JUDGMENT
MR CHARLES HOLLANDER QC (SITTING AS A DEPUTY JUDGE):
1. This is the trial of a claim by Regency Flats Limited (“Regency”) against Boatport Limited (“Boatport”) for breach of a written Agreement dated 21 June 2006 (“the Agreement”).
2. In 2006, Galliard Homes Limited (“Galliard”) were involved in a development at Sites 1 and 2
3. Mr David Albericci and Mr Barry Kenny are experienced financiers and investors in property development, principally through a company then known as Trinity Capital (“Trinity”). They became interested in the development and through a subsidiary of Trinity, Regency, entered into the Agreement for the purchase of the South Block flats. Because the Agreement provided for the purchase of all the flats, it was referred to in evidence as a “bulk purchase” agreement. The counterparty to the Agreement was Boatport, which was set up by Galliard for the purpose. Galliard acted as Guarantor.
4. Mr Albericci and Mr Kenny had significant experience in business of this nature. They had particular contacts in
5. In summary Regency allege that Boatport were in breach of their obligation under the Agreement to serve Completion Notices promptly in relation to certain flats forming part of the development built by Boatport, and that what they allege was a delay of over two months in serving notices caused them loss because, in the midst of what turned out to be the post-Lehmans financial crisis, the delay increased the number of subpurchasers who failed to complete.
The Scheme of the Agreement
6. It will be necessary to consider those terms of the Agreement which relate to the dispute in this action in detail subsequently. However, in order to understand the events that occurred, it is important at the outset to understand the structure of the Agreement.
7. The Agreement was amended on 13 September 2006 and, as amended, the Purchase Price was £43,458,250. 10% was paid by Regency as a deposit. A proportionate part of the remainder of the purchase price was payable on the completion date for each individual flat. There were 171 flats in all, 69 in the north tower and 102 (including two penthouses) in the south tower. In relation to each flat, completion was to occur 15 working days after service of the Completion Notice for that flat, provided that Regency was not obliged to complete in relation to any flat before 31 December 2008. The Completion
Notice in relation to any flat was a notice that that flat had been Finished. The definition of Finished is at the heart of the dispute between the parties. Boatport was obliged to grant a lease of each of the flats to Regency, and completion of the grant of the lease of any flat would take place on the completion date for that flat, on which date payment of the purchase price for that flat was to be made.
8. Clause 19 of the Agreement reflects the intention of the parties that the flats would be sold through Regency’s efforts to subpurchasers. At any time up to 5 working days following service of the Completion Notice for any flat, Regency could serve an election notice requiring Boatport to grant a lease of the flat in question to a nominated subpurchaser, rather than take the lease of the flat itself. Where such an election notice had been served, Boatport became obliged to issue a contract to the subpurchaser for the sale of the flat in a prescribed form. The prescribed form of the subpurchase contract, and the subsequent subpurchase lease, were annexed to the Agreement and followed the form of the main contract and lease to Regency, save that the subpurchase contract set the Completion Date 10 working days (instead of 15) after service of the Completion Notice.
9. Clause 19 also provided for consequent accounting provisions between Boatport and Regency. When an election was made, and the subpurchaser entered into a contract for sale of the flat with Boatport, and paid the required 10% deposit on the flat, Regency received back the proportionate part of the 10% deposit they had paid in 2006. When a subpurchaser completed on his flat, the purchase price payable by Regency was reduced proportionately.
10. Clause 19 also dealt with circumstances where the subpurchaser failed to complete. Boatport agreed to use all reasonable endeavours to procure completion of any subsale contract including serving promptly any Completion Notices. On completion of the subsale contract, Boatport was obliged to pay Regency the excess of the subsale price over the proportionate part of the sale price under the Agreement. However, if the subpurchaser failed to complete, Boatport was entitled to determine that subsale contract, whereupon the election notice in relation to that flat was treated as not having been served and Regency became obliged to complete the purchase itself.
