[New search]
[Printable RTF version]
[Help]
Case No: QBCMF 1999/0381/A3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
MANCHESTER DISTRICT REGISTRY
Mercantile List
Royal Courts of Justice
Strand, London, WC2A 2LL
Date 4th July 2000
B e f o r e :
LORD JUSTICE PETER GIBSON
LORD JUSTICE BROOKE
and
LORD JUSTICE ROBERT WALKER
- - - - - - - - - - - - - - - - - - - - -
|
CENTREMODEL
PROJECTS LTD
|
Appellants/
Claimants
|
|
-
and -
|
|
|
ROYAL
BANK OF SCOTLAND
|
Respondents/
Defendants
|
-
- - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Peter Smith QC & Paul Chaisty (instructed by Yates Barnes for the
Appellants)
Stephen Phillips (instructed by Hammond Suddards for the Respondents)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE BROOKE:
1. This is an appeal by the claimants Centremodel Projects Ltd ("Centremodel")
against an order of Judge Kershaw QC sitting as a high court judge in
Manchester on 26th March 1999 when he dismissed their claim against the
defendants, the Royal Bank of Scotland ("the Bank"). By a Respondents' Notice
the Bank seeks to challenge the judge's findings of fact on a central issue in
the case.
2. Centremodel's claim against the Bank is connected with the cost of land
reclamation works it carried out at premises at Heapey, in Lancashire. The
land was the site of a former bleach and linoleum factory. It was badly
contaminated with various forms of toxic waste, but it was perceived as having
valuable potential for housebuilding if the contamination could be removed.
3. In the mid-1980s the unregistered freehold title to this land was acquired
for about £150,000 by a company called William Ainscough and Sons Ltd
("Ainscough Sons"). This was the parent company of a group of three companies
which represented a family business which went back to the early years of this
century. The other two companies in the group, which were both trading
companies, were called Ainscough Metals Ltd ("Metals"), and Ainscough Building
Supplies Ltd. The former carried on business as scrap metal dealers and also
undertook demolition work, and the latter carried on business as builders'
merchants. From about 1988 Mr Sam Ainscough was in charge of the former
company, and his brother Joe Ainscough was in charge of the latter. It was Joe
Ainscough who was concerned with the events that form the subject matter of
this action, although Metals occupied part of the Heapey land for the purposes
of its business, and it appeared as an asset in the accounts of Metals. Mr
Ainscough, who gave evidence at the trial, could not explain how this had
happened: he said he did what his accountant told him to do. The judge did not
accept this evidence, but declined to speculate about the true reason for this
treatment of the land in Metals' accounts.
4. The Bank had for many years extended banking facilities to each of the
Ainscough companies, supported by charges over their assets and by
cross-guarantees. The land at Heapey was charged by Ainscough Sons to the Bank
by way of legal mortgage as security for all its liabilities to the Bank of any
kind pursuant to Clause 1 of a debenture dated 6th November 1986. Both the
trading companies felt the impact of the recession in the late 1980s on their
business, and the group's viability was also affected by the amount of money it
had invested in the Heapey land. In 1991 it obtained outline planning
permission for 150 houses on the land. It learned that Government grants were
available towards the cost of decontaminating derelict land, and Metals applied
for such a grant in March 1992. It also made some attempt on its own account
to carry out reclamation work, but the judge said that it may have done more
harm than good in this respect. The group's plans included a plan to relocate
their businesses on part of the site.
5. In the early part of 1993 the group's overall indebtedness to the Bank was
in the region of £3 million. The Bank then decided to transfer the
handling of the group's borrowing to a new Manchester branch of its Specialised
Lending Section ("SLS"), where Mrs Hope was one of the managers. This section
took on the handling of accounts which did not fulfill the Bank's standard
lending criteria because they had a high risk element. Mrs Hope had had 16
years' experience in the Bank's employment, and was the first working member of
the new branch when it was created. When the Ainscough file was transferred to
her in May 1993, it contained a note that the group's directors should be
warned of the dangers of trading when insolvent, but the judge declined to make
any finding as to whether any such warning was in fact given.
6. At this time the group's borrowing totalled £3,075,000, and the total
written down value of the bank's security was only £1,901,000, leaving a
balance of £1,174,000 which was required from land disposals "to leave an
ongoing satisfactory position." It was estimated within the Bank that of the
existing borrowing about £1 million represented lending which was directly
related to expenditure on the Heapey site, while the balance of the borrowing
related to the two trading businesses.
7. It was at this point that Centremodel came on the scene. This came about in
the following way. Mr Ainscough had been having discussions with a civil
engineering company, from whom he had obtained a quotation for the reclamation
work, and in this context he had also started talking to the Bank in May 1993
about the possibility of obtaining bridging finance, since he believed that
with the aid of the Bank and with dereliction grant aid the project could be
taken forward. In particular, there was a sale in prospect of six acres of
the land for £1.25 million to a company called Ideal Homes, which led him
to tell Mrs Hope that he would only need short-term additional finance from the
Bank. Mrs Hope said that she was led to believe that the arrangements for this
proposed sale were far advanced.
8. In early June Mr Ainscough was approached out of the blue by Mr Godfrey
Crook and Mr Harry Ruttle. Mr Crook had had many years experience in the civil
engineering industry. He had heard about the development potential of the
site, and he had decided to approach Mr Ruttle to see if they could form a
joint venture company to carry out the necessary land reclamation work and then
sell the decontaminated land to residential developers at a profit. Mr Ruttle
was a director of the Ruttle Group of companies, which had within it the
necessary skills and experience to carry out a land reclamation contract of
this kind. Mrs Hope said that Mr Crook had had previous dealings with the
Bank, and that Mr Ruttle was a well-known businessman in the construction
industry in the Chorley area.
9. Mr Crook's idea was that he and Mr Ruttle would form a new joint venture
company which would enter into a contract to carry out the work with the
relevant Ainscough company and then sub-contract its execution to one of Mr
Ruttle's companies. The new joint venture company would take its profit from
the difference between the contract price with the Ainscough company and the
sub-contract price at which the Ruttle company would carry out the work. Out
of this gross profit the joint venture company would have to pay for the work
of supervising the removal and disposal of the contaminated material. This
task was to be performed by Mr Norman Leek, a quantity surveyor employed within
the Ruttle group, who was considered to have the necessary skills and
experience. Mr Leek would also act as the administrator of the new company.
Mr Ruttle and Mr Crook anticipated that the eventual net profit accruing to the
new company would be substantial.
10. They therefore approached Mr Ainscough with a proposition which eventually
led to an agreement that the net profits of the new company would be divided as
to 25% to Mr Crook, 25% to Mr Ruttle and 50% for the benefit of Mr Ainscough,
to be paid to a company he would form. The judge said that he did not know
whether Mr Ainscough's motive was to save tax or to hide this money from the
bank or both. At all events, the potential benefit which would accrue to him
from these arrangements was never revealed to the Bank. They agreed to call
the new company Centremodel. Mr Ainscough said he was attracted to them
because he considered that the price they quoted was a competitive one.
11. On 22nd June 1993 a meeting took place between Mr Crook, Mr Ruttle, their
accountant Mr Johnson, Mr Ainscough and Mrs Hope. Mr Johnson was a partner in
the accountants firm of Thornton Harper and Relph. Mr Ainscough's professional
advisers may also have been present. Mrs Hope was told at this meeting that
the contract price for the land reclamation work would be £2.3 million,
subject to measure, and that the work was programmed to take 24 weeks, starting
on 28th June. In Mr Johnson's note of this meeting he recorded that the Bank
offered no guarantee in support of Metals' liability for the cost of the work.
In an exchange of letters which followed this meeting Mrs Hope confirmed to Mr
Johnson that the grants would be paid into a stakeholder account, and that the
balance of "necessary bank facility" would be provided on a separate account
which would only be available to be used to satisfy invoices from the new
company when supported by Metals' supervising engineer's certificates and
confirmation by Metals that it approved the payment.
