Insolvency — Disclaimer of lease — Determination of loss and damage to landlord under section 178 (6) of Insolvency Act 1986
By a lease dated January 9 1990 the
applicant landlord granted a 25-year term of office premises to a company at a
rent rising to £160,000 in the fourth year of the term and subject to review
after the fifth year. By 1994 the rent payable was very substantially in excess
of the current rental value of the property. On December 9 1994 the company
entered into members voluntary winding up; the applicant appointed the
respondent liquidators and they gave notice disclaiming the lease. The landlord
submitted a claim for a sum in excess of £5.3m (later revised to £3.5m) as
representing its loss and damage under section 178(6) of the Insolvency Act
1986 on the disclaimer of the lease. The respondents contended the sum should
be £200,000. The landlord applied to the companies court to have its loss
determined, both sets of parties advancing some seven alternative valuation bases.
basis advanced by the respondents, namely the difference between two sums: the
‘no-disclaimer’ amount and the ‘residual amount’. The no-disclaimer amount is
the worth, at the date of the disclaimer, of rent, insurance rent, rates and
other sums (if any) payable by the tenant during the residue of the 25-year
term, such worth being ascertained by applying, in respect of payments due in
the future, a discount of 12%. The residual amount is the worth, immediately after
the disclaimer, of the rent and other sums payable by the tenant under assumed
leases for the same period discounted at 10%. Two successive terms would be
granted and allowance should be made for marketing and rent-free periods. In
addition the cost of repairs caused by a breach of the tenant’s repairing
covenants under the disclaimed lease is to be added to the balance, if those
costs are actually carried out to achieve the assumed letting.
The following cases are referred to in
this report.
Carruthers, Re, ex parte Tobit (1895)
2 Mans 172
Hide, In re, ex parte Llynvi Coal and Iron Company
(1871) 7 Ch App 28
House Property & Investment Co Ltd,
In re [1954]
Ch 576; [1953] 3 WLR 1037; [1953] 2 All ER 1525
McEwan, In re, ex parte Blake (1879)
11 ChD 572
Robophone Facilities Ltd v Blank [1966] 3 All ER
128; [1966] 1 WLR 1428
Tickle, Re, ex parte Leather Sellers Co
(1886) 3 Morr 126
This was as application by Christopher
Moran Holdings Ltd for the determination of the loss and damage suffered under
section 178(6) of the Insolvency Act 1986 following the disclaimer of a lease
by the respondent liquidators, Vivien Murray Bairstow and Nigel Ruddock.
David Neuberger QC and Peter Griffiths
(instructed by Memery Crystal) appeared for the applicant; Richard Adkins QC and
Edward Cole (instructed by Lawrence Graham) represented the respondents.
Giving judgment, Ferris J said: The question in this
case is how the loss or damage payable under section 178(6) of the Insolvency
Act 1986 in consequence of the disclaimer of a lease is to be ascertained and
what is the amount of such loss or damage in this particular case.
Section 178 gives power to the liquidator
of a company which is being wound up in England and Wales to disclaim any
onerous property by giving the prescribed notice. The disclaimer operates so as
to determine, as from the date of the disclaimer, the rights, interests
and liabilities of the company in or in respect of the property disclaimed.
Section 178(6) provides:
Any person sustaining loss or damage in
consequence of the operation of a disclaimer under this section is deemed a
creditor of the company to the extent of the loss or damage and accordingly may
prove for the loss or damage in the winding up.
A trustee in bankruptcy of a bankrupt
individual has a similar power to disclaim, the exercise of which produces
similar consequences, by virtue of section 315.
The lease, with which I am concerned, was
of a self-contained office building consisting of a basement, ground floor and
four upper floors, known as 48 Gray’s Inn Road, London WC1 (‘the property’).
The total lettable area of the property is 4,765 sq ft. The lease was dated
January 9 1990 and it was granted by the freeholder, Christopher Moran Holdings
Ltd (‘the landlord’), to a company then named United Guarantee plc which, after
an intermediate change of name, subsequently became Park Air Services plc (‘the
company’). The term of the lease was 25 years from September 29 1989. During
the first three years of the term the rent was fixed at £140,000 pa. In the
fourth and fifth years (ie 1992–93 and 1993–94) the rent payable became
£160,000 pa. The lease contained a provision for upward-only rent reviews at
September 29 1994 and at five-year intervals thereafter, but the state of the
property market was such that there was no prospect of an increase as at
September 29 1994 and the rent remained £160,000 pa for 1994–95. The lease
contained provisions of a usual kind requiring the company to pay the rates
attributable to the property throughout the term, to reimburse to the landlord
the amount expended by the landlord on insurance and to keep the premises in
repair both internally and externally.
By 1994, if not before then, it had
become apparent that the rent of £160,000 then payable under the lease was very
substantially in excess of the current rental value of the property. According
to the landlord’s expert in these proceedings it is four times the likely rent
now obtainable in the open market, even disregarding such matters as possible
rent-free periods or other inducements which might have to be offered in order
to obtain a tenant. According to the respondents’ expert the property is
over-rented to the extent of five times the current market rent. During 1994
the company tried unsuccessfully to find a purchaser for the lease. On December
9 1994 the company entered into members voluntary winding up and Mr Bairstow
and Mr Murray, the respondents in these proceedings, were appointed
liquidators. On the very same day, December 9 1994, they gave notice of
disclaimer of the lease.
In a statement of affairs of the company
as at December 8 1994 the directors put the surplus assets of the company,
after satisfying the liabilities disclosed in the statement, at some £6.7m. The
disclosed liabilities do not include anything in respect of future liabilities
under the lease and, not surprisingly, the lease is not treated as an asset
having any positive value. The amount of the surplus is, however, such that,
whatever the loss or damage which may be proved for under section 178(6), the
liquidators are certain to be able to pay 100 pence in the pound to all
creditors, including the landlord, and the argument before me has proceeded on
the basis that this is the case.
On January 27 1995 the landlord, through
its solicitors, submitted a proof of debt in respect of the amount then claimed
to be its loss or damage under section 178(6). This was for a sum in excess of
£5.3m. This proof was rejected by the respondents. The landlord has appealed
from this rejection and that appeal is the matter which now comes before me. I
need not explain how the £5.3m was made up because a new calculation is now
relied upon. The sum claimed remains very substantial. On the basis preferred
by the landlord it amounts to more than £3.5m. On the landlord’s main
alternative basis it is a little under £2.8m. On behalf of the company,
however, the respondents put it at a little under £200,000. These figures show
the wide gap which exists between the parties, but they conceal the somewhat
complex matters which underlie each party’s position. In addition to
differences, in some instances wide, between the figures advanced by the rival
valuers, no fewer than seven different bases of calculation have been canvassed
with varying degrees of enthusiasm.
The matters which I have to consider fall
under two main heads, namely (A) the basis on which the loss or damage is to be
quantified and (B) the figures applicable to this particular case.
(A) Basis on which loss or damage
is to be quantified
It is, I think, as well to begin with the
existing authorities concerning the basis on which the loss or damage
consequential on a disclaimer of a lease is to be calculated. The relevant
language has changed to some extent between successive statutes, but none of
the changes appears to be material for present purposes. Nor has it been
suggested that there is any material difference between corporate and
individual insolvency or between disclaimer by the liquidator of an insolvent
company and disclaimer by the liquidator of a solvent company.
In re Hide, ex parte Llynvi Coal and
Iron Company (1871) 7 Ch App 28 a lease of certain houses had been granted
to an individual for 10 years at an annual rent of £500. When the tenant became
insolvent his trustee disclaimed and the lessor lodged a proof of debt on the
basis that the current rental value of the houses was £200 pa, so that it had suffered
a loss of £300 pa. This proof was rejected and the lessor appealed. The case
which was advanced on behalf of the trustee appears to have been that in order
to ascertain the lessor’s loss a comparison should be made between the rent
obtainable in the open market immediately after the disclaimer and the amount
of the dividend which the lessor would have obtained if there had been no
disclaimer and it had been able to prove in the bankruptcy for the future rent
due under the lease. The Court of Appeal rejected this contention. James LJ
said (at p32):
I am satisfied that the injury referred
to in the section means the legal wrong that is done him. He is deprived of a
certain contract, under which he was to recover a certain sum of money, and he
is to prove against the estate for that which he would have had a right to
recover or to sue for if he had not been deprived of that right by the
bankruptcy.
Later he equated the lessor’s position to
that of a servant who has entered into employment for a term of 10 years at
£500 pa. If such a servant is suddenly deprived of his employment
… he would be entitled to prove for £500
a year, minus what he could reasonably get for his services in the market. In
the same way a landlord who has made a contract for £500 a year, to be paid to
him for the use of the land, is entitled to claim £500 a year, minus what he
can get for the land from another tenant.
Mellish LJ said (at p33):
It is quite plain that the object of
these sections is that the bankrupt shall be absolutely relieved from any
liability under any contract he has ever entered into. And the bankrupt being
so relieved, it is plainly also the intention of the Legislature that the
person deprived of the right of action against the bankrupt, and of the benefit
of the contract which he made with the bankrupt, should be turned into a
creditor in respect of what the Act describes as the injury he has received.
That, I think, must mean in respect of what he would have been entitled to
recover against the bankrupt if the bankrupt had remained solvent. It would be
contrary to every principle that in assessing the damages which could have been
recovered against the bankrupt if he had not been made bankrupt, and for which
proof is made, you are to take into consideration the fact of the bankrupt
being insolvent, so that the amount of the proof is to depend upon the extent
of his insolvency.