11. The Agreement was entered into in the heady days, in property market terms, of June 2006. It all looked a bit different in the autumn of 2008. In a difficult property market, this structure had a number of weaknesses. Firstly, although the subpurchasers were procured by Regency, their contractual relationship under the subcontract was with Boatport alone. Thus if subpurchasers defaulted, Regency had no direct control over the determination of the subcontracts. It was open to Boatport to determine them immediately on default, to treat the election notice as not having been made, and then to require Regency themselves to complete the purchase (and unexpectedly to have to find the necessary funds) at very short notice. There was no means by which Regency could themselves either threaten or seek specific performance against defaulting subpurchasers, negotiate with them or be entitled to give them more time (I refer to this as “the subpurchaser default problem”).
Secondly, there was no requirement for the Completion Notices to be served in any particular order in relation to particular flats if all were finished at much the same time. Regency would have much preferred that Completion Notices were served last on flats which had not been subsold ( “the unsold flats problem”) .
12. There were also concerns from Boatport’s side. They were concerned that Regency would receive the proceeds from completed flat purchases, take the proceeds out of the company, and then, if there were a number of subpurchase defaults, fail to complete on the rest with no effective remedy available to Boatport (“the proceeds problem”). And whatever the parties might seek to agree between themselves as a way round these problems, there was the further problem that Boatport could not reach agreement on such matters without the consent of its bank as mortgagees (“the Bank problem”).
The dispute
13. In the course of 2006 and 2007 most of the flats were subsold by Regency’s efforts. Of the 171 flats, 152 subpurchasers paid deposits. Many were subsold to Irish purchasers, and several individuals took more than one flat. One individual, Mr Cunliffe, took 27 for himself or his family. There were 19 unsold. Mr Albericci said in evidence that this did not concern him at the time: he had a verbal agreement for 12 flats, and had thought about holding on to four himself. The two south tower penthouses (subsale price about £1m each) remained unsold.
14. I heard a number of witnesses give evidence on behalf of Regency. Regency, and its parent Trinity, gave the impression of a professional, wellrun organisation. Regency’s witnesses in general were fair and straightforward in giving their evidence and generous to a fault as to what they said about Galliard and its work on the development.
15. It was originally envisaged that the south block would be completed in March 2009. In fact, matters progressed ahead of schedule and by June 2008 the parties were looking towards completion. However, by this time the property market was looking much less buoyant. The Northern Rock crisis had occurred in August 2007, and thereafter things were not getting better. In June 2008 Boatport told Regency that completion was expected on the north tower in September 2008 and on the south tower in March 2009.
16. In August 2008 Galliard reported that King Sturge, valuers, had suggested that prices for the flats had fallen to £500 per sq ft from a subsale price of £560. At a subsequent meeting in August, Boatport referred to problems which had occurred on a Galliard development nearby in the Isle of Dogs, where a number of purchasers had failed to complete, and expressed concern that something similar might occur on this development. Nevertheless, at this stage Mr Albericci and Regency were relatively confident that matters would go according to plan.
17. Although Regency were not in a contractual relationship with the subpurchasers, it was they, rather than Boatport, that (directly or indirectly) had the relationship with them. Given that the subpurchasers would be required to complete 10 working days after service of the relevant Completion Notice, it was important that they be given as much notice as possible; otherwise the chance of them defaulting, and the corresponding obligation reverting to Regency, was more likely. Regency wanted to assist subpurchasers in obtaining finance, in letting the flats (many being subpurchased for “buy to let” purposes), furnishing them, and otherwise providing what was referred to as one-stop shopping. They wanted to provide pre-purchase packs to subpurchasers, providing all sorts of relevant and helpful information, but needed a relatively accurate completion date before they could do this.
