HT-2021-000466 - [2024] EWHC 2110 (TCC)

Interest claim 3 is the main finance claim. Under this claim, IRDL claims finance costs equating to the actual incurred rates and costs from the date when the remedial works were completed until the date of the consequentials hearing before me, 31 July 2024.

At the beginning of the hearing on 31 July the amount claimed was £1,135,616.37. However, it was recognised that a mistake was made in the treatment of finance costs relating to the Sales Fees Claim, and after the hearing the claim was reduced to £1,121,560.05.

There is an overlap between claims 3 and 4, under which an additional £189,232.96 is claimed.

In addition, under both claims 3 and 4 a separate calculation is carried out in respect of finance costs relating to the Sales Fees Claim - £22,192.03 under claim 3 and £6,147.10 under claim 4. The reason for the separate calculation of the finance costs relating to the Sales Fee Claim is that it is agreed that the effective date of the loss should be regarded as being 14 December 2022, considerably later than the date taken for the other losses.

In her skeleton argument, Ms Slow explains the basis of claim 3:

25.

Over this period IRDL was being financed by a PAG Facility, by a Wellesley Facility, and from June 2022 onwards by a Together Facility. Interest under the Wellsley Facility was compounded at 8% and the PAG facility was simple interest at 8%. Mr Everett has pro-rated the borrowings across these two facilities in proportion to their whole i.e. 34.4% of the borrowings at that time were Wellesley Facility and 65.6% PAG. On the basis that Arcadis contributed to the overall scale of the borrowing it is fair and reasonable to apportion interest to reflect the overall picture of borrowing. It would not, for example, be correct to say that, as the total borrowings would have been less but for the other issues Arcadis should only pay interest at the lowest rate. Doubtless Ideal (and others who had contributed to IRDL’s loss) would advance the same argument, with nobody accepting responsibility for the elements at the higher rate.

26.

Further, on the facts of this case, the original plan was always to primarily finance the project using external funding, as Mr Wyse explains in paragraph 17 of his uncontested statement [B/5/4], and Mr Russell in paragraph 16 of his statement [B/1/4] (which, was not, so far as Counsel recalls, challenged in cross examination). The issues on this project led to the PAG group putting in substantial amounts of unforeseen funding because the external loans were insufficient. Accordingly, rather than PAG funding 40-50% it ended up funding 65.6%. Thus, if there is an ‘extra’ portion of the borrowing that follow from the losses the project generated is actually the PAG borrowings (at the lower rate) not the other way around. The increased use of the cheaper (from IRDL’s perspective) PAG funding mitigated IRDL’s loss.

27.

That all said, this question of apportionment only really goes to the question of whether a portion of the interest (34.4% to be precise) should be compounded in the period up to June 2022, because that is how interest was in fact calculated on the Wellsley facility. If all the interest should be simple interest then the total sum of £ £1,144,710.44 is the interest under this head. This calculates interest up to and including the date of the hearing i.e. 31 July 2024. The difference in cash terms between the primary and alternative claim, whilst obviously important, is reasonably modest (at £45,751,46).

Thus claim 3 claims finance costs on an apportionment basis. The difference between the PAG facility and the Wellesley facility being that Wellesley charged interest on a compound basis.

In her skeleton argument, Ms Piercy submits:

18.

IRDL claims compound interest on £4,001,317.04. This apportionment appears to have been arrived at on the basis of the finance provided by PAG and Wellesley during the post-remedial work period.

19.

Arcadis denies that IRDL is entitled to compound interest. Funding was provided both by Wellesley and PAG. It was Mr Wyse’s evidence that properties were sold by PAG to fund the Development, generating over £44m, so it is not clear that any interest accrued at all on the sums awarded by the Judgment.

20.

However, even if loans were used to fund the sums awarded, there is no evidence that additional funds under the Wellesley facility were used for this purpose. Projections were made for the drawdowns under both types of funding. The loan drawdown for the Wellesley facility over the relevant dates has been less than planned, whereas the drawdown under the PAG loan has been substantially more:

21.

The Wellesley planned loan drawdown for the period June 2020 to March 2021 was c£7m to £21.5m. The actual drawdown from June 2020 to May 2022 was c£6m to £14.5m.

22.

The PAG planned loan drawdown from June 2020 to March 2021 was between £4m with an aim to repay £4m by March 2021 (i.e. the plan was £4m to -£4m). However, the actual loan drawdown from June 2020 to February 2022 was c£17m - £33m.

23.

Since IRDL did not draw down “additional” funds under the Wellesley facility to those planned, the sums which have been awarded as part of the judgment can only have been funded by either PAG pursuant to property sales referred to in Mr Wyse’s evidence or the PAG facility; there is additional funds were drawn down from Wellesley. Accordingly, at most, the loss which IRDL has suffered is the interest applicable under the PAG facility, which was simple interest at 8%.

24.

Notably, the loan agreements between IRDL and PAGV and PAGV and PAG, which were only entered into in April 2022 (i.e. after Arcadis had served its Defence challenging IRDL’s ability to recover sums paid by PAG) only provided for simple interest. Had PAG/PAGV genuinely considered compound interest should apply to sums owed by IRDL, then no doubt these very recent loan agreements would have reflected this. They do not.

25.

Since there is no evidence that IRDL has incurred compound interest on the sums awarded, Arcadis invites the court to find that the appropriate interest award is 8% simple interest.

As Ms Slow comments, the amount turning upon whether compounding should be allowed in the award of financing costs is relatively small.

In paragraph 315 of my main judgment I recorded that the costs of the structural remedial works were pleaded in the sum of £2,747,797.09 whilst the costs of completing Ideal’s works were over £20 million. There was also evidence from Mr Wyse that the PAG Group sold properties worth over £40 million to fund this project.

These figures show that the increase in borrowing was driven by the disastrous effect upon the project of the module problems. In my judgment IRDL has failed to prove that any increase in Wellesley borrowing occurred by reason of the structural remedial works.

For these reasons I accept Ms Piercy’s submission as to the proper approach to interest in respect of claim 3 – namely recovery at a rate of 8% simple interest, i.e. without compounding. The Parties are agreed that this produces a figure of £1,103,536.14.

This will also apply to the Sales Fees Claim – in respect of claim 3 the rate claimed is 8% simple interest, so the amount of £22,192.03 is allowed.

Claim 4 claims interest at the rate negotiated for the “Together” facility. In respect of this claim, I do not accept that the reason for taking out this facility was the additional cost incurred in respect of the structural remedial works. It seems to me that the reason for this facility being taken out was the financial disaster caused by the module problems. Further, for the reasons set out in paragraphs 28 to 30 of Ms Piercy’s skeleton, it is difficult to see how an award in respect of the Together Facility could be seen to be consistent with my conclusion in my main judgment on critical delay.

Accordingly, I reject claim 4.