IN THE SUPREME COURT OF JUDICATURE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London
December 17th, 2001
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The claimant in the first action appeared in
person.
Edward Bannister QC and John Robson (instructed by Minaides Robson) for P, T
Ltd and E Ltd.
Mark Piercy and Michael McLaren (instructed by Wordsell & Vinter, Uxbridge)
for V.
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1. This is my judgment upon two cases, referred to for short as Godfrey v. Power and Power v. Valkyrie, which I heard together. Each case by itself was difficult. In combination they were particularly complicated and doubly difficult. The result is the regrettably long judgment which follows. A lot of persons are involved in one way or another. In the Annex at the end there is a Glossary and Dramatis Personae. I recommend a reader who is not already familiar with the details of the case to have a copy of the Annex at hand when reading this judgment. Without frequent reference to it the judgment will be very difficult to follow.
2. The case is about the Old Rectory, a development site in Staffordshire. In October 1993 the development was partly completed but the company which then owned it went into receivership. The receivers wanted to sell the property. Mrs Power contracted to buy it. At completion it was transferred to her and she became the registered owner. The price was £165,000. In addition further funds were needed for, among other things, the costs of continuing the development (although in the event very little has been done in that respect). Mr Godfrey, a friend of Mrs Power and her husband (at least he was a friend then - there is no friendship now), provided £66,500 of the price: the deposit of £16,500 for the exchange of contracts and, just before completion, a further £50,000. In addition Mrs Power borrowed £140,000 on expensive terms from Valkyrie, a Jersey-based money-lending company. She put in no money of her own, but the contract and the transfer were in her name.
3. The main dispute in Godfrey v. Power is about the basis on which Mr Godfrey provided the £66,500. He says that there was an agreement that he was to have a 50% interest in the Old Rectory. Mrs Power says that he had simply made an interest-free loan and was to have no ownership interest in the property. For the reasons which I explain at length in later parts of this judgment, I accept Mr Godfrey’s case. I conclude that, as the result, Mrs Power held the property on trust as to 50% for herself and as to 50% for Mr Godfrey.
4. Another element which enters into the Godfrey v. Power action is that a year later, in October 1994, Mrs Power transferred the legal title in the Old Rectory to Touchbray, an English company owned by herself and Mr Swain. Mr Swain was and still is an old friend of herself and her husband. A few months earlier he had lent Mrs Power £180,000 to repay her borrowing from Valkyrie. Mr Godfrey did not know about the transfer to Touchbray. Mr Godfrey joined Touchbray as the second defendant in his action. I may need to hear further submissions about the precise legal consequences of the transfer to Touchbray, but it is part of my decision now that the transfer cannot have affected Mr Godfrey’s 50% beneficial interest.
5. Turning to the Power v Valkyrie action, Valkyrie has made two loans in connection with the Old Rectory. There was the loan of £140,000 to Mrs Power which I mentioned three paragraphs above. That loan was repaid after six months with money provided by Mr Swain. In October 1994, at the same time as the property was transferred by Mrs Power to Touchbray, Valkyrie made another loan to Touchbray, secured by a first charge over the property. The amount of that loan was £110,000. Mrs Power gave a guarantee to Valkyrie of Touchbray’s indebtedness.
6. Matters have not worked out at all as planned, both for Touchbray’s ownership of the Old Rectory and for Valkyrie’s loan to Touchbray. The loan was due to be repaid after nine months, in July 1995. In fact it has still not been repaid now, seven years after it was made. The interest is not payable periodically, but accrues to be paid as a single sum (described in the loan agreement as an ‘equity fee’) when the loan is repaid. Valkyrie’s rates are high, and the result is that a very substantial sum of unpaid interest has accrued against Touchbray and Mrs Power (as guarantor).
7. An event of major importance was that in November 1994 Mr Godfrey placed a caution on the Land Register to protect the interest which he claimed to have in the property. He did not know about the transfer by Mrs Power to Touchbray or about the creation by Touchbray of a first charge in favour of Valkyrie, but as it happened he lodged the caution with the Land Registry less than a month after the transfer and the deed of charge had been executed. When he lodged the caution Touchbray’s transfer and Valkyrie’s charge had not yet been registered at the Land Registry. There was still time to register them in priority to Mr Godfrey’s caution because a ‘priority period’ had not expired. Neither Touchbray’s solicitors nor Valkyrie’s solicitors knew about the lodging of Mr Godfrey’s caution. In the event the transfer and charge were not registered within the priority period, with the result that the caution thereafter appeared on the Register. The practical consequence has been to freeze almost all transactions affecting the property, except one which does not seem to me to have been of any importance: in late 1995 Touchbray transferred the freehold to Estateoval (another Swain/Power company) in consideration of Estateoval assuming liability for Touchbray’s indebtedness relating to the property. On the physical front also nothing of significance has happened: the Old Rectory is still a half-completed development.
8. In May 1996 Valkyrie wrote to Touchbray and Mrs Power demanding repayment of the loan of £110,000 plus other accrued liabilities, including the equity fee (the accrued interest). Touchbray and Mrs Power did not pay, but Valkyrie did not follow its letter by legal proceedings. I believe that for some time without prejudice discussions were taking place in an attempt to resolve the impasse. However, nothing was achieved.
9. In February 1999 Mrs Power, Touchbray and Estateoval initiated the present action, Power v. Valkyrie. At that time there was a second defendant as well as Valkyrie: Mr Kehoe, who had been the manager of the Kingston-upon-Thames branch of the Bank of Ireland in 1993 and the first part of 1994. The action against Mr Kehoe was struck out shortly before the main trial began before me, but Mr Kehoe continued to be involved as a witness. In July of this year Ferris J ordered that the two actions, Godfrey v. Power and Power v. Valkyrie, should be heard concurrently, so that is how they both came before me for trial.
10. At the heart of the case against Valkyrie have been attempts on three grounds to reduce the amount which Touchbray and Mrs Power (as guarantor) owe to Valkyrie, or to create rights to damages which can be set off against it. Touchbray’s and Mrs Power’s first contention is that they have a claim for damages against Valkyrie on account of alleged misrepresentations made by Mr Kehoe, being -misrepresentations for which Valkyrie was liable. Touchbray and Mrs Power make this contention in relation to the October 1994 loan of £110,000 which is still outstanding. In addition Mrs Power contends that she has a similar claim by reference to the cost of the earlier loan, the one of £140,000 which Valkyrie made to her in October 1993 and which was repaid in April 1994 with money lent by Mr Swain. In my judgment all of these misrepresentation arguments are ill-founded, both in fact and in law. I reject them.
11. The second argument which Touchbray and Mrs Power advance is that Touchbray is entitled to damages against Valkyrie on a different ground. They say that the failure to register the transfer to Touchbray at the Land Registry within the priority period was the fault of Valkyrie’s solicitors, Worsdell & Vintner, that the failure has caused Touchbray loss, and that Valkyrie is liable to Touchbray for that loss. In my judgment this argument fails also.
12. The third argument is that a part of Mrs Power’s and Touchbray’s liability to Valkyrie for accrued interest (the ‘equity fee’) under the October 1994 loan is unenforceable on the ground that it arises under a contractual term which is a penalty: Touchbray and Mrs Power rely on the principle that equity will relieve against penalties. In my judgment no part of the accrued interest is a penalty. Thus I do not accept any of the arguments advanced by Touchbray and Mrs Power, and I consider that they are liable for the full contractual amount of the debt owing to Valkyrie.
13. Valkyrie has made two counterclaims. One is that Touchbray is liable to it in damages for what are alleged to have been untrue and fraudulent statements made to it on behalf of Touchbray by Touchbray’s solicitors at the time when the October 1994 loan was being arranged. I consider that this is not made out on the evidence, and I reject this counterclaim.
14. The second counterclaim is for judgment against Touchbray and Mrs Power (as guarantor) for the full amount which is owed and outstanding. Given the other points which I have decided there is no defence to this, and I will give judgment accordingly.
15. The foregoing paragraphs summarise the background and the decisions which I reach in this judgment. I do not think that the judgment will dispose of all outstanding issues which need to be sorted out concerning the Old Rectory. After the parties have had the opportunity to consider the judgment and (I hope) may have had discussions with a view to agreeing as many matters as possible there will in all probability have to be another hearing.
16. I record that Mr Godfrey appeared in person, that Mr Bannister QC and Mr Robson appeared for Mrs Power, Touchbray and Estateoval, and that Mr Piercy and Mr McLaren appeared for Valkyrie. At an earlier stage Mr McLaren was acting as counsel for Valkyrie’s co-defendant, Mr Kehoe. When the claim against Mr Kehoe was struck out and issues consequential thereon had been resolved, Mr McLaren joined Mr Piercy as co-counsel for Valkyrie.
17. In this section of my judgment I describe the principal facts in sufficient detail to enable the general thread of the subsequent parts of the judgment to be understood. When I move on to consider the various issues which I have to decide it will be necessary for me to go into some factual aspects in greater depth, and also to make findings on factual issues which are in dispute. For the most part, however, in the paragraphs in this section I confine myself to the factual strands which are largely common ground or, if not common ground, are in my view definitively established.
18. The dramatis personae in the Annex gives brief information about the persons who were involved in the relevant events. I do however need at this point to say rather more about some of the principal participants, individual or corporate.
19. I begin with Mr and Mrs Power, Larry Power and his wife Mary Power. They are Irish by origin and (1 believe) by citizenship, but they have lived in England for quite some time, and certainly at all times which are relevant to this case. Their home is in Windlesham, Surrey. Mr Power has been a property developer and entrepreneur since he was 22 years old. I do not know how old he is now, but from his appearance I would imagine that he is in his early fifties. Like many property specialists he appears to have had his ups and downs. According to his witness statement the 1980s were an ‘up’ period, but the critical events for the purposes of this case occurred in 1993 and 1994, and that was a ‘down’ period for him. He was subject to a bankruptcy order at the time, arising from matters which I know very little about and which are not of any direct relevance to this case. He was also in very poor health. As I understand it, he was hardly able to leave his house at all. However, despite his bankruptcy and his poor health he continued to take an active interest in property matters, but he had to do so from home, making extensive use of the telephone.
20. He testifies that in 1996 (two or three years after the events with which this case is principally concerned) he collapsed and was rushed to hospital. He was diagnosed as suffering from heart problems, and he had a heart bypass operation in 1997. He is now rather more active, but he needs to be careful, as became dramatically apparent during the course of the trial. Mr Power commenced to give evidence, but at an early stage of cross-examination (which did not strike me as having been aggressive or hostile in tone) he almost collapsed and was taken from the court to hospital. His oral testimony had to be aborted at that point. His witness statement is part of the evidence, as is the limited quantity of oral evidence which he was able to give before it became clear that his health could not cope with the strain.
21. Mrs Power is a teacher by training. I believe that she is working as such now, but in the early 1990s she still had children living at home, and she was not working as a teacher then. She had not previously had personal experience of the property business, but because of her husband’s bankruptcy any property activities which the Power family wished to undertake had to be carried out by her. Further, because of her husband’s health, in so far as property transactions could not be dealt with on the telephone but necessitated someone going to another place, that person usually had to be her. She said in evidence that she and her husband used to discuss the property matters in which she was involved in the early 1990s. I think that her husband’s participation was rather more than that. I do not suggest that Mrs Power was a cipher for her husband - she is far too able and independent a person for that - but I do think that she was closely guided by him. Although the transactions were hers (including in particular the transactions concerning the Old Rectory which are the central subject matter of this case), I believe that the moving spirit was Mr Power, that he took the effective decisions by which Mrs Power’s transactions and activities were regulated, and that (with one or two exceptions) all significant conversations with other parties were conducted by him rather than her. The conversations took place either on the telephone or at Mr and Mrs Power’s home, other persons having gone there for the purpose.
22. Next I say something about Mr Godfrey. He is Irish, like Mr and Mrs Power. He and Mr Power had been friends until things started to go wrong between them in the later part of 1993, as I shall describe below. At that time he lived in Ireland, but around the time of the events which this case is about he was in the process of moving to New York. He lives there now. He also has health problems, being a sufferer from Crohn’s disease. That affliction has periods of virulence and periods of remission. Mr Godfrey represented himself in the trial, and appeared to be suffering no problems at that particular time. He represented himself because he could not afford legal representation. There is more about this in a judgment which I wrote some weeks ago when allowing an appeal by. Mr Godfrey against an order that he should provide security for costs. In my opinion he represented himself competently and impressively. He told me that he had been helped in various ways by the counsel for the legally represented parties (including Mr Bannister QC and Mr Robson, counsel for Mr Godfrey’s opponent, Mrs Power), and he expressed his thanks to them.
23. The Bank of Ireland features extensively in the case. The bank itself needs no substantial introduction. It is a major bank, with its headquarters in Ireland. However it has branches in this country. One of them is its branch at Kingston-upon-Thames (henceforth simply ‘Kingston’). It also has subsidiaries in Jersey. One Jersey subsidiary is a bank, and another is a trust company. I should perhaps spell out that the Kingston branch is not a subsidiary: it is a branch of the main Irish banking company.
24. Mr Kehoe was the manager of the bank’s Kingston branch for a number of years, and in particular for 1993 and the first part of 1994. He moved in 1994 to another position with the bank, based at Slough. The bank’s systems meant that, when he was the manager at the Kingston branch, he had to obtain authority from the bank’s Credit Department for the branch to make any loan above a fairly small sum. Authority from the Credit Department was certainly needed for all the loans which were applied for in the present case.
25. Finally at this stage I must say something about Valkyrie. Valkyrie is a Jersey company. Its business at the time with which I am concerned has been described as ‘mezzanine lending’. Valkyrie was prepared to make short term loans to high risk borrowers, and to do so urgently. It charged correspondingly highly for the loans which it was willing to make.
26. I need to describe the ownership and financial structure of Valkyrie. It was established in 1992, and the background was as follows. The Bank of Ireland’s Jersey trustee subsidiary was the trustee of a settlement for members of an Irish family, some of whom lived at the time in England. I do not know the name of the family. The witness who was closest to them was Mr Crowther. He is a solicitor, and his firm, Worsdell & Vintner, were the solicitors for some of the members of the family and were the English solicitors for Valkyrie. He said that the family preferred its identity to remain confidential, but he would name it to the court if directed to do so. In the hearing Mr Bannister, on behalf of Mrs Power, said that he did not wish to know the name of the family, so it has remained confidential.
27. As with many families there is one individual who is regarded in practice as the principal member of the family. He is a beneficiary of the settlement, and was referred to from time to time in the evidence as the principal beneficiary. In that sentence even the word ‘he’ may not be right. I do not know whether the principal beneficiary is male or female. For brevity, however, in this judgment I will refer to ‘he’ and ‘him’, rather than always saying ‘he or she’ and ‘him or her’. I will refer to him in this judgment as ‘the principal beneficiary’. The family were customers of the Bank of Ireland. I do not know, but I imagine that the principal beneficiary had an account at the Kingston branch. I believe that it was confirmed in the evidence that Mr Kehoe knew him, though the person who had the closest contacts with him was Mr Crowther.
28. I do not know how valuable the trust fund was, but I was told that there was quite a lot of money comprised in it. At some time in 1992 or 1993 it was decided to use the trust fund as backing for a mezzanine lending business. Mezzanine loans, if all goes well, can be very profitable because very high rates of interest can be charged, but they can also be very risky. The trustee did not want to make such loans itself, or to have such loans made by a company which it owned as an asset of the trust fund. The trustee was, however, prepared to participate in the following structure.
28. I do not know how valuable the trust fund was, but I was told that there was quite a lot of money comprised in it. At some time in 1992 or 1993 it was decided to use the trust fund as backing for a mezzanine lending business. Mezzanine loans, if all goes well, can be very profitable because very high rates of interest can be charged, but they can also be very risky. The trustee did not want to make such loans itself, or to have such loans made by a company which it owned as an asset of the trust fund. The trustee was, however, prepared to participate in the following structure.
29. Valkyrie was established, owned not by the trustee but by two individual members of the family. The principal beneficiary was not one of them. Suppose that it was desired to make a mezzanine loan of £x to a borrower. (i) The Bank of Ireland, through its Kingston branch, would make a loan of £x to Valkyrie. (ii) The Bank of Ireland’s Jersey banking subsidiary (not its trustee subsidiary) would give to the Bank of Ireland a guarantee of the indebtedness of £x (plus interest) owed by Valkyrie to the bank. (iii) The trustee of the Jersey settlement for the members of the family would give to the bank’s Jersey banking subsidiary’ a counter-indemnity against the subsidiary’s contingent liability to the bank itself under the guarantee at (ii). (iv) I imagine that the counter-indemnity was backed in some way by a deposit of £x of the trust fund with the Jersey banking subsidiary. (v) Valkyrie, having borrowed £x from the Bank of Ireland at (i), would lend the £x on to the borrower.
30. The position as regards rates of interest and other charges would be as follows. Since the Bank of Ireland’s loan to Valkyrie ((i) above) was substantially risk-free (because, although Valkyrie itself may have been a risky borrower, the loan was guaranteed by the bank’s Jersey banking subsidiary), the interest rate payable by Valkyrie would be comparatively low. Because Valkyrie’s loan to the borrower was a high risk loan, the interest rate payable by the borrower to Valkyrie would be high. I do not know whether Valkyrie paid some sort of fee to the Jersey trust for the counter-indemnity, but it would have been commercially justifiable for it to do so.
