Jersey Unreported Judgments

Property - application for leave to appeal.

[2013]JRC160

Royal Court

(Samedi)

7 August 2013

Before     :

W. J. Bailhache, Q.C., Deputy Bailiff, sitting alone.

 

Mr Shane Holmes Director of the Representor.

Advocate J. N. Heywood for the Respondents.

judgment

the deputy bailiff:

1.        This is an application by the respondents for leave to appeal part of the Court's decision of 22^nd February, 2013.  Argument was heard on 17^th May, and judgment then reserved. 

2.        The Act of Court of 22^nd February, 2013, shows that on 8^th February the representor presented a representation to the Court seeking relief against the respondents to enable the representor to sell Units 2 and 5 Home Farm, Grouville.  The Court ordered that the respondents and the representor should attend upon the Bailiff's Judicial Secretary on 11^th February, 2013, to fix an emergency date for the hearing of the representation.  It was in those circumstances that Mr Holmes, on behalf of the representor, addressed the Court on 22^nd February to set out his various claims.  Advocate Simon Franckel then appeared on behalf of the respondents.  The Act of Court of 22^nd February, insofar as is material for the purposes of this application, shows this:-

"Now this day, upon hearing Mr Holmes on behalf of the representor and the Advocate Franckel [sic] for the respondents, the Court, having noted that in exchange for an undertaking from Hanson Renouf that the net proceeds of the sale of Unit 5 (being the sale price less any estate agent fees and Hanson Renouf's conveyancing fees) in respect of that property shall be paid to Investec by way of reduction of the debt due to it secured by prior charge, the first respondent would agree and undertake to take all necessary steps to release the benefit of its security in relation to Unit 5 so that the sale may proceed:-

(1) By consent, ordered that the representor shall pay to the first respondent interest at the rate of 2 per cent (2%) above the base rate per annum on such sums as claimed by the first respondent;

(2) Made no order but noted an apparent agreement that the net proceeds of sale of Unit 2 should that sale proceed would be held on account by Advocate Franckel, pending agreement between the parties or further order of the Court;

(3) Made no order in respect of the representor's submissions in respect of disputed capital contribution to the joint venture agreement;

(4) Noted that nothing in this order prevents the representor from bringing fresh proceedings against either respondent making claims under the alleged joint venture agreement; and

(5) Made no order for costs in respect of this representation."

3.        There was no written judgment at that time because the order reflected an agreement made in the face of the Court. 

The Claims

4.        The representor claimed that it was the owner of Units 2 and 5 Home Farm, both of which were scheduled for sale - Unit 2 on 15^th February and Unit 5 on 22^nd February, both to third party purchasers at market value.  Secured against the properties were monies lent by the first respondent totalling £282,500 the loans being made in different tranches between 30^th September, 2011, and 7^th February, 2012.  The representor claimed that it was unable to complete the sales of Units 2 and 5 because in addition to the capital which was due, the first respondent insisted that it would not cancel its registered charges unless it received interest at rates of up to 4% per month compound, totally £131,503.40, equal to about 58% per annum, and repayment of further loans and costs totalling £67,015.90, which were unsecured.  It was contended that this interest rate, if it were to be applied, would make the representor insolvent. 

5.        The representor asserted that through Mr Holmes it had made a joint venture agreement with the second respondent and his companies, including the first respondent, as a result of which it was not in fact agreed that the interest rates which were claimed would be applicable.  Furthermore it was said that the interest rates were in any event exorbitant, unreasonable and unenforceable, and that the Court should make a declaration as to a maximum rate of simple interest which was applicable on the secured loan, without prejudice to the right of either party to litigate the joint venture agreement. 

6.        It was in those circumstances that the Court heard argument on 22^nd February. 

7.        At that time, perhaps curiously in the light of the apparent urgency in fixing a hearing date, the representor sought a three week adjournment.  Perhaps equally surprisingly, the respondents opposed that.  The Court was informed that the purchaser of Unit 2 Home Farm had withdrawn and that it was indeed uncertain as to whether the purchaser of Unit 5 would proceed.  We were informed that the representor was close to being, if not actually, insolvent; that the respondents had agreed simple and not compound interest, and that this could run at 2% over base per annum.  The capital sum was not contested, according to the respondents, although the representor did not agree that. 

