Case No: BS150417

Case No: 4721 of 2002

Neutral Citation No: [2004] EWHC 845 (Ch)




Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 19th April 2004

Before :



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Between :






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4721 of 2002














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Mr. Neil Levy (instructed by TLT Solicitors) for the Claimant in First Claim & 3rd Defendant in Second Claim

Mr. Stuart Hornett (instructed by J. Hennah) for the First and Second Defendants in the Second Claim

Mr. Ashley Charles Dobbs (acting in person) as Defendant in the First Claim and Claimant in the Second Claim

Hearing dates : 16th, 17th, 18th, 19th, 22nd, 23rd, 24th, 25th, 26th, 31st March & 1st April 2004

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Mr Justice Lewison:


  1. Acorn Televillages Ltd (“Acorn”) is a developer. On 10 September 1999 it granted a debenture to Triodos Bank NV (“the Bank”) to secure borrowing. Its principal assets at the time were a partially completed development at Crickhowell in Wales and a shareholding in Acorn Televillages LTD, a Missouri corporation (“Acorn USA”). Crickhowell is a small market town on the edge of the Brecon Beacons and within easy reach of the Black Mountains. On 20 October 2000 the Bank appointed Mr Morrison and Mr Gerrard, two partners in the firm of Grant Thornton, as Joint Administrative Receivers of Acorn (“the Receivers”).

  2. On 12 March 2001 the Receivers sold the Crickhowell development for £2.1 million. They have not sold the shareholding in Acorn USA. The Bank has suffered a large shortfall, part of which it seeks to recover from Mr Ashley Dobbs under a personal guarantee.

  3. Mr Dobbs is a director of Acorn. He describes himself as a “serial entrepreneur”. He believes that the receivership was improper; that the Receivers and the Bank mismanaged the receivership; and that Acorn’s assets have been sold at an undervalue or not properly realised at all. He believes that the Bank used the receivership deliberately to destroy a sound business in order to benefit the Bank and the building contractor by protecting them from claims for breach of contract, incompetence and negligence. He says that the Bank breached its contractual obligations by withdrawing Acorn’s loan facility; and, following the appointment of the Receivers, by not building out the development and not marketing the houses individually. He complains that the Receivers squandered the value of the shares in Acorn USA. He claims a large amount of damages, which has fluctuated between £16 million and £18.6 million. He relies on these allegations by way of defence to the claim against him on the guarantee; and he also makes them on behalf of Acorn, which I allowed to be joined into the actions as a claimant. His complaints are wide-ranging. I have to decide which, if any of them, are well-founded. In view of the seriousness of Mr Dobbs’ allegations, I think that the best course is to tell the story, largely from the contemporaneous documents, before testing the oral evidence.

The beginnings of the Crickhowell development

  1. For present purposes the story starts in March 1994. Acorn obtained planning permission from the Brecon Beacons National Park Committee for a change of use of farm buildings at Upper House Farm, Crickhowell to:

“televillage facility, craft workshops, youth club, studios, the construction of 32 houses and 2 flats (including home offices).”

  1. The permission was granted subject to conditions. These included the construction of a new storm drain before the first dwelling was occupied; landscaping; road building and the obtaining of listed building consent for the refurbishment of some of the buildings that were to be retained. The site consisted of a Jacobean farmhouse and some farm buildings, together with agricultural land.

  2. A “televillage” is Mr Dobbs’ brainchild. It is a development of environmentally friendly, low maintenance combined residential and workspace units linked to the Internet via a private fibre optic network, or Intranet. Its attraction is that residents can work from home rather than commute; and “televillages” can be built in attractive rural locations. Mr Dobbs’ idea was that the problem of isolation faced by teleworkers could be overcome by grouping them together in a village. His vision was one of a working community living in high quality houses, built with local materials, served by the latest technology, and able to enjoy the beauties of the Welsh countryside.

