Whale and Others v Viasystems Technograph Ltd and Others

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date27 March 2002
Neutral Citation[2002] EWCA Civ 480
Docket NumberA2/2002/0559
Date27 March 2002

[2002] EWCA Civ 480






(Mr Michael Briggs QC (sitting as a deputy High Court judge))

Royal Courts of Justice


London WC2


Lord Justice Aldous

Lord Justice Jonathan Parker



(1) Julian Richard Whale
(2) Peter Terry
(3) Michael Vincent Mcloughlin
Applicants/First Respondents
(1) Viasystems Technograph Limited
(2) Forward Acquisition Limited
(3) Viasystems Mommers BV
First-Third Respondents/First-ThirdAppellants
(4) Grantax Developments Limited
(5) The Governor and Company of the Bank of Scotland
Fourth and FifthRespondents/Second Respondents
(6) Angus Matthew Martin
(7) Ian Brown
Sixth and Seventh Respondents/Fourth and FifthAppellants

MR G NEWEY QC and MR A WESTWOOD (Instructed by Messrs Weil, Gotshal & Manges, London EC2M 2WG) appeared on behalf of the First-Third Appellants

MR P ARDEN (Instructed by Messrs Hammonds Suddards Edge, Leeds LS3 1ES) appeared on behalf of the Fourth and Fifth Appellants

MR J ST CROIX (Instructed by Messrs Eversheds, Newcastle Upon Tyne) appeared on behalf of the First Respondents

MR D HODGE QC and MISS K HOLLAND (Instructed by Messrs Pincent Curtis Biddle, Leeds LS1 5AB) appeared on behalf of the Second Respondents


I invite Lord Justice Jonathan Parker to give the first judgment.


On 7 February 2002 the administrative receivers of Viasystems Tyneside Ltd ("the Company"), which is in liquidation, issued an originating application for directions. Paragraph 2 of the originating application raised the question whether an Underlease dated 28 March 2001 and granted by the Company to Grantax Developments Ltd ("Grantax"), and any rights deriving from the Underlease, were subject to or otherwise affected by the rights of the holders from time to time of a Debenture dated 29 March 2000 and granted by the Company to Chase Manhattan International Ltd, now called JP Morgan (Europe) Ltd ("Chase").


The respondents to the originating application were, firstly, three companies claiming to be entitled to the benefit of the Debenture by subrogation, namely Viasystems Technograph Ltd, Forward Acquisition Ltd and Viasystems Mommers BV ("the Subrogation Claimants"); secondly, two companies claiming rights under the Underlease, namely Grantax (as underlessee) and the Bank of Scotland ("the Bank") (which financed the acquisition of the Underlease by Grantax and which is entitled as against Grantax to a charge over the Underlease); and thirdly the liquidators of the Company.


By an order made by Park J on 14 February 2002, the hearing of the issue raised by paragraph 2 of the originating application ("the Priority Issue") was expedited. The reason for expedition was the need for the Priority Issue to decided prior to the end of the current fiscal year on 5 April 2002.


The expedited hearing of the Priority Issue took place before Mr Michael Briggs QC, sitting as a Deputy High Court Judge in the Companies Court, on 8 and 9 March 2002. He delivered judgment on 11 March 2002. He decided the Priority Issue in favour of Grantax and the Bank, holding that the Underlease took priority over the Debenture. He gave permission to appeal, subject to the condition that any Appellant's Notice be accompanied by an application for expedition. The Subrogation Claimants and the liquidators have appealed, and have duly applied for expedition. The hearing of the appeal has accordingly been expedited, and comes before us on the last day of the Hilary sittings. In other circumstances, we might well have taken time to consider our judgment; but given the urgency of the matter, and since we are agreed as to the outcome of the appeal and as to the reasons for our conclusion, we have decided to deliver our judgments extempore.


I turn, then, to the material transactions. I summarise them as follows.


