Wolsey Securities Ltd v Abbeygate Management Services Ltd

This is an appeal from the order of Master Eyre dated 20 December 2005 whereby he gave summary judgment under Part 24 for the claimant against the defendant in the sum of £97,762.42 inclusive of interest. Permission to appeal was given by Rafferty J. on 23 February 2006. The judgment sum represented principal of £88,845.16 calculated as set out in PKF’s letter of 12 September 2004. The claimants are Wolsey Securities Limited and the defendants are Abbeygate Management Services (Hampton) Limited. Wolsey sue Abbeygate Management as the guarantors of Abbeygate Securities Limited under a joint venture agreement made between the three parties dated 21 November 2000. The venture was the construction of a block of flats at Lansdown Road London SW20. It was unprofitable and Abbeygate Securities is now in liquidation. Abbeygate Securities was a company 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 Abbeygate Securities by the Bank of Ireland and from a loan facility granted to Abbeygate Securities by Wolsey under the terms of a letter from Wolsey to Abbeygate Securities which was annexed to the joint venture agreement. PKF were the auditors of Abbeygate Securities. By clause 10.3 of the agreement Abbeygate Management guaranteed that Abbeygate Securities would perform its obligations under the agreement. The sum of £88,845 is alleged to be due pursuant to that guarantee.

It is submitted by Mr Damian Falkowski on behalf of Wolsey that the sum claimed is due from Abbeygate Management under the terms of the Agreement, and that, in any event, it would be inequitable for Abbeygate Management to be permitted to dispute that in the light of the letters which have been written or that there is an estoppel. Mr Christopher Parker submitted for Abbeygate Management that on the true construction of the agreement the sums were not due. He submitted that it was not open to Wolsey at this stage to rely on an estoppel, but that there was none. It was agreed that, in so far as I was concerned with the construction of the Agreement, I should not decide merely whether or not the construction contended for on behalf of Abbeygate Management had a real prospect of succeeding and so leaving it to be determined subsequently what the correct construction was, but that I should decide what the correct construction was. So, subject to appeal, the parties will be bound by my determination.

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 Abbeygate Securities and by Abbeygate Management stating they accepted the offer thereby made.

The Particulars of Claim referred to Abbeygate’s guarantee and set out clauses 2.12, 8 and 9 of the Agreement. It alleged that PKF had certified in accordance with clause 9 the Net Loss and calculated that the amount due was £88,845.16. PFK’s letter of 13 September 2004 was attached. Abbeygate Management’s defence dated 5 April 2005 alleged that the wrong company had been sued as guarantor. It is now accepted that the right company has been sued. On 10 May 2005 Abbeygate Management obtained permission to serve an amended defence which raised points as to the limited remit of PFK and the construction of the Agreement. It was a condition of that permission that Abbeygate Management paid into court £90,000, which was done. The application for summary judgment was issued on 12 October 2005. The witness statement in support exhibited the correspondence on which Wolsey rely to bar Abbeygate Management from disputing the sum due. It also exhibited draft Amended Particulars of Claim which pleaded a claim for £279,921. It pleaded one letter from the correspondence relied on as baring Abbeygate Management from disputing £88,845 as due. Mr Falkowski’s written argument before the Master relied first on the figure reached by PFK in their letter and second asserted that it would be inequitable to permit Abbeygate Management to dispute it. It did not set out any clear legal basis for the latter assertion. The assertion was not dealt with in Mr Parker’s written submissions to the Master. The Master determined the application on the basis of the written submissions without hearing oral argument. I understand that he gave the parties a choice which it would be, and they chose to rely on the written submissions which they had prepared. The Master held in his written reasons that PFK’s report had been agreed and that the amended defence had no merit.

The essential part of PKF’s letter is 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	6,002.66
Management charge relating to the facility letter	95,719.00
Management charge provided for in the cash flow appraisal	70,727.00
	172,448.6
Less: Wolsey’s share of the Net Loss of the joint venture	(83,603.50)
	88,845.16”

It was accepted before me that the auditor’s function under clause 9.2 of the agreement went no further than certifying the net loss. It was also accepted that, contrary to the position adopted on behalf of Wolsey in correspondence, the effect of clause 9.3 was to enable Abbeygate Securities to recover half the loss from Wolsey and not vice versa. It was agreed that the amount of £6002.66 due as principal under the Facility Letter was outstanding from Abbeygate Securities and was covered by clauses 2.12 and 10.3 of the agreement and so was due from Abbeygate Securities. The argument centred on the position regarding the two figures for management charges.