  3. Following the grant of planning permission, on 1 September 1994 Acorn took a transfer of the land from Powys County Council. The transfer contained a series of positive covenants which would have been enforceable against Acorn’s successors in title, because of the statutory powers under which they were made. The covenants included obligations:

    1. To install a private fibre optics network cable system linking all the dwellings and capable of being connected to the public system;

    2. To provide and equip a “Telecentre” (i.e. part of the property containing rooms equipped with computers and related equipment and available to local people to learn and work) which was to be fully functional before the first ten houses were occupied.

  4. The development was to be constructed in two phases. Finance was provided by Allied Irish Bank. On 17 August 1994 the undeveloped site with the benefit of planning permission had been valued by DTZ Debenham Thorpe for Allied Irish Bank at £720,000. DTZ highlighted as potential difficulties the sloping nature of the site, the run down farm house and the expense of infrastructure. They also described some of the planning conditions as onerous. They recommended that if building finance was provided the estimated building costs should be approved by Allied Irish Bank with arrangements for certifying payment against work done. Phase I began in 1995.

  5. One of the houses was the show home, and the other was bought by Mr and Mrs Dobbs. A mortgage valuation of £80,000 was provided for Lloyds Bank by Colleys Professional Services, Hereford, who commented that they had been unable to find any direct comparable evidence for valuing the property in such an unusual development.

  6. However, the builder went into receivership after completing only two houses and some of the roads. At that point Allied Irish Bank pulled out, and the development came to a halt. By December 1995 Acorn owed Allied Irish Bank some £720,000. Allied Irish Bank had agreed to freeze the interest payments. In early 1996 it agreed to accept a reduced sum in settlement of its debt; provided that payment was made by 26 April 1996. Mr James Skinner, who was an investor in Acorn, and would shortly afterwards become a director of it, was already known to the Bank in connection with other businesses. In March 1996 Mr Skinner told Mr Glen Saunders, the Bank’s UK managing director, about the Televillage project. On 13 March 1996 Mr Dobbs wrote to Mr David Hawes, another of the Bank’s executives, enclosing a proposal to raise finance for the development. He described the outstanding Allied Irish Bank loan as £400,000, the total cost of refinancing and completing Phase I £1.78 million and the total cost of Phase II as £1.177 million. Phase I consisted of 17 properties (13 houses, 4 flats) and Phase II a further 17 detached houses. Mr Dobbs met Mr Hawes on site on 21 March 1996 and at an “open day” at the Bank's Bristol office. Mr Dobbs said that he picked up some literature about the Bank, which advertised itself as “ethical, environmentally friendly and transparent”. He said that this description was one of the reasons why he sought finance from the Bank, rather than pursing alternatives. Mr Dobbs followed this up with a letter to Mr Hawes stating that he was “persuaded Triodos was a bank I would like to work with”. Thereafter Mr Dobbs provided Mr Hawes with further information in support of Acorn's application for finance; including an estimate of the construction costs provided by PA Rowlands Constructions Ltd, the new builder that Acorn expected to employ. Construction costs were estimated as about £539,000.

  7. On 12 April 1996 Mr Hawes compiled a loan application report. He recorded that £400,000 was required to refinance Acorn's existing borrowing with Allied Irish Bank; and a revolving credit of a further £500,000 was required to finance the construction of 17 dwellings at the Televillage (i.e. Phase I). £200,000 was to be repaid by sales of the 17 properties, with the balance being carried forward and repaid on completion of Phase II of the development. He noted that approval would be required from the Bank's head office in Zeist, Holland for a loan of this size. He also noted that development on the site was at a standstill. The total sum actually owed to Allied Irish Bank was £720,000 on which interest had been frozen since December 1995. Allied Irish Bank had a first charge over the farm and a cash-supported guarantee of £220,000. They had agreed to accept the £220,000 and a further £400,000 if paid by 26 April 1996. Mr Hawes considered it “essential to rigidly control the finances throughout a project of this nature”. He had seen a copy of Acorn’s construction programme and had discussed it with a quantity surveyor. It seemed realistic. The quantity surveyor had also confirmed that the costs seemed realistic. Mr Hawes commented:

