Case No: 2006 1587 A2
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
HON MR JUSTICE JACK
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
LORD JUSTICE AULD
LORD JUSTICE LONGMORE
and
LORD JUSTICE TOULSON
Between :
WOLSEY SECURITIES Ltd | Appellant |
- and - | |
ABBEYGATE MANAGEMENT SERVICES Ltd | Respondent |
(Transcript of the Handed Down Judgment of
WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7421 4040 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
ROBERT GRIFFITHS Esq QC and DAMIAN FALKOWSKI Esq
(instructed by Messrs Layton) for the Appellant
CHRISTOPHER PARKER Esq
(instructed by Messrs Howell-Jones Partnership) for the Respondent
Hearing date : 21st March 2007
Judgment
Lord Justice Longmore:
Introduction
This is an appeal from a judgment of Jack J in which he refused to give summary judgment under Part 24 of the CPR for the claimant against the defendants in the sum of £97,762.42 inclusive of interest but, on the defendants’ cross-application, made a declaration in their favour. The claimants are Wolsey Securities Limited (“Wolsey”) and the defendants are Abbeygate Management Services (Hampton) Limited (“Abbeygate Management”). Wolsey sue Abbeygate Management as the guarantors of Abbeygate Securities Limited (“the Company”) under a joint venture agreement (“the JVA”) made between the three parties dated 22nd November 2000. The venture was the construction of a block of flats at Lansdown Road London SW20. It was unprofitable and the Company is now in liquidation. The Company was incorporated or acquired for the purpose of carrying out the development. It had no assets of its own. The funds to carry out the development were to come from a loan to the Company by the Bank of Ireland and from a loan facility granted by Wolsey under the terms of a facility letter from Wolsey to the Company which was annexed to the joint venture agreement. PKF were the Company’s auditors. By clause 10.3 of the agreement Abbeygate Management guaranteed that the Company would perform its obligations under the agreement. The sum of £88,845.16 and interest is alleged to be due pursuant to that guarantee.
In the JVA Abbeygate Securities is referred to as “the Company”, “the Bank” is the Bank of Ireland and the “Joint Venturers” are the Company and Wolsey. The provisions of the JVA which are particularly relevant to the dispute are as follows:
Clause 1 Definitions
“The Cash Flow Appraisals” | the Cash Flow Appraisals marked A and B copies of which are bound up within as Annexe 1; |
“the Facility Letter” | Wolsey’s Facility Letter a copy of which is bound up within as Annex 2; |
“Management Charge” | the payment to be made for management services assistance and guidance throughout the course of the Development as shown on the Cash Flow Appraisal; |
“Wolsey’s Facility” | the provision of financial facilities in accordance with the Facility Letter |
Clause 2 The Company’s Agreements
To repay to Wolsey all monies that Wolsey shall have advanced in pursuance of Wolsey’s Facility And (sic) all monies advanced to the Company whether in pursuance of the Bank’s Facility or Wolsey’s Facility shall be used exclusively for the purpose of carrying out the Development in accordance with the terms of this Agreement.
If the Company shall be unable to satisfy the condition of any facility letter issued by the Bank as to the valuation of the Site and the Development so that the amount of the facility offered shall be less than £2,200,000 then the Company and Wolsey shall provide in equal shares the deficit in the Bank’s facility required to complete the purchase of the Site provided that the Site shall be offered for resale on the open market and sold to the highest or other bid received as shall be agreed by the Joint Venturers unless they shall both agree that the Development shall continue with each party paying and contributing one-half of the deficit in the Bank’s facility required to fund the cost of the Development.
Clause 4 Wolsey’s Agreements
To provide Wolsey’s Facility in accordance with the Facility Letter.
If at any time during the continuance of the Development the Company shall contravene any of the provisions of this Agreement or any of the deeds entered into in pursuance hereof or any of the terms and provisions of the Banks Facility or as the case may be Wolsey’s Facility which shall result in the Bank and/or Wolsey making written demand for repayment of monies advanced then Wolsey shall be under no continuing obligation to the Company to provide or procure any further finance facilities whatsoever.
Clause 5 Mutual Agreement
The company will open a separate bank account with the Bank and such account shall be in the name of the Company and shall be operated by two signatories in every instance one of the signatories being an officer of the Company and other signatory being an officer of Wolsey. All receipts of the Company relating to the Development including the draw down of the Bank Facility and Wolsey’s Facility shall be paid into such Bank Account and all payments due to be made in connection with the Development or otherwise pursuant to the Agreement shall be paid out of the Bank Account.
Clause 8 Distribution of receipts.
