BPC Hotels Ltd v Brooke North (A Firm)

This is my judgment on the defendants’ applications for summary judgment under three heads and to strike out parts of the loss claim under one head. There are two related actions brought by Mr and Mrs Chandra and the company ultimately owned by them, BPC Hotels Limited, which I will call BPC.

An overview of the facts in this case has already been set out in a detailed judgment by Mr Justice David Richards in the case The Royal Bank of Scotland plc v Chandra [2010] EWHC 105 in the Chancery Division, and in particular the overview at paragraphs 2 to 15. This should be taken as read and I do not intend to repeat it for the record. I do understand that it will be uncontroversial.

The development of the hotel was financed by RBS under two financing agreements and by way of an overdraft. The construction contract dated 30 April 2001 was in the standard JCT form and made between BPC and Costain. Provision was made by clause 30 for payment by certificate produced by the architect and for payment to be made within a certain period after issue of the certificate; clause 30.1.4 provided the contractor with a right to suspend work if the employer did not pay the certified sum within the requisite period. Non-payment could also lead to termination under the terms of the JCT contract. Clause 28.2.1 says this, and I read only the relevant bits:

“If the Employer shall make default in any one or more of the following respects:

1.1

he does not pay by the final date for payment the amount properly due to the Contractor in respect of any certificate and/or any VAT on that amount pursuant to the VAT agreement

… the Contractor may give to the Employer the notice specifying the default or defaults (the specified default or defaults).”

Clause 28.2.3 said this:

“If the Employer continues a specified default or a specified suspension event is continued for 14 days from receipt of the notice under clause 28.2.1, then the Contractor may on or within ten days from the expiry of that 14 days by a further notice to the employer determine the employment of the Contractor under this contract. Such determination shall take effect on the date of receipt of such further notice.”

It is, although I make no ultimate finding about this, probably unexceptionable that where there is a termination of the employment of the contractor, the contractor’s obligation to carry on, to proceed to carry out and complete the works, ceases. Any obligation to pay liquidated damages for culpable delay ceases at that point, albeit any accrued rights would still exist. Thereafter, if a termination happens, then there is a financial mechanism by which debits and credits due one way or the other are to be taken into account.

What has been referred to by some as the step in warranty dated 18 July 2001, apart from providing warranties as to quality of workmanship and the like by the contractor, Costain, to the Royal Bank of Scotland, also contained important provisions relating to actual or intended determination. Clause 8.1 in this tripartite warranty provided that:

“The main contractor covenants with the beneficiary [that is the bank] that it will not exercise nor seek to exercise any right of determination of its employment under the main contract or to discontinue the performance of any of its obligations in relation to the project by reason of breach on the part of the employer without giving to the beneficiary not less than 21 days' notice of its intention to terminate its employment under the main contract and specifying the grounds for the proposed termination.”

Clause 9 contained what Mr Justice Richards was to describe as unusual and, in the case with which he was concerned, he referred to the fact that some of the witnesses referred to it as unique. Clause 9.1 said:

“Subject to clause 8.3, the beneficiary shall give notice to the main contractor within the period of not less than 21 days specified in the notice under clause 8.1, 9.1.1 requiring it to continue its obligations under the main contract in relation to the project, and 9.1.2 acknowledging that the beneficiary is assuming all the existing and future obligations of the employer under the main contract; then upon determination of the main contractor's employment under the main contract the provisions of clause 9.2 shall apply.”

Clause 9.2 says:

“Subject to clause 8.3, and in the event that a notice is served in accordance with clause 9.1, notwithstanding determination of the main contractor's employment as specified in clause 9.1 the main contract shall be deemed (as between the main contractor and the beneficiary or the beneficiary's nominee) to continue in full force and effect as if the right of determination on the part of the main contractor had not arisen and in all respects as if the main contract had been made between the main contractor and the beneficiary to the exclusion of the employer whereby:

(a)

the beneficiary assumes all the existing and future obligations of the employer under the main contract; and

(b)

the main contractor acknowledges all of its obligations under the main contract in favour of the beneficiary.”

