ON APPEAL FROM THE CHANCERY DIVISION
HH JUDGE WEEKS, QC
HC04C01289
Royal Courts of Justice
Strand, London, WC2A 2LL
Before:
LORD JUSTICE CHADWICK
LORD JUSTICE WALL
and
LORD JUSTICE MOSES
Between:
REDWELL INVESTMENTS LTD | Appellant |
- and - | |
1-3 CUBA STREET LIMITED | Respondent |
Mr Michael Barnes QC and Mr Paul Downes (instructed by Messrs Maclure Naismith of Poultney Hill House, 6 Laurence Poultney Hill, London EC4R 0BL) for the appellant
Mr Jonathan Gaunt QC and Mr Alan Maclean (instructed by Messrs Davies Arnold Cooper of 6 Bouverie Street, London EC4Y 8DD) for the respondent
J U D G M E N T
(As approved by the Court)
Crown copyright
LORD JUSTICE CHADWICK:
This is an appeal from an order made on 20 April 2005 by His Honour Judge Weeks QC sitting as a Deputy Judge of the High Court in the Chancery Division in proceedings brought by Redwell Investments Limited (“Redwell”) against 1-3 Cuba Street Limited (“Cuba”).
The proceedings arise out of the purchase by Redwell in 1999 of a tenanted property in the docklands area of London, known as the Westferry site, and the contemporaneous sale of part of that property – known as 1-3 Cuba Street (“the Cuba Street property”) – to Cuba, a company formed or acquired for that purpose.
The purchase price for the whole of the Westferry site was £3.5 million. That price was payable by Redwell to the vendor, Real Estate and Commercial Trust Limited (a subsidiary of Slough Estates Limited), under a purchase agreement dated 18 February 1999. The purchase price for the Cuba Street property was £650,000. That price was payable by Cuba to Redwell under a purchase agreement dated 5 March 1999. That agreement incorporated the Law Society’s Standard Conditions of Sale (3rd Edition) (“the Standard Conditions”). Completion under each of those agreements was due on 25 March 1999.
Completion did not take place on that day. Completion in fact on the whole of the Westferry site – including the Cuba Street property - took place on 30 March 1999. I put it in that way in order not to appear to pre-judge Redwell’s contention that what occurred on 30 March 1999 was not, in law, completion for the purposes of the agreement of 5 March 1999. The site comprised registered land. The transfers of that land executed by Real Estate and Commercial Trust Limited on 30 March 1999 included a transfer of the Cuba Street property to Cuba.
Part of the purchase price payable by Cuba to Redwell in respect of the Cuba Street property under the purchase agreement of 5 March 1999 (£162,500, being 25% of the full price, £650,000) was left unpaid and outstanding. The balance, £487,500, was provided from funds derived from three sources: (i) £267,500 was provided by a loan made by Leopold Joseph & Sons Limited, a private bank, to Cuba; (ii) £57,500 was found from monies lent by Redwell to Cuba and (iii) the balance was provided by investors, who subscribed for shares in Cuba. The loan of £57,500 from Redwell to Cuba was agreed at a late stage in the transaction and in response to a late decision by Leopold Joseph to reduce the amount of the funds which it was prepared to lend Cuba. Redwell – which had an existing facility with that bank – drew funds under that facility which it lent on to Cuba.
At the time of the purchase in March 1999 Redwell was a joint venture company owned and controlled as to 50% by two brothers, Geoffrey and Leo Simon (through a company, Longstaff International Limited, which they owned) and as to the other 50% by Roger Lewis, a surveyor, and Nicola Evans, a solicitor. Mr Lewis and Ms Evans were married to each other. Cuba was owned as to 75% by outside investors – who, as I have said, had subscribed for shares – and, as to the remaining 25%, equally by Longstaff (on the one hand) and by Mr Lewis and Ms Evans (on the other hand).
In October 2000, or thereabouts, the joint venturers fell out. That led, after some litigation, to a compromise arrangement under which Redwell became wholly owned and controlled by the Simon brothers and Cuba came to be owned (at least in part, and to the exclusion of the Simon brothers) by Mr Lewis and Ms Evans.
Redwell made demand for the repayment of the loan (£57,500) and for payment of the outstanding purchase monies (£162,500) on 11 February 2004. These proceedings were commenced by the issue of a claim form on 15 April 2004. The claim was for “debt pursuant to a loan entered into by the claimant and the defendant between 22 and 30 March 1999 and a contract of sale entered into between the Claimant and the Defendant on 30 March 1999 being £220,000 with interest and costs”.
By the time the matter came on for trial, an amount in excess of the principal sum (£220,000) claimed had been paid by Cuba to Redwell. The dispute between the parties had reduced to two issues: (i) whether, in computing the amount due to Redwell, Cuba was entitled to deduct sums in respect of rent paid by the tenants of the Westferry site to which it was entitled under an agreement made between Redwell and Cuba on 26 March 1999 (“the rent issue”); and (ii) whether Cuba was obliged to pay interest on the outstanding purchase monies (“the interest issue”).
After a hearing of some five days, the judge decided both these issues against the claimant; and dismissed the claim. He gave permission to appeal to this Court from the whole of his order; on the basis that there was “just enough prospect of success”.
