England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MORGAN J)

		Royal Courts of Justice Strand London, WC2
		23rd July 2015

1. LORD JUSTICE KITCHIN: This is an application for permission to appeal against the judgment of Morgan J given on 18 June 2015 and his consequential order, restraining advertisement of a petition presented on 11 June 2015 by Bluebridge Ltd ("Bluebridge") for the winding up of S Kelly (Building Contractors) Ltd ("SKBC"). The application was refused on the papers by Treacy LJ on 9 July 2015. Bluebridge has requested that this decision be reconsidered at an oral hearing which has come on before me today. Bluebridge has been represented on this application by Mr Kelvin Jones as it was before the judge.
2. The background relevant to this application may be summarised as follows. The petition is based upon a statutory demand served on 18 May 2015 for payment of a debt of £140,000 in respect of rent said to be owed by SKBC for premises known as the Manor Park Works under a lease for a term of 24 years, beginning on 4 January 2005.
3. As the judge explained, Bluebridge is one of two landlords under the lease and, somewhat unusually, is said to be contractually entitled to be paid 70% of the total rent payable by SKBC. The statutory demand asserts that the yearly rent payable under the lease is £50,000 and Bluebridge is therefore entitled to £35,000, that is to say 70% of £50,000, per annum. The petition is supported by a witness statement of Mr Raymond Kelly dated 11 June 2015, and he explains that he is the sole controlling director of Bluebridge and that the facts and matters referred to in the petition, which correspond to those set out in the statutory demand, are true.
4. The application for the order restraining Bluebridge from advertising the petition is supported by a witness statement of Mr Simon Kelly dated 12 June 2015. He explains that he is a director of SKBC. He continues that, for reasons to which I must return, no moneys are due and owing by SKBC to Bluebridge and that Bluebridge has resorted to the winding up process as a means to pressurise SKBC into paying monies which are not owed and that such conduct constitutes an abuse of process. Mr Raymond Kelly has made a second witness statement dated 17 June 2015 in which he says that the rental arrears have only been disputed at a very late stage by Mr Simon Kelly, that none of the grounds for disputing the debt was ever mentioned in contemporaneous correspondence and that the commercial relationship between Bluebridge and SKBC has now irretrievably broken down. As the judge also related, Mr Simon Kelly is the father of Mr Raymond Kelly and they each own 50% of the issued shares in each of Bluebridge and SKBC. As he also says, the particular matter now before the court is only one part of a much wider disagreement between these two gentlemen.
5. The alleged arrears are said to have accrued in the period from 2011 to 2014 although, as the judge noted, there may also be a dispute between the parties as to an earlier period from 2002 to 2004.
6. I will consider these two periods in turn. Bluebridge claims that the rent for the period for the earlier period from 2002 to 2004 was £35,000 per annum. SKBC responds that the rent for this period was only £27,999.96. Mr Simon Kelly maintains that SKBC entered into a lease with Bluebridge in respect of the premises from 1 January 2000 and that it was agreed that SKBC would pay monthly rent of £2,333.33 to Bluebridge, amounting to the figure of about £28,000 per annum to which I have referred. Then, he continues, on 6th March 2006, a formal 24 year lease was entered into with a commencement date of 4 January 2005, under the terms of which the rent payable per annum was increased to £50,000, of which £35,000 was to be paid to Bluebridge. Mr Simon Kelly has appended a copy of the January 2000 lease to his witness statement. He says that this arrangement continued for the calendar years 2002, 2003 and 2004 and that the lease of March 2006 then retrospectively increased the rent to £35,000 per annum as from 4 January 2005. The judge clearly had this evidence in mind because he held that, on the material that he had seen, Mr Simon Kelly's figures were at least arguable.
7. Mr Kelvin Jones now submits, as I understand him, that the judge fell into error because he failed to take into account that there was never any written document to show that the rent for the period 2002 to 2004 was £27,999.96, and that the particular lease to which I have referred only had a duration of 12 months. He has also taken me to a reconciliation, as he described it, prepared by Richard Anthony, chartered accountants, who are, so he tells me, the accountants for both companies.
8. In my judgment, the judge was entitled to reach the conclusion to which he came on this particular issue. The lease to which I have referred was the only relevant document in respect of this particular period and the judge was, in my view, entitled to find, as he did, that it was well arguable that the rent for which it expressly provided was also applicable for each of the years from 2002 to 2004. In reaching that conclusion, I have well in mind the reconciliation to which I have referred, but that is disputed by SKBC.
9. The second period in issue runs from 2009 to 2014. Again, as I have related, Bluebridge contends that the rent payable to it for this period was £35,000 per annum, being 70% of the total rent of £50,000 per annum. The judge recorded that SKBC's response to this claim is that, at the relevant time, when Mr Raymond Kelly was in control of both Bluebridge and SKBC, he effectively agreed with himself that SKBC's obligation to pay rent would be reduced by 50%. The judge went on to explain there was some support for SKBC's case in that the accounts of the two companies were consistent with it. He then responded at paragraph 14:

