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England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Meretz Investments NV v ACP Ltd. [2002] EWHC 1019 (QB) (27 May 2002)
URL: http://www.bailii.org/ew/cases/EWHC/QB/2002/1019.html
Cite as: [2002] EWHC 1019 (QB)
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QUEENS BENCH DIVISION
133-137, Fetter Lane, London, EC4A 1HD | ||
B e f o r e :
____________________
| MERETZ INVESTMENTS NV | Claimant | |
| - and - | ||
| ACP LIMITED | Defendant |
____________________
Linden Ife (instructed by Lewis & Dick for the Defendant)
____________________
Crown Copyright ©
- This action arises out of a project (“the Project”) for the construction on the roof of the property known as and situate at Albert Court, Prince Consort Road, London SW7 (“the Property”) of five penthouses. The Property comprises a block of mansion flats. In 1996 the freehold owner of the Property was a company called Britel Corporation NV (“Britel”). Britel was, and is, associated with the Claimant in this action, Meretz Investments NV (“Meretz”) as both companies have common shareholders. Both Britel and Meretz appear to be incorporated in the Netherlands Antilles. The person who, whether in his individual capacity or as managing director of a company called Tudeca Estates Ltd. (“Tudeca”), has been accustomed to act as agent for, and adviser to, both companies, although he is not a director of either, is Mr. William George Stern.
- Mr. Stern gave evidence at the trial. He explained that 75.5% of the shares in each of Britel and Meretz were held by a Mr. Joseph Neuman of New York on behalf of himself and a syndicate of which he was the head, while the balance were held by a trustee on behalf of a family trust the beneficiaries of which were Mr. Stern himself, his wife and their six children. He told me in cross-examination that the director of Britel was a Mr. J-A Favre of Geneva and that the directors of Meretz were a Mr. David Hassan and a Mr. Maurice Perera, both of whom are based in Gibraltar. It is right to say that in his witness statement dated 30 November 2001 in this action Mr. Stern described Mr. Favre as “a shareholder of both Britel and Meretz [who] has represented all shareholders of both Britel and Meretz for as long as I can remember.” When asked about what he had said in his witness statement, Mr. Stern said that Mr. Favre is the registered shareholder in both Britel and Meretz, but that he holds as nominee for the persons whom he had named earlier in his cross-examination as the shareholders. The original trustee of his family trust Mr. Stern told me was his late brother, Alfred. The present trustee is an anstalt based in Liechtenstein the name of which Mr. Stern said he could not remember. He denied the suggestion put to him in cross-examination by Miss Linden Ife, who appeared on behalf of ACP, that the directors of Britel and Meretz did what he told them. He gave one example, but only one, of an occasion upon which his advice to the director of Britel had not been accepted. Mr. Stern told me in cross-examination that his role at all relevant times had simply been to act as an agent for, and an adviser to, Britel and Meretz. Initially he performed this role as managing director of Tudeca. Tudeca went out of business in about February 2000 and thereafter Mr. Stern acted in a personal capacity as agent for, and adviser to, Britel and Meretz. Later in this judgment I shall come to consider correspondence written by Mr. Stern in which it might be thought he showed remarkable prescience in being able to predict what attitude would be adopted by Meretz to particular issues, and on what grounds. However, in the face of Mr. Stern’s clear evidence that neither Britel nor Meretz was simply a corporate manifestation of himself, I find that he was indeed, as he said, simply an agent for each of those companies in relation to his dealings affecting their respective interests with other entities involved in the matters which have given rise to this action.
- What seems to have been contemplated in respect of the undertaking of the Project was that the penthouses to be constructed on the roof of the Property would be of modular construction. It seems that a Swedish company, AB Hjaltevadshus Produktion (called in this action, and hereafter in this judgment “Modulent”) produces modules of a type suitable for the undertaking of the Project, and that it was envisaged originally that the penthouse modules to be installed on the roof of the Property would be acquired from Modulent. A competitor of Modulent in the production of modular housing in Sweden is a company called LB-Hus.
- The Defendant in this action, ACP Ltd. (“ACP”), was introduced to the Project in about early 1996. The individual by whom the introduction was effected seems to have been Mr. Stern. The managing director of ACP is, and was at all times with which I am concerned for the purposes of this action, Mr. Hakan Olsson. ACP is itself a subsidiary of a company called First Penthouse Ltd. (“First Penthouse”), of which Mr. Olsson is also managing director. First Penthouse is, in its turn, a subsidiary of a company called OG Ltd. (“OG”).
- An agreement in writing dated 7 March 1996 (“the Introduction Agreement”) was made between ACP and Meretz. The Introduction Agreement contained the following recitals:-
- The substantive part of the Introduction Agreement was quite short. It was in these terms:-
- In this judgment I shall call the agreement between ACP and Britel described in the Introduction Agreement as “the Preliminary Agreement” also by that name. By clause 5 of the Preliminary Agreement provision was made for the grant by Britel to ACP of a long lease of the roof of the Property at a premium of £1 and at a rent of £1 per annum. By clause 5.2 of the Preliminary Agreement it was provided that the form of the long lease to be granted should be such as “will enable ACP (if it needs or desires so to do) to execute a first legal mortgage … in favour of any commercial lender in respect of a capital amount of up to One Million Five Hundred Thousand Pounds and to grant standard occupational leases in terms acceptable to banks, building societies and other commercial lenders so as to ensure that the same are regarded as satisfactory security and mortgageable by the purchaser of each penthouse (once the same has been constructed and is ready to be sold).”
- By clause 7.1 of the Preliminary Agreement it was provided that:-
- Clause 9 of the Preliminary Agreement made provision for the making by ACP to Britel of what was described as a “site payment” “equivalent to 22.5% of the aggregate net sale proceeds of such penthouses up to (but not beyond) a maximum figure of £5,400,000”. Sub-clauses 9.1 and 9.2 were in these terms:-
- By clause 12 of the Preliminary Agreement provision was made for the time scale over which ACP was to complete various activities. In particular, by clause 12.2 it was provided, so far as is presently material, that:-
- It would seem that the principal, if not only, purpose of the making of the Introduction Agreement, given the terms of the Preliminary Agreement, was fiscal.
- Following the grant to ACP of a lease of the roof of the Property ACP executed a legal charge (“the Meretz Charge”) dated 19 September 1997 over the lease in favour of Meretz to secure the making to Meretz of the payments for which the Introduction Agreement provided. By clause 7 of the Meretz Charge provision was made for the release from the scope of the Meretz Charge of penthouses as they were sold by the execution by Meretz of what was then called a “Form 53”, but which is now called a “Form DS3”. By clause 7.3 of the Meretz Charge it was provided that:-
- First Penthouse, ACP, Meretz, Britel and others, including a company called Highdorn Co. Ltd. (“Highdorn”) and a Mr. Solomon Israel Freshwater, entered into an agreement dated 20 April 1999 called a “Deed of Priorities and Further Charge” (“the Deed of Priorities”). In the Deed of Priorities ACP was called “the Mortgagor”. By clause 6.2 of the Deed of Priorities it was provided that:-
- By clause 13 of the Deed of Priorities provision was made, so far as is presently material, as follows:-
- An agreement in writing dated 15 October 1999 (“the Heads of Terms”) was made between (1) ACP (2) Britel (3) Meretz and (4) First Penthouse which included, as clause 5, this:-
- Two letters, each dated 15 October 1999, were exchanged between (1) ACP and First Penthouse and (2) Meretz and Highdorn and (1) Meretz and (2) ACP and First Penthouse respectively. The first of these letters, that written by ACP and First Penthouse to Meretz and Highdorn, which was referred to in the action, and will be called hereafter in this judgment, “Letter B”, was in these terms:-
- As I understand it, three penthouses have been constructed at the Property in implementation of the Project. They are known, respectively, as Penthouse B, Penthouse C and Penthouse E. The first two, Penthouse B and Penthouse E, were pre-sold. The third penthouse, Penthouse C, has been sold to a Mrs. Ruth Orbach. Completion of the sale of Penthouse C took place on 26 October 2001. The proceeds of sale in aggregate of the three penthouses exceed £6,000,000. In those circumstances, so it is contended on behalf of Meretz in this action, the effect of clause 6(b) of the Introduction Agreement, as varied by clause 6.2 of the Deed of Priorities, is that a sum equal to 70% of the sum of £600,000, being the difference between £5.4 million and £6 million, less allowable deductions totalling £47,000, is now due and payable by ACP to Meretz. The sum claimed is £373,000. That claim is disputed on behalf of ACP on the grounds that by the date of the sale of the third penthouse it had been unable to secure bank or other finance on reasonable and proper normal commercial terms to enable it to complete the construction of the fourth and fifth penthouses if the sum otherwise due to Meretz was paid, and in those circumstances the effect of Letter C was that Meretz agreed to defer the entitlement to payment which it would otherwise have had so as to enable ACP to complete the construction of the fourth and fifth penthouses. There are two answers to that contention advanced in this action on behalf of Meretz. The first is that it does not admit that in fact ACP was not able to secure bank or other finance on reasonable and proper normal commercial terms to enable it to complete the fourth and fifth penthouses if the money otherwise due to Meretz was paid. Meretz requires ACP to prove in this action that it has not been able to secure such finance and that it needs it if it is to be able to complete the construction of the fourth and fifth penthouses. The second answer put forward on behalf of Meretz is that, even if ACP could show that it has not been able to secure finance for the construction of the fourth and fifth penthouses on reasonable and proper normal commercial terms, the effect of clause 6.2(ii) (B) of the Deed of Priorities, was that ACP had also to demonstrate “to the reasonable satisfaction of Meretz and Highdorn that all 5 penthouses will be built within a reasonable timescale”, which it has not done. Those points as elaborated before me by Mr. Pascal Bates, who appeared on behalf of Meretz, and by Miss Ife, raise both issues as to the proper construction of clause 6.2(ii)(B) of the Deed of Priorities in the light of the terms of Letter C, and issues of fact. Those issues of law and fact are what, in reality, this action is about. There is a further issue of construction in relation to whether, if ACP is otherwise liable to pay any sum now to Meretz, it is entitled to deduct from the sum due an amount in respect of professional fees which it paid to Britel’s professional advisers for services rendered to Britel prior to the date of the Preliminary Agreement. It is convenient to deal first with the issues of construction.
- At paragraph 11 of her written opening submissions Miss Ife submitted that the effect of the terms of clause 6.2(ii)(B) of the Deed of Priorities in the light of the terms of Letter B and Letter C was:-
- Miss Ife submitted that the requirement in Letter C that ACP should have “been unable to secure bank or other finance on reasonable and proper normal commercial terms to enable you to complete the construction of the fourth and fifth penthouses within a reasonable period” was satisfied if either such finance as was available was available on reasonable and proper normal commercial terms, but it was insufficient in amount to enable completion of the construction of the fourth and fifth penthouses within a reasonable period, if the sum otherwise due to Meretz was paid, or the finance available was not on reasonable and proper normal commercial terms. Obviously, she submitted, if both were the case the condition was satisfied.
- In relation to the question what was the nature of the requirement to demonstrate “to the reasonable satisfaction” of Meretz and Highdorn that all five penthouses would be built within a reasonable time, Miss Ife submitted that what mattered, if Meretz and Highdorn were in fact not satisfied, was whether they would have been satisfied if they had acted reasonably. She accepted that in considering, acting reasonably, whether they respectively were satisfied or not, Meretz and Highdorn could take into account information already in their possession concerning the Project and its progress. She also accepted that Meretz and Highdorn would be acting reasonably in making their respective evaluations as to whether they were satisfied if they took into account, and gave appropriate weight to, their past experiences of dealing with ACP. She submitted that, in relation to the satisfaction of Meretz and Highdorn, ACP was entitled to treat Meretz and Highdorn as knowing that which had already been communicated, so that it was only additional material relevant to satisfaction which needed to be passed on. It was not necessary, submitted Miss Ife, for some formal process of presentation of all information relevant to the question whether Meretz and Highdorn ought to be satisfied to take place.
- Mr. Bates did not accept the formulation of the effect of clause 6.2(ii)(B) of the Deed of Priorities construed in the light of Letter B and Letter C for which Miss Ife contended. He did accept that the issue whether all five penthouses would be built within a reasonable time fell to be addressed at the time when a payment following the sale of the third penthouse would otherwise have fallen due to Meretz. However, he submitted that on proper construction of clause 6.2(ii)(B) of the Deed of Priorities what was a reasonable time for the building of all five penthouses had to be decided on the basis of what would have been a reasonable time as from the date of the Deed of Priorities, 20 April 1999. He also submitted that the issue fell to be considered without reference to the need for finance for the construction of the fourth and fifth penthouses. The question, in his submission, was simply whether the physical operation of construction could be completed within a reasonable time.