18. A series of meetings took place between the parties starting in June 2008. To some extent, the agenda related to preparations for completion, but the parties also sought to discuss the problems with the contractual structure to which I have referred above, and to negotiate possible solutions. It seems clear that the common assumption at this stage was that the north tower would be completed by September 2008, and the south tower in January 2009, both thus ahead of schedule. Although no subpurchaser could be required to complete before 31 December 2008, it was hoped that by serving completion notices some time earlier, and in market conditions that seemed to be getting worse not better, a number of subpurchasers would complete quickly, thereby giving the project momentum, and encouraging others to follow the lead and also complete their purchases.
“Finished”
19. The issue in the case on liability relates to when flats in the north tower were Finished. Regency allege that Boatport were in breach of the obligation in Clause 19 (e) (v) of the Agreement:
“The Vendor shall use all reasonable endeavours to procure completion of any Sub Sale Contract including serving promptly any Completion Notices…”.
A Completion Notice is defined by Clause 1(c ) as:
“A notice served by the Vendor’s Solicitors on the Purchaser’s
Solicitors that the Flat or Flats in question have been Finished.”
By Clause 1(f) the definition of Finished is, so far as material, as follows: “any given Flat shall be deemed to be finished when the following works have been completed namely:
(i) the Flat has been constructed in accordance with the provisions herein contained so as to enable the tenant to take up full beneficial occupation of the Flat…
(iii) the works to the Common Parts (as defined in the Lease) have been completed so as to enable the Purchaser to obtain reasonable access to and egress from the Flat save for final decoration and carpeting and items of a minor and/or snagging nature
(iv) the works to the Common Parts of the ground floor of the Block and the floor onwhich the relevant Flat is located have been finished other than final finishes.
20. Clause 9 provides
(a) Subject to Clause 1(f) the Purchaser ACKNOWLEDGES the fact that completion of the sale of the Flats may take place prior to the Vendor having completed all its outstanding works to the remainder of the Block and the Estate provided always that the Flats shall be Finished
(b) …the Purchaser acknowledges that the Vendor and those authorised by the Vendor will be entitled to complete the outstanding works to the Block and the Estate notwithstanding any temporary inconvenience or annoyance that may be caused as a result of such works…
(c) the Purchaser shall not be entitled to delay completion due to the fact that as at the Completion Date there are:-
(i) any outstanding items of work to the Flats or the Common Parts referred to in Clause 1(f) requiring attention which are of a minor or insubstantial nature and which can reasonably be dealt with after completion
(ii) any outstanding works in or to the accessways or communal areas of the remainder of the Estate provided that reasonable and safe access to the Flats is available
21. Clause 10, which provided at (a) that the Vendor would at its own cost complete the construction of each of the Flats with due diligence, continued:
“(h) the Vendor shall not issue a Completion Notice unless all the works have been carried out and all payments made and all requirements satisfied (whether under any planning permission planning agreement or otherwise) which are required before the
Flats or any of them may be occupied…”
22. By Clause 11:
“NOTWITHSTANDING the completion of the grant of the Leases and the provisions of clause 10(a) the Vendor undertakes as a continuing obligation that insofar as (if at all) there shall be at the date of completion of the grant of the leases be any outstanding requirements of the Local Authority in relation to the block in respect of planning matters and/or building regulations then the Vendor will at its own expense comply with such requirements as soon as is reasonably practical.”
The obligation to serve Completion Notices
23. The scheme of the Agreement in relation to Completion Notices was therefore as follows. Boatport was under an obligation to complete the construction of each of the flats with due diligence. Its obligation to use all reasonable endeavours to procure completion of any subsale contract included an obligation to serve promptly any Completion Notices. However, a Completion Notice in relation to any flat could not be served until that flat was Finished. Before any flat was deemed Finished, it had to be constructed so as to enable the tenant to take up full beneficial occupation of the flat. The works to the Common Parts had to be completed so as to enable the Purchaser to obtain reasonable access. However, most importantly for present purposes, the works to the Common Parts of the ground floor of the Block and the floor on which the relevant flat was located had to be finished other than final finishes.
24. “Block” was defined as:
“the building to be developed on the Estate by the Vendor within which the Flats are to be located.”
