Receivership — Powers — Appointment — Power of sale — Law of Property Act receivers — Receivers appointed by bank over properties — Whether breach of contract by bank in appointing receivers — Whether bank estopped from appointing receivers — Whether demands for payments in excess of sums due — Whether demand for payment must allow sufficient time to pay — Whether receivers validly appointed — Whether receivers appointed under contractual power or under statutory power of appointment — Whether receivers can be appointed under section 101(1)(iii) of Law of Property Act 1925 for non-tenanted property with no income — Duties of receivers — Whether receivers under a duty to add value to property before sale — Whether receivers negligent in relation to sale of development properties — Whether receivers acting in bad faith
The claimant property companies in each of these two actions held properties that were charged to the first defendant bank. In May 1996, following demands for the repayment of the money owing, the bank appointed receivers of the properties under the terms of the respective legal charge; the charge excluded section 103 of the Law of Property Act 1925. The property in the first action (the first property) was let to commercial tenants; the properties in the second action included development sites and were not tenanted. The receivers sold the properties in the exercise of the power of sale. The claimants contended that the appointment of the receivers was unlawful and invalid because: (1) the bank was in breach of agreements made in 1989 and 1996 to give the claimants time to refinance before calling in the loans; or (2) was estopped from appointing receivers without providing the claimants with that opportunity; (3) the bank made demands for repayment in excess of those due; (4) the demands when made gave insufficient time to pay; and (5) in the case of the non-tenanted properties, there was no power under section 101(1)(iii) of the Law of Property Act 1925 to appoint a receiver as there was no “income”. In the second action, the claimant additionally claimed: (6) that by reason of the alleged invalid appointment of the receivers, there was trespass by the receivers and both they and the bank were liable for damages based on loss of development profits; (7) against the receivers, damages for negligence in relation to the sale of development properties in either failing to seek planning permission before selling or in failing to obtain the full market value; and (8) that, following instructions from the bank, they acted in bad faith in failing to seek planning permission for sites when they knew they would be unable to secure the best price reasonably obtainable. The bank counterclaimed for payment of the balance of the sums due after credit for the proceeds of sale.
Held: The claimants’ claims against the bank and the two sets of receivers were dismissed; the bank’s counterclaim was allowed. (1) The claimants had failed to establish on the evidence any agreement by the bank to give an extended period of notice before appointing receivers. (2) The bank was not estopped from appointing the receivers. (3) If the demands for repayment were excessive, they remained valid: see Bank of Baroda v Panessar [1987] Ch 335. (4) Even if the claimants had been given an extended time, they would not have been able to refinance their borrowings in the suggested extended time. (5) Under the terms of the legal charge, the power of appointment of receivers existed with effect from the date of the deed; this contractual power of appointment was additional to that under section 101(1)(iii) of the Law of Property Act 1925. The receivers had been validly appointed. (6) There was no authority to support the claim for damages against the receivers in trespass for loss of development profits. (7) A receiver is under the same (but no greater) obligations to the mortgagor as the mortgagee. A receiver is under no liability to the mortgagor unless he acts in bad faith or fails to take reasonable steps to obtain a proper price at the relevant time. He must act in good faith with a view to securing repayment of the debt by the conversion of the security into money, but he is not required to incur expense in the improvement of the security in order to sell it at a higher price, or to embark on making applications for planning permission, granting leases or the like, which are likely to delay a sale beyond the normal period of marketing. (8) There was no bad faith by the receivers in the second action; the bank was entitled to press for an early sale. The receivers were not under a duty to the mortgagors (whether fiduciary or otherwise) to put their interests first; knowledge that an early sale without planning permission is almost certain to produce a lower price is not enough to found an allegation of bad faith. The claims that various properties were sold at less than their market values were dismissed.
The following cases are referred to in this report.
Bank of Baroda v Panessar [1987] Ch 335; [1987] 2 WLR 208; [1986] 3 All ER 751
Charnley Davies Ltd (No 2), Re [1990] BCLC 760
Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949; [1971] 2 WLR 1207; [1971] 2 All ER 633; (1971) 22 P&CR 624; [1971] RVR 126, CA
Donoghue v Stevenson; sub nom McAlister v Stevenson [1932] AC 562, HL
Downsview Nominees Ltd v First City Corporation Ltd (No 1) [1993] AC 295; [1993] 2 WLR 86; [1993] 3 All ER 626
Fyffes Group Ltd v Templeman [2000] 2 Lloyd’s Rep 643
Heilbut, Symons & Co v Buckleton [1913] AC 30
Johnson v Gore Wood & Co [2001] 2 WLR 72; [2001] 1 All ER 481
Knight v Lawrence [1991] 1 EGLR 143; [1991] 01 EG 105; [1993] BCLC 215, Ch
Medforth v Blake [2000] Ch 86; [1999] 3 WLR 922; [1999] 3 All ER 97; [1999] 2 EGLR 75; [1999] 29 EG 119
Palmer v Bramley [1895] 2 QB 405
Romer & Haslam, Re [1893] 2 QB 286
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Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410; [1982] 3 All ER 938; [1982] 2 EGLR 152; (1982) 264 EG 345, CA
Woolston v Ross [1900] 1 Ch 788
Yorkshire Bank plc v Hall [1999] 1 WLR 1713; [1999] 1 All ER 879; (1999) 78 P&CR 136, CA
In the first action, the claimants, Silven Properties Ltd and Chart Enterprises Inc, sought declarations against the first defendant, Royal Bank of Scotland plc, and the second and third defendant receivers, Nigel Vooght and Timothy Richard Harris, and damages against the first defendant; in the second action the claimant, Silven Properties Ltd, sought declarations and claimed damages against the first defendant, Royal Bank of Scotland plc, and the second and third defendant receivers, Roland Simon Morgan and David William Henson. In each action, the first defendant counterclaimed for arrears of loan payments.
Michael Driscoll QC, Luke Norbury and Michael Michell (instructed by Landons, of Brentwood) appeared for the claimants; Jeffrey Onions QC and Graeme Halkerston (instructed by Lawrence Graham) appeared for the first defendant in the first action, and all defendants in the second action; Christopher Nugee QC and Daniel Bayfield (instructed by Linklaters) represented the second and third defendants in the first action.
Giving judgment, PATTEN J said:
Introduction
[1] These are claims by two property companies, Silven Properties Ltd (Silven) and Chart Enterprises Inc (Chart), against their former banker, Royal Bank of Scotland (the bank). The claims arise from the appointment by the bank of LPA receivers over a number of properties owned by the claimants and charged to the bank to secure their borrowings. In action no 3279 (which I shall refer to as the Regina House action) the property in question comprised a block of offices in Nottingham known as Regina House, which was owned by Silven. The second and third defendants, Mr Morgan and Mr Henson, are the partners in the firm of Grimleys, which was appointed as receiver. The claim in action no 3531 involves some 21 properties owned by Silven and Chart, over which the second and third defendants, Mr Vooght and Mr Harris, were the appointees. They are, or were, partners in Price Waterhouse Coopers and I shall refer to this as the Coopers action.
[2] In both actions, the claimants contend that the bank was not entitled to appoint LPA receivers when it did, in May 1996. The principal allegation is that, as a result of conversations between the directors of Silven, Mr Freddy Ezekiel and his son, Mark Ezekiel, and the managers handling the claimants’ accounts at the relevant time, the bank either agreed to give the companies time to refinance before calling in its loans and appointing receivers, or was estopped from appointing such receivers without first providing the claimants with such an opportunity. Two sets of conversations are relied upon for this purpose. The first was between Freddy Ezekiel and Mr Paul Constable of the bank and is alleged to have taken place between May and August 1989, culminating in an agreement or understanding that the bank would give to Silven at least six months’ notice of its intention to call in the company’s loans. The second relevant conversation is alleged to have taken place between Mark Ezekiel and Mrs Lesley Jacob, who was a manager in the specialised lending services department of the bank and had responsibility for dealing with the Silven and Chart accounts in the period prior to and during the receivership. The decision to appoint receivers was made following the receipt of a report by Messrs Robson Rhodes, the firm of chartered accountants, which was critical of the management of the companies and their prospects for financial recovery. The accuracy of the contents and conclusions contained in this report is very much in issue in these proceedings. Mark Ezekiel says that he agreed on behalf of Silven and Chart to bear the cost of this report at a meeting on 12 February 1996, on the basis of an assurance given to him by Mrs Jacob that if the report was critical and the bank was minded to appoint receivers, it would first give to the claimants at least three or four weeks (her actual words are said to have been either “a reasonable time” or “a few weeks”) in which to refinance their borrowings.
[3] The bank appointed receivers following a meeting with the Ezekiels on 16 May 1996 at which the Robson Rhodes report was discussed with them for the first time. The claimants were not given three to four weeks from that time to secure alternative finance prior to the loans being called in, let alone the six months alleged to have been promised by Mr Constable. The demands for repayment were made on 16 May. The Grimleys receivers were appointed over Regina House on 17 May. The Coopers receivers were appointed over the remaining properties on dates between 29 May and 7 June 1996. In these circumstances, Silven and Chart contend that the bank was not entitled to appoint the LPA receivers, that the appointments were invalid, and that the subsequent sale of the properties was made without the claimants’ consent and gives rise to a claim for damages. The validity of the receivers’ appointment is also challenged in both actions on three separate and more technical grounds:
(i) The demands made for payment were for sums in excess of those due to the bank at the relevant time, and included a claim for interest at 5% above base rate from 27 January 1995, which the bank was not entitled to make;
(ii) The demands when served (even if correct in amount) gave Silven and Chart insufficient time in which to pay the sums demanded before the receivers were appointed over the charged properties. This point is independent of the wider issue as to whether the bank agreed to give the claimants time in which to refinance, and relies upon certain decisions in the Australian courts to the effect that a debtor should have a reasonable opportunity to comply with a demand for payment before the creditor may enforce his security;
(iii) In the case of the non-tenanted properties, there is no power under section 101(1)(iii) of the Law of Property Act 1925 to appoint a receiver, because the power contained in that subsection is a power in terms to appoint a receiver of “income”.
I shall refer to the detail of these arguments later in this judgment, but Mr Michael Driscoll QC was sufficiently candid to admit in his opening that on the state of the authorities (which I shall come to later), he placed less reliance before me on these points than on his principal argument based on breach of contract or estoppel.
[4] The claim for damages arising out of the appointment of the receivers is put in two ways. The first and most obvious formulation of the claim is that the bank was in breach of the alleged collateral contract in appointing the LPA receivers and in allowing them subsequently to dispose of the secured properties. The receivers were not party to this contract and are not affected by this claim. The allegation of breach of contract is the pleaded claim in the Regina House action, but is not in terms the cause of action relied upon in the Coopers action. Notwithstanding this, I have been invited to treat it as part of that claim, and Mr Jeffrey Onions QC, for the bank, has made submissions on that basis.
[5] The alternative basis for the claim, which is pleaded in some detail in the Coopers action (but not in the Regina House action), is that in the circumstances of an invalid appointment under the legal charges, the sale of the mortgaged properties by the receivers was an act of trespass giving rise to an obligation on their part to account to the claimants for the proceeds of sale and, in the case of both the receivers and the bank, a liability to pay damages representing either the true market value of the properties at the time of sale or the amount of profit that the claimants would or might have made, had they been able to retain the properties in their ownership. In the case of many properties under the Coopers receivership and in the Regina House action, the only claim for damages is one for loss of development profits. It is accepted in the Regina House action that the Grimleys receivers obtained a price for the property equal to its market value at the date of sale.
[6] The introduction of the loss of profits claim has greatly expanded the length and scope of this trial. It has necessitated extensive factual and expert evidence directed to establishing what planning and development opportunities might have been realised, had the claimants’ |page:117| properties remained unsold. Given the sale of these properties in 1996 and 1997, that exercise has necessarily been an entirely hypothetical one, and there has been prolonged cross-examination of the relevant witnesses as to what might otherwise have been achieved. But quite apart from this factual divide, the claim against the bank and the Coopers receivers for trespass faces a serious challenge on the law. A major issue in the action is whether appointments made in accordance with the terms and powers contained in the relevant legal charges can be invalidated by the alleged infringement of a collateral bargain or course of dealing sufficient to raise an estoppel between the claimants and the appointing bank. Mr Christopher Nugee QC contends that his clients (the Coopers receivers) were validly appointed under the terms of the legal charges, whether or not collateral terms had been agreed between the bank and the claimants that had not been observed. The Coopers receivers were not (he said) party to any such contract or course of dealing and are unaffected by the consequences of it. So long as the bank retained the power under its charges to appoint receivers, and exercised that power in accordance with the terms of the mortgage deed, the validity of that appointment cannot be undermined by the breach of the alleged collateral bargain. That would at most give rise to a claim for damages against the bank. This argument turns largely on the true construction of the provisions in the bank’s standard form legal charge for the appointment of receivers. The claimants accept that if the receivers were validly appointed, their claim in trespass against them fails. Mr Nugee also challenges the claim for damages based on the alleged trespass. According to his submissions, a sale is not a trespass, and no tort of conversion or the like exists in relation to land. The claim for damages based upon loss of future profits is also said to be inappropriate as a measure of compensation for unlawful interference with a right of property.
[7] The bank also takes issue with the claimants on the question of damages. Mr Onions disputes its liability in contract for damages for loss of the alleged development profits. This claim is said to give rise to questions of causation and remoteness. Mr Onions contends that the usual measure of damages for breach of contract would be the difference between the price realised by the receivers and the market value of the properties at the date of sale. Damages on this basis are claimed only in respect of five properties in the Coopers action. The claims for development profits clearly require proof of special knowledge on the part of the bank of the development proposals relied upon to found the claim, and a finding that Silven would have secured the necessary finance to retain ownership of the properties and then have applied for, and obtained, the relevant planning permission or other enhancement in the value of the property.
[8] As an alternative to the claim based upon the premise that the appointment of the receivers was unlawful and invalid, the claimants also seek damages against the Coopers receivers for losses arising from the sale of the mortgaged properties. Although pleaded more widely, these claims are now limited to 10 properties. They can be divided into two main groups comprising:
(i) four development sites and four other properties where the principal complaint is that the receivers failed to obtain planning consents (and in one case to effect a land swap) that would have significantly enhanced the sale value of the security; and
(ii) two properties sold as part of a portfolio, where the claim is that the receivers ought to have marketed the properties individually in order to obtain full market value.
[9] All these claims are essentially ones of negligence in the marketing and disposal of the properties in question, but the case on underselling has been supplemented during the course of the trial (in relation to the development sites) by allegations of bad faith against the Coopers receivers, introduced by way of amendment following some late disclosure by the bank of documents relating to the conduct of the receivership. In essence, the new claim is that the receivers decided in about February 1997 to dispose of the development sites without first obtaining the planning consents that they were in the course of applying for, simply in order to comply with instructions given to them by the bank (through Mrs Jacob), which was anxious at the time to obtain a sale and an end of the receivership by July of that year and was unwilling to incur the additional costs that extended applications for planning permission might entail. In deciding to comply with this direction, the receivers (it is said) acted in the knowledge that by so doing they would be unable to secure the best price reasonably obtainable for the sites, and therefore consciously disregarded their obligation to deal fairly and equitably with the claimants and to take account of their interests.
[10] Each of these claims in relation to the sales of the development sites raises a prior question as to the scope of the duties of a mortgagee and any receivers it appoints. Probably the most important issue that I have to decide in relation to this part of the claim is whether a mortgagee or its receiver is ever under a duty to add value to the security by seeking (for example) to obtain planning permission prior to disposing of it. The Coopers receivers contend that the timing of any sale is exclusively a matter for the mortgagee or receiver, and the duty to act reasonably to obtain the best price has to be measured by reference to the state of the property at the time when the mortgagee decides to dispose of it. Mr Driscoll accepts that in the present state of the authorities this is true for the mortgagee, but he contends that a receiver is in a different position and has a duty to consider the position of the mortgagor when deciding whether or not to sell.
[11] There are also accounting issues to resolve. All parties are agreed that any compensation that I may decide to award to the claimants falls to be dealt with by way of an adjustment to the state of accounts between the bank and its two borrowers. Such an award will therefore necessitate an alteration to the capital balances and a reduction in the interest payable following the notional date of receipt.
[12] The bank has also accepted in correspondence a point taken by the claimants, as part of their pleaded case, that they should be credited with the net proceeds of sale from the secured properties as at the date of realisation and payment, notwithstanding that the Coopers receivers have so far failed to account to the bank for these moneys. This means that the revision of the accounts of Silven and Chart will be a matter simply of calculation and should be uncontroversial. The only accounting matter of controversy that therefore remains is the issue of the rent payable in respect of Regina House. This relates to a cheque for the sum of £296,241.01 issued on 7 May 1996 by the tenant, Refuge Assurance plc, in favour of Silven and received by that company on 10 May. The cheque was never presented for clearance and was replaced by a direct telegraphic transfer of the same amount to the client account of a firm of solicitors, Messrs Brian Hoffman & Co, which acts for Mrs Kamara, the alleged beneficial owner of Regina House. Before this transfer took place, Refuge was informed by the bank of the appointment of the Grimleys receivers on 17 May 1996, and the rent is now held in the solicitor’s client account pending resolution of the dispute between Silven and the bank as to who is entitled to the money. This seems to turn on whether the receipt of the cheque by Silven on 10 May is to be treated as the effective payment of the money on that date.
Appointment of the receivers
(1) 1989 promise
[13] I turn first, then, to the central issue in this case, upon which the substantial claim for damages depends, which is whether the bank was entitled to, and did validly, appoint the Coopers and Grimleys receivers. As already explained, the primary claim for damages for loss of profits depends upon the claimants establishing a contract or estoppel that had the effect of modifying or restricting the right of the bank under the terms of its facility and legal charge to call in the loans made and to appoint receivers.
[14] The relationship between the bank and the claimants began in March 1988 when Freddy Ezekiel had his first meeting at the bank’s Piccadilly Circus branch. This meeting took place on 28 March and was arranged through Mr Ezekiel’s solicitor, Mr Avi Lehrer of Messrs Lehrer Segal, who had contacts with the bank. Mr Lehrer had explained in an earlier telephone call to Mr Alan Devine of the bank that |page:118| Mr Ezekiel wished to discuss the possibility of the bank providing facilities to Chart to enable it to complete the purchase of properties it had recently acquired at auction. At that time, Mr Ezekiel banked with National Westminster Bank in Hampstead. Mr Lehrer explained (as is evident from a note on the bank’s file) that Freddy Ezekiel was a mechanical engineer who had branched into property acquisition and development to assist his son and two daughters. They are, respectively, Mark Ezekiel and his sisters Salome and Naomi. Both daughters were then either engaged or expected shortly to marry. Salome is married to Mr Zion Shina and Naomi to Mr Uri Kamara.
[15] The meeting held on 28 March was with Mr Devine and Mr Constable. At that meeting, Mr Ezekiel explained to Mr Devine and Mr Constable that Chart had acquired property at 6-10 Queen’s Road, Peckham, for some £184,000. The property was partly tenanted and an offer had already been received from the tenants for £225,000, but Mr Ezekiel had rejected this on the basis that the property had greater future potential. Chart had some US $197,000 available in Jersey, but required a bridging loan for a period of 12 months to complete the purchase. The bank was to be given a first legal charge over the Queen’s Road properties together with a property at 3-13 Church Road, Crystal Palace, which Chart already owned. Mr Ezekiel was also to provide a guarantee in the sum of £200,000 and a guarantee in the bank’s standard form was executed by him on 28 March. Additional security was to be provided by a guarantee from Royal Bank of Scotland (Jersey) Ltd in the sum of US $197,000 supported by a counter deposit of the like sum in Jersey, representing the amount held to Chart’s account.
[16] Mr Constable accepted in his evidence that the bank was keen to attract Mr Ezekiel’s business. One complication, however, was that Chart, although administered in Jersey with Sark-based directors, was registered in Panama. This necessitated dealing with any Jersey-based security, such as the US dollar account, through Royal Bank of Scotland (Jersey) Ltd, and being satisfied that Chart as a Panamanian registered corporation had the power to charge its English property assets as security for its debts. One of the reasons for the subsequent incorporation of Silven was to avoid these complications and to enable the bank to grant its facility to, and take security from, an English company.
[17] On 29 March 1988, the bank issued to Chart its first facility letter setting out the terms of the bridging loan account to which I have referred. The second paragraph of that letter reads as follows:
The facilities will be held available for a period of twelve months from the initial draw-down and during that period they will also be subject to the Bank’s normal terms and conditions, including the right to repayment on demand
There appears to have been some delay on the part of Mr Ezekiel in returning a signed copy of this letter to the bank, but in June 1988 Chart (again through Mr Ezekiel) requested an increased facility of up to £1m for a period of 12 months. The facility was to replace and refinance the existing bridging loan of £200,000 granted in March and additional security was to be provided in the form of a first legal charge over a property at 241-243 Finchley Road that was owned by Mr Ezekiel’s sister, Mrs Simmy Smith. The new facility would be repaid from the sale of that property, which the bank was told was due to take place, together with the sale of a property at 263-265 Finchley Road, for a total sum of £4m. This other property was owned by Ninkiel Property Co Ltd, which was owned or controlled by Mr Ezekiel. Completion of the sale was due in January 1989. Mrs Smith was expected to receive some £2.75m of the proceeds of sale.
[18] On the basis of this security, the loan was approved and a facility letter was issued to Chart on 21 June 1988 offering an overdraft facility of up to £150,000 for working capital purposes, together with a bridging loan of up to £850,000. The letter contains a paragraph in the following terms:
These facilities will be held available until the end of June 1989 and in the normal way will be subject to the Bank’s normal terms and conditions, including the right to repayment on demand.
[19] It was also conditional upon the bank receiving a letter from a suitably qualified person or firm confirming that Chart had the necessary power to enter into the arrangement and to grant the security required. Before this condition could be complied with, Mr Ezekiel’s solicitor, Messrs Lehrer Segal, wrote to the bank on 7 July 1988 asking for Chart to be put in funds in the sum of £496,974.90 in order to complete the purchase of two properties. The bank (through Mr Constable) replied on 14 July stating that no funds could be released until it received the necessary opinion letter from Messrs Stephenson Harwood via its securities department in Manchester. At about the same time, the facility letter was returned signed by two Chart directors.
[20] I should mention at this point that although Chart is an overseas company registered in Panama, with directors in the Channel Islands, it is clear that at all material times its directing mind was Mr Freddy Ezekiel and subsequently Mark Ezekiel. Early on in the trial I heard evidence from Mr Andrew Duncan, who had at one stage been the company secretary. He did his best to persuade me that any decisions about Chart’s portfolio of properties were taken by the directors in Sark, but it is clear from his and other evidence that any decisions that they made were largely dictated by the Ezekiels, whom they regularly consulted and who acted as agents for Chart in London. I have approached this case on the basis that it is wholly unrealistic to regard any material decision taken on behalf of Chart as that of anyone but Freddy or Mark Ezekiel.
