Nordic Insulated Doors Ltd v Land Resources Ltd

This is a trial of a dispute between the parties under a Joint Venture Agreement (“the JVA”) entered into between the parties on 31^st August 2011 in relation to the development of a property situated at St Lukes Court Willerby Hull (the “Property”). In addition, the Claimant seeks a substantial amount of damages which it contends it has lost by reason of the Defendant’s failure to pay the sum due under the JVA.

The Claimant is owned and controlled by a Mr P J Finn and the Defendant is owned and controlled by Mr Frank Maguire and his wife. In essence the dispute is between Mr Finn and Mr Maguire.

They had entered into previous development opportunities before. The relationship was that Mr Finn would provide the expertise to renovate and/or improve the relevant properties and Mr Maguire would put in the finance. That was the same in respect of the JVA.

The JVA (like homemade wills) suffered from having been drawn up by the parties without legal advice.

The dispute is in respect of the split of any profits made on the sale of the Property clause 3 provides as follows:-

“3.

The first 600k of profit after legal costs will go to LR. After 600k all income will be split 50-50. All income will include income from plot sales, parking, freehold.”

There was a dispute initially as to the meaning of this clause. It was contended by the Defendant in correspondence and repeated in its Defence (paragraph 6 (viii)) that the Defendant was entitled to the first £600,000 of profit i.e. after repayment of the expenses that it had put in to the JVA. Those expenses were considerable. It purchased the Property for approximately £440,000 and according to clause 3 would invest £100,000 (although it contended at trial it actually invested £160,000).

In the present case the Property was sold for a gross price of £900,000. On that analysis those funds would be allocated in accordance with clause 4 which provided:-

“4.

On completion of plot sales once the 600k has been repaid the profit will be distributed 50-50 on presentation of an invoice by ND to LR.

5.

Once the 600k is repaid and there is money due to ND from sales ND will have the option to buy the following units at the following prices.”

That would produce repayment of the Defendant’s funds (between £550,000 and £600,000). Then it would receive the first £600,000 of profit and then only would there be a 50/50 split. That argument leads to a conclusion that on a sale of £900,000 with the repayments set out above the Claimant would receive nothing.

The Claimant’s case was that the figure of £600,000 was a rough estimate as to the expenses put in by the Defendant i.e. the acquisition and £100,000 contribution costs. If the contribution costs exceeded a total of £600,000 the Defendant was to absorb that. Equally, any contribution made by the Claimant as to costs (it asserted that it had invested £50,000 in work and a further notional £60,000 in respect of its relinquishment of its share in another joint venture in a property in Bradford was to be subsumed in the profit share i.e. any costs would come out of its 50/50 share).

The Claimant’s case therefore is that the Defendant is entitled to £600,000 out of which it reimburses its expenditure. It accepts that if the Defendant’s expenditure is actually less than £600,000 it is not entitled to any more as that was the estimate the parties agreed. After the £600,000 has thus been used to repay the Defendant, the Claimant contends the profits are split 50/50. Thus it is entitled to £150,000 plus a modest figure in respect of rental income.

In the middle of Mr Maguire giving evidence he contended that the construction being put forward on his behalf at trial was something that he never believed in and was never agreed. Thus paragraph 22 of the Defence which shows the calculation according to this contention as to the construction of clause 3 was wrong. When he was asked by Mr Deacon who appeared for the Claimant as to how that happened (bearing in mind in particular the fact that Mr Maguire had signed the Defence with a statement of truth attached to it) he was unable to explain. He said it was a mistake. At one stage he said he never read the Defence (which I find surprising) and was unable to explain a stance which he was unwilling to maintain when required to address it on oath in the witness box (despite verifying his witness statement at the start of this evidence which was to the like effect).

Equally, the suggestion that the Claimant was entitled to nothing because the development proceeded as a sale of the whole rather than individual units (as set out in his solicitor’s detailed response to the claim dated 23^rd August 2012) was similarly abandoned.

The major reason for non payment was based on the terms of clause 6 of the JVA which provided:-

“6.

This agreement will finish on 01/08/2012 and after that date ND will have no vested interest in the site.”