“Estate” was:
“the property situate at and known as Sites 1 and 2 Poplar Business Park Poplar London E14 registered with freehold title number EGL 470226.”
25. Thus the definition of Block covered the whole south block, and not merely the north tower of the south block. The effect was that no flat was deemed Finished until not merely that flat and the floor on which the flat was located was finished, but also the ground floor, which served both the north and south tower.
26. Nothing in the other clauses I have cited undermines this construction of Finished. The only exception which did not need to be complete before service of Completion Notices was “final finishes”.
Regency’s case
27. Regency allege that Boatport was in breach of the obligation to serve promptly Completion Notices in relation to 67 Flats in the north tower. In fact the claim relates to 57 flats (there were 69 in the north tower-two first floor flats used as a site office are not the subject of this claim, 5 flats did complete, and 5 remained unsold). They say that the 57 Flats were Finished at the latest by mid-November 2008. In fact, the Completion Notices were not served until 26 January 2009. In the febrile market atmosphere after the fall of Lehmans, they say this delay of just over two months was crucial and caused them significant loss.
28. There is no allegation that the Flats should have been Finished. The only issue is whether in fact they were Finished in mid-November.
29. Regency’s case is that they were consistently told in meetings that the flats would be ready for occupation in September, and that by mid-November at latest, Regency were being told that everything was complete. At this time negotiations were continuing for a variation of the Agreement, to deal with the mutual problems referred to above, and they complain that Boatport sought to use the Completion Notices as a bargaining counter. In other words, they sought to use the threat (and fact) of not serving the Completion Notices promptly as a means to get Regency to reach agreement on Boatport’s terms.
30. If this was in fact the case, then there would be a breach of the Agreement. There is no claim based on misrepresentation or misstatement in the course of the negotiations.
31. The evidence which is central to this issue is evidence as to the condition of the building in and after mid-November. However, if Regency were clearly being told that the work was all complete, that obviously raises questions as to whether that was in fact the case.
Discussions between the parties
32. In June 2008 Mr Albericci was contacted by Mr Andrew Taylor: the flats were nearing completion and he wanted to discuss timings. At a meeting on 13 June, Mr Jason Holmes of Galliard said that it was expected that the north tower would be completed for September 2008 and the south tower January 2009. He confirmed this in an email of 20 June. The parties met again on 13 August. On 18 August Howard Kennedy, Boatport’s solicitors, said in response to a request from Blake Lapthorn, Regency’s solicitors, that their client advised completion was still scheduled for mid September 2008 for the north tower flats. Another meeting took place on 4 September. After this meeting Mr Philips of Howard Kennedy (who was not at the meeting) prepared a memorandum reflecting what he was instructed had been agreed between the parties, but this was not agreed, and led to a further meeting on 22 September, this time attended both by Mr Philips himself and Mr Stephen
Conway, the Chairman and Managing Director of Galliard Homes. After that meeting, Mr Philips followed his usual practice and sent an email to his clients reflecting his note of the meeting, which was copied to Blake Lapthorn. The note says:
“I note that the completion notices are to be served at the beginning of next year, given the shortstop date contained in the contracts which prevent us requiring completion prior to the end of this year. I further note that as with most blocks, the completion notices are to be served from the top floor flats downwards (which means that the first completion notices will be in respect of the top floor flats and will be served at the beginning of next year, with the completion notices then being served going down the building).”
33. Part of Mr Philips’ email reflected his note of what occurred at the meeting, although he did not suggest this part of the email was intended to reflect what had been said at the meeting. It is surprising it did not provoke a response.
34. On 29 September, Mr Ryan sent, on the instructions of Mr Albericci, the first batch of pre-completion packs to subpurchasers of 35 flats in the north tower. Pre-completion packs were sent to subpurchasers by Regency because they anticipated completion notices would be served shortly, and contained information helpful to subpurchasers- details of possible finance sources, subletting details, and details of how to furnish the flats.