31. Valkyrie carried out its part in a loan transaction of the above kind through its own bank account at the Kingston branch of the Bank of Ireland. The £x which it borrowed from the Bank of Ireland ((i) above) would be placed to its credit in its account with the bank at the Kingston branch, and it (Valkyrie) lent the money on to the borrower by instructing the Kingston branch to transfer £x to the borrower and to debit its own account at the branch. It followed that the manager of the Kingston branch was very much concerned in the carrying out of a loan transaction: it was through accounts at his branch and under his management that Valkyrie effected back to back transactions, borrowing money from the Bank of Ireland at conventional rates of interest and lending it on at markedly higher rates of interest. The Kingston branch manager would be involved in another detailed way as well. The loan of £x by the bank to Valkyrie would have to be authorised by the bank’s Credit Department, and the branch manager would have to make an application to the Credit Department for the authority. In October 1993 (the time of one loan with which I am going to be concerned in this judgment) the branch manager was Mr Kehoe. In October 1994 (the time of another such loan) the branch manager was not Mr Kehoe: he had moved to other duties at Slough.
32. The other point which I should record about Valkyrie at this stage is that it was administered in Jersey by the officers and staff of Compass. Compass’s business was to provide a company administration service to offshore companies incorporated in Jersey. The directors of Valkyrie were directors or senior personnel of Compass, including Mr Parkin, who was a very helpful witness. However, the directors did not themselves go out looking for business: they waited for business to be introduced to them, and they then efficiently carried out the steps and documentation which needed to be undertaken in Jersey. Further, the evidence showed that the really critical decisions about whether Valkyrie should make a loan to a borrower or not, and if so on what terms, were taken by the principal beneficiary, not by the Compass personnel who were members of Valkyrie’s board.
33. I ought to say that virtually nothing which I have described in the last few paragraphs about Valkyrie and the way that it operated was known to Mr and Mrs Power in 1993 and 1994. As far as they were concerned Valkyrie was simply a mezzanine lender which used the Kingston branch of the Bank of Ireland. They did not know who owned it or where it got its money from. All the details of the back to back loans, the guarantee, the Jersey trust, the family (including the principal beneficiary), and the counter-indemnity from the Jersey trust to the bank’s Jersey banking subsidiary were, from Mr and Mrs Power’s point of view, behind the curtain.
34. I can now begin to describe the critical events. In the second half of 1993 Mrs Power, closely guided in my opinion by Mr Power, embarked on two property transactions each of which, as it turned out, involved a borrowing by her from Valkyrie. The second of the transactions concerned the Old Rectory. That second transaction is the subject matter of the two cases which are presently before me, but I need to say something briefly about the other transaction first.
35. It concerned four adjoining properties at Wick Road in Teddington. On 18 May 1993 a company owned by Mrs Power exchanged contracts to purchase the Wick Road properties at a price of £125,000. The deposit was only £5,500. Mrs Power said in evidence that she had raised it herself. The four properties were a development site, so further expenditure would have to be incurred on them. Mrs Power said that, before the company exchanged contracts, she had received a promise from Mr Kehoe that the Bank of Ireland would lend the balance of the purchase price and a further amount to cover the development costs. Mr Kehoe said that nothing of the sort had happened.
36. I am satisfied that Mrs Power has got this wrong. In the bank’s records there was a document headed ‘Communication Planner’. It contained manuscript notes in Mr Kehoe’s handwriting, of a sort which he customarily made in meetings with customers of the bank, and which he usually did not keep thereafter. This particular document had however survived. Mr Kehoe took me through it, and was able to identify from it that it contained notes which he had made in a meeting on 30 July 1993 with Mrs Power and Mr Power’s cousin, Mr Torpy (see the dramatis personae annexed). It was about Wick Road, and there are various figures which Mr Kehoe, based on his experience and knowledge of his own routines and methods, interpreted to me as calculations of how much Mrs Power wanted to borrow and of how much he thought that, if he made an application to the bank’s Credit Department, the bank would be willing to lend. The last note reads: ‘Analysis = more cash ie £40/50k and deal is OK.’ Mr Kehoe said that the note showed that Mrs Power wanted to borrow about £170,000 (substantially more than 100% of the purchase price), but that his own view of what the bank’s ‘comfort level’ would be was around £120,000. If the Powers could put in £40,000 or £50,000 of their own money he thought that the bank would be prepared to lend the rest of what Mrs Power said was needed
37. That meeting was on 30 July 1993. Mrs Power had exchanged contracts to purchase the Wick Road properties on 18 May 1993. It seems plain to me that the meeting would not have happened if Mr Kehoe had, before the exchange of contracts for the Wick Road properties, already promised to lend the full amount which Mrs Power was going to need. Mr Kehoe said that the meeting was the first he knew of the Wick Road transaction, and I am convinced that he is right. This is one of several instances in which an item of evidence given by Mrs Power can be shown to be clearly or very probably incorrect.
38. There is no record of Mr Kehoe, as manager of the bank’s Kingston branch, making an application to the bank’s Credit Department for authority to lend anything to Mrs Power or to her company for the Wick Road transaction. I infer that, in the light of what Mr Kehoe said to Mrs Power and Mr Torpy on 30 July 1993, they made no further attempt to raise a loan from the Bank of Ireland, and instead investigated for sources of borrowing elsewhere. The other thing which I infer is that Mr and Mrs Power had no money of their own to finance a substantial property transaction. Mr Power plainly did not: he was an undischarged bankrupt at the time. It was never suggested to me by Mrs Power or by anyone else that she had any significant financial resources of her own.
39. Under the contract the Wick Road purchase was due for completion on 30 July 1993. However, Mrs Power (and Mr Torpy if he continued to assist on the matter) must have had problems raising the money, because completion kept getting postponed. Completion eventually happened on 30 September 1993.
40. In the event the purchase was financed by a loan of £125,000 to Mrs Power from Valkyrie. The loan was made to Mrs Power, not to the company which had exchanged contracts to make the purchase. Shortly before completion it was agreed that the transfer would be made to her and not to the company. Perhaps this was a requirement of Valkyrie. The introduction of Valkyrie to Mr and Mrs Power as a possible lender was made by Mr Kehoe. He knew that the Bank of Ireland would not make the loan which they wanted, but he also knew of the existence of Valkyrie, and he confirmed that he introduced the Powers to it. (At one stage in cross-examination he said: ‘I introduced Larry Power and I have regretted it ever since.’) The first documentary mention of Valkyrie is in an attendance note of Mrs Power’s solicitors, Minaides Robson, dated 27 September 1993: ‘Oliver Kehoe has found him a private lender. Money no problem. First charge on pty. To complete in Mary’s name and takes up loan.’ Elsewhere on the same note is written: ‘lender: Valerie.’ An incidental point on this note is that it obviously recorded one or more telephone calls to Minaides Robson from Mr Power, not Mrs Power, and so is in line with my opinion that the real moving force behind the property transactions was Mr Power rather than his wife. The loan transaction was clearly carried through at high speed (this became a regular theme with Valkyrie loans). The money came through to Minaides Robson on the afternoon of 29 September, only two days after it appears that Mr Power had been introduced to Valkyrie, and completion was carried out on the following day.
41. The entire Wick Road transaction did not, of course, end with completion by transfer into the name of Mrs Power on 30 September 1993. However, I do not think that I need describe any later stages of it. The issues in dispute in the present case, concern the Old Rectory, not Wick Road. The points which I extract from the Wick Road events as I move on to the Old Rectory are three:(1) It was the first contact between Mr and Mrs Power on the one hand and Valkyrie on the other.(2) Mr Kehoe was the intermediary who brought them together.(3) It was very clear that by the middle of 1993 Mr and Mrs Power had no money of their own to finance substantial property transactions. They were dependent on borrowing from third parties.
42. I now turn to the Old Rectory. The factual account which follows will of necessity be somewhat lengthy and detailed. It may help if I set out at this stage a brief list of the salient steps. They were as follows.
(1) 27 September 1993: Mrs Power exchanged contracts to purchase the property for £165,000. The deposit of £16,500 was provided by Mr Godfrey.
(2) 28 October 1993: completion by transfer to Mrs Power. Mr Godfrey provided a further £50,000. In addition Mrs Power borrowed £140,000 from Valkyrie.
(3) April 1994: Mr Swain lent Mrs Power £180,000 which was used to pay off Valkyrie.
(4) 10 October 1994: Mrs Power transferred the property to Touchbray. Touchbray borrowed £110,000 from Valkyrie. Touchbray gave a first charge to Valkyrie to secure the debt of £110,000 plus interest. Mrs Power gave a guarantee to Valkyrie. Touchbray gave a second charge to Mr Swain to secure a debt of £180,000.
(5) 3 November 1994: Mr Godfrey registered a caution at the Land Registry to protect an interest he claimed to have acquired when the property was transferred to Mrs Power.
(6) 15 December 1995: Touchbray transferred the property to Estateoval.
43. I now begin a more-detailed account.
44. The Old Rectory transactions (like the Wick Road purchase) began with a purchase by Mrs Power of a property for development. The early stages of the purchase were in progress very soon after the early stages of the Wick Road purchase. Indeed there was a brief overlap. The Old Rectory contract was exchanged on 27 September 1993. Completion was due on 25 October 1993 and actually happened on 28 October 1993. The Wick Road completion took place on 30 September 1993. As with Wick Road, completion of the Old Rectory purchase was effected with the assistance of a loan from Valkyrie, but in this case part of the purchase price was provided by Mr Godfrey. There is a major dispute between him and Mrs Power about the basis on which he provided it, and this dispute is one of the main points which I will have to decide in the Godfrey v Power action.
45. To explain how this arises I need to go back a little in time. There is a certain amount of surmise in what I am about to say, but I think that the surmises are realistic and are unlikely to be controversial. The Old Rectory is a property in Blithfield in Staffordshire. In 1993 it was a development property, with planning permission for the conversion of some existing buildings into flats and for the erection of other residential buildings. By the middle of the year the development had started, but the company which was undertaking it went into receivership. The receivers wanted to sell the property. They were asking for a price of £165,000. This came to the notice of an agent in the Midlands, who must have known Mr Power and must also have thought that the property might be of interest to him. He sent to Mr Power a brochure giving particulars of it. I do not know when this happened, but I imagine that it was in late August or early September 1993.
46. I surmise that Mr Power was indeed interested in the Old Rectory, and decided in principle that it ought to be purchased. He could not purchase it himself because of his bankruptcy, but the bankruptcy was no obstacle to Mrs Power purchasing it. There was, however, another obstacle. Mr and Mrs Power did not have any significant money. Indeed, they did not have the £16,500 which would be needed for the deposit on exchange of contracts, let alone the balance of the purchase price or the money which would be needed to carry out the development. Where was the money going to come from? I am sure that Mr Power was planning to borrow at least part of it from the Bank of Ireland, personified in his mind by Mr Kehoe. There is a dispute about whether Mr Kehoe knew anything about this at the time, but I am certainly prepared to accept that borrowing from the bank played a part in Mr Power’s thinking. Mrs Power would say that she was involved equally with her husband in forming plans for the financing of the project, but I am not so sure about that.
47. However, as well as a borrowing from the bank Mr Power was interested in the possibility of raising funds from elsewhere, and this is where Mr Godfrey comes into the picture. At some stage in early or mid September 1993 there were contacts between Mr Power and Mr Godfrey, though the precise content of what was said and arranged is highly controversial. The exchanges must, I think, have taken place by telephone, because Mr Godfrey lived in Ireland at the time, and there is no evidence that he came to this country in September. In Mr Godfrey’s witness statement he places the crucial telephone calls over the weekend of 17/19 September. I am not sure how he can be so precise, but the transfer of the money for the deposit, which I describe below, suggests that he is probably right. At a later stage in this judgment I will examine the disputed issues and make my findings about them. What is clear is that Mr Godfrey agreed to provide the £16,500 which was required for the deposit. He arranged for it to be transferred to the client account of Mrs Power’s solicitors, Minaides Robson, and there are documents which show that it arrived on 21 September 1993. As I have said, the contract was exchanged, in the name of Mrs Power as purchaser, on 27 September 1993
48. So far so good. But on 25 October 1993 completion was due, and the contract provided that time was of the essence. Where was the completion money to come from? There was also a fee of £10,000 to be paid to the agent who had introduced the transaction to Mr and Mrs Power. In the event the money came as to £50,000 from Mr Godfrey (in addition to the £16,500 which he had already provided to pay the deposit), and as to £140,000 in the form of a loan from Valkyrie to Mrs Power. The vendors allowed three days leeway for completion, so completion took place on 28 October 1993. There are some disputes about things which may or may not have happened between contract and completion. I will not examine them at this stage, but there are four points which are clear, and which I record now.
49. First, on 5 October 1993 Mr Godfrey flew to Heathrow, and he and Mrs Power went to Mr Kehoe’s office at the Kingston branch of Bank of Ireland. There was a discussion of some sort about the Old Rectory, though of what sort is not agreed.
50. Second, there is a document dated 10 October 1993 which has been put in evidence by Mr Godfrey. It contains calculations about development costs and anticipated realisations for the Old Rectory. Mr Godfrey says that, in the light of the discussion in the meeting with Mr Kehoe on 5 October, he prepared this document on his personal computer when he returned to Ireland and sent it to Mr Kehoe. The basic information had been supplied to him by Mr Power in telephone conversations. On behalf of Mrs Power, Mr Bannister does not admit the authenticity of the document: it was not included in the documents disclosed by the Bank of Ireland at the time when Mr Kehoe was still a defendant, together with Valkyrie, in the Power v. Valkyrie action. Mr Bannister submitted that on the balance of probabilities it was not sent to Mr Kehoe. However, I am of the definite opinion, and I so find, that the document is genuine. Mr Godfrey brought his personal computer to court and offered it to Mrs Power’s advisers for specialist investigation. They did not choose to investigate it. I therefore assume that it would have confirmed Mr Godfrey’s account. There is also strong confirmation that Mr Kehoe did receive Mr Godfrey’s document in something which I record in the next paragraph.
51. Third, on 20 October 1993 Mr Kehoe made an application to the Bank of Ireland’s Credit Department for approval of a proposed loan of £105,000 to Mrs Power. He recommended approval. There are several passages and figures in the application which reproduce exactly and verbatim contents of Mr Godfrey’s document dated 10 October 1993, to which I referred in the previous paragraph. This strongly confirms that Mr Godfrey did prepare the document when he said he did, and that he did send it to Mr Kehoe at the bank. Mr Kehoe thought that he must have received it. His conjecture about why it was not included in the bank’s disclosed documents was that, as he specifically remembered, he had drafted his application to the Credit Department at his home the night before it was typed up and sent. He thought it likely that he had taken Mr Godfrey’s document home with him, and scissored and pasted several parts of it into a draft which, the next morning, he gave to his secretary for typing. If that was right the document would naturally not have survived in the bank’s files.
52. Fourth, on the day after Mr Kehoe had applied for approval for a loan of - £105,000 to Mrs Power, the bank’s Credit Department’ replied to him, refusing approval. The reasons described to Mr Kehoe in the bank’s notice of refusal were:(1) the property was too distant from Kingston for a loan financing it to be administered by the Kingston branch;(2) there was insufficient time to carry out the due diligence which the bank would normally require;(3) although an earlier loan to a company controlled by the Powers had been repaid in full, ‘the project was not without its snags and took longer than originally forecast, and there were excesses;’ (4) ‘we were concerned as to the bona fides of the deal in the name of Laurence Torpy.’ This last point related to another earlier loan which the bank had made to Mr Torpy, an introduction of the Powers and Mr Power’s cousin.
53. I said earlier that in the event the purchase of the Old Rectory was completed by a transfer into the name of Mrs Power on 28 October 1993, and that the completion monies were provided in part by £50,000 from Mr Godfrey and in part by a loan of £140,000 to Mrs Power from Valkyrie. It all had to be arranged in some haste. The Bank of Ireland refused to make a loan on 21 October, a Thursday, with completion due on the following Monday. There is an attendance note of Mr Minaides dated the 21st. It records that he had spoken to ‘the Powers at length.’ (I think that this probably meant that Mr Power had been at the other end of the telephone with Mrs Power present in the room with him.) ‘The bank refused to give funds. Valkyrie Properties will fund this one again.’ (The ‘again’ is a reference to Valkyrie having lent the money for the Wick Road properties.) There was further discussion of whether it could be done in time.
54. The next day, the Friday, Mr Minaides made contact with Worsdell & Vintner, Valkyrie’s solicitors, by telephone and by letter. His letter recorded that he understood that Valkyrie had offered a facility to Mrs Power to complete the purchase of the Old Rectory. Matters progressed between the solicitors on the Monday, which was the due date for completion. It became apparent that the funds could not be ready for completion then, and the vendors’ solicitors agreed to extend the time for completion, initially for two days and then to close of business on Thursday the 28th. £140,000 was loaned by Valkyrie on the 28th, and the purchase was completed in the afternoon of that day. Valkyrie took a first charge on the security of the property to secure its loan.
55. In addition £50,000 came from Mr Godfrey. The basis on which he provided the money is fundamentally in dispute, and I will return to that issue later. There had obviously been some contact about it between him and Mr or Mrs Power (in practice I believe it would have been Mr Power), and on some basis he must have agreed that he would make a further £50,000 available, in addition to the £16,500 which he had previously provided for the deposit. As regards the transmission of the £50,000, if I have correctly followed the evidence (documentary and oral) Mr Godfrey arranged for his bank (also the Bank of Ireland, but acting through its branch at Clonmel in Ireland) to transfer £50P000 to Mrs Power’s account at the branch in Kingston. I think that the transfer from Clonmel to Kingston went through on Monday the 26th or Tuesday the 27th. Mr Godfrey gave evidence that, when he was asked to provide this money, he was about to depart to New York, and that he left instructions with the manager of the Clonmel branch to make the transfer.
56. Valkyrie’s account was also at the Kingston branch, and I believe that, because of the extreme urgency (if the sale was not completed on Thursday 28th the purchase would be lost and the deposit would be forfeited), the funds were not sent to Minaides Robson for onward transmission by them to the vendors’ solicitors. Instead the bank sent the balance of the purchase monies direct to the vendors’ solicitors, where they appear to have arrived quite late on the Thursday afternoon, but in time to save the transaction. The balance of the purchase price, plus interest for late completion, was £148,662.74. In addition there were legal and stamp duty costs to be paid and a commission of £10,000 to the agent who had introduced the transaction. Valkyrie’s £140,000 and Mr Godfrey’s £50,000 were sufficient to cover those items and ought to have left a balance to finance some of the development operations.
