Hillcourt (Docklands) Ltd v Teliasonera AB

MR JUSTICE EVANS-LOMBE: By these applications the defendant TeliaSonera seeks, firstly, an interim injunction restraining the claimant Hillcourt (Docklands) Ltd (“Hillcourt”) from seeking to enforce an arbitration award dated 20 February 2004, an order of Deputy Master Bartlett made on 12 August 2004 and any judgment entered pursuant to that order. Secondly, a stay of execution in respect of the order of Deputy Master Bartlett made on 12 August 2004 and any judgment entered pursuant to that order. Thirdly, an interim injunction restraining Hillcourt from proceeding with a rent review under a lease dated 15 September 2000 until judgment in the present claim.

The background facts to this application are as follows. The parties are, as claimant in the proceedings, Hillcourt. This is a single-purpose property company formed by a Mr Ian Smith and a Mr Clive Fisher, who are quasi-partners. I believe there is no formal partnership between them, certainly as to the totality of their business, but they are businessmen in the property field who co-operate with each other. TeliaSonera AB (“Telia”) is a Swedish media company in a substantial way of business in Sweden, although not in this country. The case concerns a property at 443-451 West Ferry Road, E14 (which I will refer to as “the property”).

In the year 2000 Telia was looking for a base in London to site telecom equipment to start a telecoms business in this country. For the purpose of discovering appropriate premises to act as a centre for its operations it employed a firm of Estate Agents, Sparkes Porter, to conduct a search on its behalf. Sparkes Porter is in fact a limited company. It had two persons who, at the material time, were primarily interested in its operations (namely a Mr Mason and a Mr Porter) who then held all its shares. Subsequently a third individual has joined them in that business. Sparkes Porter found the property which appeared to them to be suitable for Telia’s needs. At that time the property was owned by a company, Boropex Ltd.

In June 2000 Sparkes Porter opened negotiations with Smith Melzack, a firm of estate agents (Sparkes Porter acting for Telia, Smith Melzack for Boropex) with a view to negotiating the terms of a lease by Boropex to Telia. At the time, Sparkes Porter became aware that as an alternative to providing a relatively long lease (the lease ultimately negotiated was for 35 years) Boropex were prepared to sell the freehold. However, Telia informed Sparkes Porter that they were not interested in the freehold and wished only to undertake a leasehold obligation.

Negotiations between Sparkes Porter and Smith Melzack continued. A stage was reached where they were very nearly concluded on the basis of a 35-year lease, for a rent of approximately £800,000. It appears, however, that at some date between 8-12 June 2000 Sparkes Porter informed Mr Smith and Mr Fisher of two matters: (1) The freehold of the property was available for sale and; (2) Telia were negotiating for a long-term tenancy of the property. Telia have said that they were not informed by Sparkes Porter of this event and only discovered it relatively recently.

It appears that sometime after that event in June, Telia were informed that they were not to negotiate any further for a lease with Boropex, but rather with Hillcourt.

On 13 July 2000 it appears that an agreement was arrived at between Mr Smith and Mr Fisher to purchase the freehold of the property from Boropex, through Hillcourt. Hillcourt was not incorporated at that time. Simultaneously, heads of agreement were arrived at between Telia, through Sparkes Porter, for a 35-year lease of the property at a rent which had been increased to £1.3 million.

Hillcourt, was incorporated on 27 July 2000.

On 25 August 2000 an agreement for a lease was made between Hillcourt and Telia. That agreement contained provisions requiring Telia to undertake extensive works of refurbishment of the property. It also contained an arbitration clause.

On 15 September 2000 Telia entered into the 35-year lease of the property with Hillcourt, at a rent of £1.3 million. Subsequently, Telia took possession of the site and started to undertake the works. Initially those works were restricted to the removal of asbestos construction from the property. Telia, apart from these leasehold premises, had and has no other assets in this country.

