Hope Capital Limited v Alexander Reece Thomson LLP

Cedar House is a Grade II listed property, prominently situated in a plot of some 0.667 acres on the edge of the large village of Cobham in Surrey. The original brick and timber building was constructed in the 15^th Century, with later additions in the 18^th and 20^th Centuries. It was valued at £4,000,000 within a report dated 14 February 2018 (‘the Valuation’) by Mr Jeremy Mussett then of the Defendant, Alexander Reece Thomson LLP (‘ART’) as security for a bridging loan. The loan was in the sum of £2,215,440 (£2,448,000 including interest and fees which would accrue during the term of the loan, i.e. gross), and was provided to St Anselm Heritage Properties Limited (‘St Anselm’), by the Claimants (together, ‘Hope’) in circumstances described more fully below. St Anselm was a property company owned and controlled by Mr Evangelos Pieri, which had the benefit of a long lease on Cedar House from the National Trust, the freehold owner. St Anselm defaulted on the loan and receivers took possession of Cedar House on 12 November 2018. A number of issues arose, the most significant of which was the service by the National Trust of a (second) s146 Notice on 18 November 2018 requiring remedial work to the property in respect of breaches of the lease by St Anselm caused by irresponsible renovations. Cedar House was eventually sold on 2 October 2020 for £1,400,001.

Hope brings a claim against ART alleging that the Valuation was negligent, and that no transaction would have taken place if the valuation had reflected the true value of Cedar House. This, it says, was £2,150,000. It claims that its total loss caused by entering into the transaction was £2,527,749 (to 2 October 2020, plus interest). This is made up of the loss in capital (£875,401.40, including net costs of extraction), the loss of contractual interest on the loan (£1,293,149.68), and a claim for loss of profits which, it says, would have been realised by use of the lost capital in the intervening years in other successful bridging loans (£359,197.20). Hope accepts, on the basis of the principles laid down in South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (‘SAAMCO’) that its recoverable loss is capped by reference to the difference in value between the Valuation (£4,000,000) and what it says is the non-negligent 180 days valuation for Cedar House (£1,950,000). This is a total actionable loss of £2,050,000 plus its claimed Weighted Average Rate of 17.64% p/a of interest claimed from 28 March 2018 to date, which it claims equates to £3,982,933.21. Its alternative case based upon a Cost of Funds rate averaging 8.10% p/a is £2,937,571.37.

In its Closing Submissions, ART accepted it had acted in breach of duty for the first time. Whilst it contends that the true value was £3,175,000, it accepts that this fell outside a bracket within which a reasonably competent value should have fallen. It denies causation and loss, and alleges contributory negligence. Its primary case, reliant upon the analysis in the recent Privy Council case of Charles B Lawrence & Associates v Intercommercial Bank [2021] UKPC 30; [2022] P.N.L.R. 7, is that loss should be calculated as the difference between the value of the property (ignoring issues which were not within the valuer’s scope of duty such as, in the present case, the impact of the National Trust’s second s146 notice and the delay in selling the property) and the loan, less a discount for contributory negligence, plus statutory interest.

On the fourth day of trial, Hope applied to amend its Particulars of Claim pursuant to CPR Part 17.1(2)(b). The Amended Particulars of Claim:

No other amendments were sought.

In light of the fact that negligence was, by the end of trial, admitted, on its face the relevance of the amendment appeared to fall away. However, it was pressed by the Claimants on the basis, as contended in its Written Closing that,

Neither of these averments formed part of the sought amendments, or were advanced in an Amended Reply.

The part of the emails of 13 June 2017 referred to in the amendment to paragraph 9 above stated:

It is said by Mr Nicol, on behalf of Hope, that this document should have been disclosed by the Defendant, although he does not seek to go behind the explanation by the Defendant’s solicitors that (as stated on its disclosure statement in September 2022) some of Mr Mussett’s emails, which had been searched during the disclosure exercise, had been irrecoverable. However, the emails which had been disclosed previously included an exchange between Mr Mussett and Mr Pieri in which included the following:

This exchange had also been referred to in the expert report of the Defendant’s valuation expert, Mr Rusholme. He said: ‘I have been provided with an email sent by the owner of the Property (the borrower) to Mr Mussett of the Defendant firm requestion that he ‘immediately sells’ the Property.’ Whilst ‘immediately sells’ is not, in fact, a direct quotation, it is a fair paraphrase of ‘Could you sell cedar house now’ and/or ‘if you have any buyers that would be great’.