The approach adopted In re Hide
has been followed in later cases. In Re Tickle, ex parte Leather Sellers Co
(1886) 3 Morr 126 the trustee of a bankrupt tenant rejected the landlord’s
proof on the ground that a proviso for re-entry in the event of, inter alia,
the tenant’s bankruptcy had automatically brought the lease to an end. It was
held that this was not so and that the landlord was entitled to prove for the
rent unpaid at the date of the bankruptcy, a sum for dilapidations and a sum
representing the difference between the rent reserved by the lease and the rent
for which the premises had been relet. In re McEwan, ex parte
but had power to break the lease at the end of the first seven years. The issue
was whether the loss of rent should be calculated on the basis that the tenant
could, if he had performed his obligations have terminated the lease at the end
of the first seven years or on the basis that the lease continued for the full
21-year term. It was held that the former was the case. Cotton LJ said (at
p575):
By the operation of the trustee’s
disclaimer the landlords have got possession of the house earlier than they
otherwise would, and they are entitled to prove for the difference in the
letting value of the house up to the end of the seven years, and the difference
between the value of the house in repair and of the house out of repair.
The other two members of the court took a
similar view.
In Re Carruthers, ex parte Tobit
(1895) 2 Mans 172 Vaughan Williams J allowed a proof (in that case by an
original tenant who had assigned the lease to a party who had become bankrupt)
for two quarter’s rent to cover a period for reletting and for a sum in respect
of the rent due during the rest of the term equal to that rent less the rent
obtainable on a reletting, plus an amount in respect of dilapidations.
A question of the kind which I have to
consider does not appear to have been the subject of a reported case during the
past 100 years. It was submitted that some remarks of Roxburgh J In re
House Property & Investment Co Ltd [1954] Ch 576 at p592 show that he
took a different view from that taken in the earlier cases, but on examination
I conclude that this is not the case. In House Property a lease had been
assigned, not disclaimed, by the liquidator of the tenant company. Not only did
the lease remain on foot but there was nothing to suggest that the assignee
would fail to perform the tenant’s obligations under it, although its covenant
might be less strong than that of the original tenant. The lessor continued to
have the benefit of the assignee’s obligations but might be said to have
suffered a detriment in that once the liquidation was completed he would lose
the benefit of the original tenant’s covenants. In these circumstances I do not
find it surprising, that Roxburgh J said, in the passage at p592 which is
relied upon:
The sum for which a proof could be lodged
is the difference between the market value of this particular lease (this must
be a mistake for ‘freehold’) at the date of valuation … with the benefit of the
original lessee’s covenants, and of the same lease without the benefit of the
original lessee’s covenants.
It is difficult to see what basis of
quantification could be used in a case of that kind other than a comparison of
capital values, for the right of the lessor to continue to receive the income
stream remained on foot, only the security for that right being diminished. In
a case of the kind before me the disclaimer has put an end to the very right to
receive the income stream. I do not, therefore, find the House Property
case to be of assistance.
The older authorities proceed on the
basis that one takes the difference between the rent reserved by the disclaimed
lease and the rent obtainable in the market after the disclaimer. It is fair to
comment however, that the arguments which were raised against the proofs in the
reported cases were very different from those which have been raised before me.
Moreover, the decisions make no discount or other allowance for the fact that,
if the lease had remained on foot, periodical gales of rent would not have fallen
due until some time in the future, in some cases well into the future.
Such an allowance is now provided for in
certain cases by r 11.13 of the Insolvency Rules 1986 which, so far as
material, provides as follows:
11.13 (1) Where a creditor has proved for
a debt of which payment is not due at the date of the declaration of dividend,
he is entitled to dividend equally with other creditors, but subject as
follows.
(2) For the purpose of dividend (and for
no other purpose), the amount of the creditor’s admitted proof (or, if a
distribution has previously been made to him the amount remaining outstanding
in respect of his admitted proof) shall be reduced by a percentage calculated
as follows–
A formula is then set out which in
substance provides for the amount in question to be discounted at 5% pa with
monthly rests.
(3) Other creditors are not entitled to
interest out of surplus funds under section 189(2) or (as the case may be)
328(4) until any creditor to whom paragraphs (1) and (2) apply has been paid
the full amount of his debt.
I heard various submissions based upon
this rule. For the most part these were directed to the apparent anomaly to
which r 11.13(3) gives rise. It is well understandable that a creditor whose
debt is payable in the future but who receives early payment, in whole or in
part, by way of dividend in a winding up or bankruptcy must accept a discount
to reflect the advantage of early payment. That is what r 11.13(2) provides.
But there seems to be no logical explanation for the fact that, on the face of
r 11.13(3), in a case where there are sufficient funds to pay a dividend of 100
pence in the pound on all admitted proofs (discounted in the case of proofs for
future debts as provided by r 11.13(2)) a creditor with a debt payable in the
future is then to receive the amount of the discount. He will thus be placed in
a better position than if there had been no winding up or bankruptcy, for he
will receive the full amount of the future debt at an earlier date than he
would have received payment if the debtor had performed all payment obligations
in due time. Mr David Neuberger QC, for the landlord, argued that this is a
price which a solvent company must pay for the privilege of being allowed to
wind itself up. But I find it difficult to see why this should be so, or why a
landlord should be the sole recipient of this price, to the exclusion of other
creditors who, notwithstanding that their debts were immediately payable at the
date of liquidation, will not even receive interest on those debts until the
landlord’s entitlement to the bonus has been satisfied. Indeed in a case where
the assets of a company in liquidation are sufficient to pay the amount
referred to in r 11.13(3), but not sufficient to pay interest under section
189(2) the price will be paid not at the expense of the company or its
contributories but at the expense of the ordinary creditors where debts are
immediately payable.
None of the counsel before me was able to
suggest any explanation for or escape from this anomaly. But I consider that Mr
Richard Adkins QC was right in his submission that r 11.13 has no immediate
application to a proof for the loss or damage payable under section 178(6). A
person claiming under that section is deemed a creditor to the extent of the
loss or damage sustained in consequence of the disclaimer. The notional debt
which is thus regarded as due to him must, in my view, be a debt which becomes
due at the moment of disclaimer. In the ordinary case this will be before any
dividend is declared and will thus be outside r 11.13(1). There may, I suppose,
be a case in which the disclaimer takes place after a dividend has been
declared and the claimant under section 178(6) is unable to disturb that
dividend by reason of r4.182(2) or the corresponding provision applicable to
bankruptcy. But this will not alter the position in principle, because the
section 178(6) loss will be a debt immediately due at the date of any further
declaration of dividend which is made after the disclaimer and the claimant
will have the benefit of the priority conferred by the latter part of r
4.182(4).
I propose now to summarise the various
bases for the calculation of the loss and damage referred to in section 178(6)
which have been propounded during the course of the case. I shall reserve my
main conclusions until a later stage of this judgment, but I find it convenient
to indicate my view on certain incidental points as I describe the different
bases of calculation.
In each case the calculation starts by
evaluating what the landlord would have been entitled to if there had been no
disclaimer (which I shall call the ‘no-disclaimer amount’). Credit against that
amount is then given for the value of what is left to the landlord after the
disclaimer (which I shall call the ‘residual amount’). In addition under some
bases further amounts are said to be included in the loss and damage by reason
of: (i) the existing dilapidations to the property at the date of disclaimer;
(ii) the loss of the benefit of the tenant’s covenant to repair during the
whole of the 25-year term; and (iii) the loss of the benefit of the tenant’s
covenant to pay rates and the cost of insurance throughout the term.
I find it convenient to define at this stage
one further expression which will aid the description of a number of the
suggested bases of calculation. I shall use the term ‘assumed lease’ to
describe a new lease, or series of leases, for a term or terms equivalent to
the residue of the term granted by the disclaimed lease as at the date of
disclaimer. Such lease or leases are to be assumed to have been granted at the
date of the disclaimer (or in the case of the second or subsequent lease in a
series at the expiration of the preceding lease) on the same terms as the
disclaimed lease except as to rent (which is to be taken as the market rent
obtainable at the date of the assumed lease) and, in the case of a series of
leases, except as to duration and commencement.
Of the bases for calculation, which I now
summarise, A to D were propounded on behalf of the landlord and are arranged in
descending order of preference from the landlord’s point of view. Bases E to G
were propounded on behalf of the respondents and are likewise arranged in
descending order of preference from their point of view.
Basis A
The no-disclaimer figure is said in the
pleadings to be the amount of the dividend which the landlord would have
received in the liquidation of the company in respect of the rent, insurance
rent and other sums payable under the lease, but without any deduction under r
11.13(2) because of the operation of r 11.13(3). I do not think that this
wording truly represents what the landlord contended for, because in a case
where the dividend is less than 100 pence in the pound the no-disclaimer amount
might be lower than it ought to be on the basis of the decision In re
Hide. In the present case, however, it makes no difference whether the
reference is to the dividend or to the debt because this is a case in which
both sides accept that 100 pence in the pound will be payable.
The residual amount under basis A is the
value of the freehold of the property with vacant possession at the date of the
disclaimer.
Basis B
The no-disclaimer amount is said to be
the total amount which would have been receivable by the landlord in respect of
rent, insurance rent and other sums payable under the lease from the date of
disclaimer until the expiration of the 25-year term.
The residual amount is said to be the
total amount which would be receivable by the landlord under an assumed lease
(as I have previously defined that expression). For the purposes of such
assumed lease the property is to be taken as being in its actual condition at
the date of disclaimer.