As the claim endorsed on the claim form had indicated, there were two distinct elements to the debt claimed (£220,000). The two elements were (i) the loan of £57,500 - lent by Redwell to Cuba for the purpose of enabling Cuba to fund the purchase from Redwell of the Cuba Street property - and (ii) the sum of £162,500 - being the balance of the purchase price left outstanding on the transfer, on 30 March 1999, of the Cuba Street property to Cuba. And there was a claim to interest at the contract rate specified in the purchase agreement of 5 March 1999.
I have already explained that Redwell was able to make the loan of £57,500 to Cuba by increasing its own borrowing under an existing facility with Leopold Joseph. It was common ground that it was expressly agreed at the time that the loan of £57,500 was made that Cuba would pay interest on the loan at the rate applicable from time to time to Redwell’s own facility. It was not suggested by Redwell that – save in so far as an obligation to pay interest could be found in the purchase agreement of 5 March 1999 – an express agreement had been made for the payment of interest on the outstanding purchase monies (£162,500). But it was Cuba’s case – and the judge so held – that there had been an express agreement that no interest would be payable on those monies.
On 21 May 2004 Cuba served notice that it admitted the claim to the extent of £226,580.05. It made payment to Redwell of that amount. The £226,580.05 was made up as follows:
Outstanding purchase monies £162,500.00
Loan £ 57,500.00
£220,000.00
Interest on loan of £57,500 for years to 30 September
2000, 2001, 2002 £ 15,646.07
Loan Interest paid to Leopold Joseph by Redwell
on behalf of Cuba £ 17,756.06
Contribution to purchase costs £ 1,118,90
£254,521.03
Less: Rent due £ 38,291.45
Share Capital £ 37.50 £38,328.95 £216,192.08
Add Further interest £ 10,387.97
£226,580.05
In its defence, as originally served on 21 May 2004, Cuba identified the deduction in respect of Rent due (£38,291.45) as:
“Sums payable by the Claimant to the Defendant, including rent, which were debited from the claimant and credited to the defendant in the inter-company loan account.”
After amendment, on 8 February 2005, that paragraph had become
“Sums paid by the Claimant to the Defendant pursuant to an agreement between the Claimant and the Defendant dated 26 March 1999 which were debited from the Claimant and credited to the Defendant in the inter-company loan account. ”
Cuba asserted, at paragraph 9b of the amended defence and as a positive case, that by 30 March 1999 it had been agreed between Redwell and Cuba:
“…that the balance of the purchase price would not be payable immediately and that interest would not accrue in respect of the balance of £162,500…”
And, further, at paragraph 12:
“Further or in the alternative, the Claimant is estopped from demanding alternatively retaining any interest on the said completion monies, or any part thereof. The Defendant has at all material times proceeded on the basis that the parties had validly agreed that the outstanding completion monies would be interest free. The Defendant avers that the Claimant proceeded on the same basis. The Defendant avers that it would be unconscionable for the Claimant now to resile from the agreement reached and obtain interest on the outstanding completion monies.”
The rent issue
The Westferry site (including the Cuba Street property) was purchased subject to an existing tenancy held under a lease dated 16 June 1960 and made between (1) Real Estate and Commercial Trust Limited (2) Viacar Limited and (3) Daymar Estates Limited. The rent payable under the lease was £112,000 per annum and there was provision for review with effect from the end of 1999. By an agreement dated 26 March 1999, made between Redwell and Cuba for the expressed purpose of “recording the terms of arrangement made between them in connection with the Lease”, it was agreed that the rent reserved by the lease should be apportioned. There should be payable to Cuba (i) £28,000 per year (apportioned for part of any year) with effect from completion of the purchase until the reserved rent was reviewed in accordance with the terms of the lease and (ii) with effect from the review date the greater of 25% of the amount of the reviewed reserved rent and £28,000 per year. The whole amount of the rent was, for so long as the Westferry site remained charged to Leopold Joseph, to be collected by Ms Evans’ firm - Miller Evans & Co, solicitors - and paid to the bank without deduction.
The rent received by the bank under that arrangement was credited to Redwell against the interest due on the loans. As between Redwell and Cuba the treatment of that rent was described by Mr Nigel Powell - a partner in the firm of Pyle Owen & Partners, consultant surveyors and property managers - in a witness statement dated 17 November 2004. Until April 2003 Pyle Owen were managers both of the Cuba Street property (on behalf of Cuba) and the remainder of the Westferry site (on behalf of Redwell). Mr Powell explained, at paragraphs 6 and 7 of his statement that:
“6. Pyle Owen & Partners were instructed to act as managing agents and bookkeepers for both 1-3 Cuba Street Limited and Redwell in October 2000 together with several other property companies previously managed by Roger Lewis Docklands Limited (“RLD”), the business established by Roger Lewis.
