Queen's Moat Houses Plc & Anor v Capita IRG Trustees Ltd

A contractual definition of value applies to a security withdrawal clause unless the subject or context is inconsistent with it. A chargor’s contractual right to require release of charged property does not, by itself, make an otherwise fixed charge floating. The legal characterisation of a charge is a question of law, not of the parties’ mistaken expectations. Estoppel by convention cannot contradict clear contractual language without very exceptional circumstances and convincing proof of a shared assumption.

Queen’s Moat Houses Plc and its subsidiary sought a declaration concerning a trust deed securing debenture stock. The deed allowed charged property to be withdrawn on substitution of property or money of equal value, but defined value so that no value was attributed to a leasehold expiring before the specified date. The lease of the Sloane Property fell within that definition and therefore had a contractual value of nil.

The trustees opposed withdrawal without payment of the property’s open-market value. They relied on the commercial context, the intended fixed charge, and estoppel by convention. The issues were whether the definition applied to the withdrawal clause and, if so, whether the trustees had established an estoppel preventing reliance on it.

1. Construction. The definition of value and its proviso were clear and unambiguous. They applied to withdrawal under clause 11. The claimants could therefore withdraw the Sloane Property on payment of the transaction expenses only.
2. A contractual right to require release of charged property is distinct from a right to deal with or dispose of charged property free from the charge without reference to the chargee. The former is not inconsistent with a fixed charge, particularly where the right ends when the security becomes enforceable. The court distinguished the principle stated in Agnew v CIR [2001] 2 AC 710.
3. The parties’ intentions governed their mutual contractual rights and obligations. They did not determine whether the resulting charge was legally fixed or floating. That characterisation was a question of law, as illustrated by Smith v Bridgend CBC [2002] 1 BCLC 89.
4. The commercial purpose of protecting stockholders could not justify reading words into the proviso or disapplying its clear effect. The deed contemplated that a short leasehold might be released for nil value, subject to the contractual limitations, including the cessation of withdrawal rights on enforcement.
5. Estoppel. Because the written terms were clear, an estoppel by convention would require very exceptional circumstances and convincing proof of a shared assumption equivalent to the proof required for rectification. Applying the principle stated in T&N Ltd v Royal & Sun Alliance [2004] 2 LLR 106, the trustees had no sufficient evidence of any communicated common understanding about clause 11 or the proviso.

The claimants were entitled to the relief sought.

First-instance decision. No prior appellate decision is stated in the judgment.