Both the no-disclaimer amount and the
residual amount are claimed to be calculated without making any discount for
the fact that, both under the disclaimed lease and under the assumed lease,
parts of the total rents and other amounts would not become payable until times
which lie in the future. It is also claimed that the landlord is entitled to a
dividend in respect of the debt arrived at by deducting the residual amount
from the no-disclaimer amount without the discount provided for by r 11.13(2).
These consequences are said to flow from r 11.13 because, in this particular
case, the fact that the company is solvent will mean that a payment under r
11.13(3) will cancel out the discount under r 11.13(2). I say at once that I
agree that, if basis B were the correct one, no such discount would fall to be
made. But this is because, as I have stated, I take the view that r 11.13 has
no application to a debt provable under section 178(6), not because of the
operation of r 11.13(3).
Basis C
The no-disclaimer amount is the same as
for basis B. The residual amount is the same as for basis B save that for the
purposes of the assumed lease the property is to be assumed to be in the
condition that it would have been in if there had been no breach of the
company’s repairing covenants during the whole of the 25-year term. The
contention concerning discount for amounts payable in the future is the same as
for basis B and I make the same comments.
Basis D
The no-disclaimer amount is the worth, at
the date of disclaimer and ascertained in accordance with r 11.13, of the rent,
insurance rent, rates and other sums payable under the disclaimed lease for the
whole of the 25-year term. The residual figure is the worth, at the date of the
disclaimer and ascertained in accordance with r 11.13, of the rent, insurance
rent, rates and other sums payable under an assumed lease (as previously
defined). In addition to the amount arrived at by deducting the residual amount
from the no-disclaimer amount the section 178(6) loss is said, on this basis,
to include the cost of the repairs necessitated by a breach of the tenant’s
repairing covenants if such repairs are necessary so as to secure a reletting
on the terms of an assumed lease.
Although I have described this basis for
the sake of completeness I have no difficulty in immediately excluding it from
further consideration. The reason for this is the application of r 11.13 to the
calculation of both the no-disclaimer amount and the residual amount. For the
reasons I have endeavoured to explain, I take the view that r 11.13 is
incapable of applying in this way.
Basis E
The no-disclaimer amount is the capital
value of the property at the date of disclaimer, subject to and with the
benefit of the lease. The residual amount is the capital value of the property
immediately after the disclaimer, with vacant possession.
Basis F
The no-disclaimer amount is the worth, at
the date of disclaimer, of the rent, insurance rent, rates and other sums (if
any) payable by the tenant during the residue of the 25-year term, such worth
being ascertained by applying, in respect of payments due in the future, a
discount at what is described as ‘market risk rate’. The residual amount is the
worth, immediately after the disclaimer, of the rent, insurance rent, rates and
other sums payable by the tenant under an assumed lease (as previously
defined). In addition the cost of repairs caused by a breach of the tenant’s
repairing covenants under the disclaimed lease is to be added to the balance
arrived at by deducting the residual amount from the no-disclaimer amount if
(but only if) such repairs have to be effected so as to secure a reletting on
the terms of an assumed lease.
Basis G
This is the same as basis F, except that
the discounting, in the case of both the no-disclaimer amount and the residual
amount, is as prescribed by r 11.13. In my judgment, it is to be excluded from
further consideration for reasons equivalent to those on which I have excluded
basis D.
Having thus summarily excluded bases D
and G I proceed to evaluate in more detail the remaining suggested bases of
calculation, although I shall not adhere to the order in which I have
summarised them.
Evaluation of basis A
Basis A was that preferred on behalf of
the landlord. But it suffers from the defect that the no-disclaimer amount and
the residual amount are to be ascertained by valuing different things — in the
one case the income stream and in the other case the capital asset. This is not
in accordance with the earlier decisions in this field which I have cited,
where it was the value of an income stream which, albeit imperfectly in the
light of a modern appreciation of the time-value of money, was taken for both
the no-disclaimer and the residual amounts. I see no basis for departing from
previous authority in this respect. Moreover to adopt the value of the property
with vacant possession as the residual value would give too much by way of
credit against the no-disclaimer amount. The value of the property with vacant
possession embraces not only the value attributable to vacant possession during
a period corresponding to the 193/4 year residue of the term disclaimed but
also the value of the freehold reversion expectant upon that term, which is
something the landlord had both before and after the disclaimer. In my
view, this emphasises the fallacy of trying to match the capital value of a
permanent asset against the value of a temporary income stream.
A further defect of basis A is that it
seeks to increase the no-disclaimer amount by reliance upon the argument
concerning r 11.13, which I have previously rejected.
In my view, the income stream which has
to be valued for the purposes of ascertaining the no-disclaimer amount should
be valued not only on the footing that there is no disclaimer but also on the
footing that there has been no winding up. I think that this would be in
accordance with the principle of In re Hide, where Mellish LJ
expressly took as the first element in the relevant calculation what the
landlord would have been entitled to recover against the bankrupt if the
bankrupt had remained solvent. The position is, perhaps, somewhat more
straightforward in the case of bankruptcy than it is in the case of the winding
up of a company, for generally speaking a person who is solvent is not made
bankrupt, while the winding up of a solvent company is a frequent occurrence.
But it appears to me that the underlying philosophy of In re Hide is
that what I have described as the no-disclaimer amount is to be ascertained
without regard to the existence of the bankruptcy. That philosophy should, in
my view, apply equally in a winding-up case and it requires that the winding up
itself, not merely the disclaimer in the course of winding up, shall be
disregarded in ascertaining the no-disclaimer amount.
In one respect, however, I consider that
the court should nowadays modify, or perhaps more accurately develop, the
approach adopted In re Hide and the other cases I have cited. As I have
already noted, in none of these cases was any adjustment made to allow for the
fact that what was being calculated was the amount or value of an income stream
payable over a period of time. In my view, this is to be attributed either to
the fact that no such adjustment was contended for, or to a lack of
consciousness of the time-value of money. The allowance of a discount to
reflect the fact that, where a party is awarded damages for failure to pay
instalments, he receives at once a sum which takes the place of instalments
over a period of time, was clearly envisaged by Harman LJ in Robophone
Facilities Ltd v Blank [1966] 1 WLR 1428 at p1439. In my judgment, a
discount should likewise be allowed when calculating the value of an income
stream payable over a future period of time. As the assumption should be that
there has been no winding up or bankruptcy and in any event no question of
ascertaining a dividend arises the formula provided by r 11.13(2) has no
relevance. The discount must, in my view, be ascertained in accordance with
market conditions, notably actual and anticipated interest rates.
I therefore reject basis A as the proper
basis of calculation because it erroneously requires the value of a capital
asset to be matched against the value of an income stream; it erroneously seeks
to inflate the value of an income stream by invoking r 11.13(3); and it is in
conflict with earlier authority, notably In re Hide.
Evaluation of basis E
I turn to this next because it was the
basis most favoured by the respondents. It will be recalled that this takes the
capital value of the property at the date of disclaimer as the no-disclaimer
amount and the capital value of the property immediately after the disclaimer
as the residual amount. This has at least the merit of consistency of approach
which basis A lacked. It is also simple and straightforward to apply. But it is
not the basis described In re Hide or the other decided cases which I
have mentioned. If the remarks of Roxburgh J In re House Property &
Investment Co Ltd are left on one side, as I think they should be, it has
no support in any decided case.
Further it is not easy to see why, when a
landlord has stipulated for payment of a stream of income over a period of time
and, regardless of his own wishes, has lost the right to be paid that income
stream, he should have his loss measured on the assumption that he has sold the
underlying asset which he used to produce the original income stream and which
he could still use to produce a substitute income stream, albeit in the
circumstances of the present case a diminished one. It is obvious that the
value of property subject to a lease of significant duration will depend, at
least to some extent, upon how the market values the stream of income payable
under the lease. To this extent the value of the freehold includes the value of
the income stream. But it includes more besides, in the form of the prospect of
obtaining an enhanced (or diminished) income stream at the end of the term.
This is an extraneous item which is not in itself affected, except by way of
acceleration, by the disclaimer. Having regard to the fact that it is perfectly
possible for a valuer to put a value upon an income stream as such, whether
that income stream be payable under a subsisting lease or under a hypothetical
lease which reflects the best terms obtainable in the current market, I see no
reason to ascertain the section 178(6) loss by reference to capital values of
the freehold rather than by reference to capital values of the relevant income
stream under an actual or hypothetical lease, particularly when to do so would
depart from the approach adopted in old cases of considerable authority.
I therefore reject basis E.
Evaluation of bases B and C
These two bases are the same except for
the assumption as to the state of repair of the property which is to be made
for the purposes of the assumed lease. This is a factor which I leave on one
side for the time being.
These bases have the merit of valuing an
income stream in order to ascertain both the no-disclaimer amount and the
residual amount. It will be apparent from what I have said already that I
consider this to be the right approach. But I think that they give rise to problems
by making no allowance for a discount in respect of payments due only in the
future. I have already explained why, in my view, the discount required to be
made by r 11.13(2) has no application. But it does not follow that no discount
at all should be made. If I am right in what I have said previously about the
approach required by the necessary development of In re Hide and its
underlying philosophy, the no-disclaimer amount should be arrived at by
applying the discount which the market would consider to be appropriate to the
particular circumstances of the case. The same must, in my judgment, be done in
the ascertainment of the residual amount.
I therefore find both basis B and basis C
unacceptable as formulated.