7. At that time, neither Redwell nor Cuba Street had their own bank accounts. Prior to Pyle Owen’s appointment Redwell’s funds were held in a client account maintained by the company’s solicitors, Miller Evans & Co, of which Nicola Evans was the principal. Upon Pyle Owen’s appointment, we opened several new client accounts. A general clients account in the name of Pyle Owen & Partners Clients Account Re – RLD Ltd. was opened to handle all the income and expenditure arising from the management of the various properties and separate client accounts for each property company were also opened, to deal with the book-keeping for each of them. The accounts relevant to this case were opened in the names of Pyle Owen & Partners Clients Account Re – Redwell Investments and Pyle Owen & Partners Clients Account Re – 1-3 Cuba Street. When Pyle Owen took over the book-keeping for Redwell and Cuba Street, there was already in existence in the records of the two companies, an inter-company balance account reflecting various transactions that had taken place between the two companies prior to our appointment. These comprised largely of the loan from Redwell to Cuba Street and balance of the completion monies referred to later in this statement. Until April 2003 they operated as part of the same group.”
Schedule A to Mr Powell’s statement shows a summary of the items which, together, make up the inter company balance of £216,192.08. Those are the items which I have already set out earlier in this judgment. With the addition of further interest (£10,397.97) they make up the £226,580.15 paid by Cuba on 21 May 2004. That further interest reflects a re-calculation of the interest payable on the £57,500 loan, applying a different rate of interest and extending the period of computation to 21 May 2004. The details are set out in schedules B and C to the statement.
Schedule A to Mr Powell’s witness statement shows, in particular, the items £38,291.45 (rent for periods between 24/06/99 and 24/12/00) and £37.50 (share capital). Mr Powell explained the position at paragraphs 13, 14, 16 and 17 of his statement:
“13. 99%.9 of the set off [£38,291.45/£38,328.95 x 100 comprised rent for the period 24 June 1999 to 24 December 2000 paid by Redwell to Cuba Street in respect of the premises at 1-3 Cuba Street under the terms of the Cuba Agreement dated 26 March 1999 [PAS1/52]. The other 0.1% related to the Share Capital. I refer to Schedule A to this statement, which sets out how the inter-company balance was comprised.
14. Under the terms of the Cuba Agreement, Redwell was liable to pay Cuba Street an annual rent apportionment of £28,000, subject to review in line with future reviews of Redwell’s lease with the occupational tenants, Viacar Limited.
. . .
16. It may be important to emphasise that the set off is not a claim for late payment of rent. Rather, the relevant credits to Cuba Street 16. It may be important to emphasise that the set off is not a claim for the standing in the inter-company account were there simply because of the method used for payment some years ago. The credits are a recognition of sums in effect paid by one company to the other. They are not an indication of Redwell’s remaining as a debtor of Cuba Street such as when a company’s accounts shows, for example, current assets as including debts owed to it and due to be paid within one year. In other words, the sums do not represent Cuba Street’s right to be paid .. . Rather, they reflect payments which were made by way of bookkeeping adjustments some time ago and the validity of which was never challenged by Redwell.
17. Prior to Pyle Owen’s appointment as managing agent of Redwell and Cuba Street, several quarters’ rent apportionment was paid by Redwell to Cuba Street by way of bookkeeping entries in the inter-company account of Miller Evans & Co. So a bookkeeping credit would be made to Cuba Street and a bookkeeping debit to Redwell when a rent apportionment payment was due and paid. No bank transfer was made, and no cheque was drawn.”
Mr Powell went on to say that the rent payments which were deducted from the admitted sum claimed were:
“. . . payments which were made by way of bookkeeping adjustments some time ago and the validity of which was never challenged by Redwell.”
Redwell argued before the judge that any sums – including sums in respect of rent apportioned under the agreement of 26 March 1999 – payable by it to Cuba had been waived by an agreement made between the parties on 4 February 2004. That agreement provided (so far as material):
“1.4 Cuba and Redwell entered into an agreement dated 26 March 1999 to regulate their positions regarding the Lease (the “Cuba Agreement”).
…
1.7 The terms of the Cuba Agreement do not reflect the commercial arrangements which Cuba and Redwell have agreed will operate henceforth in respect of the Lease and the Rent.
2. In consideration of the granting of a waiver and release by Cuba of all actions, claims, demands liabilities, costs, indemnities and counterclaims of whatever nature whether actual or potential, past, present future or contingent, known or unknown, collateral or otherwise arising against Redwell pursuant to the Cuba Agreement Redwell shall pay Cuba 25% of certain amounts recovered pursuant to the Statutory Demand and Petition on the terms and conditions as more particularly set out in this Agreement.
The reference, there, to “the Statutory Demand and Petition” is to a statutory demand made by Redwell against the tenant, Viacor Limited, and the petition for winding-up based on that demand.
The judge dealt with the rent issue shortly:
“63. Finally, I have to deal with the £38,291; what has been called the claim to deduct rent. From Mr Powell's evidence, it is clear that Cuba and Redwell had a running account. Both companies also kept a rental account with Leopold Joseph; and there were transfers between, credits to and debits from those accounts. Both companies had the same financial year; and at the end of the year, the accountants would, with Mr Powell's help, strike a balance and enter the appropriate sum as an asset in Redwell's balance sheet and as a debt in Cuba's accounts.
64. It is not in dispute that the net sum owed at the date of the writ was £216,192, plus a sum for arrears of interest on the Leopold Joseph loan of £57,500.
