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The court decided that sums held by liquidators were secured by the charge over the property and could be returned to the trust company to be distributed in accordance with the terms of the trust. This is another case where mainly foreign investors have lost the majority of their investment in a large-scale residential development. Gary Blaker QC at Selborne Chambers, leading counsel for the first respondent, considers the judgment.
Re Pinnacle (Angelgate) Ltd (in liquidation)  EWHC 141 (Ch)
This is another case where mainly foreign investors have lost the majority of their investment in a large-scale residential development. As a result of the case they will be able to recover between 20% and 25% of their invested sums.
In this case, the liquidator held nearly £5m from the proceeds of sale of the development site in Manchester. The court was asked to consider whether it should be distributed by the liquidators or by a trust company which was formed to hold the investor’s deposits.
In interpreting a term of a charge over the property the court had to consider whether the charge secured the net proceeds of sale. In holding that they did, it ensured the monies would be transferred swiftly to the trust company and could be distributed to the individual investors.
The case also provides a useful reminder that in investing in this type of scheme the investors are deemed to have seen their money as being put into a ‘common pot’. Thus, the court was readily content to not apply the ‘first in, first out’ rule in ‘Clayton’s Case’ (Devaynes v Noble: Clayton's Case (1816) 1 Mer 529, 572). The sums were distributed on a pro rata basis according to the investment made in the scheme. It is another reminder that the rule in Clayton’s Case will be easily displaced and that it could lead to significant unfairness.
The case concerned a proposed large-scale residential development known as Angelgate in Manchester. Pinnacle (Angelgate) Limited (Pinnacle) purchased the development site for £6.2m plus VAT on 23 January 2015. There were to be two tower blocks and units were marketed primarily internationally to investors in Asia.
Pinnacle put no money into the purchase, instead relying solely upon deposits being provided by the investors. Deposits were as large as between 50% and 80% of the purchase price. The total sum raised by the deposits was £32m.
Unfortunately, the development never progressed beyond preliminary groundworks and in September 2017 administrators were appointed over Pinnacle. The possibility of building the towers was rejected and the land was sold for £5.2m.
The issue for the court was how this sum was to be distributed. The liquidators claimed that they were entitled to distribute the sums to individual investors under equitable liens. The trust company which had provided the money to Pinnacle claimed to be entitled to the money and for it to be able to distribute to the investors on a pro rata basis. The liquidators had initially claimed that the monies should be applied on a ‘first in, first out’ basis.
The court examined the contractual relationship between the investors and Pinnacle. Each purchaser had a sale agreement for the purchase of a long leasehold in a flat. The deposits were to be paid to the trustee and held as stakeholder. The purchasers had a right to rescind if completion had not taken place by the longstop date at the end of May 2017.
A charge was entered into which secured the funds held by the trust company. The court held that as the flats had not been built by 31 May 2017, the deposit was repayable. The charge secured ‘the property “for” the funds currently or at any time in the future, from time to time credited to the Designated Account’ (the designated bank account). The judge held that it was arguable that this referred to any obligation to repay funds. He went on however to hold that a further clause in the charge which secured ‘the obligations on the part of [the Company] incidental to the development and letting of the Property in the manner set out in the [Sale] Agreements’, covered the repayment of the deposit which he held was incidental to the development of the property.
Thus, the sums held by the liquidators were secured by the charge and could be returned to the trust company.
The judge considered that this interpretation was consistent with the principles set out by the Supreme Court in Arnold v Britton and others  UKSC 36. It was also consistent with the trust account being used as a ‘common pot’.
The court then went on to consider whether the rule in Clayton’s Case could apply and held that it did not. The judge said there was no room for it to apply. In the circumstances the sums received by the trustee are to be distributed in accordance with the terms of the trust, namely being on a pro rata basis.
Since taking silk Gary Blaker has continued to develop his practice in all aspects of property law, property damage, professional negligence and commercial chancery litigation. In addition to landlord and tenant and real property cases, he is experienced in property damage, professional negligence and civil fraud claims. His versatility often leads him to work outside mainstream property law. In Re Pinnacle he was leading counsel for the first respondent.
Interviewed by Kate Beaumont.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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