On 22 February 2001 Hillcourt paid to Sparkes Porter £1.3 million plus VAT, described on the relevant invoice as commission in respect of financial services appertaining to the property. That sum was paid to them in the form of a payment to an estate agency partnership in which Mr Mason and Mr Porter were the only partners. It was paid in accordance with an invoice on which the payee was Sparkes Porter.

Subsequently, because of the collapse of the telecoms market in this country, Telia lost interest in its development of a business in that field in the United Kingdom, and suspended works on the refurbishment of the site. As a result, Hillcourt initiated proceedings under the arbitration clause contained in the agreement for a lease. Mr John Martin QC was appointed Arbitrator. The parties to the arbitration were Hillcourt and Telia. On 20 February 2004 Mr Martin handed down a final award in the arbitration in favour of Hillcourt.

On 11 August 2004 proceedings were launched by Hillcourt to enforce the arbitration award pursuant to Section 66 of the Arbitration Act. On 12 August Deputy Master Bartlett made the order (the subject matter of the applications before me) giving leave to enforce the award. It is not clear whether judgment has at any stage actually been entered on the award under Section 66, suffice it to say that, as will shortly emerge, proceedings to enforce any such judgment have been commenced. Indeed, on 9 November 2004 an enforcement certificate under Article 54/58 of EU Regulation 44 2001 was obtained by Hillcourt against Telia for enforcement of the award in Sweden. On 31 January 2005 the Swedish Court gave a declaration as to its enforceability. On 10 June 2005 Hillcourt applied to the Swedish enforcement agency to enforce the award.

At some time after those events Telia discovered the fact of Sparkes Porter’s relationship with Mr Smith and Mr Fisher, and the fact of the payment for their benefit of a commission of £1.3 million. On 23 August 2005 solicitors for Telia gave notice purporting to rescind the lease, and Telia ceased payment of rent.

On 30 September 2005 Hillcourt commenced proceedings for rent arrears accruing due up to September 2005. I will refer to that as action 2688. Subsequently, further rent arrears proceedings were commenced by action 4145, for rent becoming due up to December 2005.

Telia, as a result of its recent intelligence, counterclaimed rescission of the lease against Hillcourt in action 2688. It also sought an injunction restraining enforcement of the judgment in the Section 66 proceedings by Hillcourt. Sparkes Porter and two related Sparkes Porter companies were made defendants to those proceedings, against which an account of profits flowing from the transactions involving the property are claimed.

By amendment, Mr Smith and Mr Fisher were later joined as defendants, as were Mr Mason and Mr Porter. Claims were made against them for an account of the fees paid to them in the manner I have described. Against each of the defendants a claim is made for damages for conspiracy.

Telia, for its part, also commenced proceedings to set aside the award under Section 68 of the Arbitration Act. The two rent claims were consolidated and all three of the actions were directed to be tried together, the starting date of the trial being within a window starting in December 2006 and concluding in February 2007. Telia contend in those proceedings that the payment of £1.3 million commission by Hillcourt to their agent, Sparkes Porter, were made at a time when Telia was employing Sparkes Porter in a related transaction. Secondly, as it was in circumstances in which Telia was unaware that that payment had been made. They were thus entitled to avoid the resulting transaction (namely the resulting agreement for a lease and lease) without the necessity of having to prove dishonest intent, and to make Sparkes Porter and Messrs Mason and Porter account for the benefits they received as a result of the overall transaction. It was submitted on behalf of Telia that they were also entitled to an injunction in the interim, restraining enforcement of the judgment in the Section 66 proceedings. I have doubts that there is jurisdiction to enjoin a party who holds a judgment from enforcing of that judgment. It was so submitted by Mr Elliott on Hillcourt’s behalf.

In the result Telia accepted, in the course of submissions, that a suggested alternative, namely a stay of the judgment in the Section 66 proceedings would satisfy them in producing a holding of the ring until the three actions come to be tried and are disposed of. In particular, they were persuaded that such a stay would have the effect in Sweden of holding up the process of execution that is underway in that country.