It is convenient, nevertheless, to comment
on the assumptions as to the state of repair of the property which are required
to be made, for the purposes of bases B and C, in relation to the assumed
lease. The context in which this point arises is that there existed, at the
date of disclaimer, certain breaches of the tenant’s repairing covenants. Any
amount which the landlord might be entitled to recover in respect of such
dilapidations is, however, left out of account in assessing the no-disclaimer
amount for the purpose of basis B and basis C. The reason for this is,
presumably, that the no-disclaimer amount is to be arrived at on the basis of
what the landlord would have received if the lease had continued for its full
term and the tenants covenants had been duly performed. The assumption is, therefore,
that the tenant will have remedied all wants of repair at its own expense and
that there are no dilapidations at the end of the term for which the landlord
would be able to recover damages.
However, when the terms of the assumed
lease are considered the actual state of the property at the date of the
disclaimer must be relevant. If the landlord seeks to let the property while it
remains out of repair a prospective tenant will either offer a rent which is
lower than what he might offer if the premises were in repair or (which comes
to much the same thing in economic terms) will seek a rent-free period or other
allowance to reflect the cost of putting the property into repair. If, on the
other hand, the landlord puts the property into repair at its own expense
before letting it, it will obtain a higher rent but the cost of repairs ought
then to be deducted from the value of the income stream under the new letting
in ascertaining the residual value.
It seems to me, therefore, that in
addition to their other defects bases B and C are both too prescriptive in
requiring particular assumptions to be made as to the state of repair. The
matter is really one of valuation, the question being how a prudent landlord
would deal with the property.
Evaluation of basis F
Having on one ground or another rejected
bases A, B, C, D, E and
no-disclaimer amount the value, at the date of disclaimer, of the rent,
insurance rent, rates and other sums payable by the tenant during the residue
of the term, with a ‘market risk rate’ being applied in order to ascertain the
current worth of payments due in the future. In my judgment, this is the
correct approach. It requires a view to be taken in respect of various matters,
including the increases of rent (if any) obtainable as future rent recovery
during the term and the discount rates which the market would apply to future
payments. These are essentially matters for expert evidence.
Basis F requires the residual value to be
ascertained by a similar process in relation to an assumed tenancy. This too I
regard as correct. I also accept that it is right to add to the amount arrived
at by deducting the residual value from the no-disclaimer amount the cost of
repairs actually carried out in order to achieve a letting on the terms of the
assumed lease. As I have remarked in dealing with bases B and C, the rent
obtainable under an assumed lease is likely to be greater if the property is in
repair than it would be if the property is out of repair. If the landlord would
have to carry out repairs in order to obtain the best terms it is only right
that it be given credit for the amount of the expenditure on such repairs.
(B) Figures applicable to the
present case
I now have to determine what amount is
arrived at in the present case on basis F. This is essentially a matter of
appraising the expert evidence which was adduced.
Each side called one valuation expert. On
behalf of the landlord this was Mr Michael Ian Dix frics, who is a director of Herring Baker Harris plc. The
respondents called as their expert Mr J W Steevens bsc frics, who is a partner in the firm of Weatherall Green
& Smith. The skill and experience of both experts is undoubted and I am
wholly satisfied that each of them was doing his best to assist in a somewhat
difficult valuation process. The approach of Mr Steevens was, I thought,
somewhat more theoretical than that of Mr Dix, but the views of each of them
were worthy of the most careful consideration.
(a) The no-disclaimer amount
The starting point for Mr Dix was the
amount which is to be taken as payable under the lease between the date of
disclaimer and its expiry on the assumption that the lease continued for its
full term.
This requires a view to be taken as to
the amounts likely to be obtained on future rent reviews. Mr Dix considered
that the current open market rental value of the property is of the order of
£32,500 pa, but that this annual rent would only be achievable under a lease
for a five-year term with a one-year rent-free period. Projecting this forward
at what he considered to be a realistic growth rate of 4% pa, the open market
rent would, he thought, be unlikely to reach half the passing rent of £160,000
pa by the time the lease expired in 2014. Even to reach £160,000 by that time a
growth rate of 8% pa would have to be achieved, which Mr Dix considered to be
unlikely. In consequence Mr Dix assumed that, if the lease had continued, no
increase in rent would be achievable on future rent reviews and, having regard
to the fact that reviews were to be upwards only, the passing rent of £160,000
would remain unchanged until the expiry of the lease. On this basis the total
amount payable by the tenant during the 193/4 years of the term which remained at the date
of disclaimer would be £3,160,000. If this sum is discounted at a rate of 5%
its present worth is £1,978,880.
Mr Steevens also assumed that if the
lease had continued the passing rent of £160,000 pa would have continued to be
the rent payable throughout the term, no increase being obtained on future rent
reviews. His starting point was thus much the same as that of Mr Dix. (Mr
Steevens has treated the amount prospectively payable throughout the term as
£3,040,000 against Mr Dix’s £3,160,000, but this difference is attributable to
the fact that Mr Steevens has treated the unexpired residue of the term as 19
years whereas Mr Dix has taken it as 193/4 years. Mr Dix’s treatment is the more
accurate.)
Where Mr Dix and Mr Steevens parted
company was in the discount rate which ought to be applied. As I understood Mr
Steevens’ evidence he regarded the passing rent of £160,000 pa as notionally
divided into two slices. The first £37,500 corresponds to the current market
rent of the property and is thus to be regarded as relatively secure. The
excess over this figure, or ‘froth rental’ as it was described, is much less
secure, its payment being dependent upon the strength of the tenant’s covenant
until such time as market rental values rise to absorb it. Mr Steevens did not
apply separate discount rates to the two parts, but applied an overall discount
rate of 28% to the whole of the total sum which he took as £3,040,000. This
yielded a figure of £291,840 as the current value of the right to receive
£160,000 pa for (as Mr Steevens took it) 19 years.
Mr Steevens’ figures are susceptible to
further analysis by reference to his calculation of the residual value. Taking
the current market rental value of the property as £37,500 pa (a figure which I
shall comment upon later) Mr Steevens considered it right to apply a discount
rate of 12% in order to arrive at the present value of the right to receive
this periodical sum over a period of 19 years. This produces a figure of
£243,000. It seems to follow, although Mr Steevens has not set out his
calculations in this way, that in ascertaining the present value of the right
to receive £160,000 pa in respect of the property for 19 years, Mr Steevens is
to be treated as discounting the first £37,500 of this annual sum at 12% and the
remaining £122,500 at a rate very much higher than this, indeed much higher
than the overall rate of 28% to which he referred.
The matter can be put in an even more
startling way. Mr Steevens has asserted that the present value of the right to
receive £160,000 for 19 years is only £291,840 when due allowance is made for
the fact that a large part of the £160,000 is ‘froth’. He has also asserted, in
connection with the ascertainment of the residual value, that the present value
of the right to receive £37,500 pa for 19 years is £243,675, no allowance for
‘froth’ being required because the £37,500 is the market rental value. It
inevitably follows from these two assertions that the value of the right to
receive the ‘froth’ of £122,500 pa for 19 years is, in Mr Steevens’ eyes, a
mere £48,165. This seems grossly improbable, unless the personal covenant which
is the only security for payment of this £122,500 is to be regarded as
practically worthless.
What then should be the approach to the
value of the personal covenant in these circumstances? On the information
available in this case a full appraisal of the value of the covenant of the
company would be difficult. All that is known is that it is a company which, at
the date of disclaimer, had a surplus of some £6.7m before settling its
liabilities under the lease. I would find it astonishing if, as Mr Steevens’
evidence seemed to imply, the market would approach a covenant by the company
to pay £122,500 pa for 19 years on the basis that the covenant would only be performed
for a period less than six months. If the surplus of £6.7m was regarded as
producing a yield of only 2½% pa the company could pay £160,000 pa indefinitely
out of its investment income, without expending capital or resorting to any
trading profit. It would require a high degree of commercial misfortune before
this company became unable to perform its covenant.
I have no evidence before me to suggest
that there was any risk that it might suffer such misfortune. Mr Steevens
himself said under cross-examination that he assumed that the company was ‘good
for the rent’ under the disclaimed lease. This was also the assumption of Mr
Dix.
In these circumstances I consider that
the right approach must be to consider how the market would assess the value of
a covenant by the company to pay an annual sum of £122,500 on top of another
annual sum of £37,500 for 19 (or more accurately 193/4) years in circumstances where the
company is, at the date of the covenant, well able to pay this sum out of
investment income and is not exposed to any special risk that it might lose a
substantial part of its capital, thus reducing its investment income below the
covenanted sum. This market assessment would be reflected in the discount rate.
Although neither valuer has expressed his
reasoning in quite this way, I think that the processes which underlie their
respective choices of discount rate reflect substantially the same
considerations. In ascending order the various rates of discount canvassed in their
evidence were as follows:
(i) 5%, favoured by Mr Dix, which is what
he took to be the rate of interest on medium term deposits and thus the value
of money to the landlord;
(ii) 8.5%, which I think both valuers
agreed to be the current yield on appropriate gilt-edged securities;
(iii) 12%, which Mr Steevens considered
to be the yield appropriate to the property with which I am concerned if it
were let at the current market rental value.
(iv) in excess of 28%, which Mr Steevens
considered to be the yield appropriate to the ‘froth rental’.
In my judgment, the 5% rate must be
rejected. While this may well be the rate which the landlord would obtain on a
medium-term deposit the question is not how much the landlord would receive if
it invested money in a particular way but what yield a hypothetical purchaser
would expect if it was purchasing an income stream part of which is secured on
land but the balance of which is secured only by the personal covenant of a
company which is well able to meet its obligations. I am sure that such a
purchaser would expect a yield higher than that obtainable on gilts, for if he
invested in gilts he would incur no perceptible risk of default whereas the
purchase which he is to be treated as making does involve some risk, albeit
not, in my view, a substantial risk.