All monies received by the Company and arising out of the Joint Venture shall subject as stated above be applied in the following priority
Repayment to the Bank of all monies borrowed from the Bank for the Site including all interest commitment fees and banking charges paid to the Bank
Repayment to Wolsey of Wolsey’s Facility and any other monies incurred by or properly due to Wolsey in respect of the Development other than Wolsey’s share of profits (if any)
Repayment to Wolsey and the Company pari passu the amounts (if any) which they shall respectively advance pursuant to clause 2.13 and/or 6.1 together with interest thereon at 3% above Bank of Scotland base rate from time to time from the date or dates of such advance to the date of repayment
The payment of all Management Charges due to Wolsey
The payment of any corporation tax on the profits of the Development
All other costs charges and expenses mutually agreed by the Joint Venturers as properly incurred by the Joint Venture in the carrying out and the completion of the Development.
Clause 9 Profits and losses
The Net Profits or Net Losses of the Joint Venture shall be calculated by deducting from the total receipts of the Joint Venture the payments made in pursuance of the preceding clause
The Net Profits or Net Losses of the Joint Venture shall be as certified in writing to the Joint Venturers by the Company’s Auditors (whose fees shall be a joint venture expense)
The net profits of the Joint Venture shall be divided equally between the Company and Wolsey and such net profits earned (if any) will be distributed as and when available equally between the Company and Wolsey in equal proportions and the final distribution of profits to the Joint Venturers in equal shares will be made within twenty eight days of the completion of the sale of the last Unit to be sold
In the event of any net losses these will also be shared by the Joint Venturers equally and any losses accrued shall be settled within twenty-eight days of completion of the last Unit to be sold
Clause 10 Guarantees
The Guarantor as primary obligor hereby agrees with and guarantees to Wolsey and as a continuing security therefore that the Company will duly observe and perform the obligations on the part of the Company herein contained and that the Guarantor will indemnify Wolsey in respect of all losses damages costs and expenses sustained by Wolsey through the default of the Company in failing to perform any of its said obligations herein contained ……..
Clause 13 General
This Agreement and Wolsey’s Facility constitute the entire agreement between the parties relating to the Development and supersedes and replace all previous agreements and arrangements between the parties relating thereto.
As the definition provisions stated, Cash Flow Appraisals marked A and B formed Annex 1 of the Agreement, and the Facility Letter formed Annex 2. The Facility Letter was signed by both the Company and by Abbeygate Management stating they accepted the offer thereby made.
Pursuant to clause 9.2 the auditors PKF on 13th September 2004 certified the Net Losses of the Joint Venture as £167,207 but they went rather further than that by saying as follows:-
“Based on the adjusted net loss for the joint venture, we consider that Wolsey would owe Abbeygate £83,603.50, being its 50% share of the loss if other amounts owing to Wolsey were paid.
In summary, we consider the amount due from Abbeygate to Wolsey is as follows:
£
Amounts outstanding in relation to Wolsey facility
Management charge relating to the facility letter
Management charge provided for in the cash flow appraisal
Less: Wolsey’s share of the Net Loss of the joint venture
6,002.66
95,719.00
70,727.00
172,448.6
(83,603.50)
88,845.16”
It was this final figure of £88,845.16 for which the claimants sued and it can be seen that, although the claim included a small part of the outstanding loan, it was substantially for what were called “management charges”. These charges were divided into those “relating to the facility letter” and those “provided for in the cash flow appraisal”. Abbeygate Management accepted that they were liable for the Company’s failure to pay the small outstanding part of the loan but said that they were not liable for either part of the management charges. Since the management charges were due pursuant to the Facility Letter, the parties crystallised the essential issue they wished the judge to decide as being whether the JVA and the Facility Letter constituted one agreement or two separate agreements. If they were one agreement, Abbeygate Management accepted, subject to any other defence they might have, that they would be liable for the management charges whereas, if they were two separate agreements, Wolsey accepted that Abbeygate Management were not liable for the management charges. The judge held that the agreements were two separate agreements and accordingly made a declaration that the defendants were not liable for the management charges. Hence this appeal.
The second category of management charges (those provided for in the cash flow appraisal) were defined in the JVA and were expressly to be deducted from receipts in order to arrive at a final figure for net profits or net losses (para. 8.3). The first category of management charges, described by PKF, as relating to the facility letter were a form of interest, albeit interest which only became payable if receipts from the joint venture did not materialise at the time or to the extent expected by the parties under the cash flow appraisal arrangements annexed to the JVA. They are not explained in the JVA but are explained in the Facility Letter which (contrary to some of the submissions made at the hearing) appears to me to cover both sets of management charges. It is time to set out the relevant provisions of the Facility Letter.