So it is said, and it seems at least now to be common ground, that this places a mandatory obligation on the part of the beneficiary, the Royal Bank of Scotland, to step in so to speak to the shoes of the employer and see the project through to completion and to assume the payment obligations to the main contractor in those circumstances. In his judgment at paragraph 31, Mr Justice David Richards said this in the context of the case with which he was concerned:

“The unusual, and in the experience of witnesses in this case unique, feature of the deed of warranty provided by Costain is that, instead of the step in provision conferring a right exercisable only at the option of the bank, it is a mandatory provision, requiring the bank to step in. This was not a mistake. The evidence establishes that Costain was concerned as to the ability of the company to meet its obligations under the building contract. In the company's letter of intent dated 7 September 2000 to Costain, it undertook ‘to provide your company [Costain] with suitable financial surety for the Contract’. In the course of negotiations in the autumn of 2000, Costain insisted on the provision of some security for its benefit. The bank was not prepared to agree an escrow account, but it was prepared to agree to a step in obligation as a means of providing security for Costain. Mr Chandra maintained in his evidence that these terms were negotiated between the bank and Costain, without any involvement by the company. I reject this evidence. It is clear from the contemporary documents that the company and its solicitors were closely involved in the negotiations. They were not terms in any way imposed on the company. It is, however, the case that without this or some other form of security Costain would not have committed itself as contractor for the development. The deed of warranty was negotiated in 2000 but, as with the other security, not executed until shortly before the first drawdown in July 2001.”

Also as part of the background financing and funding, a debenture was negotiated between RBC and BPC and it provided for a debenture relating to the land at least, possibly other assets, albeit I make no decision about that, but at clause 8.3 of that debenture it stated this, without any apparent qualification:

“The bank may under the hand of any official manager or by deed appoint or remove a receiver or receivers of the property and may fix and pay the fees of a receiver, that any receiver should be deemed to be the agent of the company and the company should be solely responsible for the receiver’s acts, defaults and remuneration.”

I make no finding at this stage of course as to whether that was in any way implicitly or otherwise qualified, but certainly on its face, just on the words used, it seems to give a very broad entitlement at least on the part of the bank to appoint a receiver at any time.

Now Mr Justice David Richards set out in his detailed and helpful judgment the events that followed 20 May 2003 up to the time that in effect the step in arrangements had occurred and BPC had been put into receivership at the instigation of RBS. He sets that out at paragraphs 38 to 47 which again I am not going to repeat but should be taken as read. I must of course state for the avoidance of doubt that I am not proceeding on the basis that these factual findings are binding on this court or indeed on the trial judge but as I understand it in most and possibly all respects Mr Chandra and BPC, and I assume at least by inference anyway Mrs Chandra, broadly accept the findings which he made. That is not to say they are bound to accept all of them when this matter comes to trial, but I am proceeding at least today on the inherent likelihood that comparable findings on comparable evidence will be made so far as Mr Justice Richards’ findings are concerned.

It is agreed, but only for the purposes of today’s applications, that the court should assume that there was negligence as pleaded with regard to Mr Lopeman of the defendant, in effect that he should have advised BPC and Mr and Mrs Chandra on that day that BPC should not agree to an increased overdraft but in effect that it should default on its payment obligation under the building contract to Costain. It is unnecessary to go into the detail as to why that might arguably have been appropriate advice to give, but one at least of the problems in relation to an increased overdraft is that it gave the bank arguably greater rights to put in a receiver and to call for payment back on demand.

In approaching in particular what I am going to call parts 1, 2 and 3 of this application, I do very much have in mind the requirements which I am bound to have regard to in connection with summary judgment applications. I take as read the provisions in the CPR about this and I was also referred to the helpful judgment of Mr Justice Lewison, as he then was, in Easyair Ltd (t/a Openair) v Opal Telecom Ltd (Costs) [2009] EWHC 779 (Ch) which sets out at paragraph 15 what he calls the correct approach on applications by defendants for summary judgment, and he says that that correct approach involves the court being careful before giving summary judgment on a claimant. He lists the following matters, and I read only what is necessary:

“(i)

The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 1 All ER 91;

(ii)

A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472;

(iii)

In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman [2001] 1 All ER 91;

(iv)

This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472;

(v)

However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;

(vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment.”

I do not need to read the rest. In relation to these parts, I am grateful if I may say without qualification, to the assistance provided to the court by Mr Smith, counsel for the defendants, and his solicitors, who if I may say have behaved both in accordance with the highest standards of their professions in putting forward this application in a way that is not only comprehensible to the court and to Mr and Mrs Chandra, but also in the way that they have treated very properly and very fairly Mr and Mrs Chandra on this application. Mr Smith has set out in effect the four parts to the application and I am going to deal with his parts 1 and 3 together.

They are that BPC’s claim has no real prospect of success on causation grounds and should in its entirety be the subject of a summary judgment application in the defendants’ favour pursuant to the CPR 24.2(a)(i). In outline, he asserts, the defendant asserts that BPC would always have gone into receivership and lost the benefit of the hotel eventually even if D had given the advice to BPC as it should have done, and BPC had followed that advice. Part 3 is to the effect that, as a consequence of the lack of merit of BPC’s claim and pursuant to CPR 24.2(a)(i), all paragraphs of the schedule of loss should be deleted save for the Chandras’ contention that D caused them to be exposed to £450,000 of greater borrowing by BPC; this is because of the failure of BPC the Chandras would always have been exposed to proceedings by the bank based on the first personal guarantee.