"Accordingly, although objectively speaking the case is somewhat improbable, I do not think I can say that it is lacks substantial grounds in the unusual circumstance of this case where both companies were under the same control; so I can see there is an arguable case, with substantial grounds, as to the figures for the rent payable for the relevant period."

10. The evidence to which the judge here referred was given by Mr Simon Kelly. He says that in 2009 Mr Raymond Kelly sought to have the rent reduced but was unable to persuade the other landlord that this was appropriate. However, as there were two landlords, and as SKBC paid them separately, it is his understanding that Mr Raymond Kelly agreed a rent reduction with Bluebridge in respect of its share. In 2009 Mr Raymond Kelly was the sole director of both SKBC and Bluebridge and so, continues Mr Simon Kelly, he was evidently capable of administering the lease in a way that he felt was beneficial to both companies. He then points to the financial statements of Bluebridge and SKBC for the year ending 2009 which do indeed state that a rent of £17,500 was paid by SKBC. It is his case that Mr Raymond Kelly unequivocally agreed a rent reduction between SKBC and Bluebridge that had the effect of decreasing SKBC's rental obligations to Bluebridge to £17,500 per annum.
11. Mr Kelvin Jones submits that the judge fell into error in reasoning as he did and that he failed to take into account sufficiently or at all a number of highly significant matters. In that regard he points, inter alia, to the following. First, the accountants to whom I have referred provided a reconciliation and have expressed the conclusion that the rent for the period December 2009 to December 2014, payable by SKBC to Bluebridge, was £35,000 per annum. Second, Mr Simon Kelly, as director of SKBC, signed SKBC's full accounts for the years 2010, 2011 and 2012, stating that the rent due was £50,000 and that SKBC paid £35,000 to Bluebridge for rent in each of these years. Third, Mr Kelvin Jones focuses on the terms of the lease and submits, most forcibly, that the lease of the premises contains an upwards only rent review clause and that SKBC has provided no evidence of a written memorandum (as required by the lease) of any decrease in the rent payable; and finally, Mr Kelvin Jones submits that SKBC's challenge has been made very late and is in all the circumstances simply not credible.
12. I recognise that Bluebridge has considerable evidential support for its case. Nevertheless, I have come to the conclusion that the judge was right to conclude as he did that Mr Simon Kelly had established that SKBC had a bona fide defence on substantial grounds in respect of this period. I agree with the judge that SKBC's case is somewhat improbable. But, like him, I do not feel able to say that it lacks substantial grounds in the unusual circumstances of this case where, as I have said, both companies were, for a critical period, under the same control. As the judge also explained, it is simply not appropriate for a dispute of this kind to be fought out under the threat of or in the course of winding up proceedings. All SKBC had to do was raise a bona fide defence to the petition debt. I am satisfied that it has cleared this hurdle and the judge's conclusion was correct. I also respectfully agree with the observations of Treacy LJ that the judge's finding was not arguably wrong. An appeal would not therefore have a real prospect of success.
13. In the grounds of appeal, although this is not a matter which is emphasised before me by Mr Kelvin Jones, Bluebridge has also mounted a challenge to the judge's costs order. He concluded that SKBC was entitled to its cost and assessed them in the sum of £7,000. I am satisfied that this order lay within the bounds of a reasonable exercise of the wide discretion that the judge had. An appeal against the costs order would not have a real prospect of success either.
14. Mr Kelvin Jones has said everything which could have been said on behalf of the applicant but, for all of the reasons which I have given, I have come to the firm conclusion that this application must be dismissed.