- In relation to the question whether the condition set out in Letter C was satisfied Mr. Bates submitted, first, that it was necessary to consider not only the loans available to ACP after the construction of the third penthouse, but also equity capital raised by First Penthouse. He also submitted that it was appropriate to consider the totality of the loans available to finance the construction of the fourth and fifth penthouses. In Mr. Bates’s submission, if the funds available would have been sufficient to fund the completion of the fourth and fifth penthouses and pay Meretz the sum otherwise due to it, then, on proper construction of Letter C, the condition for which it provided was not satisfied even if the finance available was other than “on reasonable and proper normal commercial terms”.
- Mr. Bates also submitted that the nature of the requirement that it be demonstrated “to the reasonable satisfaction” of Meretz and Highdorn that all five penthouses would be built within a reasonable time was that the decision was entirely that of Meretz and Highdorn unless it could be shown that they had acted perversely or outside the range of reasonable responses. He emphasised that it was for ACP to “demonstrate” to the reasonable satisfaction of Meretz and Highdorn that all five penthouses would be built within a reasonable time scale, and not for Meretz or Highdorn to make their own investigations into that matter. He submitted that the process of making the requisite demonstration involved ACP giving disclosure of all relevant information in its possession, in particular as to its own financial position and the financial position of First Penthouse.
- If ACP is liable to pay any sum to Meretz now, there is, as I have indicated, the further issue as to whether ACP is entitled to deduct from the sum otherwise due a sum of £46,472.45 which it paid to Britel’s professional advisers for services rendered to Britel prior to the date of the Preliminary Agreement. There is no dispute that that sum was paid by ACP, but it is contended by Mr. Bates on behalf of Meretz that, on proper construction of clause 5 of the Heads of Terms the sum in question only falls to be deducted from sums payable to Meretz under clause 6(c) of the Introduction Agreement. The argument is that the entitlement of ACP for which clause 5 of the Heads of Terms provides is an entitlement to deduct the sum in question "from Meretz’s entitlement”, and as clause 5 of the Heads of Terms does not mention any entitlement of Meretz other than by referring to clause 6(c) of the Introduction Agreement, it must be to that that the expression “Meretz’s entitlement” in the clause must refer.
- So far as it goes, I accept the submission of Miss Ife in the passage from paragraph 11 of her written opening submissions which I have quoted earlier in this judgment as to the effect of clause 6.2(ii)(B) in the light of Letter B and Letter C. It seems to me that the condition in Letter C, properly construed, did involve the need to consider what was the financial position of ACP following the completion of the sale of the third penthouse, and in particular, whether it was such that the funds available “on reasonable and proper normal commercial terms” were not sufficient if the sum due to Meretz were paid, but otherwise would be sufficient. I accept the submission of Mr. Bates that one has to consider all of the available funds and sources of finance, but to the extent that funds sufficient in amount were available, but not “on reasonable and proper normal commercial terms”, it seems to me that the condition in Letter C was satisfied. However, Miss Ife’s submission does not deal with what the requirement to “demonstrate” to the reasonable satisfaction of Meretz and Highdorn that all five penthouses would be built within a reasonable time scale involved, what notion was inherent in the satisfaction of Meretz and Highdorn having to be “reasonable”, or what was a “reasonable” time scale for the building of all five penthouses and as at what date such time scale fell to be assessed.
- I accept the submission of Mr. Bates that what was involved if ACP was to “demonstrate” to the reasonable satisfaction of Meretz and Highdorn that all five penthouses would be built within a reasonable time scale was ACP putting before Meretz and Highdorn material upon which it relied in support of its assertion, not Meretz and Highdorn making any independent enquiries or investigations. However, I do not accept his submission that there was any obligation on ACP to disclose any particular material, or information of any particular character. It was, in my judgment, entirely up to ACP to decide what it wanted to place before Meretz and Highdorn to seek to persuade them that they should be reasonably satisfied that all five penthouses would be built within a reasonable time. The risk which ACP ran if it did not put material of a particular quality, or relating to particular aspects of the Project, was that Meretz and/or Highdorn would not be satisfied, and that it would be held that it was reasonable for Meretz and/or Highdorn not to be satisfied.
- I reject the submission of Mr. Bates that the test of whether Meretz and/or Highdorn was acting reasonably in not being satisfied that all five penthouses would be built within a reasonable time scale was whether Meretz and/or Highdorn was acting perversely or whether the relevant decision was outside the range of reasonable responses, if by that he sought to suggest some higher test of reasonableness than simply whether the quality of the material put before Meretz and Highdorn on behalf of ACP in relation to the building of all five penthouses within a reasonable time scale was such that, acting reasonably, they would be satisfied with it. Miss Ife submitted that it was a subjective test whether Meretz and Highdorn were in fact satisfied, but a test partly subjective and partly objective as to whether that which was required under clause 6.2(ii)(B) of the Deed of Priorities had been demonstrated to “the reasonable satisfaction” of Meretz and Highdorn. By that I understood her to mean that account should be taken, in considering whether, acting reasonably, Meretz and Highdorn would have been satisfied, of what they each already knew. I accept that submission.
- In relation to the question of the time as at which the question of what was a reasonable time scale for the building of all five penthouses fell to be determined Miss Ife and Mr. Bates did not differ, and it seems to me that what each accepted, namely that the question fell to be determined at the time at which a payment was otherwise due to Meretz following the sale of the third penthouse, was correct.
- As I have already indicated, in relation to the issue on what basis what was a reasonable time scale for the building of all five penthouses fell to be addressed at the time when that question arose for determination, Miss Ife drew my attention to the terms of clause 13 of the Deed of Priorities and submitted that Meretz and Highdorn could not, in the light of the extension of time there granted, reasonably take the view that ACP ought to complete the fourth and fifth penthouses earlier than 7 September 2002. As the extension of time for the completion of the Project granted in clause 13 of the Deed of Priorities was contained in the self-same agreement which introduced the concept of “the reasonable satisfaction of Meretz and Highdorn that all 5 penthouses will be built within a reasonable timescale”, it seems to me that it is really impossible to contend, despite the valiant efforts of Mr. Bates on behalf of Meretz, that completion by 7 September 2002 would not be completion “within a reasonable timescale”. That was agreed to be a reasonable period as at 20 April 1999 in an agreement to which Meretz was a party. The question of what was a reasonable period for completion of all 5 penthouses only arose, for the purposes of clause 6.2 of the Deed of Priorities, in the light of the terms of Letter B and Letter C, at the point at which the third penthouse was sold. That was in fact in October 2001. The question to be considered at that time was whether “all 5 penthouses will be built within a reasonable timescale”, that is to say an issue expressed in the future tense. That seems to me to require one to look forward from the date as at which the question arises for decision, not, as would Mr. Bates’s construction, to ask how the matter would have appeared if considered as at 20 April 1999. It may well be that, in theory, by October 2001 the progress of the work had been such that some later date than 7 September 2002 would be appropriate. However, the suggestion that completion of all five penthouses by some earlier date than that thought to be reasonable in April 1999 could be thought reasonable in October 2001 strikes me as an impossible contention. I therefore reject Mr. Bates’s submission.
- It seems to me that the construction for which Mr. Bates contended of clause 5 of the Heads of Terms is not correct. I can see no warrant for limiting that against which ACP is entitled to make the permitted deduction to sums falling due under clause 6(c) of the Introduction Agreement. It seems to me that the sum which ACP is entitled to deduct under clause 5 of the Heads of Terms can be deducted from any sum otherwise falling due from ACP to Meretz.
- In the light of my rulings on the issues of construction which arise in this action, I turn to consider the facts, first in relation to the issue whether ACP had, as at about 26 October 2001, been unable to secure finance on reasonable and proper normal commercial terms which would enable it to complete the construction of the fourth and fifth penthouses forming part of the Project if it paid Meretz the sum which Meretz claimed was due following the completion of the sale of Penthouse C, and then in respect of whether Meretz and/or Highdorn were, or ought, if acting reasonably, to have been, satisfied as at about 26 October 2001 that all five penthouses would be built by 7 September 2002. It is unnecessary to consider the theoretical alternative of the building of the five penthouses within such period longer than one expiring on 7 September 2002 as was reasonable in the light of the situation as it existed as at about 26 October 2001, as Miss Ife did not contend that any period longer than one expiring on 7 September 2002 would have been reasonable.
- In a witness statement dated 28 November 2001 Mr. Olsson explained that at the outset of the involvement of ACP with the Project ACP had in place a funding package with joint venture partners called American Swiss Holdings (“ASH”). However, ASH withdrew in the spring of 1997. At paragraph 5 of his witness statement to which I have referred Mr. Olsson said:-
- The fact that the terms upon which Living Capital Ltd. made finance available to ACP, or rather to First Penthouse, made that an expensive form of funding as compared with the terms upon which National Westminster Bank Plc (“NatWest”) provided finance to ACP appears from a letter dated 16 February 2001 written by Mr. Versteegh of Living Capital Ltd. to Mr. Turbutt of NatWest, a copy of which was put in evidence. So far as is presently material what that letter said was:-
- The terms upon which Living Capital Ltd. was prepared to make available loans to First Penthouse appear from a letter dated 16 March 1999 written by Mr. Andreas Versteegh of Living Capital Ltd. to Mr. Olsson in his capacity as managing director of First Penthouse. It appears from that letter that the credit line available was a total of £1 million. The letter confirmed that there was payable a set-up fee of 10% for each drawing of funds, and that interest was payable at a rate of 10% per annum. The letter also indicated that Living Capital Ltd. was to provide “management and consulting support” for a minimum of 6 days per month for a fee of £3,600 per month. The letter went on:-
- There was also put in evidence a copy of what was called “Advice of Borrowing Terms for ACP Limited” (“the Finance Terms”) prepared by NatWest in relation to the funding arrangements between it and ACP. In the Finance Terms the facilities provided were indicated as documentary credits in an amount of 5,552,000 Swedish kroner, some £412,000 at about October 2001, in respect of Penthouse A, and 4,027,000 Swedish kroner, some £298,000 at about October 2001, in respect of Penthouse D, and a loan. The purpose of the documentary credits was said in the Finance Terms to be “Trade Finance in respect of penthouse module shipping from Sweden”. The fees payable in relation to the documentary credits were specified as an arrangement fee of 1.25% of the amount of the letter of credit, plus NatWest’s documentary credit fees. A “document” stated as “required” in relation to the documentary credits was “Acceptance of building specifications (visit by FPD Savills to production facility in Sweden)”. The loan was said to be:-
- Penthouse A - £865,000
- Penthouse C - £648,000
- Penthouse D - £776,000 ”
- There were set out in the Finance Terms various conditions, both preconditions and what were called “on-going conditions”. The pre-conditions included, under an indication that they were “Preconditions which must be satisfied before facilities can be utilised”
- Written confirmation from Living Capital that funds of up to £500,00 [sic] are available to the company for bridging purposes in case of need.
- Time constraint period extension to be confirmed and ability to complete development in the revised period.
- Sight and satisfaction with Savills report on Swedish production facility prior to issue of letter of credit for penthouse D ”
- ACP’s whole case in the trial was premised on the hypothesis that there were funds available to ACP as at 26 October 2001 which were sufficient to complete the construction of Penthouse A and Penthouse D, as long as ACP did not have to pay Meretz the sum otherwise falling due on the completion of the sale of Penthouse C. Whether that was in fact so is something to which I shall come. If it were not so, the defence of ACP in this action would probably fail on the ground that it had not demonstrated to the reasonable satisfaction of Meretz and Highdorn that all five penthouses would be built within a reasonable time. It is convenient, therefore, first to consider the issue whether the finance available was on “reasonable and proper normal commercial terms”. The evidence of Mr. Olsson that the terms of the loan from Living Capital Ltd. were not normal commercial terms was not challenged in cross-examination, but Mr. Bates did submit in closing that ACP had failed to prove that that set of terms was unusual for a development such as the Project. Mr. Olsson’s evidence was that the terms of the Finance Terms were in no way unusual save in that they did not permit the drawing of cash until after the letters of credit had been issued. Although one might have supposed that it would be a matter for expert evidence whether the terms of these facilities were “reasonable and proper normal commercial terms”, no expert evidence in relation to that was led. I was exposed by Miss Ife to the temptation to take judicial notice of the fact that the terms of the funding available to ACP were not “reasonable and proper normal commercial terms”. However, I do not consider that it would be right for me to do so. Although the Court has, inevitably, some experience of the terms upon which finance is made available by lenders, and although I might have a view in the light of that experience concerning the terms of the Living Capital Ltd. facility and the Finance Terms, the Court professes no expertise in this area and in my judgment it would be wrong to seek to supply a deficiency in the evidence by reference to the experience and opinions of the Court to which the parties are not privy. Mr. Olsson did not himself profess any expertise in the terms of lenders other than as someone who had arranged, or sought to arrange, loans for projects in the past. In those circumstances I do not accept his evidence on this point and I therefore find that ACP has not proved that by 26 October 2001 or thereabouts it had been “unable to secure bank or other finance on reasonable and proper normal commercial terms” in relation to the undertaking of the Project.