8.        The prospective sales of Units 2 and 5 would realise £1.5 million gross if all went to plan.  This would be sufficient to pay off the registered charges which had priority to the claims of the respondents. 

9.        There was therefore clearly a dispute which related to the alleged joint venture agreement, and a dispute as to the amount of capital which had actually been loaned by the first respondent to the representor.  There was no dispute that the sale of Unit 5 Home Farm would generate insufficient funds to repay Investec as the first secured party, which was owed approximately £800,000.  There was no dispute that it was in the interests of both the representor and the respondents that the sale of Unit 5 should proceed. 

10.      I have been told that after 22^nd February, the sale of Unit 5 did in fact proceed as planned, and that £600,000 was the gross sale price.  This means that, to the extent that the net proceeds of sale have been paid to Investec, interest on that creditor's prior charge is no longer accruing at the same rate.  To that extent, it may be said that the arrangement made on 22^nd February has achieved the objective.  Now however, the respondents seek leave to appeal to enable them to challenge the agreement made by their counsel in Court on 22^nd February.  I have an affidavit from the second respondent which indicates that he never instructed his advocate to agree these terms.  It is said by Advocate Heywood that this was an error on Advocate Franckel's part, and that something has clearly gone wrong.  I should therefore give leave to appeal so that the substance of the interest rate can be argued in the Court of Appeal. 

11.      Advocate Heywood submitted that the Court should apply the Glazebrook test to the issue of whether or not to grant leave.  Something did indeed go terribly wrong.  The lawyer went beyond his instructions, and opportunity should be given to the Court of Appeal to put that right. 

12.      It was submitted that when the Court had made a final determination, leave ought to be granted if there was a prospect of success and any doubt should be exercised in favour of the applicant.  Furthermore there was no prejudice to the representor in that the sale of Unit 5 had proceeded. 

13.      On behalf of the representor, Mr Holmes submitted that he had agreed a discount in relation to the sale price on Unit 2 in light of the deal which had been done.  He did not think that the first respondent would consider that Advocate Franckel had made such a big mistake because it had instructed Mr Franckel on a new matter.  Furthermore he thought that Advocate Franckel should have provided an affidavit and a full chronology.  It had taken some 14 days for the respondents to complain about the arrangements after the decision was taken in February. 

14.      I note also that Advocate Heywood confirmed that there was no suggestion that the Court could be criticised in making the order it did.  There was no criticism made because the Court did not have the benefit of the evidence which was now available.  That included evidence as to the terms upon which the respondents had raised the money to lend it on to the representor. 

15.      In his affidavit, the second respondent says that he is registered as a money lender with the Jersey Financial Services Commission.  His usual terms of trading are to lend 2% interest per month compounded by way of convertible loan agreement (i.e. loan agreements which enable him to convert the loans into shares in the companies in question).  He also usually only lends where he has a first charge on the property, as there is less risk. 

16.      In his affidavit, the second respondent goes into some detail as to his version of how the loans came to be made.  In particular he described how the first respondent had had to borrow money itself from a British Virgin Island company called Western Circle Capital Limited, the terms of which were that contractual interest on those loans was to run at a rate of 2% per month compounded, calculated on a daily basis, save in an event of default at which point the interest rate was to increase to 3.9% per month compounded.  The failure of the representor to make payments in respect of the contractually agreed interest under the loan agreements had led to a failure on the part of the first respondent to repay Western Circle the capital and interest owing under its facility agreements, as a result of which the first respondent was in default and the contractual interest on the loans it had received from Western Circle were now running at 3.9% per month compounded. 

17.      It was contended by the second respondent in his affidavit that for a number of reasons therefore, the Court should reach the conclusion that the interest rates in the loan agreements with the representor were reasonable, and should not be disturbed. 

18.      The points which are raised by the second respondent in his affidavit are capable of being relevant to an argument as to whether the Court should enforce the contractual rate of interest in the loan agreements between the first respondent and the representor, or should apply its jurisdiction as set out in the case of Doorstop Limited-v-Gillman and Another [2012] JRC 199 to reduce the contractual interest claimed.  The real question for me today, however, is whether the respondents, having received the advantages of the deal which they secured by their concession on interest rates, should now be permitted to undo the disadvantageous part of that deal by being given leave to appeal and argue the contrary position in the Court of Appeal.  