57. A part of the Old Rectory was a flat on which quite a lot of work had been done by the time that the vendor company went into receivership. It has been referred to as the Murray flat. Mr Godfrey’s evidence, which I do not think was disputed at all in this respect, was that Mr Power had explained to him that the first activities after the purchase would be to complete the works on the Murray flat and then to sell it. Mr Godfrey understood that about £20,000 would be needed to carry out the works, and that the flat was expected to sell for about £150,000. On the face of it Mrs Power ought to have had enough money for the costs of the works, but the Murray flat was not completed and sold. Indeed, I believe that it is still in its uncompleted state to this day, eight years on in time. The evidence about any works at the Old Rectory is scanty, but I believe that a limited amount of work was done over the winter of 1993/94. For example, another part of the property is a stable block, which was unroofed at the time of the sale. I understand that a roof has been put over it. A certain amount of money appears to have been spent on the property, but not much, and no sales at all have been made.
58. As time moved on through late 1993 and into 1994 relations between Mr and Mrs Power on the one hand and Mr Godfrey on the other started to break down. Much of this is controversial and I shall not go into it now, but I do need to say that Mr Godfrey was asserting that, although the Old Rectory was held in the sole name of Mrs Power, he was entitled to a 50% interest in it. Mr and Mrs Power were asserting that he was not. Their position has always been that the two sums, aggregating to £66,500, which Mr Godfrey had provided were loans, interest-free and only repayable when Mrs Power was in a position to repay them. She was in no position to repay them in the winter of 1993/94, and she is still in no position to repay them now, in 2001.
59. I can pick the events up now in April 1994. The loan from Valkyrie to Mrs Power had been a six months loan, and it was repayable on 30 April 1994.(Perhaps the due date was 1 May 1994: the agreement said that it was 31 April 1994, which of course did not exist.) If the loan was not repaid on the due date the consequences in terms of interest payable by Mrs Power would be very onerous. Interest was reserved under the loan agreement in the form of an ‘equity fee’ of so much a month. The equity fee was not payable monthly, but would be paid with the principal on repayment. The agreement stated that the equity fee was calculated at £10,000 a month, but if the loan was repaid on or before the ‘31 April 1994’ Valkyrie would accept £5,000 a month instead. This meant that, if Mrs Power did not make repayment by the end of April, it would cost her £30,000 more in equity fee. Further, the equity fee would continue to accrue at the very high rate of £10,000 a month. She definitely needed to repay Valkyrie’s loan, but she and her husband had no money. She needed to refinance by borrowing from elsewhere.
60. In the event she refinanced by borrowing from Mr Swain, a long-standing friend of her husband and herself. Mr Swain was (and I think still is) a businessman employed in the oil industry. He spends much of his time abroad,- as his work requires of him. But in April 1994 he was in this country, and he agreed to make a loan to Mrs Power to repay Valkyrie. Together with the equity fee and a ‘repayment sum’ required by Valkyrie’s decidedly expensive terms the amount required to repay Valkyrie was £180,000. One of the documents indicates that this sum was paid to Valkyrie by 27 April 1994. It had been provided by Mr Swain. For some reason which I have not worked out the amount of money which Mr Swain paid out on this occasion was £183,000. The result was that Mrs Power was still the registered owner of the Old Rectory; the property was no longer subject to a charge in favour of Valkyrie; Mrs Power owed to Mr Swain £180,000 (or possibly £183,000). There is some evidence that it was intended that Mr Swain should have a charge over the property, but no charge in his favour was executed in April 1994.
61. There are four other matters which I should record as having occurred in or just after that month. First, Touchbray was incorporated by company formation agents and was acquired by Mr Swain.(There are many irregularities in the formal documents for Touchbray, but I believe that it was Mr Swain who acquired it.) It seems likely that Touchbray was intended at that time to be used for the purpose for which it eventually was used several months later: to be owned jointly by Mr Swain and Mrs Power and to own the Old Rectory. However, that did not happen in April. Second, on 19 April 1993 Mr Swain had a meeting with Mr Kehoe at the Kingston branch of the Bank of Ireland. The bank, and I believe Mr Kehoe, knew Mr Swain through a loan which the bank had made in 1993 to an offshore company which was owned by Mr Swain and which is not in any way concerned in the present case. What happened at the meeting is disputed, but the meeting certainly took place. Third, on the day of the meeting Mr Kehoe submitted to the bank’s Credit Department an application for approval for a loan of £250,000 to Touchbray. The purpose was described as follows: ‘Acquisition cost of development property at the Old Rectory, Blithfield, Abbots Bromley, Staffs.’ Mr Kehoe recommended approval. Fourth, on 4 May 1994 the Credit Department sent to Mr Kehoe a decision memorandum. Approval was declined. I should record that Mr Swain’s evidence was that he did not know of the application for approval or of the refusal of it. Mr Kehoe said that it was very unlikely that he made the application without having told Mr Swain that he was doing so. He also said that, when an application was declined, the standard procedure was to notify the proposed borrower. This was confirmed by another witness from the bank, Mr Carr.
62. The last thing to mention about the events of April is that Mr Godfrey knew nothing about them. I am not certain whether that is accepted by Mr and Mrs Power and Mr Swain, but I find it to have been the fact whether they accept it or not.
63. I can now move on to October 1994. On the 10th of that month three things happened. First, the Old Rectory was transferred by Mrs Power to Touchbray. Second, Valkyrie made a loan of £110,000 to Touchbray, secured by a first charge on the property. Mrs Power and Mr Torpy gave guarantees to Valkyrie of Touchbray’s indebtedness. Third, Touchbray executed a second charge in favour of Mr Swain, to secure a debt of £180,000.
64. One might have expected that the £110,000 which Touchbray borrowed would have been paid to Mrs Power as the price, or part of the price, for the property, and that she would have paid it to Mr Swain in partial reduction of the debt of £180,000 which she had owed to him since April. However, neither of those things happened. The consideration for Touchbray’s acquisition of the property was expressed to be ‘Touchbray Limited taking over a loan from Glenn Swain made to Mary Power in the sum of £180,000.’ It is not clear what Touchbray did with the £110,000 which it received by way of loan from Valkyrie, but Mr Swain said that no part of it was paid to him, and no-one has suggested otherwise.
65. The result was that Touchbray, in place of Mrs Power, became the apparent owner of the legal estate in the Old Rectory; that Touchbray had received £110,000 in cash; that Touchbray owed £110,000 to Valkyrie secured by a first charge over the property; that in addition Touchbray owed £180,000 to Mr Swain, secured by a second charge over the property; and that Mrs Power no longer owed £180,000 to Mr Swain. (The last of those consequences was not expressly spelt out anywhere, but the transaction was a novation of which one element must have been the release of Mrs Power from the indebtedness to which she had previously been subject) I should perhaps add an additional consequence. Mrs Power (and also Mr Torpy, but the point does not at present matter as regards him) took on a contingent liability in the form of her guarantee to Valkyrie.
66. I add a few words about the run-up to the Valkyrie loan of £110,000. As with Valkyrie’s earlier loan of £140,000 to Mrs Power to buy the Old Rectory (and as with its loan for the purchase of the Wick Road properties), it seems clear from the documents and evidence that it was all done at high speed. I do not understand what the urgency was on this occasion, but it is clear that everyone who was involved thought that it was urgent. The first hint of a new transaction with Valkyrie is in an attendance note of Mr Minaides dated 28 September 1994 (a Wednesday); solicitors’ correspondence began on the Friday; and the mortgage loan was actually made 10 days later, on Monday 10 October 1994.
67. Just as in my opinion Mr Godfrey knew nothing of the events of April 1994 (when Mr Swain had lent Mrs Power £183,000 and Mrs Power’s debt to Valkyrie was repaid), so it is clear that Mr Godfrey knew nothing about the events of October 1994, in particular the transfer to Touchbray and the grant by Touchbray of first and second charges to Valkyrie and Mr Swain. Mr Godfrey had, however, become anxious about his own position, and had taken advice from a firm of solicitors. They advised him to take steps to protect himself by applying to the Land Registry to register a caution against the title to the Old Rectory. His solicitors wrote on his behalf to the Land Registry on 3 November 1994, and the Registry placed the caution on the title register. None of the October transactions had by then been registered (the transfer to Touchbray, the first charge in favour of Valkyrie, and the proposed second charge in favour of Mr Swain). So the title register still showed the proprietor to be Mrs Power, and it now showed that there was a caution in favour of Mr Godfrey.
68. The registration of the caution did not mean that Mr Godfrey somehow acquired a property interest in the land if he did not have one already, but it put third parties on notice that he was claiming that he had one. In practice it would create an impediment to any transactions with third parties which Touchbray might have wanted to undertake. On any view the caution was an extremely troublesome development from the points of view of Mr and Mrs Power, Mr Swain, Touchbray, and Valkyrie.
69. There are disputed issues which I am going to have to deal with concerning the processes for registering the October transactions. I will explain about those processes and issues later. At this point I move to 16 December 1994. That was the date of a ‘courtesy notice’ from the Land Registry to Mrs Power informing her, as registered proprietor, of the existence of the caution. Apparently the statutory declaration in support of the caution said that Mr Godfrey was interested as he advanced £66,500 to Mrs Power in respect of the payment of the purchase price of £165,000.(The statutory declaration itself has not been traced. Nor do the documents before me include the letter from Mr Godfrey’s solicitors by which they applied for the registration of the caution.) This communication from the Land Registry was the first that any of the other parties had heard of the caution. It caused great consternation.
70. There has been some to-ing and fro-ing between late 1994 and the present day, a lot of it focusing on the possibility of getting Mr Godfrey’s caution removed. There have been times when the parties seemed to be very close to agreement, but in the end it has all fallen through, and not much has changed. The caution is still in place on the register. Whether by reason of the caution or not, the Old Rectory itself is still, as I understand it, in essentially the same state as it was in 1994: it is a partly completed development site. Valkyrie’s loan of £110,000 to Touchbray is still outstanding, together with (by now) a lot of accrued and unpaid interest (described as the ‘equity fee’). Just as Valkyrie’s debt is still outstanding, so is Mrs Power’s guarantee of it. I am not going to go into the details of the various unsuccessful post-1994 negotiations, partly because, being unsuccessful, they changed nothing, and partly because many of them were without prejudice anyway.
71. One thing which has happened, and which I should mention, is that on 15 December 1995 Touchbray executed an instrument of transfer of the Old Rectory to Estateoval ‘in consideration of Estateoval Limited taking over all registered loans from Touchbray Limited in the sum of two hundred and sixteen thousand pounds.’ I imagine that the loans referred to were those from Valkyrie (plus the accrued equity fee) and from Mr Swain. I believe that Estateoval, like Touchbray, is a company owned by Mr Swain and Mrs Power. I do not understand what the idea behind this transfer was. Mr Swain says in his witness statement that Estateoval ‘was set up so as to start with a clean sheet with Granville Trust Limited and to leave the problems of Touchbray Limited behind us’. This makes no sense to me. Granville Trust was a finance company with which Touchbray had been in negotiations for a loan which would, I imagine, have been used to repay Valkyrie. But that had happened more than a year before the transfer to Estateoval. There is no indication in the documents of any contact with Granville Trust after December 1994. As regards leaving the problems of Touchbray behind, the transfer to Estateoval did nothing of the sort, as the present proceedings before me clearly demonstrate.
72. The other things that have happened over the years since 1994 and 1995 are that the two cases which are now before me have commenced and have eventually come to trial. I indicated in the Overview at the start of this judgment that there are several distinct issues which have to be decided. I can now proceed to consider them one by one.
73. There is no dispute between Mr Godfrey on the one side and Mr and Mrs Power on the other that Mr Godfrey paid two sums of money to Mrs Power expressly for the purposes of the Old Rectory transaction: £16,500 for the deposit on exchange of contracts, and £50,000 for the completion. There is also, I think, no dispute that there was an agreement of some sort which regulated the basis on which Mr Godfrey provided the money, and that the agreement was made in one or more telephone calls between Mr Godfrey in Ireland and Mr and Mrs Power in England (in my view with Mr Power doing the speaking on the telephone). There is a major dispute about what the content of the agreement was.
74. Mr Godfrey’s version is that Mr Power approached him, asking for him to help in the provision of money for the Old Rectory purchase: Mr and Mrs Power did not have the money, and could not have embarked on the purchase at all unless the money came from persons other than themselves. Mr Godfrey’s evidence was that, in return for him putting up the money for the deposit and later the additional £50,000, it was agreed that the purchase would be a 50/50 joint venture between himself and Mrs Power. The money provided by him would be an equity contribution by an investor in the project. He expected to recoup it out of the anticipated realisation on the sale of the Murray flat. The balance of the price for the purchase of the Old Rectory, and any money needed for development works, would be borrowed. He was informed by Mr Power that the Powers had facilities at the Bank of Ireland, and that any borrowing would be raised from the bank. In any case, given what he was told about the Murray flat (about £20,000 to finish the works to it, and then anticipated sales proceeds of some £150,000), there ought not to have been any substantial need for borrowings to meet subsequent development costs for later stages in the project.
75. Mr Godfrey added a further detail to his evidence. He said that Mr Power wished the Old Rectory to be acquired by an offshore company. Mr Godfrey would have been content for it to be acquired by Mrs Power and himself personally, but he had no objection to it being acquired instead by an offshore company in which Mrs Power and he would own the shares. He left this to be arranged by Mr and Mrs Power and their solicitors, Minaides Robson. He suggested the use of an Isle of Man company which he owned but which had never done any business. He thought (probably wrongly) that the company documents were held by Minaides Robson. The completion of the Old Rectory purchase happened when he was in New York. When he returned he expected to learn that the property had been purchased by an offshore company (either the one which he already owned or another one). In fact when he returned he discovered that the property had been transferred into the name of Mrs Power personally.
76. Mr and Mrs Power’s version of the basis on which Mr Godfrey provided the money was altogether different. They did not approach him asking for money: rather he asked them if he could have an interest in the project if he was prepared to put up money for it. Initially he agreed that he would provide all of the purchase price and all of the development costs, and in return for that he and Mrs Power would be 50/50 participants in the project. However, their evidence was that it became apparent at an early stage (before exchange of contracts) that Mr Godfrey could not provide all of the money which he had promised to provide. They claim that they had some sort of hold over him deriving from debts which they say he owed to them in Ireland. By threatening to require him to pay the debts they persuaded him to agree, first that he would provide the deposit money, and later that he would provide a further £50,000. Those sums were agreed to be interest free loans to Mrs Power, and they were only to be repayable when the Old Rectory development was completed, or earlier only if Mrs Power could afford to repay them. The reason why they have not been repaid yet is because the development has not been completed, and Mrs Power still cannot afford to repay them.
77. There is a straight conflict of evidence on this issue. It turns on my evaluation of the evidence of the three of them, influenced by a few other factors, including the degree of probabilities of the two versions and impressions formed by other persons with whom they were in contact at the time. There are virtually no contemporary documents which give any help. Before I consider the evidential issues which are specifically linked to this issue I would like to say something more generally about the principal witnesses.
78. In my opinion Mr Godfrey was a good witness. He gave his evidence clearly, and did not seem to me to make any attempts to embroider it. He said that he had a reasonably good recollection of the events, which is not surprising given the importance of the transaction to him. He struck me as honest and as doing his best to give straightforward answers to the questions which were asked of him.
79. The principal witness for Mrs Power was herself. I am sorry to have to say it, but she was unimpressive, and there were several aspects of her evidence which mean that, in my judgment, I must be decidedly cautious about it. I will mention some of them.
80. I begin with ‘the Torpy letter.’ Mr Torpy, it will be recalled, is Mr Power’s cousin. He had spent much of his life in Australia, and that is where he is now. ‘However, in 1993 and 1994 he was living in England (for some of the time at Mr and Mrs Power’ home, if I have understood correctly). He was assisting Mr and Mrs Power in some of their property ventures at the time, including the Old Rectory project. I have recorded a few paragraphs above that, according to Mr and Mrs Power, Mr Godfrey originally said that he would provide all of the money for the purchase price and for the development costs, and it was on that basis that they initially agreed that he would be a 50% participant in the project. Mr Godfrey denies that he ever agreed to provide all of the money as Mr and Mrs Power allege. One of the documents in the bundle appears to be a letter dated 6 September 1993 and signed by Mr Torpy and Mr Godfrey. The text of it reads as follows:
Re: Litchfield: I would like to confirm that Mr Noel Godrey has agreed unconditionally to provide the funds (165,000 pounds) for the purchase of the above. Development funds are also available. As agreed the profits are to be split 50-50 as in the past.
This was one of the documents which Mrs Power produced and caused to be included in the bundles for the purposes of this case. On the face of it it supports what she says. The problem is that the letter is, in my view, indisputably a forgery. The signature on it is not remotely like Mr Godfrey’s, and there are other aspects of it which arouse suspicions. For example the address at the head of the letter is an address in Australia, which Mr Godfrey knew nothing of. It may have been Mr Torpy’s former Australian address, or his present Australian address, but there is no rational explanation for the use of that address when Mr Godfrey was living in Ireland and Mr Torpy was living in England. The heading ‘Litchfield’ is puzzling. The Old Rectory is at Blithfield. Lichfield is about ten miles away, and there are other places, better known than Blithfield, which are closer. The reference to profits being split 50-50 ‘as in the past’ makes no sense. There never had been an occasion in the past when any profits had been split between Mr or Mrs Power and Mr Godfrey.