65. But for the agreement in February 2004, this was the correct sum for Cuba to pay, assuming no interest was due on the £162,500, and this sum has been paid. By the 2004 agreement, Cuba released all claims arising against Redwell, pursuant to the agreement dated 26th March 1999. That agreement provided for Redwell to pass on a proportion of the Westferry rent to Cuba.
66. £38,291 has been attributed in the defence and elsewhere to rent for periods between 24/06/99 and 24/12/00. Therefore, Mr Downes [counsel for Redwell] submits, it must be added back to the intercompany balance by reason of the 2004 agreement to arrive at the correct total due.
67. In my judgment, that submission is based on a misunderstanding. The £38,291 is not actually rent due. There were 18 transactions recorded on Redwell's nominal ledger in 2000, and ten in 2001. There were 30 transactions on Cuba’s ledger in 2000 and six in 2001.
68. In order to reconcile the final figure of £216,192 with the total due to Redwell in the years 1999 to 2004, Mr Powell has made a deduction of £38,291. This happens to equate to five quarters rent between June 99 and September 2000, i.e. two instalments of £7,000 and three instalments of £8,225, less £383.55, a proportion of rent for the first quarter.
69. But that entry does not mean that the rent was not paid at the time; indeed, Mr Powell’s evidence was that the rent was paid. Ms Evans evidence was that she was juggling with Redwell and Cuba’s respective accounts at the time, in order to keep Cuba solvent on a day-to-day basis.
70. In my judgment, the 2004 agreement does not prevent deduction of the sum of £38,291 in arriving at the final balance between Redwell and Cuba. That final balance has been paid, and Redwell’s claim for any extra will therefore be dismissed. ”
The short point on the appeal – in relation to this head of claim – is whether the items in respect of rent for the five quarters to 31 December 2000, shown debited against Redwell and credited to Cuba in the inter-company accounts, represented, as at 4 February 2004, a “claim, demand or liability arising against Redwell pursuant to the agreement of 26 March 1999.” The answer which Cuba gives to that question – and which the judge accepted – is that they do not. It is said on behalf of Cuba that the accounting practice adopted by the two companies has the effect that an entry in the inter-company account was the equivalent of payment. It is important to keep in mind that, as Mr Powell explains, neither Redwell nor Cuba had bank accounts. There was no way (other than delivering cash) in which payment could be made by one to the other, save through the running intercompany account. The accounting practice which those two companies adopted had the effect that Redwell was acting as banker to Cuba. When the balance was struck – as it was at the end of each financial year – there were no longer separate items of indebtedness: there was a net sum owing by one (Cuba) to the other (Redwell). There was nothing that could properly be regarded as “claim, demand or liability arising against Redwell pursuant to the agreement of 26 March 1999” within the meaning of the agreement of 4 February 2004.
In my view the judge was correct to reach the conclusion that he did on the rent issue.
The interest issue
As I have said, completion of the purchase of the Cuba Street property did not take place on the contractual date for completion (25 March 1999). When that property was transferred to Cuba, on 30 March 1999, part of the purchase price payable by Cuba to Redwell under the purchase agreement of 5 March 1999, was left outstanding. The first question is whether the purchase agreement provided for the payment of interest in those circumstances.
Standard condition 7.3.1 (which was incorporated in the purchase agreement) was in these terms:
“7.3.1. If there is default by either party in performing their obligations under the contract and completion is delayed, the party whose total period of default is the greater is to pay compensation to the other party.”
Clause 7.3.2 provided that compensation was to be calculated by applying the contract rate to the purchase price, or (where the buyer was the paying party) the purchase price less any deposit paid, for the period of the default. The contract rate was specified in clause 16 of the agreement as 4% over the base rate of National Westminster Bank plc. Clause 9 of the contract provided that if completion took place after the completion date, the seller would be entitled to the income of the property until after completion as well as compensation under standard condition 7.3.1, unless the delay was attributable to the seller.
The completion statement in respect of the purchase of the Cuba Street property was drawn as if the purchase was a purchase from Slough Estates Limited; but otherwise it reflected those provisions. The material entries are these:
Purchase Price £650,000.00
Less:
Deposit paid on exchange £65,000.00
Contribution from Redwell:£162,500.00 £227,500.00
Balance £422,500.00
Plus:
Interest for late completion
@9.5% on £422,500.00 for
5 days @ £109.97 per day £ 549.85
Apportioned rent @ £28,000 per
year for 5 days @ £76.71 per day £ 383.55
Balance required to complete £423,433.40
It can be seen that interest in respect of late completion was charged on £422,500 – being the balance of the purchase price paid to Redwell (£487,500) after deduction of the deposit (£65,000). No interest was charged on the purchase monies left outstanding (£162,500 – described as “Contribution from Redwell”) in respect of the five days’ delay; as it would have been if the parties had treated that sum as part of “the purchase price” for the purposes of the compensation provisions in standard condition 7.3.
Nevertheless the claim for interest is based, primarily at least, on the contractual provisions in the purchase agreement. Paragraphs 6 and 15 of the particulars of claim are in these terms:
“ 6. By clause 16 of the contract of sale, the purchase price bore interest at a rate of 4% over the base rate of the National Westminster Bank plc.
. . .