By an Option Agreement dated 27 March 1998 and made between The Urban Regeneration Agency ("the Agency") of the one part and the Company of the other part, the Agency granted to the Company, for a non-returnable consideration of £171,300 plus VAT, an option (defined in the Option Agreement as the "Call Option") to take a lease of an area of development land situated in the Tyneside Enterprise Zone and known as Balliol East Business Park ("the Property"). The option was exercisable within a period of three years from the date of the Option Agreement. Clause 10.1 of the Option Agreement provided that the option was "inalienable without the prior consent of the Agency". The Option Agreement further provided that the lease to be granted on the exercise of the option ("the Headlease") was to be in a specified form, and that the consideration for the grant of the Headlease was to be calculated by reference to a specified formula. The option consideration was to be credited against the price payable for the Headlease, if the option was exercised.


By a Facility Agreement dated 29 March 2000 a group of banks, led by Chase, agreed to make available to the Company and other companies in the same group a revolving credit facility of up to some £15.7 million. The agreement was conditional on Chase taking a Debenture in agreed form. A Debenture in the agreed form was duly executed the same day. By the Debenture, the Company and its associated companies (described as the "Obligor Companies") covenanted to pay their own and each other's indebtedness to the debentureholders and gave fixed and floating charges as security for their obligations. In particular, by Clause 3.1.2 of the Debenture each of the Obligor Companies charged:

"… by way of first charge … all present and future freehold and leasehold property wheresoever situate … now or from time to time hereafter owned by such Obligor Company or which in such Obligor Company may have an interest, together with all liens, charges, options, agreements, rights and interests in or over such property or the proceeds of sale of such property and all buildings and fixtures thereon and all rights, easements and privileges appurtenant to, or benefitting, the same."


The Debenture was registered at the Companies Registry on 14 April 2000.


On 15 March 2001 a number of relevant dealings took place.


First, a company called One North- east ("ONE"), which (it seems) was the statutory successor to the Agency, and the Company entered into a Deed of Variation varying the terms of the Option Agreement. The purchase price for the Headlease was crystallised as some £1.8 million less the consideration for the grant of the option (£171,300), and the Company also undertook to pay to ONE a share of any profit made on any subsequent disposal of the Property or any interest in it.


Secondly, the Company served notice on ONE exercising the option.


Thirdly, the Company and Grantax entered into an agreement for the grant to Grantax of an Underlease of the Property for the term of the Headlease less three days. The consideration for the grant of the Underlease was some £3.2 million. Under the terms of the agreement, Grantax undertook (a) to perform the Company's obligations under a development agreement relating to the property which the Company was obliged to enter into with ONE, and (b) to pay to the Company on the grant of the Underlease a further some of approximately £5.8 million, representing a profit share in the development of the Property (being defined as "Sellers' Priority Profit Share"). Clause 3.3 of the agreement required the Company to deliver to Grantax a certified copy of the notice exercising the option, and clause 4.1 required it to hand over to Grantax on completion (i.e. on the grant of the Underlease) certified copies of the Headlease, of the Deed of Variation, and of the requisite licences for alteration and subletting, duly executed by the Company or ONE (as appropriate). By clause 7.1 the Property was expressed to be sold "subject and (where appropriate) with the benefit of the Existing Matters", which included the Headlease.


On 27 March 2001 the Bank agreed to provide Grantax with the entirety of the finance required for the purchase of the Underlease. On the same day, Messrs Dickinson Dees, the Company's solicitors, wrote to Messrs Eversheds, the Bank's solicitors, as follows:

"Further to the telephone conversation between Ryan Bannen at this firm and Gerry Mulholland at your firm, we undertake to hold the sum of £8,851,939.58 to your order. Completion with Grantax Developments Ltd cannot take place until after completion has taken place with One North East. Completion with One North East will take place when the appropriate moneys have been forwarded to One North East. Therefore, prior to completion you will need to release the moneys to our order and completion will take place immediately after the money has been received by One North East."


Completion of the grant of the Headlease and the Underlease took place on 28 March 2001, the Headlease being executed before the Underlease. By the Headlease, ONE demised the Property to the Company for 125 years from 27 March 2001. The term of the Underlease was three days less than that, thereby leaving the Company with a nominal reversion. The Underlease did not comprise the entirety of the land demised by the Headlease: a roadway which was demised by the Headlease was not included in the Underlease. Nor do the terms of the Underlease match exactly the terms of the Headlease, in that the Underlease grants to the underlessee rights of access over adjoining land in the freehold ownership of the Company.



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5 cases
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