Now these two parts of the summary judgment application essentially stand or fall together and, as has been properly acknowledged by Mr Smith, parts 1 and 3 depend on what will be found on causation if Mr Lopeman had advised on 20 May 2003 as alleged, in effect Mr and Mrs Chandra say, and I broadly summarise, to the effect that the project would have got through to completion and the hotel would have been up and running, and the issues with Costain sorted out ultimately to BPC’s broad advantage. The defendant however says it is unrealistic to see how the court will find as proved that anything else would have happened other than did happen, namely a receiver being appointed and a step in procedure as actually happened, happened.

The court in my judgment must resist the temptation to anticipate what a trial judge would find, having heard all the evidence. I am particularly concerned, as I expressed in argument from Mr Smith, that the court has not heard evidence from Costain and RBC. Such evidence might well be important in determining what either or both of them would have done in the circumstances envisaged by the factual scenario or the causation scenario put forward by BPC and Mr and Mrs Chandra. It is clear from Mr Justice David Richards’ judgment broadly what actually happened with matters coming to a head in August, a receiver being appointed, termination notices being served or threatened by Costain, and a step in procedure in place at some stage in September. Mr Smith accepts at least as feasible the fact that, if the scenario on which negligence is assumed, if that had occurred the timetable might well have been different and I can see that, if anything, it may well be the case that this would have happened and would have happened somewhat earlier, whatever that factual permutation would have been.

It does seem to me that it will be incumbent on the claimants to establish on a balance of probabilities that, if there had been no negligence or, put another way, if the “right” advice had been given on 20 May, that this project would have avoided the type of problems which did actually occur. I bear in mind some of what I believe are likely to be uncontentious facts. As at 20 May there was something over £300,000 plus VAT due to Costain. I am assuming, although I have not been told so, that that is because there was payable on or by that date a sum certified as due. It seems to be common ground and in any event it is pleaded by the claimant that as at that time on 20 May, there was a further £366,000 due to be paid to consultants and other contractors, so there was at that time some £672,000 outstanding. That is pleaded in paragraph 16, for instance, of BPC’s Particulars of Claim against these defendants.

It is clear by that stage it seems to me, although I make no ultimate finding about it today, that prior to that Mr Chandra had been indicating that he would try to raise money on his own, but that had not happened. It also seems to be likely that there had been some discussion between Mr Chandra and the bank about further funding, possibly by way of what is sometimes referred to in the documentation I have seen as the third financing agreement, but it is clear from the findings of Mr Justice David Richards that that never came to anything and certainly little if any commitment was indicated in that regard.

It seems to be clear that as at 20 May BPC had no available funds and that the only way payment could be made was by the bank, either on some gratuitous basis or through the overdraft. At the moment I certainly cannot see on what other basis any funding could be provided; there is no hint or suggestion for instance that Mr or Mrs Chandra could come personally up with any more money and therefore it would have been the bank which was the only port of call then.

So there were at least on the claimant’s scenarios only two options. One was to go along with what the bank wanted, which was to increase the overdraft limit, backed up by further personal guarantees from Mr and Mrs Chandra, or something else would have to happen. The only other thing that could have happened, it seems to me and indeed it is the claimant’s case, that there would have to be a default on the payment obligation to Costain. So the hypothesis then kicks in as to what would have happened in those circumstances, if Mr Lopeman had given the advice which it is said by the claimant he should have given, that Costain would have heard on or about 20 May that it was not being paid the certified sums due to it.

In logic that opened up at least three options to Costain. One was not to get worried about it and do nothing about it, one was to suspend work under clause 30 and the other was to consider and activate the termination arrangements, tied in or course in that case with the step in arrangements pursuant to the tripartite warranty I have referred to earlier.

Now it would not have been possible in those circumstances arguably, I make no legal findings about this, for Costain to have terminated in accordance with the timetable set out in clause 28. They would first have had to go through the timetable set out in the tripartite warranty, and so, if that is right and at least for today’s purposes I will take it as right, that would have introduced a 35 day or five week delay at least in the termination process and probably more as well, but as I said I am not making findings that I intend to bind the trial judge with.

