Real property – Legal charge – Trust – Claimants seeking declaratory relief as to validity of legal charge over property and appointment as fixed-charge receivers – Whether defendant trustees having personal liability under facility and loan agreements – Whether legal charge secured over trust property valid – Whether defendants having personal liability – Whether terms of agreements varied – Claim allowed in part
The defendants, in their capacity as the trustees of a will trust, were the freehold owners and registered proprietors of land in Burton in Kendal, Cumbria. The defendants, on behalf of the trust, sought to develop the land by the construction of residential homes. After a number of unsuccessful attempts, the defendants obtained planning permission, subject to a number of conditions. The development was funded by monies advanced by LSC, pursuant to the terms of a facility agreement that provided for a term loan with a commitment of £1,350,000; and a series of subsequent term loan agreements. Those advances were secured by a legal charge.
When the defendants failed to repay the sums advanced, LSC appointed the claimants as joint fixed-charge receivers pursuant to the legal charge. The claimants sought declaratory relief as to, amongst other things, the validity of the legal charge and their appointment as fixed-charge receivers, and other relief to enable them to carry out their functions as receivers.
The claimants argued that the loan agreement provided for the relevant loan to be repaid by a specified date, and that upon that loan not being repaid, there was an event of default under the loan agreement which entitled LSC to formally demand the repayment of all sums due and owing thereunder. As such a demand had been made but not satisfied, they were validly and effectively appointed in writing by LSC as receivers under the legal charge.
The defendants disputed their right and entitlement to do so. They contended that LSC had contracted with the trust, rather than themselves as trustees, and because the trust was not a separate legal entity, there was no liability under the legal charge.
Held: The claim was allowed in part.
(1) The function of the court was to construe the relevant provisions of the facility agreement, the loan agreement and the legal charge applying the well settled principles of construction; the deeds and other documents were required to be construed objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the relevant deed or other document, would have understood the language thereof to mean. Evidence, whether from prior negotiations or otherwise, about what the parties subjectively intended or understood the deed or other documents to mean were inadmissible and irrelevant to the task of the court: Wood v Capita Insurance Services Ltd [2017] AC 1173 considered.
In the present case, the reasonable objective observer with knowledge of the relevant background would plainly have understood the language of the facility agreement and the loan agreements to provide for some party to assume liability following the advance of funds to the defendants to enable the development of the property to proceed, and would have understood those deeds to be providing by their terms for the liability to fall upon the defendants.
On the true construction of its provisions, the facility agreement provided for the defendants to have personal liability; but that liability was to be restricted to an amount representing the amount realised from the property and any other security. If the proper construction of the relevant deeds was that the defendants were excluded from personal liability, the wording limiting liability would be otiose.
The fact that the defendants were expressed to enter into the relevant deeds “on behalf of the beneficiaries” did not materially assist the defendants given that was an essentially neutral way of describing matters bearing in mind that the trust had no separate legal personality. Of more significance, was that the defendants were described as entering into the relevant deeds “as trustees for the time being” of the trust, pointing to them acting as trustees in a capacity intended to have legal effect. That was reinforced by the wording of the representation and warranty on the part of the defendants in the facility agreement to the effect that they were each validly appointed trustees acting in accordance with their powers under their constitution documents and/or with the consent of the beneficiaries.
Accordingly, the defendants’ argument that there was no personal liability secured by the legal charge could not succeed.
(2) The defendants had also argued that LSC had agreed contractual changes during a discussion onsite, subsequently confirmed by e-mail, which prevented it from enforcing its security. But the facility and loan agreements included an anti-oral variation clause providing that “no amendment… shall be effective unless it is in writing and signed by, or on behalf of, each party to it (or its authorised representative)”. And there was no such agreement to vary in writing signed by or on behalf of each party.
While the authorities suggested that an electronic signature on an e-mail might satisfy the requirements of a statutory or contractual provision requiring signature, they further showed that an e-mail signature would not be sufficient for that purpose unless it could properly be said to have authenticating intent. In the present case, the e-mail, postdating the onsite discussion, included a provision expressly negating any suggestion that the electronic signature in the e-mail had authenticating intent. The courts would respect parties’ agreements stipulating how any future variations to their contracts ought to be made: MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] EGLR 28 applied. Neocleous v Rees [2019] EGLR 49 considered.
The exchange of e-mails indicated that further information was required before agreement could be reached, and raised the possibility of further potential contractual terms. In any event, any agreement in writing would have required to contain all the contractual terms. The exchange of e-mail correspondence did not do so.
(3) The claimants were entitled to a declaration that the legal charge was validly granted and registered at HM Land Registry as security for the liabilities of the defendants under the facility agreement and the loan agreement, and was binding upon the defendants; a declaration that the claimants were validly appointed as fixed-charge receivers pursuant to the legal charge; and an order that the property be sold.
Oliver Wooding (instructed by Clarke Willmott LLP) appeared for the claimants; The defendants appeared in person.
Eileen O’Grady, barrister
Click here to read a transcript of Williams and another v Simm and others
