HSBC Bank Bermuda Ltd v Ambiance Holdings Ltd and Simmons
| Jurisdiction | Bermuda |
| Judgment Date | 20 April 2023 |
| Court | Supreme Court (Bermuda) |
| Docket Number | Civil Jurisdiction 2021 No 373 |
[2023] Bda LR 41
Civil Jurisdiction 2021 No 373
In The Supreme Court of Bermuda
Mortgage in receivership — Lease given by 2nd Defendant to his wholly owned company without consent by the bank — Undervalue — Claim for rental arrears — Unjust enrichment
The following cases were referred to in the judgment:
Phillips v Brewin Dolphin Bell Lawrie Ltd [2001] 1 WLR 143
Rowe v Hill and HSBC Bank Bermuda Ltd [2022] Bda LR 94
Stroud Building Society v Delamont and Ors [1960] 1 WLR 431
Butterfield v Brangman and Ors [2015] Bda LR 91
Benedetti v Sawiris [2014] AC 938
J Haworth for the Plaintiff
C Hill for the 1st Defendant
2nd Defendant in person
JUDGMENT of Mussenden J
1. The Plaintiff (the “Bank”) granted the Second Defendant (“Mr Simmons”) a mortgage dated 9 January 2004 (the “Mortgage”) over the property situated at 42 Angle Street, Hamilton (the “Mortgaged Property”).
2. The First Defendant (“Ambiance”) is a wholly owned corporate vehicle of the Second Defendant.
3. In the period leading up to June 2017, the Bank and Mr Simmons were in negotiations in respect of the indebtedness of Mr Simmons to the Bank pursuant to the Mortgage. Those negotiations failed and shortly thereafter, Mr Simmons granted leases to Ambiance dated 16 June 2017 (the “Leases”) of units of the Mortgaged Property in respect of a ground floor barbershop “Fresh Clips” (the “Fresh Clips Lease”) for 15 years and in respect of the basement bar/restaurant/lounge “Ambiance Lounge” (the “Ambiance Lounge Lease”) for 30 years, (those two units together the “Premises”).
4. The Bank obtained an order dated 5 September 2019 (the “2019 Receivership Order”) for the appointment of receivers, possession and sale of the Mortgaged Property. The joint receivers are Ms Rachelle Frisby and Mr John Johnston of Deloitte (the “Receivers”). Subsequent to that order, despite being served with notices to quit, Ambiance remained in occupation of the Premises. Further, Ambiance failed to pay rent to the Receivers since April 2021. The 2019 Receivership Order granted specific powers to the Receivers including:
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(a) To exercise and execute the order for possession and sale;
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(b) To take immediate possession;
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(c) To receive the rents;
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(d) To enforce on behalf of the Plaintiff directly or indirectly, all and any rights under all agreements etc. entered into by the Second Defendant;
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(e) To employ and remunerate such agents and advisors as the Joint Receivers shall deem fit and necessary for the specific purposes of carrying out their duties and exercising their powers;
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(f) To appoint managers, officers, agents, accountants, servants, workmen and others for the purposes of the Order upon such terms as to remuneration or otherwise as the Joint Receivers may think proper; and
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(g) To bring any proceeding in relation to the Mortgaged Property.
5. By an Originating Summons dated 22 November 2021 the Bank commenced the present action for the following relief:
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(a) A declaration that the purported Ambiance Lounge Lease is void;
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(b) A declaration that the purported Fresh Clips Lease is void;
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(c) An order for possession of the Premises; and
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(d) Judgment against Ambiance in respect of rental arrears in the sum of $18,200, apportioned as $7,000 owing by Fresh Clips and $11,000 owing by Ambiance Lounge.
6. The hearing of the matter took place with evidence given by witnesses for the Bank and for the Defendants. For the Bank's case, there was the affidavit evidence of Ms Frisby and her colleague Mr Barnaby Davies, a manager at Deloitte.
7. For Ambiance's case, there was the affidavit evidence of Shaylee Trott, director of Ambiance.
8. Mr Simmons filed affidavit evidence (“Simmons 1”) in support of his own case. Prior to the hearing I had ruled an extensive part of Simmons 1 to be inadmissible. At the start of the hearing, I ruled that witnesses would not be allowed to be referred to documents in the Simmons 1 exhibit which corresponded to the inadmissible paragraphs of Simmons 1 but would be allowed to be referred to the documents that corresponded with paragraphs that were not struck out.