“The cashflow shows peak borrowing of £750,000 (including the land loan) with an exposure of £770,000 including accrued interest. However, the development could be affected by a number of factors such as bad weather or some plots being progressed faster than others to satisfy agreed sales etc. Therefore an overall facility of £900,000 is requested to cover these eventualities on the understanding that any variance from the cashflow for reasons other than timing would be immediately reported to the Loan Committee.”

  1. Mr Hawes noted that there was to be a capital injection of £50,000 by Mr Skinner. Mr Skinner had also undertaken to buy the show home on mortgage if another buyer could not be found within the contemplated timescale. At the end of Phase I, Acorn was expected to owe £200,000 secured against the remaining Phase II land, worth at least £470,000. In addition to the DTZ £720,000 valuation, Mr Hawes had also seen one for £950,000. Mr Dobbs would be required to give a £50,000 guarantee to tie him to the project. Funds would be released in stages to minimise the Bank's risk, and no funds would be released until Mr Skinner had made his capital injection. Mr Hawes concluded:

“The nature of this Project is unlike anything that we have done in the U.K before and it will require close management. At the same time it must be appreciated that there will be variations against cashflow, and security values will fluctuate. Therefore, our main task will be to keep the development within the original parameters but with a degree of flexibility around timing and security cover.”

  1. The application was approved by the Head Office on about 15 April 1996.

  2. On 17 April 1996 the Bank agreed to make the loan. £400,000 was available for immediate drawdown to pay off Allied Irish Bank. A further revolving credit of £500,000 was to be made available in tranches to enable the development to be completed. Drawdowns from the development loan were to be in line with a cashflow forecast and supported by a certificate from the quantity surveyor confirming completion of the relevant work. Work was to begin with plots 23 - 27 and end with plots 28 – 33. The idea was that the proceeds of sale of the first batch of houses would help to finance construction of the second batch. Financing arrangements for construction of the remaining (Phase II) plots would then be subject to separate negotiations. By the end of Phase I the land loan of £400,000 was to have been reduced to £200,000. The Bank’s facility letter also listed the security required by the Bank, to comprise a legal charge on the land, a floating charge on all Acorn's other assets, a guarantee for £50,000 from Mr Dobbs and an assignment of a keyman life policy written on Mr Dobbs' life.

  3. On 18 April 1996 the Bank's security forms were sent to Gabb & Co, solicitors in Crickhowell acting for Acorn and Mr Dobbs. (Gabb & Co subsequently acted for the Bank as well on the grant of the mortgage). On 22 April 1996 Woodeson Drury, Acorn’s quantity surveyors, confirmed that the construction costs for Phase I were realistic. On 25 April 1996 DTZ updated their valuation (this time addressed to the Bank) to £750,000 for the whole site, broken down into £315,000 for Phase 1, £360,000 for Phase II and £75,000 for the remaining buildings. Again they drew attention to the difficulties of development. Again they recommended that the Bank should approve cost estimates and reserve the right to approve detailed plans, specifications and builders’ estimates. They had reservations about the saleability of the smaller units, and also about the income and capital values which could be produced for the refurbished farm buildings. So far as marketing was concerned they said:

“Of primary concern to us is the emphasis and concept being compounded by your customer. The subject property should, we believe, be marketed as a residential development site with ancillary potential studio/office accommodation available. The vast majority of value lies in the residential element of the scheme. Your customer’s promotional video (which we viewed eight months ago) and brochure are heavily dependent on the “televillage” concept which, we believe, may have the effect of deterring some potential purchasers. Much more emphasis should be placed on the residential dwellings themselves as residential development within the area, and on this scale, has not been undertaken for some years. The development proposal could be considered as “unique” without the televillage element. These points have been discussed with your customer.”

