England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		13th May 2010

Mr Justice Coulson:

1. INTRODUCTION

1. By a Claim Form issued under CPR Part 8, the Claimant ("Packman Lucas") sought orders for sale pursuant to r.73.10 in respect of:

a) Mentmore Towers (owned by the Defendant, Mentmore Towers Limited, "MTL") at a price of not less than £28,000,000; and

b) 21 Charles Street and 20 and 21 Hay Mews (owned by the Defendant, Charles Street Holdings Limited, "CSHL") at a price of not less than £15,000,000.

2. On 26^th March 2010, Ramsey J gave directions for the exchange of evidence and fixed the hearing for 6^th May 2010. By the date of that hearing, the parties had reached an agreement that, as a matter of principle, an order for sale was appropriate in respect of Mentmore Towers, although there was a dispute as to the minimum figure to be inserted into the order. The parties did not agree that a similar order was appropriate in respect of the Charles Street property.
3. At the hearing on 6^th May, I concluded that the appropriate minimum figure to be inserted into the order for sale for Mentmore Towers was £16 million. I gave oral reasons for that conclusion. In relation to the Charles Street property, I concluded that the right course was to adjourn the hearing until 11^th June 2010, although I made it plain that, but for a particular combination of circumstances, to which I refer below, I would have been minded to grant an order for sale in respect of that property too. I said that my reasons for that latter decision would be provided in writing.

2. THE BACKGROUND FACTS

4. Packman Lucas carried out work for MTL in connection with their proposal to turn Mentmore Towers into a luxury hotel, also involving the In and Out Club in London's Piccadilly. A substantial sum by way of fees was not paid and Packman Lucas sought and obtained adjudication decisions in their favour in respect of the outstanding fees. This sum too was not paid, and Packman Lucas sought to enforce the adjudicator's decisions in the TCC. On 3^rd August 2009 they obtained judgment against MTL in the sum of £187,285.11. That sum has still not been paid.
5. At the same time as carrying out work at Mentmore Towers, Packman Lucas also carried out work for CHSL in connection with a town house (and associated mews houses) in Charles Street, Mayfair. CSHL is controlled by the same trust that controls MTL. Again, Packman Lucas' fees were unpaid and again they successfully obtained a decision in their favour in adjudication. Again, on 3^rd August 2009, they obtained judgment in the TCC against CHSL in the sum of £23,840.93.
6. On 16^th October 2009, as a result of the continuing non-payment of these two sums, final charging orders were made against the defendants by Akenhead J. Those final charging orders related to Mentmore Towers in Buckinghamshire and 21 Charles Street and 20 and 21 Hay Mews, London. By this stage, the total debt was £190,201.67 together with £2,981.26 by way of costs on Mentmore, and £24,222.38, with costs of £2,981.26, in respect of the Charles Street property. It is those charging orders which form the basis of the current application for orders for sale.
7. At the same time, MTL and two other related companies (Goodstart Limited and Anglo Swiss Holdings Limited) were defendants in a substantive action brought by the architects, Fitzroy Robinson Limited, also in connection with unpaid fees on the Mentmore and Piccadilly projects. In that action, I heard both the trial of liability and the trial on quantum^[1]. The upshot of those proceedings was that those three companies were found liable for about £1 million by way of unpaid fees. I also made certain orders for indemnity costs in Fitzroy's favour. Again, none of those orders have been met and Fitzroy obtained a final charging order in respect of Mentmore Towers, in a sum of just less than £400,000. It is for that reason that Mr Khayum appeared at the hearing for Fitzroy, who are an interested party.
8. There can be no doubt that the defendants in these proceedings, and the other two companies identified in paragraph 7 above, are in serious and contumelious default. They appear to have set their face against honouring their debts or complying with the numerous orders of this court made against them by three different TCC judges. In particular, I note:

a) their failure to pay professional fees as they fell due, and the failure to pay the sums ordered by the adjudicators;

b) their failure to pay the sums ordered by the court on 3^rd August 2009.

c) their default in making payment, which has caused Packman Lucas to embark on a round of applications for charging orders, and their failure to pay the costs of those applications, despite being ordered by the court to do so;

d) in the case of MTL, their belated and misconceived attempt to avoid the adjudicator's decisions by issuing court proceedings against Packman Lucas, without first complying with the decisions. As a result of that failed attempt, Akenhead J said in a judgment dated 9^th December 2009^[2], that he was satisfied that:

"…there is unreasonable and oppressive behaviour and some elements of bad faith involved in the claimants pursuing these claims without first honouring the adjudicator's decisions (in particular) and the court judgments enforcing them."