81. I do not think that Mr Bannister expressly admitted that the letter was a forgery, and I do not think that it would have been fair for me to press him to admit it. But he made no attempt to argue that the letter might have been genuine, and I think that tacitly he accepts that it was indeed a forgery. He says that he does not need to rely on the Torpy letter as part of his case. That is correct as far as it goes, but it does not recognise the damage which the production of the letter and the inconsistencies in Mrs Power’s evidence about it do to the credibility of her evidence generally.
82. Mrs Power referred to the Torpy letter in her witness statement. She said that she asked Mr Torpy to draft something and put it in writing. She continues: ‘I attach to this statement a letter signed by Mr Lawrence Torpy and Mr Noel Godfrey dated 6 September 1993 in relation thereto. A copy of this letter was given to me by Lawrence Torpy.’ In oral evidence she said something different. She said that, in preparing for this case, she went through the files at home, and the Torpy letter was one item which she found there. She did not know how it had got there. She now says that she had never seen it before, and has no opinion on whether it is a forgery. So in her signed witness statement she said that in September 1993 she asked Mr Torpy to get the letter, and that he, having got it, gave it to her. In her oral evidence she said that she found the letter in a file recently; she had never seen it before and she knew nothing about it.
83. What should I make of this? One possibility is that Mrs Power knew that the letter was a forgery, but still put it before the court. The other possibility is that what she said in oral evidence was the truth. In that case she had given incorrect evidence about the origin of the letter in her witness statement. If she took her witness statement seriously she must have known that it included an untrue statement on a potentially significant detail. If she did not know that her witness statement included an untrue statement, she did not take the statement seriously. On any view this matter must cast major doubts on the credibility of Mrs Power’s evidence, not just about the Torpy letter, but generally.
84. The Torpy letter is not the only aspect of Mrs Power’s evidence which leads me to conclude that her evidence is not reliable. Having taken some time to describe the letter and its place in the evidence I will not prolong this judgment by going into other matters in the same sort of detail. But there are many respects in which Mrs Power said one thing in her witness statement and said something different in oral evidence. In my opinion it became clear that, if she understood the details of what was happening in 1993 and 1994 (which I doubt, because I am convinced that all the effective decisions were taken by her husband), she certainly does not understand them now. A lot of her evidence was concerned with Mr Kehoe, who had at one stage been a defendant in the Power v Valkyrie action, and whom she clearly wanted to portray in as unfavourable a light as possible. She wrote or said many things about the dealings which she, her husband and Mr Swain had with Mr Kehoe which, as it seems to me, cannot possibly have been correct. For example she said that Mr Kehoe made frequent telephone calls to her house right up to 1997. In my view it is absolutely certain that Mr Kehoe did nothing of the sort. At one point in her oral evidence she said that he was on the telephone virtually every day. That is utterly inconceivable.
85. The statement of claim in Power v. Valkyrie alleged that she and Mr Kehoe used to meet from time to time, and in particular used to have meals together. Mr Kehoe said that he had never had a meal with Mrs Power, and in her oral evidence she agreed. She said that the statement of claim was wrong, and that she had failed to notice the error when she read it and vouched for it with a statement of truth., But how did the incorrect allegation originate? J am sure that her solicitors and counsel did not dream it up themselves. It must have come from Mrs Power.
86. I am only going to mention one other specific detail about Mrs Power’s evidence. If correct it would be more relevant to the Power v. Valkyrie action than to the Godfrey v. Power action, but again, if it is incorrect, it is another indication of the unreliability of Mrs Power as a witness. She said on several occasions that, both in relation to the Wick Road purchase and the Old Rectory purchase, Mr Kehoe promised that the Bank of Ireland would lend the money required. Further, she said that he made these promises before she exchanged contracts for the purchases. However, I believe that it has been established to a very high degree of probability - indeed to a virtual certainty - that the first that Mr Kehoe knew of each of the two transactions was after the exchanges of contracts. In the account of the facts which I have given earlier I record that Mrs Power exchanged contracts to buy the Wick Road properties on 18 May 1993, but that the meeting at which she, accompanied by Mr Torpy, asked Mr Kehoe about a loan for the purchase was on 30 July 1993. The date is confirmed by Mr Kehoe’s ‘Communication Planner’ manuscript notes which came to light in the course of the trial. As regards the Old Rectory, contracts were exchanged on 27 September 1993, but the meeting with Mr Kehoe at the Kingston branch of the Bank of Ireland, attended by Mrs Power and Mr Godfrey, occurred on 5 October 1993. It is not entirely clear whether there had been some earlier telephone conversation between Mr Power and Mr Kehoe in which Mr Power told Mr Kehoe something about the Old Rectory, but even if there was I do not think that there is any realistic possibility that Mr Kehoe there and then promised Mr Power that the bank would lend to his wife the money which she needed.
87. On this particular matter I think that the unreliability of Mrs Power’s evidence may arise simply from confusion. She is a teacher, a wife and mother. She is not a property entrepreneur. To her it may well seem natural now that she would never have contracted to purchase properties without having the financing tied up first. But I am convinced that on Wick Road and the Old Rectory that is what she did. Her husband was the driving force, for all that the nominal party to the purchases was herself. He was an experienced property entrepreneur. Experience shows that, while some property entrepreneurs will always line up the financing before they commit themselves to a purchase, there are others who take a different view: they will be prepared to enter into a contract of purchase first, so ensuring that they will not lose the transaction, and they will sort out the financing later. It would not surprise me in the least if Mr Power was a property entrepreneur of the latter type.
88. Turning from Mrs Power as a witness to Mr Power as a witness, I cannot regard his evidence as making good any deficiencies in hers. His witness statement is short, and for the most part simply says that he can confirm his wife’s evidence. If her evidence is unreliable, I am afraid that I regard his evidence as unreliable as well. Unfortunately he was taken ill at an early stage in his oral evidence. His evidence was hardly tested in cross-examination at all, but I fear that I have to say that the indications were that Mr Power was not going to be a good witness. Although his wife, when asked questions about the financial aspects of the Old Rectory transaction, had often said that she left such matters to her husband and the questions would be better directed to him, he said that he had very little experience of dealing with lending institutions. If his evidence had been able to continue I do not think that it would have provided any effective support for his wife’s case, either in the Godfrey v. Power action or in the Power v. Valkyrie action.
89. There is one other point to be made about evidence. It is clear that Mr Torpy, though not himself any kind of beneficial participant in the Old Rectory project, had quite a lot to do with it in September and October 1993 (and a year later, at a time which is more relevant to the Power v. Valkyrie action. His involvement was not just the Torpy letter to which I have referred at some length above. I have the impression that in practice he did a lot of the things which Mr Power would have done if he had not been house-bound by his illness. There is no evidence from Mr Torpy, either in person (understandable given that he lives in Australia) or in writing pursuant to the Civil Evidence Act. Mrs Power confirmed that Mr Torpy is in good health. He visited her and her husband about a year ago, so as far as I know they are still on good terms. I should not make too much of the absence of evidence from Mr Torpy, but I tend to agree with the submission made to me that it raises another question mark over the reliability of the evidential case presented by Mr and Mrs Power (and, when I come to the Power v. Valkyrie action, the evidential case presented by Mr and Mrs Power and Mr Swain).
90. From what I have said already about the three principal witnesses it will be obvious that I accept Mr Godfrey’s evidence about the agreement reached between him and Mr and Mrs Power, and that I do not accept their evidence. To a considerable degree I do so because I consider Mr Godfrey to be a good, careful and reliable witness, whereas I cannot feel the same way about Mr and Mrs Power. There are a few other circumstantial details which incline me to the same view.
91. Although Mr Bannister says that the agreement which, on Mr Godfrey’s account, was made would have been so favourable to him as to be inherently improbable (an entitlement to 50% of the profits in return for putting up about 40% of the purchase price, and without being expected to put any work into the project), I think that the alternative version is decidedly more improbable. On that version Mr Godfrey provided two significant sums of money (£16,500 and £50,000) simply as loans, and, furthermore, as loans which were interest free and where Mr Godfrey would have no right to require repayment until the project was completed. It is worth remembering that Mr and Mrs Power were putting up no part of the money at all: all the financing not provided by Mr Godfrey was to be borrowed from outside sources (the Bank of Ireland as Mr and Mrs Power hoped, though in the event it turned out to be Valkyrie). Further, and significantly as it seems to me, I think that without Mr Godfrey’s £16,500 for the deposit Mrs Power would not have been able to exchange contracts at all, and the purchase would have been lost.
92. Mrs Power’s explanation in oral evidence of why Mr Godfrey should have been willing to make such disadvantageous loans was that Mr Godfrey owed debts to herself and her husband in Ireland, and they used the ability to enforce those debts to pressurise him into making the interest free loans for the Old Rectory project. I find that unconvincing. It was never pleaded. In Mrs Power’s witness statement she briefly alluded to two alleged debts, but she did not say that they were used as a lever by herself and her husband to extract the alleged interest-free loans from Mr Godfrey. Mr Godfrey said that Mrs Power’s evidence on this matter was incorrect, and that if he had had adequate notice that the point was going to be made he could have provided a detailed refutation of it.
93. At one or two places in documents submitted by Mr Godfrey for the purposes of this case he has referred to himself as having ‘advanced` the two sums of £16,500 and £50,000. Mr Bannister fastens on this word, and says that it shows the true nature of Mr Godfrey’s contribution: an advance is a loan. I do not accept this argument. It is correct that the word ‘advance’ is quite often used as a synonym for a loan, but it is capable of having other meanings. In any case, at all times Mr Godfrey’s fundamental and consistent case has been that, in return for him providing money for the Old Rectory project, he would be entitled to a 50% interest in it. It is inconceivable that, by occasionally using the word ‘advance’, he was admitting that the true relationship was simply that of lender and borrower.
94. In September and October 1993, around the time when Mr Godfrey provided the two sums of money, the only direct contact which he had with a third party in connection with the Old Rectory project was the 5 October meeting with Mr Kehoe at the Kingston branch of the Bank of Ireland, attended also by Mrs Power. Mr Godfrey says that he was introduced to Mr Kehoe as Mrs Power’s partner in the project. Mr Kehoe does not remember the word ‘partner’ being used, but he gave evidence to me, which I accept, that, as he recalls, his general impression from the meeting was that the project was either ‘a Godfrey project’ or a joint project of Mr Godfrey and Mrs Power. This is in no sense conclusive, but it is a pointer which supports Mr Godfrey’s case. Mr Kehoe had no recollection of anything being said by Mrs Power which suggested that Mr Godfrey was to be just an interest-free lender. Still in connection with contacts with Mr Kehoe, I have described in my account of the facts how Mr Godfrey sent to him a document dated 10 October 1993 which gave considerable details of the stages of the Old Rectory project, the estimated costs and the projected realisations. For Mr Godfrey to have done that, and to have had the knowledge to be able to do it, seems to me to be far more consistent with him expecting to be a profit-sharing participant in the venture than with him merely being an interest free-lender.
95. I ought to add with reference to third party contacts in 1993 that Mr Minaides (Mrs Power’s solicitor) said that, while he did of course know that the deposit and (later) a further sum were being provided by a third party other than Valkyrie, he did not know who the third party was or on what basis the third party was providing the money.
96. I must consider another point made by Mr Bannister. There have been times over the years when Mr Godfrey would have accepted repayment of his £66,500 in full satisfaction of any claims which he might have had. Mr Bannister says that that shows that Mr Godfrey’s transaction always was a simple interest-free loan and nothing else. I think that that places far more weight on this point than it will bear. On the evidence, the first occasion when the factual basis for the argument seems to have arisen was in about April of 1994. Mr Godfrey was very dissatisfied by then. No work had been done on the Murray flat, and, according to Mr Godfrey, Mr Power was saying that he and Mrs Power did not have the money to do any work. On the face of it Mr Godfrey’s £66,500 plus the Valkyrie loan of £140,000 could have been expected to leave a balance to finance the works on the flat, but it appeared that that was not the case, and certainly the flat was still uncompleted. Mr Godfrey had established a contact with the Birmingham branch of the Allied Irish Bank, which would have been interested in financing the development, but only if the Murray flat was completed and sold first.
97. In the circumstances Mr Godfrey was disillusioned over the whole affair. He wanted the property to be resold in its undeveloped state, and if he received £66,500 from the proceeds he would have withdrawn and left Mrs Power as the owner of the Old Rectory without any continuing claim by himself. In the event, however, he says that in about April 1994 he agreed that he would be replaced by Mr and Mrs Power’s friend, Mr Swain, and that he would be paid his money in two stages, half then and half a year later. In the event Mr Swain did become involved, but his role turned out to be more like replacing Valkyrie than replacing Mr Godfrey. Mr Godfrey never was repaid his £66,500 or any part of it.
98. A few years later, after Mr Godfrey’s caution had been placed on the Land Register and when negotiations were in progress to settle the whole matter, there was another stage when Mr Godfrey was prepared to accept £66,500 and to withdraw. For one reason or another it never happened. I do not accept that Mr Godfrey’s conduct in having been willing at times to take £66,500 and then to withdraw can fairly be regarded as an acknowledgment by him that the true transaction always was a simple interest-free loan of £66,500. Nor does it in any way preclude him now from advancing the case which he has put before me.
99. A final point on this part of the case. Mr Godfrey’s dissatisfaction continued, and culminated with him, on legal advice, placing his caution on the Land Register. It is of course possible that Mr Godfrey knew that in truth he was only an interest-free lender to Mrs Power, but went ahead nevertheless and registered his caution in a dishonest attempt to engineer some additional benefit for himself. But it seems to me inherently unlikely that he would do that. I can safely infer that Mr Godfrey consulted English solicitors (with whom, so he told me and I accept, he had had no previous connection), and that what he told them led them to advise him to place a caution on the Register. They would not have advised him to do that if he had told them that he was just an interest-free lender. He might have told them a series of lies, but I think it is very unlikely that he did. Further, having heard him at some length, both in the witness box and as a litigant in person, my conclusion is that he did not.
100. For all of the foregoing reasons I accept in principle Mr Godfrey’s case that the agreement between himself on the one side and Mr and Mrs Power on the other was that, in return for his monetary contribution (without which the Powers would not have been able to proceed with the Old Rectory project at all) he was to be a 50% participant in the venture.
101. The consequences of my conclusion so far are not as straightforward as might initially have been expected. The major complication arises because, as I described in my account of the facts, the precise agreement which Mr Godfrey thought that he had made was that the Old Rectory was to be purchased by an offshore company owned by himself and Mrs Power in 50/50 proportions.
102. Mr Godfrey’s amended particulars of claim (which were settled by counsel before he ran out of funds and had to appear for himself) say this:
In the premises Mrs Power held and holds the Property and the net proceeds of sale thereof (following repayment of inter alia the sums paid by Mr Godfrey) upon constructive trust for herself and Mr Godfrey in equal shares.
I believe that that conclusion would follow without any difficulty if the agreement had simply been for Mrs Power to take the legal title to the Old Rectory but for profits from the development to be shared equally between her and Mr Godfrey. She would have held the property on a constructive or resulting trust for herself and Mr Godfrey in equal shares.
103. Does it make any difference that the final agreement which Mr Godfrey thought had been made by the time that he, having arranged with his bank in Clonmel to provide the second tranche of the money, departed for New York was that the property should be transferred to an offshore company? At one stage in the hearing I thought that it might, but on reflection and on a review of authority I have concluded that it does not. Mr Godfrey said, and I accept, that the basis of the understanding between himself and . Mr and Mrs Power was one for equal participation in the project. The subject matter which it was all about was the Old Rectory and the anticipated profits from it. The proposed interposition of an offshore company was a mechanical detail, introduced at the request of Mr Power and not at the request of Mr Godfrey: Mr Godfrey would have been content with the property being acquired by Mrs Power and himself personally. Mr Godfrey is claiming equitable relief, and it would be a negation of equity if he was refused the relief he claims because, in a transaction of which the substance was a sharing in the ownership and development of the Old Rectory, the interposition of an offshore company had been proposed, with his consent but purely as a matter of machinery.
104. I also consider that my view on this is borne out by authority. The whole area of how a constructive trust can arise in circumstances analogous to those of the present case has recently been reviewed in detail by the Court of Appeal in Banner Homes plc v. Luff Developments Ltd [2000] Ch 372. The full judgment was delivered by Chadwick LJ, with Stuart-Smith LJ and Evans LJ stating that they agreed without adding reasons of their own. Chadwick LJ referred to the type of constructive trust which he held to exist in the case as having arisen from a ‘Pallant v. Morgan equity’. This is a reference to one of the earlier cases, reported at [1953] Ch 43. There is a detailed and illuminating review of all of the earlier cases in the judgment of Chadwick LJ, and in the circumstances I can, I believe, confine my examination to Banner Homes itself.
105. The outline facts were that the two companies, Banner Homes and Luff, had arranged, without making a binding contract about it, that they would go into a property project as a 50/50 joint venture. Luff would bid for the property and Banner Homes would stay out of the market. Thereafter they would develop the property jointly, doing so as a matter of machinery through a jointly owned company. Luff did cause the property to be purchased, doing so through a wholly owned subsidiary of its own (Stowhelm) in which Banner Homes had no interest. Luff then dropped Banner Homes, and set about developing the property itself through Stowhelm. The result of the case was that the court held that a constructive trust - a Pallant v. Morgan equity - arose, and that it took the form, not of the property itself being held by Stowhelm on trust for Luff as to 50%, but of the shares in Stowhelm being held by Banner Homes as to 50% for Luff.
106. Chadwick LJ, after reviewing the authorities, stated five propositions at pages 397-399. I shall not set out the passage in full, but I do wish to quote certain extracts from the propositions, adding comments as to their applicability to the circumstances of this case. The learned Lord Justice’s proposition (1) begins as follows: A Pallant v. Morgan equity may arise where the arrangement or understanding on which it is based precedes the acquisition of the relevant property by one party to the arrangement. It is the pre-acquisition arrangement which colours the subsequent acquisition by the defendant and leads to his being treated as a trustee if he seeks to act inconsistently with it. In this case the arrangement between Mr Godfrey and Mr and Mrs Power power was reached before Mrs Power acquired title to the Old Rectory. Further, on my finding as to what that pre-acquisition arrangement was, it is plain that Mrs Power has acted inconsistently with it.