15. Further, the Claimant claims interest on monies outstanding under the contract of sale at 4% over the National Westminster Bank’s base rate and for such period as the Court thinks fit pursuant to section 35A of the Supreme Court Act 1981.”
And that was how it was put in the arguments advanced before the judge at trial, as appears from Redwell’s skeleton argument:
“It is undisputed that £162,500 was unpaid as at completion and was only paid on or about 31st May 2004 (remitted it appears by cheque on 23rd May 2004). Interest on this sum for this period totals £72,273.54. Cuba Street admits that clause 16 of the Land Contract provides for interest at 4% over the base rate of National Westminster Bank . . .”
Two observations may be made in relation to that submission. First, clause 16 of the purchase agreement does not, of itself, impose any obligation on the purchaser to pay interest. The sole object and effect of clause 16 is to specify the rate (“the contract rate”) at which interest is payable under the purchase agreement in circumstances where, by reason of some other provision in the agreement (of which standard conditions 5.2.2 and 7.3.2 are examples), there is an obligation to pay a fee or compensation based on an interest computation. The judge appreciated that, for he said, at paragraph 48 of his judgment:
“Mr Downes for Redwell submits that interest is payable under Clause 16 of the contract. I do not agree. The purpose of Clause 16 is to vary general condition 1.1.1(g) and provide a substitute for the Law Society's rate of interest. It does not say when, to whom and in what circumstances interest becomes payable.”
The second observation is that the formulation “£162,500 was unpaid at completion” sits uneasily with the contention, subsequently advanced before the judge in oral argument and pursued in this Court, that actual completion (for the purposes of the purchase agreement) did not take place on 30 March 1999. The date upon which actual completion of the purchase of the Cuba Street property took place is of importance in the context of the argument based on standard condition 7.3 (Late completion) – which, as the judge thought, was the only provision which did provide for the payment of interest. Under condition 7.3.1 compensation is payable where there has been default by either or both parties in performing their obligations under the contract, and completion is delayed. The measure of that compensation is prescribed by condition 7.3.2. It is interest at the contract rate for a period which cannot exceed “the period between completion date and actual completion”.
As I have pointed out, Redwell did not at the time of completion – and does not now - seek compensation under that provision for the five days between the contractual completion date (25 March 1999) and the transfer of title (30 March 1999). It is essential, therefore, to Redwell’s claim under condition 7.3 for it to establish that actual completion (whatever that expression may mean in the context of the purchase agreement) did not take place until after 30 March 1999. Indeed the thrust of the argument in this Court was that actual completion did not take place until 21 May 2004. What occurred on 30 March 1999 was described by Mr Barnes QC in his opening remarks – somewhat infelicitously, as it seemed to me – as “de facto completion”. When pressed, counsel found himself unable to explain how the concept “de facto completion” differed from “actual completion”; and so was obliged to submit that what took place on 30 March 1999 was not “completion” in any sense relevant to the purchase agreement.
There is no doubt that the expressions “actual completion” (in clause 9 and condition 7.3.2) and “the date of actual completion” (in conditions 6.3.2 and 7.3.4) refer to a state of facts and the date on which those facts occur. The question, of course, is what state of facts. That is a question to be answered by construing the agreement. There are, I think, two pointers to the parties’ intentions. First, there is the provision in condition 6.4 as to the amount payable on completion:
“The amount payable by the buyer on completion is the purchase price (less any deposit already paid to the seller or his agent) adjusted to take account of: (a) any apportionments made under condition 6.3 (b) any compensation to be paid or allowed under condition 7.3”
And, second, there is the provision in clause 17 of the agreement that:
“The parties intend to complete the sale and purchase of the property on the completion date in the manner prescribed in section 37 of the Land Registration Act 1925 and rule 81 of the Land Registration Rules 1925 unless in the meantime the Seller is registered as the Proprietor of the property”.
Section 37 of the Land Registration Act 1925, read with rule 81 of the Rules, allows for the execution of a land registry transfer by a seller who is not the registered proprietor.
Those provisions, read together, would appear to indicate that it was the intention of the parties, at the time when they made the agreement on 5 March 1999, that the transfer of title and the payment of the whole balance of the purchase price would take place at the same time. That would, of course, be the normal expectation of parties contracting to sell and purchase land – as Lord Hoffmann pointed out in Actionstrength Ltd v International Glass Engineering SpA [2003] UKHL 17, [24], [2003] 2 AC 541, 550. But that was not the expectation of the parties in the present case – as the evidence to which I shall refer later in this judgment makes clear. The parties to the agreement of 5 March 1999 knew, at the time that the agreement was made, that part (£162,500) of the purchase price would be left outstanding at the time that title was transferred. It is necessary to read clause 17 of the agreement and condition 6.4 with that in mind. And it is necessary to have in mind the provision in condition 1 of the agreement: that the standard conditions form part of the contract “except where they are not consistent with the express terms below”. Once it is appreciated that, if completion is to be given the meaning which clause 17 requires, condition 6.4 cannot have been intended to have its full effect – because the parties did not intend that the full amount of the purchase price would be paid at the time of the transfer of title – it is clear that condition 6.4 must yield to clause 17. Actual completion, in the context of this agreement, takes place when title is transferred.