Within the original disclosure there was also a series of exchanges on 16^th June 2017 and 5^th July 2017 between Mr Bickle of Savills and Mr Pieri, into which both Mr Mussett and Mr Mackernan were copied dealing with a negotiation of a lease for Cedar House with The Cotswold Company (‘TCC’). It is clear from the email chains that it was into this overall exchange that Mr Mussett was inserted, at the request of Mr Pieri, on 13 June 2017 which led to Mr Mussett emailing Mr Bickle and introducing himself as assisting Mr Pieri in an advisory capacity in the email upon which Mr Nicol relies. Finally, there is a further exchange between Mr Mussett and Mr Bickle in the original disclosure on 3 November 2017, the day after Mr Mussett’s inspection of Cedar House carried out initially for his valuation of the Property for Clarity Financial Ltd, and referred to as the date of inspection in the Valuation. Mr Mussett asks, ‘What price are you quoting for the long leasehold interest’; to which Mr Bickle replied, ‘£3.25m’.

In an unusual feature of the case, the email of 13 June 2017 was in fact discovered because it was in the possession of Savills, for whom the Claimants’ valuation expert Mr Mackernan works (and who was, as the email exchange above, copied into the discussions contemporaneously). The Defendant’s solicitors had been repeatedly seeking disclosure of the material Savills held relating to Cedar House from around November 2022 onwards.

I allowed examination/cross-examination of Mr Sealey, the principal shareholder of Hope, on the topic de bene esse on the basis that I would hear submissions and determine the question of amendment as part of the parties’ Closing Submissions.

In examination (by way of re-examination), Mr Sealey – who had not yet seen the ‘new’ email of 13 June 2017 – gave evidence that he believed that Mr Pieri had had prior involvement in Cedar House, and that if he had known this at the time, it would have made a big difference to him because a conflict of interest would have existed. As such, Mr Sealey said that he would not have allowed ART to carry out the valuation.

In cross-examination, Mr Sealey confirmed that he considered that a conflict existed on the basis of documents which had been disclosed much earlier in the litigation, albeit he thought he had only seen those documents shortly before trial. Mr Sealey also confirmed that he had made his solicitors aware of his concerns that a conflict existed. Mr Sealey confirmed that knowledge of the substance of the type of exchange including in the original disclosure was sufficient in his mind to give rise to the concern about a conflict of interest. Mr Nicol contends that nevertheless that it is only on the basis of the 13 June email (the disclosure of which was not in its direct control) could the substance of the amendment properly be advanced. He contends this email demonstrates that Mr Mussett, at the date of the Valuation, was at the date of the Valuation intimately involved, or has been in the past, with the borrower and the property.

Mr Asquith opposes the application to amend on the basis that (1) there is no proper explanation for its (admitted) lateness; (2) the evidence given by Mr Sealey on the point in re-examination was not ‘permissible’ because it had not arisen out of any cross-examination; and (3) a real unfairness arises out of the inability on the part of the Defendant to pursue related disclosure and scrutinise all relevant evidence. In Closing, it was contended that the only fair approach were the amendment to be allowed would be an adjournment.

As to the first point, I do not accept Mr Nicol’s suggestion that the substance of the amendment could only have been advanced following receipt of the 13 June 2017 email. It is absolutely plain from the May/June exchanges in the original disclosure that there was a prior relationship between Mr Pieri and Mr Mussett. It is clear that he offers to, and is asked to, help sell Cedar House. He is then involved in the exchanges relating to the negotiations. If anything, it could be read into the disclosed exchange that Mr Mussett was acting as an agent or prospective agent (‘if you have buyers….’) – which could obviously conflict with acting as an independent valuer where the two roles were undertaken concurrently - whereas the 13 June email suggests that the relationship was not necessarily as agent but ‘assisting in an advisory capacity’. To use Mr Nicol’s phrase, the relationship revealed by the disclosed exchanges is no more or less demonstrative of an alleged ‘intimate involvement’ than the 13 June email. Indeed, this is precisely the conclusion that Mr Sealey of the Claimants came to, whose concerns about a conflict were predicated having seen the originally disclosed emails, not the 13 June email. In light of this, the late discovery of the 13 June email cannot amount to good reason for not having taken the point, if it was to be taken at all, much earlier. Secondly, whilst it is true that the 13 June email would have been within the ambit of the Defendant’s disclosure, the solicitors made clear at the time that for technical reasons the emails retrieved from Mr Mussett’s account were not complete. This was not criticised or questioned at the time, and there is no reason not to conclude that the Defendant complied fully with its disclosure obligations. The documents disclosed, at the very least, put the Claimants on clear notice that there may be emails demonstrating Mr Mussett’s involvement with Cedar House within the documents held by Savills, and indeed within the professional email account of their own expert, Mr Mackernan, as ultimately turned out to be the case. Yet the Savills documents were only disclosed after significant pressure from the Defendant. Whilst technically, of course, the email was not within the Claimants’ direct control, it was in the control of their expert and I consider there to be no good reason why Mr Mackernan had not provided full disclosure of his own involvement in the attempts to sell Cedar House much earlier. If fault lies anywhere for the late discovery of the 13 June 2017 email, it lies more with the Claimants’ team than the Defendant’s.