35. On the same day Mr Philips of Howard Kennedy wrote to Blake Lapthorn in the following terms:
“My clients inform me that the first penthouses will be ready shortly, and as such, I should soon be in a position to be able to serve the completion notices for those top level flats. The remaining flats are likely to be ready for the beginning of next year.
However, without prejudice to the construction programme, if we are able to agree the restructure as envisaged, my clients will hold back the service of completion notices on the top floor flats which your client have not sold, and expedite the completion of the remaining flats that your clients have sub-sold, to assist your clients in their cash flow position.”
36. A number of points arise from this letter. Firstly, the penthouses in the south tower were the last flats to be fitted out and the idea that Completion Notices could be ready for service in relation to them before the other flats was ridiculous. However, it was known that the penthouses were the most expensive properties, had not been subsold by Regency, and thus early service of these notices would be calculated to cause Regency the most discomfort.
So suggesting that the penthouses were ready for Completion Notices shortly but nothing else would be ready until January involved some economy with the true factual position on the part of Boatport for advantage in negotiations. A follow up letter from Mr Philips on the next day makes the same point as before.
37. The second point is that, once again, there was no riposte to this from Regency or their solicitors.
38. The third point on this letter is that it goes on to make the offer of holding back Completion Notices on the unsold flats in return for “expediting” completion of the remaining flats that Regency had subsold. Regency’s case is that Boatport were threatening to delay the service of Completion Notices if Regency did not accept their terms for a variation of the Agreement. But this is not what is being said. What Boatport were in fact saying through this correspondence was that they would insist on their legal rights unless they reached an agreement with Regency and in such case they would be prepared, in return for delaying the service of notices on unsold flats, to assist Regency in timing the service of Completion Notices on the sold flats quickly, whatever their legal rights to serve them later.
39. A more complicated arrangement discussed between the parties required counsel’s advice, and although there was another meeting on 7 October, it did not progress matters much further. There was a meeting on 22 October. On the following day Mr Philips sent a letter enclosing a draft memorandum of agreement. Apart from pointing out that any agreement was subject to the consent of Boatport’s mortgagees, Barclays, the letter stated:
“As discussed during the meeting, the large tower block is not due to be complete until the beginning of next year, and at that stage the completion notices would normally be served from top downwards. As also discussed, in respect of the smaller block, this is likely to be in a position where completion notices could be served relatively shortly in relation to the first flats (but again with the completion notices being served from top to bottom). “
This is of course rather different from what Mr Philips had said on 29 September. It is again quite different from the “mid September” date referred to in Howard Kennedy’s letter of 18 August for completion of the north tower. There was nothing in the Agreement to justify the “from top to bottom” comments, which probably was intended to emphasise that unless agreement was reached, the notices would be served first on (at least in relation to the south tower) the unsold penthouses. Nor is there any suggestion in any of these letters that there has been any particular reason for the significant change in completion dates over the last few weeks.
40. On 27 October Mr Philips wrote to Blake Lapthorn as follows: “With regards to the estimated completion dates and the various stages of construction, as per my covering email of 23 October, the larger block is due to be complete at the beginning of next year, with completion notices being served from top downwards, and the initial phase of the smaller block is due to be complete relatively shortly, again with completion notices being served from top downwards.
That having been said, subject to the memorandum of agreement being exchanged, my clients can expedite completion of the first phase of the smaller block, and delay the service of the completion notices on those flats which have not been sub-sold.”
41. At a further meeting on 3 December an agreement was reached subject to contract and subject to the consent of Boatport’s mortgagees. In fact, further discussions were required, and the terms were not finally agreed between the parties until 23 January, when the terms were sent to Barclays for approval. On 26 January Completion Notices were served on the 62 subsold flats in the north tower. On 5 February Barclays refused their consent unless further terms were agreed. When this proved unacceptable to Regency, Completion Notices were served on all the remaining flats of both towers on 6 February. By this time it was apparent that the relationship had broken down between the parties. Apart from the 6 subpurchasers who completed, on 13 March the subsale contracts were cancelled by Boatport, notice to complete was served on Regency, who failed to complete, and on 15 April 2009, Boatport rescinded the Agreement. The Claim was commenced the next day.