107. Proposition (2) begins: It is unnecessary that the arrangement should be contractually enforceable. This proposition might be important in this case. Although there was, in my opinion, a contractually enforceable arrangement between Mr Godfrey and Mrs Power, it may have been a contract for Mrs Power to cause the Old Rectory to be acquired by a jointly owned offshore company, not a contract for the property to be acquired by Mrs Power personally and owned by her as to 50% for Mr Godfrey. He seeks the latter form of relief, and it is not quite in line with the prior contract However, in the light of Chadwick LJ’s proposition (2) the fact that the form of relief sought from the court does not exactly track the prior contract does not, in my opinion, rule out the possibility of Mr Godfrey obtaining it.
108. I will quote proposition (3) in full. It is necessary that the pre-acquisition arrangement or understanding should contemplate that one party (‘the acquiring party) will take steps to acquire the relevant property; and that, if he does so, the other party (the non-acquiring party’) will obtain some interest in that property. Further, it is necessary that (whatever private reservations the acquiring party may have) he has not informed the non-acquiring party before the acquisition (or, perhaps more accurately, before it is too late for the parties to be restored to a position of no advantage (no detriment) that he no longer intends to honour the arrangement or understanding. In this case the acquiring party is Mrs Power, and the non-acquiring party is Mr Godfrey. On the view of the facts which I have formed I think it is clear that this condition is satisfied.
109. Proposition (4) begins as follows: It is necessary that, in reliance on the arrangement or understanding, the non-acquiring party should do (or omit to do) something which confers an advantage on the acquiring party in relation to the acquisition of the property; or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms. It is the existence of the advantage to the one, or detriment to the other, gained or suffered as a consequence of the arrangement or understanding, which leads to the conclusion that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself, in a manner inconsistent with the arrangement or understanding which enabled him to acquire it. In my judgment the conditions described there are clearly present in this case. Mr Godfrey did something: he provided the deposit and he provided a further £50,000. By doing that he provided an advantage to Mrs Power - she was enabled to obtain and complete the contract to purchase the Old Rectory -and he suffered a disadvantage himself - he parted for the time being (in the event for considerably longer than the time being) with £66,500.
110. In proposition (5) Chadwick LJ observes that what he has said so far leads to two further conclusions: (i) that although in many cases the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market, that is not a necessary feature; and (ii) that although there will usually be advantage to the one and correlative disadvantage to the other, the existence of both advantage and detriment is not essential - either will do. As regards (i), in the Banner Homes case itself the advantage to Banner Homes was that Luff agreed to keep out of the market. The present case was different: Mr Godfrey would never himself have been in the market as a rival purchaser for the Old Rectory. Mr Bannister says that that is a ground on which this case can be distinguished from Banner Homes. I do not agree. It is a factual difference, but, given the passage from Chadwick LJ’s judgment which I have just quoted, it is not a distinction in law. The learned Lord Justice makes it clear that the necessary advantage or detriment (or both - see (ii) above) can arise in other ways instead. In the present case it did.
111. Chadwick LJ continues, still in proposition (5), but in my view drawing all of the threads together: Mat is essential is that the circumstances make it inequitable for the acquiring party to retain the property for himself in a manner inconsistent with the arrangement or understanding on which the non-acquiring party has acted. Those circumstances may arise where the non-acquiring party was never ‘in the market for the whole of the property to be acquired; but (on the faith of an arrangement or understanding that he shall have a part of that property) provides support in relation to the whole which is of advantage to the acquiring party. In my judgment that passage is directly applicable to the present case. I consider that it was inequitable for Mrs Power to retain the whole interest in the Old Rectory for herself. That circumstance arose, not from Mr Godfrey having been in the market himself for the property or an interest in it, but because he, on the basis that he would be a 50/50 participant in the project, provided financial support in relation to the acquisition of the property, and the support was of advantage to Mrs Power, the acquiring party.
112. What remains is for me to consider whether it makes any difference that, although the real underlying subject matter of the agreement which, in my judgment, Mr Godfrey reached with Mrs Power was the Old Rectory, nevertheless, if the agreement had been implemented, he would have emerged, not as the owner of a half interest in the property, but as the owner of a half interest in an offshore company which in its turn owned an entire interest in the property. In my judgment that does not make any difference, and indeed it would be contrary to the whole approach in Banner Homes if I allowed it to make any difference.
113. It is true that the result in Banner Homes was that the claimant company was held to be entitled under a constructive trust to half of the shares in Stowhelm, not to a half-interest in the property itself. But that was because Stowhelm was not itself a party to the arrangement with Luff, and it (Stowhelm) had acquired the property as its own asset. See the short addition at the end of the report at pages 401-2. The whole discussion in the main body of the case was concerned with the underlying property, not with the shares in Stowhelm, as the passages which I have quoted above clearly show. If, despite the arrangement between Banner Homes and Luff for the property to be acquired by a jointly-owned company, Luff had acquired it itself, I am certain that the Court of Appeal would have held that Luff held the property on a constructive trust as to 50% for Banner Homes. Indeed, I believe that Chadwick LJ says precisely that at the foot of page 401 and the top of page 402. The court would not have gone through the hoops of requiring Luff to transfer the property to a subsidiary, and then declaring that the shares in the subsidiary were to be held as to 50% on trust for Banner Homes. In this case the actual facts are equivalent to how they would have been in Banner Homes if Luff had acquired the property itself. Mrs Power acquired the Old Rectory herself, and in my judgment, as a matter of principle and on the authority of the Court of Appeal in Banner Homes, she held it as to 50% on a constructive trust for Mr Godfrey.
114. For the above reasons I shall declare that, when Mrs Power acquired the legal title in the Old Rectory, she held it on trust as to 50% for herself and as to 50% for Mr Godfrey. The main issue raised by Mr Godfrey’s claim succeeds. There are consequential matters which he also raises, concerning the validity or otherwise of Mrs Power’s transfer of the legal title to Touchbray on 10 October 1994 and the subsequent transfer by Touchbray to Estateoval on 15 December 1995. He also requests an order that the property be sold, with the arrangements for the sale being entrusted to himself. These further matters were not argued. I will not deal with them here. The parties may be able to agree how they should be dealt with in the light of this judgment, failing which I will have to request further argument about them. I should mention that there may also be issues arising between Mr Godfrey and Valkyrie. On behalf of Valkyrie, Mr Piercy said that, if Mr Godfrey successfully establishes that he is entitled to a 50% interest in the Old Rectory, Valkyrie’s case will be that Mr Godfrey’s interest, like the other 50% interest of Mrs Power (or it may be of Touchbray or Estateoval), would be subject to its (Valkyrie’s) rights as first chargee. That issue also, if not agreed, will have to be the subject of further argument.
115. The other matter which arises in the Godfrey v. Power action is that Mrs Power and Touchbray counterclaimed for damages on the basis that Mr Godfrey, having (as they argued) no interest in the property but only being entitled to repayment at some time of an unsecured loan to Mrs Power had wrongfully registered his caution at the Land Registry. See the Land Registration Act 1925 section 56(3). Mr and Mrs Power and Touchbray also counterclaimed for removal of the caution. It follows from my judgment that Mr Godfrey’s registration of the caution was not wrongful. The counterclaims are therefore dismissed.
116. Power v. Valkyrie is a complicated action, and it has a complicated history. There are three claimants in it: Mrs Power, Touchbray, and Estateoval. There were originally two defendants, Valkyrie and Mr Kehoe. Now there is only one defendant, Valkyrie. Shortly before the main trial (the trial before me) the claimants applied to discontinue the claim against Mr Kehoe. For procedural reasons the claim was not discontinued but rather was struck out by an order of Evans-Lombe J. Valkyrie has counter-claims against Mrs Power and Touchbray. Valkyrie at some stage joined Mr Godfrey as a defendant to another counterclaim which it wished to assert: in May 2000 an order was made staying that counterclaim pending the outcome of the trial of all other issues in the action. At an early stage of the hearing before me Mr Piercy (counsel for Valkyrie) raised the question of whether the stay should be lifted. My recollection is that the matter was left over at that stage, to be returned to later, but it never was returned to. I am told by counsel that my memory may be at fault in this respect, and that there was a point in the trial when I did lift the stay. However, whether I did or not, I was not asked to decide the issue which subsists between Mr Godfrey and Valkyrie, and I do not do so in this judgment. If it cannot be agreed, it will have to be decided later.
117. This is one example of a more general point relating to the Power v. Valkyrie action: I am concerned that, even with the help of counsel over a long trial, I may not exactly understand which issues between which parties are live issues before me upon which I am expected to give decisions in this judgment. However, I will do my best, and if I omit something I am sure that it will be drawn to my attention.
118. The general theme which underlies the case or cases sought to be advanced by the claimants arises from the two Valkyrie loans made in connection with the Old Rectory project, and in particular the high rates of interest (called ‘equity fees’, as I have recorded at an earlier point in this judgment) which are payable in respect of them. Those loans were the October 1993 loan of £140.000 made to Mrs Power, and the October 1994 loan of £110,000 made to Touchbray. It will be recalled that the first of the two loans was repaid in April 1994 with money provided by Mr Swain as a loan to Mrs Power. She nevertheless claims relief in respect of the high cost of the borrowing. She says that actionable misrepresentations were made to her by Mr Kehoe, and she says that Valkyrie is liable to her in damages for them.
119. The Touchbray loan is still outstanding. Touchbray has never paid any interest, but on the face of the loan agreement interest (the ‘equity fee’) has been accruing against it for seven years. Touchbray now accepts that it is indebted to Valkyrie (a pleaded claim for rescission is not now pursued), but it argues that for several different reasons the burden of the interest cost should be reduced. I think, but am not sure, that three alternative reasons are advanced to support the conclusion. One is that, as in the case of the earlier loan to Mrs Power, Mr Kehoe made misrepresentations for which Valkyrie is liable in damages to Touchbray. A second argument is that, because Valkyrie’s solicitors were handling the registration of Touchbray’s purchase at the Land Registry and did not succeed in registering it before Mr Godfrey’s caution took effect, Touchbray suffered loss; the loss resulted from a breach of duty owed to Touchbray by Valkyrie’s solicitors, and Valkyrie is liable in damages to Touchbray for the loss. The third reason is that, after nine months of the term of the loan from Valkyrie to Touchbray, the rate at which interest accrued (the equity fee) went up, and the amount of the increase is contended to have been a penalty, unenforceable in equity.
120. I will try to address all of these arguments, but I say now that I do not accept any of them.
121. I wish to say something about the arguments which are based on a role which Mr Kehoe is alleged to have played. Mrs Power and Touchbray allege that Mr Kehoe made statements to them. They describe these as representations, and they seek to make them part of the foundation for their claims against Valkyrie. Until quite recently they were also trying to rely on these representations to support claims for damages against Mr Kehoe personally. They have abandoned that, and, as I said a few paragraphs ago, their claims against Mr Kehoe have been struck out. Yet they still say that misrepresentations which they allege Mr Kehoe to have made give them causes of action against Valkyrie. This seemed curious to me before the hearing started, and it still seems curious to me now that the hearing has ended.
122. Mr Kehoe is employed by the Bank of Ireland, not by Valkyrie, and it is not obvious that Valkyrie could be liable in consequence of anything which Mr Kehoe said or did. It appears to me that the claimants have retreated to a very marked degree from the case which they were originally advancing. The case hinted at in the amended statement of claim and made explicit in witness statements was that Mr Kehoe was playing a double game. Ostensibly he was just the manager of the Kingston branch of the Bank of Ireland, but the witnesses (Mrs Power, Mr Power and Mr Swain) believed that he was secretly the owner of Valkyrie, or at least had some sort of beneficial interest in Valkyrie.(Extracted from Mrs Power’s witness statement: ‘He ... left me with the clear impression that he was the driving force behind [Valkyrie].... He gave me the clear impression that he was a beneficial owner.’ From Mr Power: Mr Kehoe ... always spoke as if he knew [Valkyrie] well and did nothing to rid the impression that he owned or had an interest in it.’ From Mr Swain: ‘I got the impression that [Mr Kehoe] was the beneficial owner of [Valkyrie].’)
123. The next strand in the case being presented was that Mr Kehoe’s practice was to make false promises that money would be lent by the Bank of Ireland, to notify the prospective borrower at the last moment that the bank refused to lend after all, and to introduce the borrower to Valkyrie, well knowing that the borrower would have to borrow from Valkyrie because there was no time to go anywhere else. Mrs Power: ‘It is my belief that Mr Kehoe, the second defendant, manipulated matters so that the Bank of Ireland would not lend to me other than overdrafts so that, effectively, we would use [Valkyrie], which I believe is a vehicle used by Mr Kehoe or his bank, or other connected persons to become a lender of my projects.’ Mr Swain: ‘... the pattern of how Mr Kehoe does his business. He promises finance from the Bank of Ireland but at the last minute he states that finance is not possible and directs customers to other sources such as [Valkyrie]. I suspect he derives benefit.’
124. Those passages are allegations of grossly improper behaviour, indeed of deliberate dishonesty’, on the part of Mr Kehoe, defrauding not just potential customers like Mrs Power and Touchbray, but also his own employer. Part of the case which Mr Kehoe had prepared before the claim against him personally was struck out was designed to refute the allegations, and in my view his case would have refuted them comprehensively. Mr Kehoe continued to be involved in the case, though no longer as a party. He was an important witness called on behalf of Valkyrie.
125. When the trial started before me the case for Mrs Power and Touchbray was presented very differently and altogether more moderately. Mr Bannister told me that it was not suggested that Mr Kehoe had been dishonest. I was at no stage asked to form a view that Mr Kehoe had a beneficial interest in Valkyrie. Indeed, having regard to the evidence, summarised earlier in this judgment, of Mr Parkin (a director of Valkyrie) and of Mr Crowther (the English solicitor for Valkyrie and for the principal beneficiary and the family), it was in my view proved beyond a shadow of doubt that Mr Kehoe had no interest of any sort in Valkyrie. However, Mr Bannister still said that Mr Kehoe made misrepresentations, and that Valkyrie was liable for them. I found it hard to see how the argument could be supported, and my conclusion is that indeed it cannot be supported. I will describe later the way that Mr Bannister seeks to justify it, and why I do not think that the justification can be correct.
126. The witnesses on behalf of the claimants in this action were Mrs Power, Mr Power, Mr Swain, and Mr Minaides. I have made general observations about Mrs and Mr Power as witnesses in relation to the Godfrey v Power action. They continue to be applicable in the context of Power v Valkyrie also. Neither Mrs Power nor Mr Power was a convincing witness. I have said already that one of the detailed respects which showed that Mrs Power’s evidence could not be relied upon was the clear incorrectness of statements by her that she would never have exchanged contracts to purchase a development property without having arranged the finances first. She said things to that effect in support of her case that Mr Kehoe had promised to her that the Bank of Ireland would lend the money which she needed. However, as I said earlier, I think it is clear that, both in relation to the Wick Road properties and in relation to the Old Rectory, she had already exchanged contracts before there was any approach to Mr Kehoe for borrowings from the Bank of Ireland. This is quite an important point given some of the arguments advanced on her behalf in her claim against Valkyrie.
127. Mrs Power’s witness statement contains a number of paragraphs about the period leading up to the second Valkyrie loan - the loan of £110,000 which Valkyrie made to Touchbray in October 1994. The witness statement gives the impression that there were discussions and telephone calls with Mr Kehoe throughout this period, and that Mrs Power was a fully involved participant in them. Her oral evidence was altogether different. She told me that she was ill for a large part of 1994, and was also preoccupied with an illness of her mother, who was living in Ireland and who, I believe, died in 1994 or 1995. She explained to me (and I am sure that this was true) that in the circumstances she played no part in the events which led to the October 1994 borrowing from Valkyrie.
128. Mr Power’s witness statement says nothing specific about any part which he personally played in relation to the October 1994 borrowing. All that he says is that all negotiations with Valkyrie in respect of both the 1993 loan and the 1994 loan were with Mr Kehoe.(In my view that is clearly untrue, because the evidence established to my full satisfaction that Mr Power had discussions about both loans with Mr Crowther.) As regards Mr Power’s oral evidence, he added nothing in evidence in chief and he was taken ill before the cross-examination got round to any questioning about how either of the Valkyrie loans was arranged.
129. Mr Swain also gave evidence on behalf of Mrs Power and Touchbray (in which he is a 50% shareholder). I feel rather sorry for Mr Swain, given the way that things have turned out. He paid out £180,000 to help his friends, Mr and Mrs Power. So far he has not had any of it back or received any other benefit, and it is not easy to see how he ever will. He has a second charge over the Old Rectory, but it ranks behind Valkyrie’s first charge, which by now has escalated to a substantial sum by reason of seven years of accrued and unpaid interest (the equity fee). He also owns 50% of the shares in Touchbray and Estateoval. One of those companies may have some interest in the Old Rectory, though there will be major questions of whether its interest is subject to Mr Godfrey’s half share and/or to Valkyrie’s first charge. I suspect that Mr Swain may become the principal financial casualty of the whole unhappy sequence of events.
130. However, sorry for him as I am, I have to say that he was a very unconvincing witness. Much of his witness statement was aimed at character-assassination of Mr Kehoe, and much of it was argument rather than factual evidence - and unconvincing argument at that. There is a straight clash of evidence between Mr Swain and Mr Godfrey over whether there was or was not an occasion in 1994 when they met at Mr and Mrs Power’s home. Since I do not think that it matters whether they met or not,- I will not go into that any further. There is also a conflict between him and Mr Kehoe over whether on an occasion in 1996 Mr Kehoe told Mr Swain that he represented Valkyrie. This could be a little more important. I side with Mr Kehoe on it. I am absolutely certain that Mr Kehoe did not represent Valkyrie, and I can see no reason at all why he should have said that he did.