MTL also failed to pay the costs ordered by Akenhead J in that judgment;

e) also in the case of MTL, their subsequent attempt to circumvent that judgment by then referring identical claims to adjudication, again without honouring the original decisions. They were restrained from continuing with those proceedings by Edwards-Stuart J. In a judgment dated 16^th March 2010^[3], he said:

"The current referrals are simply another attempt to circumvent the machinery and policy of the HGCRA. It is unreasonable and oppressive for the Defendants to be subjected to further proceedings by way of adjudication when the Claimants have still failed to honour the first awards and the subsequent judgments of the court. It is not enough for the Claimants to make, for example, offers to pay money into court, even if such payment were to be made tomorrow. The Defendants are and were entitled to have a cash award paid in cash. That is the purpose of adjudication."

3. JURISDICTION/PRACTICE

9. All parties were keen that the TCC should deal with these claims for orders for sale, and no jurisdiction or forum point was raised before Ramsey J made his order for directions, or subsequently. However, as I identified in an earlier case (Harlow and Milner Limited v Teesdale (No 3) [2006] EWHC 1708 (TCC)), there is a potential tension between r.73.10, which makes plain that an order for sale can be made by any division of the High Court, and paragraph 4.2 of PD 73, which notes that "a claim for an order for sale of land must be started in the Chancery Chambers". I concluded in that case that, whilst it will usually be appropriate to seek such orders in the Chancery Division, there will be occasions when it is both proportionate and sensible for orders of sale to be made by other divisions of the High Court.
10. In many ways, this particular claim is a very good example of what I had in mind in Harlow and Milner. An order for sale is an extreme sanction and, as the notes in the White Book at paragraph 73.10.1 make plain, "all circumstances would have to be considered". Given the long and lamentable history of both the Packman Lucas action and the Fitzroy Robinson action, all of which have been dealt with in the TCC, it is both sensible and cost-efficient for the TCC to deal with the claims for orders for sale. All the parties confirmed that this was the view that they too had reached.

4. THE ORDER FOR SALE/MENTMORE TOWERS

11. The parties were agreed that an order for sale was appropriate in relation to Mentmore Towers. They agreed the detailed provisions of the order, for which I am extremely grateful. The one point on which they did not agree was the figure to be inserted into the order as the minimum price to be achieved by any sale.
12. In their original draft, Packman Lucas had indicated that the minimum sum should be £28 million. However, at the hearing before me, they disavowed that figure; instead, the £28 million became the figure urged on me by MTL. However, in an affidavit provided the day before the hearing, the solicitor acting for MTL had indicated that the property was not worth more than £10 million. At the hearing itself, it was this figure of £10 million that was the figure on which Packman Lucas sought to rely.
13. The figure of £10 million was identified in a letter from Strutt and Parker to MTL's advisors, Buckingham Securities Holdings Plc, dated 29^th June 2009. The £10 million figure was said to be the result of a desk top assessment only.
14. The £28 million figure came from a report dated 24^th March 2010 prepared by Mr Connol Coan of Congreve Horner, on behalf of Packman Lucas. Mr Coan had identified a valuation bracket for Mentmore Towers of between £28m and £36m, but he stressed that his was also a desk top valuation and that, as he expressly warned, "much would depend on the decay following purchase". No evidence is available as to the internal condition of Mentmore Towers, so there is no reliable evidence as to the likely costs of refurbishment, but Mr Coan refers to those refurbishment costs as possibly extending beyond £10 million.
15. The court is therefore in an unsatisfactory position because there is no evidence as to the critical element of any valuation, namely the likely cost of repairing/refurbishing such a large and historic property. To a large extent, that is the fault of MTL, who have repeatedly refused to co-operate with Packman Lucas on all questions of valuation, and who have refused Mr Coan access for inspection purposes. I am faced with the almost surreal position that Packman Lucas now wish to rely on the evidence put forward the day before the hearing by MTL, whilst MTL wish to rely on the evidence put forward by Packman Lucas, which their own solicitor's affidavit suggests is wholly erroneous.
16. It seems to me that, when identifying the minimum sale price for purposes for an order for sale, the court should approach the issue on a relatively conservative basis. Since an order for sale takes the sale of a potentially valuable asset out of the hands of its owner, it is important to protect that owner from the risk of a fire sale which does not recoup the true worth of the asset. On the other hand, this approach cannot be taken too far, particularly where, as here, the absence of better information for the purposes of valuation is principally the responsibility of the owners themselves.
17. I consider that Strutt and Parker's figure of £10 million is likely to be the best starting point, if only because it comes from the owner's own valuers. It is not an unreasonable assumption that they know more about the internal condition than anyone else, and certainly more than Mr Coan. I must also note that the valuation is now a year out of date, and that property prices have generally improved over the last year. I also conclude that, given the size and iconic nature of the property, a figure of £10 million would appear to be unreasonably pessimistic.
18. In all the circumstances, starting at £10 million and working upwards for the reasons given, I have concluded that the minimum sale price should be £16 million. That is the figure to be inserted into the order for sale. As I made plain during the hearing, if it becomes apparent that this figure is wholly unrealistic (because it is either too large or too small) then both parties have liberty to apply to seek a revision of the figure.
19. In addition, I note that the figure of £16 million is more than sufficient to take account of the original loan from Barclays (in the sum of £10 million), together with whatever interest and bank charges may have accrued since the purchase; Packman Lucas' own charges of about £220,000; and the subsequent charge in favour of Fitzroy Robinson at just under £400,000.

