Property – Charging order – Order for sale – Claimant obtaining final charging orders against defendants’ property – Claimant seeking orders for sale — Whether defendants entitled to rely on claimant’s higher valuation as minimum sale price – Whether order for sale inappropriate considering disparity between size of judgment debt and value of property — Claim allowed in part
The claimant carried out work for the defendants in connection with their development of a luxury hotel. Substantial sum remained unpaid and the claimant obtained adjudication decisions in its favour. The defendants failed to pay the fees and the claimant obtained judgment against them in the sum of £187,285.11. As a result of the continuing non-payment, final charging orders were made in respect of two properties owned respectively by each of the defendants. The total debt in respect of the first defendant’s property was £190,201.67, together with £2,981.26 for costs; £24,222.38, for the second defendant’s property with costs of £2,981.26.
By a claim issued under CPR 8, and in accordance with valuations prepared on its behalf, the claimant sought orders pursuant to r 73.10 for the sale of the first defendant’s property at a minimum price of £28m and for the sale of the second defendant’s property for a minimum of £15m. The first defendant’s valuation had been £10m but it sought to rely on the claimant’s higher valuation. The second defendant submitted that an order for the sale of its property was inappropriate since the judgment debt of £34,616.50 was too small to afford justification. Moreover, the property was due to be sold and it would therefore be inappropriate to make an order for sale.
Held: The claim was allowed in part.
The court was in an unsatisfactory position with regard to the first defendant’s property because there was no evidence as to the critical element of any valuation, namely the likely cost of repairing/refurbishing such a large and historic property. To a large extent, that was the first defendant’s fault because it had refused to co-operate with the claimant on all questions of valuation and had denied access for inspection purposes.
The court, when identifying the minimum sale price for the purposes of an order for sale, had to approach the issue on a relatively conservative basis. Since an order for sale took the sale of a potentially valuable asset out of the hands of its owner, it was important to protect that owner from the risk of a fire sale that would not recoup the true worth of the asset. On the other hand, that approach could not be taken too far, particularly where, as here, the absence of better information for the purposes of valuation was the responsibility of the owners.
The first defendant’s figure of £10m was likely to be the best starting point because it was not an unreasonable assumption that the owner’s valuer would know more about the internal condition than any other party. The valuation was a year out of date and property prices had improved during that time. Given the size and iconic nature of the property, a figure of £10m would appear to be unreasonably pessimistic. In all the circumstances, starting at £10m and working upwards, the minimum sale price should be £16m. That figure was more than sufficient to take account of the defendant’s original bank loan of £10m, together with whatever interest and bank charges might have accrued since the purchase.
With regard to the second defendant’s property, it was potentially dangerous for a court to identify any hard and fast rules that sought to link the size of the debt with the ability to obtain a charging order or an order for sale. Comparing the size of the debt with the value of the asset was equally difficult. If it were correct, the disparity submission meant that the greater the value of the asset, and therefore the greater the default on the part of the debtor in failing to realise any part of that asset to pay the debt, the greater the chance the debtor would have of avoiding a charging order or an order for sale, which offended against common sense.
The size of the debt and its value relative to the debt had to be taken into account in the exercise of the court’s discretion under CPR 73.10. However, they were only two factors, along with the parties’ conduct, the absence of any other enforcement options and the like, for the court to weigh in the balance. Beyond that, there were no rules or presumptions concerning the size of the debt, or its comparative value, when dealing with an application for a charging order or an order for sale.
The second defendant had failed to comply with earlier court orders and to provide any evidence at all until the day before the hearing when it was very light on detail. Contrary to earlier correspondence and the evidence, the sale of the property was not imminent and the court had to pay particular attention to that point when deciding whether to cut across that arrangement, and potentially undermine it, by making an order for sale.
In the instant case, the possibility of an imminent sale, when taken together with the disparity point, led to the conclusion that an order for sale should not be made at this stage. Such an order might be appropriate in the near future, but the second defendant ought to have one final opportunity either to pay the outstanding sums or to realise its sale of the property. Accordingly, the application for an order for sale would be adjourned.
Nicholas Vineall QC (instructed by Berrymans Lace Mawer LLP) appeared for the claimant; Greville Healey (instructed by Mishcon de Reya) appeared for the defendant; Zulfikar Khayum (instructed by Laytons Solicitors, of Guildford) appeared for the interested party.
Eileen O’Grady, barrister