[21] On 4 August 1988, Mr Freddy Ezekiel called to see Mr Constable at the Piccadilly branch to provide an update on progress with the sale of the Finchley Road properties. During that meeting, he mentioned a proposition with regard to a site in Arabella Drive, Roehampton, which he said had potential for development as sheltered housing. Figures of up to £6m were mentioned, but Mr Constable indicated that the bank would not lend money in relation to a site that had no planning permission. In addition, the sale of the Finchley Road properties had yet to be finalised and the bank had still to receive the opinion letter in relation to Chart.
[22] Difficulties caused by the position of Chart as an overseas company were recognised by the incorporation of Silven on 16 August 1988. This new company had Mark Ezekiel and Freddy Ezekiel as its directors. Another possible director was to be a Mr Aron Egoz, who had been involved in construction projects in Israel and was said to be interested in investing in property in the UK. Silven was registered in England and was to have unlimited powers in relation to borrowing and the giving of security. The bank’s internal documentation of 18 August records a request from Silven for a bridging loan of up to £1.5m to assist with the purchase of various properties for investment and, in some cases, development. These arrangements were to subsist until June 1989, when the loan would be repaid out of the proceeds of sale of the Finchley Road properties. Apart from overcoming the problems of lending associated with Chart, Silven had another purpose. Mark Ezekiel was 23 in 1988. Until then he had had no involvement in Chart. His father was anxious to provide him with an opportunity of gaining experience in the property business and, as he confirmed to me in his evidence, Silven was to provide the vehicle for this.
[23] On 24 August 1988, the bank issued a facility letter in favour of Silven, which was accepted and countersigned by Freddy and Mark Ezekiel. It provided a bridging loan facility of £860,000 to assist with the purchase of four properties, including the Arndale Centre in Maltby, Yorkshire, and the land in Arabella Drive, Roehampton. The latter was to be given a nil value for security purposes, but the bank was to be given a first legal charge over all four properties, together with a dwelling-house in Arkwright Road, Hampstead. A charge was also to be taken over the property at 241-243 Finchley Road once it had been transferred from Chart to Silven following the exchange of contracts for the sale of the property to a company called Charterhall Ltd. Any loans to Silven from other sources were to be subordinated to the bank in respect of capital and interest. The letter went on to state that further consideration would be given to increasing the facility to £1.5m once contracts had been exchanged on all the Finchley Road properties. |page:119|
[24] Mr Constable described his relationship with Freddy Ezekiel at this stage in 1988 as good, although complex. The latter owed much to the fact that in his early meetings with Mr Ezekiel, Mr Constable had been given an account of Mr Ezekiel’s family history, which is also set out in some detail in one of his witness statements in these proceedings. It includes an explanation of how his wife, Mrs Nina Ezekiel, had inherited a share of the estate of her father, Menashi Heskel Messaffi, following his death in Iraq in 1944. It also refers to the difficulties subsequently experienced by his wife’s family in Iraq and other instances in which fraud of various kinds is said to have been perpetrated on members of the Messaffi family. Of more immediate significance, Mr Ezekiel says that he told Mr Constable of two settlements that had been set up for the benefit of his daughters in late 1987 in anticipation of their forthcoming marriages. The intention was to acquire properties that would be assigned to those settlements, although held in the name of Chart. The detail of these arrangements was not gone into during the course of the evidence because Mr Driscoll accepted on behalf of his clients that they were irrelevant to the present claims. But it became clear to me during the trial that the properties acquired by Chart and Silven that are regarded by Mr Ezekiel as belonging to the two marriage settlements have provided much of the controversy in relation to the receiverships and sales that are the subject matter of these proceedings. An early but unsuccessful attempt was made to prevent sales by the receivers of the alleged trust properties on the basis that Mrs Shina and Mrs Kamara had beneficial interests in them not capable of being overridden by the bank’s power of sale in the absence of consent being given by the beneficiaries to the property standing as security for the claimants’ debts. Indications were given during the course of the trial that there might be further litigation on this issue regardless of the outcome of these proceedings.
[25] I shall return to the matter of the trusts when I come to deal with the events of July and August 1989, but for present purposes it is enough to observe that nothing in the trust arrangements appears to have impacted upon the terms of lending agreed to by Silven. The facility letter of 24 August 1988 contains the same statement as in the earlier arrangements with Chart. The facility is expressed to be subject to the bank’s usual terms and conditions, including the right to repayment on demand.
[26] It is also convenient, by way of background, to say something about the legal charges executed by Silven to provide the security specified in the facility letter of 24 August. The legal charges executed in respect of the four newly acquired properties, including Arabella Drive, were in each case the bank’s standard form commercial legal charge. In every case, Silven covenanted to discharge, on demand, all its liabilities of any kind to the bank (defined as the “Mortgagors’ Obligations”) and charged the relevant property as a continuing security for such discharge. Clauses 4 and 5 of each charge provide as follows:
4.2 Section 103 of the Law of Property Act 1925 shall not apply and the Bank may exercise its power of sale and other powers under that or any other Act or this deed at any time after the date of this deed.
4.3 The Bank may under the hand of any official or manager or under seal appoint or remove a Receiver or Receivers of the Property Charged Assets and may fix and pay the fees of a Receiver, but any Receiver shall be deemed to be the agent of the Mortgagor and the Mortgagor shall be solely responsible for the Receiver’s acts, defaults and remuneration.
…
5.1 Any Receiver appointed by the Bank shall have the following powers which in the case of joint Receivers may be exercised jointly or severally:–
5.1.4 To sell, lease, surrender or accept surrenders of leases, charge or otherwise deal with and dispose of the Property Charged Assets without restriction.
Silven continued to execute legal charges in this form long after the alleged agreement about the giving of time that is said to have been made in August 1989, and all of the charges granted in respect of the properties that are the subject of the claims in this action were executed in this form.
[27] On 2 September 1988, contracts were exchanged between Mrs Smith and Charterhall Properties (Finchley) Ltd for the sale of 241 and 243 Finchley Road. Completion was to take place seven days after Charterhall had exchanged contracts with the British Railways Board for the grant of a lease of some adjoining land, which had to be acquired to facilitate a larger development. In the meantime, Silven continued to acquire property, and, on 14 October 1988, the bank was asked to provide a further advance of £640,000, taking the bridging loan from £860,000 to £1.5m. By this time, the bank was becoming concerned that the property at 241-243 Finchley Road had still not been charged to secure the facility to Silven as contemplated by the letter of 24 August, and the bank’s regional office indicated to the branch that it would not sanction further drawings until this security was in place. It was however willing, if absolutely necessary, to allow a further advance of £200,000 to Chart for a maximum period of one month.
[28] By November 1988, some of these difficulties had been resolved. Mrs Smith had executed a charge over 243 Finchley Road to secure the liabilities of Silven to the bank, and the additional loan of £200,000 was made to Silven rather than to Chart. But the bank was still concerned about the value of its security in relation to Silven, and only reluctantly agreed to approve an increase in Silven’s facility to £1.75m against a recommendation by Mr Constable to increase it to £2.35m. It did, however, agree to his request to allow Chart a draw-down of £1m and to provide a further £180,000 to Silven to complete the purchase of a property in St John’s Wood. The increase in Silven’s bridging loan facility to £1.93m was confirmed in a facility letter sent to the company on 22 November 1988. Once again, the letter refers to the loan being repayable on demand. Further consideration was to be given to raising the facility to £2.355m once the contract for the sale of Finchley Road became unconditional.
[29] In his witness statement made on 7 July 1998, Freddy Ezekiel says that between August and November 1988 he explored with Mr Constable the terms of a revolving facility that the bank might consider suitable as the basis for Silven’s future operations under the control of Mark Ezekiel. There is little, if any, sign of this in the contemporaneous documentation and Mr Constable does not mention it in his evidence. It seems to me that any serious discussion of the basis for the long-term financing of Silven would have had to abide the sale of the Finchley Road properties and the repayment thereby of the existing bridging loans. Only then would the bank have been able to assess what it was prepared to lend and on what terms, having regard to the security then available and its view of Silven’s long-term prospects under Mark Ezekiel. The critical period therefore really began in May 1989. By then, the sale of 241-243 Finchley Road to Charterhall had been completed, but payment of the price of £2.5m depended upon Mrs Smith obtaining vacant possession of the premises from various tenants by 24 June 1989. A failure to deliver vacant possession by that date could have resulted in Mrs Smith being required to repurchase the property. |page:120|
[30] The claimants’ pleaded case is that at a meeting held on 23 May 1989 Mr Ezekiel asked Mr Constable to explain the procedure that would be adopted if the bank wished to reduce or call in Silven’s loan. Mr Constable said that it was common practice for the bank to discuss the matter with the borrower and to allow a reasonable time in which the borrower could either sell the properties or refinance, but that this practice was subject to the bank’s contractual right to call for repayment of the loan on demand. Mr Ezekiel is alleged to have rejected this as a basis for Silven’s borrowing and to have discussed the matter further with Mr Constable on 30 May, when Mr Constable agreed that the bank would give Silven at least three months’ notice of any reduction in its facility and six months’ notice if it decided to call in the loan. Paragraph 3B of the particulars of claim in their current form goes on to plead that, at a subsequent meeting on 20 July, Mr Ezekiel accepted in principle the periods of time that Mr Constable had mentioned at the 30 May meeting, subject to the bank not insisting upon its contractual right to repayment on demand and subject to the issue of the facility letter. Mr Constable is said to have confirmed the bank’s agreement to this by August 1989 and to have issued a facility letter to Silven on this basis. I should emphasise (as Mr Freddy Ezekiel also accepted in evidence) that it is not suggested that the alleged agreement related to Chart.
[31] In my judgment, this case is not established on the evidence. It is not supported by any contemporaneous documentation and requires me to choose between the testimony and recollection of Mr Freddy Ezekiel and that of Mr Constable. Mr Ezekiel’s evidence is contained in paras 14 to 16 of his 1998 witness statement. Much of this is taken up with the detailed account of discussions between the two men on 23 May about what would and could be done in relation to the legal charges held by the bank over trust properties held in the name of Silven or Chart once the relevant borrowings had been repaid out of the proceeds of Finchley Road. Mr Ezekiel was anxious for the bank to preserve any such charges intact, securing at most either a nil or nominal amount, so as to give the impression that the properties remained encumbered in order to protect the beneficiaries from attempts by fortune-hunters and others to lay their hands on the trust assets. It is unnecessary for me to form any view as to whether these fears were well founded, because it is clear that Mr Ezekiel did harbour an almost paranoid sense of concern about the properties intended to form his daughters’ dowries, and it is this concern to protect these assets from all possible claimants (including, ultimately, the bank) that has, in my judgment, led him to adopt over time an increasingly unrealistic and inaccurate view of the right of the bank to deal with its security.
[32] A good example of this can be found in Mr Ezekiel’s account of the use made of the proceeds of sale from Finchley Road. The original scheme, and the basis upon which the loans to Chart and Silven were made, was that the borrowings of both companies would be repaid out of the proceeds of sale of 241-243 Finchley Road. These properties were expected to realise about £2.4m and the sale was expected to be completed either late in 1988 or early in 1989. In the event, due to the problems involved in obtaining vacant possession, the sale was not completed until 31 July 1989, when the bank received only £2.153m, which was insufficient to repay both loans. The proceeds of sale were reduced by the sums paid out to the tenants of 241-243 Finchley Road in order to obtain vacant possession. When received, the net proceeds of sale were credited by the bank to the account of Silven (no 259554). Two separate amounts (£850,000 and £233,917.35) were then debited to the Silven account and credited respectively to the bridging loan account (no 134379) and current account (no 130918) of Chart, so as to repay those borrowings in full. The extinction of these liabilities was discussed and agreed to at the time between Mr Freddy Ezekiel and Mr Constable, and led to the discussions I have already referred to in relation to what should be done in respect of the Chart legal charges. This was confirmed by Mr Ian Drake, one of the claimants’ witnesses, who worked in the large advances department at the Piccadilly branch at this time. The balance of the proceeds of sale left in the Silven account reduced the indebtedness of that company to £1,137,734. These arrangements are clearly set out in the letter from the bank to Mr Ezekiel of 3 August 1989, which Mr Ezekiel has countersigned.
[33] Notwithstanding this, both Freddy and Mark Ezekiel contended in their evidence that by early August 1989 the borrowings of both Silven and Chart had been repaid. This view of things was relied upon to support a case (no longer advanced in these proceedings) that the bank (through Mr Constable) agreed in May or June 1989 that once the current indebtedness of both companies had been cleared by the proceeds of sale from Finchley Road, the charges on the properties held by Silven and Chart as part of the two marriage settlements would not be utilised as security for the loans of those companies without the consent of the beneficiaries concerned. Mr Freddy Ezekiel and Mr Drake both gave evidence that an arrangement of this sort existed and that a list was prepared and kept on the bank’s files of the properties affected. Mr Constable, on the other hand, recalled only a list of properties purchased, which Mr Drake prepared and kept as part of the advances file in readiness for the handover of responsibility for the account to Mr David Owen. He had no recollection of any formal record being kept of trust properties or of what Mr Freddy Ezekiel described as a confidential or secret file. He did, however, confirm that Mr Ezekiel had wanted the charges on the Chart properties preserved subject to a nominal indebtedness, as I have described. Mr Constable explained to him that this would not be effective to disguise the fact that the charges were not currently securing any indebtedness, and that the bank would not retain the charges on this basis. It was, however, prepared to keep the charges on the properties in existence, but with a note that there was no further borrowing secured by them. There is some support for this arrangement in a later letter of 8 December 1989 from Freddy Ezekiel, in which he asks the bank to obtain the “revalidation” of some of the Chart legal charges. Mr Constable said that the bank’s regional office was not informed of this arrangement because Chart’s indebtedness had been repaid and there was to be no further borrowing by that company.
[34] Mr Constable was, however, quite clear that these arrangements did not apply to Silven, and I accept his evidence on this in preference to that of Mr Drake and Mr Ezekiel. He did not think that he was ever told that a particular Silven property was being purchased as a trust property, nor did he ever agree that, following the receipt of the Finchley Road moneys, certain Silven properties were to be treated as released from the legal charges and ring-fenced by a prohibition on further lending except with the beneficiaries’ consent. He also made the point (which I also accept) that the Silven borrowing was not repaid out of the proceeds of sale from 241-243 Finchley Road. Freddy and Mark Ezekiel (assisted to some extent by Mr Drake) contended that as at 31 July 1989 the entirety of Silven’s debt had been extinguished by the receipt into Silven’s account of the proceeds of sale of 241-243 Finchley Road, and that the indebtedness of £1.137m created by the debit used to clear the indebtedness of Chart was against a new account in the form of a revolving facility, rather than a bridging loan, which was opened by the bank with effect from 1 August 1989.
[35] It is certainly the case that for a brief moment, the effect of the receipt of the Finchley Road moneys was to reduce Silven’s indebtedness to nil, but this changed once the account had been drawn upon in order to fund the repayment of the sums due to the bank by Chart. It is also apparent from the bank’s internal records that after 8 August 1989, the account is referred to as a revolving facility rather than a bridging loan. This is in contrast to the terms of the facility letter sent to Silven, care of Messrs Lehrer Segal, on 8 August 1989, agreeing to an increase in the “bridging loan facility” to £2m, with some £500,000 being drawn down immediately to meet the cost of the property at 777-789 Old Kent Road. But even if the description of the account in that letter was wrong (as to which I make no finding), there is nothing to suggest that, at the time when the money was drawn down from Silven’s account to repay the debts of Chart, it was not still operating as a facility under the terms of the existing arrangements. It is also quite unrealistic to suggest that any change in the security arrangements in respect of Silven would have been made at a time when the bulk (if not the whole) of the indebtedness incurred in connection with the Ezekiels’ property business was to be channelled through that company. As already indicated, I prefer Mr Constable’s account of the matter and I am satisfied that no special arrangements were made to deal with any supposed trust properties held by Silven. I say supposed because, although a considerable amount of evidence was directed to dealing with the position of the trust properties, no evidence was ever produced to substantiate the existence of any such trust. Mr Driscoll (in answer to a question from me) was unable on behalf of his clients to point to or produce any relevant trust deed, and I have seen nothing to prove that any trust ever came into existence, in relation to the properties of Silven or Chart, that would satisfy the requirements of section 53(1)(b) of the Law of Property Act 1925.
[36] However the real importance of the facility letter of 8 August lies not in its reference to “bridging loan facility” but in what it says about the terms of repayment. The facility was to be subject to review in June 1990, and the letter contains the usual paragraph stating:
The facility is of course subject to the Bank’s usual terms and conditions, including the right to repayment on demand.
This is of course completely inconsistent with the claimants’ pleaded case that by that date, or shortly thereafter, Mr Constable had agreed on behalf of the bank to waive its right to repayment on demand in favour |page:121| of a period of notice. Both Freddy and Mark Ezekiel say that the letter was never received, and no copy of the letter was produced, countersigned by them as requested. But the letter was put to Mr Constable and he confirmed that it was signed by him. Whether or not the Ezekiels received the letter, it is strong evidence that no such agreement of the kind alleged by the claimants was made by Mr Constable in early August 1989. Mark Ezekiel suggested that the letter was “a con”, by which I took him to mean that it was a forgery of some kind. He pointed out that the address of Messrs Lehrer Segal was wrong and Mr Constable was unable to explain the reason for this. But notwithstanding the point about the address, I have no hesitation in rejecting this allegation. No alternative version of the facility letter has been produced, yet it is clear from the bank’s later records that the limit of the facility was raised to £2m by 15 August, and that on 23 August the bank agreed to a temporary increase in the facility to £2.925m to assist Silven in further property acquisitions, pending receipt of the proceeds of sale from the Ninkiel property at 263-265 Finchley Road, which were due to be received early in September. The increase in the facility was provided as a closed bridge, and, on receipt of the proceeds of sale of 263-265 Finchley Road, the facility was to revert to its existing limit of £2m until June 1990. Again, in the facility letter of 23 August (also signed by Mr Constable), the facility was expressed to be repayable on demand.
[37] On 20 October, the proceeds of sale of 263-265 Finchley Road (amounting to £1,255,672.15) were received and credited to Silven’s account, reducing the indebtedness to £1,699,009. On 11 October,Mr Freddy Ezekiel had sent to Mr Constable and Mr Owen a list of the Silven properties “held by your bank as security” and an estimate of current values. There is no suggestion in this document that the existing legal charges were not to be available (in the case of trust properties) to meet the liabilities of the company or that there were in existence some revised terms governing the enforceability of that security. When Regina House was purchased by Silven in November 1989, both Freddy and Mark Ezekiel executed the standard form legal charge I quoted from earlier in this judgment in favour of the bank. A facility letter was sent to Silven, signed by Mr Constable, on 15 November, agreeing to an increase in the revolving facility to £3m. Again, it states that the loan was to be repayable on demand and subject to review in June 1990.
[38] During the course of his cross-examination, Mr Constable was pressed at some length as to whether he gave to Mr Ezekiel any assurances about giving time to Silven in the event of the bank deciding to reduce or call in its loan. He was willing to concede that a conversation or conversations did take place on that subject and that he told Mr Ezekiel (as he told most of his customers) that in the event of the borrower encountering financial difficulties, the bank’s usual course would be to discuss the matter and to see whether the borrower would be able to effect repayment either by the sale of its property or by obtaining replacement finance from another lender. The bank would usually be prepared to give the borrower time to achieve this if it appeared feasible. Mr Driscoll placed particular emphasis in his submissions on the following passages from Mr Constable’s cross-examination:
Q. Again, from your point of view, bearing in mind it is an on demand facility, why are you saying anything at all about giving the customer a reasonable time in which to pay? Why not just simply say, if I can make you focus on the question which I am trying to ask: “Well, it is on demand. There it is. We can call it in any time?”
A. Well, that, if you like, was where the customer would be coming from. That would be the reason for his question, that he would be concerned that he had used the borrowings quite properly for the purpose for which they had been intended and agreed, ie the property purchase or whatever, and then one day the bank would wake up and feel a little bit grumpy and decide: we are going to demand repayment from Mr Ezekiel. We feel like it.
That obviously was not the case as far as the bank was concerned, obviously not the case. But it was something in theory looking from a clause that says the bank has the right to demand repayment on demand could in fact be the case. I explained to him that the bank, if it was to seek repayment or reduction, it would discuss with the directors of the company how they would best achieve that and what their intentions would be to do so; and then, depending on how they intended to do it, they would be given some time to achieve that.
No specific time was mentioned. I mean, we are talking about a month or two, a few months, that sort of thing, subject to the bank’s agreement. But it would be a matter of discussion, at that time, if the bank could see that the actions which the customer is going to take would achieve the desired objective, there would be no reason for the bank to do other than give them time to do so.
…
Q. And he was asking you the question because he wanted you to assure him that this property-owning company would be given, by the bank, an opportunity of repaying the debt or refinancing, or whatever might be required before it called in the debt?
A. Before it formally called in the debt, yes.
Q. Before it formally called in the debt?
A. Yes.
Q. That is the assurance he was seeking from you and that is the assurance you gave?
A. That is right.
Q. Could it be put in this way, then: the bank always had the right to call in the debt on demand, but you were assuring the customer here that they would not exercise that right without giving the customer a reasonable opportunity to refinance, repay or whatever was required?
A. That is so. I said that the bank would not arbitrarily wake up one day. There would have been a period of time when there had been a number of discussions with the customer about the relationship and what was happening. The customer would not suddenly become aware that the bank would demand a repayment. He would be aware that the relationship was deteriorating for some time before that, and that the bank would seek to have a discussion with the customer about how they were going to seek repayment. It is always better for the customer to make arrangements to repay their debt than the bank to do so itself. You get a far better sale value for the properties.
Q. If someone said to you: I will give you a reasonable time in which to do something. I would say: what do you mean, what is a reasonable time? Did Mr Ezekiel ask you what was a reasonable time?
A. I said a month or two, a few months. It depends on what the proposals were. It depends on — I mean, we were talking specifically about Mr Ezekiel and his property company. But if you were talking about a manufacturing company or something like that, it may well be different.
But these extracts have to be read in the light of a slightly earlier exchange, which puts the subsequent evidence in context:
Q. You set out, in para 14, the statement that you made to Freddy when he asked you to explain to him the procedures that would apply to the facility. You say here that the words you used were:
“It was a common practice for us to discuss it with the debtor’s directors and agree a reasonable period of time, a few months at least, in which the debtor could arrange, through sales or borrowing, to achieve the reductions required notwithstanding our contractual right and this was made clear would be the procedure followed if the bank should require him to effect a reduction or have its facility fully repaid”.