The negotiations: discussion
42. It is not surprising that Regency bitterly resent what occurred in the negotiations. The information as to progress on site, and when completion of flats was such that Completion Notices were ready to be served, was information within the knowledge of Boatport, not Regency. Regency received inconsistent information from Boatport, and the information they were given was determined more by what suited Boatport’s negotiating position than any accurate factual position. That these misleading letters were largely ignored and unanswered by Regency suggests that they well understood that in this period Boatport were providing information which was merely for negotiating advantage.
43. Review of the correspondence not seen by Regency leaves the same impression. On 18 September Mr Hawkins, the Contracts Manager, emailed Mr Donagh O’Sullivan, the Project Manager:
“Has the two Davids decided what we are doing with the handover, will we wait until both the towers are complete before it is offered to the purchaser.
Jason will have all the ducks lined up for completion of the North Tower by 30/9/08 as discussed (there may still be a few scratched panes of glass OS/Yuanda still need to deal with).”
The response was:
“David C meeting with [Regency] on Monday so we will know the strategy after that.”
44. The position does Galliard and Boatport no credit. Although Mr Stephen Conway, the Chairman and Chief Executive of Galliard, had little recollection of the detail of events, professing that detail was not his strong point, it is notable that the correspondence from Howard Kennedy to which I refer above was copied to him, and Mr Philips would not have made the statements he did without instructions from his clients.
45. However, none of this takes Regency very far. Firstly, it is very unclear to what extent those involved in the negotiations had in mind the precise definition of Finished in the Agreement. Secondly, it is hard to place much reliance on anything Boatport stated in the course of negotiations as to the state of completion. Thirdly, Boatport were careful never to suggest that they would delay completion, other than for the benefit of Regency and by agreement; on the contrary, they proposed expediting completion-in other words by agreement with Regency serving Completion Notices whether or not they were strictly obliged to do so under the Agreement. The real issue is when, in fact, the flats were Finished.
46. The other difficulty faced by Regency is that the definition of Finished means that flats in the north tower might be individually finished and readily available for occupation some time before the work on the ground floor, servicing both north and south tower, was entirely complete. Thus it might well be feasible for Boatport to assist Regency by serving completion notices, without any real risk of complaint from any subpurchaser or anyone else, prior to all the ground floor works being quite complete. On the other hand, it would be difficult to challenge Boatport’s assertion that there were works on the ground floor still to be completed.
47. Regency assumed from what they had been told that the flats were Finished and that Boatport were delaying service of the Completion Notices notwithstanding the fact that the flats were Finished. But in fact, the reference to the prospect of Completion Notices being “expedited” in Howard Kennedy’s letters was strictly accurate.
When were the Flats Finished?
48. Boatport’s case is that none of the Flats were Finished until 26 January 2009, the date when the first 62 Completion Notices were served. This, they say, was because:
(a) works to the ground floor were not finished until January 2009, so until then Clause 1(f) (iv) was not complied with
(b) there was no reasonable access to or egress from the flats because the north tower lifts were still being used by builders until January 2009 so until then Clause 1(f) (iii) was not complied with
(c) a temporary local authority certificate of completion was issued for floors 2-13 on 26 September 2008 at a time when the partition was in place between the north and south tower on the ground floor. However, once that partition was removed at the beginning of December 2008, that temporary certificate ceased to have effect and the final certificate was issued on 26 January 2009. Until then, Clause 10(h) was not complied with
(d) In any event, the two first floor flats in the north tower were used as site offices and were not fitted out until January 2009. 49. The evidence on this was principally from Mr Hawkins, the Contracts Manager for Galliard Construction, Mr Holmes, the Project Manager and Mr O’Sullivan, the Construction Director.