5. THE ORDER FOR SALE/CHARLES STREET

5.1.The Issues

20. Packman Lucas seek an order against CSHL for the sale of the Charles Street property in the sum of £15 million. CSHL resist that order as a matter of principle, on the grounds that the judgment debt of £34,616.50 is too small, certainly in relation to the value of the property, to justify an order for sale. Further, it is said that there is evidence that the property is going to be sold imminently, and in such circumstances, it would not be appropriate to make an order for sale. I deal with those issues below.

5.2. The Size of The Debt

21. Earlier editions of the White Book^[4] contained the warning that "it would not be a proper exercise of discretion to make a charging order on an asset of substantial value in respect of a relatively small debt payable by the debtor". Authority for that proposition is said to be found in the decision of Simonds J in Robinson v Bailey [1942] 1 Ch 268. The most recent edition of the White Book, at paragraph 73.4.5, qualifies this passage by saying "it would not normally be a proper exercise of discretion…", although Robinson is still given as the relevant authority.
22. On a proper analysis, I do not consider that Robinson v Bailey is unequivocal authority for either of these propositions. That was a case which was concerned with the defendant's liability to make an annual payment of £50 per year, conditional on the continued life of the plaintiff. The issue was whether or not that, notwithstanding any breach or failure to pay, that future liability should be secured by a charging order on local loan stock worth in excess of £3,000. Simonds J said:

"I cannot conceive that it would be proper for the court, by reason of an apprehended future failure of the defendant to satisfy the terms of the judgment, to lock up so disproportionate an amount of his property to satisfy so small a debt".

23. In my judgment, the vital point in Robinson was that the plaintiff wanted to ring-fence £3,000 worth of stock, simply because of the defendant's liability to pay £50 a year in the future, in respect of which there had as yet been no breach. The size of the debt was a factor in the judge's reasoning, but it was not more than that, and it does not appear to have been the critical issue.
24. The other case to which I was referred on this point was Re:Goldspan Limited a decision of Mr Lesley Kosmin QC, sitting as a deputy judge of the Chancery Division, dated 29^th October 2001. This was also of little direct relevance. That is because, although the particular debt in question owed by Mr Patel was small (£1,410), the judge's principal finding was that the claimant proved that debt in the IVA agreed for Mr Patel and was therefore not entitled to a charging order in respect of that same sum. The issue as to the size of the sum involved was very much a secondary consideration, which only arose if the judge was wrong about the debt having been proved. Moreover, as Mr Vineall correctly pointed out, in relation to the claim against Mrs Patel, who was not the subject of the IVA, the judge concluded that this amount, despite its small size, should be included in the overall charge to be registered against her.
25. I consider that it is potentially dangerous for a court to identify any hard and fast rules that seek to link the size of the debt with the ability to obtain a charging order or an order for sale. Who is to say when a debt is "small"? A debt of £1,000 will mean very little to a large commercial concern, but for a small trader it might be the difference between bankruptcy and solvency.
26. Comparing the size of the debt with the value of the asset concerned is equally fraught with difficulty. The present case is a good example of that. CSHL say that an order for sale is inappropriate because they compare the debt of £35,000 odd against the value of the property, which may be more than £15 million, and rely on the disparity between the two. But that argument would not be open to them if the property in question was a modest house in a provincial town worth £250,000. So, if it were right, this disparity submission means that the greater the value of the asset (and therefore the greater the default on the part of the debtor in failing to realise any part of that asset to pay the debt), the greater the chance the debtor would have of avoiding a charging order or an order for sale. That offends against common sense.
27. In my judgment, the size of the debt, and its value relative to the debt, are matters which should be taken into account in the exercise of the court's discretion under CPR 73.10. But they are only two factors, along with the parties' conduct, the absence of any other enforcement options and the like, for the court to weigh in the balance. Beyond that, I do not consider that there are any rules or presumptions as to the size of the debt, or its comparative value, when dealing with an application for a charging order or an order for sale.