Correspondingly the figure in excess of
28% which is implicit in Mr Steevens’ calculations must also be rejected. The
striking implications of this figure which I have discussed earlier speak for
themselves. None of the reasons which Mr Steevens gave in support of such a
high rate of discount appeared to me to be at all convincing and Mr Steevens
himself recognised their limitations when he was cross-examined. In particular
his attempted reliance on figures extracted from statistics published by IPD
Property Investors Digest was, in my view, unacceptable. I accept Mr Dix’s
description of reliance upon these figures as ‘valuation by index’ and his view
that this is not a satisfactory method of valuation.
In my judgment, on the evidence which is
before me, the appropriate discount rate must be something in excess of the
deposit rate of 5%. In his evidence Mr Dix said that he had experience of sales
of over-rented properties to investors and that yield was the main factor in
determining the price such investors were willing to pay. In another part of
his evidence Mr Dix put the current rental value of the property at £32,500 pa
and the current open market value of the freehold at £325,000. Mr Steevens’
comparable figures were £37,500 pa and £375,000. Both valuers thus imply a
yield of 10% as an assumption that the property is neither over- nor
under-rented, although Mr Steevens’ implied acceptance of this figure is
somewhat in conflict with the discount of 12% which he applies for the purpose
of ascertaining the present value of an income stream of £37,500 pa under an
assumed lease. For my part, I cannot see why a hypothetical purchaser should be
willing to accept the same yield on the purchase of an overrented property as
he would look for on the purchase of a property neither over- nor under-rented.
This means that the relevant rate will be above the 10% level. But, in my
judgment, it ought not to be a great deal higher than this. Doing the best I
can on the somewhat complex material which is set out in the reports of the two
valuers I reach the conclusion that 12% is the appropriate rate. This rate is,
however, to be applied to the entire rental stream of £160,000 pa and not just
to the first £37,500 pa of this sum (or whatever amount represents the current
open market rental value) as Mr Steevens proposed.
Basis F requires the no-disclaimer amount
to be ascertained by taking into account not only the value of the rent payable
under the disclaimed lease but also the value of the insurance rent, rates and
other sums payable by the tenant under that lease. The value of the tenant’s
repairing obligations may also have to be brought into account. Although it is
not entirely logical to do so, I find it convenient to leave these matters on
one side for the moment and to come back to them in the context of dealing with
the equivalent matters for the purpose of ascertaining the residual amount.
(b) Residual amount
While this amount is compendiously stated
to be the value, immediately after the disclaimer, of the rent and other sums
payable by the tenant under an assumed lease, the ascertainment of this amount
requires a conclusion to be reached in respect of a number of separate matters:
(i) the period which will elapse between
the date of disclaimer and the commencement of the assumed lease and, if the
assumed lease is for less than the full 193/4 year residue of the disclaimed lease,
the periods which will elapse between each of the series of shorter leases
assumed to be granted during that residue;
(ii) the amount of the rent which will be
obtainable under the assumed lease;
(iii) whether the tenant will require any
inducement, such as a rent-free period, before it will accept the assumed lease
and, if so, what will be the extent of such inducement;
(iv) whether the tenant will accept
obligations in respect of the payment of insurance premiums, rates and other
outgoings and the repair of the property which are equivalent to those
contained in the disclaimed lease;
(v) at what rate are payments which are
to be made under the assumed lease in the future to be discounted in order to
arrive at their present value;
(vi) what other adjustments are required
in respect of matters such as repairs, rates and insurance.
(i) and (iii) Duration of void and
rent-free periods:
I find it convenient to discuss these two
items together, as their impact is similar. The evidence of Mr Dix was that the
property could not, either at the date of disclaimer or at the time of the
hearing, be let on a 20-year lease. His view was that a marketing period of two
years would be required in which to find a tenant prepared to take a lease for
a five-year term. Moreover the tenant would require a one-year rent-free
period. At the end of the five-year term the process would have to be repeated,
although Mr Dix was prepared to assume that only one year would be required for
marketing. Hence, Mr Dix thought that, as a result of voids or rent-free
periods, no rent at all would be received during eight of the 193/4 years between December 1994 and the end
of the term. In addition the landlords would have to bear the rates and costs
of insurance during the voids, which constitutes five of those eight years.
Mr Steevens did not, in his written
reports, commit himself to particular views in respect of these matters save
that he has built in one marketing period of a year and one rent-free period of
a further year into his calculation of the value of the rental stream under an
assumed lease. However in cross-examination he indicated that he would expect
the first letting after the disclaimer to be for a period of five to 10 years.
Neither surveyor supported his views on
these matters with detailed reasoning or comparables, although there was an
agreed schedule of letting comparables which gives instances of recent leases
for both five and 10-year terms of premises in the same general area as the
property. The feeling which I have is that Mr Dix has been too pessimistic and
Mr Steevens too sanguine. I cannot accept either Mr Dix’s assumption of eight
years without rent during the next 193/4 years or Mr Steevens’ assumption of only
two such years. No one can have any degree of certainty as to what marketing or
rent-free period will be required in the future. The valuers seem to be in
general agreement that the current market is extremely dull. I am prepared to
accept Mr Dix’s assumption of an initial marketing period of two years with a
one-year rent-free period but I consider that it ought to be assumed that an
initial term of 10 years will be agreed and that when that term expires one
further year will be required for marketing and one further year free of rent
will have to be allowed and that a term of at least seven years will then be
agreed, so resulting in no further periods without rent during the 193/4 years.
(ii) Amount of the rent obtainable:
Mr Dix put the current annual rental
value of the property at £32,500, this figure being attainable only after an
appropriate marketing period and on the basis of one year being allowed free of
rent. Mr Steevens’ comparable figure is £37,500. Mr Dix’s calculation is made
on the basis of £8 per sq ft for the office space, £4 per sq ft for three small
kitchens and £2.50 per sq ft for the basement store. Mr Steevens has taken
£8.75 per sq ft for office space and £4 per sq ft for the basement. It is not
clear how he has treated the kitchens, but they are not of great importance.
The difference between the two valuers is
not therefore a large one. I see no reason to prefer the view of one over the
view of the other. I
obtainable (after marketing and allowing one year free of rent) for the first
five years of the initial assumed lease.
It will be necessary also to take account
of the extent to which the rent is likely to increase during the period of 193/4 years, whether on a reletting or
pursuant to a rent review clause. In my view, it would be right to assume that
the initial letting for 10 years would contain a provision for a rent review
after the first five years. Allowing for the periods which I have already
mentioned for marketing, the next letting will commence at about the beginning
of the 13th year from the date of disclaimer. I consider that it should then be
assumed that there will be a further rent review after five years. Accordingly,
the rent under the assumed lease should be taken to be fixed at the current
open market rate in December 1996, 2001, 2007 and 2012.
So far as the rate of increase is
concerned, Mr Dix has made assumptions as to rental growth which are stated in
appendix VIII to his first report. These assumptions are that there will be
growth at rates varying between 2.5% and 6% in each of the first five of the 193/4 years and at the rate of 4% pa in each
year thereafter. Starting from Mr Dix’s original figure of £32,600 for the
current rental value, this produced a rent of £34,750 in the year ending
December 1998 (which he regarded and I accept as being the first year in which
rent will actually be paid by the tenant under an assumed lease); £44,388 in
the year ending December 25 2004 (the first year in the next five-year term in
which he expected rent to be paid); and £56,165 in the year ending December 25
2010 (the first year in the third five-year term in which he expected rent to
be paid). As I understand it Mr Dix’s projected growth rates in the first five
years are based upon his firm’s forecasts for what is described as grade B and
grade C space as set out in appendix 5 to his report.
However it is not easy to see precisely
how Mr Dix has used these forecasts to arrive at his figure. He appears to have
regarded the accommodation provided within the property as closer to grade C
space than grade B space although it has a number of the characteristics which
he attributes to grade B space. Finally, it is to be observed that Mr Dix’s
growth rates yield a passing rent of only £56,165 in the year ending on
December 25 2010, little more than one-third of the passing rent in the year
ending December 25 1994. Mr Dix’s appendix VIII does not state what the passing
rent would be in the year ending December 25 2014 (ie the last year of the term
granted by the disclaimed lease) because he treats that as a period required
for marketing, but if his assumed growth rate of 4% pa were correct it seems
that a rent of £70,000 to £75,000 might be achieved on a letting obtained in
that year.
The initial approach of Mr Steevens to
the valuation of the rental stream under an assumed lease in his first report
was less sophisticated than that of Mr Dix. Mr Steevens treated his current
rental value of £37,500 as being the rent obtainable in each year of the
assumed lease. He has therefore multiplied £37,500 by 19 (his assumption as to
duration). This produced a total sum of £712,000 which he discounted at 12% pa
to produce a current value of £243,675. He then adjusted this value by making
deductions equal to two years’ rent for marketing and a rent-free period and a
further deduction for certain expenses, so as to produce a net total discounted
value of £143,675.
In paras 6.21 and 6.22 of his first
report and in material deployed in appendix VII Mr Steevens has, I gather,
sought to set out what he considers the position would be if certain rates of
rental growth were assumed. I have to say that I find these parts of Mr
Steevens’ report very difficult to understand. An additional complication is
that Mr Steevens’ observations on these matters come in a section of his report
in which he expresses himself to be considering ‘discounting the pure top slice
income’, which I understand to be a different exercise. In a supplemental
report Mr Steevens has, however, dealt with rental growth forecasts in a manner
which I find more comprehensible. He has explained there how, basing himself on
forecasts made by his firm, he assumed an average growth rate of 9.1% pa (which
he rounded up to 10%) over the next five years. Mr Dix’s average growth rate
for the full 193/4 year period was a little
under 4% pa. Mr Steevens has pointed out, however, that Mr Dix’s firm’s
forecasts of rental growth of grade B space for the next five years produce an
average of 6.2% pa and he suggested that, as the property should be regarded as
grade B space, Mr Dix ought to increase his figure by at least a half. He has
also made a number of comments of a general nature in support of his own view
that growth of 10% pa is a reliable expectation.