Why say anything of this kind to Freddy Ezekiel at all?
A. Because he asked me what “repayment on demand” meant and what the procedure would be if the bank sought repayment.
Q. So you were intending, first of all, to give him some comfort. I think “comfort” was an expression you may have used this morning. You certainly intended to give him some comfort?
A. I said this morning that this was a conversation that I had had a number of times with various customers, because on demand facilities were sometimes difficult for them to understand. They liked the benefits of them; but the other side of the coin was the bank had a right to demand repayment.
It is also clear from the passages in Mr Constable’s evidence relied upon by Mr Driscoll that Mr Ezekiel was not given anything amounting to a promise of any particular period of notice (whether three or six months). He was told that the time (if any) to be given would depend upon the circumstances then prevailing and would be a matter for agreement by the bank at that time. Despite Mr Driscoll’s best attempts through cross-examination to attach to Mr Constable’s statements greater weight and purpose than mere words of comfort, I remain wholly unconvinced that Mr Constable said anything that was capable of amounting to a promise or representation sufficient to give rise to a contract or estoppel of the kind relied upon. I am also satisfied that these statements were intended, and understood by Mr Ezekiel, to be no more |page:122| than a general indication as to how the bank was likely to operate in such circumstances. It is apparent that Mr Constable was not asked to give a concrete and unqualified assurance of the kind alleged, with the intention that it should form the basis of the parties’ future banking relationship, contractual or otherwise. In particular, it is clear to me (and I find) that Mr Constable was never authorised by the bank to agree, and did not agree, that its contractual right to repayment on demand should be abrogated or modified by a requirement to give a specific period of notice before calling in the loan. In short, neither party either intended or believed, at the time or subsequently, that the discussions that Mr Constable admits took place in 1989 were to affect the contractual relations between them, as expressed in the facility letters or the legal charges. In so far as this requires me to prefer the evidence of Mr Constable to that of Mr Ezekiel, I do so. I found Mr Constable to be a reliable witness, prepared to make concessions and anxious to assist the court. I do not believe that Mr Ezekiel has sought deliberately to mislead the court, but he clearly harbours a deep-seated resentment against the bank for what he sees as its failure to honour promises made to him and for its conduct in disposing of trust properties that he regards as virtually inalienable. This sense of grievance has in my judgment led him to fall into the familiar trap of attaching over time considerably more importance to conversations and discussions that, at the time they took place, were never intended to be more than casual assurances. That said, I wish to make it clear that I do not accept Mr Ezekiel’s evidence that there was agreement on periods of three and six months’ notice. It is, I think, significant that the case about the requirement for three to six months’ notice did not feature in the original pleading or in an earlier affirmation made on 26 November 1996 by Mr Ezekiel. Nor was the pleaded date for the agreement of early August maintained in his oral evidence. He now places the agreement at some point between 15 and 23 August 1989. Most significantly, however, the 1989 agreement was never mentioned to Mark Ezekiel even when he took over the management of Silven’s banking arrangements. Mark Ezekiel accepted that the earliest he was told about it was in 1996, and that this was probably after he had had his discussions with Mrs Jacob about payment for the Robson Rhodes report. This indicates that the discussions with Mr Constable were not intended to form the basis of any contract between the bank and Silven. It also confirms that they did not. The terms of Silven’s facilities were subsequently agreed by Mark Ezekiel without knowledge of the 1989 discussions. The last facility letter was issued to Silven on 4 May 1993. Mr Freddy Ezekiel ceased to be a director sometime between March 1993 and March 1994. But it is clear that by 1993 the running of Silven was in Mark Ezekiel’s hands, and there is no evidence that Freddy Ezekiel participated in the agreement to renew the facility or even discussed the matter with his son. That seems to me to be an additional reason why the bank’s right to demand payment was unfettered.
[39] I therefore reject the claims in these actions based on the allegations contained in para 3B of the particulars of claim. The observations of Lord Moulton on collateral contracts in his speech in Heilbut, Symons & Co v Buckleton [1913] AC 30 at p47 seem to me to be very much in point in this case:
The effect of a collateral contract such as that which I have instanced would be to increase the consideration of the main contract by £100, and the more natural and usual way of carrying this out would be by so modifying the main contract and not by executing a concurrent and collateral contract. Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract, are therefore viewed with suspicion by the law. They must be proved strictly. Not only the terms of such contracts but the existence of an animus contrahendi on the part of all the parties to them must be clearly shewn.
In relation to the plea of estoppel (identified by Mr Driscoll in his closing submissions as an example of estoppel by convention), there may be the other difficulties outlined by Sir Alexander Turner at pp167-168 in the 1977 edition of Spencer Bower & Turner, The Law Relating to Estoppel by Representation as follows:
Just as the representation which supports an estoppel in pais must be a representation of fact, the assumed state of affairs which is the necessary foundation of an estoppel by convention must be an assumed state of facts presently in existence… No case has gone so far as to support an estoppel by convention precluding a party from resiling from a promise or assurance, not effective as a matter of contract, as to future conduct or as to a state of affairs not yet in existence. And there is no reason to suppose that the doctrine will ever develop so far. To allow such an estoppel would amount to the abandonment of the doctrine of consideration, and to accord contractual effect to assurances as to the future for which no consideration has been given.
In Johnson v Gore Wood & Co [2001] 2 WLR 72 at p98, Lord Goff of Chieveley described this passage as embodying a fundamental principle of our law of contract. In the present case, however, I am content to base my judgment on my view of the evidence. There never was an agreed assumption of the kind alleged about the circumstances in which the bank might call in the loan and appoint receivers.
[40] From 1990, Silven continued to be the principal vehicle for the Ezekiels’ property business. In February 1990, the bank had agreed to grant to Chart a loan facility of £300,000 to enable it to acquire an interest in Diamond plc, a property investment company. It was agreed that, as security, the bank would continue to rely upon its legal charges over the Chart properties at 6-10 Queen’s Road, Peckham, Cavendish Crescent, Elstree, 278-280 Old Kent Road, 3-13 Church Road, Crystal Palace, and 3 Harleyford, London SE15. By now, Mr Constable had left the Piccadilly branch and had been succeeded there as manager by Mr Owen. No attempt seems to have been made to seek the consent of any third party beneficiary to the use of the legal charges as continuing security, and it may be that any notes about the charges of the kind described by Mr Constable and Mr Drake were either not passed on to Mr Owen or were simply ignored. In the end, however, nothing turns on this for the purposes of this action. Chart gave its consent through its directors to the use of the legal charges as security, and it is accepted by Mr Driscoll that the bank was entitled to exercise its powers under the legal charges irrespective of whether they were trust properties and regardless of whether the consent of any beneficiaries had been either requested or obtained.
[41] In March 1990, Freddy and Mark Ezekiel requested the bank to increase Silven’s facility. A two-stage process was envisaged, under which the limit would initially be raised to £3.5m to allow for additional purchases, and then to £4.5m. The portfolio of properties purchased by Silven was to comprise 70% commercial property, 20% development sites and 10% residential property. Repayment of the facility was to come from disposals and long-term mortgage lending. There were a number of difficulties facing the bank about this proposal. By 1990, the decline in the property market was established. Interest rates were high and development was adversely affected by market conditions. Silven was not itself a developer. Its strategy (like that of Chart before it) was to acquire sites that appeared to the Ezekiels to have some long-term prospects for an increase in value. Many of these sites (including those that are the subject matter of these proceedings) were either open sites seen as capable of future development or existing properties that might be suitable for conversion, subject to planning permission. Although some properties produced a rental income, this was not the primary reason for their acquisition. They were purchased for their long-term capital growth. The proposal to increase Silven’s borrowing limit to £4m was presented to the bank as a means of further diversifying the portfolio by acquiring properties with a rental stream. As of 28 March 1990, interest under the facilities continued to be covered, although some delays in payment had occurred due to difficulties with the tenants of Regina House and other properties. The branch assessed the value of the securities at about £7m, which produced a loan-to-value ratio (LVR) on Silven’s current borrowings of almost £3m or some 45%. This would deteriorate to 56% if the facility were increased to £4m.
[42] The branch was prepared to recommend an increase in the facility to £4m, but when the request was passed to the regional office for approval, a number of queries were raised about the adequacy of the rent-roll and the valuation of some of the properties. As of 30 April 1990, the bank was only prepared to sanction a temporary increase in the facility by £386,000 to enable Silven to complete the purchase of properties already contracted for, and this consent was given on terms |page:123| that a guarantee was taken from Freddy Ezekiel in the sum of £250,000 and a full review of the facility was undertaken once the information requested about the charged properties was to hand. The branch passed the request for the guarantee on to Mr Ezekiel, who wrote to Mr Owen on the same day setting out the reasons why he considered the request to be both unnecessary and unjustified. The letter is interesting as a commentary on Silven’s strategy.
Primarily properties are purchased by the Co for their capital gain potential and consequently the levels of returns obtained initially as well as the reversionary rent returns on capital, respectively lag and spurt naturally. Rental income does on balance come through on an assured and adequate basis to cover Bank interest that accrues on borrowings as will be apparent from the figures delineated hereunder.
Instead of seizing up, Silven’s planned income will steadily increase, under Mark’s direction and efforts on new lettings, rent revisions and the additional advertising/poster income he obtains from the company. The 4m facility is required, to develop the company’s properties and to take advantage of the softening market conditions, to buy well now and over the period to March 1991.
Reluctantly, however, Mr Ezekiel agreed to sign the guarantee and it was executed on or about 30 April.
[43] By 7 June 1990, Silven’s borrowings amounted to £3,458,458. The branch had obtained the company’s response to the various enquiries raised by the bank’s regional office and reported that there was a shortfall in income, which would be eliminated once rent reviews in respect of Regina House and 777-787 Old Kent Road had taken place:
As you can see the future reviews are ample in quantity to cover the shortfall and the Directors are confident that all will be in place by next year. The Directors realise their approach of pure capital growth has now to be changed and are addressing the problem of income.
On 28 June, the bank notified the branch that it was prepared to increase the revolving facility to £4m, but noted that it did not wish to see any excesses in the borrowing. At £4m, the LVR was 73%. Any shortfall in interest was to be encompassed within the facility. On 17 July, Freddy and Mark Ezekiel met Mr Owen to discuss the various accounts. The bank’s note records that Chart’s borrowing (then standing at £368,266) was likely to be discharged by the remortgaging of the property it owned in Elstree. Mark Ezekiel indicated, however, that he might wish to set up a new line of credit of up to £1m secured on the Chart properties, together with new properties to be purchased by Diamond plc. This was to be discussed on a later occasion. In relation to Silven, Mr Owen advised the Ezekiels that the present borrowing of about £3.5m was to be regarded as the limit. Following this meeting, Mr Owen wrote to Chart on 1 August 1990 confirming the bank’s agreement to continue an overdraft facility of £60,000 and loan facility of £300,000 for Silven, subject to review in September 1990, when the borrowing was expected to be repaid from the refinancing of the Elstree flats. The letter again states that the facilities were to be repayable on demand and that the bank would continue to look to its existing charges as security.
[44] On 24 August, the bank marked on Silven’s facility until the end of September to allow the company to produce audited accounts, which had been requested in July but were still not to hand. Mark Ezekiel was chased for the accounts on 4 September, but as of 19 September the accounts had still not been produced and the branch was forced to request the large advances department to extend the facility to 9 October. On 22 November, the branch made a report to its regional office providing an update on the position. The accounts for Silven had still not materialised, although Mark Ezekiel was said to be pressing for them. By now (as the note records) he had taken over the day-to-day running of Silven (although Freddy Ezekiel remained a director) and was making efforts to maximise the rental income so as to reduce or eliminate the current shortfall. Property purchases were continuing, but the branch estimated that the security held represented 136% of the facility available. The bank therefore agreed to renew the facility for a further six months, but strictly on the basis that there were to be no excesses on the borrowing and that interest was to be covered within the facility. There are clear signs that the bank was becoming anxious about the level of its lending and was looking to contain or reduce the borrowing as far as possible. The renewal of the facility was offered in a facility letter sent to Silven by Mr Owen on 27 December 1990. The revolving facility of £3.5m was to continue “subject to the usual borrowing terms and conditions including the right to call for repayment on demand”. A temporary excess of £544,000 was to be permitted pending receipt of the remortgaged monies from the Elstree properties. The bank would continue to look for security in the form of the legal charges on Silven’s properties, together with Freddy Ezekiel’s guarantee. The facility was to be subject to review in May 1991 or earlier, should circumstances warrant it. The copy of this letter in the trial bundle was put to Mark Ezekiel in cross-examination, who confirmed that he received it and that the manuscript annotations on it were his. As already indicated, no suggestion had been made to him by his father that the bank had agreed to a three- or six-month notice period in respect of the repayment of the loan, and it is clear that he accepted the terms of this facility on behalf of Silven, as set out in the letter of 27 December. It also gives the lie to the plea contained in para 3D of the particulars of claim that, absent agreement from the bank to the six-month moratorium prior to exercising its right to call in the loan, Silven would not have accepted the bank’s facilities after August 1989 and, if unable to obtain finance elsewhere, would not have borrowed at all. All the evidence indicates the complete contrary. Not only was Silven anxious to continue to borrow in order to finance further purchases, but Mark Ezekiel (and, for the reasons already stated, his father also) were happy to accept continued finance from the bank subject to its existing terms and conditions, including the right to repayment on demand. There is no evidence that the Ezekiels could have obtained better terms elsewhere or that Mark Ezekiel was ever concerned to investigate that option.
(2) 1996 promise
[45] Apart from the controversy about the execution of a debenture, which occurred in late 1992, nothing in the intervening period between 1990 and 1995 is relevant except as background to the events of 1996. It is not in dispute that by August 1992 the bank was becoming increasingly concerned about the decline in property values and had renewed Silven’s facility with a limit of £4m, subject to monthly reporting. The aim was to reduce the bank’s exposure by January 1993 to £3.4m, subject to acceptable security margins. The bank had also raised the question of a debenture over Silven’s property and other assets. On 14 September 1992, Mark Ezekiel wrote to Mr Owen indicating that he was unwilling to consider the question of a debenture until all the trust properties held by Silven had been transferred out to the beneficiaries. Silven was also said to be unable to afford to meet an increase in interest in the facility to 2.5% above base rate.
[46] As of 7 October 1992, Silven owed the bank some £3.955m. The facility was renewed in a letter of 13 November 1992 on terms that the overdraft limit should be reduced to £3.6m by 30 November 1992 and ultimately to £3.4m by 31 January 1993, the reductions being achieved from the sale of properties. Interest was to be charged at 2.5% above base rate, with a warning of an increase by a further 0.5% if the bank formed the view that sales of properties were not being satisfactorily progressed. In addition to the fixed legal charges, the bank required security in the form of a debenture.
[47] On 17 November 1992, Mark Ezekiel had a meeting at the Piccadilly branch with Mr Owen. He said that he was not prepared to sign the facility letter. There were two main objections: the continuation of the £200,000 guarantee from Freddy Ezekiel and the requirement for a debenture. As to the latter, the stumbling block was that several of the Silven properties were said to be held in trust and Mark Ezekiel was unwilling to see the income from those properties used to satisfy the interest due on the Silven account. One of these properties was, of course, Regina House. The bank appears to have been willing to contemplate some special arrangement at this time in respect of the |page:124| income of the trust properties, but the matter was left for further discussion at a later stage.
[48] The bank’s position, as recorded in an internal memorandum of 11 February 1993, was that it intended to maintain the pressure on the Ezekiels to agree to a debenture over Silven’s income and assets. The rent-roll was now sufficient to cover interest on the borrowings, and the bank had no immediate plans to increase the rate to encourage further sales of property. There was, however, continuing concern about the level of borrowing and the slow progress being made to reduce the indebtedness. The bank’s assessment of the position is summarised in an internal note on the file from its regional office at this time:
This is dragging on — the redeeming feature is that rentals at £401,000 now cover interest, albeit not much spare if rates increase…
OK to Mark on 15/3 as proposed. Debenture must be executed — this was condition of previous extension. Sales to continue to be pursued vigorously.
[49] On 4 March 1993, Mr Owen wrote to Mark and Freddy Ezekiel requesting the execution of the debenture. He was prepared, if necessary, for there to be a side letter detailing the properties included in the family trust, which the Ezekiels did not wish to be included in the debenture. Mark Ezekiel replied on 16 March stating that the existence of the family trust made it impossible for Silven to execute a debenture and asked the bank to reconsider its request. On 17 March, a meeting took place with both Freddy and Mark Ezekiel at the bank. The memorandum of that meeting records a discussion as to how to overcome the problem raised by Mark Ezekiel in his letter. Freddy Ezekiel was to discuss the matter further with his solicitor. The memorandum also states that Freddy Ezekiel was advised that the bank’s reason for requiring the debenture was that it would provide an easier route to the realisation of Silven’s assets, if required.
[50] By 28 April 1993, no further communication had been received from either the Ezekiels or Silven’s solicitors about the request for the debenture. The bank’s credit control department wrote to Mr Owen agreeing to mark on Silven’s facility to the end of May 1993, but on the clear understanding that a debenture in the bank’s standard form, and without the exclusion of any property, was executed. The letter to the branch concludes with the following sentence:
If the debenture is not in place by the next review, we shall be looking for the company to re-bank; please make this clear to Mr Ezekiel.
Accordingly, on 4 May, Mr Owen wrote to Freddy Ezekiel in these terms:
Whilst the facility has been renewed until this time, I have to advise that as a condition of its continued support the Bank will require the debenture to be executed without further delay. The Bank will not be willing to exclude any properties from the debenture, as it does not accept that there is any trust implications which would rank before the Bank.
Therefore I must advise that if the debenture is not in place by 31st May 1993 then the Bank will be looking for the company to find alternative banking arrangements.
Mr Ezekiel’s response was to agree to provide a debenture, but only on terms that the properties that were said to belong to the family trusts and other third parties, such as Diamond plc, would be transferred out of the ownership of Silven, free from the debenture, as and when various staged reductions were made in the company’s level of indebtedness.
[51] These proposals were passed to Mr David Whyte at the bank’s specialised lending services division (SLSD) for further consideration. In a separate move, the Ezekiels were informed that the bank was unhappy about the progress of property sales by Chart and proposed to raise the rate of interest payable on the Chart account to 5% above the bank’s base rate. The bank was by now clearly concerned about its exposure and was anxious to pressurise the Ezekiels into selling more properties so as to reduce borrowings. As of the end of June, the efforts of the Ezekiels to achieve this were regarded by the bank as half-hearted, and this perception was undoubtedly confirmed by the resistance to the execution of the debenture.
[52] The Silven file was therefore passed from the credit control department to the SLSD to review the bank’s overall strategy and position. The Piccadilly branch was informed of this on 30 June. At the same time, a meeting was arranged with the Ezekiels, which took place on 2 July. Both Mr Owen and Mr Whyte were present. A note of that meeting records Mr Whyte as having explained the bank’s concerns about its security position and the need to achieve further sales. Mr Freddy Ezekiel’s response was to outline plans for the development of Silven’s property at Turners Hill, Cheshunt, for which Silven would require additional loans of up to £3m, and to indicate that he had no desire to sell properties other than on the staged basis described in the letter of 25 May. This accords with my own understanding of Mr Ezekiel’s strategy, explained during the course of his oral evidence. The acquisitions made by Silven and Chart were usually on a long-term basis. Where the property was allocated to one of the family trusts, it came to be regarded as inalienable. Other properties might be sold, but Mr Ezekiel was only willing to do that in order to achieve the release of the alleged trust properties from the bank’s security. To a bank concerned about the value of that security and what it regarded as the high level of its exposure, this clearly seemed unhelpful, but the tensions between the positions of the bank and of its borrowers (evident at this time) were never really eased. It is, I think, possible to trace the origins of the confrontation that occurred finally in 1996 back to this time, if not slightly earlier, and the Ezekiels’ steadfast refusal to change the policy of Silven and Chart meant that only a significant improvement in the property market was likely to reverse the bank’s ultimate determination to end the banking relationship.
[53] Although undisclosed to the bank at the time, its request for a debenture led to a serious rift between Freddy Ezekiel and his son-in-law Zion Shina. Mark Ezekiel gave evidence that Mr Shina was extremely angry to discover that properties held in trust for his wife had been utilised to provide security for Silven’s borrowings without her consent. Although, as I have already indicated, this was a wholly unrealistic position to adopt, lawyers in Israel were instructed, and Freddy Ezekiel was obviously under considerable pressure both not to allow further security in the form of the debenture to be taken and to obtain the release of the trust properties already charged. Although the threat of litigation between the Shinas and Freddy Ezekiel was eventually dropped, Mr Ezekiel’s determination to obtain the release of the trust properties and his anger at what he took to be the bank’s failure to observe the need to obtain the “revalidation” of the charges, never diminished. He even went so far as to say that, had Mark Ezekiel agreed in 1996 to transfer any of the trust properties, to the bank as part of a realisation of the security, he would have disowned him. It is little wonder, therefore, that the bank found him difficult to deal with, and the events of 1996 have to be analysed in that context.
[54] The dispute with the Shinas is relevant to the question of Silven’s ability in 1996 to refinance its borrowings, and I shall return to it in that connection later in this judgment. It is enough to record that the debenture was never executed. Mark Ezekiel continued to press the bank for the release of the trust properties, but, as Mr Whyte explained to him in August 1993, the bank would not consent to any such proposals unless satisfied that the remaining security and rent-roll were sufficient to cover the borrowings and the interest payable.
[55] In September 1993, the bank was provided with valuations of the Silven properties forming the bank’s security, which had been carried out by Mr Robert Shanks of Messrs Thomson Shanks. He valued the properties at £5.05m, which, on borrowings of approximately £4m, produced an LVR of 69%. Mr Whyte met Mr Shanks on 2 September 1993, and the note of that meeting records him as being entirely satisfied with the level of security in those circumstances. At a subsequent meeting with the Ezekiels held on 13 December 1993, the position in relation to the charged properties and the rent-roll was further discussed. At that meeting, it was made clear to the Ezekiels that the bank would not accept the staged reduction in its security proposed by Freddy Ezekiel in the letter of 25 May, and was looking for an LVR of about 60%. There is an issue as to whether, at this meeting, there was agreement to raise the rate of interest payable by Silven from 2 to 2.5% above base rate. Mark Ezekiel said in his |page:125| evidence that agreement was reached on this at the meeting and that this was the last and only increase in the rate of interest that Silven agreed to. Mr Whyte says in his witness statement that the matter was discussed but that no agreement was reached. This is relevant to the claimants’ pleaded case that the subsequent increase of the rate to 5%, notified to Silven in January 1995, was ineffective, and that the amount of the demand made on Silven in 1996 was therefore excessive. On the basis of the available contemporaneous documents, I am inclined to prefer the evidence of Mr Whyte on this, but the point now seems to be of little relevance, given that it is all but conceded that an excessive demand is not sufficient in itself to invalidate the subsequent appointment of the receivers. In these circumstances, I need say no more about it.