  1. DTZ also said that it was very difficult in view of the unique nature of the site to identify accurate values of all the proposed dwellings, but they thought that the asking prices were too high. They also referred to problems since the work commenced, including the fact that the original quantity surveyor's estimates were exceeded by a considerable margin and that additional costs in relation to road adoption and external works had been incurred. They were doubtful that the high quality and expensive finish would be translated into higher sales prices achieved. On the question of realising the security they commented:

“You should note that it could be difficult to dispose of the existing property on the open market in view of the potential reluctance for developers to become involved with schemes which have already been started by another builder, ie part completed schemes can be perceived poorly in the open market. Combined with this, there is a complicated planning consent and considerable consultation will be necessary in terms of planning and in view of the uniqueness of this site.”

  1. They added that perception of the development in view of past problems might be poor locally and regionally.

  2. The loan documentation was completed on 26 April 1996. Condition 12 of the loan agreement said:

“For control purposes Phase One of the Development will be divided into three stages as follows:

1. Construction of Plots 23 to 27.

2. Construction of the Tower Block and Plots 3 to 3.

3. Construction of Plots 28 to 33.

Stage One will not commence until each of the Conditions numbered 1 to 10 above have been complied with. Stage Two will not commence until Triodosbank receives the proceeds from the sale of the showhouse, part of the farm buildings and the contribution towards the road due from the neighbouring property (£110,000 less costs). Stage Three will not commence until contracts have been exchanged for the sale of each of the Plots numbered 23 to 27 inclusive.”

  1. On the same day Mr Dobbs gave a written guarantee of Acorn’s liabilities to the Bank, with a limit on liability of £50,000 plus interest from the date of demand. The terms of the guarantee entitled the Bank to agree variations in Acorn’s liabilities without discharging the guarantee.

  2. On 30 April 1996 P A Rowlands Construction Ltd submitted a tender in the sum of £739,450. On 10 May 1996 Woodeson Drury sent Mr Hawes a construction cash flow forecast on the basis of which Mr Hawes revised the cashflow forecast. On 2 July 1996 the planning permission for the development was varied to provide for an additional two flats to be included within the tower feature (these became plots 35 and 36).

  3. The contractor was given instructions to proceed on 8 July 1996. By letter dated 27 August 1996, Acorn authorised the Bank to make payments on its behalf that were authorised by Woodeson Drury. By October 1996 the show house had been sold for £82,000 and the construction work was on schedule and on budget. The Bank had been asked to bring forward construction of flats in “block B”. Mr Hawes recommended that this be done. In his report he said:

“Construction is progressing according to schedule and on budget. Sales interest is encouraging and generally speaking the project is performing well.”

  1. On 13 November 1996 Mr Hawes visited the site. Mr Dobbs asked to bring forward construction of the tower at a cost of £71,000 and wanted to start renovating the farmhouse. Mr Hawes prepared a revised cashflow forecast. In a report to head office dated 1 December 1996, he recommended allowing the proposed work to the tower and up to £50,000 to be spent on the farmhouse. He commented:

“In adopting this approach, we will be gambling to some extent with our security values but I am encouraged by the progress of the project so far and the professional approach of both Ashley and the Quantity Surveyor. Therefore I believe this is a gamble worth taking on the understanding that the total borrowing does not exceed the £500,000 figure originally agreed for the Development Loan.”