19.      I note that I do not have an affidavit from Advocate Franckel admitting his error, but I have been shown a redacted email which suggests that he may have made an error, albeit with the best of intentions because he believed the result was in his client's best interests.  I also note that the Court adjourned for approximately a quarter of an hour during the hearing on 22^nd February expressly to enable Advocate Franckel to take instructions from the second respondent, and he was able to do that.  It is unsurprising that both the Court and the representor understood that consent had been obtained to the arrangement which is reflected in the Act of 22^nd February. 

20.      In his affidavit, the second respondent confirms that during a short adjournment of the hearing on 22^nd February he spoke with Advocate Franckel over the telephone.  He asserts that the conversation did not touch on the issue of interest rates, and that he was not informed of the interest rate which Advocate Franckel had agreed should be applied to the various loans made to the respondent.  He also confirms that he had reluctantly agreed to accept simple interest (at the contractually agreed rates) rather than compound interest if the representor provided comfort as to the principal sum by disclosing the size of the prior charge on the property and the state of any proceedings in relation to that charge.  It was only on 7^th March that he received an email at 13:10 hours from Advocate Franckel, which attached a letter from Messrs. Hanson Renouf as a result of which it was clear that the interest rate had been reduced.  The second respondent contended in his affidavit that it was simply unfair that the first respondent, having agreed to borrow money at an elevated rate of interest in order to finance the loans, should now be left out of pocket.  He had never, and never would give instructions to Advocate Franckel to agree a court rate of interest because the result would be to lose the first respondent something over £100,000. 

21.      In the redacted email which the Court has been shown sent by Advocate Franckel to the second respondent on 11^th March at 12:27pm, a long paragraph has been removed, following which there is this passage:-

"I now accept clearly and unequivocally that your position was that you would accept simple interest at the rates you usually charge.  Against that background and on the basis of instructions to achieve the best outcome that I could, I proceeded before the court to do what I felt to be in your best interests, taking into account and trying to balance all of the above.  As you know the picture changed and developed as the hearing went on - to the extent that the court adjourned for 15 minutes so that I could discuss something with you (but I agree interest was not mentioned during that conversation between us).  Given the options available and the manner in which issues and options were put to me, I accepted before the court that you would accept a court rate of 2.5%, since this meant that Holmes had nothing further to argue about - he could not justify an adjournment and he could not seek to bring in his arguments and delays on the joint venture, because the only issue before the court was the interest rate.  It seemed to me to be the best solution at the time, given our key aims.  Perhaps on reflection I ought to have agreed to the adjournment so that we have time to put the necessary evidence before the court to argue for the higher rate."

22.      This passage is then followed by a further redacted passage before the email concludes "regards Simon". 

23.      In Glazebrook-v-Housing Committee 2002/217 the Court of Appeal considered the statement of the principles which ought to be applied in relation to the grant of leave to appeal.  The Court referred to Vekaplast-v-Picot [1989] JLR 269 where Tomes DB considered those principles at page 274 et seq.  The summary of those principles is that leave to appeal should be given:-

(i)        If the question is one of general principle decided for the first time;

(ii)       If it is a question of importance upon which further argument and a decision of the Court would be to public advantage;

(iii)      If there is a clear case of something having gone wrong. 

24.      The "clear case of something having gone wrong" test was preferred to the "prima facie case that an error has made" test.  The reason for that was that the prima facie case principle was allegedly derived from remarks of Vaughan Williams LJ in an unidentified case appearing in the Law Times of 29^th June, 1907, where the judge did not use that expression at all, but instead said this:-

"... it was not sufficient for giving leave to appeal that this court might have come to a different conclusion.  In his opinion, unless they could see that there was a clear case of something having gone wrong, they ought not to give leave to appeal."

25.      At all events it was this latter test upon which Advocate Heywood relied.  Something did go wrong because the lawyer went beyond his instructions.  Advocate Heywood relied also upon dicta of Tomes DB in Vekaplast Heinrich Laumann KG-v-TA Picot (CI) Limited and Vekaplast Windows (CI) Limited [1989] JLR 269 at page 279, where the Court said:-

"The Court has come to the following conclusions:-

(1)       Leave to appeal may be granted if the court can see a prima facie case that an error has been made, whether that error has been made by counsel or by the court; the test is that there must be a clear case of something having gone wrong. 