12. Mrs Hope said in her evidence that she was keen to ensure that the Heapey
project could be brought through to fruition and the site disposed of, so that
the two trading businesses would be in a position to trade free from the
financial strain of the Heapey site debt. She also said that they had
discussed at the meeting the likely shortfall in the funding available for the
project based on a contract price of £2.3 million, and she had said that
the Bank would consider putting a facility in place to bridge the gap. She did
not say that unlimited funds would be made available: it would have been
madness to have done so, and no manager or representative of the Bank would
have considered committing it in this way. On 24th June 1993 she wrote to Mr
Ainscough setting out the Bank's terms for its assistance (which included a
monthly fee of £500 for monitoring the Heapey position, a restructuring
fee of £20,000 payable once the overall Heapey situation was clarified,
and an option representing 10% of the increased value of the Heapey land from
an agreed base value once the Ideal Homes contract had been completed). She
said the Bank was obviously looking to enable the decontamination work to be
undertaken, and in this regard she asked that Mr Ainscough's requirements for
the bridging loan should be forwarded to her as soon as possible.
13. Her subsequent discussions with Mr Ainscough crystallised in a facility
letter dated 27th August 1993 and a fee agreement dated 6th September 1993. On
6th September Mr Ainscough signed the facility letter on behalf of all three
Ainscough companies and the fee agreement on behalf of Ainscough Sons (who were
shown to be the owners of the Heapey land) and Metals.
14. The facility letter distinguished between the overdraft of £2,090,000
to Ainscough Sons and its subsidiaries (which would be utilised to fund their
working capital requirements), "the Heapey loan" of £1 million to Metals
(which would be utilised to repay the existing Heapey loan and other loans
outstanding in the name of Metals, the balance being used to reduce Metals'
current account borrowing), and "the Heapey Bridge" (which would be utilised to
fund the decontamination programme being undertaken on the site at Heapey).
One of the preconditions to any drawdown of the Heapey Bridge was the
confirmation that Ideal Homes had entered into a contract to purchase six acres
of land on the Heapey site for not less than £1.2 million. Another
precondition was confirmation that a grant by way of derelict land grant of
£867,000 would be made available by Chorley Borough Council. A third
precondition was confirmation from the solicitors acting for the Ainscough
companies that all legal documentation had been correctly drawn up and signed
by all the relevant parties. The facility letter expressly envisaged that the
Heapey Bridge would be repaid from monies due under the grant and from the
Ideal Homes contract, and that thereafter the Heapey loan would be repaid from
sales of the various plots on the Heapey site.
15. In the meantime, on 11th August 1993 Centremodel had entered into a written
contract with Metals, backdated to 30th June 1993, whereby it agreed to carry
out the reclamation works for £2.145 million, subject to measure. In the
event the work cost more than twice this amount. Clause 7.9 of the contract,
which was drafted by Mr Leek, was in these terms:
"Progress work shall be measured and valued at monthly intervals. Payments
shall be made by the Bank within four weeks after the date of payment
certificate and as particularised in the letter from Thornton Harper and Relph
dated the 22nd June 1993 to the Bank; the Bank's reply letter dated 23rd June
1993; and Thornton Harper and Relph letter dated 4th August 1993 copy of all
letters annexed hereto."
16. The Bank was not a party to this contract, and the judge said of Mr Leek
that he regarded himself as possessing legal expertise in the field of
engineering contracts which (contrary to his and Mr Ruttle's belief in the
matter) he did not in fact possess. Mrs Hope said in her evidence (p 1160)
that Metals' solicitor told her that Centremodel wanted the Bank to enter into
some warranties in the contract document, and that she had replied that the
Bank had not given any warranties and did not intend to do so. In due course,
when the statement of claim was originally pleaded by Mr Peter Smith QC, it was
alleged that in 1993 the Bank had agreed, pursuant to a collateral contract, to
ensure that Metals had sufficient sums to complete the works in accordance with
its contract with Centremodel (taking into account the grant) and that it would
cause these funds to be paid into an account earmarked solely for the purpose
of paying Centremodel in discharge of sums certified as being due under the
contract. It was also alleged that any sums received by the Bank on account of
grant monies or advanced to it by Metals were impressed with a trust to apply
them solely for the purposes of discharging sums due to Centremodel under the
contract.
17. Both these allegations were struck out from the pleadings by Jonathan
Parker J on 7th October 1997 and they therefore played no part in the trial.
They had continuing significance, however, because Judge Kershaw said he had no
doubt that Mr Leek, and through him Mr Ruttle, had a genuine belief that the
Bank had agreed in 1993 to provide the difference between the cost of the work,
as certified by the engineer for the purposes of the contract, and any grants
received by Metals. He added that what Mr Ruttle and Mr Leek said and wrote
thereafter must be read in the context that this was their genuine belief.
18. Mrs Hope did in fact permit a drawing of about £600,000 on the new
Heapey Bridge account on 6th September 1993 before the Ideal Homes contracts
had been exchanged. She said she had received a verbal assurance from the
Ainscough companies' new London solicitor that the sale was going ahead as
planned. She agreed to allow further payments to Centremodel of about
£333,000 on 12th November (which increased the net debit balance on the
account to about £843,000), £100,000 on 2nd December (which increased
it further to £946,000) and a further £100,000 later that month
(which took the borrowing up to its permitted limit) even though the Ideal
Homes contract had still not been exchanged - and, indeed, on 6th December she
was told that the company had withdrawn from the proposed sale. Mrs Hope said
that she had seen little point in continuing to take the hard line approach she
had adopted between 6th September and 12th November, because she had already
allowed part of the facility to be drawn down prematurely and she was still
being given to understand in November that the sale to Ideal Homes was to go
ahead.
19. She said that the news of Ideal Homes' withdrawal was of obvious concern to
the Bank because what had originally been a bridging facility had more or less
become an open-ended facility. It also posed an equally large problem for
Metals because it meant that the only monies that were coming in to fund the
Heapey project were the grant monies. Between September and December 1993
about £700,000 of grant money was paid into the Heapey Bridge account, and
between January 1994 and July 1994 a further £1.6 million of grant money
was paid into the account.
20. From time to time after the Heapey Bridge borrowing had reached its
approved limit of £1 million in December 1993, Mrs Hope refused to
sanction any increased borrowing on that account. This meant that the steadily
increasing cost of the decontamination works could not all be paid for out of
the grant monies which were being received, and by July 1994 Metals' debt to
Centremodel on unpaid engineer's certificates had risen to about £1.7
million. Mr Leek maintained from time to time that the Bank was in breach of
contract in refusing to fund these certificates. In the end Mrs Hope came to
ignore him. Despite this increasing debt, Centremodel never wrote any letter
direct to the Bank complaining of any default in its alleged contractual
liability.
21. On 7th July 1994 Mrs Hope applied internally within the Bank for approval
to increase the facilities for this customer, which were then due for review.
The total group borrowing had now risen to £2.3 million and the additional
borrowing attributable to the Heapey site (including the Heapey Bridge loan) to
£2,334,000. The August 1993 facility had amounted to £4.09 million,
so that approval was now being sought for an additional facility of
£544,000.
22. The facility request was supported by an explanation in these terms:
"The site is now clean but the cost of doing this has increased to £4.9m
exclusive of VAT due to the contamination in one area in which it had been
impossible to test by way of bore holes sufficiently deep to appreciate the
magnitude of the problem. At a depth of 20ft pits full of noxious waste were
encountered and the cost of removing the contaminant and tipping thereof have
resulted in the substantial cost overrun. In mitigation of this, the extra
work involved has resulted in further grant being made available of £1.8m
of which £400k minimum is still due.
The sums now stand as follows:
Contract cost (exclusive of VAT £4,900.000
Other costs (supervision etc) £467,000
Total costs £5,367,000
Grants paid/payable £2,667,000
Owed to contractor £1,700,000
Additional Bank Lending outstanding £1,000,000"
23. It was said that a sale of 8 acres had been agreed to John Maunders plc for
£1.89 million, subject to roads and electricity being on site. The cost
of undertaking these two items was said to be (i) £350,000, of which the
contractor was prepared to fund one third of the cost pending completion and
(ii) £104,000 for the electricity which was an upfront non refundable
payment before work would be commenced.