  1. On 28 January 1997 planning permission was given to add a further 3 plots (37-39) within Phase II of the development. By March 1997 substantial sales income projected in the November cashflow had not materialised; and on 24 March 1997 Mr Hawes wrote to Mr Dobbs expressing concern that Acorn's borrowing was about to go more than £50,000 over budget. He said that the reason for this had been caused by the Bank’s agreement to the acceleration of the building programme, while completion of the work had taken longer than anticipated. He agreed that Mr Dobbs could instruct the builder to start work on plot 3 and the interior of the tower. He added that this would expose the Bank far more than originally anticipated and said that the Bank would be unlikely to commit to any more expenditure until sale proceeds of plots 25-7, 29-30 and 33 had been received; and contracts exchanged for plots 24, 31-2 and one of the tower plots. Mr Dobbs replied on 25 March 1997 agreeing with this approach. By the end of May 1997 sales of 7 plots had been completed and contracts exchanged on plots 32, 34 and 36. Mr Dobbs was keen to start renovating the farm outbuildings. Mr Hawes therefore sought sanction in principle from head office in a report dated 29 May 1997. On 15 July 1997 the Bank commissioned a valuation report from Colleys. They produced their report as at 28 July 1997. They valued the property as a whole at £660,000.

  2. The Bank recorded that by December 1997 Phase I costs were £180,500 over budget against increased sales revenues of £100,550. Much of the increase was due to delay which had in turn increased the interest payments.

  3. In the meantime Mr Dobbs had been in contact with Countryside Properties plc. They were interested in the idea of televillages and in forming some sort of joint venture with Mr Dobbs or Acorn. Mr Dobbs had already invited Countryside Properties plc to tender for Phase II; and he said in his letter to Countryside Properties Plc on 23 December 1997, he favoured the idea of a “cost plus” contract. On 15 January 1998 Mr Dobbs produced a business plan for Acorn and Countryside Properties plc to form a joint venture company called Acorn Televillages UK Ltd to build televillages using profits made by Countryside Properties plc from building Phase II of the Crickhowell development. The plan recorded that Acorn and Countryside had agreed to construct Phase II on the basis that Acorn would pay “net cost plus 10%” and proposed that the 10% profit margin would be loaned interest-free to the joint venture company.

  4. Phase I had originally been expected to have been completed by April 1997; but it did not achieve practical completion until 17 March 1998. A number of the completed houses were sold or reserved, although some of the infrastructure, including the fibre optics, roads and the storm drain had not been installed. The second builder went into receivership on 20 March 1998. Acorn terminated the building contract on 15 April 1998 on the ground of the contractor’s insolvency. Costs had overrun budget, and despite increases in the selling prices of the completed units, Acorn’s liability to the Bank at this stage was just under £550,000, with Phase II still to be built.

  5. On 25 April 1998 Mr Hawes produced a recommendation for the Bank to approve finance for Acorn to renovate the farm buildings and build the Phase II houses. He noted that approval from the Bank's head office would be required. He reported that it had originally been expected that by May 1997 the Phase I plots would have been sold and Acorn's liability to the Bank reduced to £200,000. In fact completion of the last 2 sales (plots 23 and 30) was still awaited and Acorn's liabilities were £550,000. The main reasons were: unplanned expenditure on the farm house; increased professional and administrative costs caused by the project taking longer than expected; some work referable to Phase II and other cost overruns. He did, however, note that during the delay house prices had risen, generating an additional income of £140,000. A fixed price contract had been agreed with a local builder to renovate the farm buildings. The Phase II building contract had been awarded to Countryside Properties (South Western) Ltd (“Countryside”), a subsidiary of Countryside Properties plc which Mr Dobbs wished to employ even though its tender was the highest at £2.3 million; based on cost plus 3.25% for overheads and 3.5% profit. Mr Hawes had met Countryside's managing director, Mr Freeman, who had confirmed their desire to work with Mr Dobbs on similar projects in future. To complete Phase II in line with the cashflow projection, the development loan facility would need to be increased to £1.6 million, and bond liabilities increased to about £195,000; in addition to the £400,000 land loan. The total came to £2.195 million. Mr and Mrs Dobbs were buying plot 23, and contracts had been exchanged on plot 30. Phase II sales were expected to realise £4 million on completion. There was a security shortfall due to up-front costs and the Bank would need to have the right to build the project out if necessary. It would also need to curb Mr Dobbs' enthusiasm for constantly upgrading his product. The cashflow dated 26 April 1998 forecast a net credit balance for Acorn on completion in September 2000 of £86,178.