[56] On 27 April 1994, the bank issued facility letters for Silven and Chart, expressed to be “subject to contract and facility documentation”. The terms offered included the renewal of an overdraft facility of £3.82m for Silven and £490,000 for Chart at an interest rate of 3% above base. The facilities were to be subject to review in April 1995. Mark Ezekiel complained that the terms offered were not those previously agreed with Mr Whyte. In particular, he queried the interest rate of 3% above base. Further discussions took place about the terms of the renewal of the facility, but by November 1994 there was no agreement, and Mr Swire of SLSD wrote to Silven and Chart requesting the directors to ensure that no further cheques were issued on the accounts. Mr Swire was part of the bank’s receivership unit, a department or sub-group within the SLSD, responsible for dealing with refinancings and insolvencies. At the beginning of November 1994, the Silven and Chart accounts were transferred to be dealt with by this unit.
[57] At the time of transfer, Silven’s overdraft stood at £3.937m and that of Chart at £532,000. Silven’s rent-roll was £400,490 as of 17 October 1994, but Mr Swire noted that in the 12 months to January 1995 credits to the Silven account amounted to only £282,596, against interest payable of £321,000 pa on the basis of a rate of 2.5% above base. Mr Swire recommended to the bank that the debt should be classified as B&D (“bad and doubtful”), that deductions of interest against the account should be suspended, but that the interest rate and margin should be increased to 5% above base rate. The directors should be told that unless significant additional rent was received within 30 days, the bank would demand repayment of the loans and appoint receivers. These recommendations were passed to Mrs Jacob. She had also reviewed the files, and says in her witness statement that she was concerned about the discrepancy between receipts and the reported rent-roll, as well as the quality of the information provided by the directors, which she describes as extremely poor. In her opinion, they lacked any coherent strategy for the service of interest and the repayment of the borrowing, and had asked for increased facilities on terms that were not to the bank’s advantage. For these reasons, she endorsed the approach suggested by Mr Swire, but also recommended lining up what she describes in a memorandum as a receiver/valuer team. The valuer would report on the rent-roll and the current value of the security, and the bank could then decide how best to proceed. In the same memorandum (dated 6 January 1995), she notes:
Receiverships of this motley portfolio would be messy and I would not be surprised by a shortfall.
On 27 January 1995, Mr Swire wrote to Mark Ezekiel. His letter refers to the low level of receipts and indicates that the bank wished to appoint an agent to collect the rents. The letter continues as follows:
The failure of the company to service its debt represents a significant deterioration in the quality of our lending and, to reflect this, the interest rate charged on the company’s debt will be increased to 5% over the bank’s base rate with immediate effect. In addition a fee of 1% of the company’s debt is due for payment and the bank reserves its right to charge this fee at some time in the future.
With regard to Chart, in view of Silven’s failure to cover interest on its own debt, we are not prepared to allow that company to divest itself of any of its assets other than for full market value, with the sale proceeds utilised to reduce the debt outstanding. Accordingly it is our intention to appoint receivers to Chart’s properties unless an acceptable proposal for the repayment of the company’s debt is received within 14 days.
Mr Swire was cross-examined about the increase in the rate of interest to 5%. He said that the purpose of the rise was to compensate the bank for the increased risk it was taking by not calling in the loan. Although this was undoubtedly true in part, it seems to me that it was also designed as an encouragement to Silven either to reduce the level of its liabilities by disposing of some of its properties or to explore the possibility of rebanking the facility. It is clear from the documents that the initial appraisal by both Mr Swire and Mrs Jacob was pessimistic. If Silven was to have a long-term relationship with the bank, it needed to produce real indications of its willingness to reduce its borrowings and increase its income, and it could only do this by selling property, which was the one thing it had always been reluctant to do.
[58] The letter of 27 January was followed by a series of meetings with the Ezekiels. On 31 January, Mark Ezekiel had written to Mrs Jacob complaining about the increase in the rate of interest and asking for a meeting. On 9 February, Mr Swire spoke to Mr Shanks, who was able to confirm that agreement had been reached with Refuge Assurance on the review of the rent for Regina House. As a result, some £258,000 would become due to Silven by way of back rent and the rental income would increase to £44,000 pa. Mr Shanks also expressed the view that the Ezekiels were honest and trustworthy, and Mr Swire accepted in cross-examination that he had no reason to think differently. But Mrs Jacob in her witness statement says that she suspected at the time that the shortfall in receipts was due to the directors of Silven diverting funds away from the bank rather than applying the whole of Silven’s rental income in the payment of interest under the facility. There is no evidence that this suspicion was well founded. Mrs Jacob had no recollection of being told by Mr Swire of the delays that had taken place in reviewing the rent of Regina House or of the back rent that had become payable. Her ignorance of these matters may well have persisted throughout the period leading up to the appointment of the receivers, but I am not persuaded that her concerns about the deficiency in the rent really led her to believe at this early stage that the companies were not utilising the whole of their rental income to meet their liabilities in respect of interest. The impression I gained from her evidence was that her initial assessment of the Silven and Chart accounts led her to believe that the chances of recovering the debt otherwise than through a receivership were not high. She accepted in cross-examination that she always thought that a receivership was the most likely outcome, although she was keen to emphasise that she kept an open mind as to the appropriate exit strategy. But there is little doubt that it was an exit strategy that the bank, through the SLSD, and in particular the recoveries team headed by Mrs Jacob, was seeking to devise and pursue. It wanted the loans repaid. Mrs Jacob accepted that the Ezekiels were not told that the Silven and Chart accounts were now under the supervision of the recoveries team, or that the bank was looking towards an exit strategy. Mr Onions submitted that the bank was under no obligation to do that, and I accept this. But the disclosure of these matters might conceivably have led the Ezekiels to adopt a more energetic and realistic attitude to resolving their difficulties.
[59] Mr Swire continued to review the Silven and Chart accounts throughout 1995. The two major concerns remained the level of rental income and the bank’s available margin of security. At this time, Mr Swire calculated that the bank was lending at about 66% of market value on the basis of the 1993 Shanks valuations. Mr Swire was content to maintain the lending at this level, provided that Silven committed itself to a repayment schedule and remained able to service the interest on the facility. The Ezekiels had made proposals to restructure the debts, but these appeared to the bank to involve no injection of fresh capital, but rather a transfer of debt as between the Ezekiel companies. On 13 March 1995, at a meeting with Freddy and Mark Ezekiel, Mr Swire told them that the bank was concerned about the level of lending and required a reduction in the debt to maintain a 66% LVR. There was also the continuing difficulty about servicing the interest, |page:126| although it has to be said that this can only have worsened as a result of the bank’s own decision in January of that year to raise the rate of interest to 5% above base.
[60] One of the matters raised again at this meeting by Freddy Ezekiel was the proposal to transfer the properties belonging to the Kamara marriage settlement out of Silven, with a release from the bank’s legal charges. These properties included Regina House and the development site at Watney Street. Freddy Ezekiel is recorded as being insistent on this, but Mr Swire would not agree to any reduction in the bank’s security. Mrs Kamara gave evidence that there had also been a dispute between her husband and her father about the use of the trust properties as security for Silven’s debts, and that Mr Kamara had refused to consent to the execution of the debenture requested by the bank. According to her evidence (which I accept on this), she asked her brother Mark to restore the position to what it had been, or at least to what she understood it to have been, originally. I say that because (as in the case of Mrs Shina) Mrs Kamara had an unrealistic and, as I see it, inaccurate view of the history of the acquisition of these properties, which were in every case funded by the bank. But that said, she extracted an undertaking from her father and brother that they would take steps to obtain the release of the properties from the bank’s charge. The strength of feeling generated by this issue was considerable. Mrs Kamara said that her husband instructed solicitors and that the execution of the debenture would have led to legal proceedings. As it is, we know that Mrs Kamara and Mrs Shina were party to these actions in 1996 in an attempt to restrain the sale of the alleged trust properties by the bank’s receivers. At a personal level, relations with Mark Ezekiel were damaged, and she described her relationship with her father in 1996 as very bad. There was, she said, a real possibility of an irreparable rift with him over the issue of the Kamara properties. In these circumstances, it is hardly surprising that Freddy Ezekiel was determined, if at all possible, to extricate the trust properties from the Silven portfolio and the bank’s securities. These matters are, in my judgment, highly relevant to a proper consideration of the way in which the bank’s own relationship with the Ezekiels deteriorated during 1995 and 1996, and to the prospects of persuading another lender at that time to assume responsibility for the financing of the Ezekiels’ property interests.
[61] On 7 April 1995, Mr Swire prepared a review note, which was later passed to Mrs Jacob. In it, he records:
There is a security shortfall if one applies usual lending percentages. The income that the properties generate should in theory just about cover interest on the facilities, but it is received late and some of it is used to fund improvements/ refurbishments.
When we funded the companies, it was in line with criteria that existed at that time. However, this is a portfolio of properties generally in third rate locations which have been particularly badly hit by the property slump.
By now, the combined borrowing of Silven and Chart was about £4.5m and the bank’s estimate of the recoverable debt only £3.826m. In the first three months of 1995, only £25,500 was received as a credit to the account of Silven, even though, on its current rent-roll, receipts should have been in the region of £60,000. The explanation appears to have been that the balance of the rent was being used to carry out repairs and improvements to property, but this did nothing to appease the bank’s concerns. In a note made on or about 24 April, Mrs Jacob referred to the haphazard way in which the Ezekiels conducted their business affairs, and this gives a very accurate insight into the way in which she viewed them as customers. In the same note, she set out her thoughts on what was needed:
My impression is that the customers are not focussing on the issues which are important to the Bank, namely, maximising income and reducing gearing.
I would like to see a strategy document prepared by the customers identifying: l The precise circumstances of each property at present l The means of extracting maximum value from each property l Projected trading accounts, balance sheets and cash flows.
My guess is that we will encounter resistance in this request because the customers do not view their business in these terms. It will be a struggle to bring them round to our way of thinking, but I see no other alternative if our own objectives are to be met.
On 5 July, the accounts of Silven for the year ended 31 March 1994 were signed off by Mark Ezekiel. In the auditor’s report to shareholders, the Zane Partnership noted that the accounts had been prepared on a going concern basis, the validity of which depended upon the continued support of the company’s bankers. Taking into account so-called trust creditors, Silven was shown as balance-sheet insolvent. By August, Mr Swire’s patience was beginning to expire. He wrote to Mark Ezekiel on 14 August complaining about his continued failure to provide the cash flow requested and details of trade creditors. The letter goes on:
With interest continuing to accrue on these accounts and not being covered, the position continues to deteriorate from the Bank’s point of view and unless positive action is seen shortly, we shall be forced to call in the debts of the respective companies and enforce our security.
[62] Mark Ezekiel supplied the cash flow forecast and details of the trade creditors on 3 September. On 13 September, he sent a further document to the bank containing a schedule of the rentals in respect of the Silven properties and a note about the possibility of a specific charge over the rent of Regina House as an alternative to a debenture. The creation of a charge over the rent would be given “as part of the overall resolution of Silven’s borrowings from your Bank”. This appears to be a reference to the other proposal in the note, which was the transfer of the Kamara properties from Silven and the grant of a separate Kamara facility. The cash flow forecast indicated that some £97,417 would be credited to the Silven account by 24 December 1995. Mrs Jacob described the information provided as incomplete and of poor quality. There was no opening balance in the cash flow forecast, and expenses were not provided for. Mrs Jacob was also concerned about the value of the bank’s security, and she asked Mr David Cartledge, a chartered surveyor employed by the bank in the SLSD, to carry out a desktop review of the valuations. In a note written on 27 October, Mrs Jacob’s view of the position is clearly set out:
The directors/proprietors are chiefly concerned with increasing the company’s asset base with scant regard to return on capital. They do not share our concern about income generation and servicing interest… We do not have sufficient information to decide our detailed strategy for maximising timing and quantum of return to the Bank. However, it is clear that the objectives of management diverge from those of the Bank.
Action points:
(1) Investigation of the company’s affairs by a multi-disciplinary team of RECS (accountants and bankers) and PMU…
(2) Start investigation immediately as a condition of support and in absence of information we have requested. RECS to agree fee in advance.
(3) In the light of the results of the investigation, decide exit strategy: l Re-banking l Receivership
l West Register partial acquisition.
The reference to West Register is to a group of subsidiary companies of the bank, controlled by the SLSD, which acquired properties from a borrower as an alternative to a receivership and then retained them with a view to their ultimate disposal at a profit.
[63] Mr Cartledge made several requests for information to Mark Ezekiel, beginning on 20 September, and eventually received information on 16 out of the 17 Silven properties in respect of which he had been asked to advise. This occurred on 4 December. He said that the information obtained from Silven was sketchy and inconsistent. When asked why he did not ask Mark Ezekiel for additional information, he simply said that Mrs Jacob had not asked him to make any further enquiries. He accepted that he did not tell Mark Ezekiel precisely what information he needed in order to complete his task, or chase him up for it. The desktop valuation or appraisal was not intended to form the basis of a lending decision. It was a brief exercise intended merely to give the bank an indication of whether it was safe to continue to rely upon the 1993 Shanks valuations. It was completed by |page:127| Mr Cartledge with the assistance of Mr Roy Simmonds, another chartered surveyor in the property unit of the SLSD. The portfolio of 17 properties was valued at £4m if fully marketed, or £3.5m on a forced sale basis.
[64] On 1 December 1995, prior to the receipt of the desktop valuation, Mr Swire sent to Mark Ezekiel a letter, drafted by Mrs Jacob, complaining about the lack of progress in providing information. The bank wished to inspect and review the books and records of the company at Silven’s offices, and asked Mr Ezekiel to arrange a suitable appointment. A meeting was then held on 11 December to discuss the financial information that the bank required, and Mr Ezekiel agreed to provide it, if necessary with the assistance of the company’s auditors. The accounts for the year ended 31 March 1995 were also imminent and they were in fact signed by Mark Ezekiel on 22 December. They continued to be qualified and to show a balance-sheet deficiency.
[65] During the course of her evidence, Mrs Jacob suggested that the idea of appointing an investigating accountant may have been mentioned to Mark Ezekiel for the first time on 11 December. Neither Mr Swire nor Mr Ezekiel supported this and there is nothing in the contemporaneous note to suggest that it happened. I am satisfied that even if Mrs Jacob had that idea in mind on 11 December, it was not then communicated. But I do accept that by the end of 1995, as I have already indicated, both Mrs Jacob and Mr Swire saw their role in terms of devising an exit strategy for the bank. This is, I think, clearly evident in Mrs Jacob’s note of 27 October, and was confirmed to be the position by Mr Swire in his evidence. He said (and I accept) that there seemed to be really only three choices: rebanking, receivership or acquisition of the properties by the West Register companies. But he also accepted that neither he nor Mrs Jacob thought it necessary to inform the Ezekiels that this was their thinking at the time. This is not, of course, to say that Mrs Jacob had a closed mind to any other possibilities. I am prepared to accept that there might have been an unpredictable change of circumstance that could have caused her and Mr Swire to have contemplated the long-term extension of the banking facility. But it is, I think, clear (and so far as relevant, I find) that by the beginning of 1996, the thinking of the SLSD (barring unforeseen events) was to implement the most appropriate and effective exit strategy for the bank.
[66] On 25 January 1996, Mrs Jacob wrote to Mark Ezekiel reminding him that the receipt of the information requested at the 11 December meeting was a prerequisite to the bank continuing to make facilities available to Silven. The letter goes on to say that Mrs Jacob was now obtaining quotations from accountants and chartered surveyors with a view to their conducting a review of the company’s financial position. The cost of this would be debited to Silven’s account. This letter is not an accurate statement of the bank’s position and Mrs Jacob admitted as much. No quotations had been sought as of 25 January. Mrs Jacob also accepted that the bank did not have a right to debit the cost of an investigating accountant’s report to Silven’s account without the company’s consent. I am afraid to say that the letter looks to have been little more than an attempt to bully Silven into accepting the commissioning of a report at its own expense, but as such it merely serves to confirm the increasingly tense nature of the relationship between Mrs Jacob and the Ezekiels.
[67] It was obvious (and known to Mrs Jacob at the time) that the bank did not need to obtain a report from an accountant or surveyor before being able to call in the loan and to appoint receivers. It was also accepted by Mrs Jacob that, of the three possible exit strategies identified in her note of 27 October, rebanking seemed the least likely. It must, therefore, have been apparent to her that the likely exit strategy was the appointment of receivers and thereafter the realisation of the bank’s security. This would inevitably involve a major confrontation with the Ezekiels, who had already demonstrated a marked resistance to the sale of properties and would certainly contest any attempt by the bank to dispose of what they regarded as the trust properties. In these circumstances, it would obviously assist the bank to justify the appointment of receivers if it could rely on an independent report on Silven to support that decision. I do not, therefore, accept that the only or even main reason for the commissioning of the report was that Mrs Jacob knew very little about the properties over which she might have to appoint the receivers.
[68] On or soon after 29 January 1996, Mark Ezekiel wrote to Mrs Jacob promising accounts by the end of February and asking her to suspend the appointment of an investigating accountant until after a meeting. Subsequently, he telephoned Mrs Jacob and arranged a meeting at 3.30pm on 12 February. It is common ground that the meeting between the two of them took place on that date. In her witness statement, Mrs Jacob says that Mark gave to her a typed document, which is in evidence, containing a proposal to reduce Silven’s borrowings of £4.02m to £3.48m, by the payment of £240,000 from a proposed joint venture on the development site at Hillyard Street, and the sum of £300,000 in the form of the back rent due on Regina House. The remaining indebtedness would be serviced by the rent from the Silven and Kamara properties, amounting to £463,420 by December 1996. At the same time, Chart’s borrowings of £580,000 would be increased to £750,000 to pay for works to 278 Old Kent Road. Mrs Jacob says that the projected cash flow from the Silven properties was unsupported by any further documentation and that she did not accept it. When cross-examined, she said that the meeting was short, lasting only 15 minutes or so, and that she was unsure whether the documentation I have referred to was actually supplied on that occasion. She has no recollection of discussing the appointment of receivers on 12 February, and does not think that she really wanted to get into such a discussion on that occasion. Nor does she believe that she discussed with Mr Ezekiel the costs of the investigating accountant’s report. Her evidence is that, as of 12 February, she did not yet know the likely cost of the investigation, and this is confirmed by the fact that it was not until 20 February that Robson Rhodes was first asked to provide a quotation for the work. Her actual recollection of the meeting, such as it is, is that Mark Ezekiel was principally concerned to show her the plans for a development known as Ventura House, and Mark Ezekiel’s own evidence is that he produced such plans on this occasion.
[69] As part of some late disclosure, the bank produced Mrs Jacob’s diary for 12 February. This is an electronic diary that divides the day into half-hour sections. The entry for the meeting with Mr Ezekiel occupies three such blocks of time (between 15.00 and 16.30 hours), but Mrs Jacob explained that in order to type in the text entry the programme required her to utilise this amount of space. The meeting did not take 90 minutes or anything like that amount of time. The relevant diary entry reads as follows:
Mark Ezekiel here to discuss strategy on Silven Properties, to update us on Chart and decide whether this can be rolled into the Silven exercise and to bring with him shopping-list information.
[70] The pleaded case about the 12 February meeting begins with para 5 of the particulars of claim. This states that the fees of the investigating accountant were estimated at £16,000 and would only be paid by Silven and Chart if their consent and co-operation was obtained. The particulars of claim then allege (in para 6) that eventually on 15 February (now accepted to be 12 February) Mark Ezekiel discussed with Mrs Jacob the bank’s request to carry out the investigation and asked her what action the bank intended to take when the report were completed. She is said to have replied that it would depend on the contents of the report, but that if it were unsatisfactory, the borrowings might well be called in. This then prompted the exchange relied upon. Mark is said to have pressed Mrs Jacob to state how long Silven and Chart would be given to refinance, and she is alleged to have stated unequivocally (para 10) that:
the Bank would allow a reasonable time — at least 3 or 4 weeks and, provided that the Bank was satisfied that the refinancing was proceeding satisfactorily, further time — to enable the Claimants to refinance in the event that the report was unsatisfactory and the Bank decided to call in the borrowings.
[71] On this basis, Mark is said to have agreed on behalf of Silven to the appointment of the accountant and to the company bearing its share of the cost. I have now received a further application by the |page:128| claimants seeking permission to amend para 10 so as to plead in the alternative that Mrs Jacob told Mr Ezekiel that the bank would allow “at least a few weeks” to refinance, which Mark Ezekiel understood to mean three or four weeks. It is still alleged that this agreement or promise was made on 12 February.
[72] In so far as the pleadings suggest that Mrs Jacob already knew that the cost of the investigation was likely to be in the region of £16,000, this is not supported even by Mark Ezekiel’s witness statement, and is contrary to the evidence. It is clear from Mr Ezekiel’s letter to Mrs Jacob of 6 March 1996 that it was not until a telephone conversation that day that he was informed of the estimated cost in that sum, and his reaction (as set out in the letter) was to reject the cost as excessive and to ask for copies of the brief to the accountant upon which the quotation was based. This is entirely inconsistent with what is alleged to have occurred on 12 February and is enough, in my judgment, in itself to justify the rejection of the allegations about the meeting held on that date. Mark Ezekiel sets out in his witness statement an account of that meeting that accords with paras 9 and 10 of the particulars of claim. When cross-examined, he said that the meeting was short, but that he did definitely discuss refinancing and Silven having three to four weeks to find alternative finance. Later in his evidence, he referred to being given a reasonable time to find an alternative lender and said he could have gone to Lloyds Bank. He also thought that Mrs Jacob may simply have referred to giving Silven a few weeks, hence the application for permission to amend.
