Contract – Loan agreement – Specific performance – Claimants seeking summary judgment in claims against first defendant for specific performance of loan agreement by execution of registrable second charge over property, injunction restraining first defendant from undermining ability of second defendant to produce registrable second charge and specific performance of obligation to provide information and orders for taking of accounts – Whether claimants entitled to relief sought – Claim allowed
In 2012, the Mercantile Group, a property development business, was in the course of redeveloping two valuable properties, 108 Hamilton Terrace, London NW8 and 8 Chesterfield Hill, London W1. The group was run by the fourth defendant. The third defendant was a group company. The registered proprietors of the two properties were special purpose vehicles (SPVs). The second defendant held Chesterfield Hill. The first defendant held the entire shareholdings in both SPVs.
In July 2012, B entered into a loan agreement with the first defendant, a wholly owned subsidiary of the Mercantile group, under which B agreed to lend £10m to the first defendant. By clause 3.1, B was to have a second charge on the properties which was never executed. In February 2016, it was discovered that the charges had not been registered. The claimants said they were previously unaware of the absence of a registered charge.
B merged into the second claimant in 2018 and its rights were assigned to the first claimant. The claimants sought: (i) specific performance of the first defendant’s obligation under clause 3.1 of the loan agreement to procure the execution of a registrable second charge by the second defendant over Chesterfield Hill; (ii) a injunction to restrain the first defendant from taking steps that might undermine the second defendant’s ability to produce a registrable second charge; and (iii) an account of net profit.
The first defendant sought permission to amend the defence to rely on defences that had neither been forecast in a witness statement nor in the skeleton argument.
The claimants applied for summary judgment under CPR part 24 and an order striking out part of the claim under CPR 3.4(2)(a) against the first defendant.
Held: The claim was allowed.
(1) It was helpful to distinguish applications for permission to amend in the context of an application to strike out a claim from an application for summary judgment. In the former, where the focus was principally on the statement of case, it was not uncommon for the respondent to be given an opportunity to correct defects in the pleading after the hearing. That was because in some cases, the application had highlighted weaknesses in how the claim was pleaded but the court was not satisfied that the claim was bound to fail. The respondent was given an opportunity to produce a statement of case that, as a pleaded claim, might prosper. That was a manifestation of the exercise of the court’s discretion when considering whether to strike out a claim.
By contrast, on the hearing of an application for summary judgment, although the court had an overall discretion, it was difficult to conceive of circumstances in which the court was satisfied that the applicant had proved its case on both limbs of part 24.2 but, nevertheless, considered judgment should not be entered. It was incumbent on the respondent to put forward its best case and, if the statement of case did not reflect the basis upon which the defendant said it had a real prospect of defending the claim, an application had to be made for permission to amend the defence to be listed for hearing with the application for summary judgment. The hearing of an application under part 24 might not be the trial of the claim. It was, however, an analogue for a trial for the purposes of applying the principles concerning amendment.
An application to amend a defence that was made part way through the hearing of an application for summary judgment was properly regarded as a very late application. In the present case, it would be wrong to grant the defendants permission to amend the defence based on the draft provided part way through the hearing. No explanation had been provided for its lateness and it was highly prejudicial for the claimants to be required to deal with a case that had taken them by surprise. The defendants’ informal application to amend would be dismissed: Hague Plant Ltd v Hague [2014] EWHC 1609 considered.
(2) There was an obvious distinction between a contract entered into by a defendant prior to the obligation that the claimant sought to enforce and one entered into subsequently. As a general proposition, the court had to respect the hierarchy of obligations that had been created which would almost invariably, in the absence of clear wording to the contrary, arise from the order in which the obligations were created, particularly where interests in land were created by the respective obligations. The terms of any alteration to the natural hierarchy would have to be agreed between all the interested parties. Specific performance was a discretionary remedy and the court was required to consider all the circumstances before deciding whether to grant or refuse an order. Looking at the position overall, the claimants had made out a compelling case for the grant of specific performance. The first defendant had not provided evidence that it would be impossible for it to comply with the court’s order. Evidence of impossibility needed to be both cogent and unequivocal. The evidence did not meet either of those criteria: Warmington v Miller [1973] QB 887 and Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1985] 1 Ch 103 considered.
(3) There was ample material to support the claimant’s concerns and the need for an injunction. It was right for the court to provide additional protection to the claimants in the form of the injunctive relief they sought as an aid to ensuring that the order for specific performance was complied with. The court would accept an undertaking in lieu of an injunction.
(4) As regards the information sought, the loan agreement limited the information the first defendant was required to provide to the claimants as that reasonably necessary for the purposes of oversight. The better approach was to require information to be supplied by the provision of documents. There was obviously an irreducible minimum amount of information to which the claimants were entitled and, in view of the refusal to provide any information to date, a substantial volume of information would have to be supplied. Although the court did not encourage an iterative approach to requests for information, it was obvious that information would be created as the project proceeded. The claimants had to be entitled to see copies of reports from the professional team and amendments to the programme as they were produced.
The nature of an account would vary in accordance with the context. In this case, properly construed, the loan agreement required the first defendant to provide the claimants with a calculation of the net profit for one property, together with documents to support the calculation. The claimants were entitled to sufficient documents in the first instance to enable them to understand how net profit had been calculated. If the account was disputed, further disclosure of documents might be required. The first defendant’s obligation to account in that way arose not later than the sale of Hamilton Terrace. The position in relation to Chesterfield Hill was different. The first defendant had maintained management accounts which would be provided pursuant to the order. All the claimants asked the first defendant to provide was a summary of the debit items. If the management accounts did not contain that information, the court would require it to be provided.
Thomas Grant QC and Adam Smith (instructed by Dechert LLP) appeared for the claimants; Julian Kenny QC and Patrick Dunn-Walsh (instructed by Waller Pollins Goldstein, of Edgware) appeared for the defendants.
Eileen O’Grady, barrister