Clause 1 provided for the amount of the loan to be advanced under it (inclusive of interest thereon and other charges due to the Lender) to be such sums as shall from time to time be required in accordance with the Cash Flow Appraisal. Other material provisions are:-
“1.5 Management Charges
For the purposes of calculating interest the expression “Outstanding Balances” shall mean any sums of money owed to the Lender under this facility or the Agreement in excess of the amount expected to be due in accordance with the site Cash Flow Appraisal at the end of each month until all monies due to the Lender shall have been repaid. The Management charge shall be payable equal to the interest which shall be deemed to accrue on any Outstanding Balances at the Bank of Ireland Base Rate plus 2.5%
The Management charge will (subject to the final sentence of this paragraph) be calculated and shall accrue on a daily basis on the Outstanding Balances on the Borrower’s account with the Lender as from the first date on which the Borrower draws down all or any part of the loan in terms of paragraph 1.2 hereof. Prior to the end of each calendar quarter the Lender will send to the Borrower a statement showing the Management charge due in respect of such period. Since each statement will be issued prior to the end of the period to which it relates, the interest rates by reference to which the Management charge is calculated applicable to the days intervening between the date of the relevant statement and the end of the relevant period will be estimated by the Lender and an accounting for any resultant inaccuracy in any statement will be included in the statement for the period next following.
Quarterly management charges will be accumulated by the Lender and form part of any Outstanding Balances until proceeds from the sales of the dwellings are available to meet such management charge. In the event of such sales not materialising in accordance with the Cash Flow Appraisal the Management charge for the relevant period will nevertheless be due and payable.
4.3 Without prejudice to the enforceability of the obligations of the Borrower and the rights of the Lender strictly in accordance with the terms of paragraphs 1.5 and 4.4 hereof, the Lender shall be entitled (but not bound) to debit to the Borrower’s loan account (and thus add to the principal of the loan then outstanding) any management charge which shall be due by the Borrower and shall not be paid by the Borrower in terms of paragraph 1.5 hereof and any such management charge so debited if comprising the whole or a part of an Outstanding Balance shall bear interest at the rates by reference to which that management charge is calculated until payment, as from the date of termination of the period in respect of which such management charge is due.
4.4 Without prejudice to the Lender’s right to require repayment thereof on demand at any time, all sums due and that may become due to the Lender by the Borrower including accrued interest and all other charges due to the Lender, will become immediately payable upon the occurrence of one or more of the following events:-
4.4.1 if the Borrower shall contravene or default in fulfilment of or be in breach of any of the provisions, conditions and warranties contained herein or in any document entered into in pursuance hereof or the Agreement
4.4.2 if an “Insolvency Event” shall occur’
4.4.3 if (without prejudice to the enforceability of the obligations of the Borrower strictly in accordance with the terms of paragraph 1.5 hereof) the Borrower shall fail to make payment to the Lender of any management charge due hereunder within fourteen days of the same becoming due;”
The Facility Letter was then signed by Wolsey and, for their respective rights and interests, by both the Company and Abbeygate Management Services Ltd.
It is not elegant draftsmanship to have two quite separate charges described as “Management Charges” but it is tolerably clear that that was the intention of the parties. The interest aspect is called “The Management Charge” and is dealt with in the first two paragraphs of clause 1.5. The third paragraph then refers to “Quarterly management charges”; this phrase may, as Wolsey submitted, refer solely to the management charges defined in the JVA but must on any view include them, since the phrase is “management charges” in the plural. Clause 4.3 then refers to the entitlement of the Lender to debit to the Borrower’s loan account “any management charge” and must, therefore, refer to both sets of management charges to the extent that any such charge has become due at any particular time.
The Submissions
In the light of this lengthy introduction the parties’ submissions can be stated shortly. Mr Griffiths QC for Wolsey submitted that the JVA and the Facility Letter were one composite agreement and that Abbeygate Management guaranteed any default of the Company under either document; Mr Parker for the defendants submitted that the defendants only guaranteed the obligations under the JVA in which their guarantee was contained, not any obligation of the Company under the separate agreement contained in the Facility Letter.
Decision
The question whether there was one agreement or two agreements is, to my mind, a purely semantic question. I would incline to the view that since the Facility Letter was annexed to the JVA there was in truth only one composite agreement. But whether there was one agreement or two agreements, there can be no doubt that since the Facility Letter is, at the very least, referred to in the JVA, both the JVA and the Facility Letter have to be interpreted in the light of each other.
In so doing it is fair enough to observe that the guarantee is contained in the JVA and so one would expect the guarantee to apply to the obligations set out in the JVA rather than the obligations set out in the Facility Letter; but the JVA obligations have to be interpreted in accordance with the Facility Letter.
When, therefore, one sees that the JVA by clause 2.12 obliges the Company to repay to Wolsey all monies that Wolsey shall have advanced in pursuance of Wolsey’s Facility and that clause 4.3 of the Facility Letter entitles Wolsey to debit to the Company’s loan account “any management charge” it is impossible to resist the conclusion that as and when Wolsey do in fact debit any management charge to the Company’s loan account, the amount in the loan account (including any management charge) is part of the advance which, by clause 2.12 of the JVA it is the Company’s obligation to repay. To the extent that that repayment has not been made, the defendants as guarantors must be liable.