I accept, of course, that there is no absolute rule that completion takes place when title is transferred. We were referred to the decision of Sir James Turner, Vice-Chancellor, in Lewis v South Wales Railway Company (1852) 10 Hare 113, which shows that circumstances may compel the conclusion that the parties must have intended that – for the purpose of the payment of interest by a purchaser who had been let into possession before completion - completion could take place before the transfer of title. In that case the full purchase price had been ascertained and paid some three years before the conveyance was executed. We were referred to no case in which it has been held that completion did not take place until some time after title had been transferred. The question has to be answered on the facts of each case; construing the language which the parties have used in their agreement in the light of the facts known to them (or which they must be taken to have known) at the time. The decision in Lewis provides no assistance in the present case.
The judge rejected the claim to interest based on the provisions of the purchase agreement of 5 March 1999. After setting out the relevant contractual provisions he said this:
“Taking a dictum of Mr Justice Kilner Brown in Dogma Proprieties v Gale [1984] 134 New Law Journal 453 out of context, Mr Downes submits that actual completion does not occur until the purchase price is paid in full. I do not accept that submission.
In a situation where the vendor is content to leave part of the purchase price outstanding, actual completion in my judgment occurs when the transfer is handed over, and the agreed part of the purchase price is paid. I do not think it correct to describe the sale as not completed on the 30th March, simply because by agreement part of the purchase price had been left outstanding.
In my judgment, the general conditions do not provide for interest to be paid after completion. General condition 7.4 does not create any new obligations after completion, but simply preserves pre-existing obligations.
The reason for this omission is, I think, quite simple. The draftsman did not contemplate that a vendor would execute the transfer and accept less than 100 per cent of the purchase price without coming to some agreement with the purchaser as to when and on what terms the balance would be paid. It was not necessary to provide for post-completion interest.”
That conclusion is challenged on this appeal. It is said that “the Judge erred in finding that the contract for sale did not provide an express or implied term for interest to be payable on monies paid after they fell due pursuant to the terms of the contract” – ground 1 in section 7 of the appellant’s notice. That challenge, in those terms, is misconceived. It is plain that the agreement of 5 March 1999 does contain a term which requires interest to be payable on monies which are not paid on the contractual completion date. Condition 7.3 is that term – as the judge recognised. The relevant question is whether, in the circumstances of this case, Redwell’s claim to interest comes within that term. The challenge is to the judge’s conclusion that it does not – because the claim is for interest after completion. In my view that challenge fails. The judge was correct to reach the conclusion that he did. The purchase agreement of 5 March 1999 does not provide for the payment of interest on the monies left outstanding on 30 March 1999.
Redwell advances an alternative claim to interest in equity. That claim was not pleaded; but leave to amend paragraph 15 of the particulars of claim (to add the words “or in equity” after “contract for sale”) was given by the judge in the course of the trial and he addressed that claim as if the amendment had been made. It is not in dispute that, in the absence of agreement to the contrary, equity will recognise a lien over land transferred pursuant to a contract for sale to secure to the unpaid vendor payment of the outstanding purchase monies. I am content to assume that, in principle, equity has power to award interest on those monies in circumstances where it would recognise a lien; the interest, also, to be secured by the lien. The question, in the particular case, is whether that power should be exercised. Put shortly: do the circumstances make it inequitable that a vendor who has parted with his title without receiving full payment of the purchase price should have interest on the outstanding purchase monies?
In the present case the judge held that there had been agreement between the parties (through Mr Geoffrey Simon on the one hand and Mr Lewis on the other hand) that interest would not be paid on the outstanding sum of £162,500. It is accepted on behalf of Redwell that, if that finding of fact stands, an award of interest would be inequitable. It is accepted, also, that – in those circumstances - the court could not be invited to award statutory interest under section 35A of the Supreme Court Act 1981. And it is accepted that, in this context, section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 is not in point.
It is in those circumstances that the appellant seeks to challenge the judge’s finding of fact that there was an agreement between Redwell and Cuba, prior to 30 March 1999, that interest would not be payable by Cuba on the monies to be left outstanding.
The evidence before the judge on this point was given by Mr Lewis, Mr Robert Woollard, Ms Evans and Mr Geoffrey Simon. In his witness statement, which stood as his evidence in chief, Mr Lewis had said this:
“20. It was agreed that Redwell should take a 25% stake in Cuba Street in return for which it would, in effect, make an interest free loan to Cuba Street of 25% of the purchase price for 1-3 Cuba Street. In other words, on completion Cuba Street would actually pay over only 75% of the purchase price, and the remaining 25%, a sum of £162,500 would be left outstanding, to be paid at a later date, without interest accruing on that sum in the meantime. In this way, Cuba Street effectively made an immediate contribution of £487,500 to the overall purchase of the Westferry Road site. With this in mind I agree with Nicola’s assertion in her witness statement that Cuba Street would never have entered into an agreement with Redwell to allow interest to run on the sum of £162,500 on such disadvantageous terms (4% interest above the Nat West base rate) when there was, as I explain below, no immediate or even medium term prospect of Cuba Street being in a position to pay that sum to Redwell.