  6. The Bank's UK loan committee reviewed the proposal on 27 April 1998 and agreed facilities of £2.195 million, subject to time penalties being built in the building contract; the Bank to be a party to the contracts without being liable; specification agreed at the outset; agreed protocol to prevent non-budgeted expenditure; assignment of the building contract to the Bank and head office approval. The proposal was approved by the Bank's head office on 28 April 1998.

  7. It was originally envisaged that Phase II would itself be completed in stages, and that as each group of houses was completed, the proceeds of sale would provide funding for the next stage together with an element of repayment of the Bank’s loan.

Phase II of the Crickhowell development

  1. Countryside began work in about June 1998 under a letter of intent, although the building contract was not signed until the following February. The Contractor’s Proposals (which were later incorporated into the contract) split the work into three stages. Stage one (to be begun in week 6 and completed in week 28 of the contract) consisted of plots 4, 5, 19, 20, 21, 37, 38 and 39. Stage two (to be begun in week 17 and completed in week 42) consisted of plots 6, 7, 8, 15, 16, 17 and 18. Stage three (to be begun in week 27 and completed in week 57) consisted of plots 9, 10, 11, 12, 13 and 14. The programme originally agreed was 15 months, with completion thus due at the end of August 1999. The forecast expenditure was £2.6 million. But things began to go wrong with Phase II almost from the beginning. Already by September 1998 the completion dates for plots 38, 39 and 19 had slipped as a result of difficulties in obtaining materials; and the project was over £100,000 over budget. During the course of October 1998 Woodeson Drury increased their costs forecasts twice: first from £2,616,660 to £2,663,460; and then to £2,706,415. Acorn’s projected profit margin was being severely squeezed. On 14 October 1998 Woodeson Drury wrote to Countryside complaining about further delays in completing plots 38, 39 and 19; and costs exceeding budget, particularly in the areas of carpentry and brickwork, by considerable sums.

  2. On 4 November 1998 two further on demand loan agreements were made by the Bank with Acorn for facilities of £380,000 and up to £1.6 million; to reschedule borrowing of about £800,000 which remained on completion of the first phase and to finance the further development work at the Televillage. The terms of the development loan included conditions for the Bank to be provided with monthly sales projections (condition 8); the Bank to be provided with copies of change order notices under the building contract and to have the right to rescind any such orders (condition 10); each drawdown to be supported by a certificate from the quantity surveyor (condition 11); and limiting the use of funds to the Phase II work and farm building renovations subject to Bank consent for interior work on the farm house and farmyard (condition 12). Condition 13 said:

“The Borrower undertakes not to commit to expenditure which is not otherwise covered in this agreement which would increase the overall project costs including overheads and promotional expenditure beyond the currently forecast figure as detailed on the attached schedule and signed by both the Bank and the Borrower for the purposes of identification.”

  1. The cashflow forecast (which by now was a contractual document) again envisaged that Phase II would itself be split into three stages. The proceeds of sale from the houses in each stage would help to fund the cost of the next stage. The first stage consisted of plots 4, 5 and 19 to 39. Apart from plot 19 (which was the show house) these houses were to be sold by January 1999. The second stage plots were to be sold by May 1999; and the final stage (plus the show house) by September 1999.

  2. On 23 November 1998 Woodeson Drury gave Countryside notice that certain work had not been completed and that liquidated and ascertained damages (“LADs”) might be withheld. In the following month Woodeson Drury increased their costs estimate yet again; this time to £2,989,722. Anticipated costs now exceeded the original estimate of £2,616,660 by £343,456. Despite Woodeson Drury’s threat, Mr Dobbs decided not to withhold any LADs from payment certified to be due to Countryside on 23 December 1998. At about that time Countryside intimated that there might be a claim from their groundwork sub-contractor for £36,000 representing the cost of additional work.