131. There is, however, one specific matter which arose in Mr Swain’s evidence which I must say a little more about, because, although the subject matter was peripheral, the things that Mr Swain said about it must raise doubt about his credibility generally. Mr Swain had been responsible for establishing Touchbray. Mr Godfrey commissioned a corporate investigator, Mr Moffatt (who had in his main career been a senior police officer), to make inquiries about the company. Mr Moffatt checked its returns to the Companies Registry, and discovered multiple irregularities, in particular persons named as directors or secretaries who were wholly unknown or who, if Mr Moffatt managed to trace them, had had no connection with Touchbray. In several respects wrong or fictional addresses were given. This sort of thing causes feelings of disquiet, but it would not of itself be enough to cause Touchbray’s claim in the Power v. Valkyrie action to fail.
132. However, there were entries relating to a Mr Coady, and Mr Swain’s answers when questioned about him were most disturbing. Touchbray’s first Companies Registry return recorded that on 11 April 1994 a Mr Edmund Coady was appointed a company secretary. An address in West Byfleet was given as his address. It was a former home address of Mr Swain. Mr Moffatt managed to trace an Edmund Coady who had known Mr Swain at college years ago but had not seen him for 15 years. That Mr Coady knew nothing about Touchbray, and was certainly not ever its company secretary. I have to say that Mr Swain’s evidence when he was cross-examined about this was so wildly improbable that I just cannot believe it. He said that there was a different person, also called Edmund Coady, who was living at the Byfleet address in 1994. This second Edmund Coady was a friend of Mr Torpy, and he was ‘house-sitting’ Mr Swain’s house at the time, sharing occupation with Mr Swain’s brother. Mr Swain himself had never met this Mr Coady. Mr Torpy was dealing with the formalities for Touchbray in April 1994, and he asked Mr Swain to find someone who would agree to be the company secretary. Mr Swain telephoned the house, hoping to speak to his brother and to ask him to be a company secretary of Touchbray. He found himself speaking to the second Edmund Coady instead - the one he had never met. So he asked him if he would be the company secretary, and Mr Coady agreed. That was how the name Edmund Coady with the Byfleet address appeared on the return sent to Companies House. Mr Swain had had no contact with Mr Coady since, or for that matter with the other Edmund Coady who had been a student with him years ago.
133. I may be gullible, but the foregoing account simply cannot be true.
134. This is a claim for damages advanced by Mrs Power against Valkyrie in respect of the high cost of the October 1993 loan. I think that the stages of the argument proceed as follows. (1) Mr Kehoe represented to Mrs Power that the Bank of Ireland would lend to her the money required to finance the purchase of the Old Rectory. (2) The representation was untrue, because Mr Kehoe knew that the Bank of Ireland would not make the loan which Mrs Power wanted. (3) When Mr Kehoe made the representation he was acting as an agent of Valkyrie. (4) Because of the misrepresentation Mrs Power did not make arrangements to borrow from other sources at normal rates of interest. (5) When she was told at a very late stage that she could not borrow from the Bank of Ireland she had no effective alternative to borrowing from Mr Kehoe’s introduction, Valkyrie. (6) Valkyrie’s rates were exceptionally high, and higher than rates at which Mrs Power would have been able to borrow from other sources if she had not been put off from exploring other sources by Mr Kehoe’s misrepresentation. Alternatively, Valkyrie’s rates were much higher than the rates which the Bank of Ireland would have charged if Mr Kehoe’s representation that the bank would lend the money to her had been true. (7) Mrs Power suffered a loss by having to pay the very high rates of interest to Valkyrie.
135. I disagree with most of the steps in the argument. As regards (1), there is no credible evidence that Mr Kehoe represented to Mrs Power that the Bank of Ireland would lend the money to her. I do not accept her case that she had received promises of lending from him before she exchanged contracts. I find that the first effective discussion of the Old Rectory project with Mr Kehoe was on 5 October 1993, after exchange of contracts, when she and Mr Godfrey went to the bank. On her own evidence there was no discussion of borrowing then. I add that Mr Kehoe would certainly have known that the sort of loan which Mrs Power wanted, and the sort of covenant which she could give, would not be acceptable to the bank. So on what conceivable basis can it be supposed that a very experienced branch manager like Mr Kehoe would tell Mrs Power that the bank would do something which it would not do? The case originally advanced on behalf of Mrs Power (that it was part of a dishonest plot by Mr Kehoe to get business for Valkyrie, a company in which he had a beneficial interest), though standing little or no chance of succeeding, did at least provide a possible explanation for why Mr Kehoe should have made the alleged statement. But that case has now been abandoned.
136. As regards (2), I agree that, if Mr Kehoe had made the representation to Mrs Power, it would have been a misrepresentation. However, I find that he did not make it at all.
137. As regards (3), if Mr Kehoe had made the representation he would have made it as agent for the Bank of Ireland. I do not agree that he would have made it as agent for Valkyrie. A great deal of effort was devoted by the Power side in the case to trying to establish that Mr Kehoe was an agent of Valkyrie. In my firm opinion he was not. He was the manager of a branch where Valkyrie had bank accounts, so many of Valkyrie’s business transactions were carried out through his branch. Mr Kehoe knew about them, and helped to ensure that they went smoothly. That does not mean that he was an agent of Valkyrie. Mr and Mrs Power say that all negotiations of the loan transactions were carried out by Mr Kehoe. I find that they were not. The principal negotiator of the October 1993 loan on behalf of Valkyrie was Mr Crowther, who was in contact with the principal beneficiary and obtained his approval of the detailed terms before they were finalised with Mr Power (who, as I find, handled the discussion on behalf of his wife). Mr Kehoe has agreed that he played quite a major part in setting up the earlier loan to Mrs Power for the Wick Road purchase (that having been the first significant loan which Valkyrie made), but he says that he did not play anything like so significant a role in the first Old Rectory loan. He was in my opinion a wholly frank and honest witness, and I believe what he says.
138. Still in relation to (3) and the issue of whether Mr Kehoe was an agent for Valkyrie, Mr Bannister has demonstrated that on most occasions when the back to back loans were made from the Bank of Ireland to Valkyrie and from Valkyrie to the borrower (Mrs Power in the case of the October 1993 loan), the money-flows went through ahead of the documents. This was explored in some depth in the cross-examinations of Mr Parkin, Mr Crowther and Mr Kehoe. They all accepted that it happened, but they did not accept that it meant that Mr Kehoe personally must have been an agent of Valkyrie. They pointed out that the loans needed to be made (or were thought to need to be made) at very short notice in order to meet the wishes of Mr and Mrs Power. Therefore commercial exigencies meant that the transactions had to be set up at high speed by a network of telephone calls, and that the documents formally recording and authorising them had to be put through later. The October 1993 loan to Mrs Power for the Old Rectory demonstrates the reality of this. Only on the last afternoon before the vendors would have rescinded the contract and forfeited the deposit was the money got through from Valkyrie which, together with Mr Godfrey’s £50,000, enabled the purchase to be completed. That could only have been achieved on the basis that it was all arranged by telephone and implemented very quickly, with the documents being brought into existence afterwards.
139. As I understand the law of agency, if Mr Kehoe was to be an agent of Valkyrie he must have been appointed as such or held out by Valkyrie as its agent. Mr Parkin, Mr Crowther and Mr Kehoe all gave evidence that Valkyrie did not appoint Mr Kehoe its agent and did not hold him out as its agent. Mr Bannister was not able to point to any evidence to the contrary effect. He did, however, try to rescue his agency argument in the following way. He said that Mr Kehoe was an agent of Valkyrie for the limited purpose of introducing borrowers to it. Anything which he said to a borrower and which eventually led to an introduction of the borrower to Valkyrie must be taken to have been said by him as agent for Valkyrie.
140. I do not agree with this at all. On the first stage of the argument, I think it is unreal to say that, because Mr Kehoe introduced Mr and Mrs Power to Valkyrie (as he certainly did, in connection with the Wick Road transaction), that means that he was an agent of Valkyrie. Take an example which will be within the personal experience of some of the persons involved in the present case (including myself). Suppose that a barrister is told by an acquaintance that the acquaintance is having matrimonial problems and needs a solicitor experienced in family law. Can the barrister introduce him to one? The barrister can and does. No-one would say that the barrister thereby becomes an agent of the solicitor. It would be just . the same if the barrister had done it before, and both he and the solicitor think it quite likely that he will do it again. The example could be replicated in a multitude of different contexts. (‘Can you introduce me to a good decorator? Or plumber? Or accountant? Or tennis coach?’ And so on.)
141. The present case is comparable. At the time of the Wick Road transaction. Mrs Power desperately needed a lender which would make high risk loans at short notice. Mr Kehoe knew of one - Valkyrie - and introduced her to it. He did not thereby become Valkyrie’s agent. In any case, even if he did, this contrived species of agency arose at the time of introduction and must have ended at the latest when the Wick Road loan was made. Anything that Mr Kehoe may have said before or after the Wick Road transaction - or even while the transaction was still in progress, as long as what was said had nothing to do with the transaction - cannot sensibly be regarded as having been said by Mr Kehoe as agent for Valkyrie.
142. Mr Bannister fairly acknowledged that there was no authority which specifically supported his proposition. He suggested that there might be some indirect and inferential support for it in the judgment of Hoffman LJ in El Ajou v. Dollar Land Holdings plc [1994] 2 All ER 685. I have reread that very complicated case closely, and I can only say that I can see nothing in it which assists Mr Bannister’s case in this respect. I cannot accept his argument.
143. I move to stage (4) in Mrs Power’s argument. I do not accept that, because of representations by Mr Kehoe to Mrs Power that the Bank of Ireland would lend her the money she needed, she did not arrange to borrow elsewhere. I believe that she was warned by Mr Kehoe on 5 October that it was unlikely that the bank would make to her the loan which she wanted, but she did nothing about it until the bank, having been asked by Mr Kehoe on 20 October to authorise a loan, stated on 21 October that it would not do so.
144. Step (5) in the argument, taken by itself, may be right. When matters got to the stage on 21 October 1993 of the Bank of Ireland having declined to make a loan to Mrs Power, and the deadline for completion was only a few days away, she (and her husband, who appears from Mr Minaides’ attendance notes to have been the person who took control in the crisis) may well have had no realistic alternative to applying for another high speed loan from Valkyrie, as had been done in the case of Wick Road.
145. Step (6) is that Valkyrie’s rates were higher than Mrs Power could have obtained elsewhere, or higher than the rates which the Bank of Ireland would have charged if it had been willing to make a loan to her. The parties to the case have agreed that, if liability is established against Valkyrie, quantum will be dealt with later. Therefore I do not go into this aspect in any detail. I will only say that it seems obvious that Mrs Power ought to have expected that any loan which she could get would be at high cost. She appears to have had no personal assets of any substance to back her repayment covenant. She had already borrowed up to the hilt in order to finance the Wick Road transaction. Her husband, whom I think any prospective lender would recognise as the effective decision taker, was an undischarged bankrupt, having become bankrupt as a result of property- related transactions.
146. Step (7) is that Mrs Power suffered a loss in consequence of the very high rates of interest (the equity fee) for which she was liable under her borrowing from Valkyrie. I do not agree with this. She might have suffered such a loss if she had ever paid the interest. But she never has paid it, and is not liable to pay it. Mr Swain provided the £180,000 which was used to repay Valkyrie, and, although at that time Mrs Power owed Mr Swain £180,000, she was relieved of that liability (with the consent of Mr Swain) by the novation when she transferred the Old Rectory to Touchbray, and Touchbray, in place of her, became the debtor to Mr Swain for £180,000. Mr Bannister has said that her shares in Touchbray are worth less than they would have been if the debt which it assumed to Touchbray had been lower in amount. In my view that is too remote to be taken into account as a loss recoverable by Mrs Power on account of alleged misrepresentations by Mr Kehoe over a year previously. In any case, I cannot see how that particular argument could survive the transfer to Estateoval.
147. For all of those reasons I consider that Mrs Power’s claim for damages against Valkyrie on account of an alleged misrepresentation by Mr Kehoe that the Bank of Ireland would lend to her the money needed for the Old Rectory transaction fails.
148. She has also pleaded other alleged misrepresentations by Mr Kehoe. She says that he represented to her that Valkyrie was ‘flexible’ and that its rates were ‘competitive’. Virtually all of the reasons why I do not accept her case based on alleged misrepresentations that the Bank of Ireland would lend money to her also mean that a case based on these other alleged misrepresentations will also fail. I will not prolong this judgment by going through the points yet again.
149. I will, however, add that, if Mr Kehoe said that Valkyrie was ‘flexible’, that strikes me as true, and not a misrepresentation. Valkyrie was expensive, but that is looking at a different concept. Valkyrie would lend at very short notice, and it would lend to a borrower who would have had - indeed who had had - great difficulty in borrowing from lenders of a more mainstream character. That shows a lot of flexibility. As regards Valkyrie’s rates being ‘competitive’, I would certainly accept that they were higher than the rates charged by, for example, the Bank of Ireland to strong borrowers. But that is not the relevant comparison, and, if Mr Kehoe used the term ‘competitive’ it is not the comparison which he would have had in mind. He would have had in mind Valkyrie’s rates compared with the rates charged by other lenders which were willing to make high risk loans at very short notice. I have no idea whether Valkyrie’s rates were competitive in that market, but it would not surprise me if the y were, and there is no evidence on behalf of Mrs Power that they were not. Mr Parkin said in evidence that they were competitive. There is also no evidence that, if Mr Kehoe said that Valkyrie’s rates were competitive, that was not his genuine opinion at the time.
150. I am not entirely sure from the pleadings that, in relation to the loan of £110,000 which Valkyrie made to Touchbray in October 1995, a misrepresentation claim is made by Touchbray comparable to that which certainly is made by Mrs Power in relation to the earlier loan to her of £140,000. However, the evidence and arguments appeared to me to proceed on the basis that such a claim is made, and I will assume that one is. In my judgment the claim cannot succeed for most of the reasons which I have set out in relation to Mrs Power’s claim. With obvious adaptations those reasons are in most cases applicable to Touchbray’s claim also. I shall not go through the points one by one again, but there are some specific observations which I do wish to make.
151. Part of Touchbray’s case, as with Mrs Power’s case, is that the borrowing from Valkyrie resulted from a sequence of events which had begun with Mr Kehoe representing that the Bank of Ireland would lend the money which Touchbray required. The evidence does not begin to make this out. The loan from Valkyrie to Touchbray was made on 10 October 1994. There was virtually no evidence from the witnesses on the Power/Swain/Touchbray side of what had led up to the loan. There was evidence that six months earlier, in April 1994, Mr Swain had met Mr Kehoe. The documents show that on 19 April 1994 Mr Kehoe applied to the Credit Department of the Bank of Ireland for authority to lend £250,000 to Touchbray, and that on 4 May 1994 the Credit Department refused authority. Mrs Power’s witness statement contains several assertions about things which Mr Kehoe had said to ‘us’, but in her oral evidence she did not confirm this at all. She said that she was ill for much of the year, and was preoccupied further by the illness of her mother (who lived in Ireland). She said that she had nothing to do with the 10 October 1994 borrowing by Touchbray from Valkyrie. Mr Power says nothing about it in his witness statement, and he was taken ill before he was cross-examined about it.
152. Mr Swain was abroad from April or May 1994 onwards, and said that he played no part in the events which led to the borrowing from Valkyrie. In his witness statement he gave no evidence about his meeting with Mr Kehoe in April, thus making no suggestion in his evidence in chief that Mr Kehoe had made representations to him that the Bank of Ireland would make a loan. In his oral evidence under cross-examination he sought to say that Mr Kehoe had made such representations to him. The innuendo, I imagine, was that they somehow were part of a planned scheme which ended with Touchbray being forced to borrow from Valkyrie. I do not understand how Mr Swain could possibly suggest that. He accepted that he did not even know that the Valkyrie borrowing in October (six months later) was being made. Indeed, the precise events and decisions which led to Touchbray deciding to borrow £110,000 from Valkyrie are wholly unexplained by the evidence adduced on Touchbray’s behalf. Mrs Power says that it was not her decision. Mr Swain says that it was not his. Mr Power does not say that it was his. So whose decision was it? Perhaps Mr Torpy’s: he was in this country and was a director of Touchbray. But there is total silence from him so far as the evidence is concerned. The structure of Touchbray’s case generally does not survive examination, but on this part of it there is an enormous gap in the evidence which would be needed if it was going to begin to stand up at all.
153. It is worth adding that in June 1994 Mr Kehoe left the Kingston branch of the Bank of Ireland, where Valkyrie had its accounts with the bank, and moved to different functions at the bank’s offices in Slough. He says that, except in one respect, he had absolutely nothing to do with the October 1994 loan of £110,000. The one respect is that he recalls receiving a telephone call at Slough from Mr Power, who told him of the terms of the borrowing from Valkyrie and asked his opinion of them. Mr Kehoe thinks that he did a quick calculation in ‘back of an envelope’ fashion, and said that the terms were slightly better than the Bank of Ireland would have charged Touchbray if it had been willing to make a loan to Touchbray at all. He also said in evidence that, as he now remembers the telephone call, Mr Power made it after the loan of £110,000 had been agreed. He” wanted to know what Mr Kehoe thought of the terms, but he was not asking for advice before agreeing to them. There is no mention in Mr Power’s witness statement or his curtailed oral evidence of this or any other conversation with Mr Kehoe about the terms of the £110,000 loan. Mr Bannister has suggested to me that Mr Kehoe’s evidence on this point somehow helps Touchbray’s case. I cannot see that it helps it at all. Nor would it do so if Mr Power, before agreeing to terms quoted by Valkyrie, had asked Mr Kehoe for his advice about them, and Mr Kehoe had advised that they were acceptable. That would still not have supported a case that Mr Kehoe was an agent for Valkyrie.