24. The two trading businesses were said to be trading profitably, and there
had been a recent property revaluation of £1.2 million in relation to the
Heapey site. It was said, in summary, that things had not gone according to
plan, but the original objective of debt reduction and the extinction of the
"environmental risk" would still be achieved. The new money lent to fund the
project would be repaid in the short term, plus a proportion of the original
debt which related to the Heapey site. In the longer term all Heapey related
debt would be repaid plus a substantial part of the remaining balances.
25. This request was approved, and on 28th July 1994 Mrs Hope prepared a draft
facility letter reflecting the terms of the Bank's new offer. On this occasion
the general overdraft facility for funding the group's working capital
requirements was to be £2.3 million and the lending to Metals attributable
to the Heapey site was to be consolidated into a new bridging facility of
£2,334,000. This was still to be called "the Heapey Bridge". The
facility letter, both in its draft and in its final form, stated that the
Heapey Bridge had been utilised to fund the decontamination programme being
undertaken on the site at Heapey and that it would be used to repay the Heapey
loan and to fund the road constructions and sewer and water connections at the
Heapey site.
26. Both versions of this facility letter made it an express condition, to be
satisfied prior to any further drawdown of the Heapey Bridge, that a solicitor
acting on the Bank's behalf had vetted the contracts to be entered into with
John Maunders plc and Wimpey Homes Ltd, that he was satisfied with them, and
that he confirmed that they had been signed and exchanged. The facility letter
also contained the following provision relating to repayment:
"The Facilities will remain subject to usual banking terms and conditions
including the right of the bank to require repayment on demand at any time,
although it is envisaged that the Heapey Bridge will be repaid as per the
attached Schedule."
27. This was a reference to a document entitled "Schedule of Payments Due and
How they are to be allocated" which Mrs Hope sent to Mr Ainscough on 28th July
1994. It reads:
"Date Source Amount Payment Allocation
Amount
9/94 Maunders £1,890,000 Roads/Sewers £450K Electricity
Bank £1,000K Ruttles Contract Debt
£440K
9/94 Wimpey £950,000 Bank £500K Ruttles £450K
9/95 say Wimpey £1,000,000 Bank £500K Ruttles
£500K
9/96 say Wimpey £1,000,000 Bank £500K Ruttles £200K
Fees etc £199K
Remaining land sales/restaurant to come in repayment of other banking
facilities/fees agreed. All remaining grants due will be paid to Ruttles which
on information given to us should clear the balance of their debt."
28. It will be seen that it was then being envisaged that £2.84 million
would be available quite soon, and that a further £2 million would be
available from the sale of the Heapey land within about two years. The Bank
would receive £2.5 million, which would enable it to extinguish the
original Heapey Bridge borrowing of £1 million quite quickly and to
extinguish Metals' other borrowing in relation to the site within a two year
period.
29. On 18th August 1994 Mrs Hope had a meeting at her office with Joe and Sam
Ainscough and Graham Simm, the company secretary of the Ainscough group. The
meeting was also attended by Mr Copping, who was at that time an assistant
manager at the Bank. Mr Copping made a short file note of the meeting.
30. Mrs Hope was told that the sale of part of the land to Maunders was
proceeding, with exchange of contracts imminent. There was talk of earmarking
a deposit of £400,000, payable on exchange of contracts, for the building
of roads on the north and south side of the site (for which Ruttles had quoted
£340,000, whereas Joe Ainscough was confident that the work could be done
for less than £300,000) and for the building of a bridge across a stream
(at a cost of £35,000). In addition, Mrs Hope said the Bank would fund a
payment of £120,000 to North West Water, being the upfront payment
required for laying pipes and sewers to the land. She was told that no further
progress had been made with the proposed sale to Wimpey. Finally, it was
agreed that the Bank would agree to place a cap of £320,000 on the amounts
payable under the September 1993 fee agreement.
31. Although the new facility which was being provided for Metals embraced the
whole of its borrowings in connection with the Heapey project, both before and
after June 1993, the Bank maintained the Heapey Bridge account in its original
state, in accordance with the arrangements discussed with its customers and
with Centremodel's representatives the previous year. It permitted a payment
to North West Water of about £122,000 out of this account on 13th
September 1994, thereby increasing the borrowing on the account to just over
£1.1 million, and when it authorised a payment to Centremodel of
£88,000 on 3rd October 1994 the borrowing remained at that level. It did
not, however, increase any further, because contracts had not yet been
exchanged with Maunders and Mrs Hope was not willing to repeat what had
occurred the previous year in relation to the promised Ideal Homes contract.
32. In her evidence at the trial Mrs Hope described a discussion she had that
autumn with Mr Ainscough about the possibility of inviting Mr Ruttle to buy the
Bank out of the Heapey project by settling Metals' indebtedness to the Bank and
purchasing the Heapey site himself. This led to the production by Centremodel
of a draft agreement covering its purchase of the Heapey site which Mrs Hope
said she was unable to take seriously because it did not provide the Bank with
any security at all.
33. During the autumn of 1994 there was something of an impasse. Contracts had
still not been exchanged with Maunders, and Centremodel suspended their work on
site because of the scale of Metals' indebtedness, which reached £2.1
million by the end of the year. On 9th December 1994 Mr Ainscough told Mrs
Hope that the Maunders contract had finally been exchanged. The events which
are at the centre of this litigation took place over the course of the next
eight weeks.
34. They had been preceded by a letter from Mr Johnson, on behalf of
Centremodel, to Mr Ainscough dated 2nd December 1994. Mr Johnson said that his
company was now owed about £2 million (including VAT but without interest)
and he asked for proposals to clear the indebtedness which would no doubt
reflect "our reasonable expectation of security". He reiterated Centremodel's
belief that Metals' bankers had "inextricably warranted the availability and
payment of funds against certified liabilities". He sent a copy of this letter
to Mrs Hope "who will no doubt have to be involved in your deliberations".
This letter included a threat of legal action if a satisfactory proposal was
not forthcoming. Mrs Hope could not remember how she reacted to the assertion
that the bank had given an open-ended warranty of the type suggested in this
letter. She suspects that she filed it on the grounds that it was not worth
the energy that would have been required to argue the point with Mr Leek and
the others.
35. On 14th December 1994 Mrs Hope made a file note of a telephone conversation
with Mr Ainscough. On the positive side the Maunders contract amount was about
£1.7 million for 8.52 acres, and he was in negotiation with two other
companies, Dorbcrest and Hassell, to sell 1.7 and 4.1 acres for £415,600
and £975,000 respectively. This would leave four plots, totalling 7
acres, unsold. On the negative side Ruttles were owed £1.9 million, and
there was still the roads and sewers work to be done, which would cost a
further £350,000, together with gas, electricity and the new bridge for a
further £30,000. Mr Ainscough explained that the Maunders contract price
had been reduced by £150,000 because this was the worst part of the site
and additional foundation works had still be to undertaken.
36. On the same day Centremodel, this time through the agency of Mr Leek, wrote
a further pressing letter to Mr Ainscough. It appeared from this letter that
the Maunders contract was conditional on that company securing planning
permission for the location of 63 homes on the site. Once planning permission
was forthcoming an enhanced deposit of £400,000 would be available prior
to completion for the roads and sewers and the other works needed to upgrade
the land to a serviced building area. Mr Leek said that Centremodel would be
prepared to carry out this additional work provided that they could be sure
that they would be paid for it. Because this formed part of the larger problem
his company faced in relation to the outstanding indebtedness he insisted that
it should be represented at a meeting with Mr Ainscough's bankers.
37. When Mrs Hope received a copy of this letter she indicated to Mr Ainscough
that she did not intend to attend such a meeting. This was because she did not
want to become involved in direct negotiations between a customer of the Bank
and a third party. A note prepared within the Bank for internal use at this
time set out the history of the matter and reflected the Bank's view of the
situation as seen by Mrs Hope's section in Manchester. The note ended in these
terms:
"The clean up has now been successfully completed and a contract to sell 4.8
acres recently exchanged at £1.8m with John Maunders plc. Various other
builders have expressed an ongoing interest. Once all sales completed the two
core businesses will be returned to satisfactory with all Heapey-related
borrowing repaid and a net debt reduction of £800k giving borrowings which
are totally serviceable for trading. SLS should receive fees totalling
£350k".