As to the second point, it is correct that the evidence was elicited in re-examination which did not arise out of cross-examination, and a marker was put down in that regard by Mr Asquith. If I was otherwise going to permit the amendment, this would not be sufficient an objection.

As to the third point, I accept Mr Asquith’s submission that had the matter been raised sooner, it would have been open to seek disclosure relating in particular to the causation aspect of the case: whether, if Mr Mussett had said (as he should) that he had previously been involved in advising Mr Pieri, that Mr Sealey would necessarily have refused to permit Mr Mussett from carrying out the valuation. On the documentary evidence disclosed originally, it is quite clear that by November 2017, when Mr Mussett was carrying out the valuation for Clarity Finance Ltd (which effectively became the Valuation), Mr Mussett was neither agent in relation to Cedar House nor ‘intimately involved’ in it: if it were otherwise, he would not need to write to Savills (who were the agents) asking what the price for the long lease was. At best therefore, the Claimants can allege that Mr Mussett had a prior involvement in the property and that it was wrong not to have disclosed this. However, the existence of a past involvement in the property does not itself create a present conflict and, indeed, may be perceived as a positive advantage: as Mr Asquith points out, Hope’s own case in relation to the competing valuation expert evidence is that ‘of any expert capable of assisting the court, Mr Mackernan had the most experience of how this property fitted into the market, and was therefore in a prime position to value the property in the market…..’. In other words, prior knowledge of the property within the marketplace is explicitly relied upon as a positive attribute for the independent valuer. Whilst it is not necessary, of course, to form any view on the substance of this case for the purposes of the amendment application, it is clear as a minimum that the Defendant would be entitled to seek documentation from the Claimants (for example, their approach to other valuations on other properties) to test the causation plank of the prospective case pleaded at paragraph 10 that had Mr Mussett described his prior involvement, it would necessarily have led to the Claimants seeking an alternative valuer. The timing of the amendment deprives the Defendant of the opportunity to explore these issues, and allowing the amendment at this stage would cause real prejudice.

I therefore refuse the amendment.

The Claimants relies upon two factual witnesses, Mr Sealey whom I have already referred to, and Ms Katie Cowan, the Finance Director of Hope.

I regret to find that neither was an impressive witness. Mr Sealey’s evidence, which was central to Hope’s claim both for contractual interest and lost profits, was in many instances contrived and unconvincing. Whilst I deal with this in more detail in the context of the claims themselves, particularly unimpressive aspects of Mr Sealey’s evidence included:

As such, I cannot generally accept Mr Sealey’s recollections unless clearly supported by contemporaneous documents, particularly in circumstances where it is inherently likely that such contemporaneous documentation would have existed. As the Claimants’ disclosure demonstrates, Mr Sealey was plainly engaging in regular email contact with members of his senior team, and a myriad of third parties. It is in my judgment wholly improbable that if his evidence in relation to the supposed finite lending limits, the struggles to his business due to the inability to make loans and the rejected requests for increased lending limits from Triple Point is true, there would not be a single contemporaneous document by way of substantiation.

Whilst Ms Cowan was generally more straight forward with the Court, the consequences of many of her answers was that no real reliance can be placed on the key spreadsheets, or ‘Data Tapes’, produced by her which underlay Hope’s case on its entitlement to contractual interest and/or lost profits on other transactions, as discussed later in this judgment. The most obvious example of this was her use of the word ‘redemption’ to mean different things at different times, notwithstanding accepting that she knew and understood the normal meaning of ‘redemption’.

Before turning to the expert evidence, I note that the Defendant did not call Mr Mussett. The question of whether the Valuation was carried out negligently has turned upon the expert valuer’s evidence, and Mr Mussett’s absence is plainly far from determinative of this issue. However, it does mean that the Court has not been presented with the basis upon which Mr Mussett arrived at his conclusion, save insofar as this can be gleaned from the Valuation report itself.