The only substantial argument which Mr Parker could advance against this conclusion was that (as held by the Judge) it could never have been intended that the management charges should be deducted from the receipts in order to arrive at final net sums for the purpose of ascertaining whether there was profit or loss on the joint venture while, at the same time, constituting an item for which the Company (and, therefore,) Abbeygate Management, as guarantor could be liable. But this argument proves too much because on that view the Company would not be liable to repay the amount of the original loan either which it is conceded that the Company must do.
This consideration led Mr Parker to adopt a more sophisticated argument (not, I think, advanced to the judge) that clause 2.12 referred to “all monies that Wolsey shall have advanced” meaning only the amount of the initial loan and not the management charges as well. With a little assistance from one member of the court, he sought to point out the distinction between the phrase “all monies advanced” which the Company had to repay pursuant to clause 2.12 and the clause 8.1.2 deduction which was defined as “repayment . . . . of Wolsey’s Facility and any other money incurred by or properly due to Wolsey in respect of the Development”. This latter phrase was said to be apt to cover management charges by way of interest which therefore could not have been intended to come within clause 2.12.
This is ingenious but cannot be correct. Once management charges have been debited to the Company’s loan account they must constitute “monies . . . advanced . . . in pursuance of Wolsey’s Facility”. If, of course, they have not been so debited then it could well be the case that they will not form part of the Facility but will nevertheless have to be deducted for the purpose of clause 8.1.2. In that limited sense Mr Parker’s distinction between the wordings of clause 2.12 and 8.1.2 may have some force.
The judge decided that Wolsey, as a joint venturer, should be sharing the risk if the joint venture made a loss and that they should not, therefore, be able to recoup the management charges. But the fact is that Wolsey have shared the loss by submitting to a deduction from their claim in the sum of £83,603.50.
The parties agreed before the judge that what would assist them most was to have an answer to a question of construction. The judge defined that question in paragraph 9 of his judgment as being:-
“whether for the purpose of the guarantee the Facility Letter is part of the Joint Venture Agreement or a separate contract”.
The judge concluded that the Facility Letter was a separate contract and, accordingly, the defendants never guaranteed that Wolsey would receive either form of management charge. In paragraph 2 of his order, he made a declaration in the following terms:-
“that the defendant is not liable to the claimant under the joint venture agreement dated 22 November 2000 for the management charge relating to the facility letter or the management charge provided for in the cash flow appraisal.”
For my part, for the reasons given, I do not think that it was correct to make such a declaration. I would accordingly allow the appeal against paragraph 2 of the judge’s order and, if my Lords agree, would substitute a declaration in the following terms viz:-
“That management charges are in principle payable by Abbeygate Securities Ltd and thus by the Defendants, as their guarantors, save to the extent that such charges shall not have been debited to Abbeygate Securities Ltd’s loan account.”
Further than that I do not think it would be appropriate to go. No evidence has been put before the court as to whether such charges were debited to the Company’s loan account; nor was any argument addressed to the judge or to us as to whether, if they had not been so debited at the time of the initiation of the proceedings or of the hearing before the judge, they could be so debited at a later stage. All that is for the future. The judge was invited to deal only with the question of construction as were we in oral argument. Although we have been presented with other possible issues since the conclusion of the argument, I would not propose to do more than vary paragraph 2 of the order of the judge as set out above. To the extent indicated I would allow this appeal.
Lord Justice Toulson:
On the narrow issue whether the JVA and the facility letter formed a single or separate agreements (which was central to the way in which the case was presented before Jack J), I am inclined to regard them as separate but inter-related. However, I do not think it necessary or helpful to say more about that, because what matters is their combined effect. I am in entire agreement with Longmore LJ that they have to be interpreted in the light of each other. I also agree with his analysis of the combined effect of clause 2.12 of the JVA and clauses 1.5 and 4.3 of the facility letter (which does not appear to have been canvassed before Jack J).
The contractual provisions about management charges are less than clear, but I agree with Longmore LJ that “any management charge” in clause 4.3 of the facility letter must embrace any form of management charge due from the company.
In summary, I am in full agreement with Longmore LJ as to the substance of the guarantee obligations undertaken by Abbeygate Management. Accordingly I agree that the judge’s declaration should be set-aside and a declaration substituted in the terms proposed by Longmore LJ. I too would allow this appeal to that extent, and I agree that we should go no further.
Lord Justice Auld:
I also agree with my Lord’s, Longmore LJ’s, conclusion, for the reasons he gives, that the JVA and the Facility Letter are to be interpreted in the light of each other and that a declaration in the form he proposes should be substituted for that made by the judge.