154. The general thrust of Touchbray’s case is that Valkyrie should be liable in damages to it for alleged consequences of things which may have been said by Mr Kehoe. I do not believe that the case stands up as a matter of law even if some or all of the facts said to underpin it existed, but in any event the case fails utterly because Touchbray has not established the evidential basis without which the arguments do not even arise.
155. For the foregoing reasons I do not accept Touchbray’s claim for damages against Valkyrie based on alleged misrepresentations by Mr Kehoe.
156. In order to explain how this issue arises I need to go into some factual details which I have not described yet. The point arises because, although the transfer of the Old Rectory to Touchbray and the associated first and second charges of it by Touchbray in favour of, respectively, Valkyrie (to secure the loan of £110,000) and Mr Swain (to secure the debt of £180,000) were effected before Mr Godfrey registered his caution at the Land Registry, nevertheless they were registered at the Registry after Mr Godfrey’s caution became effective. Touchbray alleges that this late registration was the result of a breach of duty by Valkyrie’s solicitors, Worsdell & Vintner, that it caused loss to Touchbray, and that Valkyrie is liable to Touchbray for the loss.
157. I will give more details about what happened in connection with the registration processes below, but first I should explain the nature of the alleged loss. Touchbray asserts that, if the transfer of the Old Rectory to it had been registered before Mr Godfrey’s caution took effect on the Register, it would have repaid Valkyrie’s high interest loan at an early date and replaced it with a loan at a lower interest rate from another lending institution called Granville Trust. It says that, because of the caution, the Granville Trust loan could not go ahead. I think that it also says that, if it had borrowed from Granville Trust, the borrowing would have enabled the Old Rectory development to proceed. However, the effect of the caution was that the property became frozen in the half-developed state in which it still exists today.
158. In opposition to this, submissions were presented to me that, as a matter of law, it ought not to have made any difference whether Mr Godfrey’s caution was entered on the Land Register before or after the registration of the transfer to Touchbray. That may theoretically be so, but I am prepared to evaluate the general issue on the footing that, in practice whatever might have been the position in theory, the time at which the caution appeared on the Register did, so to speak, put a spanner in the works which would not have been there if the transfer of the freehold to Touchbray had been registered first. This does not mean that I accept that Touchbray has suffered the damage which it alleges it has suffered. It only means that I am prepared to accept that in practice the existence of Mr Godfrey’s caution might have made a difference to what Touchbray could do in connection with the Old Rectory.
159. I need to go into the facts in some detail at this point. Some of the matters which I set out now have already been mentioned in my general account of the facts, but some of them are newly recorded now.
(1) The two firms of solicitors involved in the Touchbray transfer and the Valkyrie mortgage loan of £110,000 were Minaides Robson (Mr Minaides) for Touchbray and Worsdell & Vintner (Mr Crowther) for Valkyrie. Minaides Robson were also handling the second charge which Touchbray was going to create in favour of Mr Swain for £180,000. The charge which matters for the purposes of this part of the case is the first charge in favour of Valkyrie, and in the account which follows I shall for the most part omit further references to the second charge in favour of Mr Swain.
(2) The position on the Land Register at the end of September 1994 was that Mrs Power was registered as the proprietor of the freehold title to the Old Rectory.
(3) The first contact between Mr Minaides and Mr Crowther was on 30 September 1994. Mr Minaides wrote to Mr Crowther saying that he understood that a transaction was agreed between their respective clients, and summarising the main elements in it. He concluded by suggesting that ‘we [that is Minaides Robson] lodge the Application because we will also transfer on completion the property to Touchbray Limited and we wish to deal with this matter as quickly as possible.’ By way of comment I add the following. The ‘application’ referred to must have been the application to the Land Registry to register the first charge which was going to be granted to Worsdell & Vintner’s client, Valkyrie. For the charge granted by Touchbray to Valkyrie to be registered the transfer of the freehold to Touchbray also had to be registered, and Mr Minaides was suggesting that he should attend to both registrations. In the event he did not. There is no document about it, but it must have become agreed or understood between the two firms that Worsdell & Vintner would effect the registrations. I add that Mr Minaides’ reference to wishing to deal with the matter as quickly as possible is by no means borne out by what followed.
(4) On 5 October 1994 a priority search certificate was issued by the Land Registry to Worsdell & Vintner. The applicant was Valkyrie. The certificate made no reference to any interest which Mr Godfrey claimed to have in the Old Rectory. The priority period expired on 16 November 1994. The legal background to this aspect of conveyancing for registered land is found in the Land Registration (Official Searches) Rules 1993. By rule 6 any entry on the register made within the priority period by one person (like, as it turned out, Mr Godfrey) could be postponed to another registration by another person (like Valkyrie) who had previously made a priority search, but the application for the registration of the interest of that other person (i.e. the person who had made the priority search) had to be made within the priority period. So, if Valkyrie’s first charge over the Old Rectory was to be fully protected by the priority search certificate of 5 October 1994, the application to register the charge had to be lodged by 16 November. The same applied to an application to register Touchbray’s freehold.
(5) On 7 October 1994, three days before the transfer and charge were completed, Mr Crowther wrote to Mr Minaides. By that date it must have become understood between them that Mr Crowther was going to deal with the registrations. He asked for confirmation that Mr Minaides would forward to him various documents which Mr Minaides had or would be obtaining and which Mr Crowther would need before the registration application could be made.
(6) On the same day Mr Minaides replied giving the confirmation requested.
(7) On 10 October 1994 the transfer to Touchbray and the deed of charge in favour of Valkyrie were completed.
(8) On 11 October 1994 Mr Crowther wrote to Mr Minaides: 'I look forward to hearing from you with the title deeds of the above property and other documents referred to in my letter of 7 October as soon as possible.’
(9) Before I go on with the factual account I should explain what would normally happen, and what Mr Crowther visualised would happen on this occasion. To be registered at the Land Registry a transfer normally requires to have had the stamp duty paid on it. I believe that Mr Crowther already had the documents he needed in order to send the transfer for stamping, but he did not have quite all of the documents which he would need to apply for registration at the Land Registry. His practice, which he told me was a normal practice of solicitors generally, was to get all the documents together first, then to send the transfer to the Inland Revenue for stamping, and then, when the transfer was returned from the Revenue duly stamped, to send it, the charge documents and the other necessary documents to the Land Registry with an application for the registration of the transfer and the charge. In the ordinary way there should have been comfortably enough time to do those things within the priority period.
(10) By. 2 November 1994 Mr Crowther had received nothing from Mr Minaides, and he wrote a chasing letter.
(11) On 3 November 1994 the Land Registry received Mr Godfrey’s application to register his caution. Neither Mr Minaides nor Mr Crowther nor their clients knew anything about that. Conversely, neither Mr Godfrey nor his solicitors knew anything about the transactions which had been completed on 10 October, and thus they did not know about the impending registrations of the transfer to Touchbray and the charge in favour of Valkyrie. When Mr Godfrey registered his caution there were still 13 days of the priority period to go. Mr Godfrey and his solicitors did not know that there was a priority period running. No-one had told them that Valkyrie had made its priority search on 5 October.
(12) On 8 November 1994 (a Tuesday) Mr Minaides sent the outstanding documents to Mr Crowther by recorded delivery. There is no record of when they arrived. Mr Crowther said in evidence that recorded delivery mail takes longer than normal mail (as to which I have no personal knowledge), and he did not think that he got the documents until the following week. I have my doubts about whether it took that long, but that is what Mr Crowther thinks.
(13) On 15 November 1994 Worsdell & Vintner completed the Inland Revenue form which needed to be sent to the Stamp Office. They must have forwarded it to the Stamp Office on that or the next day.
(14) On 16 November 1994 the priority period expired. The result was that Mr Godfrey’s application to register his caution would no longer be postponed to applications to register Valkyrie’s charge and Touchbray’s freehold title.
(15) On 17 November 1994 the Inland Revenue stamped the transfer. I do not know whether they returned it, to Worsdell & Vintner on the same day, but I am sure that they returned it then or a day or so later.
(16) On (1 think) 23 November 1994 (a date which I take from a manuscript note on what I think to be a page of the form sent to the Land Registry) Worsdell & Vintner sent the documents to the Registry with an application for them to be registered.
(17) On 16 December 1994 the Land Registry sent to Mrs Power, who was still the registered proprietor of the Old Rectory, a courtesy notice informing her of Mr Godfrey’s caution.
(18) As far as I know the Land Register still to this day records Mrs Power as the proprietor of the Old Rectory (although she claims no beneficial interest). Mr Godfrey’s caution is still in place despite efforts by Touchbray, Estateoval and Valkyrie to have it removed. I assume that there are outstanding applications for Touchbray, and after it Estateoval, to be registered as proprietor, for Valkyrie to be registered as holder of a first charge, and for Mr Swain to be registered as holder of a second charge. However, Mr Godfrey’s caution has stood in the way of those registrations being made.
160. Against that factual background Touchbray contends that Valkyrie owed to it a duty to secure that the transfer was registered within the priority period, and that Valkyrie, through the acts or omissions of its solicitors, Worsdell & Vintner in the person of Mr Crowther, was in breach of that duty. Touchbray claims that it has suffered loss as a result of the breach. I am not sure whether a similar claim is advanced by Estateoval, but I imagine not, since Estateoval had no interest in the Old Rectory at the time of the alleged breach of duty.
161. Although I accept one part of what Touchbray says about this part of the case, I do not accept the conclusion for which it contends.
162. In the statement of claim one way in which Touchbray puts its case is to say that there was an express contract between Valkyrie and Touchbray under which Valkyrie agreed in legally binding form that the transfer to Touchbray would be registered within the priority period. There is’, however, no evidence at all of such a contract, and, although the point was pleaded, I do not think that Mr Bannister advanced any submissions in support of it.
163. A different proposition, with which I agree and which, indeed, was not disputed by counsel for Valkyrie, is that, when Worsdell & Vintner agreed with Mr Minaides that they would take care of the registrations, including the registration of the transfer to Touchbray, they thereby assumed a common law duty to Touchbray. It was not a contractual duty, but rather a duty in tort to exercise reasonable care. That does not mean that Valkyrie owed a similar duty, or that Valkyrie would be liable if Worsdell & Vintner were in breach of their duty. I return to those points later.
164. For the moment I stay with the duty which was owed to Valkyrie by Worsdell & Vintner, and I consider the question of whether they were in breach of that duty. That issue was disputed before me. This is the aspect in which I agree with Touchbray’s contentions and do not accept Valkyrie’s contentions. In my opinion, when Worsdell & Vintner arranged with Mr Minaides that they would register Touchbray’s title, it became part of their duty to take reasonable care to have the title registered, if possible, within the priority period. They (in the person of Mr Crowther) knew about the priority period, and thus they knew that if the priority element in the search which they had carried out was going to serve its purpose, the transfer to Touchbray and the charge in favour of Valkyrie needed to be registered by 16 December 1994. If events had turned out in such a way that, even taking reasonable care, Worsdell & Vintner would not have been able to register the transactions in time, Worsdell & Vintner would not have been in breach of their duty to Touchbray (or to their own client, Valkyrie). But in my view, if Worsdell & Vintner had kept in mind the existence of the priority period, they reasonably could have achieved the registrations in time.
165. Mr Crowther gave evidence about this matter, and I suspect that he will disagree with what I say. He fairly points out that he followed normal conveyancing procedure, and he says that, if Mr Minaides had got the documents to him in reasonable time, the registrations would have been effected within the priority period. He feels that he was let down by Mr Minaides. I understand the point, and it does seem to me that there was unreasonable delay on the Touchbray side (although whether Mr Minaides was responsible for it I do not know). However, it must be remembered that Mr Minaides had no specific knowledge of the priority search, which had been conducted by Worsdell & Vintner on behalf of Valkyrie. I accept that Mr Minaides, as an experienced solicitor, probably assumed that Worsdell & Vintner had conducted a priority search on behalf of their client, but it remains the case that he did not know, whereas Worsdell & Vintner did. Mr Minaides certainly did not know the date on which the priority period would end.
166. The evidence suggests to me that Mr Crowther took his eye off this particular ball as-the priority period was approaching its close. He did not tell Mr Minaides about the period and emphasise that the forwarding to himself of the documents was becoming urgent. When the documents finally arrived I believe that there would still just have been time for the registrations to be effected in time, by departing from the normal procedure which assumed that there was plenty of time in hand. It did not occur to Mr Crowther to depart from his normal procedure. Also, there is a facility to arrange with the Land Registry for the priority period to be extended. If Mr Crowther had had the significance of the priority period in mind it would have been reasonable to expect him to use that facility.
167. Mr Crowther said in evidence that he knew nothing about Mr Godfrey, and that there was no reason to suppose that Mr Godfrey might register a caution within the priority period. So Mr Crowther had no reason to suppose that it would do any damage if the transfer and first charge were registered outside the priority period. That is true, but in my opinion it misses the point. A main purpose of making a priority search before a transaction is entered into is to protect against the risk that, although the search may show no adverse entries on the Register at the time when it was made, a new and unanticipated entry might come along after the search but before the transaction is registered. It defeats much of the purpose of a search in anticipation of a proposed transaction being a priority search if the transaction is not registered until after the priority period has expired.
168. Therefore I agree with Touchbray on the propositions (1) that Worsdell & Vintner, by agreeing to deal with the registrations, owed a duty of care to Touchbray, and (2) that on the facts Worsdell & Vintner were in breach of that duty. However, I do not consider that it follows that Touchbray is entitled to succeed on the claim which it, has brought. The critical point is that Touchbray has not sued Worsdell & Vintner: it has sued Valkyrie, and I do not think that it has a valid cause of action against Valkyrie.
169. I have already held that Valkyrie did not make a contract with Touchbray to register the transfer within the priority period. Further, I do not think that there is any basis in law on which Valkyrie can be vicariously liable to Touchbray for Worsdell & Vintner’s breach of duty. Mr Bannister said in argument that, because Worsdell & Vintner were Valkyrie’s solicitors, therefore Worsdell & Vintner’s acts were Valkyrie’s acts. I do not accept that that is correct, at least if it is expressed in so absolute a fashion. Worsdell & Vintner were not employees or servants of Valkyrie: they were independent contractors of Valkyrie. It is well established in the law of tort that, in general, a person is not vicariously liable to third parties for the tortious acts of his independent contractors. A person can be liable if he has himself been at fault in his selection of an independent contractor: no such case is advanced against Valkyrie here. A person can also be liable if he owes a duty to a third party and engages to perform the duty an agent who performs it in a manner which constitutes a breach of the duty. In this case (there being no contract about registration between Valkyrie and Touchbray), Valkyrie did not owe a duty to Touchbray, and in any event Valkyrie did not engage Worsdell & Vintner as its solicitors for the purpose (among other purposes) of registering Touchbray’s title to the Old Rectory. I agree with the way that Mr Piercy put it in oral argument. It was just something which was arranged between the two firms of solicitors that Worsdell & Vintner would handle all the registrations. The arrangement did not mean that Valkyrie undertook to register Touchbray’s title and that Worsdell & Vintner were Valkyrie’s agents to do it.
170. For that reason I do not think that Touchbray has any claim for damages against Valkyrie on account of Worsdell & Vintner’s failure to register Touchbray’s title within the priority period. I add, without going in detail into the point, that in any event I do not think that Touchbray has proved that it has suffered the type of loss in respect of which it seeks to recover damages. I said earlier that Touchbray’s case is that, but for the intervention of Mr Godfrey’s caution, it would have repaid the costly borrowing from Valkyrie and replaced it with a less costly borrowing from Granville Trust. I do not think that Touchbray’s evidence shows that that was so. The documents do contain a conditional offer of finance to Touchbray from Granville Trust, but there is absolutely no evidence about it on behalf of Touchbray, either from Mrs Power or from Mr Power or from Mr Swain. Granville Trust’s letter of offer is marked for the attention of Mr Torpy, so I imagine that he had been in contact with Granville Trust about it. However, there is no evidence of any sort from Mr Torpy. Neither from him nor from anyone else is there any evidence that, if (which is itself uncertain) Touchbray had satisfied the conditions of Granville Trusts’s offer, Touchbray would in fact have repaid Valkyrie and borrowed instead from Granville Trust. It might have done, but in my opinion a conjecture of that sort is not sufficient to found the claim for damages which Touchbray seeks to advance.
171. This damages claim by Touchbray fails. If it is advanced also on behalf of Estateoval, it fails in the case of that company as well.
172. The third argument advanced by Touchbray and Mrs Power (who, as guarantor of Touchbray’s indebtedness to Valkyrie, is potentially liable for the debt herself) is that they can invoke the principle that equity relieves against contractual penalties. They do not say that the principle relieves them of liability altogether, but they do say that it reduces the amount for which they are liable.
173. At this point I need to explain some features of the Valkyrie loan to Touchbray which I have not yet mentioned. The loan was expressed to be repayable after nine months, on 9 July 1995. When Touchbray made repayment (whether before, on or after the due date) it also had to pay an ‘equity fee’. The equity fee was calculated as the aggregate of monthly amounts for each month until repayment. These amounts were not payable monthly: rather, when the principal was repaid the accrued monthly amounts were payable also. The equity fee was in reality interest, and the effect was that on repayment the loan had to be repaid with interest which had accrued over the period until repayment. The accrual was on a simple interest basis, not compound interest. The monthly amounts which made up the equity fee were expressed to be £2,000 a month (corresponding to an annual interest rate of 21.81%). However, if the loan was not repaid on the due date the monthly amounts commenced to accrue at the higher figure of £3,000 a month (corresponding to an annual interest rate of 32.72%). It is important that the higher monthly accruals only applied to months after the due date for repayment: if Touchbray failed to repay on the due date there was no increase in the accrued amount of interest (or equity fee) for the first nine months.