(1) Section 20 certificate
50. A partial s.20 certificate was obtained on 26 September 2008 on the basis of the fire-resistant partition wall which had been put up in the ground floor lobby in August. The s20 certificate covered the north tower side of the partition. The partition had been erected to segregate the substantially completed north tower while works continued to the south tower. That effectively made the north tower a separate area. The s20 certificate was dependent on the partition remaining in place. Once the partition had been removed in early December 2008, the s20 notice ceased to have effect and the whole of the south block needed to be certified by the s20 officer before any part of the building could be occupied. The September 2008 s20 certificate was temporary and it was no longer valid once the partition had been taken down.
51. The local authority conditional approval of design had conditions that if an automatic fire-extinguishing system was not installed in the basement, an acceptable smoke extraction system had to be installed; that all fire appliances and installations were tested on completion of work; and stated that “no part of the building should be occupied until the conditions attached to this consent have in all respects been complied with unless the Council’s consent is first obtained”. It also required all completion certificates for dampers, risers and the smoke extract system to be submitted to the Council before occupation.
52. The dampers, risers and smoke extract system were tested in the presence of the s.20 officer on 26 January. Certificates were then issued. Once the fireresistant partition came down in December, the conditions in the s.20 approval had to be satisfied, and this only occurred on 26 January.
(2) Ground floor lobby works
53. The majority of these works were carried out prior to early December, when the partition was removed. The partition had gone by the date of Mr Alberici’s visit, no later than 8 December. After the partition was removed, further works were done between December and January: levelling the granite floor; installation of fire doors that replaced temporary doors; fitting access doors to wet riser commissioning of smoke vent and wet riser, and fire system and south tower lifts. Smoke actuators were installed in conjunction with the doors. These works were completed by the end of December, and then in January the system was commissioned. TV and heating involved cutting Holes in the walls were cut for cabling to be inserted for TV and heating and then making good.
(3) Lifts
54. Works to south tower flats on higher floors and one flat on each floor continued where the lift hoist was removed. The lift hoist removal finished in early October. This work took six weeks from top to bottom. The works to the south tower flats included curtain wall installations (8m width at all levels) and all flat fitting out works for upper floors and hoist flats. Then the hoist flats had to be fitted out.
55. Works to finish south tower flats went on until Christmas, and in January in relation to 1st floor flats. As at 11 Nov 2008, there were still 65 O’Shea employees and 107 Galliard Construction employees on site. The continuing works involved use of the lifts.
56. Lifts in the south tower were only “builder commissioned”, so there was no push button control. A system had been put in place to use the north tower lifts for men and portable materials working on floors 6-15; and men and materials for floors 16-24 to use the south tower lifts. North tower lifts were protected with drapes. It was more efficient to use north tower lifts from October as they were properly commissioned. It was problematic to move materials and personnel in uncommissioned lifts over 24 floors. Towards the very end of the project, use of the north tower lifts declined. They were also used for access with men and materials to the basement, where works were carried out until 26 January (such as the smoke extract system).
57. There were potential health and safety issues if the public shared use of lifts with workmen. Builders and workmen used the lifts throughout the day. It was not thought safe to allow the public to use flats that gave access to a restricted (hard hat) building site in the basement. By early December there was less traffic from the workforce, but it did not cease. Using only the south tower lifts was insufficient, given scale of the works and those lifts’ limitations, and the health and safety implications.
“Finished”-discussion
58. Although Regency led evidence from Mr Albericci as to visit to the site on about 6 December, and Mr Devereux as to his visit on 5 November, neither witness was able to cast any real doubt on the evidence of those who had responsibility for the detail of the project and whose evidence I have summarised above, namely Mr Hawkins, Mr Holmes and Mr O’Sullivan.
59. It follows from the above that the Flats were not “Finished” until about 26 January 2009 because until then:
(a) works to the ground floor Common Parts were not finished
(b) there was no reasonable access to and egress from the Flats above the second floor (ie above which lift access was needed)
(c) not all the works had been carried out which were required before the Flats or any of them might be occupied.