This was a surprising provision and conferred a high risk to the Claimant. It could carry out a lot of work to facilitate a sale which would nearly be ready for completion (which actually happened as the facts will show) but then be denied any entitlement whatsoever to the ensuing profit to which it has participated because the fruits arrived after 1^st August 2012. Nevertheless, Mr Finn was the draftsman of this clause and he accepted when he gave evidence that in the absence of any alleged extension, he fully understood that after 1^st August 2012 the JVA came to an end and he had no claim in respect of the JVA thereafter.

Accordingly the Defendant contends that the Claimant is not entitled to anything because the sale did not take place until after 1^st August 2012.

It is necessary to understand the nature of the Property. It was one of a succession of properties in which the Claimant and the Defendant were involved which were closed down care homes or community homes, purchased with a view to renovating and selling/renting them. The question would be whether or not the properties would be sold as individual units or as a block or leased for rental income.

The Property was sheltered accommodation run by a housing association. It was obviously in a tired state and required the interiors basically to be stripped out and redecorated. The Claimant had discussions of the usual informal nature with the local planning authority of East Yorkshire Borough Council (“EYBC”). For example a Mr Chatfield sent an email dated 29^th June 2011 to Mr Finn in which he stated that on the basis of the information he then knew there was no condition imposed with regard to occupancy, that the development would fall within class C3 dwelling houses and that each apartment might be occupied by people below the age of 55. He expressed the view that planning permission would be required for the creation of any new apartments within the building (there was a prospect of creating more units in what were the existing community and boiler areas). Mr Finn forwarded that email to Mr Maguire on the same day with the observation “good news”.

The parties clearly contemplated the possibility of converting the Property into individual units to be sold off as separate properties. However it was clear that more was required to achieve that. They employed a Mr Nick Rymer as their architect. He was supposed to give evidence before me but did not materialise. He apparently advised them in October 2011 (when the project was almost complete) that building regulations and planning permission for the communal area were required for the site in order for it to be sold as private dwellings. In his witness statement Mr Finn said that he and Mr Maguire discussed Mr Rymer’s advice and whether they wanted to go down that road which would result in increased costs. He says (and I accept his evidence) that they decided not to go down that route and that building regulation approval was obtained on the basis of the Property as it stood with the warden aided accommodation and communal room. The proposal was to sell any which way they could and have the units rented or sold generating income or capital. Mr Finn also says (and I accept his evidence) that prospective purchasers might have wanted a certificate of lawfulness but Mr Maguire was not willing to apply for that because he was concerned that there might be a refusal.

Mr Maguire only disputed the date of that discussion it being put to Mr Finn (who agreed it was a possibility) that it might have taken place in November. Nothing in fact turns on this because I am quite satisfied that ultimately come July 2012 (with some units having been let in the interim) both of them agreed they were not prepared to put in the necessary expenditure required to adapt the Property so that the units could be sold off separately. This would require (for example) expensive insulation to be put in and by this time I find both parties wanted a finality to the project. This was triggered by an email sent by Mr Boynton EYBC’s Principle Building & Control Officer to the parties’ architects dated 6^th July 2012. In that email he said that if the parties wished to convert the use of the building from warden aided to single family occupancy units this would be a material change and would require extra work to comply with the Building Regulations 2010.

Almost immediately Mr Finn sent Mr Maguire an email dated 7^th July 2012. In it he reiterated that the units could not be sold separately with present use and intimated that the parties’ solicitor’s advice was incorrect. He also reminded Mr Maguire that he was not willing to risk being refused a certificate for lawfulness.

He then revealed that he had received an offer of £800,000 for the Property (in its entirety) and expressed the view that he might be able to squeeze another £10,000 which could cover costs. On the basis of the JVA this would net him £100,000. He subsequently secured £900,000.

The termination date of the JVA was fast approaching. Mr Finn was clearly conscious of that fact. His evidence is that in or about 11^th July 2012 he had a discussion with Mr Maguire. He says that the essence of that discussion was that rather than accept the current offer (which was from a company called BG2 Ltd) for the entire site, they agreed that they would endeavour to sell the units separately and that in order to do so the life of the JVA would be extended for a period of 3 months until 1^st November 2012 so as to give them time to do the necessary works.

Mr Maguire denies there was any such agreement. His evidence was that he was constantly being harangued over the phone by Mr Finn for an extension and that this was just one of those times. He did not agree the proposal but simply said “I will talk to my solicitors”. This, he said, was the only way he could get Mr Finn off the telephone.