38. Mrs Hope eventually agreed to attend a meeting with Mr Ainscough and
Centremodel. She insisted, however, that Mr Leek should not be present. She
explained in her evidence that she had seen enough of Mr Leek's correspondence
already, and she had no desire to meet him. Her willingness to attend a
meeting stemmed from the fact that Metals needed Centremodel's help to carry
out the outstanding work that was needed before the sales of part of the land
could be completed. This in turn would lead to the beginning of the reduction
of Metals' borrowing from the Bank.
39. On 10th January Mr Leek prepared a briefing note for Mr Ruttle. This was
prefaced by a summary in which he made the following points:
(1) Under the June 1993 contract the Bank were to fund the difference between
the initial contract sum of £2,145,000 and the amount of £636,209
initially available from grants.
(2) In fact the Bank had only paid Centremodel £586,853 (excluding VAT)
from its own funds.
(3) An up to date valuation of the work had just been completed. Its gross
value was £5,179,260.14 (excluding VAT and interest). Ainscough currently
owed Centremodel £2,502,810 (including VAT but excluding interest).
(4) There were other works, including the roads and sewers, that had to be done
before Ainscough could receive any monies from prospective buyers of the land.
On pages 10 and 11 of this note Mr Leek gave a figure of £320,000
(excluding VAT) for the roads and sewers work and a figure of between
£100,000 and £130,000 (excluding VAT) for the other work which would
have to be done before the land could be effectively handed over for sale for
house construction.
40. Although Mr Leek's account of the Bank's supposed indebtedness departed
from the reality, the figures he gave Mr Ruttle at the end of this note would
have been those which Mr Ruttle would have been equipped to deploy at the
meeting.
41. The critical meeting took place at Mrs Hope's offices on 11th January. Mrs
Hope, Mr Copping, Mr Ainscough and Mr Ruttle were present. Mr Copping made a
short file note of the main points that were discussed. The note reads:
"JA confirmed that contracts had been exchanged subject to planning permission.
Planning permission had been submitted with an unconfirmed meeting set for
February.
Hassell Homes was proceeding and is due for exchange in January.
Another 2 acres has been agreed to be sold to Dorbcrest for £475k bringing
the total sale to £900k. JA hopes to exchange unconditional contracts in
January. A deposit of £90k has been agreed which will assist in the
funding of the roads and sewers. JA believes that this deal is the closest to
fruition.
HR confirmed that work would commence on the roads and sewers (cost c
£300k) on the condition that the first sale proceeds received by
Ainscoughs would be used to clear this debt. JA agreed to this deal. MMH
would consider this, however, she requested documentation which details the
cost for the work.
On the basis that the above is agreed, the first £300k of any proceeds
will go to HR. Thereafter, proceeds should come directly to the Bank. However
HR requested that the remaining proceeds are split 50/50 with this arrangement
continuing until HR's debt has been repaid. MMH rejected the request but
offered a 67/33 split in the Bank's favour until £1m of the Bank's debt
was repaid. Thereafter, the split would reverse to 33/67 in HR's favour.
HR agreed to provide a revised facility letter detailing the split of sale
proceeds."
42. Mrs Hope made three additions to this note. The first was to add the word
"Maunders" as the fourth word of the note. The second, which followed the
fifth paragraph of the note, reads: "We are to look at the impact of this and
revert to HR via JA". The third, at the end of the note, reads: "once
assessed".
43. On the following day, 12th January 1995, Mr Leek (for Centremodel) wrote a
letter to Mr Ainscough (for Metals), with a copy to Mrs Hope (for the Bank). He
had by now been briefed by Mr Ruttle about the events of the previous day. In
the first paragraph he said that he would "confirm below matters discussed and
deeds and actions agreed upon". In the second paragraph he included a proviso
"if the proposals hereafter proposed falters in execution" (sic). In the rest
of the letter he reverted to the language of agreement.
44. The gist of Mr Leek's letter was to the effect that Centremodel would now
proceed with the roads and sewers works for £320,000, "dependent upon
final engineer's details and availability of construction materials". They
would be paid for this work from the first monies Ainscough received from land
sales (a phrase to include any deposit moneys the relevant buyer agreed to
release for this purpose).
45. So far as the balance of Metals' indebtedness was concerned, Centremodel
and the Bank would in effect share the proceeds of land sales in the proportion
1:2 until the Bank received £1 million, and thereafter they would share
these proceeds in the proportion 2:1 until all Centremodel's debts had been
paid. Mr Leek ended his letter in these terms:
"We trust we have illustrated the discussed procedures correctly and hope that
this is now a workable format to bring this matter to a conclusion, and that it
will not be necessary to revoke the provisions herein referred to at some later
date, to return to the current contractual obligations of all parties."
46. When Mrs Hope received a copy of this letter she wrote "No. Up to
£1m. Then 50/50" against the passage in which Mr Leek described
Centremodel receiving two thirds of the sale proceeds. She also wrote "No"
against the penultimate paragraph in the letter in which Mr Leek, who started
it with the words "There are two final issues to confirm", dealt with the
charging of interest and the treatment of future grant receipts.
47. On 17th January 1995 Mr Leek wrote to Mr Ainscough confirming an agreement
he had made with Mr Ruttle four days earlier for a price of £320,000 for
the roads and sewers works. He said that the works would be "under the
existing contract conditions as the main works", but that payment would be as
outlined in his letter of 12th January. Work to the sewers would start on 23rd
January. Mr Ainscough appears to have telephoned Mr Ruttle on the same day
(17th January) to the effect that Metals was not yet in a position to give any
instructions for the work to start. He confirmed this in a letter written to
Mr Leek the following day, saying that:
"..agreement for your proposals has not yet been confirmed with our bankers the
Royal Bank of Scotland, and we are not yet in a position to instruct on any
works as proposed."
48. On 19th January Mr Ainscough furnished Mrs Hope with information she had
requested not only about the level of the outstanding debt to Centremodel, but
also about the group's overdraft situation more generally. She was told that
the likely cost of the outstanding work on the Heapey site, apart from the
roads and sewers, would be between £80,000 and £90,000 (as opposed to
the £100,000 - £130,000 bracket furnished by Mr Leek to Mr Ruttle on
10th January). She then made some calculations on the basis of these figures.
On this occasion she included for the first time the recoupment of the
£119,000 the Bank had advanced for the North West Water payment as the
second payment (following the £320,000 for the roads and sewers) which was
to be made out of the land sale proceeds before the 2:1 split of the next
£1.5 million.
49. On 27th January 1995 she wrote formally to Mr Ainscough. The letter is
headed "Ainscough Metals Ltd". It makes no mention of Centremodel. It
reads:
"I refer to our recent meeting, and subsequent many and numerous telephone
conversations.
At your request, the Bank has considered the position regarding the proceeds of
sale from Heapey and whether it would be prepared to allow some of these monies
to be utilised in payment of other creditors specific to the decontamination of
that site.
On the basis of the present position, we would be prepared to allow the first
£320,000 of sale proceeds to be utilised in payment of contractors work on
roads and sewers. The next £119,000 would come in debt reduction in
relation to the additional advance made available by the Bank to allow the
North West Water contract to be entered into. The next £1,500,000 of sale
proceeds would be split as to 67% to the Bank in debt reduction, 33% in payment
of other contractors. The next £1,500,000 of sale proceeds to be split
33% to the Bank in debt reduction, 67% to the relevant contractors on the
Heapey job. The balance of sale proceeds to be taken 50% in Bank debt
reduction and 50% allowable for payment to relevant contractors subject to a
ceiling on funds paid out in this way to contractors of £2,822,810,
including works undertaken to roads. Once this figure has been reached then
all further sums due would be taken in the normal way by the Bank.
The above figure, ie £2,822,810 will be deemed to reduce when payments
from English Partnerships for Grants are received into the Bank account and
such funds at your instruction are remitted to the various contractors.
The fee due to the Bank will be paid as and when it falls due on a pro rata
basis.
I trust this now clarifies the position between us and look forward to hearing
from you."
50. On receipt of this letter Mr Ainscough sent a copy of it to Mr Ruttle,
suggesting that he should ring and discuss it. It will be noted that in
addition to allowing the first £320,000 of sale proceeds to be utilised in
payment of contractors' work on roads and sewers (a matter the possibility of
which was mentioned in Mr Copping's note), Mrs Hope was now stipulating that
the next £119,000 of sale proceeds must be used in settlement of the
additional advance made available by the Bank as an upfront payment on the
North West Water contract. This possibility had not been mentioned in Mr
Leek's letter of 12th January (nor indeed in Mr Copping's note of 11th
January), a fact noted by Mr Leek in his next letter to Mr Ainscough dated 14th
February 1995. Mrs Hope's figure of £2,822,810 was calculated by adding
£320,000 to the figure of £2,502,810 mentioned in Mr Leek's briefing
note to Mr Ruttle (a page of which Mr Ainscough had sent her on 19th January).
It takes no account of the further £90,000 - £100,000 mentioned on
that page.
51. Mr Ainscough forwarded a copy of Mrs Hope's letter to Mr Ruttle, as Mrs
Hope had anticipated, but Mr Leek was away on holiday, and he did not respond
to Mr Ainscough until 14th February. Mr Leek did not send a copy of this
letter to the Bank. When one strips this letter down to its essentials, he was
making the following points:
(1) The Bank was now stipulating that £119,000 should be recovered by it
separately before it received its share of the 2:1 split of the first £1.5
million of the land sales. This was not acceptable, and Centremodel proposed
that this sum should be included in that share.
(2) Because the provision of the Brook Bridge (for which a price of
£35,200 (ex VAT) had been agreed) was integral to the road and sewers
work, its cost should be included in the first payment from the initial sales
proceeds, in addition to the £320,000 for the roads and sewers.
(3) The engineer's orders in relation to "the probable other works which may be
necessary for a full completion" would increase the cost of the works, and
whatever the final payment was, Centremodel's "full payment will have to be met
when all the land is sold".
(4) Centremodel was willing to share the sale proceeds 50-50 with the bank
after the initial payment for the work now being undertaken and the first
£3 million had been shared in the agreed proportions.
52. Mrs Hope was not shown a copy of this letter, which she read for the first
time at a fairly late stage of these proceedings, when she also saw for the
first time a letter Mr Leek wrote to Mr Ainscough on 4th July 1995. Mr Leek
was still continuing to assert that the Bank had "warranted payment to us as
deemed" by the initial contract. He referred, however, to his letter of 14th
February 1995 "in which we made a tacit agreement to receive payments for works
done on this project, which were outwith the terms of the Contract Agreement
which exists between us".
53. In August 1995 the sales of land to Maunders and Dorbcrest were completed.
On 11th August £954,400 was paid into the Heapey Bridge account, and the
Bank distributed this money on 14th August in accordance with the terms of its
letter of 27th January. On 18th August a further £1,333,650 was paid into
the account. On this occasion the Bank delayed distribution until 31st August,
and in the meantime Mr Leek wrote a letter of demand to Metals expressed in the
following terms:
"The tacit agreement we reached, notwithstanding that this such agreement does
not in any matter whatsoever waive any contractual rights, for us to receive
payment for work done out of the income you receive from sales of land is as
follows:-
1. The Bank would retain £119,000.00 for the water main deposit.
2. We would be paid the Road and Sewer cost, provisional assessed at
£340,000.00.
3. After allowance of 1 & 2 above, the next £1.5m received would be
2/3 to the Bank and 1/3 to us.
4. The next £1.5m received would be 2/3 to us and 1/3 the Bank.
5. Thereafter No 1, 2, 3 & 4 all remaining monies will be divided between
us and the Bank equally until all debts are paid.
With regard to that herebefore we have produced two schedules. That which
pertains to the monies received by you from Maunders and Dorbcrest shows we are
entitled to receive £853,124 plus VAT ...
We understand that the Maunders monies have been paid, together with the
Dorbcrest monies, therefore your payment of £853,124 plus VAT should be
made to us immediately."
54. It will be noted that Mr Leek had now dropped his proposal that the cost of
the bridge works should be added to the road and sewer cost in the first
tranche of payments. He had acquiesced in the Bank retaining the £119,000
for the water main deposit before the proceeds were shared in the agreed
proportions, and he had also acquiesced in the Bank's insistence that after the
first £3 million was shared, the Bank and Centremodel should share the
sale proceeds equally. He continued to insist, not surprisingly, that this
sharing exercise should embrace the whole of the eventual Centremodel debt, and
not be restricted to the sum mentioned in Mrs Hope's letter of 27th January.
55. The Bank performed its own calculations, and on 31st August 1995 Mr Copping
authorised the transfer of £847,938.09, which was close to the figure
suggested by Mr Leek, to Centremodel out of the Heapey Bridge account. He also
authorised the payment of VAT on this sum to Centremodel from an Ainscough Sons
account.
56. At the beginning of 1995 Mrs Hope had been led to believe that contracts
for the sale of a further plot of land to Hassell Homes were about to be
exchanged. This exchange of contracts did in fact take place, and on 5th June
1995 the deposit of £96,000 was paid into the Heapey Bridge account. In
November 1995, however, the purchasers rescinded the contract, on the ground
that the vendors had not carried out work they had agreed to perform, so that
the deposit, plus agreed interest, had to be repaid.
57. At about the same time, the liability to pay VAT on the Maunders and
Dorbcrest sales fell due (in a net amount of £244,580) and Mr Ainscough
came under pressure from Maunders to provide banker's bonds to the local
authority as a term of the agreement whereby the local authority undertook to
maintain the roads on the estate which had not been completed.
58. When Mr Ainscough raised this demand with Mrs Hope she was initially
reluctant to provide the bonds, which would give rise to contingent liabilities
for the Bank of just over £250,000. In January 1996, however, she agreed
to do so on the basis that the agreement evidenced in her letter of 27th
January 1995 was "withdrawn with immediate effect". By a letter dated 5th
January 1996 she told Mr Ainscough that as a result, no further payments would
be made to contractors, and any future sale proceeds would be used in permanent
debt reduction to the Bank. On 6th February, when she was formalising the
execution of the bonds, she told Mr Ainscough:
"In view of the recent position regarding the VAT and now this additional
liability, any previous correspondence between us in relation to payment of
other contractors is rescinded and all funds received will first of all be
utilised to clear the Bank borrowings in relation to Heapey. Thereafter, you
may utilise any available funds to clear any liabilities that the company, ie
Ainscough Metals Limited may have."
59. The remainder of the history can be quickly told. Nobody told Centremodel
about the decision Mrs Hope had made. They were still owed over £1
million which they expected to receive from the sale of the remaining land. On
23rd August 1996 Metals sold the remainder of the land (excluding the Heapey
House site) to a company called Beazer Homes Ltd for about £2.1m. The
sale proceeds were credited to Metals' account at the Bank, and the Bank
retained them all, not allowing any payment to Centremodel. On 4th September
1996 Centremodel sued Metals, who went into administration the following month.
60. Centremodel then turned their attention on the Bank, and the writ in this
action was issued on 10th February 1997. It is noteworthy that on 27th
September 1996 Mr Leek wrote a letter to the Bank in connection with an offer
of settlement which Metals had made to Centremodel in which no mention was made
of any potential claim his company might have against the Bank.
61. The Statement of Claim was served on 12th February 1997. The plaintiffs
relied on an oral agreement made between them and the Bank on 11th January
1995. They alleged that the agreement provided that after payment of
£320,000 for roads and sewer works (subject to variation and local
authority requirements) the balance of the payments due to them under the
contract would be discharged out of sales as follows:
(i) As to the first £1.5 million sale proceeds, 33% (excluding the roads
and sewers and water connection charges) would be paid to them and 67% would be
receivable by the Bank as against sums due to it under its debenture.
(ii) As to the next £1.5 million sale proceeds the percentages were to be
reversed, and they would then receive 67% of land sales and 33% would be
receivable by the Bank as against sums due to it under its debenture.
(iii) Thereafter the proceeds of land sales were to be divided equally between
them and the Bank towards discharge of their debt.
62. In reliance on this agreement the plaintiffs maintained that when Metals
sold the balance of land to Beazer Homes, Metals and the Bank were under an
obligation to apply the sale proceeds towards discharge of the plaintiffs'
entitlement then amounting to about £1.444 million plus interest "and the
sale proceeds thereby received were impressed with a trust to pay the same in
accordance with the terms of the agreement made on 11th January 1995". In the
course of the trial Mr Smith QC, who appeared for Centremodel, made it clear to
the judge that Centremodel was making a proprietary claim for this money: their
claim did not lie in debt.
63. The judge structured his judgment in the following way:
Pages 1-4 Summary of the history prior to June 1993
5-7 A description of the meeting on 22.6.93
7-16 Findings in relation to the meeting on 11.1.95
16-17 Findings in relation to breaches of contract
17-23 Findings on issues of law.
64. In other words, the judge did not analyse the unfolding history of the
matter, as seen by the parties, in the way I have endeavoured to do in this
judgment. He moved more or less straight from June 1993 to January 1995 and
appears to have decided the case on the basis of the impression the witnesses
(and, in particular Mrs Hope and Mr Ruttle) made on him in the witness-box. It
is impossible to gainsay the advantages this opportunity provides to a trial
judge which is not available to an appellate court, and we must be careful not
to attempt to retry the case on the transcripts. The judge's approach,
however, makes it very difficult for this court to know what arguments he took
into account and what arguments he did not take into account when assessing the
improbability (or otherwise) of Mrs Hope concluding a binding oral agreement
with Mr Ruttle at the January 1995 meeting, because he did not refer to the
history between June 1993 and January 1995 at all, except for a passing
reference to the August 1994 meeting. Nor did he refer to Mr Leek's letters of
14th February 1995 or 4th July 1995, even though Mr Phillips, who appeared for
the Bank, submitted that they cast valuable light on the question whether any
binding agreement had in fact been made.
65. In the course of his judgment, the judge made a number of adverse findings
in relation to Mrs Hope's evidence. On page 3 he said that when the Ainscough
file first came to her she accepted that she did not ascertain whether anyone
in the bank had previously warned the group's directors of the dangers of
trading when insolvent, so that she would be able to give this warning herself
if it had not been previously given. The judge said that he regarded this as
one indication of what he found, on the evidence as a whole, to have been her
perception of her functions - to save the trading companies if at all possible
and to safeguard the bank's position - without proper thought for the wider
picture, which included not only the responsibilities in law of the directors
but also the effect of what she said to others.
66. When the judge described the meeting on 22nd June 1993, he said that
unfortunately the word "quotation" had been used at this meeting. He went on
to find that Mrs Hope did not have any idea at that time of the possibility of
what happened in the event, when the scale of the necessary work increased and
the contract price vastly exceeded the figure mentioned at the meeting. He
said that she attached to the word "quotation" the connotations which it
usually carries, as opposed to the word "estimate", and he thought that her
subsequent actions were coloured, perhaps unconsciously, by her dismay at that
unexpected and substantial increase.
67. When he turned to consider the meeting on 11th January 1995 the judge said
that there was no doubt that at the time of that meeting the general perception
was that the contract works were substantially complete both in the contractual
sense and according to the ordinary use of language. Another contractor was on
the horizon, and nobody at the meeting gave any thought to the possibility that
in law Centremodel could not be expelled from the site. The judge found that
two considerations were uppermost in Mrs Hope's mind. The first was the need
to assuage Centremodel, and in particular the bellicose Mr Leek, so as to
prevent proceedings which would have the effect of driving one of her cherished
trading companies into insolvent liquidation. The other was a perception that
the work was virtually finished, apart from the road works, and that the site
would soon be sold with enough proceeds for all to be paid.
68. There was one minor matter which clearly affected the way the judge
approached the evidence of the three witnesses (Mrs Hope, Mr Copping and Mr
Ainscough) who gave evidence about the 11th January meeting on behalf of the
Bank. In their witness statements they had each said that the North-West Water
payment of £119,000 was discussed at that meeting. When they gave
evidence at the trial they each withdrew that part of their evidence before
confirming that the contents of their witness statements were otherwise
correct.
69. The judge did not accept that each of these witnesses had independently
remembered, since they had signed their statements, that something of which
they had been sure when they had signed their statements was not in fact
correct, although this was the effect of the evidence they had each given him.
He said he had no doubt whatsoever that the corrections, which brought their
evidence on that point into line with that of Mr Ruttle, were the result of
some orchestration. He also explicitly rejected Mr Ainscough's evidence that
his statement had been the product of his own independent thought over a two
week period. He accepted a submission by Mr Phillips to the effect that Mr
Ainscough may have said this because he had a mistaken belief that there was
some impropriety in a potential witness being assisted by a solicitor when he
was making his statement. He was therefore not willing to treat Mr Ainscough's
evidence about the meeting as of no weight simply for that reason. On the
other hand, he did not find counsel's counting of heads (three against one) to
be a helpful approach
70. The judge had previously found that Mr Copping was an accurate note-taker
and that by January 1995 he was sufficiently aware of the nature of the banking
problem to know what was important, while being sufficiently senior and well
educated to take a sensible note of what happened. He said that he found Mr
Copping's note infinitely more useful than Mr Leek's letter of 12th January in
helping him to decide what happened at the meeting, and that the contents of
this note broadly corroborated Mr Ruttle's evidence. It was this fact, and the
impression which he had gained of Mr Ruttle as a witness (a matter on which he
did not otherwise elaborate) which led him "unhesitatingly" to prefer Mr
Ruttle's evidence on the central point to that of the witnesses called for the
defendants.
71. The judge made an explicit finding that Mr Ruttle, Mr Ainscough and Mrs
Hope all used words which reasonably led the others to believe that after their
negotiations they had reached a tripartite agreement on everything save that
Mrs Hope had not yet agreed, for reasons which the judge explained, to
Centremodel's remuneration for doing the road works, if they did them, being
paid to them from the proceeds of the first sale.
72. The judge said that when Mrs Hope made her note "We are to look at the
impact of this and revert back to HR via JA" the addition of further
consideration was misplaced because the only thing not agreed at the meeting
was whether Centremodel should be allowed to do the roadworks. On the other
hand he saw this note as evidencing the fact that Mrs Hope regarded herself as
dealing with Centremodel and not only with Ainscough, albeit that she would
communicate with Mr Ruttle via her customer.
73. The judge was not willing to accept Mr Phillips's argument to the effect
that if there was an agreement to which Centremodel was a party, that agreement
would remain effective only for so long as the Bank's financial exposure did
not increase. This argument was based on Mrs Hope's use of the words "on the
present position" in her letter of 27th January 1995. The judge said that
there was no evidence upon which he could find that this had been agreed
expressly. Given the absence of any express agreement he found it impossible
to imply such a term because the agreement already had business efficiency
without it.
74. I am bound to say that I find the concept of someone in a managerial
position at a bank binding the bank conclusively at a meeting of the type that
took place on 11th January 1995 an extremely surprising one, and my anxiety
about the safety of the judge's findings was increased by the fact that he did
not in his judgment conduct any analysis of the way the Bank was handling this
transaction, stage by stage from the August 1993 facility letter through the
August 1994 facility letter and beyond. The judge, however, had the immense
advantage of seeing the witnesses, and he said he made his findings
"unhesitatingly". I therefore turned to an examination of the transcripts
(even though they are only a poor reflection of the "live" evidence) to see
whether they confirmed or allayed my anxieties.
75. Mrs Hope gave evidence for two days at the trial. For most of that time
she was being cross-examined by Mr Smith. She had joined the bank as a clerk
in August 1977, and she had had three jobs at assistant manager or senior
assistant manager level before she got her first managerial job in April 1993
when she joined SLS. At first she had only four clients there, but the numbers
gradually built up to 30. She had no authority on her own account to take any
decision about additional lending.
