Chilli claim is thrown out by High Court

8:50am Thursday 19th June 2008

A HIGH court judge yesterday criticised a development company for bringing a case against two public bodies over the Middlehaven regeneration project in Middlesbrough.

Chilli Developments' allegations against Tees Valley Regeneration (TVR) and English Partnerships (EP) should never have been made, Mr Justice Jack ruled.

The judge had reserved his decision in London's High Court in May and delivered it yesterday.

In January last year, Chilli filed court papers for breach of contract, claiming almost £10m in loss and damages.

Chilli, based in Middlesbrough, claimed that EP and TVR acted in "bad faith", carrying on negotiations over the redevelopment of five acres of Middlehaven docks in Middlesborough by Chilli, when it had no intention of going through with the deal.

But yesterday, Mr Justice Jack said that, during cross-examination, it became clear that the allegation apparently was not even "really believed" by Chilli's managing director Simon Brown.

Ordering that Chilli pay EP and TVR's legal costs - which come to about £440,000 - the judge said that they should do so on a punitive "indemnity" basis because of the "thin" evidence produced to support the claim.

He said the way in which the case was put "came close to an allegation of dishonesty", which could have had severe repercussions for EP, TVR and individuals named in the action.

In his conclusion, Mr Justice Jack said: "The main allegation made in this action against EP and TVR, and so also against their representatives, was of serious misconduct, namely that together they had led Chilli along to believe that it had a real chance of entering a development agreement with EP, when there was no chance because the negotiations were a sham.

"That allegation was not supported by the documentary evidence.

Nor apparently was it really believed by Mr Brown. I refer to his answers given in cross-examination.

The allegations should not have been made."

Mr Justice Jack also said an allegation, that two "lock out"

agreements giving exclusivity to Chilli were a "sham", was "not properly pleaded until the fourth day of the trial".

The judge added that TVR and EP had acted "in good faith"

throughout the negotiations, and had not breached the lock out agreements, as alleged by Chilli.

During the High Court hearing, Chilli made a number of allegations, including that EP and TVR "undermined, insulted and ridiculed" Chilli in front of potential backers, the Esh Group, at a meeting on June 30, 2005, and TVR's Peter James had been particularly rude.

But dismissing all the allegations, Mr Justice Jack said there was "no plot to derail the negotiations"

at the June 30 meeting, and Mr James, a "frank and straightforward witness", had said nothing that caused the Esh Group to pull out.

The judge said there was "nothing in" two complaints that TVR and EP had contacted Allied Irish Bank and the Bank of Scotland.

And he said: "I am satisfied by the evidence I heard and the documents that I have read that EP and TVR negotiated with Chilli in good faith."

Mr Justice Jack further observed that, although some people at EP and TVR had "doubts"

about the ability of Chilli to deliver, "there was goodwill", and it was only after financing from AIB, the Bank of Scotland, the Royal Bank of Scotland and the Yorkshire Bank had fallen through, that a halt was called.

Chilli had claimed £9,656,119, but will instead have to pay £180,000 within 28 days to cover EP and TVR's costs, with a payment date for the balance of the legal costs bill to be decided later.

Chilli has insurance to cover EP and TVR's legal costs bill, but the court did not hear how much Chilli's own legal bill comes to and whether that is also covered by an insurance policy.

Speaking after the case, Joe Docherty, chief executive of Tees Valley Regeneration, said: "We welcome the judgement and the end of the court case which has taken valuable time and resources away from the task at hand - the regeneration of the Tees Valley.

"We always maintained there was no case to answer, as we always act in good faith and in the best interests of the Tees Valley, its residents and its future.

"Before it reached the High Court, we invited Chilli to withdraw the case to prevent further costs from being incurred but that approach was rejected.

"We are delighted costs have been awarded in our favour and look forward to the final conclusion of the matter."

Mr Brown could not be contacted for comment last night.