  3. In his letter to Mr Dobbs of 6 January 1999 Mr Woodeson said:

“You will note that expenditure has increased above that originally forecast by Countryside Properties. Countryside Properties have acknowledged that in some areas their original estimate was too low and for other items they are having to pay higher than expected prices due to scarcity of labour and subcontractors.”

  1. Because this was a “cost plus” contract, these additional costs would be payable to Countryside. On 8 January 1999 Mr Dobbs wrote to the Bank stating that Acorn and Woodeson Drury were concerned about the projected increased costs overall. He said that they were largely due to under-estimation by Countryside, and that he had increased asking prices as a result. He said that he was confident of achieving the increased prices. Mr Hawes recalculated his figures. If Acorn achieved the higher prices, it would be left with a profit of £660,000. But if it did not, it would be left with a loss of £98,000.

  2. On 26 January 1999 Mr Dobbs wrote to Countryside expressing concern at poor site presentation. He accepted that there was an “excellent foreman and contracts manager” but asked for the site to be cleaned up. Mr Freeman replied that untidiness was inevitable due to the tight restraints of the site. Mr Dobbs now decided to withhold payments as liquidated damages. This produced a sharp reaction from Countryside. Mr Freeman wrote to Mr Dobbs on 1 February 1999. He complained that Mr Dobbs' decision to deduct liquidated damages in full had damaged the relationship between Acorn and Countryside and had demoralised staff. He added that sourcing materials to comply with Mr Dobbs' requirements had on occasions been unworkable. He stated that he was not prepared to continue with the development with the threat of further financial penalties. He proposed to complete plot 38 and then cease further work and let Acorn employ another contractor. Mr Dobbs responded on the same day by fax. He said that he did not intend to delay payments but pointed out that the first homes were taking about twice the projected time to complete. He referred to Acorn having deducted £17,100 but would pay this if the latest revised programme dates were met. On the following day Woodeson Drury granted Countryside an extension of time under the contract to 3 January 1999 (section 1 of the works), 27 June 1999 (section 2) and 3 October 1999 (section 3). By March 1999 costs were £365,000 over budget, and it was clear that the expected completion dates could not be met.

  3. Mr Hawes visited the site in April 1999. None of the houses was near completion. There were partially completed houses all over the site. Mr Dobbs said in evidence that although Countryside were supposed to build the houses in phases, what they in fact did was to build “across the site at a similar speed”. However, there is no record or evidence of any complaint made by Mr Dobbs to Countryside about that. There was a meeting between Mr Dobbs and the Bank (attended also by Mr Woodeson) on 18 May 1999. The Bank pointed out the cashflow problems, and said that they were real problems for Acorn. Mr Dobbs’ response was that Acorn needed to borrow more money, to which the Bank said that if it lent any more, there would be conditions attached.

  4. A meeting between Mr Dobbs and Mr Freeman took place on 21 May 1998. Mr Woodeson attended and took notes. His note records:

“There was a general agreement that delays on Phase I of the project had been encountered for a number of reasons.

Some fault was attributable to [Countryside] due to poor management and control, some fault attributable to changes and variations required by [Acorn] (work to barns and courtyard, unresolved boundary dispute) and some fault attributable to difficulties in obtaining materials.”

  1. In was agreed that in future Countryside would be paid on practical completion of each house; but Countryside later went back on that. Mr Dobbs agreed that Acorn would not deduct liquidated damages for delays to date.