76. When Mr Smith cross-examined her about the meaning of the word "insolvency"
in the context of Metals' debts to Centremodel in December 1994 (Bundle, pp
1099-1100) her answers were not very convincing. She said a little later that
she had had a look at Centremodel's own bank accounts two years previously
(because Centremodel was also a customer of the bank) but she could not
remember why she had done this (pp 1118-9). She was challenged about the
efficiency of her system of filing documents and notes. She said she had
received no specific training in this area, and it was very much a matter for
her discretion whether she made or kept notes of meetings and other events (pp
1085-6, 1178).
77. She said in her witness statement that she had made it clear from the
outset of the January 1995 meeting that she would only make arrangements with
her customer and that she recalled stating that she had no duty to any party
other than Metals. Under cross-examination she said that she regarded this
statement as very important, and that she had made it clear that if she made
any agreement it would only be with her customer. She did not know why this
important point was not included in Mr Copping's note of the meeting, and she
accepted that she did not correct the note in order to include a reference to
it. She did not know why it did not appear in the amended note. At one point
she said that the reason why Mr Copping had omitted it may have been that he
was not experienced in making attendance notes (pp 1219-1221).
78. This was an issue on which the judge had to decide whether he accepted Mrs
Hope's evidence (supported by Mr Copping and Mr Ainscough) or whether he
accepted Mr Ruttle's evidence. Mr Ruttle's evidence on this matter was very
clear. Mr Leek and he had had a very unsatisfactory meeting with Mr Ainscough
on 13th December 1994, and he had told Mr Ainscough that he wanted a face to
face meeting with Mrs Hope because he wanted the payment situation sorted out
once and for all. When Mr Ainscough said he would ask the Bank to meet him, Mr
Ruttle said that instead of asking he should tell the Bank that unless he got
this money mess sorted out the work would stop, the roads and sewers would stop
and he would get all the contaminated rubbish back onto the site.
79. Mr Ruttle denied that Mrs Hope had said at the start of the meeting that
she was only going to deal with her customer and that she owed no duty to any
other customer. He denied that this was an inconclusive meeting at which
nothing definitive was agreed. He said that with the single exception of the
need for Mrs Hope to be satisfied about the agreed cost of the roads and sewers
contract (which happened soon afterwards) there was a complete agreement, and
Centremodel was willing to proceed on the basis of that agreement.
80. Since the judge was satisfied that Mr Ruttle had left the June 1993 meeting
in the belief that the Bank had undertaken to pay the new company the
difference between the grant monies and the certified cost of the works
(whatever the cost) I would have preferred it if the judge had explained why he
was so willing to accept that Mr Ruttle had not jumped to an unjustified
conclusion on this occasion as well. I would also have preferred it if he had
explained why Mrs Hope apparently felt completely free to insert a new term (as
to the priority to be given to the £119,000 payment) so soon after a more
or less complete agreement had been concluded. Similarly, I would have
preferred it if he had explained how he reconciled his findings with the
contents of Mr Leek's letters of 14th February and 4th July, and with the
absence of any assertion by Centremodel that the Bank had made any such
agreement with them until after they had tried but failed to recover the
balance of their outstanding debt from Metals.
81. I have considered carefully Mr Phillips's submission that the judge gave so
few reasons for his findings that his judgment cannot be allowed to stand. His
arguments are very clearly set out in his clients' Respondents' Notice, and I
need not repeat them here. In the final resort, however, I have concluded that
we should not reverse the judge's findings, however surprising we may find
them.
82. My reason is that although there were a lot of powerful arguments pointing
away from any concluded agreement between the Bank and Centremodel on 11th
January 1995, these arguments were addressed to the judge just as much as they
were addressed to us, and he implicitly rejected them. The reason he rejected
them was that he saw the witnesses and he unhesitatingly preferred Mr Ruttle's
evidence. My perusal of the transcript of Mrs Hope's evidence does not lead me
to conclude that this must have been a perverse judgment: far from it. There
were a number of features of Mrs Hope's evidence which appear unconvincing or
unsatisfactory even to someone who did not see her in the witness-box. There
could, in my judgment, be no question of this court substituting its own
findings, since we did not see the witnesses. The most we could do would be to
order a new trial, as Mr Phillips eventually asked for, on the basis of the
decision of this court in Flannery v Halifax Estate Agencies Ltd [2000] 1 WLR 377. I have had the opportunity of reading the judgment of Peter Gibson
LJ in draft. Like him, I do not feel I have to reach a conclusion on the
issues raised by the Respondents' Notice because of my clear view that the
appeal must be dismissed in any event for the reasons to which I now turn.
83. I turn now to the reasons why the judge dismissed Centremodel's claim on
the law after finding for them on the facts. As I have said, the land at
Heapey was vested in Ainscough Sons, and all the contracts for the sale of
parcels of that land were of course vested in that company. As I have also
said, the Bank had the benefit of a charge over that land to secure that
company's borrowing, and since the company guaranteed the borrowing of the
other companies in the group, the charge in effect secured their borrowings as
well.
84. The judge reminded himself that Centremodel's case was based not on a
simple allegation of breach of contract by the Bank to pay money to them, but
on an allegation that by virtue of the January 1995 agreement the Bank agreed
to hold some of the proceeds of sale of land over which it held a charge in
trust to pay the agreed proceeds of sale to Centremodel. It had never been
Centremodel's case that Ainscough Sons was a party to that agreement.
85. The judge held that the only right of the Bank under the charge over the
land was to use the proceeds of sale to discharge Ainscough Sons' indebtedness.
Unless that company instructed the Bank to pay some of those proceeds to
Centremodel and the Bank agreed to do so, none of the proceeds of sale would be
held on trust, or on the basis of any other duty, to pay any of them to
Centremodel. There was, the judge said, in fact neither evidence nor any
suggestion that Ainscough Sons was a party to any agreement which involved the
use of the proceeds of sale of its land.
86. He added that if Ainscough Sons guaranteed to the Bank the liability of
Metals, the Bank might well have been in a position to create a liability on
Ainscough Sons to pay what Metals owed to the Bank. This would have involved a
demand on Ainscough Sons under the guarantee and the Bank could then have
invoked its charge over the land. On payment by Ainscough Sons the borrowing
by Metals would have been discharged and the Bank would then have been in a
position to use what would then have been its own money as it wished. The case
for Centremodel had, however, not been pleaded or conducted on the basis of an
agreement by the Bank that it would pay from its own monies a sum equal to the
agreed proportions of sale of the Heapey land.
87. A little earlier the judge had rebuffed an attempt by Mr Smith to add to
his clients' case an argument to the effect that the beneficial ownership of
the Heapey land was vested in Metals. He said that during the trial he had
inquired whether he was going to be asked to determine the ownership of the
land (which, as I have said, appeared in Metals' accounts as one of its assets)
and Mr Smith had assured him that he was not. In the circumstances the judge
said he did not need to speculate what decision he would have made if an
application for leave to amend the Statement of Claim had been made at a very
late stage of the trial, particularly as no such application was ever made.
88. I did not find it easy to understand the way Mr Smith attacked the judge's
findings on the hearing of the appeal. The judge had given good reasons for
refusing to embark on an inquiry as to whether Metals were the beneficial
owners of the Heapey land. There is no mention of such a plea in the Statement
of Claim, and the exchange at the end of Mrs Hope's evidence on the fourth day
of the trial, to which the judge referred in his judgment, was in these
terms:
"Judge: Just before you go. Mr Smith, does some point arise on ownership of
the land? ...
Mr Smith: A point might arise, not necessarily in these proceedings.
Judge: Because it strikes me as a bizarre way to ask, as a basis for asking
me to make a finding as to the ownership of land by looking at the
documents.
Mr Smith You are not going to be asked to make a finding as to the ownership
of the land.
Judge: You are not going to ask me to make a finding?
Mr Smith: Certainly not.
Judge: You are not, are you, Mr Phillips?
Mr Phillips: If my friend sticks by his pleading that the land is owned by
William Ainscough and Sons there is nothing between us."