- In the light of the finding set out in the preceding paragraph I turn to consider whether finance “on reasonable and proper normal commercial terms” was necessary “to enable [ACP] to complete the construction of the fourth and fifth penthouses within a reasonable period” on the footing that, in the light of the way in which Miss Ife put the case for ACP, ACP could succeed on this part of the case if I were satisfied that, although the finance available was on “reasonable and proper normal commercial terms”(or, rather I was not satisfied that the finance available was not “on reasonable and proper normal commercial terms”), it was not sufficient, if the sum otherwise due to Meretz were paid, to enable ACP to complete the construction of Penthouse A and Penthouse D within a reasonable period.
- The evidence as to the financial position of ACP adduced at trial was, first, that of Mr. Stuart Burns, an accountant instructed as an expert on behalf of Meretz, and, second, that of Mr. Basil de Guingand, an associate in the firm of Piper Thompson, which acts as accountants and auditors to ACP. Mr. Burns was called as a witness principally in respect of the issue whether the alleged decision of Meretz and Highdorn that they were not satisfied that “all 5 penthouses will be built within a reasonable period” was reasonable. The main focus of Mr. Burns’s attention in that context was a cash flow analysis (“the Cash Flow”) produced by Mr. Olsson to Mr. Stern first on a laptop computer at a meeting on 17 October 2001. The Cash Flow showed, amongst other things, utilisation of a loan of £500,000 from Living Capital Ltd. In order to comment on the Cash Flow Mr. Burns considered the evidence of Mr. de Guingand that the cash flows of ACP and First Penthouse are closely linked and investigated the latest filed accounts of both First Penthouse and ACP. Mr. Burns’s report dated 27 March 2002 prepared for the purposes of this action included the following:-
- In his third witness statement, which was dated 5 December 2001, Mr. de Guingand said, at paragraph 2:-
- In the light of the evidence of Mr. Burns at paragraphs 5.10, 5.11, 5.12 and 5.16 of his report, and the evidence of Mr. de Guingand in paragraph 2 of his third witness statement, which I also accept, it is plain that ACP had no prospect, as at about 26 October 2001, of completing the fourth and fifth penthouses at the Property without the funding made available by Living Capital Ltd. and NatWest. ACP had no worthwhile assets of its own, it was substantially indebted to First Penthouse, and the financial condition of First Penthouse meant that it was highly unlikely to be able to provide further financial support to ACP. Although First Penthouse had raised a substantial sum, put by Mr. Olsson in his cross-examination at a net figure of £1.8 million, in May 1997 from an issue of preference shares, all of that money seems to have disappeared by October 2001. For that reason it seems to me that the facts that First Penthouse had once had that money, and, if it still had it could have used it to finance the construction of the fourth and fifth penthouses, were irrelevant, despite the submissions of Mr. Bates to the contrary. In October 2001 the most pressing concern of First Penthouse itself was to refinance the borrowings which the preference shares represented.
- It does not, of course, follow that just because ACP had no prospect of completing the construction of the fourth and fifth penthouses without the funding of Living Capital Ltd. and NatWest, that with that funding, and the money which should otherwise be paid to Meretz on the sale of Penthouse C, it would be able to complete the fourth and fifth penthouses. One of the issues of importance to whether ACP would actually be able to complete the construction of the fourth and fifth penthouses, with the assistance of the loans from Living Capital Ltd. and NatWest, and on the basis that payment of the sum otherwise due to Meretz on completion of the sale of Penthouse C was deferred, has turned out to be what happened concerning the preference shares in First Penthouse redeemable on 15 May 2002. That matter was not disclosed to, or known to, Meretz in October 2001, but it is germane to whether ACP would in fact have satisfied the condition contained in Letter C as at about 26 October 2001. The critical date of 15 May 2002 has come and gone without catastrophe. In his second witness statement, dated 28 March 2002, at paragraph 47 Mr. Olsson said:-
- In the light of the continued existence of both ACP and First Penthouse, and the evidence of Mr. Olsson to which I have just referred, which I accept, I am satisfied that the need to address the question of how to deal with the obligation to redeem the preference shares in First Penthouse on 15 May 2002 was identified as at 26 October 2001 and that the solution suggested by Mr. Olsson was then in contemplation.
- In commenting on the Cash Flow in his report Mr. Burns began by dealing with the solvency position of both First Penthouse and ACP. It seems to have been his conclusions in relation to those matters, which, as I have indicated, I accept, which led him to suppose that the Cash Flow was unrealistic. He felt that the information as to solvency should have been disclosed to Meretz. No doubt if it had been it would have provided ample reason to think that ACP might not be able to build the remaining penthouses by 7 September 2002. However, the information was not disclosed, and in my judgment, ACP was under no obligation to disclose it. At paragraph 5.22 Mr. Burns recorded that:-
- At paragraph 5.23 of his report Mr. Burns identified “other factors about which Mr. Stern has informed me that would not directly affect the profitability of the project, but that would seriously impair ACP’s efforts to complete the project due to funding difficulties”. Those factors concern whether Living Capital Ltd. has now withdrawn its loan, the non-use by ACP of an area of the roof of the Property called the Loft as security for a loan, contrary to the expectation at the time the Cash Flow was prepared, and a point as to the terms on which ACP could draw down the NatWest loan which Mr. Stern accepted in cross-examination was misconceived. The first two of these factors relate to how things have allegedly turned out since the Cash Flow was prepared, and not to any perceived inadequacy in the Cash Flow itself.
- I am bound to observe that there was no point in ACP preparing the Cash Flow and in persisting in its apparent desire to proceed with the Project unless it considers that it not only can complete it, but can do so to the advantage of ACP.
- In the result I am satisfied that ACP was in the position as at 26 October 2001 of in fact being able, in the light of the then contemplated arrangements to deal with the question of the redemption of the preference shares in First Penthouse to complete the fourth and fifth penthouses. However, I am not satisfied that in order to be able to achieve that it was necessary that payment of the sum otherwise due to Meretz on completion of the sale of Penthouse C be deferred. The reason is that the Cash Flow only contemplated the use of £500,000 of the £1 million loan potentially available from Living Capital Ltd. Had the full facility been utilised it was not necessary to defer the payment due to Meretz. Thus even if I approach the loans available from Living Capital Ltd. and under the Finance Terms as finance available on “reasonable and proper normal commercial terms”, I am not satisfied that the condition in Letter C was fulfilled.
- I have formulated the question in the heading of this section as I have because it is ACP’s case that Meretz and Highdorn were in fact satisfied as at 26 October 2001 that ACP would build all five penthouses by 7 September 2002, apart from its alternative case that if they were not they ought reasonably to have been. I deal with these questions in case my finding in relation to not being satisfied that ACP had “been unable to secure bank or other finance on reasonable and proper normal commercial terms” were wrong.
- The case that Meretz and Highdorn were in fact satisfied depends upon inferences which I have been invited by Miss Ife to draw from the terms of letters written by Mr. Stern in which, so it is asserted, his indication that his view was that ACP did not need to defer the payment otherwise due to Meretz because it could afford to complete the construction of the remaining two penthouses without the deferment, is consistent only with him being satisfied that the penthouses would all be built by 7 September 2002. In order to reach conclusions on this part of the case it is necessary to consider in some detail the correspondence passing between Mr. Stern, Mr. Olsson, ACP’s solicitors, Messrs. Lewis and Dick (“L & D”), and Highdorn’s solicitors, Messrs. GSC, who acted by Mr. Harvey Posener or Mr. Robert Hedden. It is also necessary to consider the evidence of Mr. Stern and Mr. Olsson as to some of the background to the events of October 2001 and as to meetings between them in October 2001, in particular on the 12 and 17 of that month.
- By an agreement in writing (“the Manufacturing Agreement”) dated 22 July 1999 and made between ACP and Modulent Modulent agreed to undertake for ACP the manufacture of the modules required for all five penthouses. The Manufacturing Agreement included provision as to a programme of production of the modules. Mr. Stern told me that he had been told by Mr. Dawkins of ACP and by Mr. Olsson over a year before the Manufacturing Agreement was in fact made that the first penthouse had been ordered. Mr. Stern indicated to me that he considered that the making to him of statements at that time that the first penthouse had been ordered amounted to an untruth. I do not share his view. When he came to give evidence Mr. Olsson produced a copy of an earlier agreement, dated 3 June 1997, between ACP and Modulent which related to the manufacture of the modules for Penthouse B only. However, the significance of this matter is that, in Mr. Stern’s opinion he was entitled in October 2001 to treat information given to him by ACP, and in particular by Mr. Olsson, with a degree of circumspection. Another matter relied on by Mr. Stern in support of his cautious attitude seemed to me to have a firmer foundation, and that was the apparently undisputed circumstance that Mr. Olsson had at various times given estimates as to when modules would be hoisted onto the roof of the Property which proved to be inaccurate.
- In a letter to Mr. Stern dated 12 July 2001 Mr. Olsson advised him that Modulent’s mother company, as he put it, was very close to having to call in receivers because of severe financial problems. The letter continued:-
- Mr. Stern was in fact an occupier of a flat in the Property for business purposes. In that capacity he received a circular letter from First Penthouse dated 31 August 2001. That circular letter was intended to advise existing occupiers of the progress of work on the Project. The letter included:-
- Contracts for the sale of Penthouse C were exchanged on 11 October 2001. The date fixed for completion of the sale was 23 October 2001. Mr. Stern came to learn of the exchange of contracts. He wrote to Mr. Olsson a letter dated 11 October 2001. The letter was in the following terms:-
- Under cover of a letter dated 12 October 2001 Mr. Raymond James of L & D sent to Mr. Stern a copy of the contract for the sale of Penthouse C.
- Mr. Stern had a meeting with Mr. Olsson on 12 October 2001. It was the evidence of Mr. Stern, with which in substance Mr. Olsson agreed in cross-examination, that this meeting was of little significance other than as a prelude to the later meeting on 17 October 2001 because by the time it took place Mr. Olsson had not seen Mr. Stern’s letter of 11 October 2001.
- Following the meeting on 12 October 2001 Mr. Stern wrote to Mr. Olsson a letter dated 15 October 2001. The part of that letter which is material for present purposes read as follows:-
- Mr. Olsson replied to Mr. Stern’s letters of 11 and 15 October 2001 in a letter dated 15 October 2001. The substantive part of that letter read thus:-
- The terms of Mr. Olsson’s letter dated 15 October 2001 strike me as very significant. He was indicating in that letter that the arrangements for manufacture of modules with LB-Hus contemplated in his letter dated 12 July 2001 had not been made and were no longer intended to be made. Further, no contract for the manufacture of modules had been made, or would be made until after the question of the deferment of the payment otherwise due to Meretz had been resolved. Not only that, but he was saying that time was critical in relation to the placing of an order, such that a delay of perhaps as little as one week in placing an order could result in a delay of two months to the Project. At that time placing an order was something like two months behind the timetable indicated in the letter of 12 July 2001, a timetable which led to Penthouse A being installed on 1 April 2002 and Penthouse D following in May. If that timetable was realistic in July 2001 it had by this time slipped so that Penthouse A would not be installed until June 2002 at the earliest, with Penthouse D following in July, at the earliest.