[73] I do not accept any of this evidence. It is almost obvious that by 12 February Mrs Jacob was not in the position to discuss either the question of payment for the investigating accountant’s report or what the bank might do if it was adverse to Silven. Nor do I believe that she did have any such discussion with Mark Ezekiel on that day. I have to say that I found his evidence on this point wholly unconvincing. Far from Mrs Jacob’s statement being unequivocal, its alleged contents have varied throughout this action. The account upon which the pleading is based appeared, I think, for the first time in the witness statement of 7 July 1998. In an earlier affirmation of 20 May 1996, there is a reference to Mrs Jacob having promised to allow a reasonable period for refinancing at the time of the Robson Rhodes report. Similarly, in para 14 of his latest witness statement, Mr Ezekiel refers to his wanting to know at the 12 February meeting whether he should concentrate on assisting Robson Rhodes to compile their report or to seek refinancing. As Mr Onions pointed out in his submissions, this and other references to Robson Rhodes in the context of the 12 February meeting must be inaccurate. The firm had not been approached by then to see if it was even willing to quote for the job. But, over and above this, the allegation that Mrs Jacob made an unequivocal promise to give time for Silven to refinance, in such a way as to limit the bank’s freedom to enforce its security, is in itself highly improbable, whenever in 1996 one chooses to place the alleged conversation. The claimants allege (and I have accepted) that by the end of 1995, Mrs Jacob saw receivership as the likely outcome of her involvement with Silven and Chart. In these circumstances, almost the last thing that she would have done was to agree to revise or postpone the bank’s right to appoint such receivers. It simply makes no sense. She herself accepts that in March 1996 she did tell Mark Ezekiel in a telephone conversation that in the event of an adverse report, the bank would discuss the report with the Ezekiels before taking further action, and to that extent the bank offered a measure of comfort to its borrowers. But that is very far short of what would be required to found the allegations of breach of contract and estoppel relied upon in the pleadings. Nor is it the case that the bank has to meet. I should also make it clear that I reject the evidence of Freddy Ezekiel, who said that he was told by his son of the promise of three to four weeks soon after the meeting held on 12 February. Put bluntly, I do not believe that evidence or the suggestion made by Mark Ezekiel that his father told him, prior to the 12 February meeting, to get some confirmation of how much time would be given if it were necessary to refinance. There is no hint of this in any of the witness statements and it was, in my judgment, no more than an invention on Mark Ezekiel’s part, produced under pressure during cross-examination. Freddy Ezekiel’s evidence also contains a number of inconsistencies with that of his son. He said, for example, in cross-examination that Mark Ezekiel told him that he had not agreed anything with Mrs Jacob at the 12 February meeting. She had offered a few weeks, but Mark had told her he would need to discuss it with his father before agreeing. This merely goes to show how hopeless the claim based on the 1996 promise really is.
[74] In my judgment, there is no factual basis for the claims against the bank and the receivers based upon the 1996 promise. For the same reason, I shall refuse the application for permission to amend para 10 of the particulars of claim as sought. In that connection, I should mention for completeness that, on the last day of the trial, Mr Driscoll made an application for permission to amend the particulars of claim to plead in the alternative that the 1996 promise was made sometime in March of that year. This was opposed by Mr Onions for the bank on the basis that both Mark and Freddy Ezekiel had stuck steadfastly to their assertion that the promise was made on 12 February, notwithstanding Mr Onions’ efforts to indicate to them that that was factually improbable. Faced with the prospect that the proposed amendment required the court to allow the claimants to advance the case that was contrary to their own evidence, Mr Driscoll abandoned his application. In these circumstances, the only issue I have to decide is whether an agreement of the kind alleged took place on 12 February, but I hope that I have made it sufficiently clear that, in my judgment, no such agreement took place then or on any subsequent date.
[75] In the light of these findings, I can take the remaining events leading up to the appointment of the receivers comparatively shortly. Much of the cross-examination of the bank’s witnesses in relation to this period seemed to be designed to show that the bank prejudged the question of the receivership and did not approach the investigation into Silven with an open mind. Specific criticisms were directed to Mrs Jacob, and to Mr Ruddock of Robson Rhodes, to the effect that the firm had inadequate information upon which to base anything more than an interim recommendation, and that some of the conclusions of the report are flawed. Mark Ezekiel went so far as to describe the report as a sham, and said that it was commissioned with the aim of enabling the bank to get hold of the Silven properties. A similar conspiracy theory was advanced by Freddy Ezekiel. He said that Mrs Jacob wanted him and Mark to behave dishonourably by sacrificing properties belonging to the beneficiaries, and that she was motivated by the need to earn a profit for her department and to make personal bonuses. Not surprisingly, this was never put to Mrs Jacob and I do not believe that it is true. But ultimately none of this matters. It is not part of the pleaded case that the bank (as opposed to the receivers) acted in bad faith or for some ulterior motive beyond the repayment of what was due to it. Nor is it relevant whether the bank’s handling of the Ezekiels between January and May 1996 fell short of what might be described as good banking practice. To establish a cause of action, the claimants must show that the bank has acted unlawfully.
[76] On 15 February 1996, Mrs Jacob met Freddy Ezekiel. It is, I think, common ground that at that meeting there was some discussion of the possibility of rebanking the loans, as well as a possible acquisition of properties by the West Register companies. Mrs Jacob says that she outlined to Mr Ezekiel the three options set out in her note of 27 October, but there is a dispute as to whether the possibility of appointing receivers was discussed. Mr Ezekiel says that he made it clear that any transfer of the properties to the West Register companies was out of the question, particularly in relation to the trust properties. He also denies that she advised him to seek alternative finance immediately. It is, however, accepted that Mr Ezekiel did tell her that he had banking facilities with National Westminster Bank and that Mrs Jacob said she would not stand in the way of Silven taking its business to that bank. It is therefore tolerably clear that Mrs Jacob made Mr Ezekiel aware at that meeting of the bank’s dissatisfaction with the operation of the Silven account and its decision to see the loans repaid, whether by rebanking or otherwise. |page:129|
[77] On 20 February, Mrs Jacob wrote to Mr Ruddock of Robson Rhodes enclosing a briefing note and asking Mr Ruddock to prepare quotations for the work she required on two bases:
(i) That on investigation, it rapidly became clear that there was no prospect of adding value to the assets;
(ii) That there was such a prospect, and further professional investigation required to be carried out as to the means by which this might be achieved.
Included in the briefing information were the audited accounts to 31 March 1995, management accounts to 31 December 1995 and the material supplied by Mark Ezekiel on 12 February. Similar instructions were sent to Coopers & Lybrand. On 26 February, Mr Ruddock replied, estimating the cost of an initial report at £10,000 plus VAT, which included the fees that would be charged by the valuers who inspected the various properties as part of that assessment. Mr Ruddock proposed to use the services of Messrs Jorden Salata Graham (JSG), which had worked with Robson Rhodes on similar projects in the past. No estimate was given of the fee for the more detailed examination. After further discussion with Mrs Jacob, a fee of £16,000 plus VAT was quoted on 5 March, which would be reduced to £10,000 if the initial prognosis was that the review process could not add value to the bank’s security. On 23 February, Coopers & Lybrand quoted fees of £6,500 for the first type of report and £11,000 for a more detailed investigation. In addition, there would be valuers’ fees of £8,000.
[78] As already indicated, the Robson Rhodes quotation was relayed to Mark Ezekiel by Mrs Jacob in a telephone conversation on 6 March. Mrs Jacob was cross-examined as to why she chose Robson Rhodes in preference to Coopers & Lybrand, but nothing really turns on this. Mrs Jacob had worked at Robson Rhodes under Mr Ruddock before joining the bank, and obviously had a stronger connection with it. On 6 March, Mark Ezekiel wrote to Mrs Jacob, as previously indicated, asking about the basis for the fee quotes and details of the fees quoted by Coopers & Lybrand. Mrs Jacob replied on 11 March, confirming that the fee was not excessive, but refusing to disclose the information requested. Between 6 and 11 March they had spoken on the telephone. Mrs Jacob says this took place on 7 March, when she had told him that if Silven did not agree to the report, the loans would be called in and receivers appointed. In the letter of 11 March she says:
As you know, I am keen that the accountants and surveyors perform their work and report as soon as possible so that we can formulate proposals with you for the future of these companies.
The reference to “As you know” was said to be a reference to that conversation on 7 March.
[79] On the same day, Mrs Jacob attempted to contact Mark Ezekiel by telephone, only to discover that he was ill with flu. She spoke to his father, who, according to her note, became very excited and repeated his promise that the bank would be repaid. It seems clear from this note that, as of 11 March, Mark Ezekiel had still not finally consented to accept the appointment of Robson Rhodes. The note states:
Mark has previously given me permission to discuss the affairs of the company with his father and I asked Freddy whether Mark had had an opportunity to reflect on our conversation on Friday and let us have consent to instructing investigating accountants to review the company’s affairs…
Freddy promised to pass on my message to Mark, who will phone me without fail before close of business today.
I do not, therefore, accept Mrs Jacob’s evidence that on 7 March, following her threats to call for repayment of the loan, Mark agreed to Robson Rhodes being appointed at the expense of Silven and to commencing work on 11 March. The fact that she telephoned to speak to Mark Ezekiel on 11 March is itself indicative that the position about the investigation remained uncertain. But the matter is put beyond doubt by the letter of 11 March, written following her conversation with Freddy Ezekiel, in which she says:
As you may recall, I have discussed with you the matter of instructing investigating accountants to review the company’s financial position and we planned for them to start today. I am becoming increasingly concerned by the delays which have occurred in progressing this issue. We first requested financial information from you in the final quarter of last year.
As you know, an investigating accountants’ report is a condition of the Bank’s continued support to the company.
I am prepared to allow a further two days to elapse for us to reach agreement on the arrangements for the investigating accountants to conduct their work. If we are unable to settle the way forward within this time-scale, then I shall have no option but to consider the alternative methods open to me in relation to recovery of this lending.
[80] Silven’s consent was in fact obtained on 15 March, when Mark Ezekiel sent to Mrs Jacob a letter signed by him on behalf of Silven, authorising Robson Rhodes and JSG to carry out the investigation and agreeing to pay their fees. This letter was sent out for Mark Ezekiel’s signature after Mrs Jacob had received a letter from him on 11 March. That letter is important for a number of reasons. First, it confirms that the discussions about the appointment of Robson Rhodes and its costs took place not at a meeting on 12 February but in a telephone conversation on 7 March. Second, it contains no reference to any promises by Mrs Jacob about giving time. In the letter, Mark Ezekiel in fact asks for a 10-year facility for Silven and makes the following request:
Should you, upon consideration, indicate that you feel unable to assist in the provision of the longer term facilities requested, then I trust that you will have no objection to my sourcing and arranging for alternative facilities in an orderly manner to effect repayment of the borrowings from and due to your bank during the course of the coming year.
This is wholly inconsistent with the case about the 1996 promise, whether one puts it on 12 February or 7 March. Third, the letter, in a footnote, indicates that Mark Ezekiel’s co-operation was the result of pressure brought to bear on him by his father:
I would assure you that I have no intention of delaying the investigative procedure you require and further I can confirm that I have been expressly instructed by my father to honour his promise to co-operate fully with you. I am sorry I have been out most of today and shall phone you shortly after remitting this fax to discuss and clarify the misapprehension I seem to have caused.
[81] Following 11 March, Robson Rhodes and JSG began their investigations. A meeting was held with Freddy Ezekiel and Mark Ezekiel on 25 March at which Mr Jorden and Mr Salata were also present. Mr Ruddock’s note of that meeting indicates that the background to the incorporation of Silven was explained. Mark accepted that he had not managed the portfolio as effectively as he might and had made mistakes. His strategy for the future was to maximise the value of the properties through planning gains and then to dispose of them as development sites. In some cases, joint ventures were planned with Parkview Homes, run by Mr Jay Patel. Freddy Ezekiel also explained his own preference for not selling property and his obvious dislike of anyone whom he regarded as acting against his family. Mr Ruddock described his>
[82] Following the meeting, JSG wrote to Mark Ezekiel enclosing a schedule of the information it required. Robson Rhodes was not satisfied with the financial information provided to it by Mark via the bank, and on 2 April Mr Ruddock sent his assistant, Edward Chadwick, to meet Mr Ezekiel. What was required was management information to March 1996 and revised projections of income for April 1996 onwards. At the meeting on 2 April, Mr Chadwick explained what was needed and Mark Ezekiel promised to provide it. Mark was chased for this material on 23 April. He said that he had not had sufficient time in which to prepare it and complained about what he described as Mr Chadwick’s threatening manner. He had, he said, spent a lot of time escorting JSG around the properties and preparing packages of information on them for Mr Salata. He would meet his accountant on 24 April to deal with the draft update that the Zane Partnership had already prepared. On 26 April, Mr Ruddock spoke to Mr Banja of the |page:130| Zane Partnership. He confirmed that he had met Mark Ezekiel and was now processing the response to the request for information. The information would not, however, be available before the meeting between the bank and Robson Rhodes, which had been fixed for 29 April.
[83] Mrs Jacob says in her witness statement that at the meeting on 29 April she was told by Robson Rhodes and JSG that the management of Silven (ie Mark Ezekiel) was unusually poor and did not possess the skills to deal with the assets effectively. JSG said that it had been given incomplete information and could not produce full valuations. Mrs Jacob says that at the end of the meeting she asked Robson Rhodes and JSG to make one last attempt to obtain the information they needed and to conclude their report. There is no note of this meeting and some time was spent with the witnesses in attempting to discover precisely what was said. Mrs Jacob said that the meeting was routine and took less than an hour. She wanted to know why after six weeks there was still no report. She accepted that some gaps in the information (eg a complete list of the Silven properties comprised in the security) could have been filled by the bank, but were not. She also said that Mr Ruddock had told her that Robson Rhodes did not have sufficient information to provide a full report, but her attitude was that she wanted a final report upon which the bank could make a decision, and left it to Robson Rhodes and JSG to do what was necessary in order to provide one. Mr Ruddock’s recollection of that meeting is slightly different. He had only the information previously provided by Mark Ezekiel to the bank. He had not been shown the 1993 Shanks valuations. Nor had he seen the subsequent desktop valuations. But he also accepted that he had not asked the bank to provide any relevant additional information. He described 29 April as an important meeting because it provided an opportunity to give the bank some initial views about Silven. His recollection is that Mrs Jacob asked him when the report was likely to be ready and told him to go ahead and finalise the report. Thereafter he had no further contact with either Mark Ezekiel or the Zane Partnership before the report was produced on 8 May. This meant that in the absence of further information (which he made no further attempt to obtain), his report was almost certain to be negative.
[84] The position disclosed at the 29 April meeting was clearly unsatisfactory. It seems to me that Mrs Jacob must have realised that Robson Rhodes could not produce a definitive report without the further information it had asked for, and that its production was by no means certain. Mark Ezekiel relies upon this as supporting his conspiracy theory, which I mentioned earlier, but in my judgment it was no more than a loss of patience on the part of the bank. It is clear from an earlier note at the foot of Mrs Jacob’s memorandum of 11 March that she had effectively by now discounted any options but receivership. Her concern to obtain the Robson Rhodes report as soon as possible, despite knowing that its conclusions might have to be provisional, is consistent with this. In her note of 11 March she says:
I have now reached the conclusion that the directors’ ambitions for this company and their proposals for resolving its difficulties diverge significantly from our own thoughts and what we might consider reasonable. I think there is realistically no prospect that they can realign their objectives sufficiently for us to allow them to retain control of our security. In my view it is likely that the most we can hope to achieve from an investigating accountants’ report is a decision on the method by which the bank will control realisation of the assets to our own best advantage. This might include, for example, a purchase and management out of West Register.
[85] The report was delivered on 8 May. It refers to a lack of co-operation by the directors, and states that Robson Rhodes had been able to obtain no information about Chart and only limited information about Silven. The valuations by JSG were also described as preliminary and incomplete. On the topic of management, it states:
On the basis of our limited review Mark Ezekiel has not demonstrated that he has a realistic view of the value of the assets of the business, nor is he adopting a consistent approach to property development. We have not been provided with any evidence to indicate that any substantial work has been conducted consistently over recent years to enhance the value of the property portfolio or to effect realisations.
Our review of Silven’s draft management accounts for the period to 31st December 1995 and the 2-year financial projections lead us to believe that the financial statements provided to the Bank are misstated and that management information is not accurate and cannot be taken as a fair reflection of the business and its likely performance.
It assesses the future trading prospects as follows:
JSG’s appraisal of the property portfolio is that it is a difficult, low-quality portfolio with a few desirable sites within it. It is therefore a challenging portfolio to manage, but with specialist expertise value can be added. On performance to date, Silven’s present management have not demonstrated that they possess the necessary skills to enhance or manage this portfolio.
The report concludes by recommending the appointment of receivers as soon as possible.
[86] There is a note by Mr Swire, on the fax cover sheet under which the report was sent to the bank, that criticises it as unimpressive and lacking in detail. Mr Swire notes that the bank needs to be able to show the report to the customers. It may be this apparent lack of detail that caused the report to be withheld from the Ezekiels until the meeting on 16 May, but, for the reasons I have explained, it is not part of my function to pass judgment on the accuracy of Robson Rhodes’s conclusions or the way in which the bank chose to disclose the report to the Ezekiels. What is clear is that the report effectively sealed the fate of Silven and Chart. Mark Ezekiel accepted that, faced with a report in these terms, the bank had no alternative but to appoint receivers. A meeting with the Ezekiels took place on 16 May, at which they were provided with copies of the report. Mrs Jacob said that she took the Ezekiels through the various sections of the report (which they had not seen before) but the atmosphere deteriorated as the meeting progressed. Mark Ezekiel disputed that he had failed to provide sufficient information, although he did take responsibility for any errors that he might have made in the running of the company. But Mrs Jacob’s note records that Freddy Ezekiel then intervened and undertook to make all the necessary information available within 24 hours. These words fell on deaf ears. Mrs Jacob told the Ezekiels that the bank would make formal demand for the repayment of the loans later that day, with a view to appointing receivers if payment were not received. Freddy Ezekiel would also be called on his guarantee. She records (and it is, I think, common ground) that at this point Freddy became aggressive and said that the report was a slight on his family, which always paid its debts. He also said that he had adequate personal funds with which to repay the bank. Freddy Ezekiel accepted in cross-examination that the report was gone through at the meeting, but he complained that neither he nor Mark had had any opportunity to study it in advance. The report was in his opinion “cooked up”. He said that Mrs Jacob wanted Mark to agree to the appointment of receivers and that he (Freddy) asked her by what right she was making that request, when she was required to give three to six months’ notice. When pressed in cross-examination, he admitted that he had not in terms referred to the bank being required to give a specific period of notice. He also denied that he had been abusive. Mark Ezekiel’s account of the meeting is closer to that of Mrs Jacob. He said that things went downhill after Mrs Jacob had said that the bank would call in his father’s guarantee. Freddy Ezekiel then became aggressive.
[87] I am more than satisfied that, once Freddy Ezekiel realised that Mrs Jacob was intent on calling in the security, he lost his temper with her and accused both her and the bank of behaving dishonourably. There is some evidence that on a subsequent occasion he became abusive and made a number of threats against her, but I make no findings about this. It is clear that the bank’s acceptance of Robson Rhodes’s recommendations made for a very tense and angry meeting, at which it became clear to the Ezekiels that the properties (including, in particular, the alleged trust properties) were about to be taken into receivership with a view to their eventual disposal. The attempts made by the Ezekiels to extricate them from Silven had failed and this was, in my judgment, the real complaint being made against the bank. Mark said in evidence that, had it been possible to take the trust properties out |page:131| of Silven prior to 16 May, they would not have been concerned about the demise of the company. It seems to me that it was only the desire to preserve the trust properties that led to this litigation. This is evident from the fact that the writs in these actions were issued almost immediately after the Grimleys and Coopers receivers were appointed, seeking declarations that the two sets of receivers had not been validly appointed and claiming injunctions to prevent them from taking possession of the mortgaged properties. Mr and Mrs Kamara and Mrs Shina were included as plaintiffs.
[88] One other matter concerning the 16 May meeting needs to be mentioned. In para 12 of the particulars of claim in the Coopers action, and in para 15B of the particulars of claim in the Regina House action, it is alleged that, at the meeting, Mrs Jacob gave Mark Ezekiel the impression that although formal demands would be served, Silven and Chart would be allowed time to formulate proposals for repayment and to discuss them with the bank before any further steps were taken. The bank’s failure to give such time after 16 May before appointing receivers is relied upon in the pleading as an additional reason why those appointments were invalid. This claim did not feature in Mr Driscoll’s opening and is not dealt with in the claimants’ written closing submissions. But it has not formally been dropped as part of the claim, and I need therefore to deal with it. Mark Ezekiel said in evidence that he was told by Mrs Jacob that no further steps would be taken (beyond calling in the loans) until a further meeting on 23 May. This is inconsistent with the terms of the letter that he wrote to Mrs Jacob the following day (17 May), in which he said:
We were not expecting to be faced with a demand for proposals to liquidate the borrowing forthwith and this, as you commented, will of course take a few days to formulate. I hope to be able to finalise something concrete by Tuesday next week and shall be obliged if you will then meet me to discuss them.
[89] Mrs Jacob has also recorded a telephone call with Mark on 20 May, when he asked to meet the bank to discuss repaying what was owed by Silven. I prefer the contemporaneous evidence to Mark Ezekiel’s recollection of this matter at trial, and I find as a fact that there was no representation of the kind alleged made by Mrs Jacob at the meeting, whether by words or conduct.
[90] But there are other problems about the claim based on this alleged representation. It is not, in terms, pleaded to give rise to a contract or to form the basis of an estoppel by convention governing the terms of the facility letter and the bank’s standard form charge. It cannot, therefore, be actionable as an estoppel. It appears to be a bare promise unsupported by any consideration and therefore unenforceable. That claim therefore also fails.
[91] Mrs Jacob accepted in her evidence that, with the benefit of hindsight, she might have managed things better on 16 May and, for what it is worth, I agree. It seems to me regrettable that the Ezekiels were not provided with copies of the Robson Rhodes report before the meeting and simply had it thrust upon them when they arrived. But the adequacy in banking terms of Mrs Jacob’s handling of these matters is not the issue that I have to decide. For the reasons I have given, I am satisfied that the claims based on the alleged 1989 and 1996 promises fail and there is therefore no viable claim against either the bank or the two sets of receivers for the loss of profits that Silven and Chart allege they would have made, had the properties remained in their ownership.
[92] In these circumstances, it is not strictly necessary for me to deal with the other issues raised that relate to this claim, and I need say no more about the evidence directed to the quantification of damages, much of which seemed to me to be highly speculative. But, because I have heard argument on them, it may be useful to outline as briefly as I can my conclusions on a number of other issues that arise in relation to the validity of the receivers’ appointments.