89. Centremodel's claim was, and always had been, that the agreement between
the Bank and Centremodel, to which Metals was a party, created a situation in
which it had a proprietary right over the proceeds of the sale of the Heapey
land. In his interlocutory judgment on 7th October 1997 Jonathan Parker J said
at p 18:
"In the course of his submissions Mr Smith made it clear that the primary claim
for payment of a sum of money is not a claim in debt as such, in that it is
premised upon the supposition that there are funds available to the Bank from
grants and sales of the site to enable it to make that payment out of those
funds. Essentially, therefore, [Centremodel] is asserting a proprietary claim
to payment out of the funds resulting from the receipt by the Bank of grants
and sales of parts of the site."
90. The difficulty with Centremodel's case is that after mentioning Ainscough
Sons' ownership of the land and its status as part of the Ainscough group in
the opening paragraphs of the Statement of Claim, the pleader never mentioned
that company at all thereafter and, as the judge pointed out, it was never
suggested that it had been a party to the January 1995 agreement. There was
never any way in which either the Bank or Metals could create a proprietary
right over the proceeds of sale of Ainscough Sons' land without that company's
knowledge or consent.
91. I have read and reread the Notice of Appeal and the passage headed "Answer
of Centremodel" in Mr Smith's skeleton argument and I have considered carefully
the arguments he addressed to us at the hearing, but I remain unable to
understand how he hoped to surmount this central difficulty without amendment
to his pleaded case, which it was far too late to contemplate. The fact that
Centremodel did not know that the land was vested in Ainscough Sons does not
assist them. If they had opted not to rely on Mr Leek's supposed legal
expertise and had instructed a solicitor to ensure that their interests were
effectively secured, that solicitor would no doubt have ascertained the true
position quite quickly, but this never happened.
92. Mr Smith attempted to argue in the alternative that the consent of
Ainscough Sons was irrelevant, because the Bank had agreed to pay Centremodel
and it controlled the proceeds of sale. It only controlled the proceeds of
sale, however, by virtue of the charge Ainscough Sons had created in its
favour, and it could not unilaterally enlarge or alter the terms of that charge
without the chargee's consent.
93. For these reasons I would dismiss this appeal
Lord Justice Robert Walker:
94. I agree.
Lord Justice Peter Gibson:
95. This is a troubling case for several reasons. First, the Judge has decided
the factual question whether the Bank committed itself to an unconditional oral
agreement on 11 January 1995 with a non-customer, Centremodel, in a way which
seems to me to run counter to commercial probabilities, to the documentary
evidence and to the manner in which all the parties behaved until some two
years later when Centremodel through its solicitors asserted the agreement for
the first time shortly before this action commenced. Second, Centremodel chose
to assert a proprietary claim based on that agreement rather than a claim for
damages for breach of contract, an assertion which appears not only in the
pleadings but in what was said to Jonathan Parker J. at the hearing of the
applications by the Bank to strike out and by Centremodel for summary judgment,
and in what was said to the Judge at the trial; nor is anything different
claimed in the Notice of Appeal. Third, although it should have been obvious
to Centremodel that its proprietary claim would involve either the commercial
absurdity of the Bank choosing to agree to allow to Centremodel large sums out
of the money which the Bank took for itself from the proceeds of sale, and so
reducing Metals' debt to the Bank correspondingly, or the consent of the owner
of the Heapey land, Centremodel expressly pleaded that Ainscough Sons, not
Metals, owned the land, and that Metals (attending the meeting on 11 January
1995 in the person of Joe Ainscough), not Ainscough Sons, was a party to the
agreement on 11 January 1995, and Centremodel neither pleaded nor proved that
Ainscough Sons consented to the agreement. Moreover, although the
cross-examination of the Bank's witnesses suggested that Centremodel might want
to claim that Metals owned the land, Mr. Smith Q.C. for Centremodel expressly
indicated to the Judge that he was not asking the Judge to make a finding on
the ownership of the land.
96. I am gravely disquieted by the Judge's finding of fact as to the agreement
for the reasons so persuasively and powerfully advanced by Mr. Phillips for the
Bank. I am left very uneasy as to whether the Judge made proper use of the
advantage which he had of seeing and hearing the witnesses when he appears to
have treated the oral evidence relating to the meeting of 11 January 1995 in
isolation from the events and documents before and after the crucial meeting.
For my part I would prefer not to reach any final conclusion on the
cross-appeal by the Bank on this point, and it is not necessary to do so in
view of the conclusion to which I have come on Centremodel's appeal.
97. Centremodel's claim is pleaded in para. 24.3 of the Amended Statement of
Claim as one whereby the Bank was "under an obligation to apply [the proceeds
of sale of the land sold to Beazer on 23 August 1996] towards discharge of
[Centremodel's] entitlement then amounting to £1,444,689.40 plus
interest," and, the pleading continues, "the sale proceeds thereby received
were impressed with a trust to pay the same in accordance with the terms of the
agreement made on 11th January 1993." In para. 25.1 it is averred
that Centremodel had requested payment of that sum plus VAT, but "wrongfully
and in breach of the contract or in breach of trust" the Bank had refused to
make any payment. There is no claim of loss or damage resulting from that
breach of contract and no damages for breach of contract are claimed. Instead
the claim in the Prayer is for the sum of £1,444,689.40 plus VAT,
alternatively for a declaration that the Bank received the proceeds of sale
upon trust to apply them in discharge of the sums due to Centremodel under the
contract. The references to a trust and breach of trust may well be associated
with that part of the claim which was struck out by Jonathan Parker J.
98. It would appear from the express reference to the nature of the claim in
Jonathan Parker J.'s judgment that he too was concerned to know precisely how
Centremodel was putting its case. As a result of what Mr. Smith told him, he
said: "Essentially, therefore, [Centremodel] is asserting a proprietary claim
to payment out of the funds resulting from the receipt by the Bank of grants
and sales of parts of the Site."
99. That way of putting Centremodel's case was not changed before the Judge.
As the Judge said at the conclusion of his judgment:
"However the case for [Centremodel] has not been pleaded or conducted on the
basis of an agreement by the bank that the bank would pay (i.e. would itself
pay from its own monies) a sum equal to the agreed proportions of the proceeds
of sale of the Heapey land."
100. That has not been challenged on this appeal, and although Mr. Smith
somewhat faintly argued that he would if necessary claim in contract, he did
not press that - rightly, in my view, because of the way this matter has been
pleaded and has proceeded up till now - and he maintained the way he had put
the case below.
101. I own to having insuperable difficulty in understanding how any
proprietary claim to a share of the proceeds of sale could succeed. When I
asked Mr. Smith whether he was saying that an equitable charge over the
proceeds of sale was created, he assented to that until I pointed out that that
gave no proprietary right to the proceeds of sale. As I said in Carreras
Ltd. v Freeman Matthews Ltd. [1985] Ch. 207 at p. 227:
"Such a charge is created by an appropriation of specific property to the
discharge of some debt or other obligation without there being any change in
ownership either at law or in equity."
(See also Megarry & Wade: The Law of Real Property, 6th
ed. (2000) para 19-040.)
102. On Centremodel's own pleadings Ainscough Sons owned the land. Ainscough
Sons would have had to be a party to or to have consented to its proceeds of
sale (subject to the charge to the Bank) going to Centremodel, but that was not
pleaded or established. The Bank in theory might, after claiming the proceeds
under its charge, so as to extinguish Metal's debt to it pro tanto, have chosen
to allow Centremodel to take part of the Bank's moneys. But that was never
pleaded or asserted and in any event it is commercially highly improbable. Mr.
Smith suggested that this court might find that Metals owned the land because
of what appeared in the accounts of Metals and Ainscough Sons. That, however,
is not open to Centremodel in view of what was said to the Judge about
ownership not being a matter to be decided. Nor do we have the material to
make such a finding, though I accept that the position is puzzling. But
Centremodel has only itself to blame for not putting in issue before the Judge
points like this.
103. In the result I am satisfied that the Judge reached the correct conclusion
on Centremodel's claim to have a proprietary interest in the sum claimed. I
too would dismiss this appeal.
Order: Appeal dismissed. The successful respondent to have half the
costs of the appeal (which includes the respondent's notice). Application for
permission to appeal to the House of Lords refused.
(Order does not form part of the approved judgment.)
BAILII:
Copyright Policy |
Disclaimers |
Privacy Policy |
Feedback |
Donate to BAILII
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/206.html