In his comments on para 6.21 of Mr
Steevens’ first report Mr Dix had claimed that Weatherall Green & Smith’s
forecasts supported only a little over 8% pa, not the 10% propounded by Mr
Steevens, and that he considered it not realistic to apply this assumed rate of
growth over a period of 20 years. He referred to the long-term inflation
forecast of about 4% pa and expressed the view that the rental value of the
property would not outstrip inflation.
On this matter, as on others, I am faced
with a difference of view between the valuers on a matter where their expertise
can, I think, be of only limited importance because of the element of
speculation which is involved. I think that Mr Dix has probably forecast too
little growth and Mr Steevens too much. It appears to me that there is nothing
to suggest that there has been any increase in the current rental value during
the year since the disclaimer, so that the figure of £35,000 pa which I have
previously mentioned holds good as at December 25 1995. Thereafter any increase
is very much a matter of speculation. In my judgment, a continuing increase of
5% pa should be assumed in each year after December 25 1995.
(iv) Tenant’s obligations as to
insurance, rates and other outgoings and repairs:
In my view, the assumption which ought to
be made in respect of these matters is that the tenant will accept the same
obligations as were accepted by the tenant under the disclaimed lease. A
different assumption might have to be made if there were evidence that no
tenant is likely to be found who will accept such obligations, but the
obligations in the case of the lease with which I am concerned were of an
entirely usual kind and I received no such evidence.
(v) Rate of discount to be applied:
Mr Dix has used the 5% rate which he
applied in ascertaining the no-disclaimer amount. Mr Steevens has not contended
for the 28% which was his preferred rate for that purpose. This is quite
logical, because there is no ‘froth rental’ in the rent payable under an
assumed lease. Mr Steevens has followed through this logic in propounding a
rate of 12%, which is the rate which he regarded as appropriate in discounting
that part of the passing rent of £160,000 which equates to the current rental
value.
I reject Mr Dix’s figure of 5% for the
same reason that I rejected it in ascertaining the no-disclaimer amount.
Likewise I find that the rate must be in excess of the gilt rate of 8.5%. But I
do not think it right to go as high as 12% which I have held to be the
appropriate rate to apply in ascertaining the no-disclaimer amount. That rate,
as I said earlier, is to be applied to the whole £160,000 pa, including the
‘froth’. The rent receivable under an assumed lease contains no ‘froth’ and I
think that a slightly lower rate ought to be applied. In my judgment, the
appropriate rate is 10%.
(vi) Other adjustments
As I mentioned when describing basis F,
the formula which is propounded requires the ascertainment of the current value
not only of the rent but also of the insurance rent, rates and other sums
payable by the tenant under an assumed lease. An adjustment is also said to be
required in respect of breaches of the company’s repairing covenants at the
date of disclaimer. It is to these that I now turn, but the views which I am
about to express are to be regarded as provisional. So many points were
canvassed at the hearing that I feel that I may not have heard full argument on
these points. If the parties share this view I shall be willing to hear further
submissions.
As the tenant’s obligations under an
assumed lease are to be regarded as identical to those contained in the
disclaimed lease no adjustment is required for sums actually payable by the
tenant in respect of these matters. Hence they will not feature in the
ascertainment of the no-disclaimer amount. Nor, in my view, will they need to
be brought in for the purpose of ascertaining the value of the income stream
under an assumed lease during periods when an
the tenant under that lease has the benefit of a rent-free period. The reason
why this is so is that the tenant under the assumed lease is to be assumed to
perform his obligation to pay these amounts. This matches up with the
equivalent obligations which, for the purpose of valuing the income stream
under the disclaimed lease, are to be deemed to be performed by the tenant and
are therefore left out of account.
However different considerations apply
during periods when the property is to be regarded as being marketed, because
there will then be no tenant who is obliged to pay rates, insurance premiums
and other outgoings. During such periods these expenses will have to be met by
the landlord. The current value of the burden of these payments, ascertained on
the same discounted basis as future rent, must, in my judgment, be deducted
from the current value of the rental stream in ascertaining the residual
amount.
As for repairs, the tenant under an
assumed lease is to be regarded as accepting the same repairing obligations as
were imposed by the disclaimed lease and is to be regarded as duly performing
these obligations. Moreover it seems to me that no allowance needs to be made
in respect of repairs during void periods. If there are wants of repair at the
beginning of a void period they should be regarded as being made good (either
by works of repair or by a payment for dilapidations) at the expense of the
tenant in occupation at the time when the premises became out of repair. During
the void period itself no significant additional deterioration should occur
beyond what can be expected to be remedied by a new incoming tenant under his
own repairing obligations. Repairing obligations should therefore be left out
of account in ascertaining the residual amount.
One further matter which requires comment
is the landlord’s claim for dilapidations at the date of disclaimer. In this
case the amount recoverable in respect of these has been agreed by the valuers
at £42,936 plus £4,294 for professional fees, making a total of £47,230. As I
understand the effect of this agreement it is accepted that the landlord was
entitled to recover this sum from the company at the date of disclaimer. It
should therefore be added to the no-disclaimer amount. As the rent under the
assumed lease will be ascertained on the basis that the property is in repair
the landlord will not have to give credit for this sum in ascertaining the
residual amount.
Value of the freehold
As I have rejected bases A and E it has
not been necessary for me to express any view concerning the value of the
freehold of the property with vacant possession at the date of disclaimer. I
did, however, receive evidence from both valuers concerning this and I think
that I ought to state my conclusion on it in case this matter proceeds further
and freehold value is held to be relevant.
As I have already mentioned, Mr Dix’s
value for the freehold with vacant possession was £325,000. His starting point
was his figure of £32,500 pa as the current rental value but he has not, as
might have appeared to be the case, simply assumed a requirement for a yield of
10%. His view was that a purchaser buying the property for his own occupation
would pay a higher price than an investor. Such a purchaser would have in mind
a notional yield of 8.5% but he would adjust his price downwards to reflect the
fact that if he were renting instead of buying he would probably be able to obtain
a rent-free period of one year and also to reflect his costs of purchasing. It
is the allowances for these matters which produce an apparent notional yield of
10%.
Mr Steevens’ figure, as I have also
mentioned, was £37,500 which likewise seems to indicate a notional yield of
10%. However Mr Steevens has not explained in detail how he arrives at this
figure. He appears to attach importance to the price per square foot which is
implicit in his value. This is £78, or £100 if account is taken of the large
basement. Mr Steevens evidently considers this a fairly low figure in relation
to the agreed list of vacant possession comparables. The range of values for
these comparables is, however, wide and it is difficult to know how one
property ought to be matched against another. Like Mr Dix, Mr Steevens has had
in mind a purchaser who requires the property for his own occupation. He too
considered that such a purchaser would pay a higher price than an investor
purchasing the property subject to a lease at £37,500 pa.
There seems to be little difference in
the approach of the two valuers and their rival figures of £325,000 and
£375,000 are not all that far apart. In my view, the right figure to take, if
freehold value were material, would be £350,000.
Overall result
In the event I have not found it possible
to adopt in their entirety any of the actual figures advanced by the valuers
who gave evidence. I hope, however, that I have said enough to enable the
requisite calculations to be made without great difficulty. If necessary I will
hear further submissions as to the precise amounts. As I have already said, I
will also, if requested, hear further submissions on the matters which I have
dealt with under the heading ‘(vi) Other adjustments’ in relation to the residual
amount.
On February 9 1996, Ferris J said: In this case I
handed down my judgment on December 21 last, but did not, on that occasion,
hear any argument as to consequential matters and, indeed, with my agreement,
none of the parties were present in court on that occasion.
The matter now comes back before me in
circumstances where the parties have agreed that the amount payable under
section 178(6) in this particular case on the basis of my judgment is
£1,053,000 and that sum has actually been paid by the liquidators to the
landlord. In the result, the parties do not raise before me any further
argument on the matters adverted to in my judgment, notwithstanding my
indication of willingness to hear such further argument if it was desired to
present it.
Four matters are, nevertheless, sought to
be raised before me on two of which I have heard argument and on which I give
judgment.
To take the least controversial of all
the matters, the landlord seeks leave to appeal from my judgment. It is
accepted that my decision is technically interlocutory and accordingly my leave
is required unless I were to refuse it and the Court of Appeal were to grant
leave. The grant of leave is not opposed by the liquidators but it is,
nevertheless, a matter which I must decide. I take the view that the matters
which I ruled upon are of some importance and raise questions of principle
which may be of general relevance in current conditions and which do not appear
to have been the subject of consideration under the current legislation, or
indeed previously for something like 100 years. In those circumstances, it
seems to me that it would be right to give leave to appeal, which I shall do.
The second matter, which is a little bit
more controversial, is the question of interest. It is common ground that
interest is payable to the landlord under section 189 of the Insolvency Act
1986. In this particular case, as the liquidators are paying 100 pence in the
pound of all debts duly proved, the whole of the sum of £1,053,000 will carry
interest during the period prescribed by section 189.