So it seems to be clear, again I make no findings about this in the absence of direct evidence from Costain, that relations between Costain and BPC and Mr Chandra were poor. It is unnecessary to go into the reasons as to why they may have been poor but it certainly seems to be the case that there had been substantial delays on this project with Costain saying that it was not to blame and it was entitled to substantial extensions of time; indeed they had been granted at least one substantial extension of time. Mr Chandra and BPC were saying that much of the delay was down to Costain. There were also concerns it seems in or about May, probably from some time before and certainly going on afterwards as recorded in various progress reports, that Costain were proceeding slowly. It is not clear to me why, if that is true, Costain were proceeding slowly, whether it was their fault, whether it was part of some deliberate tactic or strategy on their part, or whether their slowness was attributable to other factors which entitled them to extensions of time. Be that as it may, there seems to be little dispute that by this stage the relations between Costain and BPC/Mr Chandra were poor.

Costain were certainly as far as I can tell on the papers before me saying about this time that it was entitled to some millions of pounds more than it had been certified and paid. Against that, Mr Chandra was saying either that Costain had been paid all that it was entitled to and possibly even overpaid, with liquidated damages due to BPC it may have been that there was arguably, it was his view that there was, a net sum due to BPC. It is unnecessary for me to decide that obviously today.

So at least if that factual scenario is correct and if as Mr Chandra has said on a number of occasions in his lengthy but articulate 80 page witness statement put in for the purpose of this application, it was his belief that Costain was involved in a ruthless and highly commercial approach to protect its own interests, arguably at the expense of BPC. One can see that there is a strength in the argument put forward at this stage by the defendant that Costain would not have felt that it owed any favours to BPC and/or Mr Chandra. Again I am not commenting on whether such view was justified or not.

Again it is rather unclear at least to me at this stage as to precisely what RBS would have done. I have been shown documentation and indeed certain findings of Mr Justice David Richards which suggest that their wish in the April, May, even June, possibly July of 2003 period was if at all possible to see the project through to completion without the ejection of BPC from the process. It is clear however that come July or August, again there seems to be little issue about this, the relationship between Mr Chandra and BPC on the one hand and RBS had broken down. Again, whose fault that was, I do not need to go into, but there is certainly some indication as I said that RBS was initially during this period keen to see that the project went through to completion with BPC still involved.

Against that is first of all what actually happened in July and August, which stage led to what I call the ejection of BPC from the process, receivers being appointed and the second procedures being used In the claimant’s particulars of claim it is positively pleaded as follows at paragraph 20:

“20.

Mr Chandra telephoned Mr Lopeman [this is on 20 May] and explained the situation including in particular the following:

20.1: The claimant had not yet received the offer of the third finance agreement from RBS, but Mr and Mrs Chandra had been asked to sign the further personal guarantees.

20.2: The claimant did not have sufficient funds to meet the 20 May payments and RBS had informed Mr Chandra that if the claimant did not make the 20 May payments on that day, the claimant would be in breach of the building contract and RBS would appoint an administrative receiver.”

Now Mr Chandra has attempted to explain that, and certain it is ( unless Mr Chandra was misleading Mr Lopeman and there is currently no suggestion that he was) RBS had informed Mr Chandra what Mr Chandra himself pleads in that regard. So Mr Chandra in his witness statement has attached five lever arch files of documents, all of which as far as I can tell are witness statements with attachments which were part of the evidence put before Mr Justice David Richards, much of which he was able to accept and some of which he was not able to accept, and amongst those are witness statements from various representatives of RBS at various stages. However they have not been asked yet, as I understand it, and Mr Justice David Richards did not address the issue of, what the bank and Costain would have done if BPC had defaulted on its construction contract payment obligations in May and who knows, possibly again in June 2003 when the next interim certificate would have fallen due for payment.

The real question is whether at this stage the court can be confident that from the evidence likely to be heard at trial, Mr and Mrs Chandra and BPC will be unable to prove their case or it is not realistic to expect them to be able to prove their case on what would have happened on that scenario. Of course the court is well used to dealing with such hypothetical scenarios, but it seems to me that where third parties such as Costain and RBS in this case were likely to be involved in the hypothetical scenario that Mr Lopeman had given different, and Mr Chandra would say the proper, advice on 20 May, it is difficult to infer that it is bound to be the case that the claimant will lose.

I do have to say however that, judged as at today’s date, in my judgment, this is a relatively weak case on causation, leaving aside any live issues on liabilities. I say that, bringing together what I have already said, there was little if any chance of further funding, there were poor relations between Costain and Mr Chandra and BPC, there was apparently growing discomfort in the relationship between BPC and Mr Chandra on the one side and RBS on the other, and fourthly the non-payment of sums due under the construction contract could well have led Costain to seek to terminate on that ground and thus bring in RBS by way of a step in alternative.

