MR JUSTICE ARNOLD :
Introduction
- In the judgment which I handed down on 18 January 2013 [2013] EWHC 25 (Ch) ("my first judgment") issue 4 was left unresolved for the reasons explained at [174]-[175]. I heard further argument on that issue on 7 February 2013 and announced my decision. These are the reasons for that decision.
- For the reasons explained in my first judgment at [171]-[173], I have already concluded that (i) paragraph 33 of the draft Amended Particulars of Claim failed adequately to plead a coherent case that the misrepresentations alleged caused GCP to lose the sums claimed by way of damages, and (ii) that failure was not cured by the expert's report served by GCP. It follows that GCP's Particulars of Claim must be struck out pursuant to CPR r. 3.4(2)(a) unless GCP can cure the defect.
- GCP has attempted to cure the defect by means of the Further Particulars on the Issue of Causation and Loss served on 10 January 2013. Counsel for the Defendants submitted that these Further Particulars amounted in substance to a further proposed amendment to paragraph 33 of the Particulars of Claim and that the amendment should not be permitted unless it disclosed a coherent case with a real prospect of success. I agree with that analysis.
- GCP's case as set out in the Further Particulars may be summarised as follows:
i) At all material times the Gladman Group had a revolving credit facility secured against assets owned by the Group, including properties which the Group was in the course of developing. From October 2008 onwards, the maximum amount available under the facility was £150 million.
ii) In practice, the amount available to be drawn down under the facility at any particular time ("the Headroom") depended on the loan-to-value ratio ("LTV") of the properties it acquired. The higher the LTV, the less the Group needed to borrow to finance an acquisition and the greater the effective Headroom. The LTV was typically between 60% and 80%.
iii) In late 2005 the Group started a new student accommodation division. In 2006 the Group's intention was that this division should acquire a first tranche of four or five sites for development as student accommodation. The Group "planned to allocate a figure of approximately £30 million in Headroom for use in starting the student division".
iv) The first site it acquired was a site in Sheffield for a price of £2.1 million in about March 2007. The second site was the Properties.
v) Because of the risk that GCP would be ordered to complete the Contracts, it "sterilised" a sum initially of £5.4 million, increasing to in excess of £7 million, in Headroom, representing the unpaid balance of the purchase price, interest and costs.
vi) But for the alleged misrepresentations, the Group would have used that amount of Headroom, together with the £600,000 paid by way of deposits for the Properties, to purchase and develop alternative sites. Profits from these sites would have been used to purchase and develop further sites.
vii) As a result, the Group has lost the profits from the development of at least seven sites amounting to between £30 million and £39 million.
viii) These losses were reasonably foreseeable, and hence not too remote, because it was reasonably foreseeable that the Group would have preserved or kept funding to complete the purchase of the Properties if required to do so.
- Counsel for the Defendants argued that the Further Particulars did not disclose a coherent case with a real prospect of success for two reasons. First, the Further Particulars had failed to answer the question raised in my first judgment at the end of [173]: how did GCP contend that its failure to borrow £7 million had led to the losses described in Mr Mathew-Jones' report? Secondly, the case advanced in the Further Particulars was inconsistent with the contemporaneous documents and with GCP's own evidence in the First Action and at earlier stages of these proceedings, and no explanation had been given for these inconsistencies.
- In response to the first argument, counsel for GCP argued that the Further Particulars were sufficient to make clear to the Defendants the nature of the case they had to meet. Detailed particulars were not required, and in any event it was open to the Defendants to seek further information by means of a Part 18 Request. In response to the second argument, counsel for GCP argued that it was procedurally unfair for the Defendants to raise such an argument at this stage of the proceedings. He also argued that this was a matter for cross-examination at trial.