I am satisfied that I should make an order staying execution of the Section 66 judgment, namely the order of Deputy Master Bartlett of 12 August 2004 and any judgment made under that order, pending trial and disposal of the three actions. The principles that should be applied by me in whether or not to make such a stay should be similar to those which would have governed the making of an interim injunction, namely those prescribed in the well-known case of American Cyanamid v Ethicon Ltd [1975] AC 396.

I reject the submission advanced on behalf of Hillcourt that to do so now would be premature. It is clear to me that the Swedish process of execution is ongoing. It may well be that, if left to itself, it would take some time before any material step by way of execution by way of realisation of the assets of Telia were instigated. However, it does not seem to me that one can rely, in the circumstances of this case, on lengthy procedure in the Swedish court.

I also reject the submission that Telia should be ordered, as a condition of granting such a stay, to restore the property to its previous state before they took possession of it under the lease, alternatively, that they should provide security in this jurisdiction to secure performance of such obligation on the ground that they would be required to do this as a condition for obtaining revision of the lease and agreement for a lease.

If Telia turn out at the trial to be right in their submissions with relation to the commission paid to Sparkes Porter, the lease and the agreement for a lease will be avoided. I am satisfied that in those circumstances Telia will have substantial cross-claims against Hillcourt, available to be set off in any process of restitutio upon the lease becoming rescinded, against any obligations to restore the property to its previous state before the lease was granted.

It was submitted that Hillcourt might suffer damage in the interim as a result of being kept out of the property before trial. This might arise from two factors: (1) Not having the property available to deal with or remortgage during that period and; (2) Loss of the five-year planning permission to which the property is subject and which is conditional upon work starting within that five-year period, which might expire before the action was finally determined. I accept Mr Nash’s submission that there is no evidence before the court that any loss will actually occur from either of those two sources. It is unlikely that Hillcourt would wish to deal with the property during that interim period. It must be in Hillcourt’s interest that the lease continue to bind Telia. Secondly, it is unlikely that the planning permission granted would be lost. Certainly, there does not appear to be any evidence that that is a likely event.

It is my intention, as a condition of the stay of execution, to require Telia to give a cross-undertaking in damages similar to that which would be required were I to be imposing an interlocutory injunction. There is no question but that Telia is a substantial organisation well able to support such a cross-undertaking, even if the price of putting the property back into the order in which it existed before Telia took possession under the lease turns out to cost £5 million.

It follows, therefore, that I will not make the injunction, which is the first relief sought. I will, in place of that relief, substitute a stay on terms that Telia give a cross-undertaking in damages in the event that the stay, by delaying the process of execution of the Section 66 claim and judgment, causes Hillcourt any damage.

I turn therefore to item 3, namely an injunction restraining Hillcourt from proceeding with a rent review of the lease. That rent review has now become due. I have come to the conclusion that I should make such an injunction. Alternatively, I will accept any undertaking from those instructed by Hillcourt, in substitution for such an injunction, that all further steps under the rent review provisions of the lease should now cease. It seems to me that when the case comes to be tried, the court’s verdict might well be that the lease is void ab initio.

Undoubtedly the costs of the review process are potentially large. There are many areas for dispute between the parties as to what the proper rent for the property might be. If the lease in the result of the action continues, it is open to Hillcourt to recover the arrears of rent and interest which may subsequently emerge from a re-instituted rent review. Again, I will require Telia to give a cross-undertaking in damages to support this injunction. However, I will not require (for the reasons which I have already explained) that that cross-undertaking be backed by a deposit of monies in this jurisdiction. For these reasons I will grant, if not the precise relief, then effectively the relief sought by the applicant in this application.

For the purpose of making this order I will treat the Section 66 proceedings as before me.

The defendants Telia are entitled to their costs in the proceedings in the sum of their bill for some £28,000.