and these proceedings started in the county court but were transferred to this court, no doubt because the transaction is such a substantial one and serious points of principle are said to arise. The size of the matter can be demonstrated by the fact that the price for the freehold which the claimant has specified in its notice triggering the procedure is over £111m, and the claimant obviously expects to have to pay more than that. The size of the property in question appears from the next section of this judgment in which that property is described.
The issues raised in this action are dealt with in a number of sections below. In addition to complex questions about leasehold enfranchisement, its procedures and valuations, they also include questions about the application of the Ramsay and Furniss v Dawson principles to a scheme intended to facilitate the application, whether the Human Rights Act applied so as to stand in the way of this enfranchisement attempt, what is meant by an "associated company" under the Companies Act 2006 and a question as to whether the freeholder is entitled to rely on section 423 of the Insolvency Act 1986 (transactions at an undervalue) to resist the enfranchisement. The case was conducted with conspicuous ability by Mr Nicholas Dowding QC and Mr Richard Snowden QC for the nominee purchaser (and for the third party, a representative tenant), and by Mr Stephen Jourdan QC for the respondent freeholder, both in terms of submissions and in terms of economic cross-examination. During the course of the trial I had a view of the premises which helped me in understanding some of the descriptions of parts of these unusual premises.
Physical nature of the property
Dolphin Square was built between 1935 and 1937 and it is a large and unique property. It is located in a seven acre site in Pimlico ( SW1) bounded by Chichester Street to the north, St George's Square to the east, Grosvenor Road to the south and Claverton Street to the west. In the early 1990s it was listed in the Guinness Book of Records as the largest block of flats under one roof in the world, but in that respect it has now been superseded by another property. Its layout appears from the plan in Appendix 1 to this judgment.
The building is made up of connected blocks (all named after admirals) and on the relevant date contained the following:
1. 1229 f lats in the following blocks: Rodney House, Duncan House, Beatty House, Howard House, Nelson House, Hawkins House, Raleigh House, Drake House, Grenville House, Frobisher House, Collingwood House, Hood House and Keyes House. All of the blocks have 9 floors of flats, save for Rodney House which has only 6 floors;
2. An underground car park;
3. A fitness centre (including swimming pool and gym);
4. A number of offices;
5. A parade of 9 shops;
6. A restaurant and a bar;
7. A spa; and
8. A basement and sub-basement.
In the centre of Dolphin Square there are 3 1/2 acres of communal gardens, and to the south of Grosvenor Road, a tennis court, a croquet lawn and a boat mooring on the river Thames. The building has outside parking areas on the east and west carriageways.
The blocks of flats are physically what one would expect of purpose-built blocks such as these. Stairs and lifts lead up to corridors, and each flat has a front door giving on to a corridor. The basement areas, which are extensive, run underneath all the blocks, and it is possible to walk round the blocks at basement level without ever going into the open. The basements house a variety of different rooms and facilities. Some one would expect — heating apparatus, for example. Some basement rooms are let to commercial concerns. There is storage for occupiers of the flats and for commercial entities, and a launderette and laundry. Other areas are used as storage of materials for operation of the building.
The property arrangements affecting the premises
The Defendant is an insurance company and owns the freehold to Dolphin Square. Its freehold is subject to a headlease dated 13 th September 1935 ("the headlease") and an underlease dated 31 st December 1964 ("the underlease"). The headlease expires on 23 rd June 2034, and the underlease on 21 st June 2034. Various residential short occupational leases were granted out of that underlease. Until January 2006 the headlease was vested in Westminster City Council and the sublease in the Dolphin Square Trust. In that month the headlease and underlease were acquired by companies in the American Westbrook group, namely Tannenberg Ltd and the claimant respectively.
The claimant ("Westbrook") and the group of which it formed part then set about re-structuring the property interests, partly in order to pave the way for this enfranchisement exercise and partly (it is said) to achieve a re-financing to return capital to original investors, though I do not consider this latter point to have been a particularly material consideration behind the actual form of restructuring. On 16 th April 2007 the Claimant granted sub-underleases of 1,223 of the 1,229 flats in Dolphin Square ("the flat leases") to 612 companies ("SPVs", all Jersey companies) for terms expiring on 19 th June 2034.
The SPVs all bear the name "Westbrook Dolphin Square Residential [X] Limited", in which X is an incremented number starting at 1. These are the "participating tenants" under the enfranchisement scheme. All of the participating tenants bar one participating tenant hold two flat leases each. Six flats in Dolphin Square are held directly by the claimant under...
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