(3) Refinancing
[93] The claimants’ case on refinancing was clarified in a document produced by Mr Driscoll during the trial. In the light of the evidence of the banking expert witnesses, the value of the Silven/Chart portfolio for lending purposes was between £4.036m and £3.182m. The difference is down to a disagreement as to whether certain properties would have been acceptable as security by another lender. Applying an LVR of 70%, this would produce a loan of between £2.69m and £2.27m. The claimants’ case is that they would have gone to Lloyds Bank, armed with the 1993 Shanks valuation, but prepared to pay for a new valuation of the portfolio for the purposes of the loan. Lloyds (or possibly another bank) would have granted a loan, leaving Silven and Chart to find from other sources the balance of up to £2.704m necessary to repay the bank on the basis of a loan of £2.227m. If the higher loan were available, the margin would be £2.241m. That balance would have been provided out of the arrears of rent from Refuge Assurance in respect of Regina House (£296,241) and the proceeds of sale from, or the mortgaging of, a number of family-owned properties. A site at Moreton Street, London SW1, would have been sold at a price of between £2m and £2.2m and charged if necessary to provide finance by way of bridging loan, pending completion of the sale. Other properties at 41 and 43 Arkwright Road, Hampstead, 65 Archel Road and 15 Henderson Road would have been charged so as to produce a further £1.02m. If necessary, Freddy Ezekiel’s home at 66 Frognal would have been charged to provide a further £625,000, or sold.
[94] The evidence about refinancing is necessary to establish the causal link between the alleged breaches of contract by the bank and the loss that is said to have been suffered as a result of the appointment of the receivers and the subsequent sale of the portfolio. Although Mr Driscoll began by suggesting that I need only be satisfied that the claimants had lost the chance of obtaining alternative sources of finance, he ultimately accepted that the availability of refinancing had to be established as a fact on the balance of probabilities. This seems to me to be right. Although the head of loss claimed for (loss of profits) may be assessed on the basis of the loss of a chance, that approach has no application to the causal steps that have to be established in order to make the head of loss recoverable: see Fyffes Group Ltd v Templeman [2000] 2 Lloyd’s Rep 643 at p667. The claimants must establish that they would, and could, have obtained the money necessary to pay off the bank so as to preserve their properties intact. This raises two distinct but interdependent factual issues. The first is whether Lloyds or another bank would have made long-term finance of up to £2.704m available. The second is whether the balance could have been raised from the use of the Regina House rent, the sale of Moreton Street and the recharging of Regina House and other trust properties that are said to belong beneficially to Mrs Kamara and Mrs Shina.
[95] The relevant hypothesis for this purpose is that the Ezekiels (on behalf of Silven and Chart) were told on 16 May that the debts were to be called in and receivers appointed unless the loans were repaid in full within either six months or, alternatively, three to four weeks. I am not required to assume for these purposes that the bank would have been prepared to allow additional time once the possibility of refinancing was established. In order to establish a claim for damages based on the alleged breaches of contract, the claimants must show that alternative finance would have become available within the period in question. If the shorter period of three to four weeks is the appropriate time-scale, then Lloyds Bank is the only realistic source of possible finance. Although Freddy Ezekiel had a banking relationship with National Westminster Bank in Hampstead, there is no evidence that this bank would have been prepared to finance the activities of Silven and Chart. It is Lloyds that was put forward as the first and obvious port of call, and Miss Jane Blyth, who worked at Lloyds at the relevant time, was called to give both factual and expert evidence on the claimants’ behalf.
[96] The experts (Miss Blyth and Mr Robin Bryant) agree that neither Lloyds nor any other bank would have been prepared to lend on the security of properties that did not have the benefit of planning permission. This therefore excludes five properties, including the sites at Arabella Drive, Withington Road, Ladbroke Grove and Watney Street. To this list, Mr Bryant thought some seven further sites should be added, which had an agreed aggregate value of £854,000. This was on the basis that these properties were either in undesirable locations or in a poor state of repair, or were unlet. I find his objections to these |page:132| properties as security unconvincing. It seems to me that if Silven and Chart were able to persuade an alternative lender to advance funds for their operations, the quality of the security offered would be taken into account in the valuations produced for the purpose of calculating the loan. The bank would not lend on properties without planning permission, but in all other cases it would be guided by the valuations it had commissioned. If the location or state of repair of a property meant that its value was dubious or difficult to calculate, the valuers would have to say so. The same would go for properties that were unlet. But I have to assume that a competent valuer, instructed at the time, would have produced the valuations agreed by Mr Westlake and Mr Owen (the expert valuation witnesses), set out in the banking experts’ agreed statement. This would therefore have produced acceptable security totalling some £4.036m in value.
[97] Mark Ezekiel said that he would have taken immediate steps to seek alternative finance and would have gone to Lloyds. He accepted that he did not in fact do this following the 16 May meeting, but rather concentrated his efforts on attempting to frustrate the receivers in taking possession of the various properties. Apart from the application for injunctive relief, this also included, in my judgment, the grant of options over some of the properties to Mr Patel, coupled with counter-options enabling the claimants in effect to revoke the options with Mr Patel in certain circumstances. Mark Ezekiel said that he made no attempt to approach Lloyds because he was overtaken by events. This is of course true, in the sense that the loans were called in on 16 May and receivers were appointed soon afterwards. Mrs Jacob accepted that this made refinancing impossible. But even had the bank honoured what the claimants say were its promises to give time, it is obvious that Lloyds or any other bank would have required to know why it was necessary for the claimants to rebank their loans. It has to be assumed that Miss Blyth would have been told and would therefore have reported to her regional office that Silven and Chart were unable to service their current indebtedness and were being pressed to rebank. It would therefore have been clear that the companies could only finance new loans if they were significantly lower in amount than their current indebtedness. An obvious question might (and almost certainly would) have been why the claimants had been unwilling to make similar reductions in their level of borrowing with the bank.
[98] Miss Blyth had first met Freddy Ezekiel in 1993, when she was the manager of the Lloyds branch in Temple Fortune. She knew something of the Ezekiel family history and was familiar with the trust arrangements concerning the Kamaras. But the loans required to be refinanced in 1996 were vastly in excess of any previous lending. Miss Blyth says that she would have discussed matters with Mark Ezekiel and asked him to formulate a proposal that she could put to her regional office for approval. This would have included information about the purpose of the loan, the security offered and the ability of Silven and Chart to service the new loan. Details would have had to be provided of the means by which the balance of the existing borrowing would be repaid. In her witness statement, she says that, with the addition of Moreton Street as security, Lloyds would have granted a facility of up to £3.6m, but, following discussions between the experts, she now accepts that the maximum loan available would have been £2.69m. This would have been a two-year, interest-only loan with an option for early repayment. It would have been subject to the receipt of satisfactory valuations and reports on title. She says that her recommendations to her regional office were invariably accepted.
[99] Mr Shanks said that he could have produced a revaluation of the portfolio within three to four weeks and an indicative valuation in two to three days. There was also evidence from Mr Stephen Conway of Galliard Homes Ltd and Mr Malcolm Kirk, the development manager of the Peabody Trust, that they would have purchased Moreton Street in 1996 unconditionally for either £2m or £2.1m. I accept this evidence, and Mr Onions for the bank has not tried to persuade me that Moreton Street could not have been disposed of within a three- to four-week period. Both Galliard Homes and the Peabody Trust were enthusiastic purchasers. The Peabody Trust already owned property in the near vicinity and was familiar with the site. Mr Conway impressed me as someone who could move very quickly if a suitable development site became available. But the more difficult question is whether Lloyds Bank would have gone ahead within the time-scale or at all.
[100] A three- to four-week period seems to me to be impossibly short. Even if Mr Shanks were able to give an indication of value within a few days, Lloyds would not have been able to approve the loan until it had received the full valuation reports and considered them. Mark Ezekiel would also have had to provide considerably more detailed information about Silven and its prospects than he was able to supply to Robson Rhodes. Lloyds is likely also to have raised enquiries on the information provided. Before, however, any decision could be made by the bank, Mark Ezekiel (as he accepted) would have had to consult the Shinas about the sale of Moreton Street, and the Kamaras about the use of the Regina House rent and that property continuing to provide security for Silven’s debts. Mrs Shina and Mrs Kamara said in evidence that they would have prevailed upon their husbands in obtaining their approval to what was proposed. I have no doubts that this evidence was given honestly, but it considerably understates what I believe would have been likely to be achieved. I have to assume that the Shinas and the Kamaras had received legal advice by May 1996 to the effect that the bank was not entitled to enforce its security over the alleged trust properties. I say this because that was the basis for the original claim in these proceedings. It seems to me wholly unrealistic on that basis to assume that Mr Shina and Mr Kamara would readily have consented to the sale of Moreton Street (which, on any view, was a very valuable site) or to the continued use as security of Regina House. I have already set out earlier in this judgment the evidence indicating the reaction of Mr Kamara and Mr Shina to the suggestion that Silven should grant a debenture over the trust properties. The dispute about the use of these properties as security for Silven and Chart’s borrowings was only resolved by the undertaking of Mark and Freddy Ezekiel to take steps to extricate these properties from the arrangements with the bank. I simply do not believe, against that background of ill-feeling, that the Kamaras would have immediately dropped their resistance to Regina House standing as security and Mr Shina would have agreed to the sale, on behalf of his wife, of Moreton Street.
[101] For this reason alone, the claimants would not, in my judgment, have been able to refinance their borrowings as planned, whether six months or four weeks was available. But four weeks would have been insufficient on any view. Even if (contrary to my view) the Shinas and the Kamaras did eventually agree to co-operate, it would only have been after a period of discussion and negotiation. I do not believe that they would immediately have complied. Any period of delay (even if only a week) would have taken the time necessary to obtain a facility letter well beyond the four-week deadline. Miss Blyth conceded that, with everything going in the claimants’ favour, refinancing within that period was technically but not definitely possible. Mr Bryant considered that the minimum period in a straightforward case was about six weeks, but that it would probably have taken about three months. On this, his evidence is to be preferred to that of Miss Blyth. I regard three to four weeks as impossible.
[102] However, my doubts about the claimants’ ability to secure refinancing are not confined to questions of timing. As already indicated, I do not believe that the Shinas and the Kamaras would have consented. But I also do not believe that Lloyds (or some other unspecified lender) would have been prepared to make the advance in the circumstances in which the claimants found themselves in 1996. The evidence of Mr Bryant (which I accept) is that the market was still only in the very early stages of recovery and lenders were relatively cautious about property-based lending. The Silven/Chart portfolio was, on any view, of mixed quality, and the companies had a marked unwillingness to trade in the properties so as to produce regular inflows of funds. There are also the difficulties about the trust properties, which would have been inherited by Lloyds on the basis that those properties continued to form part of the security. Therefore, even if the Shinas and the Kamaras had decided to support the proposal, it had strong negative features. There is no indication that Lloyds felt any obligation to support the Ezekiels by refinancing the Silven and Chart borrowings |page:133| and no evidence from anyone in Lloyds, at regional office level or above, that approval would have been forthcoming. I am not persuaded by Miss Blyth’s evidence that a loan proposal of the kind contemplated would have been acceptable to Lloyds or indeed to any other bank at the time, regardless of whether the time available to consider it was four weeks or longer.
(4) Terms of the legal charge
[103] One of the arguments advanced by the bank (on the assumption that it was in breach of contract in calling in the loan before giving the claimants time to refinance) was that the validity of the receivers’ appointment did not depend upon the loans having become due for repayment. Under clause 4.2 of the legal charges (quoted in [26] of this judgment), the bank may exercise its power of sale (and other powers), whether under the Law of Property Act 1925 or the charge itself, “at any time after the date of this deed”. It is clear that the exclusion in clause 4.2 of section 103 of the Law of Property Act 1925 was intended to allow the power of sale to become exercisable at any time after the execution of the charge. But for the power of sale to be exercisable, it must also have arisen. Under section 101(1)(i) of the Law of Property Act 1925, the power of sale does not arise until the mortgage money has become due. This section applies, unamended by any provision in the legal charge, and this is confirmed by clause 1 of the charge, which contains the mortgagor’s covenant to discharge on demand the mortgagor’s obligations, defined as the mortgagor’s liabilities to the bank.
[104] It is therefore tolerably clear that the power of sale does not become exercisable until after demand for repayment has been made. But both Mr Onions and Mr Nugee contend that the position is different in relation to the power to appoint receivers. A statutory power of appointment is contained in section 101(1)(iii) of the Law of Property Act 1925, which again provides in terms that the power is to arise when the mortgage money has become due. Although that power can be varied or extended by the mortgage deed (see section 101(3)), the statutory power (unless so varied) is not exercisable until the power of sale has also become exercisable. This makes the exercise of the power of appointment dependent upon the mortgage moneys becoming due.
[105] The critical provision, therefore, is clause 4.3 of the legal charge. This states in terms that the bank may appoint a receiver of the mortgaged property, who shall be deemed to be the agent of the mortgagor. It says nothing expressly about when the power arises or about the conditions for its exercise. Mr Onions and Mr Nugee submit that this is dealt with in clause 4.2 by the concluding words: “The Bank may exercise its… other powers under… this deed at any time after the date of this deed”. I accept that this deals with the exercise of the power contained in clause 4.3, but it does not itself deal with whether that power has arisen. Mr Onions submits that one gets this from clause 4.3 itself. Its very existence as an express contractual power in unrestricted terms suggests that it exists as soon as the legal charge begins to have contractual effect. Otherwise there is no purpose in its inclusion. The bank could have relied simply upon the statutory power. In response, Mr Driscoll contends that clause 4.3 does not create a new and exceptional power, but merely varies section 109(1) of the Act. In this regard, he points to clause 5.8, which in terms refers to section 109 in the context of the receiver’s duty to account for the proceeds of sale. Clause 4.3 has, he says, to be read subject to clause 1 of the charge, which makes it conditional upon the debt having fallen due.
[106] On balance, I prefer the submissions of the defendants on this. It seems to me that clause 4.3 and clause 5.1 contain an additional contractual power to appoint a receiver, and not a mere variation or extension of the statutory power. On that basis, I can see no reason to read into the power the limitations imposed upon the statutory power by section 109(1) of the Law of Property Act 1925. The power exists with effect from the date of the deed, and, by clause 4.3, is exercisable accordingly. It follows that the claimants’ submissions based on the terms of section 101(1)(iii), that there could be no valid appointment over the unlet properties, also fails. The bank can rely upon the express power in clause 4.3, which contains no such limitation. In these circumstances, I do not have to express a view about the basic soundness of the claimants’ submission on this point. Both sets of receivers were validly appointed.
(5) Form and timing of the demands
[107] Two objections are taken to the demands:
(i) they were for an excessive sum;
(ii) they did not give the claimants sufficient time to obtain the money necessary to satisfy them.
[108] In Bank of Baroda v Panessar [1987] Ch 335, Walton J held that it was unnecessary for a demand under a debenture to specify the correct amount of the debt or to give time beyond what was necessary to implement the mechanics of payment.
[109] Faced with this, the claimants conceded that their submissions that the demands were invalid on these grounds are contrary to authority, at least at first instance, and did not pursue the argument before me, whilst reserving their position in respect of any appeal. I need therefore say no more about them.
(6) Claims in trespass
[110] My decision about the validity of the appointments concludes this issue in favour of the receivers, but I regard the claims in trespass for damages, based on loss of profits, as misconceived. The tortious measure of damage in such cases is calculated by reference to the lost value to be attributed to the wrongful occupation of the land or any physical damage to it. I have been shown no authority to support a claim in trespass for loss of development profits. As a matter of principle, it seems to me that a receiver who is invalidly appointed and sells will present the mortgagor with an election to make. He can either affirm the receiver’s authority to sell, require the receiver to account for the purchase price and sue for any breach of his duty to obtain a proper price, or he can seek to set the sale aside, or at least to enforce his equity of redemption against the purchaser on the basis that the receiver had no title to sell free of it. In most cases, the possibility of a sale will be known (as it was in this case) and the mortgagor would be able to obtain injunctive relief. He may also have remedies against the mortgagee for breach of contract. In these circumstances, it is hardly surprising that the common law has not needed to adapt the tort of trespass to provide a remedy for the recovery of future profits lost on the sale. In the case of registered land, the mortgagor may be limited to an indemnity under section 83 of the Land Registration Act 1925, but the intervention of parliament in this way is not sufficient reason, in my judgment, to alter the long-established rules governing the measure of damages in trespass.
[111] The claims against the bank in both actions therefore fail and will be dismissed. This leaves only the claims against the Coopers receivers for bad faith and for underselling the mortgaged properties, to which I now turn.
Claims against the Coopers receivers
[112] Underpinning the claims against the Coopers receivers is the proposition that they owed a duty to the mortgagors to act in their best interests in determining when to sell the mortgaged property, and that, as part of their duty to obtain the best or a proper price, they were obliged to take steps to improve the value of the properties by, for example, applying for planning permission, completing the grant of a lease or, in the case of Watney Street, of carrying into effect a land swap with the local authority. If this is correct, there is a fundamental difference between the legal duties owed by a mortgagee and those of any receiver it chooses to appoint. It is common ground that a mortgagee that exercises its power of sale owes a duty to take reasonable precautions to obtain the true market value or a proper price for the property at the time when it comes to sell: see Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949. Despite suggestions by Lord Denning MR in Standard Chartered Bank Ltd v Walker [1982] 1 WLR |page:134| 1410* at p1415 that this duty is a particular application of the general duty of care stated by Lord Atkin in Donoghue v Stevenson [1932] AC 562, it is clear that it has a quite different juristic basis. The duty is one in equity and represents one aspect of a more general duty to act in good faith when exercising the power of sale so as to extinguish the equity of redemption in the mortgaged property and to turn the security into money.
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* Editor’s note: Also reported at [1982] 2 EGLR 152; (1982) 264 EG 345
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[113] In Cuckmere Brick, Salmon LJ described the mortgagee’s powers and duties in these terms, at p965G:
It is well settled that a mortgagee is not a trustee of the power of sale for the mortgagor. Once the power has accrued, the mortgagee is entitled to exercise it for his own purposes whenever he chooses to do so. It matters not that the moment may be unpropitious and that by waiting a higher price could be obtained. He has the right to realise his security by turning it into money when he likes. Nor, in my view, is there anything to prevent a mortgagee from accepting the best bid he can get at an auction, even though the auction is badly attended and the bidding exceptionally low. Providing none of those adverse factors is due to any fault of the mortgagee, he can do as he likes. If the mortgagee’s interests, as he sees them, conflict with those of the mortgagor, the mortgagee can give preference to his own interests, which of course he could not do were he a trustee of the power of sale for the mortgagor.
To the same effect, Cross LJ said, at p969F:
A mortgagee exercising a power of sale is in an ambiguous position. He is not a trustee of the power for the mortgagor, for it was given him for his own benefit to enable him to obtain repayment of his loan. On the other hand, he is not in the position of an absolute owner selling his own property but must undoubtedly pay some regard to the interests of the mortgagor when he comes to exercise the power.
Some points are clear. On the one hand, the mortgagee, when the power has arisen, can sell when he likes, even though the market is likely to improve if he holds his hand and the result of an immediate sale may be that instead of yielding a surplus for the mortgagor the purchase price is only sufficient to discharge the mortgage debt and the interest owing on it. On the other hand, the sale must be a genuine sale by the mortgagee to an independent purchaser at a price honestly arrived at.
Whilst accepting these propositions, Mr Driscoll contends that they have no application to a receiver who is appointed by a mortgagee and then sells. He relies in particular upon a decision of Millett J in Re Charnley Davies Ltd (No 2) [1990] BCLC 760, who held that an administrator owed a duty to the company over which he was appointed to take reasonable care to obtain the best price that the circumstances, as he reasonably perceived them to be, permitted, including a duty to take reasonable care in choosing the time at which to sell the property. In reaching this decision, the judge contrasted the position of the administrator with that of the mortgagee:
It was common ground that an administrator owes a duty to a company over which he is appointed to take reasonable steps to obtain a proper price for its assets. That is an obligation which the law imposes on anyone with a power, whether contractual or statutory, to sell property which does not belong to him. A mortgagee is bound to have regard to the interests of the mortgagor, but he is entitled to give priority to his own interests, and may insist on an immediate sale whether or not that is calculated to realise the best price; he must “take reasonable care to obtain the true value of the property at the moment he chooses to sell it”: see Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 2 All ER 633, [1971] Ch 949. An administrator, by contrast, like a liquidator, has no interest of his own to which he may give priority, and must take reasonable care in choosing the time at which to sell the property. His duty is “to take reasonable care to obtain the best price that the circumstances permit”: see Standard Chartered Bank v Walker [1982] 3 All ER 938, [1982] 1 WLR 1410.
[114] At one point in his argument, Mr Driscoll seemed to suggest that the function of a receiver appointed by a mortgagee was to consider the wishes of both the mortgagor and the mortgagee as to whether a sale should take place and then, in effect, to make a judgment between them. But this would put such a receiver in an impossible position and is not an analysis that I can accept. It seems to me that the receiver is either a trustee of his own power of sale for the mortgagor (as in the case of the administrator) or he owes to the mortgagor no greater duties than are owed to him by the mortgagee. In the end, Mr Driscoll accepted that these were the only realistic alternatives.
[115] I take the view that I am bound on the authorities as they stand to regard the receiver as under the same (but no greater) obligations to the mortgagor as the mortgagee. This does not mean that he is not entitled to exercise some judgment of his own in relation to the timing of any sale. They are his powers to exercise. But, inevitably, he is likely to give primacy to the interests and wishes of the mortgagee, and if he does so, he is under no liability to the mortgagor unless he acts in bad faith or fails to take reasonable steps to obtain a proper price at the relevant time. That is, I think, made clear by the decision of the Privy Council in Downsview Nominees Ltd v First City Corporation Ltd (No 1) [1993] AC 295, where Lord Templeman, delivering the opinion of the board, said at p312E:
The next question is the nature and extent of the duties owed by a mortgagee and a receiver and manager respectively to subsequent encumbrancers and the mortgagor.
Several centuries ago equity evolved principles for the enforcement of mortgages and the protection of borrowers. The most basic principles were, first, that a mortgage is security for the repayment of a debt and, secondly, that a security for repayment of a debt is only a mortgage. From these principles flowed two rules, first, that powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment and secondly that, subject to the first rule, powers conferred on a mortgagee may be exercised although the consequences may be disadvantageous to the borrower. These principles and rules apply also to a receiver and manager appointed by the mortgagee.
Similarly in Medforth v Blake [2000] Ch 86*, Sir Richard Scott V-C, when considering the position of a receiver and manager appointed by a mortgagee to run a business, said:
The proposition that, in managing and carrying on the mortgaged business, the receiver owes the mortgagor no duty other than that of good faith offends, in my opinion commercial sense. The receiver is not obliged to carry on the business. He can decide not to do so. He can decide to close it down. In taking these decisions he is entitled, and perhaps bound, to have regard to the interests of the mortgagee in obtaining repayment of the secured debt. Provided he acts in good faith, he is entitled to sacrifice the interests of the mortgagor in pursuit of that end. But if he does decide to carry on the business, why should he not be expected to do so with reasonable competence?