The issue between the parties is the rate
of interest. By section 189(4) it is provided:
The rate of interest payable under this
section in respect of any debt (‘the official rate’ for the purposes of any
provision of this Act in which that expression is used) is whichever is the
greater of–
(a) the rate specified in section 17 of the Judgments Act 1838 on the
day on which the company went into liquidation, and
(b) the rate applicable to that debt apart from the winding up.
It is common ground that the Judgment Act
rate applicable under para (a) at the time which is relevant to this
case is 8%. The landlord argues, nevertheless, that interest should be paid at
the rate prescribed by the lease. By clause 2.7 of the lease a rate of interest
is prescribed at 4% above the base rate of one of the banks and it is apparent
that if this rate is applicable a significantly higher rate than 8% would be
payable.
For the proposition that that is the rate
applicable to the debt the landlord relies upon clause 5.17.1 of the lease
which provides that:
If the tenant shall fail to pay the rents
or any other sum due under this lease the tenant shall pay the landlord on the
rents or other sum from the date when it
rent due to the landlord.
It is said that the amount for which the
landlord was entitled to prove under section 178(6) of the Act falls within the
words ‘any other sum due under this lease’.
In my judgment, that proposition must
fail for two reasons. First, I think Mr Adkins is right in saying that the
result of the disclaimer of the lease is to destroy all rights and obligations
thereunder as from the date of disclaimer. That is what, in substance, section
178(4) of the Act prescribes. Accordingly, as from the date of disclaimer it
appears to me that the obligation to pay interest at the rate prescribed by the
lease itself determines, and the amount for which the landlord is entitled to
prove under section 178(6) is an amount which cannot have become due at any
date earlier than the date of disclaimer. That means that the contractual rate
is no longer applicable.
I also accept the second proposition
advanced by Mr Adkins which really goes hand in hand with the first, but looks
at the matter from a slightly different angle. This proposition was that the
amount for which the landlord is entitled to prove is the loss or damage
referred to in section 178(6), which is not a sum due under the lease. It is a
sum which is due under the Insolvency Act.
On both those grounds, in my judgment,
there is no rate applicable to the debt apart from the winding up and the
consequence is that the Judgment Act rate prescribed by section 198(4)(a)
prevails. Mr Neuberger said that if this be right it means that there can
never, save possibly in the case of a specific but highly unusual express
covenant, be a rate applicable to the debt payable under section 178(6) other
than the judgment rate. That does appear to be so but, to my mind, it
constitutes no reason to hold otherwise than I have done.
Mr Adkins adumbrated a third argument
based upon a proposition which would cover a case where there was an express
covenant to pay interest, not only on amounts due under the lease, but on
amounts which become due under section 178(6). As that is not the present case
I prefer to say nothing about that argument.
After hearing further argument, Ferris J continued: The next matter
which I have to consider is an application by the landlord for an order the
substantial effect of which would be to continue, pending the appeal for which
I have given leave, the security which the landlord at present enjoys for any
additional money which he is entitled to recover in the liquidation.
In order to make the position
intelligible I need to go into some of the background. When the substantive
application was before me I proceeded on the basis, as indeed was the case,
that the company with which I was concerned, Park Air Services plc, although in
liquidation, was a thoroughly solvent company, having a surplus of assets over
liabilities, subject to whatever might be recoverable under section 178(6), of
£6.7m. I was not told, and indeed there was no need for me to be told, that
that represented something of a simplification of the position because a major
part of the assets of Park Air Services consist not of tangible assets or of
money in the bank, but of a debt owing from an associated company named
Stratagem.
The amount of the debt owing by Stratagem
is, I am told, £6.7m — in other words, a sum more or less equal to the amount
of Park Air’s own surplus of assets over liabilities.
As a result of circumstances surrounding
the putting into liquidation of Park Air Services, the landlord was
apprehensive that it might not, in fact, be paid the amount of the damages
which it hopes to establish under section 178(6) of the Insolvency Act. At that
time the landlord’s claim as to the amount of those damages was some £5.3m.
A number of applications were made to the
court. First, there was a petition for the compulsory winding up of Park Air
Services and in that petition an application was made for the appointment of a
provisional liquidator. Second, an application was made for the removal from
office of the liquidators who are liquidators within the voluntary liquidation.
Third, to cover the event of the application for removal not being effective at
its first hearing, there was a motion by the landlord in the application for
removal seeking the appointment of a receiver. All these matters except the
petition for the compulsory winding-up order came before Lightman J on April 11
1995 — in other words, he had before him an application for the appointment of
a provisional liquidator, an application for the removal from office of the
existing liquidators and an application for the appointment of a receiver.
The applications were not effective
before Lightman J because the liquidators indicated that they had arranged, or
were prepared to arrange, that Stratagem should provide a guarantee in favour
of Park Air in the sum of £5.3m. That guarantee was given by the Bank of
Scotland. In view of the existence of that guarantee, or the agreement to put
it in place, the landlord accepted that there was no need to pursue any of its
applications and the applications before Lightman J were dealt with by a number
of orders made by consent. On the application for the appointment of a
provisional liquidator the order which was made recites:
… that the claim of the petitioner of the
liquidation of the company will be secured by a guarantee to be given by the
Governor & Company of the Bank of Scotland in favour of the company.
That having been recited, Lightman J
ordered that no claim should be made under the guarantee without further order
of the court, such order to be granted if it shall be or shall have been
established that the company is indebted to the petitioner and has not paid the
petitioner in full. There was liberty to apply for an order giving liberty to
make a demand under the guarantee, and it was ordered that the costs of the
application be reserved to the judge hearing the landlord’s appeal from the
rejection of their proof of debt by the liquidators.
On the application for removal of the
liquidators the order contained a similar recital concerning the guarantee and
the substantive part of the order merely reserved the costs to the judge
dealing with the appeal from the rejection of proof.
On the motion for the appointment of a
receiver there was again a recital about the guarantee and an order reserving
the costs to the judge dealing with the appeal.
The judgment which I handed down on
December 21 disposed of the appeal, subject to argument as to consequential
matters. As a result of the agreement reached between the parties as to the
practical effect of my judgment the amount due to the landlord on the basis
which I held to be the correct one has, as I have already mentioned today, been
quantified at £1,053,000, a sum which has already been paid to the landlord.
The landlord is disappointed with this amount and intends to appeal with a view
to obtaining a more favourable decision, increasing the amount to something
nearer the £3.5m which would have been the amount if I had accepted all the
claims on behalf of the landlord.
I should have said that, in the appeal
from the rejection of the proof, the expert evidence indicated that the maximum
amount claimed by the landlord was some £3.5m and by agreement the amount of
the guarantee was reduced from its original level of £5.3m to £4m. That
guarantee remains on foot but there is no subsisting order of the court
requiring it to be kept on foot. Without such an order the liquidators will be
at liberty to allow the guarantee to lapse. That is a position which does not
find favour with the landlord which now seeks from me an order in substance
requiring the guarantee to be kept on foot either at its existing level of
£3.5m or at some other appropriate level pending the hearing of an appeal.
The application, to my mind, raises
immediately the question of what is my jurisdiction to make such an order. The
guarantee is at present in existence by virtue of a unilateral act of the
liquidators on the basis of which the landlord was content not to pursue the
applications which I have mentioned. I know of no jurisdiction which would
enable or require the liquidators to secure, by guarantee or otherwise, the
amount for which the company may be held to be indebted to the landlord or to
any other creditor. I would, I apprehend, be able to entertain an application
of the kind which was before Lightman J. No formal application has, however,
been put before me. It appears to me — and I think the parties accept — that
the petition seeking an order for compulsory winding up in which the
application
dismissed, although particulars of such dismissal were not available.
Accordingly, I proceed on the basis that no application could now be made in
that petition.
The motion for the appointment of a
receiver, as it seems to me, was finally disposed of by the order of Lightman J
on April 11 1995, in which in substance he made no order on the motion save
that which reserved the costs. Accordingly, that motion, it seems to me, is no
longer a live one.
As to the application for the removal of
the liquidators from office, that was made by a notice of application which was
returnable before Lightman J on April 11, so that that substantive application
was before him on that date. If the matter had gone to a full contest I
apprehend that Lightman J would have given directions for the filing of
evidence and would have stood over the application to come on a date to be
fixed. In the light of the existence of the guarantee, or the promise to effect
a guarantee, such directions were unnecessary and Lightman J did not give them,
nor did he adjourn the application. It seems to me that the order which he made
on that application finally disposed of it with the result that that application
too is not a subsisting one.
Accordingly, the position, as I see it,
is that there is no formal application of any kind before the court today. All
that there is an informal application backed by the expressed willingness of
the landlord forthwith to issue a new application for the removal from office
of the present liquidators and/or the appointment of a receiver. I have to say
I am not convinced that it would be right to proceed with the matter on the
basis of such an informal application, but even if I were to do so I take the
view that it would be quite wrong for me to grant the relief of kind which is
sought.
As I see it, the position of the landlord
is weaker today than it was before Lightman J. At that stage the landlord was
claiming £3.5m, none of which had been paid, and the claim was the subject of
substantial counter-argument. Indeed, it was argued before me on the
substantial application on the appeal from the rejection of the proof that the
amount to be allowed should be no more than some £200,000. The position now is
that, so far as this court is concerned, the amount due to the landlord has
been quantified at £1,053,000, plus some interest which I have earlier today
ordered to be paid, and the £1,053,000 has already been paid over and there is
no reason to doubt that the interest will be also be paid over promptly.