21. This agreement was concluded by Redwell and Cuba Street at a meeting in about March 1999 held in the board room in the offices of RLD at 30 Marsh Wall London. The meeting was attended by the Directors of Cuba Street, being David Woollard, Robert Woollard, Richard Davies and me. Also in attendance was Jamie Martin (who was a shareholder in Cuba Street), and Geoffrey Simon in his capacity as a Director of Redwell. I recall that after the meeting all of the attendees except Geoffrey Simon went for a meal together at a local Chinese restaurant.
22. Geoffrey Simon was very keen, as I was, that Redwell should if at all possible purchase 17-23 Westferry Road because of the huge development potential it would have been when put together with 22 Marsh Wall. Geoffrey was very happy with the proposal to sell 1-3 Cuba Street for £650,000 but to receive only £487,500 in cash upon completion because this was sufficient for Redwell’s purposes as regards the Westferry Road deal. Cuba Street was, after all, a non-trading company with no income stream. It was quite unable to raise finance in the commercial loan market to fund the balance of the purchase price. Geoffrey knew and understood this fully. He entirely agreed with the proposal for the outstanding completion monies to be a non-interest bearing loan from Redwell to Cuba Street and for Redwell, in return, to take an 25% shareholding in Cuba Street. I was, of course, a Director of both at the time.
23. On the basis of this deal with Cuba Street, Geoffrey agreed that Redwell should raise its offer for the Westferry Road property to £2.9 million which was £400,000 more than the previous offer. Cuba Street was of course to provide Redwell with £487,500 at completion.”
The evidence that the agreement was made at a meeting at the Marsh Wall offices was inconsistent with Cuba’s pleaded case, set out in a response to a request for further information of the defence served on 30 July 2004 and verified by a statement of truth signed by Mr Lewis, in which it had been said that the agreement was made in the course of a telephone conversation between Mr Lewis and Mr Geoffrey Simon on or about 30 March 1999.
Mr Robert Woollard was at the meeting to which Mr Lewis refers. In his witness statement he confirmed Mr Lewis’s recollection. He said this:
“10. At the time, March 1999, Cuba Street, which was a non trading company, was in no position whatever to raise the balance of the necessary finance from the commercial loans market in order to complete the purchase of the property from Redwell at the agreed price of £650,000. It was therefore agreed between Redwell and Cuba Street that Redwell would defer by way of a loan, on a non interest bearing basis, receipt of 25% of the completion monies in exchange for 25% of the share capital in Cuba Street. I had no involvement in Redwell but I was a director of Cuba Street throughout and I was always quite clear in my own mind that this was the arrangement reached between Cuba Street and Redwell. This agreement was reached principally between Geoffrey Simon, who was a director of Redwell and Roger Lewis, who was a Director at that time of both Redwell and Cuba Street, in various meetings in the period shortly before Redwell was due to complete the purchase of the Westferry Road property to which Roger Lewis refers in his statement.
. . .
12. I understand from Cuba Street’s solicitors that Redwell is now claiming interest on the deferred completion monies. I do not agree that Redwell is entitled to any such interest. It is contrary to the whole basis of the agreement reached between Redwell and Cuba Street in 1999. My brother and I made an investment in Cuba Street on what were effectively very similar terms as those on which Redwell made its investment, namely an investment in part finance of the purchase price in return for an equity stake in Cuba Street. The only difference was that Redwell’s investment was a loan, which was to be repaid in due course and has now in fact been repaid. So far as I was concerned, as Director of Cuba Street from the outset, the return on the investment for those who had put money into Cuba Street was always intended to be by means of eventual profit share and/or capital appreciation. . . .”
Mr Geoffrey Simon’s evidence was to the opposite effect. He had said this in his witness statement:
“82. I have no recollection whatsoever of any telephone conversation of this nature with RL, whether on the 30 March 1999 or indeed any other date. I never made the agreement with RL which he now contends. I have never seen any contemporaneous document recording the alleged agreement, whether Board Minutes of either Redwell or Cuba or any other document.
83. RL also asserts in the same document, at paragraph 2(g)(i), that he remembers “a meeting” in about March 1999 which he and I attended together with David and Robert Woollard, Jamie Martin and Richard Davis at which this alleged agreement was discussed and approved. I met with this group (or variations of it) on several occasions during February and March 1999, but I have no recollection whatsoever of any such agreement being discussed and approved during these occasions.
I deny what Mr Woollard asserts. I have no recollection of discussing or agreeing the alleged agreement in “various meetings” with RL, or in any forum. Mr Woollard and RL in their statements contradict most of the variety of positions NE put forward as to how Redwell – as opposed to Longstaff and E/L – enjoyed their 25% shareholding in Cuba. NE’s correspondence on the issue, between January and May 2001, is examined later in this document.”
Ms Evans was not at the meeting to which Mr Lewis referred. Her understanding of what was agreed can only have been derived from what she was told by Mr Lewis. It is not in dispute that she did understand that interest would not be payable on the outstanding monies. That understanding is reflected in the completion statement which she prepared. But it cannot be suggested, in this Court, that her evidence as to what was agreed at a meeting at which she was not present can carry add anything to that of Mr Lewis.