174. On behalf of Touchbray and Mrs Power, Mr Bannister submits that the increase in the monthly accruals if the loan is not repaid on time is a penalty and therefore is unenforceable. Since the increase is £1,000 a month, and over six years have now passed since it took effect, a significant amount now turns on this issue. I do not agree with Mr Bannister’s submission.
175. He refers me to the well-known words in the speech of Lord Dunedin in Dunlop Pneumatic Tyre Company Ltd v. New Garage and Motor Company Ltd [1915] AC 79 at 86: ‘The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage.’ The Dunlop case is of’ fundamental importance, and so is Lord Dunedin’s dictum. Nevertheless I do not find much assistance in it for the present case where the essence of the matter concerns, not the amount of a loss, but rather the rate of accrual of interest over time. In the Dunlop case the tyre manufacturers had a contract with the garage for supply of tyres. The contract contained a number of contractual stipulations binding on the garage. One of them was for observance of Dunlop’s list prices on resales to customers. There was a provision that £5 was to be paid by the garage as ‘liquidated damages’ for each tyre sold in breach of the clause. The House of Lords held that the clause was enforceable: it was not a penalty. The circumstances of the present case are very different, and I would not expect the members of the House of Lords to have in mind an issue comparable to that with which I am concerned.
176. The effect of Valkyrie’s contractual terms was that the amount of money which Touchbray owed to it increased from month to month as time passed and the loan was not repaid. On the due date for repayment (9 July 1995) Touchbray owed to Valkyrie £131,000 (principal of £110,000, plus the ‘equity fee’ of £18,000 which had accrued over nine months, plus a ‘repayment fee’ of £3,000.) One month later Touchbray owed to Valkyrie £134,000, because the equity fee had accrued for one more month and had gone up by £3,000. The increase was wholly attributable to one month’s passage of time after the due date. It did not mean that, because Touchbray failed to repay Valkyrie on the date provided for in the loan agreement, the amount which it owed to Valkyrie on the due date was increased. It would have been different if failure to repay on the due date had had the effect of retrospectively increasing the accrual of the equity fee for the nine months which had already passed, so that by reason of infringing the contractual provision for repayment on time Touchbray’s immediate liability to Valkyrie jumped up from £131,000 to £140,000. That would have been a penalty, and the increase of £9,000 (reflecting a retrospective increase of £1,000 a month for nine months) would have been unenforceable.
177. I mention in passing that cases recognise that the effect which I have just described can be avoided if the agreement is drafted so as to provide for the higher rate of interest to apply throughout, but with a proviso that it will be reduced if repayment is made on time. The first Valkyrie loan for the Old Rectory (the one to Mrs Power made in October 1993) was drafted in that way, and incidentally provided for much higher monthly accruals than did the later loan to Touchbray. Mr Bannister does not now argue that the earlier loan was affected by the law concerning penalties.
178. Reverting to the loan to Touchbray, Mr Bannister submits that, although the increase in the monthly rate of accrual of the equity fee was prospective only from the due date onwards’ it was still stipulated ‘in terrorern’ of the borrower (Lord Dunedin’s expression used in the Dunlop case). I think that that is too dramatic a description. I would accept that the feature that the monthly accrual would increase for the future if the loan was not repaid on time operated as an incentive to the borrower to repay on time. I accept that it was likely to have been intended to operate as an incentive: I believe that Valkyrie regarded itself as being in the business of making short term loans, and would have preferred to be repaid on time rather than to have the loan continue, even with the equity fee now accruing in its favour at an increased rate.
179. I may be wrong, but I believe that Mr Bannister contends that the increase in the rate of accrual is an unenforceable penalty regardless of whether there is a commercial justification for it. I have a note of him saying in oral argument that ‘whether or not Valkyrie’s rates were competitive is irrelevant on the question of penalty.’ That argument, or one very close to it, seems to me to prove too much. Suppose that a trader conducts business on standard terms which provide that invoices rendered by him to customers are due for payment within 30 days, and that if they are not paid on time interest starts to accrue at (say) 10%. Provisions of that sort are common, and it is to my mind inconceivable that they could be unenforceable because of the law about penalties. But they clearly create an incentive to the customer to pay on time, and they have essentially the same effect as the provision in Valkyrie’s loan agreement. They allow the customer credit without interest for a time, and then credit at a rate of interest after that time. Valkyrie’s terms allowed Touchbray credit at one rate of interest for a time, and then credit at a higher rate of interest after that time.
180. A different argument would be that the increase in the rate of accrual should be treated as a penalty because it was so large and so harsh that it could not possibly be justified on commercial grounds. A problem with this argument is that Valkyrie was plainly operating at the high risk, high rates, end of the market, and I am not willing to conclude on my own experience, without any evidence in support of the conclusion, that the interest structure which Valkyrie adopted was uncommercially costly to the borrower. The only evidence which addressed the point was to the opposite effect. Mr Parkin, who clearly has considerable experience of money-lending companies, said that in his opinion Valkyrie’s rates were competitive. Mr Kehoe said that the rates which Valkyrie charged to Touchbray were comparable to those which, as he thought, the Bank of Ireland would have charged if it had been willing to lend to a borrower such as Touchbray.
181. Touchbray was plainly a risky borrower, as subsequent events have shown. It had no assets other than the Old Rectory, which was an unfinished development site yielding no income. Its borrowing was guaranteed by Mrs Power and Mr Torpy, but Mrs Power’s personal covenant was unlikely to be good for a debt of £110,000 plus equity fees and a repayment fee. I do not know about Mr Torpy, but I would not expect that Valkyrie regarded his guarantee as significantly reducing the level of risk attached to the loan to Touchbray. Although the precise way in which Touchbray decided to accept the loan from Valkyrie is unclear (Mr Torpy, with or without some discussion with Mr Power, being the most likely decision-taker), I assume that Touchbray went into the loan with its eyes open. The Powers or companies associated with them had borrowed from Valkyrie on several occasions before. They knew that its rates were high. Touchbray nevertheless decided to go ahead with the borrowing. I do not think that it can now say with any conviction that the provision for an increase in the monthly accrual rate was so harsh as to be treated as a penalty on that ground.
182. I have one other point to make about the severity or otherwise of Valkyrie’s interest terms. For all that the monthly accrual rates corresponded to decidedly high rates of interest, particularly after Touchbray failed to repay on the due date, the interest was simple interest, not compound interest. Given the long period for which the loan has not been repaid this makes a lot of difference, and is a considerable advantage to Touchbray and its guarantors. Most lending institutions would charge compound interest. Granville Trust, for example, would have done so. If Touchbray had borrowed £110,000 from another lender at a lower rate of interest than Valkyrie charged but at compound interest, and if Touchbray had not yet repaid that lender (as it has not yet repaid Valkyrie), the amount owing would by now be very much higher than the amount which is owing to Valkyrie.
183. Finally there are two authorities to which I wish to refer before I leave this part of the case. The first is Wallingford v. Mutual Society (1880) LR 5 App Cas 685, a decision of the House of Lords. Mr Bannister says that the case is authority for the proposition that, in the case of a mortgage loan (which Valkyrie’s loan to Touchbray was), any provision for a prospective increase in the interest rate if a contractual date for repayment is missed is a penalty and unenforceable. I do not agree. Most of the speeches are concerned with points of litigation practice and procedure, and I find it difficult to extract from the report exactly what the facts were and how the penalty issue arose. However, I think that the Society had made a loan to Mr Wallingford on terms that it was repayable by quarterly instalments over 20 years, probably with interest on the outstanding balance although that is not clear. The terms also provided that, if a quarterly instalment was not paid when it was due, the Society could call for all of the outstanding balance to be repaid in full. Mr Wallingford failed to pay ‘one ‘or more of his instalments, and the Society invoked the provision which accelerated payment of the balance. He argued that the provision was an unenforceable penalty. The House of Lords held that it was not. In the circumstances I do not think that the case supports Mr Bannister’s case. If anything it is an authority against him.
184. The second case is the much more recent decision of Colman J in Lordsdale Finance PLC v. Bank of Zambia [1996] QB 752. A substantial loan between two financial institutions provided that, if the borrower (the Bank of Zambia) defaulted on repayment, the interest rate was increased for the period of default. The borrower did default, but argued that it was not liable for the increase in the amount of interest on the ground that it was a penalty. So the question was in principle the same as the one in the present case. Colman J did not accept that the additional amount of interest was a penalty. Naturally Mr Piercy and Mr McLaren on behalf of Valkyrie rely heavily on the decision. I think that it does support Valkyrie’s case, but I ought to record that the increase was only the addition of an extra 1%. The increase in the present case was considerably greater than that.
185. Colman J reviewed the authorities more fully than I have done in this judgment. I have found his review, and indeed the whole of his evaluation of the penalty issue in a contemporary context, most illuminating and helpful. He stressed the importance of the distinction between a retrospective increase in the interest rate on default and a prospective increase. He states his conclusion as follows:
In my judgment, weak as the English authorities are, there is every reason in principle for adopting the course which they suggest and for confining protection of the creditor by means of designation of default interest provisions as penalties to retrospectively-operating provisions. If the increased rate of interest applies only from the date of default or thereafter there is no justification for striking down as a penalty a term providing for a modest increase in the rate. I say nothing about exceptionally large increases. In such cases it may be possible to deduce that the dominant function is in terrorem the borrower.
In this case, although the increase was considerably larger than the increase in the case before Colman J, I am not prepared to deduce that its dominant function was to intimidate Touchbray into paying on time. I refer to my discussion some paragraphs ago of the sort of lender which Valkyrie was and the sort of borrower which Touchbray was.
186. I therefore do not accept that the part of the accrued debt owed by Touchbray to Valkyrie which represents the increases in interest after the due date for repayment is not enforceable. In my view the full amount of the debt is payable in accordance with the terms of the contract.
187. I believe that that concludes what I have to say about claims by the claimants (Mrs Power, Touchbray, and Estateoval) in the Power v Valkyrie action. However, before I can finish everything that I have to decide in that action there are two counterclaims with which I must deal.
188. Valkyrie claims that it is entitled to damages against Mrs Power and Touchbray on either or both of two legal justifications each of which arises out of the same set of correspondence. I have referred under an earlier sub-heading (‘Touchbray’s claim against Valkyrie based on breach of duty by Valkyrie’s solicitors’) to some of the correspondence which passed between Minaides Robson and Worsdell & Vintner in connection with the registration at the Land Registry of Touchbray’s title and Valkyrie’s legal charge. In that connection I was concerned with the claim on behalf of Mrs Power and Touchbray that, because of alleged breaches of duty by Worsdell & Vintner, they were entitled to damages against Worsdell & Vintner’s client, Valkyrie. The counterclaim with which I am now concerned is one under which Valkyrie claims that, because of things said by Minaides Robson, it is entitled to damages against Minaides Robson’s clients, Mrs Power and Touchbray.
189. In my judgment the counterclaim fails. I will now describe how it arises and why it fails.
190. By 3 October 1994 Worsdell & Vintner and Minaides Robson were in correspondence about the proposed loan of £110,000 by Valkyrie to Touchbray. In a letter of that date one item which Worsdell & Vintner raised was expressed as follows: ‘Please let us have full details of any matters which have arisen since our last investigation of the title to the property which would adversely affect the value of the property.’ Minaides Robson replied on 4 October, saying on this point: ‘6. We are not aware of any changes that have been made since the registration of the title.’ The registration referred to was the registration of the title of Mrs Power, acquired on the purchase in her name in October 1993. Worsdell & Vintner pressed for more on 5 October 1994: ‘We note your comments in paragraph 6 but please specifically confirm that there have been no changes which would adversely affect the title to or value of the property.’ Mr Minaides replied by a manuscript fax the same day: ‘...we as solicitors can only confirm something which is within our knowledge. Therefore our answer stands as stated in paragraph 6 of our letter of 4-10-1994.’
191. That was the end of the correspondence which is relevant to this issue. The transaction went ahead, and in particular Valkyrie made its loan to Touchbray, secured by a first legal charge over the Old Rectory. But then, before Valkyrie’s legal charge was registered, Mr Godfrey lodged his caution and the priority period expired. Those events are alleged by Valkyrie to have had a serious impact on its ability to recover its loan, with interest (the equity fee) and the repayment fee, and therefore to have caused Valkyrie to suffer loss. Valkyrie says that, at the time of the correspondence, Mr Godfrey must have been asserting that he was entitled to a 50% interest in the Old Rectory, that Mrs Power, Touchbray, and Minaides Robson knew that Mr Godfrey was asserting that, and that the facts about Mr Godfrey’s claim were concealed from it.
192. The first way in which the counterclaim is formulated is that Mrs Power and Touchbray, through their solicitors Minaides Robson, untruthfully and fraudulently misrepresented to Valkyrie that there was no problem over the title, whereas they knew that there was a problem. In my judgment this argument fails. There is no evidence of fraud. Mr Minaides said that he did not know about Mr Godfrey and his claim to a beneficial interest in the property. Mr Minaides is a solicitor, and I unhesitatingly accept -what he says. He answered Worsdell & Vintner’s questions on the basis of what the knowledge of himself and his firm was. It is possible that his knowledge was incomplete, but I do not accept the suggestion that he gave information which he knew to be untrue. There is the further point that, just as I have held earlier that there is no justification in law for regarding Valkyrie as vicariously liable for any breach of duty on the part of its solicitors, so there would be no justification in law for regarding Mrs Power and Touchbray as vicariously liable for what was said by their solicitors, even if it had been fraudulently untrue. Conceivably in that situation Valkyrie might have had a claim in tort against Minaides Robson Gust as on the issue of failure to register the documents within the priority period Touchbray might have had a claim in tort against Worsdell & Vintner), but no such claim has been put forward by Valkyrie.
193. The position would be different if it could be shown that, although Minaides Robson gave what they believed to be correct answers to Worsdell & Vintner, they were supplied with false information by Mr and Mrs Power, who fraudulently wished the information to be passed on to Valkyrie’s solicitors. There is no support for that in the evidence. The correspondence speaks for itself. Minaides Robson answered on the basis of what was within their knowledge as solicitors. They did not go back to Mr and Mrs Power to ask what the answer to Worsdell & Vintner’s question was, and there is no basis on which I can find that Mr and Mrs Power deviously planted false information on this matter.
194. The second way in which the counterclaim is formulated is by reliance on section 183 of the Law of Property Act 1925. Subsection (1) refers to: ‘Any person disposing of property ... for money or money’s worth to a purchaser [this would include any person granting a mortgage to a mortgagee] ...who (a) conceals from the purchaser [mortgagee] any... incumbrance material to the title ... with intent to defraud ...`. Subsection (2) enacts that any such person is liable to an action for damages by the purchaser [or mortgagee]. In my judgment Valkyrie’s claim under this section fails for two reasons.
195. First, just as there is no evidence of fraudulent misrepresentation, so in my view there is no evidence of anything being concealed from Valkyrie, still less being concealed ‘with intent to defraud’. I reject any suggestion (if one is advanced) that Mr Minaides had an intent to defraud, and I am not prepared to infer that Mrs Power had any such intent. She may well have known that Mr Godfrey was extremely dissatisfied, and she may also have known that she, under the guidance to some degree of her husband, had taken unfair advantage of Mr Godfrey. But that does not mean that she must have known that he was intending to assert a claim to a 50% interest in the property. Indeed, although I consider that Mr Godfrey had a good claim, the evidence suggests to me that, when he advanced it by placing his caution on the Land Registry, that came as an unexpected and most disagreeable shock to Mr and Mrs Power. Section 183 could only begin to apply if they knew what Mr Godfrey was going to do, but fraudulently kept quiet about it while Valkyrie parted with its loan of £110,000. There is no evidential basis for me to proceed on that basis.
196. Second, and on a much more technical level, the section only applies if what is concealed is an ‘incumbrance’ on the property. I agree with Mr Bannister that a claim to a 50% equitable interest in a property would not be regarded as an incumbrance in the usual sense, and that it is not brought within the meaning of the term by the definition in section 205(1) of the 1925 Act.
197. For those reasons I reject Valkyrie’s counterclaim for damages against Mrs Power and Touchbray.
198. Valkyrie’s other counterclaim, however, succeeds. Under the loan agreement of 10 October 1994 Touchbray is long overdue in repaying the £110,000 to Valkyrie, plus the accrued equity fee (representing interest) and the repayment fee. Given my various decisions so far I do not think that any defence is available to Touchbray. Valkyrie is therefore entitled to judgment against Touchbray for the amount which, at the date of judgment, is contractually due. Mrs Power has guaranteed Touchbray’s indebtedness, and Valkyrie is entitled to judgment against her as well. Mr Torpy is also a guarantor, but Valkyrie has not brought a claim against him.
199. I have at last reached the end of the numerous contested issues which I have to decide in this judgment. There are unfortunately still several loose ends to be sorted out, and some of them might prove to be difficult. For example: what is the relationship, and what are the priorities, between Mr Godfrey’s 50% beneficial interest and (1) Valkyrie’s first charge, (2) Mr Swain’s second charge? Who is the owner of the other 50% beneficial interest? Is it Touchbray, or Estateoval, or Mrs Power? What should be done about the Old Rectory? In Mr Godfrey’s Amended Particulars of Claim he sought an order that the property be sold with him having conduct of the sale. There was no argument about that, and plainly I cannot make an order to that effect without further argument. I suppose that there is a chance that the various parties may be able to come to an agreement in the light of this judgment.
200. The right course for me at this stage is to hand down this judgment, and to adjourn further consideration of the additional issues which arise for them to be considered by the parties in the first instance and then to be restored for further hearing.
201. I wish to conclude by expressing my gratitude to all the advocates in the case, including Mr Godfrey who acted as advocate for himself, for all the assistance which they provided to me at all stages.