Home Information Cases Folgender Holdings Ltd v Letraz Properties Ltd (2019)

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Folgender Holdings Ltd v Letraz Properties Ltd (2019)

Summary

The CPR permitted secondary evidence to be given provided that the requirements of CPR PD 32 para.18.2 were complied with. That was an important requirement: the court had to know in every instance from what source the secondary evidence came. If a party chose to provide evidence through a solicitor, strict compliance with the CPR was required if that party was to avoid the risk that limited, or possibly no, weight was given to the evidence.

Facts

The claimants, successors in title to a lender, sought summary judgment in their claim against the first defendant borrower.

The borrower held the entire shareholdings in two companies (Arbomo and Arklow) which each owned a property which was to undergo redevelopment. The primary funding for the redevelopment was a facility that the borrower's parent company had with Lloyds TSB. In 2012, the lender agreed to lend the borrower £10 million. The loan agreement provided that: the lender should be given a second charge on the properties; the borrower's directors should, together with the lender, oversee the redevelopment; upon the sale of the redeveloped properties, the full loan amount should be redeemed to the lender plus an additional 30% of the net profit. However, second charges in favour of the lender were never executed. The borrower's parent company refinanced its borrowing in relation to Arklow's property and obtained a facility from EFG Private Bank. In 2014 EFG granted Arbomo a loan facility. A legal charge was executed by Arbomo and a restriction was registered against the title under which no disposition of the registered estate could be registered without EFG's written consent. Arklow sold its property in 2015. The claimants sought: (i) specific performance of the loan agreement by the execution of a registrable second charge over Arbomo's property; (ii) an injunction to prevent Arbomo being disabled from granting a second charge until it had been registered; (iii) specific performance of the obligation to provide them with information about the redevelopment works at Arbomo's property, and an order for the taking of accounts of the net profit of both properties.

Held

Second charge - The claimants had made out a compelling case for the grant of specific performance. It would be deeply unattractive if the claimants were to be deprived of an effective remedy for breach of the borrower's obligations. When the borrower caused Arbomo to make arrangements in 2014 with EFG, it knew of its prior contractual obligation with the lender, and that it had done nothing to provide a charge. As a general proposition, the court should respect the hierarchy of obligations that had been created, and the hierarchy would almost invariably, in the absence of clear wording to the contrary, arise from the order in which the obligations were created, particularly where interests in land were created by the respective obligations. There was no general principle that affected the exercise of the court's discretion to grant specific performance in the case of obligations entered into after the contract the claimant sought to enforce, Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1985] Ch. 103 and Warmington v Miller [1973] Q.B. 877 applied. The court would lean in favour of granting specific performance where a lender had a contractual entitlement to security, and there was nothing in the instant case which rebalanced the equities in favour of the defendants (see paras 38-49 of judgment).

Injunction - It was right for the court to provide additional protection to the claimants in the form of the injunctive relief they sought as an aid to ensuring that the order for specific performance was complied with. The court would accept an undertaking in lieu of an injunction (paras 60-62).

Information/taking of accounts - The borrower was obliged to provide information to the claimants about the redevelopment of Arbomo's property that was reasonably necessary for the purposes of oversight. In relation to the taking of accounts claim, the defendants argued that the obligation to pay net profit only arose upon the sale of both properties, and that there was no intermediate obligation to calculate net profit at the point when the first redevelopment was completed. The court was required to make sense of a provision in a business agreement relating to two complex developments. A developer did not wait until the last element of the development had been sold before calculating the profit, and there was no reason to suppose the lender and the borrower in the instant case intended to approach matters differently. Properly construed, the loan agreement required the borrower to provide the claimants with a calculation of the net profit for Arklow's property together with documents to support the calculation. The obligation to account in that way arose not later than the sale of Arklow's property (paras 63-86).

Secondary evidence - The borrower's evidence had been given through its solicitor's witness statement. As a general rule, it was desirable where a party faced an application for summary judgment for evidence to be given by a witness who had first-hand knowledge of the events, for the obvious reason that such evidence was likely to carry greater weight than evidence based on instructions. The CPR permitted secondary evidence to be given provided that the requirements of CPR PD 32 para.18.2 were complied with. That was an important requirement: the court had to know in every instance from what source the secondary evidence came. If a party chose, in response to an application for summary judgment, or indeed any application, to provide evidence through a solicitor, strict compliance with the CPR was required if that party was to avoid the risk that limited, or possibly no, weight was given to the evidence (para.19).

Defendants' informal application to amend defence - The defendants had abandoned the majority of their pleaded case and the majority of the case set out in the borrower's solicitor's witness statement, a statement that was served late and only after an unless order had been made. No attempt was made to amend the defence until halfway through the hearing. No explanation had been provided. It would be wrong to grant the defendants permission to amend the defence (paras 20-34).

Application granted

Ch D
Chief Master Marsh
Judgment date
6 August 2019
References
[2019] 8 WLUK 17 : LTL 7/8/2019