- In my judgment the Further Particulars do not disclose a coherent case that the alleged misrepresentations caused GCP to lose between £30 and 39 million as claimed. This is for two main reasons. First, it is GCP's own case as pleaded in the Further Particulars that the Group had allocated £30 million in Headroom for starting the student accommodation division. (I leave on one side for this purpose the fact that Mr Mathew-Jones stated in paragraph 5.15 of his report that he was instructed that the available Headroom was £40 million.) Assuming an LTV on the Sheffield site of 60%, the purchase of that site would have left over £29 million in Headroom. Even if the Group "sterilised" £7 million as a result of the misrepresentations, that would have left over £23 million in Headroom for the purchase and development of student accommodation. That would have been ample to purchase and develop the first few sites which form the basis for Mr Mathew-Jones' calculations even without any sales. It follows that "sterilising" £7 million in Headroom did not prevent the Group from purchasing and developing sites for student accommodation and generating substantial profits from that activity.
- Secondly, GCP does not allege that it did not have any alternative sources of finance (such as cash in the bank or equity or other secured finance options) which would have enabled it either to comply with an order for specific performance or to purchase and develop alternative sites. Counsel for GCP argued that it was not necessary for GCP to allege this, but rather it was for the Defendants to plead the availability of alternative sources of finance by way of defence if appropriate. I disagree. The "sterilisation" of the Headroom could only have caused the Group loss if it did not have any alternative source of finance.
- It follows that the Further Particulars do not cure the defect in paragraph 33 of the Particulars of Claim and the Particulars of Claim must be struck out on this ground as well as on the ground of abuse of process.
- In these circumstances it is strictly unnecessary for me to deal with the second argument advanced by counsel for the Defendants, but for completeness I shall do so. In my judgment the Further Particulars are inconsistent with the contemporaneous documents and with GCP's own evidence in the First Action and at earlier stages of these proceedings. I would particularly highlight the following points.
- First, GDL stated in its bid document when bidding for the Properties:
"The purchase of the site will be funded from our own resources without need for third party funding.
Gladman is proud to have an 18 year relationship with its main banker Royal Bank of Scotland, whereby Gladman's equity in each project is supplemented by the bank's lending facility. This financial strength ensures that Gladman immediately has the resources required to undertake the development and associated obligations."
- Thus what GDL was saying at that time was that the Gladman Group would purchase the site using its own equity and undertake the development using a combination of equity and borrowing. This is fatal to GCP's case on foreseeability, since the Defendants had no way of knowing that this statement was (on the case now advanced) at least partly untrue.
- Secondly, an article published in The Journal in Newcastle on 18 April 2007, a copy of which is exhibited to Mr Mathew-Jones' report and relied on by him as a source of information, stated that the Gladman Group had sold a portfolio of industrial buildings for £180 million and that "cash from the sale … will be used to acquire new sites for the development of student accommodation and rest homes". This indicates that GCP did in fact have an alternative source of finance to the "sterilised" Headroom, namely cash in the bank.
- Thirdly, Mr Gladman stated in paragraph 48 of his first witness statement in the First Action that, when he and his colleagues found out about the SPD in about November 2007, they realised immediately that:
"We would now need to make sure that the balance of the £6m was available from our equity to pay for this 'pup', making it unavailable for any alternative project."
His colleague Jonathan Shepherd gave evidence to precisely the same effect in paragraph 51 of his first witness statement.
- Neither Mr Gladman nor Mr Shepherd has retracted these statements. It follows that GCP's case that it "sterilised" £7 million of Headroom is flat contrary to the evidence of its own witnesses.
- Fourthly, Mr Mathew-Jones stated in paragraph 5.10 of his report that he had been instructed that in 2007 the Gladman Group had "allocated funds of between £8 million and £10 million for investment in student and/or key worker accommodation schemes". In context, it is clear that he is talking about equity funds. This is consistent with the evidence of Mr Gladman and Mr Shepherd, but not with the case advanced in the Further Particulars.
- I do not accept that it is procedurally unfair for the Defendants to rely on these inconsistencies at this stage. The inconsistencies in GCP's case were highlighted in the skeleton argument and oral submissions of counsel for FHP and Mr Hargreaves at the hearing in December 2012. Furthermore, counsel for FHP and Mr Hargreaves made it clear during the hearing that the Defendants would expect any further statement of case to be accompanied by an explanation for these inconsistencies. GCP chose not to serve any such explanation (whether in the form of evidence or otherwise).
- Furthermore, I do not agree that these inconsistencies are simply matters for cross-examination at trial. In my judgment they confirm that GCP's case is unsustainable.
