Folgender Holdings Ltd & Anor v Letraz Properties Ltd & Ors

Specific performance will generally be granted where a lender has made the loan and has a contractual entitlement to security. A later contract entered into by the debtor does not, without more, prevent enforcement of the earlier obligation. The court must nevertheless consider all the circumstances because specific performance remains discretionary.

Where the agreement plainly contemplates valuable registered security, registration may be an implied contractual requirement. Evidence that compliance is impossible must be cogent and unequivocal. An oversight right ordinarily requires information reasonably necessary for oversight, rather than every document concerning the project. An obligation to account may arise when a development is sold even if payment is deferred until related developments are also sold.

The claimants sought summary judgment under Part 24, strike-out relief and related orders against Letraz Properties Ltd. The claim arose from a £10 million interest-free loan agreement under which the lender was to receive second charges over two properties and 30 per cent of defined net profits.

The defendants accepted the contractual entitlement to a charge and to information, but disputed the availability and terms of specific performance, the requirement for registrable security, the scope and timing of accounting obligations, and the claimants’ entitlement to an injunction. During the hearing they also sought, very late, to amend the defence to rely on further discretionary objections.

1. Late amendment. An application to amend made part way through a summary-judgment hearing is properly treated as a very late application. The respondent must put forward its best case and seek permission to amend when the summary-judgment application is heard. The informal application to amend was refused because no explanation for the delay was given and the amendment would have caused serious prejudice.
2. Specific performance of security. Specific performance is ordinarily appropriate where the loan has been made and the lender has an enforceable contractual right to security. The court should respect the hierarchy of obligations, but there is no general rule preventing enforcement merely because a later contract has created competing rights. The subsequent EFG charge did not outweigh the prior obligation to Brustorm.
3. The fact that compliance would place the defendants in breach of another contract did not establish that they lacked power to comply. Evidence of impossibility had to be cogent and unequivocal. The defendants had not shown that registration of a second charge was impossible, and specific performance was ordered.
4. The loan agreement, construed in context, required the second charge to preserve valuable security. The first charge was therefore to be limited to the existing £7.5 million borrowing. Section 49 of the Land Registration Act 2002 would prevent further advances under the first charge taking priority after notice of the second charge.
5. An injunction was justified by the defendants’ prior failure to provide the charges and their conduct in the litigation. An undertaking in lieu of an injunction would be accepted.
6. The contractual oversight right entitled the claimants to information reasonably necessary to oversee the redevelopment. It did not require disclosure of every document or information described as full and proper. The appropriate material included management reports, programmes, cost information, professional-team reports and banking and marketing information, subject to relevance and proportionality.
7. The obligation to account for net profit arose for Hamilton Terrace no later than its sale. Calculation of profit was distinct from the later obligation to pay the aggregate profit share after both properties had been sold. The claimants were entitled to a supported calculation and appropriate documents, and to a summary of relevant debit items for Chesterfield Hill.
8. The claimants were entitled to judgment on the application. A conditional order under Practice Direction 24 was inappropriate.