The first of those figures is described in the letter as ‘management charge relating to the facility letter’. Clause 1 of the Facility Letter provided for the maximum to be advanced under it “inclusive of interest thereon and other charges due to the Lender”. Clause 1.5 provided:

“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.”

It is convenient to refer to this as ‘the management charge (interest)’. Thus the Facility Letter made a limited provision for interest, which was called ‘the Management Charge’ and was only payable on the ‘Outstanding Balances’ namely the excess over what was expected to be due as set out in the Cash Flow Appraisal. They were to be accumulated quarterly and form part of the Outstanding Balances until proceeds from sales were available to pay them. But “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”.

Although there may be some uncertainty about it, Mr Parker accepted for the purpose of his argument that the management charges (interest) were due under the terms of the Facility Letter. But he submitted that apart from clause 8 which provided for their payment from receipts, there was no provision in the Agreement itself, the joint venture agreement, that they should be paid by Abbeygate Securities: so they were outside the guarantee. Mr. Falkowski’s answer to this was that the joint venture agreement and the Facility Letter were one agreement and so the charges were within the guarantee as an obligation of Abbeygate Securities under the Agreement. So I have to decide whether for the purpose of the guarantee the Facility Letter is part of the joint venture agreement or a separate contract. The definition of ‘the Facility Letter’ and clauses 4.2 and 13.2 in the Agreement were relied on, and the clauses 1.2, 1.5 and 4.4.1 of the Facility Letter. In my view, with the exception of clause 13.2, these are all more consistent with the two agreements being intended to be treated as separate agreements. I consider that this is also confirmed by the opening of the Facility Letter. Further I consider that the fact of there being two separate documents suggests that in the absence of a provision that they are to be treated as one, they should be treated as separate. Nor do I see any commercial reason for not accepting that conclusion. It makes commercial sense that, if the money flowed as provided for in the Cash Flow Appraisals, as a joint venturer entitled to a half share of profits Wolsey should receive no interest and that, if the money did not flow as so provided, Wolsey would receive limited interest but only if there was money to pay it. The ‘entire agreement’ provision in clause 13.2 refers to both the joint venture agreement and the Facility Letter. It reads awkwardly and is most likely the result of using a standard clause without modification to take account of the substitution of “This Agreement and Wolsey’s Facility” for “This Agreement” in the standard clause. But even if that is put on one side, I do not think that the clause points unambiguously to there being one agreement rather than to there being two, which two are all that is agreed. I conclude that Abbeygate Management did not guarantee that Wolsey would receive the management charges in the nature of interest. If the venture made a loss, that was Wolsey’s risk.

The position of the management charges which are referred to in the definition provisions of the joint venture agreement is even more difficult for Wolsey. They are also referred to in the clause 8 of the agreement, but not elsewhere. They are not referred to in the Facility Letter. They are provided for in the Cash Flow Appraisals which form Annex 1 to the Agreement. There is no undertaking by Abbeygate Securities to pay them. I conclude that these management charges are not covered by the guarantee.

In the circumstances in which nothing approaching an estoppel or agreement is pleaded, I have some reservation in dealing with the argument that Abbeygate Management cannot challenge the conclusion in PKF’s letter that £88,845 is owed.

The high point of that argument is the letter written by Gregsons, solicitors for Abbeygate Securities and Abbeygate Management, to Laytons, Wolsey’s solicitors, dated 15 September 2004. It stated :

“Further to the above matter we write to confirm that our clients’ accountants, PKF, have now reported direct to our clients with regard to the amount they consider due from Abbeygate to Wolsey. A copy of that report is enclosed. Please confirm it is agreed.

We understand that the sale of the freehold of the property is to complete shortly and that the balance of the net proceeds of sale, less this firm’s costs, are to be paid to you in reduction of the amount due.

Once we have heard from you then we will take instructions from our clients as to the payment of the balance.”

However Laytons responded on 22 September 2004 saying that they did not accept the amount calculated by PKF as correct, but said Wolsey would accept £110,613, stating that unless it was paid proceedings would be issued (which would have been for a larger amount). In view of that there is a substantial difficulty facing an argument based on any kind of estoppel.

I have confined this judgment to the arguments which were addressed to me and I have not entered on any wider analysis of the workings of the joint venture agreement and the Facility Letter. By the close of the submissions the points at issue were quite narrowly defined. The outcome is that the appeal is allowed.