Accordingly, while it was possible for
the landlord to contend before Lightman J that it was owed a very substantial
sum and that it feared that it might not be paid whatever was due to it because
the money due to Park Air Services had not been got in, the position today is
that the landlord has, in fact, been paid the greater part of what has been
found to be due to it and the additional element for interest is the subject of
an order which has only been made today and which I assume will be obeyed
promptly.
In those circumstances, it seems to me
that, even if a properly formulated application for the removal from office of
the liquidators or for the appointment of a receiver had been made, there would
have been no prospect whatever of such application succeeding before me and
there could be no requirement on the liquidators to stave off any such
application in the way that they previously did by offering to put in place a
guarantee.
In the result, it appears to me that
either I have no jurisdiction to do what is asked or, if I have jurisdiction,
it is not something which I ought to do. I therefore reject the landlord’s
application for security to be provided in some way or another pending appeal.
Later on February 9 1996, Ferris J said: I now have to deal
with certain matters relating to costs. They come under two heads: first, there
are the costs of certain connected proceedings — it is convenient to refer to
them as the interlocutory proceedings although they are not, in fact,
interlocutory applications in the main proceedings with which I am concerned;
second, there are the costs of those main proceedings — in other words, the
appeal from the liquidators’ rejection of the landlord’s proof.
Dealing first with the interlocutory
costs, the proceedings in question are those which I mentioned in a previous
judgment given today, of certain proceedings which came before Lightman J on
April 11 1995. In essence, all those proceedings represented an attempt by the
landlord to improve what it regarded as the somewhat unfavourable position in
which it found itself. That position was that it was entitled to prove in the
liquidation of Park Air for a substantial sum under section 178(6) of the Insolvency
Act. At that stage, it put that sum at some £5.3m. Although it was entitled to
prove for a substantial sum the amount due to it was in issue. It knew
sufficient about the assets of Park Air to know that although Park Air had a
substantial paper surplus the assets giving rise to that surplus were, for the
most part, a substantial inter-company debt due to Park Air from its holding
company, Stratagem. The landlord regarded it as unsatisfactory that it had no
security for the amount which it expected to recover under section 178(6).
That, of course, is not an unusual position in commercial life — that is to say
an unsecured creditor frequently finds itself with a disputed claim which the
debtor may or may not be able to meet and for which the creditor has no
security.
The general rule, I apprehend, is that
the court does not, in proceedings, require a defendant to give security for an
unsecured debt which is in dispute in advance of the quantification of that
debt and the ascertainment of the liability. There are certain exceptions to
that rule and it may be said that the Mareva jurisdiction under which
the creditor, or party who claims to be creditor, can obtain not security but
injunctive relief which freezes assets so that they will be available for all
creditors, including himself, is an exception to the rule.
As I mentioned earlier, Lightman J dealt
with the applications which were before him by making no substantive order,
save in the case of one action an order regulating the making of calls under the
guarantee and in the case of all applications an order reserving the costs to
the judge who heard the appeal against the rejection of the proof. It seems
quite clear to me that Lightman J was not asked to, and did not in fact,
explore the merits in any way, did not form any sort of view about how the
costs ought to be borne but simply disposed of the matter in a way which seemed
to be sensible having regard to the common ground which existed between the
parties before him.
I now have to decide how those costs
shall be borne. Generally, it seems to me that, but for one factor, the
landlord’s applications were very likely to fail on the ground that the
landlord was seeking security of a kind which it is not the practice of the
court to grant in advance of judgment. The one exceptional factor is this:
there was evidence before the court upon those applications which indicated
that until some two days before Park Air went into liquidation it had
substantial tangible assets in the form of shares in an associated company
called, I think, Concord. Two days before it went into liquidation Park Air
transferred those shares to its holding company, Stratagem, under a transaction
which was in form a sale but whereby the whole of the purchase price, or a
substantial part of it, was left outstanding, with the result that Park Air
obtained, in exchange for its shareholding in Concord, book debts due by its
holding company. It seems to me that if I had been hearing the applications
which came before Lightman J, and if those applications had been effective, I
would, or might well have been, concerned to hear that that was the case and to
see, as Mr Griffiths has pointed out, that the financial statements for
Stratagem contain material which gives rise to certain questions as to whether
Stratagem’s financial position is quite as good as, on the figures in the
balance sheet, it appears to be.
In those circumstances, I think that,
notwithstanding the general principles, the court will not grant security, I
would have been favourably disposed to find some way of affording to the
landlord relief of a Mareva kind. That would not have been the end of
the matter because there were substantial procedural difficulties in the way of
such relief arising from the fact that the landlord itself has no cause of
action against Stratagem. But there would have been, I think, a good deal of
sympathy from the court for the landlord’s position and the desire, as I say,
to protect it by relief of the Mareva type if that could
for the specific relief which the landlord felt obliged to claim, namely the
replacement of the liquidators by their removal, the appointment of a receiver
or an order for the appointment of a provisional liquidator.
It may be that the analysis that I have
indicated was shared to some extent by those advising the liquidators because
some two or three days before the matter came before Lightman J they put in
place a guarantee under which the Bank of Scotland would guarantee to Park Air
the payment of the debt due from Stratagem up to a level sufficient to cover
the amount that the landlord then claimed. That particular guarantee was
defective, as Mr Griffiths has, I think, demonstrated, and it may well have
been that the defect was deliberately built into the guarantee for reasons
which increase rather than diminish any suspicions the court might hold about
the transactions. Be that as it may, when Mr Griffiths pointed out the defects
his point was met and the guarantee which I referred to earlier, which does not
contain those defects, was put in place. As Mr Griffiths frankly admitted at an
earlier stage of argument, what he got in the form of the guarantee was much
better than the relief which he sought and indeed it was better than any Mareva
type relief which, as I have indicated, I would have had some inclination to
grant if I could properly do so. It is not surprising that, in those
circumstances, Mr Griffiths took what was on offer and did not press his
applications; nor is it surprising that in those circumstances the liquidators
did not submit to an order for costs and the question as to whether Mr
Griffiths should have his costs, or indeed the liquidators have their costs,
was reserved to a subsequent occasion.
Having looked into the matter as best I
can and evaluated it in the way that I have tried to indicate, it seems to me
that there was something to be said for both parties so far as the
interlocutory applications are concerned. The landlord, in a sense, had the
merits; the liquidators, in a sense, had the law. They sensibly put in place
arrangements under which the landlord was satisfied and the applications did
not have to be pressed. In my judgment, this is a situation in which the right
order is that there should be no costs in favour of or against either party on
any of the applications which were dealt with by Lightman J on that date.
Turning to the costs of the appeal from
the rejection of the landlord’s proof, somewhat different considerations apply.
So far as the landlord is concerned, it is the fact that, although it has
failed, by a significant margin to recover either the £5.3m which was its
original claim, or even the £3.5m which was its adjusted claim, it has
recovered what is, by any standards, a substantial sum, namely £1,053,000, plus
the interest which I ordered to be paid earlier today. On the other hand, it
has come nowhere near, as I have indicated, to satisfying its claim in full and
indeed it is sufficiently discontented to have sought and obtained my leave to
appeal.
Correspondingly, the liquidators have not
suffered to the full extent that they would have suffered if the landlord had
succeeded in full, but neither have they confined the level of damages to the
£200,000 or so which their most favoured argument before me at the substantive
hearing contended to be correct. Fortuitously, as it seems, the amount which
the landlord has subsequently recovered, namely £1,053,000, is not far distant
from the sum of £976,000 or so which was put forward at one stage by the
liquidators as being the sum which would be payable if the landlord’s then
favoured approach was correct and the right valuation figures were applied to
it. However, I do not think the liquidators can take much comfort from that.
The £976,000 was not put forward as an offer. Although I have not examined the
matter in detail, I am not satisfied that the basis on which the liquidators’
then valuer arrived at £976,000, and which apparently was being put forward by
the landlord, was the same basis of calculation that I held to be correct. Nor
does it seem that the underlying valuation figures were those which I have
accepted.
In my judgment, the litigation resulting
from the landlord’s appeal is to be treated as hostile litigation and it would
not be right to order the costs of both parties to be paid out of the assets,
which in this case would be the assets of the company. In my judgment, I have a
discretion and in exercising that discretion I must have regard to the usual principle
that costs follow the event. The problem is that, in the circumstances of the
kind which exist here, it is not altogether easy to see what the event was. The
liquidators, on the face of it, rejected the landlord’s proof in toto.
The landlord, on the face of it, sought as its first preferred claim, the
allowance of its original proof of £5.3m in full. When it came to the hearing
neither party adopted those extreme positions. I have the impression that, so
far as principle is concerned, my decision accepted more of the liquidators’
case, although not their most preferred case, than it did of the landlord’s
case. So far as figures are concerned, I think my decision preferred, generally
speaking, the landlord’s valuer’s figures to those of the liquidators’ valuer.
I do not think I should ignore any of
these matters in dealing with costs and they, to my mind, make it impossible to
apply the rule that costs follow the event because I cannot reliably tell what
the event has been. I think the truth of the matter is that the question in
issue had to be determined by the court; that, on the arguments which were
presented, I have accepted the view of one party on some aspects and of the
other party on other aspects. In those circumstances, I think the fair and right
order is again to leave each side to bear its own costs and thus to make no
order for costs on the appeal.
I leave on one side the question of the
costs of today, about which I may, I suppose, yet receive an application.
I add only this: it is certainly not my
intention, in leaving the liquidators to bear their own costs, that they should
bear them personally. I am proceeding on the assumption that they will be able
to indemnify themselves out of the assets of the company and nothing which I
say is intended in the slightest degree to impair their right to such
indemnity.