Mr Finn sent an email on 11^th July 2012 timed at 09.14 am to Mr Maguire’s solicitors in which he said that he and Mr Maguire had agreed to extend the life of the JVA by 3 months (until November 1 2012) to give them time to look at doing the work in order to sell the units separately. He asked for confirmation that that was their instruction and to confirm back to him so “that I can rely on the confirmation of extension”.

He never received a reply and thus never received that confirmation. He sent an email at 12:03 pm on the same day to Mr Maguire saying “please confirm you have instructed [the solicitors]”.

Mr Maguire never replied to that email. On the next day Mr Finn instructed his solicitors (who were also coincidentally the solicitors for the purchasers) to write to the Defendant. In that letter it was asserted that there was an extension, that the solicitors usually instructed by the Defendant are Square One Law and that they had been instructed to write to the Defendant and to send a copy letter to his solicitors. Separately, they said they were preparing a draft agreement for the sale of the site as a whole.

They did not obtain a reply on the issue of the extension but did receive an email dated 13^th July 2012. By that time the terms of the agreement provided for a sale at £900,000 with a simultaneous exchange and completion to take place within a short timeframe, including a requirement for proof of funds.

I do not find the latter requirement particularly surprising in the present market. There are (it is well known) lots of people who pretend that they can purchase properties for cash but for one reason or another they do not actually have the funds that they proclaim to have. It is a regular requirement now for agents to require prospective buyers to have proof of funds. There are even some companies who offer a service of providing proof of funds although the legality of that is questionable (see Helmsley v Malik [2013] EWHC 2232 (Ch) ).

Thus Mr Finn had sought confirmation of the supposed extension 3 times and he had not received any replies. Mr Maguire had made a considered decision not to have any further communications. He says this was as a result of a conversation he had with Mr Finn on the 15^th July in which Mr Finn confirmed what Mr Maguire had been told by a third party, namely that Mr Finn had taken deposits on individual flats contrary to the understanding between them. Those deposits were subsequently returned but for Mr Maguire that was the last straw. He simply wanted the JVA to be terminated according to its terms as soon as possible. He wanted nothing more to do with Mr Finn.

The matter nearly completed within the term of the JVA. On 18^th July 2012 Mr Pandal (the Defendant’s solicitor) reiterated to the buyer’s solicitors that simultaneous exchange and completion was required before the end of the month and that proof of funds was required. The significance of this of course is that it shows a clear willingness on the part of Mr Maguire to allow the contract to proceed (if possible) within the initial term of the JVA. It cannot be said that Mr Maguire was deliberately slowing matters so as to ensnare Mr Finn with the consequences of clause 6. In fact the purchaser’s solicitors confirmed that they had no objection to simultaneous exchange and completion and provided proof of funds. There was a delay because Mr Pandal sought an undertaking that the Defendant’s costs would be paid if the matter did not proceed. There is nothing novel in that in the current climate. There was some correspondence (culminating in an email from Mr Pandal dated 23^rd July 2012) about that undertaking with a full purchaser’s pack being provided. Ultimately an undertaking was proffered in the sum of £1,500 plus VAT if they were unable to achieve a simultaneous exchange and completion before 31^st July 2012. That form of undertaking was accepted by an email dated 24^th July 2012 and it was provided in writing the next day.

Mr Pandal emailed on 25^th July 2012 saying that he had been instructed not to carry out any work until the undertakings were received this resulted in a loss of time of 1 week. Nevertheless after a flurry of exchanges in relation to the enquiries he emailed the buyer’s solicitors on 31^st July 2012 saying that he held a signed contract and was ready to exchange and complete that day. The day before Mr Finn had sent an email to him attaching a copy of the JVA and stating that he expected what was due to him to be released at completion tomorrow i.e. 31^st July.

Unfortunately the matter did not complete because the buyer did not have enough funds. This was set out in Mr Pandal’s email of 1^st August in which he referred to a discussion between the buyer’s solicitors and himself where he said that they expected to be in funds and able to achieve a simultaneous exchange and completion on 2^nd August 2012. The matter did complete on 2^nd August 2012 and the buyers paid the costs caused by the failure to complete by 31^st July 2012.

I heard Mr Finn and Mr Maguire give evidence and both were extensively cross examined. Having seen them both give evidence I have come to the conclusion that I prefer the evidence of Mr Maguire to that of Mr Finn.