Damages
60. It follow from the above that none of the Flats were Finished until 26 January 2009, and the claim therefore fails. I should briefly consider the question of damages in the event that I am wrong on the issue of liability.
61. Regency’s case was that there was a real prospect that had Completion Notices been sent out earlier than was in fact the case, more subpurchasers would have completed their purchases than the five on the north tower (and one on the south tower) that in fact did. They say the deteriorating market meant that delay caused them serious disadvantage. Their case is that on the principles set out in Allied Maples Group v Simmons and Simmons 1995 1WLR 1602 they are entitled to have damages assessed on the basis of the loss of the chance to realise the profit on those subsales.
62. The first difficulty with this claim is that it proceeds on the assumption that all that falls to be taken into account in the damages calculation is the 57 properties in question (there were 69 in the north tower; two first floor flats were not on any view Finished until late January, five subpurchasers completed and five were unsold). But what about the other 104 ? In the event, when all but six of the subpurchasers failed to complete, Regency were required by Boatport to complete on their purchase under the Agreement. Regency failed to do so. Boatport then had the task of dealing with the subpurchasers, renegotiating with some, and selling the flats to others at reduced prices. But it is problematic to assess damages in Regency’s favour without taking into account on the balance sheet the assumption that Regency would have defaulted both on the unsold 19 flats, but also on those subsold flats where the subpurchasers defaulted.
63. Secondly, by November 2008 the value of the flats had significantly decreased from the subsale prices. The importance of valuations was two fold. Firstly, if values had decreased by 10% or more from the subsale price, it was potentially better for a subpurchaser to forfeit his deposit. Secondly, finance was dependent on valuations.
64. Much of the valuation evidence was second hand. By August 2008 King Sturge were apparently suggesting that values were down from £560 to £500 per sq ft. It seems that one bedroom flats were deteriorating in value less than two bedroom flats. Two October valuations of north tower flats reflected 17% and 18% reductions. Two valuations by Colleys at the same time showed 12% (1 bed) and 24% (2 bed) reductions on the subsale price. A Mr Cunliffe, who had agreed to buy 27 flats, obtained valuations showing a reduction of 16% (1 bed) and 22% (2 bed). Another December valuation on the north tower showed a 30% reduction (2 bed).
65. At the same time, finance was becoming much harder to get. On 6 January 2009, Bank of Scotland (
66. Further, subpurchasers were generally buying to let. In this difficult market, letting the properties was unlikely to be easy either, making them less attractive for subpurchasers for that reason also.
67. No subpurchaser could be required to complete before 31 December. Regency thought that if the notices were served well before that time, some subpurchasers would complete quickly and thus get first pick of the available letting market. But given what was occurring in the market, leaving matters as long as possible may well have been a much more attractive option. If subpurchasers could not be persuaded to complete early, the basis of the claim for loss largely falls away.
68. If, as alleged by Regency, Boatport were obliged to serve Completion Notices in mid-November, (and subject to the 31 December shortstop date) those notices would have given subpurchasers 10 working days to complete. Those subpurchasers were faced with the prospect of completing right in the midst of the worst financial crisis since the war, which looked as though it was getting worse not better, when their properties were valued significantly below the subpurchase price, more than 10% below the subpurchase price (so it would seem cheap to get out with a lost deposit). If they could get offers of finance at all, which is far from clear, finance would need to be obtained very quickly (10 working days) in circumstances where they would be unlikely to be able to borrow more than 75% of the value, which value would itself be significantly less than the subpurchase price. It was hardly an easy time to satisfy lenders within a very short time period. They could not sensibly renegotiate the price, because if they failed to complete within the 10 working days, Boatport would simply require Regency to complete. Regency would then be obliged to complete unexpectedly and very quickly on each property where the subpurchaser had defaulted.
69. In such circumstances I am not satisfied that if I had found for Regency on liability there was a real or substantial chance of additional subpurchasers completing if Completion Notices had been served by mid-November 2008 so as to cause Regency recoverable loss.
Conclusion
70. In the event this claim fails.