- In the event Mr. Olsson was accompanied to his meeting with Mr. Stern on 17 October 2001 by Mr. James of L & D. In advance of that meeting Mr. James wrote a letter dated 17 October 2001 to Mr. Stern. In that letter Mr. James said this:-
- Also in advance of the meeting on 17 October 2001 Mr. Stern wrote again to Mr. Olsson. What he said was:-
- As matters turned out at trial there was not an enormous difference between the evidence of Mr. Stern and that of Mr. Olsson as to what occurred at the meeting between them, which Mr. James also attended, on 17 October 2001. Mr. James did not give evidence and apparently made no attendance note of the meeting, or at least not one that was put in evidence. The best nearly contemporaneous evidence of what occurred is set out in a letter dated 25 October 2001 written by Mr. Stern to Mr. Posener at Messrs. GSC, but copied to Mr. Hedden, Mr. James and Mr. Olsson. Neither Mr. James nor Mr. Olsson sought to dispute at the time that what Mr. Stern wrote was accurate, albeit reflecting his own point of view. I shall come to the terms of the letter dated 25 October 2001 to Mr. Posener later in this judgment. At trial it proved not to be in dispute that at the meeting Mr. Olsson had shown Mr. Stern on a laptop computer a version of the Cash Flow, and that Mr. Stern had looked at it sufficiently to make some comment about what it appeared to show. However, the evidence of Mr. de Guingand, which I accept, was that it was not until he made a contribution to the Cash Flow in the form of adding various adjustments in the period between 29 October 2001 and 8 November 2001 that it assumed the shape of what was put before me. Without the adjustments contributed by Mr. de Guingand it is difficult to see how one could appreciate what a realistic flow of funds was likely to be, for those adjustments included elements for payment of unpaid invoices, sales invoice receipts, other loans (that is to say, other than those from Living Capital Ltd. and NatWest), and overheads. The value of these elements is significant, with unpaid invoices amounting to £447,151 by December 2001, and overheads rising over the period to September 2002 to £323,250. Without the addition of appropriate allowances for the elements contributed by Mr. de Guingand it is difficult to see that the Cash Flow was particularly meaningful. Certainly the evidence of Mr. Stern was that he was unimpressed by it in the version which he saw. Mr. Olsson told me in cross-examination that he had not reminded himself of the terms of clause 6.2 of the Deed of Priorities in October 2001. He also said that he just assumed that ACP was entitled to defer payment to Meretz of the sum otherwise payable on the completion of the sale of Penthouse C and that he did not discuss with Mr. Stern at the meeting on 17 October 2001 whether ACP could complete the construction of all five penthouses by 7 September 2001. The focus of the discussion at the meeting on 17 October 2001 seems to have been whether under the Finance Terms ACP was able to draw down funds from NatWest in advance of the delivery of modules to the Property. Mr. Stern seems to have expressed the view that ACP would be able to draw down funds if only it had complied with the requirements that FPD Savills approve the building specifications and visit the manufacturing facility in Sweden. Mr. Olsson told me that Mr. Stern told him that it was not up to Mr. Stern to show what was or was not possible, but that if there was to be any comment from NatWest, such as Mr. Olsson offered to obtain, it should be in writing. Mr. Olsson told me that his view was that FPD Savills had long ago approved the building specifications. I accept that Mr. Olsson also indicated to Mr. Stern, as Mr. Olsson told me, that he could approach at least Mr. de Guingand if he, Mr. Stern, wished to raise any matter with ACP’s auditors. However, it was plain from the evidence of Mr. Stern, which I also accept on this point, that he regarded questions of ACP’s costs and the profitability of the Project as no concern of his or of Meretz, although he did express some interest in the costs allegedly incurred by ACP up to the date of the meeting on 17 October 2001. This was in the context of how much ACP had spent of the sums which it had had available to it in the past. Mr. Stern was also interested in the anticipated future cost of constructing Penthouse A in order to form a view as to how much money ACP would need for that purpose out of the funds which Mr. Stern believed to be available to it. I do not accept Mr. Olsson’s evidence to the effect that he offered to let Mr. Stern approach for information anyone he chose out of ACP’s advisers or lenders. In view of the strained relations between ACP and First Penthouse, on the one side, and Meretz and Britel, on the other, it would have been extraordinary had such an offer been made without limit.
- Following the meeting on 17 October 2001 Mr. James wrote a letter dated 24 October 2001 to Mr. Posener at Messrs. GSC. Insofar as the letter dealt with the issue of whether a payment was due from ACP to Meretz what it said was this:-
- In a second letter dated 24 October 2001 to Mr. Posener Mr. James recorded that he understood the position of Highdorn to be that:-
- Copies of Mr. James’s two letters dated 24 October 2001 to Mr. Posener were sent by him to Mr. Stern under cover of a letter also dated 24 October 2001. In addition Mr. James sent under cover of his letter dated 24 October 2001 to Mr. Stern a copy of a letter to Miss Natalia Vignali of NatWest dated 18 October 2001. The part of the latter letter which is material for present purposes was in these terms:-
- Mr. Stern replied to Mr. James’s letter dated 24 October 2001 in a letter dated 25 October 2001. In his reply Mr. Stern wrote, so far as is presently material:-
- Mr. James wrote again to Mr. Posener on 25 October 2001. He copied his letter to, amongst others, Mr. Stern. His letter included this passage:-
- As I have said, Mr. Stern wrote a letter dated 25 October 2001 to Mr. Posener which he copied to Mr. Hedden, Mr. James and Mr. Olsson. The letter set out Mr. Stern’s comments on Mr. James’s letter dated 24 October 2001 to Mr. Posener and also commented on the meeting held on 17 October 2001. Such of the comments in the letter as are presently material were as follows:-
- It is, I think plain from the terms of Mr. Stern’s letter dated 25 October 2001, that the position which he adopted was both that Meretz was not satisfied that Penthouses A and D would be completed within a reasonable time and that deferment of the payment of the sum otherwise due to Meretz following the sale of Penthouse C was not necessary to enable ACP to complete the construction of those penthouses if ACP availed itself of the funding facilities which were available to it. The particular concerns expressed about the completion of Penthouses A and D within a reasonable time related not to funding, but to the facts that ACP had given estimates in the past of when modules would be hoisted onto the roof of the Property which had proved to be inaccurate, and there was uncertainty as to who was to manufacture the modules for Penthouses A and D.
- In a letter dated 26 October 2001 to Mr. James Mr. Stern commented on Mr. James’s letter dated 25 October 2001 to Mr. Posener. It is not necessary to say more about the contents of Mr. Stern’s letter dated 26 October 2001 than that in it he restated the position of Meretz as being that it was not satisfied that ACP would complete the remaining two penthouses within a reasonable time. In a letter to Mr. James also dated 26 October 2001 Mr. Stern requested copies of the completion statements for Penthouses B, E and C.
- Mr. Posener responded to the letter dated 25 October 2001 written to him by Mr. James in a letter dated 26 October 2001. That letter included:-
- Mr. James wrote a letter dated 26 October 2001 to Mr. Stern with which was enclosed a copy of a letter dated 25 October 2001 written to Mr. Olsson by Suzanne Avery of NatWest. The latter letter was in these terms:-
- Prior to 26 October 2001, and in anticipation of the completion of the sale of Penthouse C, Mr. James had sought from Meretz, and obtained from an alternate director, Angela Harris, a form DS3 releasing Penthouse C from the Meretz Charge. A form DS3 had been provided on terms that it was to be held to the order of Meretz until agreement was reached as to payment of the sum which Meretz claimed was due to it from ACP on completion of the sale. Receipt of the form DS3 was acknowledged by Mr. James in a letter dated 26 October 2001 to Angela Harris. The letter dated 26 October 2001 set out various deductions from the sum of £420,000 otherwise due which Mr. James contended were appropriate, which were the deductions which have been accepted plus that the propriety of which depends on the proper construction of clause 5 of the Heads of Terms. The letter went on:-
- In fact the sale of Penthouse C was completed on 26 October 2001, amongst other things on the basis of an undertaking by L & D to provide within 14 days forms DS3 in relation to a variety of charges over the relevant title, including the Meretz Charge. It was not explained to Mr. Stern or to Meretz immediately that the sale had been completed. Correspondence in relation to the question of whether Meretz was satisfied that the remaining two penthouses would be built within a reasonable time continued. Mr. Stern wrote a letter dated 28 October 2001 in response to the letter dated 26 October 2001 written to him by Mr. James. In particular in his letter Mr. Stern commented on the letter written by Suzanne Avery a copy of which Mr. James sent under cover of his letter dated 26 October 2001. It is unnecessary to set out Mr. Stern’s comments in this judgment. It is enough to record that the conclusion expressed in the letter was that ACP had secured “bank or other finance on reasonable and proper normal commercial terms to enable them to complete the construction of the fourth and fifth penthouses.” As I have already indicated it was common ground that, the sale of Penthouse C having been completed on 26 October 2001, it is as at that date that the question whether it had been “demonstrated to the reasonable satisfaction of Meretz and Highdorn that all 5 penthouses will be built within a reasonable time” fell to be answered.
- In the light of the letters written by Mr. Posener to which I have referred, it seems clear that the position of Highdorn was that it would go along with whatever Meretz thought on the critical question. While it seems plain from the terms of his correspondence what Mr. Stern thought, subject to the point that Miss Ife submitted that I should draw the inference from what he in fact said that Meretz was actually satisfied that ACP would build all five penthouses by 7 September 2002, the evidence as to what Meretz, by its directors, thought was rather limited. That evidence took the form of the somewhat bald assertion of Mr. Stern in paragraph 26 of his witness statement dated 27 March 2002 that:-
- While it appears that Mr. Stern, at least, was satisfied that ACP had, subject to complying with the preconditions of the Finance Terms in relation to the approval by FPD Savills of the building specifications and to visiting Sweden, funding available which was sufficient to enable ACP both to complete Penthouse A and Penthouse D as well as pay Meretz, I reject the submission of Miss Ife that I should conclude from that that Meretz was in fact satisfied as at 26 October 2001 that all five penthouses would be built within a reasonable time. It seems to me that it was plain from Mr. Stern’s letters dated 11 October 2001 to Mr. Olsson and 25 October 2001 to Mr. Posener, copied to Mr. Olsson and Mr. James, that he was also concerned about the time which it was likely to take to complete the construction of Penthouse A and Penthouse D, not least because of the termination of the contract with Modulent for the construction of modules for the penthouses, and the fact that no new contractual arrangements had been made. Mr. Stern said that he felt that the situation in relation to contractual arrangements for the production of modules was sufficiently confused for Meretz to be entitled to say that it was not satisfied that Penthouse A and Penthouse D would be built within a reasonable time or by 7 September 2002. While, no doubt, Mr. Stern was not setting out to be easily satisfied, having heard his evidence I am satisfied that the concern which he expressed was genuine. I therefore find that he was not in fact satisfied as at 26 October 2001 that all five penthouses would be built by 7 September 2002. I further find that the directors of Meretz were not in fact so satisfied.
- It remains to consider whether, Meretz not in fact being satisfied as at 26 October 2001 that all five penthouses at the Property would be built by 7 September 2002, I should nonetheless find that, had it been acting reasonably, it would have been satisfied that it had been demonstrated that all five penthouses would be built by 7 September 2002.
- It has to be said that there seems to have been some lack of understanding on the part of ACP as to what was required of it in relation to demonstrating to the reasonable satisfaction of Meretz and Highdorn that all five penthouses would be built by 7 September 2002. From his evidence in cross-examination Mr. Olsson seems to have thought that ACP either had an absolute contractual right to defer payment of the sum otherwise due to Meretz on the sale of Penthouse C, or that it was up to Meretz, if it disputed ACP’s right to defer payment, to say on what grounds. He told me both that he assumed that ACP was entitled to defer payment and that there was no discussion at the meeting on 17 October 2001 of whether ACP would complete the remaining penthouses by any particular date. I find that in fact little or no effort was made on behalf of ACP to demonstrate to Meretz that which needed to be demonstrated if the payment which is claimed in this action was to be deferred. The information provided to Mr. Stern seems to have taken one of two forms. The first was the writing of letters containing assertions as to facts without any attempt being made to support the assertions made, at least in relation to arrangements for the manufacture of modules for Penthouse A and Penthouse D. The most important of such letters were that written by Mr. Olsson dated 15 October 2001 and that written by Mr. James dated 17 October 2001. The second was what was communicated at meetings between Mr. Olsson, Mr. James and Mr. Stern. Of the two meetings which took place, the first, on 12 October 2001, was substantially only an occasion upon which the second meeting, that on 17 October 2001, was arranged. On the occasion of the second meeting Mr. Olsson provided to Mr. Stern a further copy of the Finance Terms, and Mr. Stern made some comments upon it, directed to what funds were available to ACP, when and subject to satisfaction of what conditions, which Mr. Olsson sought to address by obtaining the observations of NatWest. Mr. Olsson also showed Mr. Stern a version of the Cash Flow displayed on a laptop computer, and again Mr. Stern commented on what he was shown, although he did not consider the Cash Flow in any detail. However, what neither Mr. Olsson nor Mr. James ever addressed seriously were the issues of the absence of any contractual arrangements for the building of the modules needed for the construction of Penthouse A and Penthouse D, the uncertainty as to by whom the modules were intended to be fabricated and whether the intended manufacturer was sufficiently experienced and had sufficient capacity to undertake production of the relevant modules in time for Penthouses A and D to be completed by 7 September 2002. In those circumstances I do not see how it could be said that Meretz and Highdorn ought, if they had been acting reasonably, to have been satisfied that all five penthouses would be built by 7 September 2002. Whether that would happen or not would depend, amongst other things, on the relevant modules being manufactured in time.