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* Editor’s note: Also reported at [1999] 2 EGLR 75; [1999] 29 EG 119
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[116] The principal submission of the receiver, rejected in Medforth, was that his duties to the mortgagor did not extend beyond a duty of good faith. It was said that he should not be held liable for his negligence in running the business. But that submission ignored the distinction between the mortgagee’s (or receiver’s) general duty of good faith and the specific duties (such as to obtain a proper price) that come into play once the relevant power is exercised. In Yorkshire Bank plc v Hall [1999] 1 WLR 1713 at p1728C, Robert Walker LJ referred to Downsview Nominees and the earlier cases in these terms:
Those cases together establish or reaffirm that a mortgagee’s duty to the mortgagor or to a surety depend partly on the express terms on which the transaction was agreed and partly on duties (some general and some particular) which equity imposes for the protection of the mortgagor and the surety. The mortgagee’s duty is not a duty imposed under the tort of negligence, nor are contractual duties to be implied. The general duty (owed both to subsequent encumbrancers and to the mortgagor) is for the mortgagee to use his powers only for proper purposes, and to act in good faith: see the Downsview case, at p317. The specific duties arise if the mortgagee exercises his express or statutory powers: see the Downsview case at p315. If he exercises his power to take possession, he becomes liable to account on a strict basis (which is why mortgagees and debenture holders operate by appointing receivers whenever they can). If he exercises his power of sale, he must take reasonable care to obtain a proper price.
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[117] The mortgagee or receiver, when exercising the power of sale, must therefore act in good faith with a view to securing repayment of the debt by the conversion of the security into money. The timing of the sale will be a matter for them, unaffected by the wishes of the mortgagor. But the preparation for and the method of sale to be adopted will be matters in respect of which there is no conflict between the interests of the mortgagor and the mortgagee, and where the mortgagee or receiver will be potentially liable to the mortgagor if he fails to act with reasonable care so as to obtain a proper price. In this context, it is clear that the property must be fairly and properly exposed to the market, absent perhaps cases of real urgency. Similarly, as part of this duty of care, the receiver may be required to take positive steps to maintain the value of the property. Knight v Lawrence [1993] BCLC 215* is an example of this. But I am unconvinced that the mortgagee or a receiver appointed by it is required to incur expense in the improvement of the security in order to sell it at a higher price or to embark on making applications for planning permission, granting leases or the like that, however well founded, are likely to delay a sale beyond the normal period of marketing.
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* Editor’s note: Also reported at [1991] 1 EGLR 143; [1991] 01 EG 105
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(1) Bad faith
[118] Against this background, I can consider the specific claims that are made against the Coopers receivers. The first is that the receivers acted in bad faith in selling the four development sites at Watney Street, Hillyard Street, Ladbroke Grove and Withington Road without first applying for, and possibly obtaining, planning permission in respect of them. It is alleged in the amended particulars of claim that in the knowledge that, with planning permission, the value of the sites would be increased, the receivers none the less went ahead and sold without first pursuing the planning application, because they were told by the bank (through Mrs Jacob) early in 1997 that it wished the properties to be sold as soon as possible without waiting for the applications to be made. In the pleading for which I gave permission at the trial, Mrs Jacob is said to have communicated this to the second defendant, Mr Vooght. But in the paper application received since the trial, permission is sought to plead as an alternative that Mrs Jacob spoke to Mr Graham Stenning, who was Mr Vooght’s assistant at the time and had much of the day-to-day conduct of the receivership. As a consequence, Mr Stenning is said to have made a recommendation to Mr Vooght that the four sites should be sold without first applying for planning permission, and this was accepted. It is not alleged that Mr Stenning told Mr Vooght that his recommendation was the result of pressure from the bank for an early sale.
[119] Even assuming that the facts as pleaded are established, paras 121A-121B do not, in my judgment, disclose a cause of action. The bank was entitled to press for an early sale, even if it meant that the development sites would have to be sold either with no, or only very limited, planning permissions. The timing of the sale was a matter for the bank’s choosing. If it preferred to have its money sooner rather than later, it was entitled to demand that. It is not suggested or pleaded that the decision to request a sale in early 1997 was motivated by a desire in some way to spite the claimants or the Ezekiels, or that the receivers operated with that intent. The receivers are said to have acted in bad faith only because they preferred the wishes of the bank over the interests of the claimants.
[120] It is clear from the authorities referred to earlier that the receivers were entitled to take that course and were under no duty to the mortgagors (whether fiduciary or otherwise) to put their interests first. In these circumstances, knowledge that an early sale without planning permission was almost certain to produce a lower price is not enough to found an allegation of bad faith.
[121] For these reasons, the claim based on bad faith fails, and I do not intend to give permission to make the further amendments sought to para 121B. I can therefore set out relatively briefly the reasons why the claim also fails on the facts.
[122] The origin of the amendment to plead bad faith is some late disclosure by the bank of various documents relating to the Coopers receivership. This led to an adjournment of the trial for a period and to the recalling of Mrs Jacob and Mr Vooght. The main plank in the allegation of bad faith is the apparent volte-face on the part of the Coopers receivers in relation to obtaining planning permission for some of the sites. On 31 July 1996, Nathaniel Lichfield & Partners Ltd (NLP) was instructed by JSG to carry out planning appraisals and to provide advice in relation to various sites within the Silven/Chart portfolio. These included the four development sites that are the subject of the allegations of bad faith. Mr John Robertson of NLP produced two witness statements and gave evidence at the trial. His first witness statement contains a summary of the recommendations contained in the advice that NLP provided to Mr Salata of JSG in September and October 1996. Hillyard Street already had an outline consent for a housing development, granted in 1993. This was personal to the Wandle Housing Association or any registered housing association approved by Lambeth London Borough Council. The advice was to make an application under section 73 of the Town and Country Planning Act 1990 to extend the period for submitting reserved matters. On such an application, the local authority would not be able to reconsider the principle of development. This application was described by NLP, in its letter of advice, as vital in order to establish some development value for the site and to retain a stronger negotiating position for other development. NLP also advised submitting new applications for a residential scheme, describing the prospects of obtaining such permission as good. Another proposal was a new application for a nursing home on the site. NLP thought it likely that the planning authority would refuse consent for this due to local opposition, but there was said to be a reasonable case for an appeal.
[123] In the case of Watney Street, where the land holdings comprised five adjacent sites on the east and west sides of that road, NLP said there were good prospects of achieving consent for a two- to three-storey residential development, a nursing home or shop units with flats above on the western sites. The smaller sites to the east of Watney Street, which were close to existing residential property, including a large block of flats, were said to have limited prospects for any significant built development.
[124] The site at the junction of Ladbroke Grove and Kensal Road had been the subject of enforcement proceedings by the local authority in 1991 to compel the removal of advertising hoardings erected without planning consent. No other planning applications had been made in respect of the site. Discussions with the local planning officers disclosed that a B1 or retail use would be acceptable in principle, but the site had major problems in terms of vehicular access. Applications for residential development, including “live and work” studios, would be resisted. NLP’s assessment was that consent for retail or showroom use had limited prospects due to the problems of access and servicing, and that consent for residential use would only be obtained on appeal, as to which the prospects did not appear particularly strong. B1 use would be acceptable in policy terms, but could be problematic due to the difficulties about access. Subject to this, the prospects were good. NLP advised that the enlargement of the site by the acquisition of adjoining land (a public house and garden) would enhance the prospects for B1, retail and restaurant use, and might open up the possibility of some residential development on the Kensal Road frontage.
[125] The site at Withington Road was a vacant site in a residential area. It was also within a conservation area. A recently approved but non-statutory review of UDP policy aimed at avoiding or restricting an over-concentration of nursing homes and special needs housing in areas where there was already a high concentration of such uses. The NLP appraisal concluded that residential development would be acceptable in principle, subject to questions of density and parking, but that a planning application for a nursing home would be resisted by the local planning authority and would only be obtained on appeal if it was linked to a named (and therefore established) operator.
[126] In his second witness statement, Mr Robertson says that the NLP appraisals contain, not recommendations, but advice about the |page:136| prospects of obtaining various forms of planning permissions. To a point this is true, but it is clear that the purpose of seeking the advice was to inform the receivers of what steps (if any) they ought to take if they wished to maximise the development value of the sites though the grant of additional planning permissions. Mr Salata described NLP as a very competent planning consultant with a first-rate reputation. He suggested in one of his witness statements that its business depended upon making planning applications, and that it therefore put as favourable a slant as possible on the prospects of achieving a permission when drafting a report. I do not accept that criticism. It seems to me that the appraisals it produced were extremely balanced, and clearly distinguished between the applications that had some real prospects of success and those that did not. In cross-examination, Mr Salata confirmed that it was a first-rate firm.
[127] The instructions to NLP followed a report made to the Coopers receivers by JSG on 5 July 1996. In that report, JSG confirmed that it had been instructed by the receivers to advise them “in connection with the values of the properties, their saleability and how to maximise net values on realisation”. In relation to Hillyard Street, JSG advised the receivers that NLP should prepare a report to give a clearer idea as to whether a realistic possibility existed of obtaining planning consent for a nursing home. JSG’s own view was that the section 73 application and a new application for a residential permission should be pursued. Further detailed investigation of the planning position by NLP in respect of the other three sites was also recommended. On 13 August, the Coopers receivers made their first report to the bank. Mr Vooght was able to say that JSG had valued the Silven and Chart portfolios at £3.164m and £300,000 respectively and had advised the receivers that there was potential to improve the values to £3.768m and £490,000 respectively by obtaining additional planning permissions. In the case of Hillyard Street, the enhancement was estimated to be from £375,000 to £600,000, and for Withington Road from £50,000 to £175,000. Mr Vooght told the bank that he believed that it would be possible to dispose of the majority of the properties by the end of 1996, but “resolution of the planning issues and other matters whereby better realisations could be achieved may delay sales into 1997”.
[128] It is therefore clear that in August 1996 the receivers contemplated pursuing planning applications in respect of the development sites, subject to confirmation of the planning position from NLP. They got that by October of that year. In the third report to the bank on 5 November 1996, Mr Vooght was able to give further details of these estimated uplifts in value in respect of the development sites, as well as the costs involved. In the case of Hillyard Street, the uplift to £600,000 was attributed to the possibility of obtaining an unrestricted consent for either residential development or a nursing home. The additional costs involved were said to be £7,000. In the case of Ladbroke Grove, the uplift was to be advised, but on the basis of NLP’s advice about obtaining consent for a B1 or a mixed B1/A3 development. The costs were said to be £5,000. The uplift for Watney Street was also to be advised, but the costs were estimated at £7,000. Finally, in the case of Withington Road, NLP’s advice was also to be acted upon at a cost of £8,500. In all four cases, Mr Vooght reported that he had instructed the agent to make the planning applications recommended in the NLP appraisals.
[129] The turning point really comes early in 1997. Mr Salata said that by February 1997 the receivers’ strategy had changed, and a decision was made to market the four sites without pursuing the applications for planning permission. Only the section 73 application in respect of the existing permission on Hillyard Street was pressed to a conclusion. Mr Salata says that Mr Stenning decided to test the market without taking the planning process any further, and based that decision on Mr Salata’s advice. This was given in discussions prior to February 1997. When asked to identify what had changed so as to bring about this new strategy, Mr Salata was unable to point to any single event that may have influenced Mr Stenning. The best that he was able to do was to say that a new approach gradually evolved from the end of 1996, based on a continuous assessment of the planning risks. Mr Stenning was no clearer about the reasons for the change. In his witness statement, he is unable to specify the reasons why the receivers decided not to pursue the planning application in respect of Watney Street. In the case of Ladbroke Grove, his evidence is that the owners of the public house were unwilling to enter into a joint venture in respect of the whole site, which would have resolved the problems of access, and a decision was therefore made to auction the property. In the case of Withington Road, the local agent was, he said, unable to identify an operator who was interested in running a nursing home on the site, and that application was therefore not proceeded with. He says that he was also advised by JSG that there was little, if anything, to be gained by making an application for residential development. It would be left to a developer to make his own application.
[130] Mr Stenning was pressed in cross-examination to explain the decision to discontinue the planning process. In relation to Watney Street, he was unable to improve on his witness statement. In the case of Hillyard Street, he said that he was made conscious by Mr Salata of the risk of devaluing the property by a refusal of planning permission. He decided to go ahead and test the market. In the end, however, he accepted that JSG never made specific written recommendations to put the various planning applications on hold and to place the properties for sale. This was a decision that Mr Stenning made and that, when put to JSG, was not dissented from. Although, doubtless, there were discussions with JSG about the merits of the various planning applications, I do not accept that the decision to market the four development sites in 1997 was the result of a process of deliberation between Mr Stenning and Mr Salata, unaffected by the position of the bank. I found Mr Salata’s evidence about these discussions to be exaggerated and unconvincing, and I was left with the distinct impression that he was anxious to protect the position of Mr Stenning and the receivers from the attack which was made on their motives.
[131] The reality is that the decision to abandon the planning process was largely costs-driven. On 13 December 1996, Mrs Jacob wrote to Mr Vooght asking for a fixed estimate of his costs to the completion of the receiverships. In the same letter, she refers to the fixed fee quotes obtained from the agents. On 17 October, NLP had supplied JSG with an estimate of the costs involved in making the various planning applications in respect of the development sites. These had been included in the items of additional costs in the report of 5 November. Both Mr Vooght and Mrs Jacob confirmed that the costs of the receivership were continuously under discussion between them. Mrs Jacob wanted, if possible, to get Mr Vooght to agree to a fixed fee. Not surprisingly, he was unwilling to do so. But the consequence of this was that the costs of the receivership were potentially open-ended and, on the valuations of the security provided by JSG, were certain to fall on the bank rather than on the claimants. There was therefore every reason for the bank to press for as early an end to the receivership as was compatible with making the best possible recovery.
[132] On 1 December 1996, Mr Vooght had requested overdraft facilities to cover the appointments in respect of each of the properties until 1 July 1997. Mrs Jacob replied to Mr Stenning on 12 December stating that, before agreeing to the request, she needed to have some indication of the type of expenses envisaged during the period of the facility. Details were provided by fax on 16 December. Mr Stenning asked Mrs Jacob to note that in the case of four properties the amount of the facility required had been revised upwards from £10,000 to £20,000 “as a higher level of planning input is now required to enhance realisations”. The properties in question were the four development sites. In the case of Hillyard Street, Ladbroke Grove and Watney Street, the planning-related fee included in the details of estimated future expenditure was £7,000. In the case of Withington Road it was £8,500.
[133] On 6 January 1997, Mrs Jacob wrote to Mr Stenning, giving him the bank’s consent to making available the facilities that had been requested. This included the increased sums of £20,000 in respect of the four development sites. Mrs Jacob said in evidence that she thought the estimated costs provided on 16 December were reasonable. It is apparent from this that at that stage the bank was content for the planning applications to be made and had approved the necessary |page:137| expenditure. On 30 December 1996, Mr Jorden of JSG had formally instructed NLP to proceed with the preparation of the relevant planning applications. In the case of Withington Road, this work was to be carried out through the local firm of Robert Turley. But, in the same letter, he requested NLP to provide initially an indication of the likely floor space for which consent might be obtained, in order to enable JSG to assess the viability of each proposed application. The receivers, he said, wanted to be certain that the planning costs were justifiable. These calculations were provided on 10 January 1997, and on 28 January Mr Robertson wrote to Mr Salata asking for confirmation that NLP should proceed to prepare the planning applications for the three London sites. On 31 January 1997, Mr Salata gave that confirmation.
[134] By April 1997, all this had changed. One can see from a letter written to Mr Jorden on 10 March that NLP had by then been informed that it was unlikely to have to carry out any further planning work on Ladbroke Grove and Watney Street, although it believed the planning applications in respect of Hillyard Street might be continuing. In a letter to Mr Stenning of the same date, Mr Jorden said that JSG still believed that the Hillyard Street applications would add value to the site, but had asked NLP to postpone further work on them, pending instructions from the receivers. The receivers decided not to take those applications any further. Mr Jorden confirmed in evidence that after February 1997 the regular meetings with Coopers to review strategy ceased, and the receivers no longer required JSG to provide monthly reports. Mr Jorden dates the change in policy to a meeting held on 14 February 1997. Following that meeting, there were decisions on a property-by-property basis to abandon the planning applications and to market the properties. Mr Jorden said he did not know the reasons for these decisions.
[135] The meeting on 14 February was held between Mr Jorden and Mr Stenning. The note of the meeting records that, in relation to the four development sites, NLP and Robert Turley were to provide the receivers with details of their costs to date and a budget figure in respect of future costs. This concern about costs and the need to demonstrate that the planning applications would really add value to the properties seems to me to be traceable to the early part of 1997. Although Mrs Jacob had approved the overdraft facilities for the properties on 6 January, she then received a letter from Mr Vooght (dated 7 January) asking for further receivership fees of £25,000 to meet the costs of the receivership continuing until July 1997. Mr Vooght explained that the receivers’ original fee estimate was based on the assumption that it would be concluded by the end of 1996, but Mr Vooght now believed that a further six months would be necessary to conclude matters. Four properties (including the four development sites) had outstanding planning issues to be resolved. Mr Vooght also provided Mrs Jacob with details of the additional agents’ costs for the sites. These included the planning fees for the four development sites.
[136] On 27 January, Mr Stenning telephoned Mrs Jacob’s secretary to arrange to discuss Mr Vooght’s request for additional fees. They spoke on 31 January. Mrs Jacob’s note of that conversation records that Mr Stenning told her that he hoped to have all the properties disposed of by 1 July 1997, and would keep her informed if any slippage were likely. She would discuss Coopers’ request for additional fees directly with Mr Vooght. Mrs Jacob also noted that, in her view, the agents’ fees (which included NLP’s projected fees) appeared to be substantial and represented a 35% increase over earlier estimates in the 5 November report. Her concern was particularly directed to the fees of JSG. She was unwilling to agree to an increase in the agents’ fees above the initial quotes without further information. Mrs Jacob said that Mr Stenning agreed to come back to her on this.
[137] On 19 February 1997, Mrs Jacob agreed to the additional receivers’ fees of £25,000, but the position about the agents’ fees remained unresolved. Mr Vooght, when asked, was unable to recall any conversation with Mr Stenning about these fees, but by then Mr Stenning had already acted by asking Mr Jorden at the meeting on 14 February to obtain details of these costs. It looks as if the issue of agents’ fees may have been discussed at a meeting between Mrs Jacob and Mr Vooght held on 24 February, but Mr Vooght has no recollection of that meeting, nor is there any note of it. What, however, we do have is a submission made by Mrs Jacob to an internal bank strategy review meeting held on 27 March. This states that the receivers had sold all but six of the properties, and were pursuing valuable planning permissions for the remaining properties so as to maximise their potential. They were also envisaging a sale of all the properties by September 1997. It seems to me clear that Mrs Jacob had two related objectives: to keep the costs down and to bring the receivership to an end by the sale of the properties during 1997. I do not accept that she was seeking as quick a sale as possible, regardless of the financial consequences in terms of realisations, or that she had set July 1997 as a date for the conclusion of the receivership. Her submission is quite inconsistent with that. She was concerned on behalf of the bank to limit the expense of what was obviously going to be an insolvent receivership. There is nothing wrong or surprising in that. But her insistence on limiting costs and getting value for money did put pressure on Mr Stenning to justify the planning applications that he and JSG had set in train and the expenses that would be involved. Although ultimately a matter for Mr Vooght, it was Mr Stenning who, in my judgment, took the decision to market the development sites without first pursuing the new planning applications. Faced with the desire of the bank for an end to the receivership in 1997 and a limit to additional expenditure, he decided to bring the properties to the market, leaving it to the purchasers to assess the value of their planning potential. Mr Salata did not formulate this strategy, but he did not dissent from it when it was put to him. It was, in his opinion, a legitimate policy of disposal. When these recommendations were put to Mr Vooght he simply accepted them. Therefore, on 1 April 1997, the receivers (in a letter prepared by Mr Stenning) were able to tell Mrs Jacob that the estimated fees up to 31 July 1997 had been revised and that the four development sites were expected to be sold by 1 July 1997. The planning costs in respect of the properties are shown as reduced by £10,500, which equates to the removal of NLP’s additional fees for the new planning applications. Mr Stenning was reluctant to accept this, but that was, I am afraid, typical of much of his evidence. I found him to be an unsatisfactory witness, evasive and highly defensive of his conduct and the position of the bank, which now employs him. I have therefore treated his evidence with considerable caution. But I do not believe, looking at the evidence as a whole, that his decision to sell without pursuing the planning applications was the result of a direct approach by Mrs Jacob in terms requiring the receivers to abandon the previous strategy of seeking planning permission and to dispose of the development sites as soon as possible. That was not, in my judgment, her position. Having made clear to Mr Stenning and Mr Vooght her concerns about an overrun of the receivership and the need to minimise costs, she left it to them to make the decisions. I do not accept that she gave the express directions pleaded to either Mr Stenning or Mr Vooght, and Mr Driscoll did not even suggest to Mr Vooght in cross-examination that she did so. The pleaded case on bad faith is not therefore made out on the evidence.
(2) Underselling
[138] The limited scope of the receivers’ duties to the claimants means that the only underselling claims that need to be considered are those in respect of the two properties in the retail portfolio (Petty France and Turners Hill), the site at Ladbroke Grove and the site at Hillyard Street. An attempt was made by Mr Driscoll, during his closing submissions, to advance a claim that the sale price of Watney Street was £30,000 less than its market value at the relevant time, and to suggest that the expert valuers were wrong to have agreed that the sale price of £470,000 was the open market value at the time. I am not prepared to allow that issue to be reopened in the face of the agreement that was presented to me pursuant to directions that I gave at the pre-trial review. I should also observe that, even if I had taken a different view of the law as to the receivers’ duties, I would still have ruled out any claim for damages based on the land swap in respect of Watney Street. Mr Westlake (the expert valuer called by the claimants) did not criticise the time taken by JSG to familiarise itself with the position on the negotiations for the land swap or to make contact with Mr Beaven, who was dealing with the matter on behalf of Tower Hamlets London |page:138| Borough Council. By the time that a meeting took place on 19 February 1997, a change in policy meant that the council were only interested in the outright purchase of the site. But even had JSG made contact much earlier in 1996, Mr Beaven’s evidence (which I accept) was that he would have regarded a land swap with the receivers as too complicated. Coupled with the change in attitude to a swap on the part of the council, which took place from about the middle of 1996, the delay involved in arranging a meeting made no difference. The completion of the land swap never was a realistic possibility after May 1996.
(i) Hillyard Street
[139] The allegations that need to be dealt with relate to the adequacy of the sale price of £420,000. The site was sold to Chesside Homes Ltd at this price on 19 November 1997, which then subsold to the Peabody Trust for £500,000. The claimants say that a sale price of £500,000 should have been achieved by the receivers. These allegations are not addressed in the claimants’ closing submissions, but some reliance appears to be placed upon the fact that, on 3 October 1997, an unconditional offer was received from Lindhill Construction Ltd in that sum. JSG recommended acceptance, but the offer subsequently went quiet and there is no evidence that Lindhill was ever in the position to proceed to a contract.