The Claimants relied upon the expert valuation evidence of Mr Daniel Mackernan, of Savills, who had taken over from a previous expert valuer, Mr Clarke of Avison Young. The Defendant relied upon the expert valuation evidence of Mr Rusholme, of Chestertons.

In relation to lending practices, the Claimants relied upon the evidence of James Penman, and the Defendant relied upon the evidence of David Griffiths.

Whilst none of the experts’ approaches stood up completely to scrutiny, I have no doubt that they were all generally seeking to assist the Court in accordance with their duties. As is clear from my judgment below, I neither wholly accept or reject any expert witnesses’ evidence. I would add that the approach of Mr Mackernan to the disclosure of ‘the Savills file’ and related emails from the contemporaneous exchanges with Mr Pieri (and, indeed, Mr Mussett of the Defendant) was plainly unsatisfactory and incompatible with his role as an independent expert. These documents demonstrated that some parts of his summation of the Savills’ marketing campaign were inaccurate. That said, I do not consider that these factors tarnished the entirety of his evidence, such that it must all be rejected. Mr Mackernan’s conduct over the Savills’ file was, in my judgment, more likely to have resulted from an unfortunate lack of proper reflection on the demands of his role as independent expert, rather than any conscious desire to obscure evidence from Court.

The following paragraphs set out the factual chronology of the events, as I find them to be, surrounding the relevant history of Cedar House insofar as it affects the proper valuation of Cedar House, the making of the Valuation, the loan, its default and the events which follow leading to the sale of the property. This chronology will be drawn upon when addressing the agreed issues.

On 29 March 2002, the Lease between the National Trust and St Anselm was entered into. St Anselm was not at this stage owned by Mr Pieri. Pursuant to Clause 16 of the 99 year Lease, St Anselm covenanted to use the demised premises only as a high class hotel and restaurant and (ancillary to such use) the provision of a travel agency bureau from the hotel reception. The lease was on a Full Repairing basis with the tenant covenanting to keep the Property in good and substantial repair and condition including redecoration both externally and internally.

On 5 November 2010, a valuation company called Taylors produced a report and valuation on the Property for a proposed borrower, Mrs S Seery (or her NewCo), an experienced operator with a number of other catering/hotel businesses in Cobham. The description referred to the property as a former part fitted licenced hotel/weddings venue/restaurant which had been closed since early 2010, with 12 en-suite letting bedrooms of variable standard over split levels. Taylor’s projected turnover for the ‘rejuvenated’ business was £800,000. They gave a market value of £1.875m - £2.5m depending on assumptions. As it stood, the value was £1,900,000.

In 2015, Cedar House was being marketed by Cattaneo with a rent of £225,000 per annum.

Mr Pieri purchased St Anselm in around 2016. At the time it was subject to a s.146 Notice from the National Trust (“the First 146”) due to breaches of the lease. A s.146 notice is a notice served pursuant to section 146 of the Law of Property Act 1925 by a landlord to a tenant in the event a lease has been breached. If the breach is not remedied, the tenant is at risk of its lease being forfeited.

On 20 May 2016, Cedar House was valued by Mr Mackernan, the Claimants’ valuation expert. He valued the property at £2m with vacant possession and assessed the market rent at £120,000 per annum. It was given a 180 Days market value (i.e. value on the basis it has a restricted sale period of 180 days) of £1,600,000; and a 90 Days market value of £1,200,000. Mr Mackernan’s market value was derived from the market rent of £120,000 and a net yield of 6%. (£120,000/0.06=£2m). A version of this document was located within the Defendant’s valuation file for the property, and it has various handwritten notes which are assumed to be Mr Mussett’s. The notes would appear to suggest a thought process deriving (or justifying) an annual rent of £190,000 by multiplying the square footage of 6215 by a rate per square foot of £30.57.

On 30 June 2016, Mr Mackernan wrote to Mr Pieri ‘with my thoughts on marketing of [Cedar House]…This appraisal sets out below an indicative marketing strategy and fee proposal for your consideration.. Under ‘Guide Price’, the letter stated:

On 14 October 2016, Mr Mackernan emailed Mr Pieri about various issues relating to the First 146 so he could finalise Savills’ report. In his reply, Mr Pieri confirmed that the National Trust had agreed to the works being done and the materials involved. Michael Davies of Groma Consulting confirmed later that day that there were about £60k left to spend on the works.

This exchange pre-dated another valuation by Mr Mackernan at a value of £2.1m (on assumption section 146 works were completed), and £1.9m on 180 days with a market rent of £134,000.

On 3February 2017, a Savills marketing letter gave a guide price market rent of £225,000 per annum. This was in line with the marketing strategy advice from Mr Mackernan (but well above his valuation).

On 7 February 2017, Cedar House was valued by Davis Coffer Lyons. Their client was Dragonfly Finance, a company connected with Octopus Finance who provided the bridging finance to St Anselm which preceded the (re-)bridging with Hope. The valuation was for £3m on the basis of a 180 day marketing period, and £2.5m for the 90 day valuation. The rental value was said to be £175,000 per annum. The yield stated to be applied was 5.25% (Footnote: ¹).

Also on 7 February 2017, Mr Glover of Richard Glover wrote to the National Trust stating all works referred to in the schedule of repair forming part of the s.146 works were satisfactorily complete with certain provisos (“provisions” in the letter). The letter suggests that the National Trust had agreed certain works did not have to be done to comply with the First 146 because work on those areas would be done anyway as part of the renovation works. I note that this is not the same as full compliance with the s.146: if the anticipated works were not, for example, carried out, there would remain matters to be remedied in order to discharge the s.146.

Later in February 2017, Mr Pieri and Mr Mackernan were communicating about the marketing of Cedar House. On 21 February 2017, Mr Mackernan wrote:

In cross examination Mr Mackernan was keen to emphasise, not unfairly, that there was a difference between a valuation and a guide price, the latter potentially being different and higher than a true valuation. He also, fairly, agreed with the proposition that, ‘a guide price is roughly what you might be looking to get’, responding that it should be ‘within the realms’. Mr Mackernan also accepted the following:

According to Mr Mackernan, the Property went on the open market through Savills in early March 2017. Mr Pieri asked for it to come off the market on 29 March 2017 with all final offers by 21 April 2017. The lead contact for Savills during this period was Mr Chris Bickle.

On 22 May 2017, Mr Pieri wrote to Mr Mussett, as set out in above, in the context of the application to amend.

In around May 2017, The Cotswold Company (‘TCC’) offered to lease the Property for about £190,000 per annum. This would have required a change to the terms of the lease, given that TCC were intending upon using the property as a retail outlet. The offer was restated in November 2017.

On 12 June 2017, Mr Bickle wrote to Mr Pieri saying,

The following day, this exchange was forwarded by Mr Pieri to Mr Mussett, asking him to speak to Mr Bickle, as set out in the 13 June 2017 email discussed above. This led to the various exchanges in which TCC and Mr Pieri were negotiating in respect of the base rent (TCC having rejected £225,000) and the existence and timing of any break clause/penalty. In the following days, the various communications took place on 16 June and 5 July 2017 as also set out earlier. The negotiations appear to flounder at around this point.

On 28 September 2017, Elmbridge Borough Council granted planning permission for a change of use from Hotel (C1) to Residential (C3). A change of use of this nature would also have required the National Trust’s consent for a change of use pursuant to the lease.

On 2 November 2017, Mr Mussett inspected Cedar House. The following day he asked for Savills’ long lease interest price, and was told £3.25m. Mr Rusholme refers in his report to a valuation for Octane Finance Limited on 2 November, in the same form as one issued on 19 December 2017, for Clarity Financial Limited. This valuation was in materially identical form to what would, in due course, become the Valuation. This valued Cedar House at £4m (OMV and 180 days) and £3.8mk (90 days).

On 13 February 2018, Hope obtained an Experian search which reported that Mr Pieri’s credit rating was Poor and that he had outstanding personal debt/hire purchase obligations of £83,193. On the same date, Hope provided non-binding Loan Facility Terms, on the basis of a loan amount of £2,600,000 to be secured on Cedar Lodge. The purpose of the loan was stated to be to refinance the existing loan with Octopus.

On 14 February 2018, Hope sent instructions to ART to value the Property. The estimated value was stated to be £4,000,000. This was also the estimated value stated on the loan application form by Mr Pieri. It is, of course, also the value which had been provided by Mr Mussett in November 2017 within the valuation for Clarity Financial Limited. The valuation instructions required ART to ‘[p]rovide a valuation of the property based on its existing planning/condition excluding any ‘hope’ value or goodwill’.

The Valuation was provided by return, citing an inspection date of 2 November 2017. It was plain that this was a repackaging of an existing valuation report. Paragraph 2.3 of the Valuation stated:

It is clear that this was not true, at least in respect of the absence of prior involvement. The Valuation will be considered in more detail when considering the issues in dispute.

The Valuation also made clear, at paragraph 5.3:

On the same day, Laura Carr of Hope emailed a company called VAS to seek an audit of the Valuation.

On 16 February 2018, SRLV Accountants provided statements of assets for both Mr and Mrs Pieri. The documents showed 5 properties, with an aggregate value of £7,085,000 and a mortgage liability of £4,867,000, suggesting significant net worth. This showed that two properties (Cedar House and 34 Epsom Lane North) were in the names of SPVs, the clear implication being that the others were owned by Mr Pieri. In addition, Mr Pieri listed £655,000 of other, non-property related assets including a loan of £230,000 to the PPA Academy, a company owned by his brother and sister in law. As set out in an email from Laura Carr of Hope four days later, however:

This is a somewhat surprising understatement of the position. Indeed, if Cedar House is removed (it being the subject of the loan agreement), together with the other properties which Mr Pieri did not own, there is only one property and that was owned through another SPV, with at most £125,000 of equity. It is plain that the ‘Total Net Worth’ of £2,873,000 was a gross exaggeration of the true position. It does not seem that any proper explanation how this came to be was either sought or given, and it did not appear to occur to the Claimants that their prospective client had, at least on the face of it, a questionable relationship with the truth in relation to what was, according to their Loan Facility Terms, a condition precedent for making the loan.

On 19 February 2018, VAS provided its review of the Valuation. The only concern raised was that no deduction from the £4m valuation had been made when providing the 180 day valuation. This led, the following day, to a series of questions by email to Mr Mussett relating to the Valuation. The last question and answer were as follows:

The redemption statement from the previous mortgagee, Octopus, dated 23 February 2018, shows that Mr Pieri had not maintained its payments (in that 4 months’ worth of £21,000 interest payments plus fees were outstanding at the point of redemption).

On 27 February 2018, Mr Pieri wrote to Hope about his exit strategy. He said:

“We would like to confirm we are aware that the term of the loan is 6 months and we intend to repay this loan from the refinance of Cedar House. That will either be after entering into the new head lease with National Trust for residential consent, or as an alternative we would let the property for its existing use and refinance with a commercial investment funder.”

The same day, an internal exchange within Hope stated:

On 28 February 2018 at 09:58, Ms Carr asked a number of questions of Brabners, Hope’s solicitors to which she needed an answer “from a legal perspective”. The first exchange is relevant to whether, as contended for by the Defendant, Hope should always have known that the stated exit strategy of a conversion to residential use was unrealistic:

Brabners also said evidence would be required that the National Trust had confirmed withdrawal of the First 146. “AGAIN WE WOULD NEED TO SEE THE LEASE AS A SECTION 146 NOTICE WOULD ALLOW A LANDLORD TO TERMINATE A LEASE IF NOT COMPLIED WITH. THE LEASE WOULD NEED TO INCLUDE A MORTGAGEE PROTECTION CLAUSE SO THAT WE WERE GIVEN NOTICE AS WELL AND WERE ALSO GIVEN THE OPPORTUNITY TO REMEDY THE BREACH”.

Various exchanges followed. On 2 March 2018, Brabners advised Ms Carr that Mr Pieri’s solicitors had not provided a further update and then said:

Three days later Ms Carr emailed Brabners stating:

“We have agreed to proceed on the first basis below:

We proceed on the basis of the existing lease with no guarantee that a residential lease will ever be granted in favour of St Anselm. We would also need to understand the proposed exit if no lease was granted or if the lease would only be granted to Mr Pieri individually.

From our perspective, could we go back on the original point that our borrower is St Anselm Heritage Properties Ltd and the grant of a new lease would need to be in the company name not as an individual.’ [Emphasis in original]

On 6 March 2018, Brabners emailed Barlow Robins seeking the detailed explanation about repayment of the proposed loan envisaged in following the first basis.

On 27 March 2018, Hope provided to Mr Pieri updated Loan Facility Terms. This included a list of ‘Conditions Precedent’ which included the following:

At around the same time, Hope produced its ‘Investment Paper’ which was provided for the benefit of Triple Point, Hope’s institutional funder, who would be providing 85% of the capital for the loan. The Investment Paper indicated the value at £4,000,000 with an LTV of 56.2%, notwithstanding the fact that Hope themselves were working on a higher LTV because they were using a reduced valuation to reflect what they considered the 180 day valuation to be (£3.8m i.e. £4m less 5%). It also indicated that ‘exit confirmation’ had been received; as had the ‘A&L statement certified by accountant’ and the ‘Experian report’. It also stated that the ‘Section 146 sign off received’. This was on the basis of the Glover letter, dated some 13.5 months earlier, referred to above. Sign off had not, in fact, been achieved given that it had been expressed to be conditional on other work being completed, as to which no assessment had been undertaken.