(2)       Where there is a consent order, the court must view an application for leave to appeal with extreme caution and the court should not grant the application except in a case which clearly calls for interference with the order made. 

(3)       In the present case the consent order is to be regarded as having full contractual effect.  It was not an order upon an interlocutory, preliminary or procedural matter.  It was intended to dispose of the action in its entirety.  When the court was asked for an adjournment it was with a view to settlement and the court was told that it might be needed only to ratify an agreement upon which the parties could dispense with the action.  We are satisfied that the consent in this case evidenced a real contract between the parties and was not a case of "the parties not objecting". 

26.      Reference was also made to the English case of Purcell-v-Trigell (FC) Limited [1971] 1 QB 358, where the English Court of Appeal held that there was no ground for setting aside a consent order except in circumstances in which a contract might be set aside or varied.  It was said that this was the case where clearly there was no consent between the parties. 

27.      It is unfortunate that I was not presented on this application with all the material which was before the Court on 22^nd February.  However, it is apparent that on that day Advocate Franckel conceded not only that interest ought to be charged on the basis of simple interest, but also that it was chargeable at a rate of 2% (not 2.5%) over base per annum.  At that time, Mr Holmes did not accept that that offer had been made, but when the relevant email exchanges were reviewed in Court, it was clear that the 2% over base offer had been made, and indeed Mr Holmes indicated to the Court at that time that had he realised that offer had been made he would have accepted it.  That meant that there was no dispute over interest.  It meant also that any dispute over capital was academic at that time because the sale of Unit 5 would generate net proceeds which were insufficient to discharge the full amount of capital due to the first charge holder.  It was against that background that the agreement was made in the face of the Court as set out in the Act of 22^nd February.  The agreement involved a concession by the representor that it would not proceed at that time with its claims in relation to the joint venture agreement and the fact that the representation was to go no further at that time enabled the sale of Unit 5 thus improving the overall security which the first respondent has against the remaining property of the representor.  The position was well summarised by Advocate Franckel in his email to the second respondent on 7^th March, 2013, at 20:02 hours when he wrote:-

"That's the Court interest we were allowed.  I know it's nothing - but at the time if you remember, it was a price to pay for getting anything at all."  (emphasis added). 

28.      The agreement which was reflected in the Act of 22^nd February noted that the sale proceeds of Unit 2, if that sale proceeded, would be held on account by Advocate Franckel pending agreement between the parties or further order of the Court.  The route to that agreement was this.  In order to obtain an undertaking that the first respondent's charge would be cleared out of the proceeds of sale, the representor would almost certainly have to agree to account to Advocate Franckel for the net proceeds of sale after discharge of the remaining monies due to Investec.  The formula contained in paragraph 2 of the Act of 22^nd February, albeit not an order, reflected that there was a mechanism for ensuring that the sale of Unit 2 could proceed after the sale of Unit 5 even though there remained a dispute between the first and second respondents on the one hand and the representor on the other as to the effect of the joint venture agreement which the representor alleged.  The reference in the Act of 22^nd February to "an apparent agreement" was that Mr Holmes, on behalf of the representor, did not contest that this was in fact the appropriate way forward for dealing with the dispute.  Mr Holmes' acceptance of that position is a further advantage secured by the respondents from the hearing on 22^nd February. 

29.      I am not satisfied that anything has gone wrong in relation to the hearing on 22^nd February.  The Court at that time considered that the 2% over base interest rate was an offer already made by the first respondent.  Perhaps it should not have been made.  However that is a matter for enquiry, if appropriate, between the first and second respondents and their advocate.  However, even if there were to have been a mistake by Advocate Franckel in the hearing before the Court on 22^nd February, I would still not have been prepared to grant leave to appeal because the respondents, having obtained the advantages which I have set out above by the agreement, should not now be permitted to resile from those parts of it which do not suit them. 

30.      The application for leave to appeal is therefore refused. 

Authorities

Glazebrook-v-Housing Committee 2002/217.

Doorstop Limited-v-Gillman and Another [2012] JRC 199.

Vekaplast-v-Picot [1989] JLR 269.

Purcell-v-Trigell (FC) Limited [1971] 1 QB 358.