The judge made the finding that he did for the reasons which he set out at paragraph 48 of his judgment:
“Mr Lewis and Mr Woollard have both given evidence that they were present at Marsh Wall when an agreement was made with Mr Simon that the money Redwell left outstanding should be interest free. Ms Evans was not present. She says that she discussed the proposal with Mr Lewis, and he reported to her that it had been agreed with Mr Simon. Mr Simon says that no such agreement was made with him.
On this issue, I prefer the evidence of Mr Lewis, Mr Woollard and Ms Evans. They, and indeed Mr Simon, seemed to me to be honest witnesses to trying to recall events of 6 years ago. It seems to me much more likely that Mr Simon is genuinely mistaken than that the others are lying. Ms Evans' evidence is consistent with the letters she wrote and emails she sent, especially with the letter of the Inland Revenue on 3rd September 2001, with one exception. The email of 11th January 2001 to the auditors is inconsistent, but I think that must have been an aberration. The auditors must have immediately seen that it was incorrect.
Mr Woollard's evidence is consistent with what I would have expected the attitude of the outside investors to be. They were putting up cash in return for 75 per cent of the equity in Cuba. Redwell was also putting up cash. That cash was to be repaid before any division of profit between the shareholders. In addition, Redwell or its shareholders were to get the other 25 per cent of the equity in Cuba. If Redwell was to have interest on the loan as well, the balance of advantage would tip heavily in favour of Redwell, who needed the outside investors' cash to complete another deal which was expected to be very advantageous to Redwell.
Mr Lewis' evidence is consistent with the cashflows he prepared in 1999. These make no provision for interest to Redwell, except to the extent that Redwell replaced Leopold Joseph for the £57,500. No provision was ever made in either company's accounts for interest on the £162,500. Cuba's income for the first 18 months was expected to be only £28,000 per annum, and it could not possibly have paid Redwell interest on £162,500 as well as paying the bank, directly or indirectly, interest on £325,000.
Given Redwell's need for the other three quarters of the purchase price of Cuba Street, an agreement that one quarter of the purchase price should remain outstanding interest free seems to me a perfectly sensible arrangement.
I therefore find that it was agreed in advance of completion on the 30th of March that Redwell should leave £162,500 of the purchase price outstanding interest free.”
We were taken through the transcripts of the oral evidence given by the witnesses, in an attempt to persuade us that Mr Lewis and Mr Robert Woollard had failed to confirm, or had contradicted, the evidence given in their witness statements. I did not find that exercise illuminating. There were, as one might expect, some inconsistencies between what had been said in the witness statements and some of the answers given in cross-examination; but it cannot be said that either Mr Lewis or Mr Woollard was seriously shaken in his account of what had taken place at the meeting at the Marsh Wall offices. The weight to be given to their evidence, taken as a whole and after seeing them under cross-examination, was a matter for the judge. It would be impossible for this Court to hold that he was not entitled to make the finding of fact which he did.
Mr Geoffrey Simon was not cross-examined on his evidence on this point. It is said that the judge should not have made a finding inconsistent with that evidence without hearing Mr Simon’s answers to the suggestion that his recollection was mistaken. No doubt it would have been more usual for the point to be put to the witness in cross-examination; but I do not see how it can be said that either Mr Simon or Redwell was disadvantaged by the failure to do so. Mr Simon knew what Mr Lewis and Mr Robert Woollard had said in their witness statements; and he addressed those statements in his own evidence. If he had been cross-examined he would either have confirmed his own evidence – which he had already given in emphatic terms – so adding nothing to it; or he would have qualified it in a way which reduced its force. Had counsel for Redwell thought that there were points which had emerged in the course of the evidence of Mr Lewis or Mr Woollard which Mr Simon should have an opportunity to meet, he could have asked for Mr Simon to be recalled. He did not do so.
It is important to have in mind that the judge was not left to rely on the oral evidence alone. There was a mass of documentary evidence, all of which was consistent with the parties acting on the basis that interest was not payable by Cuba on the outstanding purchase price. To my mind the most compelling evidence was that in the statutory accounts of both companies. Had there been an obligation on Cuba to pay interest on £162,500, that interest should have appeared as a receivable in the accounts of Redwell; and as a debt in the accounts of Cuba. It did not. Mr Geoffrey Simon was a director of Redwell – and so responsible for satisfying himself that its accounts showed a true and fair view of its affairs. There is nothing to suggest that he ever raised the point that (on the case which he advanced in his evidence) those statutory accounts omitted the interest receivable on the £162,500. Inclusion of that receivable would, of course, have given rise to an increased liability to corporation tax on profits.
In my view the appeal on the interest issue is as devoid of merit as the appeal on the rent issue. I would dismiss the appeal on both issues.
I should add this. The judge gave permission to appeal on the basis that there was “just enough prospects of success”. He was wrong to take that view. This appeal had no prospects of success. It should not have been brought. We were told that this is the fifth set of proceedings issued by Redwell in the High Court in the aftermath of this joint venture. It is difficult to avoid the conclusion that the desire to litigate is driven by a personal vendetta which supercedes any realistic appreciation of the benefits to be obtained from litigation. If so, the process of the Court is being misused. Those advising Redwell should be cautious before lending their support to any misuse of the Court’s process in the future.
LORD JUSTICE WALL: I agree.
LORD JUSTICE MOSES: I also agree.