On 28 March 2018, Hope wrote to Lendnet, part of Triple Point, asking to drawdown £1,912,255.20. Various transactional documents were executed in respect of the Loan, namely: charge in favour of Hope, an intercreditor deed with Clarity, the second chargeholder, who remained a mortgagee; debenture; and a personal guarantee from Mr Pieri.

During the following 6 months, Mr Pieri was still trying to renegotiate the lease with the National Trust and fell into default as regards the loan, which was due for repayment on 28 September 2018. During this time, work was also being undertaken at Cedar House. It was put to Mr Sealey that he could and should have monitored the ongoing works, as indeed the Loan Facility Terms suggested would happen. When put to him initially, Mr Sealey’s evidence was, ‘I wasn’t aware of the works that were ongoing or we would have done’. However, that was plainly incorrect. On 11 April 2018, Mr Sealey was forwarded an exchange which related to the potential funding of the £600,000 lease premium being sought by the National Trust to change the use to residential. The email to Hope plainly refers to ‘the ongoing works and the new head lease [which] will change your security into a conventional residential property.’ Mr Sealey was explicitly referred to ‘Full details from Tom…below’ and asked ‘What do you think…’. Contrary to his evidence, it is in my judgment inconceivable that Mr Sealey had not read the exchange when responding substantively with his views in relation to the further £600,000 loan. Moreover, in June 2018, Mr Sealey was directly copied into an exchange in which Mr Pieri was being asked to provide the schedule of works, along with confirmation of works outstanding and works completed. I do not therefore accept the suggestion that Mr Sealey was unaware of ongoing works to progress the residential conversion, but note that they did not take steps to monitor them notwithstanding Mr Sealey’s evidence that ‘we would have done’. I do not accept his later suggestion that asking Mr Mussett for another valuation (after default, referred to below) amounting to monitoring the ongoing construction works. It plainly did not.

On 1 October 2018, the Claimants sent a letter of demand to Mr Pieri. This went unsatisfied and on 4 October 2018, receivers were appointed over Cedar House. These were Daniel Richardson and Edward Gee of CG&Co. Drydens Fairfax acted as their solicitors.

On 25 October 2018, following an inspection on 22 October 2018, Mr Mussett valued Cedar House for Hope on the basis of a residential property. The valuation was £5,500,000 on 180 days and £5,250,000 on 90 days on the basis of a new 99 year lease.

On 16 November 2018, the National Trust sent a letter to a Ms Amy Sichani of Elmbridge Borough Council expressing concern about unauthorised works at the Property. It stated that “The National Trust has not yet had the opportunity to inspect the works or to take specialist historic buildings or archaeological advice.”. Three days later, Drydens emailed CG&Co, attaching a schedule of permitted works which included a list of works which had to be completed to regularise the position with the National Trust. On 22 November 2018, the builder Olney sent a letter to Cs saying the outstanding works would cost £90,000.

On 23 November 2018, Savills sent the receivers an appraisal of the Property. They said “we would recommend a Guide Price of £2,500,000, subject to contract, with a view to achieving offers in excess of £2,000,000”. It stated inmanuscript: “verbally advised with NT & Practical completion should achieve additional £500,000.” On 23 November 2018, Knight Frank provided a “comprehensive report” on the Property. They recommended putting it on the market for “£2,500,000 - £2,750,000 which we believe will generate competition amongst buyers with a view to maximising this price”. The report went on to say that if works of £500,000-750,000 were spent, then the Property could be worth in the region of £4,000,000 to £4,250,000. The Report said that prices of prime properties “have definitely softened within the past twelve months”. On 26 November 2018, a local agent called Grosvenor Billinghurst sent a market appraisal report to CG&Co. This suggested a guide price of £2.95m and that offers from £2.75m should be considered. Within CG&Co’s report to Hope of 26 November 2018, a further valuation, from Sotheby’s, of £1,750,000 was referred to.

On 30 November 2018, a company called Invespek Ltd offered £2,035,000. This was not accepted.

The same day, Shoosmiths, solicitors for the National Trust, wrote to Mr Pieri stating that its client had become aware of a number of internal alterations to the Property which were in breach of the lease and without building consent having been obtained where appropriate. They enclosed a s.146 notice (“the Second 146”). The particularised breaches were as follows:

On 11 December 2018, Drydens produced a summary of position document. This set out the state of play at this time, as Drydens saw it.

