South Bank Hotel Management Company Ltd v Galliard Hotels Ltd & Ors

This first‑instance judgment decides a suite of interrelated disputes arising from an agreed development and financing structure for the Park Plaza County Hall Hotel and a low‑rise annex (the "Annex"). The court addressed (i) the proper construction of a 2004 freehold sale contract (the "FSC"), (ii) whether that written contract was capable of rectification, (iii) claims in equity for breach of trust and knowing receipt, (iv) directors' duties and related tort claims, (v) limitation issues including s32(1)(b) Limitation Act 1980 and s21 Limitation Act exceptions, (vi) whether the Annex lease and underlease were validly executed as deeds, and (vii) certain contract claims arising under the Room Leases.

The judge concluded that the FSC, on ordinary and contextual construction, was an agreement to transfer the whole registered freehold title to the management company (SBHMC). There was insufficient evidence of any continuing outward common intention to exclude the Annex from the FSC, so rectification failed.

The bulk of SBHMC's claims (breach of trust, FSC contract claim, inducing breach, conspiracy, knowing receipt and related torts, and much of the directors' duties claim) were dismissed as statute‑barred or otherwise failing on limitation grounds. The court held that neither s32(1)(a) nor s32(1)(b) operated to postpone limitation: there was no deliberate concealment of the operative facts by the defendants and no applicable fraud exception. Section 21 Limitation Act arguments (fraud exception and recovery of trust property) were rejected on the facts.

On execution of the Annex lease and underlease, the court found the signature facts as to who physically signed; but, applying company execution rules, held that s44(5) Companies Act 2006 (the statutory deeming in favour of purchasers for value in good faith) treated the leases as duly executed for the protection of purchasers, so the leases remained effective in law. A limited rectification of the underlease was ordered only to correct an obvious RPI indexing miscalculation.

Procedurally significant principles applied include the orthodox unitary approach to contractual construction (Wood/ABC), the narrow tests for corrective construction (Chartbrook), the established equitable requirements for rectification (FSHC), and Limitation Act s32 and s21 jurisprudence. The practical effect is that the majority of SBHMC’s relief was refused, Lodgeshine’s rent claim succeeded (subject to calculation and the rectified RPI formula) and the registered leasehold interests were not expunged.

The dispute arose from a 2004 financing and ownership structure for the Addington Street site. Investors bought leases of individual rooms in a hotel to be developed; a management company (SBHMC) was to operate the hotel and to receive the freehold of the site for £1 once certain guaranteed rental periods expired. Later, following Park Plaza’s requirement for conference facilities, an Annex was incorporated into the hotel scheme. In June 2008, before transfer of title to SBHMC completed, Galliard Hotels granted a 999‑year lease of the Annex to Lodgeshine and Lodgeshine granted a 15‑year underlease (a rack rent) to SBHMC (the "Annex Lease Scheme"). SBHMC later received the freehold (2014) but alleged the Lease and Underlease were the product of a scheme that unjustly deprived it of value. SBHMC issued claims in contract, trust, equity and tort; Lodgeshine pursued a rent claim.

• Nature of the proceedings: first instance, multi‑party claims including breach of trust, breach of the FSC, directors’ duties, knowing receipt, inducing breach, unlawful means conspiracy, and challenge to validity of the Lease and Underlease; a separate related rent claim by Lodgeshine for unpaid rent under the Underlease.
• Issues framed: (i) construction of the FSC and whether its terms were susceptible to corrective construction or rectification to exclude the Annex; (ii) factual origin and purpose of the Annex Lease Scheme and the directors’ state of mind; (iii) whether defendants deliberately concealed material facts so as to engage Limitation Act s32(1)(b); (iv) whether limitation was extended by s21(1) Limitation Act 1980 (fraud and recovery of trust property); (v) whether the Lease and Underlease were validly executed as deeds or otherwise effective; (vi) whether Room Leases gave SBHMC enforceable rights to the Annex; and (vii) the correct RPI indexing of rent.
• Reasoning and outcome summary: the FSC was professionally drafted and defined the Property by reference to a single registered title; construction and the factual background led to the conclusion that the FSC was intended to convey the whole registered site. The court found no outward expression of a continuing common intention to exclude the Annex and, accordingly, rectification failed. On limitation, s32(1)(b) did not extend limitation because the alleged concealments were not deliberate in the statutory sense and key persons did not know an executed FSC existed when correspondence in 2020–21 indicated none was found. Section 21 exceptions (fraud or recovery of trust property) did not save SBHMC’s time‑barred claims on the facts. The Room Lease claim was time‑barred: the grant of the Annex Lease was the discrete cause of action and not a continuing breach that extended the accrual date. The alleged formal defects in execution of the Lease and Underlease did not expunge those registered legal interests because s44(5) Companies Act 2006 protects purchasers for value in good faith and the evidence did not show lack of good faith; accordingly the registered leases remain effective in law. The court ordered limited rectification of the RPI formula in the Underlease as an obvious mistake, allowed Lodgeshine’s rent claim subject to recalculation under the corrected formula, and dismissed the Main Claim.

The judgment applies orthodox contractual construction principles, limits the circumstances in which limitation is postponed by concealment, and confirms the protective effect of the CA 2006 execution deeming in favour of purchasers for value in good faith.

This first‑instance claim is dismissed overall. The court held (i) the FSC, properly construed, was an agreement to transfer the entire registered freehold; (ii) there was no outward common intention to exclude the Annex and rectification of the FSC fails; (iii) the majority of SBHMC’s claims (breach of trust, FSC contract claim, inducing breach, conspiracy, knowing receipt and large parts of the directors’ duties claim) are time‑barred or otherwise fail because s32 Limitation Act exceptions did not apply and s21 exceptions were not established on the facts; (iv) the Room Lease claim is time‑barred; (v) although signature irregularities were found, s44(5) Companies Act 2006 treats the Lease and Underlease as duly executed for the protection of purchasers in good faith, so registered leasehold interests remain effective; and (vi) a narrow rectification of the underlease’s RPI formula was ordered to correct an obvious indexing mistake. Lodgeshine’s rent claim succeeds subject to calculation under the corrected formula. The court therefore refused the principal remedies sought by SBHMC and upheld the registered leasehold encumbrances in law.