[140] Although the section 73 application was not finally determined until 17 September 1997, the marketing of Hillyard Street had begun earlier that year. Particulars were issued by JSG which described the 1993 planning consent as having lapsed, with no reference to the section 73 application. This was clumsy, but I do not believe that, in itself, it made any real difference to the final result. One of the complaints is that JSG did not mail copies to all relevant housing associations. Mr Salata said that the particulars went to the eleven housing associations on JSG’s database, but that this did not include, for example, the Peabody Trust.
[141] On 20 June 1997, Wimpey Homes offered £641,000 conditionally on the grant of a detailed planning consent for a social housing development satisfactory to it. Its offer was made on behalf of housing association clients and it seems to have been a feature of the sale of sites that had potential for social housing that they would often be bid for and acquired by developers to pass on to such clients. On 1 July 1997, an offer was also received from the Family Housing Association (FHA) in the sum of £460,000. This was also conditional on planning consent. Mr Salata told the receivers that he could not yet recommend acceptance of either of these offers.
[142] On 18 August, the FHA increased its offer to £552,000 on an unconditional basis. At the same time, Wimpey Homes confirmed that its offer was conditional only on the success of the section 73 application and a soil survey. JSG advised the receivers that although the FHA offer was “excellent”, in view of the fact that the section 73 application was due to be determined on 17 September, the receivers should accept the Wimpey offer. One of the particulars of negligence is the allegation that the FHA offer should have been accepted. But although this offer was good, it was almost £100,000 less than Wimpey’s offer, and the chances of obtaining the section 73 extension were considered to be high. The criticism of the receivers for not accepting the FHA offer is based on hindsight and is not, as I see it, justified. Not surprisingly, Mr Westlake did not support it.
[143] On 17 September, Lambeth London Borough Council unexpectedly refused the section 73 application. NLP advised JSG that the prospects on an appeal were very good and that the appeal process should be concluded within about four months. In the event, the receivers decided not to pursue an appeal. On 2 October 1997, Wimpey Homes wrote to Mr Salata stating that, in its view, an appeal would succeed. Mr Salata says that he suggested to it that it might make its offer unconditional, but it refused. In discussions with Mr Stenning, it was decided that there were risks in an appeal and that the receivers should seek an unconditional purchaser. Given that Wimpey Homes was not prepared to take the risk, it is difficult to criticise the receivers for coming to the same conclusion. Chesside Homes Ltd made an offer of £410,000 on 16 October, which it raised to £420,000 six days later. It disclosed that it was intending to develop the site in conjunction with the Peabody Trust. In the absence of any better unconditional offers, the site was sold to Chesside in November.
[144] The only real point to be decided on Hillyard Street is whether, by wider advertising, the receivers would have attracted directly an offer from the Peabody Trust at £500,000. One obvious way of attempting to sell direct to Peabody would have been to have approached it once its interest was disclosed in the Chesside bid. But there were obvious risks to both parties in such an approach. Mr Kirk, the development officer of the Peabody Trust, said that he had funding available for the site and would have been prepared to purchase it for £420,000. But he also accepted that he knew Chesside was a dealer and he was prepared to pay a premium of £80,000 to it rather than risk losing the deal and souring his relationship with that company. At that time, Peabody was working in conjunction with Chesside on a number of projects. I do not believe that a direct approach to Peabody would therefore have led to the Trust bidding against Chesside for the property. That seems to me to be wholly unrealistic. Nor do I believe that Peabody, even if approached much earlier through direct advertising, would have paid much more than the £420,000 offered by Chesside. In these circumstances, it is impossible to contend that the receivers, through JSG, failed to act properly or with reasonable care in deciding to leave well alone and not to do anything to disrupt the arrangements that had been reached with Chesside. There is no claim for compensation established in relation to this sale.
(ii) Ladbroke Grove
[145] At the meeting between Mr Stenning and Mr Jorden on 14 February 1997, the consensus was that the two parcels of land owned by the claimants could only sensibly be developed by acquiring rights of way over the garden of the public house between them, which was owned by Whitbread. The note of the meeting records that unless substantial progress were made with Whitbread by the end of February, the two plots were to be placed in the next Allsop auction. Mr Jorden said that he was unable to interest Whitbread in some kind of joint venture, and the decision was therefore taken to dispose of the sites. Both expert valuers accept that, in the light of the access and land assembly problems, it was reasonable for the receivers to decide to abandon the proposed planning applications and to allow the market to determine the value that was attributable to the site’s planning potential. But it is said that Silven should have sold the land on a conditional basis. Mr Westlake said in his report that this would have been a rather speculative proposition for a property owner, but a course of action that he would have taken. In the medium term it might have yielded a sale price of £100,000. However, the planning difficulties associated with this site are such that a conditional sale was not likely to have been completed for some time. For the reasons already explained, the receivers were not, in my judgment, required to wait before realising the security, nor were they required to speculate. A conditional contract would have tied their hands, extended the length of the receivership and yet not guaranteed any certain return. I cannot see how it was negligent of the receivers not to have entered into a conditional contract in this case.
[146] The only real issue on Ladbroke Grove is whether the receivers should have sold the property at auction rather than concluding a sale prior to auction with Millridge Properties Ltd. Millridge was a private company owned and controlled by the Ezekiel family. When this claim was outlined to me by Mr Driscoll, I expressed some surprise that it was being pursued. If, in truth, any loss has been suffered, then that represents a financial gain to the Ezekiels through Millridge. But Mr Driscoll insisted that I was required to respect the separate corporate identities of Millridge and Silven, and doubtless he is right.
[147] The site was entered into Allsop & Co’s commercial auction sale held on 21 to 22 May 1997 at the Berkeley Hotel. The property was offered with a pre-auction guide price of £5,000 to £10,000. Prior to the auction, a written offer of £7,500 was received from Raj & Co. Verbal indications of interest also came from a Mr Peter Crossthwaite in the |page:139| sum of £50,000 and from Mr Alex Klemin in the sum of £20,000 to £30,000. The clear advice of Allsop & Co was that the property should be offered in the auction room, but before auction it was withdrawn and sold to Millridge for £10,000. One is therefore left to speculate as to whether it would have fetched a higher price at the auction.
[148] There is a disagreement between the experts as to the open market value of the property at the time of the sale. Mr Owen says that it was worth about £20,000, whereas Mr Westlake thinks its value was as much as £50,000. Neither expert expressed his opinion with any real confidence and Mr Owen thought that the value might be anywhere between £10,000 and £50,000, although he considered that the possibility of a bid at the top end of that range was quite remote. As between the experts, I prefer Mr Owen’s evidence on this, not least because Mr Westlake also valued the property at £50,000 with planning permission, but there is in fact no real evidence that the property was worth more than Millridge agreed to pay for it. There is no reason to suppose that the higher pre-auction expressions of interest would have matured into a bid and, despite the advertising carried out by Allsops, no other pre-auction purchasers came forward.
[149] In these circumstances, it is for the claimants to prove that the receivers acted negligently or unreasonably in accepting the Millridge offer of £10,000 rather than exposing the property to auction and that, had they done so, it would have fetched a higher price. In my judgment, they have not done so. I am entitled to assume, and I do assume, in the absence of evidence to the contrary, that Millridge made its bid in order to secure the property before auction and therefore offered a price that represented a reasonable estimate of the site’s market value. Neither Mark nor Freddy Ezekiel suggested that Millridge obtained the property cheap, and it can be expected to have known what the market was likely to value the site at and to have priced its bid accordingly. I do not, therefore, accept that the Ladbroke Grove site, without planning permission, was worth any more than Millridge agreed to pay for it or that (and this is the real point) the receivers acted unreasonably or failed to obtain a proper price by agreeing to sell to Millridge in these circumstances. This claim also fails.
(iii) Retail portfolio: Petty France and Turners Hill
[150] The complaint here is that the receivers ought to have marketed and sold Turners Hill and Petty France individually and not as part of a portfolio. Had they done so, it is said that Turners Hill would have realised £450,000 (as opposed to its apportioned sale price of £345,000) and Petty France would have realised £480,000 (whereas its apportioned sale price was £430,000). Silven has therefore lost £105,000 and £50,000 respectively. Putting aside for the moment the question of whether the sale of the properties as part of a portfolio was correct, I can say at once that I am not persuaded that the apportioned values of the properties can properly be regarded as their sale prices. These apportionments were carried out by the purchasers and not as part of any process of negotiation. The only input of the receivers was to require the apportioned prices of two of the five properties in the contract (471-475 Uxbridge Road and 321 Northolt Road) to coincide with the prices notified to Silven under the terms of an order of 19 July 1996. The experts were agreed in their joint statement that the apportioned prices might be, but could not be taken necessarily to represent, the open market value at the time. Mr Westlake said that his own approach to the retail portfolio was to value the five properties individually and then compare their aggregate value to that achieved on the sale (£1.28m). Any assessment of loss would therefore have to be based on the difference between the market value of the properties at the time of the sale and a pro rata apportionment of the global sale price.
[151] The decision to market these properties as part of a portfolio (originally of six properties) was taken on the advice of JSG. One obvious answer to the claim that the marketing and sale was carried out without due care might therefore have been that it was delegated to an apparently competent firm of agents and that the receivers were entitled to rely on its advice, which did not appear to be obviously wrong. But, before me, Mr Nugee accepted that his clients are responsible for any shortcomings in the advice tendered by JSG and I should deal with the claim on that basis. The advice to sell six properties as part of a single portfolio involved both Mr Jorden and Mr Salata, although it was Mr Salata who then assumed responsibility for the marketing. On 5 July 1996, JSG produced a “valuation and realisation strategy” document in which Turners Hill was valued at £425,000 and Petty France at £490,000. It recommended that both properties be included for sale in a retail investment portfolio. There is no discussion in this document of the advantages of selling as part of a portfolio over individual private treaty sales, but Mr Jorden’s evidence in his witness statement was that all the six properties to be included were within or just outside the M25 and could be classified as secondary retail properties. There were purchasers in the market who were keen to purchase such portfolios, and the price achieved was often higher than what could be obtained for the properties on an individual basis. There were also savings in costs. At a meeting on 12 August, Mr Stenning agreed to the inclusion of the two properties in a retail portfolio. He said in his evidence that part of the thinking behind it was that the better properties would sell the less attractive ones, and that he saw no reason why the inclusion of a property in a portfolio would exclude a purchaser who was very interested in a particular property. He could approach the receiver on that basis, and in fact one of the properties (321 Northolt Road) was eventually sold on that basis. He accepted, however, that the properties were spread over a wide area and had no obvious links as a portfolio other than the fact that they were all retail.
[152] On 9 September, JSG wrote to the receivers giving details of its marketing proposals. There was to be a mailshot to the investors on its database, coupled with an advertisement in Estates Gazette on 7 September. This required indicative bids by 6 September. There is criticism of the timing of this advertisement and of the obvious mistake in the date for responses, but I am not persuaded that either of these factors made any real difference. I accept that anyone interested would have made further enquiries. There is no reason to suppose that serious purchasers were put off. On receipt of an expression of interest, JSG wrote to the party concerned indicating that a package of information would be forwarded to it by Lawrence Graham, and inviting it to make its best bid on an unconditional basis by 20 September. The potential purchasers were also asked to break down their offers between the individual properties and to confirm that they would be prepared to purchase those individual properties at the prices indicated. The guide price for the entire portfolio was £1.75m, against JSG’s valuation of £1.5m.
[153] On 24 September, Mr Jorden supplied Mr Stenning with a summary of the offers so far submitted. By no means all of the bidders had broken down their offers as asked. Of those that had, Safeland plc had offered £475,000 for Turners Hill (which matched the guide price), but only £400,000 for Petty France against a guide price of £575,000. The highest offer for the entire portfolio was £1.75m from Alwyd Ltd, which had already been recommended to the receivers. In the event of this not proceeding, JSG’s recommendation was to contact the bidders who had offered between £1.35m and £1.42m and to ask them if they wished to improve their bids.
[154] In the event, Alwyd withdrew and contact was made with the underbidders. Of these, only Richcliffe Group Ltd was prepared to increase its offer (to £1.445m). On 10 October, Mr Salata wrote to Mr Stenning and explained that even by taking the best bids for individual properties, only £1.261m. could be raised, which was £184,000 less than the Richcliffe bid. A disadvantage of dealing with individual purchasers was also (he said) that the odds of a successful realisation of all the properties would be reduced. The receivers were recommended to accept the Richcliffe bid. This advice was accepted. Unfortunately this offer was also subsequently withdrawn, but Richcliffe remained willing to purchase all of the properties, with the exception of Petty France, for £950,000. JSG therefore advised the receivers that, taking the best individual offer for Petty France of £425,000, the total available on the basis of accepting the revised Richcliffe bid was £1.375m. This had to be contrasted with a compilation of the highest bids for the individual properties, which |page:140| amounted in total to £1.425m. Mr Salata presented the options to Mr Stenning in these terms:
The Richcliffe proposal probably offers a greater probability of reaching completion faster. Individual offers give us the opportunity for a slightly greater realisation.
In my view a robust case can be made in favour of acceptance of either proposal, although it must be said that since the receivership appointments are individual to each property, an acceptance of the individual offers demonstrates most clearly that the receiver was considering the individual merits and needs of each case.
It is clear that a transaction is likely to result from the various interests of parties that we are negotiating with and as a result are not recommending that the properties be auctioned. Clearly one would wish to avoid any unnecessary costs being incurred if at all possible.
Next to that passage in the letter, someone from Coopers has written: “Disagree, sell by auction. Three abortive sales to date”. Mr Westlake says in his report that he was minded to agree with the receivers’ view, but it does not matter. Eventually, on 25 November, contracts were exchanged for the sale of five of the portfolio properties to Kendleville Ltd for £1.28m. This was apparently run by a Mr Stroh, who was also the principal behind Alwyd Ltd. The property in Northolt Road was sold separately for £145,000.
[155] Mr Westlake’s principal criticism of the receivers and JSG is that the properties in the portfolio were unrelated both in terms of location and quality, and that they did not constitute an obvious investment package. Even if it was justifiable to have marketed them as a group initially, this should not have continued once Richcliffe’s offer had fallen through. In relation to Petty France and Turners Hill, Mr Westlake assesses the difference between their open market value and the apportioned sale price in the contract at £70,000 and £105,000 respectively. The difference in value between the entire portfolio and its sale price is calculated at £170,000.
[156] It seems to me that there is some scope and justification for criticising the initial decision to place the retail properties in a single portfolio. Apart from the fact that they are retail, they do not have much else in common. Properties in Petty France and Walthamstow have no obvious link, and even Mr Owen accepted that he would on balance have been inclined to dispose of Petty France separately. But the principle of collecting properties together into portfolio sales is not in issue. Clearly there is an established market for this, which attracts a combination of investors and traders. Nor am I impressed with the argument that bidders for single properties within the portfolio would have been put off. It seems to me that keen purchasers (such as the tenants of Northolt Road) would still have registered their interest. Therefore, the real area of controversy (and the pleaded complaint) centres on the decision to include Turners Hill and Petty France in a less distinguished group of other properties. While I can see arguments for their exclusion and separate sale, I am not convinced that it ought to have been apparent to JSG and the receivers that, by deciding on what was obviously a more convenient option in terms of timing and costs, they were taking a real risk that those properties would realise a significantly lower price than if sold separately. When Mr Westlake was asked whether, in his opinion, it was negligent for JSG to have included them in the portfolio, his response was distinctly hesitant and rightly so. This was clearly a matter of judgment involving a number of factors. I do not believe that there was an obviously right and wrong answer to the question.
[157] If the complaint is that a decision should have been made to change from a portfolio sale to individual sales following the collapse of the Richcliffe bid, then the question of judgment is even more marginal. There was much to be said for maintaining the interest of a single purchaser rather than separating the properties out. Even on Mr Westlake’s figures, the purchase price achieved was only about 11% less than the open market value of the property. Applying the usual margins for error, it is not possible, in my judgment, to conclude that the decision to continue to market the five remaining properties as a single portfolio was one that could not reasonably have been taken, or one that resulted in any loss to the claimants. This claim therefore also fails.
Regina House rent
[158] That leaves, as the only remaining issue, the question of the Regina House rent. The Grimleys receivers were appointed at 1.41pm on 17 May 1996. On 10 May, the solicitor for Refuge Assurance plc sent to Silven a cheque, dated 7 May and drawn on Refuge’s account, in the sum £296,241.01 in payment of the arrears of rent for Regina House which had been calculated following the conclusion of the rent review. The cheque was made payable to Silven. It was received by the company on or about 13 May. It is alleged, in the reamended particulars of claim in the Regina House action, that the cheque was paid by Refuge on 10 May and accepted as rent by Silven on that date. Thereafter, it was agreed between Mark Ezekiel and Mr Trevor Hosking, the property investment manager of Refuge, that the payment by cheque would be replaced by a direct CHAPS transfer of the same amount to the client account of Messrs Brian Hoffman & Co, who acted for Mrs Kamara. The cheque was returned to Simmons & Simmons, which agreed to hold it to the order of Brian Hoffman & Co pending receipt of the monies via the CHAPS transfer. Before any such payment could be made, the Grimleys receivers were appointed. In these circumstances, it is said that payment of the rent had been made to Silven prior to 17 May and that the receivers (even if validly appointed) are not entitled to the rent as part of the property subject to the receivership. Pending the resolution of this dispute, the cheque has been presented and the proceeds held in a joint deposit account in the names of the solicitors for the claimants and the defendants.
[159] The basic facts of the payment are not in dispute, and I admitted into evidence, without cross-examination, the statement by Ms Carol Hewson of Simmons & Simmons dealing with the mechanics of payment. She sets out in that statement the attempts she made to ascertain from Silven and Mark Ezekiel how and to whom the rent should be paid. Following a conversation between Mark Ezekiel and Mr Hosking, she was subsequently instructed to send a cheque to Silven at its registered office, which she did on 10 May. On the afternoon of 16 May, a call was received from Mr Hoffman to say that Silven now wanted the money to be paid by CHAPS transfer into his firm’s client account the following morning. Ms Hewson spoke to Mr Hosking on 17 May, who told her that he had received a request from Silven to replace the cheque by the CHAPS transfer and that he was willing to agree to this, subject to the cheque being returned. The cheque was returned that day by courier and Ms Hewson agreed to hold it to Mr Hoffman’s order pending receipt of the monies into his client account. Before this could take place, Refuge and Simmons & Simmons were notified of the appointment of the Grimleys receivers and were asked to return the cheque and not to make payment of the rent to Brian Hoffman & Co. Ms Hewson also spoke to Mr Hoffman and to Mark Ezekiel. Since she had given an undertaking to hold the cheque to Mr Hoffman’s order pending the CHAPS transfer, she felt obliged to return the cheque to him, and was asked by Mark Ezekiel to do so. The cheque was therefore returned to him on the afternoon of 17 May. The cheque was not presented before an application was made to the court by the claimant in an attempt to prevent the Grimleys receivers from taking possession of Regina House. It was then agreed that the cheque should be presented and the proceeds paid into the joint account to await the outcome of this litigation.
[160] The critical issue is whether the rent was paid when the cheque was received by Silven on or about 13 May. Excluding the arrangements made under the orders of the court, the rent remains unpaid unless the receipt of the cheque by Silven constituted such payment. It is, I think, settled law that in the absence of agreement to the contrary, the receipt of a cheque or other bill of exchange does not constitute satisfaction of the debt, but operates only as a conditional payment dependent upon the cheque being cleared or upon payment of the bill on maturity: see eg Re Romer & Haslam [1893] 2 QB 286 and Palmer v Bramley [1895] 2 QB 405. In the present case, the cheque was never even presented for payment by Silven, and was returned |page:141| to Refuge in order to be replaced by a direct transfer of the moneys, which, in the event, did not take place. Therefore, unless it can be established by Silven (and the burden is on it to do so) that Mark Ezekiel agreed with Mr Hosking that the rent should be treated as paid and the debt discharged by the mere receipt of the cheque on 13 May, then the moneys in the joint account must be paid over to the Grimleys receivers.
[161] In his witness statement, Mr Hosking says that he was merely asked by Mark Ezekiel, in a telephone call on 16 May, if Refuge would pay the rent moneys by way of transfer rather than by the cheque already received. No reasons were given, and Mr Hosking says that he was content to agree to the request. In cross-examination, he said that his understanding was that the cheque was only being returned to enable it to be exchanged for a direct transfer, but his evidence indicates that there was no specific agreement between him and Mark Ezekiel to displace the usual rule that there would be no effective and unconditional payment until the cheque was subsequently honoured and the moneys actually received. This is confirmed by Mark Ezekiel’s own evidence. In his witness statement, he says that, following the meeting with the bank on 16 May, he discussed the position with the Kamaras, who did not want the rent to be paid through Silven’s account at the bank, but to be held by Brian Hoffman & Co pending the bank’s agreement to the repayment proposals that Mark Ezekiel was in the course of formulating. He therefore asked Mr Hosking to agree to replace the payment by cheque with a direct transfer to the solicitor’s client account. No further discussion or agreement with Refuge is alleged to have taken place.
[162] It is therefore clear that there was no express agreement that the mere receipt of the cheque should be treated as having discharged the debt. It is also clear that what was agreed was that the cheque was not to be presented, and was to be replaced with a direct transfer of funds. In these circumstances, the payment by cheque was never intended to be completed, and was not completed, prior to the appointment of the receivers. Actual payment was to be by way of the direct transfer and this never took place. The Grimleys receivers are therefore entitled to the sum now held in the joint account as moneys representing the arrears of rent. It is, I think, common ground that rent in arrears at the date of his appointment is recoverable by a receiver: see Woolston v Ross [1900] 1 Ch 788.
Conclusion
[163] For these reasons, the claims against the bank and the two sets of receivers will be dismissed. I shall give judgment for the bank on its counterclaim for payment of the balance of the sums due after giving credit for the proceeds of sale of the properties. I shall also order payment of the Regina House rent to the Grimleys receivers. As already indicated, the calculation of the sum remaining due to the bank from the claimants will depend upon calculating interest after giving credit for the net sums received from the sales at the date of completion. Following the hearing, I received some agreed amendments to the particulars of claim in the Coopers action concerning the rates of interest payable on the accounts from time to time. Other than giving permission for these amendments, I propose to say no more about the calculation of interest. These are matters that ought to be capable of agreement. If there are any outstanding issues on the rate of interest to be applied or on the calculation of what remains due on the account, I will give directions for a further hearing at which these can be determined. I will also hear counsel as to the form of order and on the question of costs. This has been a long and complicated case and I am grateful to all counsel and to their instructing solicitors for the assistance I have received.
Claim allowed.