“The Borrower appears to have carried out alterations to effectively turn the Property from a residential hotel into a residence. It appears that no consent from the NT was sought to these works. It also appears that no listed building consent was obtained for the replacement of the floor in the Medieval hall.”

“The works came to the notice of NT when a local resident contacted them.”

“Andrew Hill, the listed building consultant to EBC, has stated in his comments on the Application that “this application claims that the floor has been laid by specialist contractors, is of salvaged York Stone and has insulated under floor heating. Had this been the case such a floor would have been acceptable. A site inspection today revealed in fact the new floor is made up of new dimpled pressed concrete slabs with obtrusive wide pointing of double struck raised rib form. These slabs are more suitable for outdoor patios than the floor of a listed Medieval Hall. They are totally unacceptable alien feature”.”

…

A further breach was that there was a failure to apply for and obtain listed buildings consent and the borrower has fixed blinds in the windows without first obtaining the NT’s approval.

19.

The required action was to remedy the breaches within a reasonable time, being 9 January 2019.

20.

The notice goes on to state that if the borrower fails to comply with the requirements set out in the notice within a reasonable time it is the intention of the Landlord to enforce the right of entry asset out in clause 15 of the Lease thereby bringing the Lease to an end and to claim damages for breach of covenant and/or take such further steps as it may be advised.”

On 3 December 2018, Mr Pieri informed CG&Co that the offer had increased to £2.17m. On 31 December 2018, Mr Pieri is forwarding an offer from ‘PBF’ in the sum of £2.22m for Cedar House with 6 months completion. On 2 January 2019, Mr Sealey emailed Mr Pieri refusing the offer and stating:

“Full and final settlement will need to be £2.65m for us to consider any offer. If not, we will complete the works ourselves with the National Trust and look to sell the property later in the year.”

On 31 January 2019, Drydens informed the receivers stating that the National Trust had raised further s.146 issues:

“She has confirmed there are further items where they believe the Company has breached the lease but they are not intended to change the Section 146 notice schedule at the present time.”

“I believe the major issue is going to be agreement of a specification for the works as some of the descriptions in the Section 146 Notice are vague and it is not sufficiently precise what we are expected to do in relation to remediation.”

On 8 February 2019, Drydens emailed Hope recommending an immediate marketing campaign

“We confirmed that if the NT went ahead with their forfeiture proceedings it would effectively mean Hope Capital would lose their security.

…Since the call on Monday we have had a discussion with the NT and they have indicated they would be prepared to consider:” an “as is” sale or more time for works.

…In light of all these issues, we strongly recommend an immediate marketing campaign based on the valuation “as is” and review whatever offers are obtained as against the potential risk to the existing security of Hope and the costs of remediation to the property.”

On 21 March 2019, Cedar House went on the open market. On 4 April 2019, the receivers emailed Mr Sealey stating “We have received a verbal offer of £2.1m for the Property.” On 12 April 2019, Hope entered into various agreements with Mr Pieri/Invespek. In short, Invespek took an option in respect of the Property. Mr Pieri also assigned a debt it was owed by the Bank of Cyprus. Further, Mr Pieri granted a promissory note in favour of Cs for £25,000. On 10 May 2019, the National Trust emailed the architect Peregrine Bryant a list of additional works/amendments to the schedule required by the National Trust.

Discussion around a further option took place. The counterparty was Clarity, alongside Mr Pieri, not Invespek. The plan was to take £45,000 per month by way of the option to fund the works required by the Second 146. The option was entered into on 11 June 2019, and the works to remedy the breaches of lease commenced. On 23 September 2019, ten months after the service of the second s.146 notice had been served, Shoosmiths confirmed on behalf of the National Trust that it was satisfied with the works done at the Property.

On 1 October 2019, a further option agreement was entered into with Clarity.

In early 2020, Hope procured various updated market appraisals. In summary they were as follows:

On 10 March 2020 at 17:58, Clarity through Carbon FC made an offer to purchase at £2,033,810. Clarity’s offers began to go down in value from 26 March 2020. In an email of that date, Carbon said “… the world looks very different from how it did 15 days ago…” Cedar House was going to be auctioned by Allsop in early April 2020 but there was insufficient interest prior to the auction, so it was withdrawn on 1 April 2020. Various negotiations took place in July 2020. Finally, on 24 July 2020, Forsters, acting for Clarity, made an offer of £1,400,001. The parties exchanged that day.

On 4 November 2020, Mr Pieri went into bankruptcy.

I have found that, notwithstanding the (ultimately) admitted negligence of the Defendant, the Claimants have suffered no actionable loss. As a result, the claim is dismissed.