5.3. The Evidence as to a Possible Sale

28. CSHL failed to comply with the orders of Ramsey J and failed to provide any evidence at all until 5^th May, the day before the hearing. One aspect of that late evidence was the assertion by MTL's solicitor that, on 20^th April 2010, his firm was instructed to sell the Charles Street property, which had been valued at £26.5 million. He exhibited a draft of a sale contract which, he said, had been sent to the proposed purchaser. He asserted, although there is no independent evidence of this, that "surveyors have been instructed and the purchaser has been carrying out due diligence for the past 2 months. The purchaser has shown proof of funds."
29. I accept Mr Vineall's general criticisms of this evidenc: it is very light on detail. Furthermore, I also agree that this assertion needs to be considered against the background that, in earlier correspondence, CSHL's solicitors had said that an order for sale was not appropriate because a buyer had been found for the related property at The In and Out Club, and that this sale was imminent. It was said that this imminent sale would release funds to ensure that all the defendants' outstanding debts were paid forthwith. It appears that this promised sale has not happened, and the up-to-date evidence is that bidders for the different parts of the In and Out Club are now being invited to resubmit their bids. Contrary to the earlier letters from CHSL's solicitors, therefore, the sale of that property seems some way off.
30. All of that said, there is no doubt that the possibility of an imminent sale of the property at Charles Street has been identified in the evidence and that is inevitably a matter to which the court must pay particular attention when deciding whether or not to cut across that arrangement, and potentially undermine it, by making an order for sale.

5.4. Conclusions

31. Taking all of the above points into account, I have concluded that it would not be appropriate, at this stage, to make an order for sale in respect of the Charles Street property. As I explained to the parties at the hearing, if the only point had been the relative size of the debt when compared to the value of the property, I would not have been persuaded that an order of sale was inappropriate. On the contrary, given the very unhappy history of this matter, the defendants' intransigent conduct, and the absence of other enforcement options, I would have concluded that Packman Lucas were entitled to an order for sale, notwithstanding the apparent disparity between the debt and the value of the property.
32. However, the possibility of an imminent sale, when taken together with the disparity point, has led me to conclude that I ought not to make an order for sale at this stage. As I made plain at the hearing, it may very well be that an order for sale will be an appropriate step in the near future, but I ought to grant CSHL one final opportunity either to pay the outstanding sums or to realise their own sale of the property. Accordingly, I adjourned the application for an order for sale in relation to the Charles Street property until 11^th June 2010.
33. At that hearing, the up-to-date evidence as to the potential sale can be considered. If the sale has happened by then, the hearing will be otiose. If it has not, but it is genuinely imminent, then an order for sale is unlikely to be made. But if the possible sale has fallen through and no other such sale is imminent, then it may very well be that it would be appropriate to make an order for sale on that occasion.
34. Finally I should express my thanks to Mr Vineall and to Mr Healey for their clear and measured submissions on these interesting issues.

Note 1   Judgment on Liability: [2009] EWHC 1552 (TCC); Judgment on Quantum: [2010] EWHC 98 (TCC)    [Back]

Note 2   [2009] EWHC 3212 (TCC)    [Back]

Note 3   [2010] EWHC 457 (TCC)    [Back]

Note 4   Certainly this text can be found in the White Book for 2001    [Back]