9. There was evidence that generally was not in dispute as set out below.
10. The Mortgage was signed by Mr Simmons. Clause 2(k) of the Mortgage provided as follows:
“Not to assign, underlet or part possession of the Property or any part thereof, including the grant of an easement, tenancy or lease, without first having obtained the written consent of the Lender which may be withheld without reason given.” (emphasis added)
11. A Bank Facility Letter dated 4 September 2007 (the “2007 Facility Letter”) to Mr Simmons for the 2007 Fourth Further Charge (defined below), and signed by him, included various terms:
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(a) A series of remedies;
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(b) A “Waivers” clause which set out essentially that no failure or delay in exercising on the part of the Bank any right or remedy under the 2007 Facility Letter shall operate as a waiver of such right or remedy (the “Waiver Clause”); and
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(c) No amendment of the 2007 Facility Letter shall be effective unless it is in writing and signed by duly authorized representatives of the Bank and the borrowers.
12. A Fourth Further Charge dated 4 September 2007 (the “2007 Fourth Further Charge”) signed by Mr Simmons included a clause 2(b) whereby Mr Simmons agreed to observe and perform all covenants and conditions relating to the Mortgaged Property.
13. The Bank and Mr Simmons were in negotiations for the repayment of Mr Simmons' indebtedness. Those negotiations broke down in June 2017. On 15 June 2017, by email, the Bank withdrew the 2017 Counter Proposal and indicated that proceedings would be issued (the “2017 Revocation Email”).
14. Mr Simmons established Ambiance in May 2017 as evidenced by the company search documents. He was and the sole shareholder at incorporation and remained so according to the register of members dated 9 March 2022.
15. Ambiance is in significant arrears under the Leases having not paid rent since April 2021. A notice to quit was sent on 1 July 2021 and demand for rental arrears was made on 18 August 2021 but was ignored. In its correspondence, the Receivers' position was that demands for rent were made without prejudice to their position that the Leases are void. Thus, the Bank claimed rent arrears from Ambiance on a quantum meruit basis from April 2021 equivalent to the rents provided for in the Leases.
16. There were various main areas of evidence that were in dispute as set out below.
17. Mr Simmons stated that he was not aware of any clause in the 7 May 2004 contract requiring him to obtain prior written consent before entering a lease. Also, he stated that the Bank permitted him on numerous occasions in practice and by consent to enter into lease agreements with multiple tenants without prior written consent. Further, he stated that the Bank did waive any such clause through its own actions and practices. The Defendants drew reference to three emails in the Simmons 1 exhibit (the “Three Emails”), as set out below as evidence of the consent of the Bank.
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(a) An email dated 28 July 2015 from Ms Carmichael of the Bank to Mr Simmons (the “2015 Email”);
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(b) An email dated 6 July 2016 from Ms Carmichael of the Bank to Mr Simmons (the “2016 Email”); and
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(c) An email with attached letter from MJM Limited dated 17 May 2017 from Ms Haworth on behalf of the Bank to Mr Simmons (the “2017 Email”). I note here that the Bank declined a proposal from Mr Simmons but then offered a counter proposal (the “2017 Counter Proposal”) which they expressed in the terms that it was ‘proposed as a full package and acceptance of these terms can only be on the basis of accepting each and every term.’
18. Mr Davies maintained that the Three Emails were not evidence of any consent by the Bank to the Leases. The 2015 Email did not mention consent to enter a lease and the other emails were requesting information documents but not granting consent. Further, based on all the information that was provided to him he was not aware of any written consent granted by the Bank to Mr Simmons.
19. Ms Frisby and Mr Davies explained that as Receivers their role was to maximize the returns to the secured creditors which included the potential of selling the Mortgaged Property. They were not party to the correspondence between the Bank and Mr Simmons before they were appointed as Receivers, thus they could not provide explanations about the content of the correspondence. They noted that the Mortgaged Property was a multi-unit development consisting of apartments and two businesses. They agreed that rental income would be a reasonable way to pay off the mortgage although rent could be paid without a lease. Ms Frisby noted that clause 2(k) did not require the Bank to consent to the terms of the Lease.
20. Mr Simmons' evidence on cross-examination by Mr Griffin was that during the period 2017 – 2022 he was the sole shareholder of Ambiance and he was the person dealing with the Bank. He stated that he was not the sole director at some point. I note here that in the exhibit of Ms Trott, the Register of Ambiance's Directors shows that Joseph Smith and Ms...
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