- In the result it seems to me that the conditions to be satisfied if ACP were to be entitled to defer payment of the sum otherwise due to Meretz on the sale of Penthouse C were not satisfied. The consequence is that a sum of £326,527.55 should have been paid to Meretz following the completion of the sale of that penthouse. Payment was due on 26 October 2001. In my judgment interest is due on that sum at the rate claimed, 6% per annum, from 26 October 2001 to the date upon which this judgment is formally handed down. The amount of the interest in question is £11,432.94, so there will be judgment for Meretz in the sum of £337,960.49.
H.H. Judge Richard Seymour Q. C. :
Introduction
“A Meretz has introduced ACP to Britel Corporation NV (“the Freeholder”) the owner of a property known as Albert Court, Prince Consort Road, London SW7 2BH (“the Property”).
B It is intended that ACP and the Freeholder should enter into an Agreement in respect of the Property in the form of the draft annexed hereto (“the Preliminary Agreement”).
C Consequent upon the Preliminary Agreement being entered into it is intended that ACP should act as a Developer in respect of the Project (as therein referred to) subject to and in accordance with the terms of the Preliminary Agreement and this introduction agreement shall be deemed to incorporate the terms of the Preliminary Agreement (provided that in case of conflict the terms of this introduction agreement shall prevail).
D In consideration of Meretz introducing ACP to the Freeholder ACP has agreed to enter into this Agreement in respect of which (inter alia) Meretz may become entitled to a commission for such an introduction upon the terms and conditions contained below.”
“1. Save as varied hereby the terms of the Preliminary Agreement shall be deemed to be incorporated herein as though set out in extenso (mutatis mutandis) subject to references therein to the Freeholder being deemed to be substituted so as to refer to Meretz for the purposes of this Agreement.
2. ACP agrees to enter into the Preliminary Agreement with the Freeholder.
3. Meretz shall procure that the Freeholder enters into the Preliminary Agreement with ACP.
4. ACP shall consequent upon the entering into of the Preliminary Agreement continue to liaise with Meretz from time to time (and vice versa) in connection with the Project progressing and Meretz shall at its own expense render such assistance and cooperation as ACP may reasonably require in order to enable the Project to proceed.
5. The provisions of Paragraphs 5, 6.3, 8, 9 (save Paragraph 9.1) and Paragraph 12 of the Preliminary Agreement shall not apply hereto.
6. In the event of the Project proceeding and following completion of the sale of the Penthouses by ACP on long lease (pursuant to Paragraph 7 of the Preliminary Agreement) and the aggregate net sale proceeds in respect of such Penthouses exceeding a figure of £5,400,000 then ACP shall within 7 days of completion of the disposal of the last of the Penthouses by ACP pay to Meretz (or as Meretz may direct) an amount by way of commission representing the sum of:
(a) 0% of such net sale proceeds up to £5.4 million
(b) 70% of such net sale proceeds between £5.4 million and £6 million and
(c) 50% of such net sale proceeds above £6 million.
7. ACP shall provide Meretz with proper calculations in respect of such commission payment.”
“It is intended that the penthouses (the development of which may take place on a phased basis) shall be placed on the market for sale on long lease (in accordance with Paragraph 5.2), through reputable Residential Property Agents (to be appointed by ACP with the approval of the Freeholder such approval not to be unreasonably withheld or delayed). ACP will use all reasonable endeavours to dispose of such penthouses at prices which they consider to represent the then open market value of the same (taking into account the recommendations of such Residential Property Agents). ACP shall be at liberty to dispose of all or any of the penthouses by way of presale or at any stage of the Project.”
“9.1 In calculating the net sale proceeds the following payments/liabilities shall be deducted from the gross sale prices namely the costs and expenses incurred by ACP in legal costs (subject to a maximum of 1% of such sale prices plus Value Added Tax and proper disbursements) agents commission (subject to a maximum of 3% of such sale prices plus Value Added Tax and proper disbursements) marketing expenses, the costs of providing furniture/chattels in any “showflat” or included in the sale of any penthouse (over and above the fixtures and fittings referred to in the Specification) and/or any additional deduction or incentive offered or costs incurred in relation to achieving the sales of the penthouses.
9.2 As the penthouses are sold off on a phased basis or over a period of time then payments on account in respect of the Site Payment (subject to the same not exceeding a total of £1,215,000) shall be paid as below (within 7 days of completion of each transaction):
9.2.1 From the sale of the first penthouse 0% of the net sale proceeds thereof.
9.2.2 From the sale of the second penthouse 11% of the net sale proceeds thereof.
9.2.3 From the sale of the third penthouse 35% of the net sale proceeds thereof.
9.2.4 From the sale of the fourth penthouse 40% of the net sale proceeds thereof.”
“Consequent upon the commencement of the development ACP shall use all reasonable endeavours to progress such development in accordance with the time scale described below subject to any variations to be proposed by ACP and approved by the Freeholder (such approval not to be unreasonably withheld or delayed)…
12.2.4 Site works and the provision of the penthouse modules supplied in situ on the roofspace of the Property within 28 months from now.
12.2.5 Conclusion of all works in respect of the Project (except any outstanding snagging items), as may be evidenced by the issue of a Certificate (or Certificates) or [sic] Practical Completion by ACP’s Project Managers or Architects, by no later than 54 months from now.”
“In the event of any failure by Meretz to execute and/or make available any Form 53 or Consent to Dealing pursuant to the provisions of Clause 7.2 above (or any deed which may be requisite pursuant to Clause 3.2 above), Meretz hereby irrevocably appoints ACP and any person nominated in writing under hand of any officer of ACP including every receiver appointed under or pursuant to the provisions of the Law of Property Act 1925 or this charge jointly and also severally its attorney and attorneys or [sic] Meretz and in its name and on its behalf and as its act and deed execute deliver and otherwise perfect any such Form 53 or Consent to Dealing (or any other deed assurance agreement instrument or act which may be required or deemed necessary by ACP or any such person or receiver for any of the purposes of this charge).”
“In connection with the Introduction Agreement made between the Mortgagor (1) and Meretz (2) dated 7 March 1996 and in connection with the Meretz Charge, the Mortgagor, Meretz, Highdorn and Mr. Freshwater agree:-
(i) the percentage of the net proceeds referred to in clause 6 of the said Introduction Agreement shall, subject to the subsequent provisions of this clause, be paid to Meretz forthwith on the net sale proceeds therein referred to arising as a result of the completion of the sale of any Penthouse or Penthouses, or within 3 days thereof if a suitable solicitor’s Undertaking has first been received in respect thereof.
(ii) Meretz agrees that notwithstanding (i) above, it will not be entitled to any actual payment until completion of the sale of the fourth penthouse subject to the following:
(A) any such deferred payment arising from the sale of the first three penthouses shall be added in equal shares to the amounts additionally payable to Meretz on the sales of the fourth and fifth penthouses respectively
(B) (ii) above shall only apply if the Mortgagor has demonstrated to the reasonable satisfaction of Meretz and Highdorn that all 5 penthouses will be built within a reasonable timescale.
(C) it is acknowledged and agreed by the parties hereto that a “consent to dealing” (or a discharge of part) in respect of the grant of any Lease of a Penthouse is and shall be required pursuant to clause 10 of the Meretz Charge notwithstanding the provisions of the Lease and/or the Agreement and that clause 7 of the Meretz Charge shall apply in relation thereto (mutatis mutandis) but construed taking account of this clause 6.2.”
“BRITEL hereby agrees and confirms that the Mortgagor has applied for extensions of time pursuant to the provisions of paragraphs 12.2.3 to 12.2.5 inclusive of the [Preliminary] Agreement and hereby agrees that the time limits referred to therein and in the Lease (if applicable) are hereby extended (in each case) as follows:-…
13.2 Under paragraphs 12.2.4 and 12.2.5 of the Agreement (Site works, provision of Penthouse modules and conclusion of all works) the time limits in each case will now read “within 78 months from now” i.e. by the 7th September 2002…”
“Clause 6(c) of the Introduction Agreement shall be varied by deleting the figure of £6 million and replacing it with the figure of £7.55 million PROVIDED ALWAYS that the said sum of £1.55 million in clause 4 hereof shall not affect or reduce in any way whatsoever the entitlement of Britel to the payments reserved to it in paragraph 9 of the Preliminary Agreement AND PROVIDED FURTHER that ACP is entitled to deduct from Meretz’s entitlement the amount of professional fees (up to a maximum sum of £50,000) actually paid out by ACP to Britel’s professional advisers for services rendered to Britel prior to the date of the Preliminary Agreement.”
“We refer to the Introduction Agreement made on 7th March 1996 between ACP Limited (1) Meretz Investments NV (2) (“the Agreement”) and to the Deed of Priorities and Further Charge made on 20th April 1999 between First Penthouse Limited (1) NUBBH Limited (2) and six other parties (“the Deed”).
In consideration of your having agreed to enter into the Deed, we confirm and agree that clause 6.2(ii) of the Deed shall not apply in respect of the percentage of the net sale proceeds referred to in clause 6 (b) of the Agreement.
The Deed shall therefore be read and construed in accordance with this letter.”
The second letter, which was referred to in the action, and will be described hereafter in this judgment, as “Letter C”, read as follows:-
“Thank you for your letter of even date.
We have discussed the matter further with you and confirm that following completion of the sale of the third penthouse to be constructed by you, if by then you have been unable to secure bank or other finance on reasonable and proper normal commercial terms to enable you to complete the construction of the fourth and fifth penthouses within a reasonable period, we are prepared to defer payment to us of the percentage of net proceeds referred to in your letter (or such part thereof as may be necessary) to enable you to complete the construction of the fourth and fifth penthouses and in that event the provisions of clause 6.2(ii) (A)-(C) of the Deed of Priorities and Further Charge will apply.
We further agree that in respect of such bank or other finance on reasonable and proper normal commercial terms we shall bear the cost of arrangement fees and interest payable in respect of the loan enabling you to complete the fourth and fifth penthouses.”
The issues of construction
“If by the date of completion of the sale of the third penthouse, ACP had been unable to secure finance on reasonable and proper normal commercial terms such as would enable it to pay the Introduction Fee to Meretz and enable it to complete the construction of the fourth and fifth penthouses within a reasonable period, then Meretz’s entitlement to the Introduction Fee (or such part as was necessary) was to be deferred to enable the construction of the fourth and fifth penthouses, provided that ACP had demonstrated to Meretz’s and Highdorn’s satisfaction that all 5 penthouses would be built within a reasonable timescale if Meretz’s entitlement was so deferred (and was instead ploughed back into the development). If ACP was able to obtain finance on reasonable and proper normal commercial terms, then Meretz had to pay the arrangement fees and interest costs of its doing so.”
She elaborated upon that submission in relation to the question as at what date the issue of whether ACP was able to demonstrate to the reasonable satisfaction of Meretz and Highdorn that all five penthouses would be built within a reasonable time scale fell to be addressed. She submitted that that issue fell to be addressed as at the date at which the third penthouse had been sold, for it was only at that time that the matter of a possible deferment of a payment otherwise due to Meretz arose. She submitted a reasonable time scale for the building of all five penthouses was that which she contended was fixed by clause 13 of the Deed of Priorities. Although in terms the date 7 September 2002 was only fixed for the purposes of clause 12 of the Preliminary Agreement, which was expressly excluded from the incorporation of the terms of the Preliminary Agreement into the Introduction Agreement, Miss Ife, submitted that, as Meretz was a party to the Deed of Priorities, it was unrealistic not to find that the period agreed, as she contended, as a reasonable period as between Britel and ACP, for completion of the five penthouses, was not also the reasonable period for the building of the five penthouses as between Meretz and ACP.
The availability to ACP of finance as at about 26 October 2001
“Having lost ASH’s involvement, ACP’s parent company, First Penthouse Limited, sought alternative funding and decided to undertake in May 1997 a private placement of shares. Unfortunately…..the capital raised became insufficient. ACP then tried to obtain bank finance. We talked to all of the major banks in London. None of them were interested, however….”
In his witness statement he gave reasons for the difficulties in raising finance to which I think it is unnecessary to refer. Copies of various letters written by First Penthouse to banks in 1998 seeking funding for the carrying out of the Project were put in evidence, along with some replies. I am satisfied in the light of Mr. Olsson’s evidence and the documentary material put before me that ACP’s parent company did indeed make substantial efforts to obtain bank finance for the Project. How those efforts ultimately bore fruit was explained at paragraph 20 of Mr. Olsson’s witness statement dated 28 November 2001:-
“….For the reasons outlined above, finance for this development has been extremely hard to come by. It took almost a year to finalise arrangements with NatWest (concluded in May 2001) and it was a condition precedent that to supplement the NatWest borrowing, top-up finance from Living Capital should be available. NatWest was only prepared to make available the limited sums stipulated in the facility letter, subject to the involvement of Living Capital. Neither of these borrowing arrangements are on normal commercial terms. In particular, the Living Capital facility attracted a 10% set up fee, 10% interest, fees of £3,600 per month and an option to buy 10% of the parent company at a discount. Had we been able to increase the NatWest facility, ACP would of course have done so, in order to minimise the more expensive monies/liabilities to Living Capital…”
“Further to our various conversations I would hereby like to confirm that there will be up to £500,000 available as additional financing from Living Capital Ltd., should this be required to complete First Penthouse’s development at Albert Court, which is being financed by NatWest….
We can, for example, envisage supporting the project in an interim phase before the next penthouse is in place. Whilst you require a penthouse to be in place to extend the funding we would be prepared to do so on the basis that you will undertake to fund the project once the penthouse is in place, and in case you decided not to that relevant security would be transferred to Living Capital.
As we have shown in the past we have been committed to supporting this project to completion and will continue to be committed. However as you are also aware funding through Living Capital is not ideal, due to the cost associated with such funding both to First Penthouse and Living Capital relative to funding from NatWest. We are therefore also committed to minimising the financial support required from Living Capital.”
“This support will cover the following areas:
a) A design-lead project; appointing and working with an appropriate designer “name” for one of the penthouses to be speculatively built for the very top end of the fashion conscious market. This would also involve marketing and promotion to this segment. This also includes appointing, monitoring and working with relevant advisors, e.g. designers, PR consultants and agents.
b) Providing support within financial control and financing. This includes monitoring cash flow development and profitability as well as developing a long-term financing strategy. The latter will involve dealing with relevant parties such as financiers and banks to realise such a strategy and working on a solution to simplify the current ownership structure.
c) Assisting in developing new business opportunities.
d) Depending on the availability of time LC would also look further into strategic issues facing FP in the future which require analysis and attention, such as reducing costs and developing the brand.
3. Right of first refusal on penthouses A and D
LC will also have a first right of refusal on any sale of penthouses A and D….
4. Potential future equity participation in FP
For 6 months after completion of the last penthouse at Albert Court LC will have the right to acquire or convert into equity participation in FP equivalent to 10% after full dilution of preference shares. FP and Hakan Olsson will guarantee that LC is able to acquire such a stake for £200,000 by one of the following means…”
Although it was, perhaps, implicit in Mr. Olsson’s description in his witness statement dated 28 November 2001 of the terms of the loan from Living Capital Ltd. that the management and consulting support services referred to in the Living Capital Ltd. letter of 16 March 1999 were somewhat notional, no evidence was led as to what, if anything, Living Capital Ltd. did by way of providing management and consulting services.
“60% of the total apportioned Albert Court development costs for each unit.
The purpose of that loan was said in the Finance Terms to be “To retire Documentary Credit liabilities under the facility detailed above and re-finance development costs”. The rate of interest charged was 2.5% above the base rate of NatWest and provision was made for an additional fee of 1.25% “ of the sum drawn in the event that loan funding for any particular development is increased above the amount of the letter of credit and/or with the benefit of a pre-sale agreement”.
The on-going conditions included an overall limit on the amount of borrowing at any one time of £1,500,000.
“5.10 I have been provided with the latest set of financial statements for First Penthouse filed at Companies House for the year ended 31 December 2001. Significantly, note 15 to the accounts indicates that “B” and “C” preference shares are redeemable on 15 May 2002 at the prices of £2.949 and £4.30 respectively. There are 14,130 “B” preference shares and 360,000 “C” preference shares. This would mean that there is a liability arising for the company on May 15 2002 in the amount of £1,589,669.
5.11 As at 31 December 2000, First Penthouse was showing net liabilities of £330,133. It is unsurprising therefore that note 24 to these accounts states the following:
“Going Concern: The financial statements have been prepared on a going concern basis, the validity of which depends on the ability of the company to replace the finance provided by the “B” and “C” Preference Shares, which are redeemable as stated in note 15 at prices of £2.949 and £4.30 respectively, on 15 May 2002.
5.12 In addition, the audit report attached to the financial statements contains the following paragraph:
“Fundamental Uncertainty: In forming our opinion, we have considered the adequacy of the disclosures made in the financial statements concerning the redemption of the Preference Shares. The financial statements have been prepared on a going concern basis, the validity of which depends upon finance being available for this redemption.”…
5.16 According to the accounts of ACP as at 31 December 2000, ACP owed monies to its parent company amounting to £2,425,628….
5.17 In order for First Penthouse to attempt to pay the preferential share creditors, it would necessarily need to call on the monies owed to it by ACP, on the basis of the financial information available thus far. It is absolutely clear from ACP’s cashflow forecast as at 8 November 2001 that it would not be able to repay First Penthouse the monies due. Even without taking into accounts additional factors discussed below, the cash flow in May 2002 shows funds being held of £15,153. Clearly, ACP would not, therefore, have the funds available to meet the liability of over £2 million to its parent. Not only would the project need to be abandoned due to cash shortages in May 2002, but also ACP would surely follow its parent into liquidation.”
“I confirm that as far as I am aware (and after having made enquiry of ACP) the only assets available to ACP are the Development Lease granted to it in respect of the Penthouse Development at Albert Court and as shown on the cash flow referred to as an exhibit to my First Witness Statement [that is to say, the Cash Flow] and the monies shown on the Financial Statement referred to as an exhibit to my Second Witness Statement.”
“…I am aware that the vast majority of the preference shareholders of First Penthouse are unlikely to take steps prejudicial to the company’s position, since this would be self-defeating from the point of view of the First Penthouse Shareholders/Investors. Consequently I do not believe that there is any real risk that the parent company’s preference shareholders will either ask for their money back or force First Penthouse into liquidation at that stage. My understanding is that the Shareholders will instead convert to become ordinary Shareholders.”
Mr. Olsson told me in evidence, and I accept, that matters have come to pass as he anticipated in that passage.
“Mr. Stern has informed me of various factors, which have come to light after October 26 2001, which would have a significant effect upon the cash flow forecast, were they known at 26 October 2001.”
The matters there set out are all things which occurred after 26 October 2001. There is thus no question of these being matters which ought to have been disclosed to Meretz or matters which indicate that the Cash Flow when prepared was unrealistic. Rather they are matters which indicate that the projections in the Cash Flow have turned out to be incorrect in some respects. Taken together they indicate that from the point of view of ACP the profitability of the whole Project may well prove to be marginal, but not that it cannot be completed for financial reasons. The matters listed at paragraph 5.22 of Mr. Burns’s report are really no more than illustrations of the unsurprising fact that forecasts can be wrong.
Were Meretz and Highdorn, or ought they if acting reasonably to have been, satisfied as at 26 October 2001 that all five penthouses would be built by 7 September 2002
“They have been unable to give us the contractually promised bank guarantees (performance bonds) and they have not been able to place orders for materials needed to start manufacturing of Penthouse A in August.
Negotiations between the owners of Modulent and the owners of a Finnish manufacturer regarding a merger has [sic] been going on for the last 6 months but this solution seems more and more unlikely….
We were unable to accept any more delays and to protect our position we had to terminate the Albert Court contract with Modulent two weeks ago. We agreed to try and agree the outstanding financial issues within a week with an aim to then agree a new contract for the remaining penthouses at Albert Court but their management and lawyers were unfortunately too busy trying to secure the merger so this failed….
Meanwhile however, we have to accept a 4 month delay and turn bad into good.
We have agreed in principal with LB-Hus who have a factory with spare capacity not far from Modulent in which we will manufacture in partnership. This means in short that we will rent factory space and craftsmen with our own manager in the factory. The great benefit is that we will be able to have our modules built exactly the way we want, have them completed to 100% and truly tested in the factory, without fuss. Modulent shipped too early, causing delays on site. This is our great chance to finally be able to reach all the way and have full control of a complicated and high tech process, without owning our own factory.
We will structure the deal and draw up head of terms during July with the aim to have a contract signed and materials ordered in August, manufacturing drawings completed during September and October, last fine tuning of the TCC (Time & Cost Control) plans in November, manufacturing December to March and installing 1 April 2002. Hopefully, Penthouse D will follow in May. ”
“The module manufacturers for Albert Court recently escaped receivership and while matters are now in hand these events have caused delays to our schedule and the installation of Penthouse A has been put back to Summer 2002.”
“Now that the contract for the sale of the above penthouse has exchanged, it becomes necessary for us to agree the manner in which the proceeds will be applied.
In this connection – and on behalf of Meretz Investments NV – I consider it appropriate to remind you of the contractual provisions affecting the matter.
Pursuant to paragraph 6(b) of the Introduction Agreement of 7th March 1996 between ACP Ltd. and Meretz, ACP undertook to pay to Meretz “70% of such net sale proceeds between £5.4 million and £6 million”.
The sale of Penthouse C will bring the net sale proceeds to well above £7 million.
Clause 6.2 of the Deed of Priorities and Further Charge entered into between FP and other parties on 20th April 1999 provides, in 6.2(A) that, under certain circumstances, the payment due to Meretz
“arising from the sale of the first 3 penthouses shall be added in equal shares to the amounts additionally payable to Meretz on the sales of the 4th and 5th penthouses respectively.”
However, clause 6.2(D) provides that ACP’s ability to defer in this manner the payment due following the sale of the 3rd penthouse:
“shall only apply if the mortgagor has demonstrated to the reasonable satisfaction of Meretz and Highdorn Co Ltd that all 5 penthouses will be built within a reasonable time scale.”
It, therefore, becomes necessary to examine what the parties had in mind when referring to “a reasonable time scale”.
The Preliminary Agreement of 7th March 1996 provided in paragraph 12.2.5 that all works in respect of the Project had to have been completed “by no later than 54 months from now”, i.e. 7th September 2000.
The Deed of Priorities and Further Charge of 20th April 1999 amended in clause 13 the time frame of the Preliminary Agreement and extended the deadline in paragraphs 12.2.4 and 12.2.5 of the Preliminary Agreement by a further 2 years, i.e. to 7th September 2002.
It is noteworthy that, although the Deed of Priorities of 20th April 1999 became superseded 2 years later by a further Deed of Priorities entered into with National Westminster Bank, the overall completion deadline – as set out in paragraph 9.2 – remains 7th September 2002. (An extension was required by ACP only in respect of the completion of lifts and staircases which deadline become [sic] extended to 7th July 2002.)
On the basis of the above analysis, I conclude that the outside date that can be deemed “a reasonable time scale” for the completion of all 5 penthouses is 7th September 2002.
Meretz must, therefore, ask itself whether it can be reasonably satisfied that all 5 penthouses can be completed by that date.
The only information Meretz has available in this respect is your letter to me of July 12th 2001 in which you informed me – after discussing the severe financial problems of Modulent’s parent company – that you intended to install penthouse A on 1st April 2002 and added “hopefully, Penthouse D will follow in May”.
Unfortunately, on August 31st, you sent a circular letter to all occupiers of Albert Court in which you informed them that “the installation of Penthouse A has been put back to Summer 2002”.
Although “Summer 2002” sounds fairly vague, I presume it means July/August 2002.
If that interpretation be correct, Meretz cannot be “reasonably satisfied” that Penthouse D will be completed – and all other works finished – by September 7th 2002.
Accordingly, I would ask you to accept his [sic] letter as formal notice by Meretz Investments NV that £420,000 (being 70% of the difference between £5.4 million and £6 million) will become payable from the sale proceeds of Penthouse C to Highdorn Co Ltd, Meretz’s mortgagee.”
“I am sorry that our meeting on Friday proved pretty pointless as you had not read prior to our meeting my letter to you of October 11th and had not refreshed your mind about the various contractual provisions which define ACP’s obligations in relation to Penthouse C.
We agreed to meet again on Wednesday. In the meantime, the purpose of this letter is to make three points:-
1. You tried at our meeting to bring up again the “red herring” of Britel/Meretz being partly responsible for ACP’s delays.
I reminded you that paragraph 3 of the agreement of October 15th 1999 specifically provides:-
“ACP hereby waives and releases all claims against Britel and Meretz arising from alleged delays in executing the Lease.”
You reported to me that you remembered the subsequent delay in relation to our settlement of the dispute with the management company which also impacted on your operations.
I have now verified that the Settlement Agreement with the management company was signed on the 29th October 1999 – precisely a fortnight after our agreement on October 15th.
The only agreement between us that bears the date of the year 2000 is the Nat West Deed of Priorities – which of course has no value whatsoever on the subject matter of delays.
2. I decided to have a word with Richard Shaw, who actually represented Britel/Meretz in the discussions that led to the signature of both the First Deed of Priorities on the 20th April 1999, our agreement of October 15th 1999 and the Settlement Agreement with the management company of October 29th 1999.
Richard told me that I was wrong in suggesting in my letter to you of October 11th that “the outside date that can be deemed “a reasonable timescale” for the completion of all five Penthouses is 7th September 2002”.
He made to me the simple point that if a “reasonable timescale” for the completion of all five Penthouses is 7th September 2002, then article 6.2(B) of the First Deed of Priorities would simply have had a cross reference to article 13.2.
Richard informed me that the “reasonable timescale” was based on your statement that, following the settlement with the management company, you would erect the third Penthouse within six months and the fourth and fifth Penthouses at maximum intervals of six months each.
Correspondence from you in fact shows that C was initially intended to be hoisted onto the roof in July 1999 and only subsequent delays caused it to be postponed until October 1999.
Thus, going back to the intent of the parties as expressed in the Deed of Priorities, a “reasonable timescale” would have meant 18 months from the 29th October 1999, which is the date on which the Settlement Agreement with the management company was signed.
This means tht [sic] the fifth Penthouse should have been completed by May 2001.”
“As you know we have secured bank finance via NatWest and further (although more expensive) finance if needed via Living Capital, in total maximised to £1,500,000 to enable us to complete the project. The proceeds from the sale of penthouse C for £2,000,000 and the imminent exchange of contracts for the pre-sale of penthouse A for £2,800,000 will of course further secure that enough funds are available. We therefore believe we have demonstrated more than enough that we have the financial resources to complete the project within a reasonable time scale. It is also our aim to do so. The reason for clause 6.2 of the Deed of Priorities, making it possible to defer the “Meretz” money, was of course to assist us financially to complete the project. Our financiers are well aware of these facts and the ramifications of you trying to change what has been agreed.
We have completed our negotiations with Finndomo (the new owners of Modulent) and are ready to enter into a contract for manufacturing of the remaining penthouses. The most crucial material has already been delivered to the factory for penthouse A and the design for A is 90% complete and for D 25% complete. Penthouse A is scheduled for installation in May and penthouse D in July next year.
The delay that I referred to when we met last Friday, was the delay that you and related parties caused to the sale of penthouse E by dragging your feet in relation to the transfer of the freehold (with a financial effect on both us and Modulent). These delays should of course be taken into account but we believe that even without that, we will be able to complete the project within a reasonable time scale. The reason we said summer 2002 to the tenants was to allow for some flexibility taking into account the re-design required in connection with the pre-sale of penthouse A but also the risk that you could still cause problems. It turns out we were right to do so.
Should it come to the attention of our financiers that Willy Stern can still cause problems, I am sure that the finance that we have fought so long for will no longer be available. Should this happen, the project is dead! Should we not be able to agree on this on Wednesday when we meet, we urgently need to call for a meeting with representatives from Freshwater, CHAPS and the Management Company. Hence, I am sending copies of this fax to Robert Hedden and Gary Lever.
Because of your faxes that are clearly indicating problems, it is not possible for us to enter into the contract for the pre-sale of penthouse A., nor place an order for the manufacturing of the remaining penthouses until we have your confirmation that the Meretz money can be deferred as agreed. We had planned to place the order for manufacturing immediately after exchanging contracts for the sale of C. You are now delaying the project and we are likely to loose [sic] the purchaser for A and any costs therefore will be deducted from future proceeds. Please remember that a one-week delay in placing an order can move the available slot in the factory by several months. I have been in contact with Finndomo and they have indicated that this risk is real. They have many new orders coming in and if a contract is not in place very soon, there is a risk for a two month delay.
You also indicate that you will cause further problems by resisting the completion of the sale of penthouse C, should we not agree to pay now the payment that has been agreed to be deferred. As I am sure you understand, should you succeed, NatWest are likely to foreclose.
I need some very exact answers on Wednesday.”
“I refer to your recent exchange of correspondence with Hakan Olsson and you will be aware that I have been asked to make myself available for a meeting later this afternoon.
I do not propose to write at length at this juncture. I think, however, that it may be helpful if I were to make the following points.
1. You will be aware of the various difficulties which my clients have experienced over the years in obtaining bank finance, prior to the current arrangements being concluded in May with National Westminster Bank Plc. This was only possible after various previous problems had been overcome.
2. My clients had requested (following the deal with Varlet relating to Penthouse B) an uplift in the threshold of £1,500,000 for funding, but this was resisted. My clients explained (and indeed you accepted) at the outset and subsequently that the lower threshold had originally been settled on the premise of the Penthouses being constructed and sold one at a time, on a “rolling programme”, with part of the proceeds effectively re-invested in financing part of the costs for the next Penthouse.
3. There is an aspect as to the value of deductions (for “extra-qualities/higher specification) which needs to be taken into account before the precise figure for the “net sale proceeds” attributable to the current transaction of Penthouse C can be calculated. You have agreed the principle of this, subject to the additional costings being quantified (and I am awaiting further instructions as to these figures from ACP).
4. My clients are, of course, making arrangements (consequent upon completion) to make an appropriate payment of 35% of the net figure to NUBBH. It is evident that this payment will be in excess of £600,000 (and National Westminster Bank are aware of this liability requiring to be discharged).
5. Under the terms of the Introduction Agreement with Meretz, it was made clear that the “commission payment” would be payable consequent upon the sale of the last Penthouse.
6. The arrangement was varied after further discussions in conjunction with finalising the terms of the multi-partite Deed of Priorities. You accept in your letter to my clients of the 11th October that an “accelerated” payment to Meretz (and thence onto Highdorn/Mr. Freshwater) would only be triggered in certain circumstances, but not if my clients could show that matters were in hand as to the remaining Penthouses being constructed.
7. All relevant parties were, I believe, sent copies of the terms of finance on offer from National Westminster Bank Plc, in conjunction with the arrangements for the conclusion of the current Deed of Priorities, linked with arrangements for the construction of the remaining two Penthouses (A and D).
8. I believe that it is “common ground” that it has taken a great deal longer for the sale of Penthouse C to be achieved than was initially hoped for and, indeed, this has only been possible after a price reduction and further incentives offered/demanded.
9. My clients are presently seeking to conclude arrangements for the presale of Penthouse A but in order to achieve this they need to ensure that ongoing finance is available, both for Penthouse A and also Penthouse D.
10. The proper construction of Clause 6.2 of the Deed of Priorities relating to the demonstration to the reasonable satisfaction of Meretz and Highdorn as to the construction of the 4th and 5th Penthouses (within a reasonable time scale) has to be assessed at the time when the transaction giving rise to a potential payment is triggered – that is to say, at this juncture, rather than when the Deed of Priorities itself was executed over two years ago.
11. I note that you have chosen only to raise this particular question consequent upon exchange of Contracts with Mrs. Orbach. You indicated prior to that point, both orally and in correspondence, that you wished the sale (both in terms of exchange and completion) to go ahead speedily. In particular, it is imperative that the Deeds of Discharge which I have prepared and circulated are returned to me in time for completion next Tuesday.
12. It is, of course, my clients position that patently arrangements are currently in hand for the remaining two Penthouses to be built within a reasonable time scale from now. Quite apart from this, my clients’ cash flow will simply not allow this.
13. Accordingly, no liability to make a payment to Meretz (or Highdorn) arises at this stage.
14. In the event of any disagreement in this regard, my clients are apprehensive that this can only prejudice their ongoing finance arrangements with National Westminster Bank Plc (which took such a great deal of time and care to put in place) and hence the project as a whole.
I imagine that I will be reiterating these points (if necessary) when we meet. I trust that, upon reflection, you will be content to accept (however) the validity of the foregoing points.
This will then facilitate not only completion for Penthouse C but also safeguard the proposed arrangements relating to Penthouses A and D, hopefully to the benefit of all relevant parties. ”
“If you want to refer in any way to Nat West’s position in relation to the problem we are going to discuss this afternoon, it would be useful if you would bring along a copy of the accepted Nat West offer letter, together with a copy of any documentation that may have altered the initial terms.
I want to make clear that the Nat West financing is strictly your business and I am putting the above thought to you as a suggestion only. What I cannot have is to have you refer to “Nat West will do this, that or the other” unless I have before me the documentation relating to their loan.”
“You indicated that your clients had no particular issue with mine, but were aware that there was an unresolved aspect with Meretz, with regard to a potential entitlement in the sum of £420,000 (representing 70% of the aggregate net sale proceeds between £5.4 and £6,000,000).
My clients’ position is that this prospective entitlement does not fall due for payment yet, on the basis that they will certainly account to Meretz/Highdorn Co Limited for the same, but payable (less certain advance or pre-payments already made) as to 50% following completion of the sale of fourth Penthouse and the balance consequent upon the sale of the fifth Penthouse.
This is the procedure envisaged under the previous Deed of Priorities (as I explained to you when we spoke over the telephone yesterday afternoon) on the basis that my clients are in a position to reasonably satisfy your clients and Meretz that arrangements are in hand to build out Penthouses A and D within a reasonable time.
In this connection, certain queries have been raised by Mr. William Stern on behalf of Meretz. In particular, a request has been made for details as to (a) payments already made and (b) payments outstanding or due to be made in respect of the arrangements for the construction of Penthouse A. My clients have supplied further information as to relevant invoices in this connection. Mr. Stern has recently responded requesting some further particulars and my clients will no doubt be endeavouring to comply with the same…
I subsequently attended a meeting with Mr. Stern Mr. Hakan Olsson of my clients, during which (inter alia) Mr. Stern intimated on behalf of Meretz that arrangements should certainly proceed for the sale to be completed, whilst acknowledging at the same time that Meretz may require further information before they regarded themselves as being satisfied as to the on-going arrangements for my clients to construct Penthouses A and D.
It is, of course, my clients’ position that they are currently actively taking steps to proceed with the remainder of the project – Penthouse A, in particular (it always being envisaged that the Penthouse scheme would be progressed on a rolling programme). They are still endeavouring to pursue negotiations as to a pre-sale of Penthouse A but, irrespective of this, they have finance in place from the net sale proceeds of Penthouse C, coupled with back-up finance and funding from National Westminster Bank Plc.
Your clients will be aware of details in this connection, since details of the offer of finance were submitted on their behalf, prior to the latest Deed of Priorities being concluded in May of this year.
It therefore follows (I believe) that your clients must be deemed to be satisfied with the arrangements in this regard.
Further, I believe you appreciate that your clients’ rights arise under the terms of sub-charges under the original mortgage in favour of Meretz. This relates back, in turn, to the terms of an Introduction Agreement dated 7th March 1996….
In the event of Meretz maintaining an argument as to monies becoming payable at this juncture, my clients’ instructions are that this would be unreasonable and that Meretz would be in default of their obligations.
ACP currently require monies generated from Penthouse C in order to enable them to proceed with the remainder of the project. Their cash flow is such that a substantial payment in respect of Meretz/Highdorn’s entitlement at this juncture (which they do not accept is properly payable as yet) would severely prejudice their ability to finance the rest of the scheme.
As has been explained to Mr. Stern such a payment to Meretz/Highdorn has not been figured into cash flow/projections hitherto submitted by my clients to NatWest.
My clients have a very real concern that NatWest may simply “take fright” and withdraw the current facility (which is expressed to “on demand”). They fear that the bank will be reluctant to continue the relationship. In the event of a dispute or litigation materialising vis-à-vis Meretz (and hence your clients).
I hope that this will not arise. ”
“…they regard themselves as being fairly “neutral” and evidently propose to simply follow the stance adopted by Meretz….”
“I am, however, writing to you in connection with arrangements for the construction of Penthouse A.
My clients are currently negotiating with a prospective purchaser, in the hope of securing a pre-sale. Further news will follow in due course.
In the meantime, my clients have already made considerable progress in connection with requisite preparatory works relating to the construction of Penthouse A.
I have checked back on the terms of the bank facility letter and note that it is envisaged that finance would be provided by a combination of a Letter (or Letters) of Credit, coupled with stage payments referring to a proportion (60%) of the value of works undertaken, as certified by the Bank’s valuer.
I gather that my clients are likely to be in a position to request an initial draw down in respect of Penthouse A (once the works in question have been certified by FPD Savills) within the course of the next two or three weeks.
Could you please confirm the procedure to be followed, with a view to an initial advance being released.”
“Your comment [in the letter under reply] about your clients “cautious attitude” in relation to Nat West is not accepted. It was clear to me at our meeting of October 17th that Mr. Olsson had fundamentally misunderstood the nature of the facility Nat West had made available to ACP and was working under the mistaken impression that the facility could not be drawn against work in progress but only after the module had been hoisted onto the roof.
In any event, any delay in ACP’s ability to draw down the funds is entirely a matter for your clients as I found it quite incredible that Mr. Olsson had failed to put in hand the bank’s preliminary requirements which consisted of an acceptance of the building specifications by FPD Savills, coupled with Savill’s visit to the production facility in Sweden.”
In cross-examination Mr. Stern accepted that his view of the nature of the NatWest facility was incorrect and that it was he who had misunderstood it. However, it seems fairly clear from the terms of his letter dated 25 October 2001 that his view then was that ACP, if only it complied with the conditions precedent in the NatWest facility, was amply funded to get on with the completion of the Project.
“3. Notwithstanding completion of the sale of Penthouse C will achieve net sale proceed between 5.4 million and 6 million pounds in aggregate, and therefore a prospective entitlement of 70% thereof (amounting to £420,000) such monies do not properly fall due for payment at this juncture. My instructions on behalf of my clients are that payment to Meretz (hence to your clients) is to be deferred until the sale of the 4th and 5th Penthouses, split equally between such transactions……
4. My clients consider that they have demonstrated in a manner which should properly be regarded as to the reasonable satisfaction of Meretz and Highdorn that arrangements are in hand as to the construction of the remaining Penthouses (A and D) within a reasonable time frame from now.”
“1. Mr. James is mistaken in suggesting (in the second paragraph of page 2 of his letter) that answers (yet to be received) to the queries I have raised on behalf of Meretz in relation to the payments already made or due to be made in respect of the construction of Penthouse A will in and by themselves enable Meretz to be satisfied that “Arrangements are in hand to build out Penthouses A and D within a reasonable time”.
The reason I have raised these queries was because I questioned Mr. Olsson as to the cost of the modules in respect of A, as well as his expected total cost for Penthouse A. He indicated to me the cost of the modules to be £600,000 (which I found to be in line with expectations) and the total cost to be £1,500,000, which I found to be way above my expectations. You will appreciate that as Meretz’s entitlement is entirely dependent on net sale proceeds, ACP’s own costs of production are really none of our business but I nevertheless asked for the information simply because I found the £1.5 million figure incredible and also for the reasons set out in point 2 of this letter.
At the meeting attended at my office on 17th October by Mr. James and his client, I made it clear that the reason Meretz could not be satisfied that Penthouses A and D will be built “ within a reasonable time” is because:
(a) Every single date given by Mr. Olsson about when Penthouse B, E and C would be manufactured and subsequently hoisted onto the roof, proved to be erroneous.
Until October 1999, First Penthouse maintained – incorrectly in my view – that Britel Corporation (which at the time was the freeholder of the whole of Albert Court) was partly to blame for these delays. However, on 15th October 1999, First Penthouse entered into an agreement with Meretz which provided that “ACP hereby waives and releases all claims against Britel and Meretz arising from alleged delays in executing the Lease”.
Unfortunately delays in respect of Penthouse C – which was manufactured entirely during the year 2000 and was only ordered from the manufacturer after signature of the 15th October 1999 agreement – continued in the same manner as before.
Generally, therefore – and before coming to point (b) below – ACP is no longer credible in Meretz’s eyes in relation to completing its units “within a reasonable time”.
(b) An additional and very specific reason is the fact that Modulent – the factory which has manufactured Penthouses B, E and C – has become insolvent and in a formal letter written to me on 12th July 2001, Mr. Olssosn informed me that he has agreed in principle manufacturing arrangements with “LB-Hus” “a factory with spare capacity not far from Modulent in which we will manufacture in partnership”.
At the meeting of 17th October, however, I was advised that proposed arrangements are now to go back to Modulent who have been taken over by a Finnish manufacturer and are apparently again in a position to provide services to ACP.
Whatever the correct story is, the situation is sufficiently confused for Meretz to be entirely within its rights in saying that it is not – and cannot – be satisfied that Penthouses A and D will be built either “within a reasonable time” or, for that matter, prior to the absolute deadline of 7th September 2002 provided for in the latest amendments to the Development Agreement.
2. The reason why I did enquire as to what payments have already been made and are due to be made in relation to Penthouse A was in the context of my attempt to prove to Mr. Olsson that, on any view, he had adequate finance to build out A even after he paid over the £650,000 he owes to NatWest in relation to C, the circa £650,000 he has to remit to CHAPS and the £420,000 he has to pay to Meretz.
During our discussion I found out to my astonishment that Mr. Olsson incorrectly assumed that he could draw down the £865,000 bank facility accorded to ACP by NatWest in relation to Penthouse A only when the penthouse was already hoisted on the roof but not against work in progress.
I pointed out to Mr. Olsson that whilst he may have availed himself of the NatWest facility in respect of C only when in fact C had already been hoisted on the roof, the NatWest offer letter gave him the right to draw up to 60% of site costs against an FPD Savills’ certificate.
It unfortunately emerged at the meeting that although the NatWest offer letter was over six months old, Mr. Olsson had not taken the preliminary step of complying with the bank’s pre-conditions which consisted, inter alia, of an “acceptance of building specifications (visit by FPD Savills to production facility in Sweden)”.
At the meeting, Mr. Olsson instructed Mr. James to write to NatWest, which I note he had done by means of his letter of 18th October which has been copied to you. I do not attach any importance to the fact that the new person who has taken over at NatWest could not yet provide a definitive answer as I think NatWest’s offer letter speaks for itself and can undoubtedly be utilised once ACP will have complied with the pre-conditions laid down by the bank for drawdowns.
Mr. Olsson informed the meeting that he in fact had carried out a great deal of site work already in respect of A and that a further £100,000-worth of work would enable ACP to qualify for the 10% instalment payment due to be paid by the intending purchaser of A.
On the basis of this information, I put it to Mr. Olsson that he had available for A:
£200,000 of unencumbered proceeds from C
£865,000 NatWest facility
£140,000 5% deposit by the purchaser of A released upon exchange of contracts
10% on completion of sub-structure from £280,000 the purchaser of A
£1,485,000
Mr. Olsson went on to opine that although he may have enough funds initially, he may be short of funds towards the end of the construction of Penthouse A. It was at that stage that I asked him what is his projected on-cost for A and he promised to send me accounting data.
I expected to receive copy invoices relating to A but Mr. Olsson instead sent me a copy of his journal which merely showed the name of payees and the general heading of the purpose for which payments were made in relation to the whole development. I then wrote to Mr. Olsson on 22nd October (enclosed) raising a number of queries and to date have not received any answers to those queries.
3. The major argument Mr. Olsson advanced at the meeting of 17th October as to why he feels he cannot make the Meretz payment of £420,000 was because he had not included that payment into his cash flow projections to NatWest.
He went on to explain that he had circa £600,000-worth of creditors and that is why he wanted to use the Meretz £420,000 towards the construction of A.
Initially, I could see a glimmer of correctness in this argument in that NatWest might say to itself “If Meretz are not satisfied that A and D will be built out within a reasonable time, why should we be so satisfied?”.
On analysis, however, I formed the view that this argument was a red herring for two reasons:
(a) Once ACP repays to NatWest the £650,000 it borrowed in respect of C, whether it uses the balance of the funds to pay other creditors or Meretz is not of any concern or interest to NatWest.
(b) Pursuant to the terms of the NatWest facility, ACP warranted that it had a £500,000 stand-by facility from an outfit named Living Capital which in fact financed the build out of Penthouse C prior to the NatWest facility becoming available.
Mr. Olsson explained at the meeting that the Living Capital facility was expensive. That may be so but it does not alter the fact that, in objective terms – and especially with the benefit of the forward sale arranged in respect of A – ACP does have the means of building out A regardless and the payment of the £420,000 to Meretz now does not jeopardise the project.
4. I would like to add that my past experience with ACP supplying facts or data is such that, without exception, the data is incomplete and is forwarded much later than initially promised. ”
“My clients position has been made clear in previous correspondence with you. I would reiterate that my clients position is that in principle, they are prepared to follow Meretz’s position in relation to this matter. It seems quite clear to me that upon the correct construction of the Meretz charge and other agreements which have been entered into that your clients must reach agreement with Meretz. Indeed my clients are being helpful as otherwise your clients would not only have to negotiate with Meretz but in addition with my clients.”
“I have recently received a letter from your solicitor, Raymond James, a copy of which I attach, asking for confirmation of the procedure to be followed for drawing against our facility in respect of development costs on Penthouse A.
Natalia has spoken to him, but I thought it worthwhile to confirm this with you, although I am sure you are already aware of this.
The agreement we have at the moment is that we will advance 50% of the total development costs, initially by way of Letters of Credit, retiring this to a loan once the penthouse modules are actually in place and the Bank can effect a legal charge over the property. Our funding will “then” be increased to 60% of the total development costs incurred to date. The above is subject to the conditions precedent in our facility letter being met. Therefore as Raymond James implies, we will not be lending 60% of the value of the works undertaken thus far.
I hope this was evident to you as this has always been the basis of our support.
Additionally and as already discussed, our facilities were based upon the manufacturer being Modulent and therefore we will need to assess the new manufacturer when appointed and review their processes as before to enable us to re-issue our facility letter and I look forward to hearing from you in this regard.”
Mr. James commented on the Avery letter in his letter dated 26 October 2001 as follows:-
“You will see that the Bank’s approach is to proceed on the basis of an initial letter of credit, and then a further loan only after the Penthouse modules are actually in place.
This does, of course, reflect Hakan Olsson’s understanding of the situation, as reflected to you during our meeting during the middle of last week.
It is therefore apparent that finance will need to be made available in order to enable the Penthouse modules to be craned into place and that the bank finance is not on the normal commercial basis you hoped it might be, with stage payments being released against certificates along the way.
My clients have made it clear that the monies generated from the sale of Penthouse C need to be made available in order to enable the remainder of the project to proceed and their cash flow will not allow the payment to Meretz or Highdorn, at this juncture.
In this connection, I would draw your attention to the terms of an ancillary letter annexed to the “heads of terms” dated 15th October 1999 [in fact Letter C].
It is clear from this that Meretz accepted that payment of monies from Penthouse C in these circumstances would be deferred, under the terms of the previous Deed of Priorities.
With regard to my clients arranging for FPD Savills to visit the production facility in Sweden, the bank loan was eventually concluded in May of this year and you will be aware that it was shortly after that that it became evident that Modulent were in financial difficulties. My clients have since written to you to explain matters in this connection.”
“My clients’ instructions are that in accordance with the arrangements applicable between themselves and Meretz the remaining balance in the sum of £333,527.55 is to be paid as follows:
(a) £123,527.55 (representing the balance of the first 50% instalment of £210,000, after taking into account the foregoing) within 5 working days from the date of completion of the sale of the fourth Penthouse and
(b) the second instalment of £210,000 within 5 working days of the date of completion of the sale of the fifth Penthouse.
You may accept this letter as my firm’s undertaking on behalf of ACP Limited to pay such monies out of the sale proceeds accordingly (to Highdorn or as it may direct in writing).”
“I have discussed my views and the representations made to me by ACP from time to time with the directors of Meretz who have informed me that Meretz is not satisfied that ACP have demonstrated their ability to complete the development within a reasonable time scale. That was their view in October 2001 and has remained their view since then.”
Mr. Stern gave no details of to whom he spoke, when or exactly what was said. However, he was not challenged on this evidence and I accept it. It was in fact confirmed by the terms of Angela Harris’s reply to Mr. James’s letter dated 26 October 2001. That reply was in a letter dated 29 October 2001 which included this paragraph:-
“We formally reject your attempt to interpret these words [instructing Mr. James to hold the form DS3 to the order of Meretz] as requiring merely a confirmation on your part that you will pay over monies in the future when in fact we instructed our representative, Mr. William G Stern, to inform you that the conditions which would have permitted your clients to delay the payment in relation to the third penthouse are not present and that accordingly, Meretz Investments refuses to discharge its mortgage except against the simultaneous receipt of £420,000.”
Conclusion