I found Mr Maguire’s evidence in relation to the discussion convincing. It is clear that he was determined to finish the JVA according to its tenor and by July 2012 his relationship with Mr Finn had broken down. He was therefore willing to stand by the letter of the JVA and nothing more. This he did. If he wanted to deprive Mr Finn of the monies there were any number of things he could have done to slow the progress of exchange and completion without giving the impression that he was thwarting the completion. In fact the matter proceeded to such an extent that the Defendant was in a position to exchange and complete but the purchaser did not have sufficient funds. That is unfortunate for the Claimant but the unfortunate nature of the result arises not from any default on the part of the Defendant but on the freely agreed penal nature of clause 6 of the JVA.

In addition to my assessment of Mr Maguire and Mr Finn there are a number of other factors which I took into account. First I reject the suggestion that there was any point in extending the term for another 3 months in the hope that something might turn up. It is quite clear that neither Mr Finn nor Mr Maguire were willing to put any more money into the project. From Mr Maguire’s point of view he had reached (and may even have exceeded) the £600,000 ceiling for the purpose of division of profits on a sale. He would not get back any expenditure once that £600,000 threshold had been crossed and his evidence was that it had already been exceeded. It was not necessary for me to decide that and I do not intend to do so bearing in mind both sides failed to produce any invoices before the hearing in respect of the monetary claims.

Second Mr Finn can have been under no illusions because he sprayed around a series of self serving emails and letters and never received the confirmation that he was hoping to receive. He did not act on those so as to create any kind of estoppel and he must have known that he was not going to receive the confirmation that he sought to extract by those communications. He clearly hoped the matter would proceed to completion so there would be no argument. Unfortunately for him it was 2 days too late and probably because of the haggle over the undertaking. That was not Mr Maguire’s fault.

Third the extension would probably have achieved very little. There was a considerable amount of work to be done as the email from EYBC to the architect shows. I do not think that 3 months would have been anything like enough time to obtain the necessary planning permissions and building regulation approval to carry out the works.

Mr Maguire was criticised for not replying. However it was not suggested he was under any duty to reply. Mr Finn cannot have believed Mr Maguire agreed an extension as a result of his failure to reply.

I therefore conclude that the Claimant has failed to make out a claim to be entitled to a share in the proceeds of the sale of the Property on 2^nd August 2012.

That falls in view of my determination that there was no breach by the Defendant in failing to pay the £160,000. It is not necessary therefore for me to make a determination on the large claim. However, in case this matter goes elsewhere I will express an opinion on it.

In my view the claim was invented to try and terrify the Defendant into paying up the half share of the profits. The Claimant’s solicitor’s letter on 29^th August 2012 asserts that the Claimant was relying on the payment in respect of a further property transaction. It was said to be commercially sensitive and that they were not in a position to reveal the names save that one of the parties was Mr Finn. It was suggested that he would enter into an option to acquire a property at a price of £150,000 which would have generated a profit of £1.25m but that he had to pay the money by 3^rd September 2012. It was asserted that without the payment of £150,000 Mr Finn did not have sufficient funds to raise the money under the option agreement. Thus it was suggested that the Defendant would be liable to pay damages in respect of that loss if it did not pay the £160,000 due to the Claimant. The heading is somewhat pejoratively “Punitive Damages” which cannot as yet be awarded for a breach of contract which is what the claim is.

There is no evidence to show that the Claimant was unable to raise any monies elsewhere to cover this extraordinary opportunity. Mr Finn in his evidence said that the proposal was so speculative that he would not be willing to borrow the money to finance the acquisition of the option. In the absence of such evidence the Claimant fails to make out that it needed the proceeds to enter into the option.

Further although Mr Finn says in paragraph 46 of his witness statement that the option agreement was assignable by him clause 4 provides “4 the option is personal to the buyer. The buyer may not assign, sublet, share or part with the benefit of the agreement”. I do not see how given the absolute nature of that prohibition he could have assigned the benefit to the Claimant (see Linden Gardens Trust Limited v Lenesta Sludge Disposal Limited [1994] 1 AC 85 ).

Mr Finn produced the option agreement and no more. Significantly there was no evidence from the proposed buyer concerning who would pay the extra £1.25m to enable Mr Finn to make this large profit in exchange for an outlay of £150,000. He in his own evidence described the proposal as a gamble.