  2. By June 1999 only 6 out of the 13 units had been completed; and only five had been sold. Countryside claimed that Acorn owed them £760,000 and threatened to walk off site at the end of June unless they were paid. Mr Dobbs explored the possibility of Countryside plc buying Acorn for an immediate payment of £2.5 million and the assumption of Acorn’s liabilities, plus further possible payments of up to £2.5 million. But Countryside plc turned him down. In his letter of 18 June Mr Freeman, the managing director of Countryside, said:

“We have reviewed the content of the pack at some length and we still believe the concept you have created is well founded and of great merit.

However, in reviewing the financial position of your Company, we have a number of significant concerns. In particular, the forecasted sales revenue is not a matter in which we share your views. Our own market assessment, which has been in depth, leads us to conclude that revenue is substantially overestimated, both in terms of achievable price, legal title matters which remain outstanding and several other marketing aspects.”

  1. He also said that Countryside had concluded that, contrary to what had been agreed at the meeting, it would not fund the development without a secure guarantee from the Bank for the estimated final cost of the project. He therefore suggested a joint meeting with the Bank, with Mr Woodeson present. Mr Dobbs rang Countryside on 22 June to discuss this. On 23 June Mr Freeman wrote again. He said that Countryside would stop work on 30 June unless the current valuation, certified by Woodeson Drury, were paid. He again suggested a meeting with the Bank, but agreed to await the latest valuation. Mr Dobbs had commissioned a valuation from Countrywide Surveyors (not to be confused with Countryside). They reported on 28 June 1999. Their view was that Mr Dobbs’ asking prices for the units “cannot be justified and sales are unlikely to be achieved at these levels of prices, unless there is a considerable general rise in prices in the locality overall.” I set out their detailed figures later in this judgment. Mr Dobbs said in evidence that Countrywide’s valuations were conservative and below achieved sales prices. However, a comparison of values ascribed to the houses by Mr Dobbs himself with those ascribed to them by Countrywide shows that Mr Dobbs was willing to sell plot 7 for £259,000, whereas Countrywide valued it at £280,000. I do not consider that Mr Dobbs’ view of Countrywide’s conservatism is sound. Countrywide’s values were, in aggregate, nearly £500,000 less than Mr Dobbs’. However, based on these reduced values, Mr Dobbs calculated that Acorn would make a profit on the development of £371,000.

  2. On 2 July 1999 Mr Freeman wrote to Mr Hawes expressing concern at the financial position of the development. He said that he believed that all parties were at financial risk. He said that he had requested a meeting with the bank on several occasions but that Mr Dobbs and the Bank had discouraged it. He claimed there was a total outstanding balance of £763,882 due for payment to Countryside on 30 June 1999 and that Countryside would cease work from Monday (5 July 1999). He also claimed problems had been caused by Acorn; and in particular by Mr Dobbs “continually ignoring the advice offered to him by his professional advisers and ourselves”. He asked the Bank to consider authorising outstanding payments in full.

  3. On 5 July 1999 Mr Hawes wrote to Mr Freeman. He recorded terms agreed at an earlier meeting. They were that the Bank would pay Countryside £264,000 on successful handing over of plots 20 and 21. Thereafter payments would be made on completion of plots and the outstanding debt of £500,000 owed to Countryside would be paid at the rate of £37,500 from plot sale proceeds and a bonus of £3,500 for each plot delivered on time. Mr and Mrs Dobbs were to provide a second charge on their house to support Mr Dobbs' guarantee. Acorn were to continue to be responsible for marketing at prices agreed with the Bank. There would be a review in mid-September when the Bank might act to take over if sales had not been achieved.

  4. By now, Mr Hawes was very concerned. He thought that the Bank was “seriously exposed”. On 6 July 1999 he prepared a report. He summarised the current situation as follows:

“The Project is in difficulty and we must now treat this as a recovery situation; they have not paid the building contractor for two months and owe £650,000 - £760,000 which is overdue for payment. There is insufficient leeway in the current facility to enable this payment to be made. The contractor is threatening to take his men off-site.

There are several factors which have contributed to this situation arising but the principal reasons are: