Development — Sale of plot by plaintiff company — Subsequent transfer by purchaser to development company — Planning permission for business development of area including plot — Original owner claiming damages for being deprived of development value — High Court ordering specific amount as security for costs — Refusal to substitute directors as assignees of plaintiff’s cause of action
Norglen Ltd (“the company”) owned a plot of about 1.7 acres which was part of land at Heald Green House, Irvin Drive, Moss Nook, Manchester. By 1987 the company had almost completed the development of Heald Green House as flats and had retained the plot of land with a view to its development or sale. Its directors and shareholders were Mr and Mrs R. The first defendant was a company which provided surveying and valuation services. The second defendant was a surveyor and a director of the first defendant. In March 1987 the company instructed the first defendant to sell the plot. It was sold to the third defendants for £10,000 subject to a covenant that the purchaser would not without prior consent of the company build on the plot. The company agreed that in the event of planning permission being granted for development, it would consent to a change in use of the plot upon payment of 33.3% of the agreed valuation of the plot with the benefit of planning permission. Title to the plot was subsequently registered in the name of a development company, which then purchased around 15 acres of land from the council for over £6,000,000 and obtained outline planning permission to develop the land as a business park.
The company claimed that the plot was worth £1.765m and that on the sale to the third defendant it was deprived of two-thirds of the development clause, and claimed rescission of the sale and damages. The defendant applied for security of its costs of the action pursuant to section 726 of the Companies Act 1985. The company was ordered to give security, limited to a guarantee of the defendant’s costs from Mr and Mrs R, coupled with undertakings from each of them. The defendant appealed against that order. On January 21 1993 the company was compulsorily wound up and the company applied for Mr and Mrs R to be substituted as plaintiffs as the assignees of the company’s cause of action.
Held The defendant’s appeal was allowed, but the company’s application for substitution was dismissed.
1. The interests of Mr and Mrs R as creditors and contributories gave them a genuine, substantial and commercial interest in the cause of action. Accordingly, the assignment and undertakings could not be avoided on the ground of champerty.
2. Neither the company nor its directors could afford to carry on the action. The assignment had been entered into with the intention of applying for legal aid to enable Mr and Mrs R to fund the future conduct of the action. Therefore, the court had to refuse to recognise or give effect to the assignment: see Advanced Technology Structures Ltd v Cray Valley Products Ltd [1993] BCLC 723.
3. As regards security for costs, the guarantee of Mr and Mrs R was insufficient protection for the defendants. The evidence now disclosed that they were both insolvent and had no assets. Thus, the guarantees were valueless. In all the circumstances justice required that the company should be required to give security for costs if it was to pursue the action. The amount would be the aggregate of £74,200, which was within the present value of the covenant after allowing for the company’s own costs.
Anthony Elleray (instructed by Abson Hall Loring, of Macclesfield) appeared for the plaintiffs; Peter Smith QC (instructed by Jones Maidment Wilson & Co, of Manchester) appeared for the defendants.