Even if this head of damages can be claimed by a failure to pay money (as to which I entertain great doubts despite Mr Deacon’s valiant attempts to the contrary) I am unconvinced that there is any loss that is claimable beyond a minimal amount representing a gamble. At best it would be 1% but even that is not maintainable (putting aside the failure to extend the JVA) because the option is non assignable.

Finally there is no evidence to show that the possibility of such a large profit making scheme was made known to Mr Maguire at the time of the JVA. Whilst I can see there are authorities which allow the payment of something other than simple interest (culminating in Sempra Metals v IRC [2008] AC 561 ) the proposed claim by the Claimant fails to satisfy the requirements of Hadley v Baxendale [1854] 9 Exch. 341 in that it is neither something that was expressly contemplated at the time the contract was made nor is it the kind of loss that would arise in the usual course of events arising out of the failure to pay £160,000.

Therefore even if I concluded that there was an extension as contended for by the Claimant I would not have awarded the substantial damages claim.

The Defendant contends that the extension agreement if made orally is not enforceable because it fails to satisfy section 2 (1) of the Law of Property (Miscellaneous Provisions) Act 1989 which provides that any contract for sale or other disposition of interest in land is required to be made in writing . The JVA is not such an agreement; it is a contractual agreement between two parties as to how they collectively might organise the renovation and disposal of a property. It is not a contract of sale between them in respect of any interest. The only matter which is relevant is the fact that clause 5 gives the Claimant an option to buy the Property once the £600,000 has been repaid and there is money due to it from sales. I accept that an option is governed by the provisions of the 1989 Act and that the extension of the term of the JVA would also be an extension of the option and that for the option to be enforceable any such extension should have been in writing and it is not. However that does not invalidate the extension as regards the JVA generally which is not subject to the rigours of the 1989 Act (see generally Emmet and Farrand on Title paragraph 2.048; the avoidance of the option does not avoid the agreed extension because the latter is not subject to the 1989 Act as it arises under the JVA which itself is not subject to the 1989 Act).

Accordingly had this arisen I would have rejected the submission on the part of the Defendant.

In response to the Claimant’s letter before action and repeated in its Defence the Defendant (in paragraph 7) asserted that the Claimant was in breach of various matters. First it is alleged in paragraph 4 (iii) that he would ensure that all necessary planning permissions and approvals would be obtained and that he represented that the Property could be converted and refurbished into 31 self contained dwellings which could be sold off at a certain price (paragraph 4(iv)). Second it was asserted in paragraph 6 that there were implied terms on the part of the Claimant in obtaining building regulations and supervising the refurbishments and that he would act in good faith. In paragraph 7 various allegations of breach were made including the serious allegation of bad faith.

It was contended that the Defendant did not know until July 2012 of the nature of planning permission and building regulation approval required.

This has led to a pleading in paragraph 12 that the Claimant by his conduct repudiated the JVA or that the Defendant was discharged by the Claimant’s breach of the JVA from further performance. Acceptance of the repudiatory breach was not pleaded and there was no evidence addressing it. It was therefore “a thing in the water” and of no effect and the JVA continued until 1^st August 2012 unless extended by agreement.

This it was asserted led to a loss of between £407,858 and £717,458.

This is a series of curious claims. First there is no counterclaim and it was accepted by Counsel for the Defendant during his opening that if the Claimant’s claim was dismissed so there was nothing for the damages claim to be set off against the Defendant had no right to seek damages over and above that. That of itself makes the claim irrelevant given my decision on the extension. Second the obligations were pleaded in absolute terms but I could see no basis for it being credible that the Claimant would guarantee these matters. Mr Maguire said the obligation was best endeavours which was not how it was pleaded. Further the supposed breaches of this obligation were not put to Mr Finn during his cross examination until I reminded Counsel when he was about to sit down.

None of the breaches are particularised and I have no evidence of an expert nature relating to these planning matters and supervision of works to assist me. Nor did I have any evidence as to the basis for quantifying the damages as claimed.

In any event the cross examination of Mr Maguire showed that he was well aware of the planning difficulties over the period of time and that he agreed to proceed with the sale of the whole finally in July because he was not prepared to put any more money into the project. That was why he did not pursue it. This claim by the Defendant was just put forward in terrorem to counter the in terrorem claim of the Claimant. Neither of them was genuine and in so far as it was necessary I would have dismissed the Defendant’s claim for damages.

Accordingly I dismiss the Claimant’s action.