Precisely what RBS would have done remains unclear in that scenario, but I cannot imagine that many financing institutions would be happy at least that there was a default on an interim payment on a construction contract such as this. What they would have done however I cannot be sufficiently confident about at this stage.

So it may well be that it is going to be difficult for Mr and Mrs Chandra and BPC to prove that anything substantially different would have happened from what actually happened, but I could not, cannot and should not infer at this stage that it will impossible or unrealistic for them to be able to prove something different. So on that basis there will be no summary judgment on parts 1 and 3.

Part 2 relates to part of Mrs Chandra’s claim in her proceedings with her husband against the defendants relating to a loss associated with alleged negligence relating to the second or further personal guarantee for an additional £450,000 over and above the £700,000 which had already been the subject of the first guarantee about which as I understand no negligence complaint is made. It is accepted by Mr Chandra and Mrs Chandra quite properly that Mrs Chandra cannot claim in these proceedings for that £450,000 and the reason simply is that the consequence of Mr Justice David Richards’ judgment was that this further guarantee was not binding on her for the reasons which he indicates towards the end of the judgment where he finds at paragraph 254:

“I conclude therefore that as against Mrs Chandra the second guarantee should be set aside.”

So it would not have been possible in the light of those findings for her to claim that she had had to pay in effect all or any part of the £450,000 because she was not bound to pay it and she never did pay it as far as I can tell.

That leaves finally part 4. Part 4 is an interesting point which Mr Smith describes in his helpful skeleton:

“Pursuant to CPR 3.4(2)(a) the Chandras’ claims for (a) loss of director’s earnings and (b) loss of pension contributions, totalling four million pounds exclusive of interest, are struck out because they contravene the prohibition on claiming reflective loss.”

Before I turn to the pleadings, this arises out of the well-known House of Lords decision of Johnson v Gore Wood & Co [2002] 2 AC 1 and I have been referred properly to one of the key parts of Lord Bingham’s judgment at page 35 from E in particular through to page 36 E as well. I will not read that out on the transcript but it should be taken as read. However before I rule on this it is necessary briefly to consider how this money claim is put, pursuant to an order I made, in amended full particulars served on 24 March 2014, at internal page 31, paragraph 58:

“Losses claimed by BPC are 27.186 million and losses claimed by Mr and Mrs Chandra apart from a loss relating to losing their matrimonial home include loss and damage due to their losing their expected employment as the hands on directors in Holiday Inn, two million pounds, and losses relating to the enhanced value of their pension funds as a consequence of losing pension contribution of two million pounds from BPC.”

Now it is clear that the BPC loss, whether it is a good claim in law or as a matter of accounting, is predicated on the basis of an alleged net trading loss, said to have been incurred. This is clear when one considers the calculations set out at internal pages 18 to 21 of paragraphs 37 to 44 of that amended particulars of loss document. It is clear that the directors’ salaries and pension contributions are as a matter of accounting excluded from the claim for net loss of profit. So it is that the company, BPC, is not claiming at least on its face for the allegedly lost salary and pension on the part of Mr and Mrs Chandra. Arguably at least they could not claim for it because in a sense they never paid it out, they were never going to pay it out, it is certainly not pleaded that they are ever going to pay it out, and therefore there is certainly as far as I can tell anyway on the face of this document no actual duplication between Mr and Mrs Chandra’s claim for lost salary and pension contributions, and the company’s claim.

Therefore, having regard to Lord Bingham’s classifications, it may be and I make no final decision about this because I think there is an arguable issue about this, considering Lord Bingham’s dictum:

“Where a company suffers loss caused by a breach of duty to it and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently over the shareholder, each may sue to recover the loss caused to it by breach of duty, but neither may recover loss caused to the other by breach of the duty owed to that other.”

Now it seems to me at least arguable at this stage, until the facts are explored at least, that there are separate losses here, although the personal losses on the part of Mr and Mrs Chandra said to have been incurred are mentioned in the calculation, but they are in effect excluded or subtracted from the company’s calculation. So it seems to me arguable at least that there are separate existing losses and I am therefore not satisfied at least at this stage on the available evidence and the available information and that the pleading as it is put necessarily offends against the reflective loss rules. Therefore I do not think that this is an appropriate case to strike out at this stage. So it follows, apart from a consent declaration that Mrs Chandra cannot claim in these proceedings for the £450,000, the subject matter of the second or further guarantee, the application of the defendant will be dismissed.

Now, Mr and Mrs Chandra, I do not think it will come as a surprise that the court would consider that you have won on this application, that does not mean to say you are going to win the proceedings eventually, I do not really know about that, but you have been doing this yourselves, you have not got solicitors?