Tees Valley mayor, Ben Houchen, has plans to bring 20,000 jobs to Teesside through the Teesworks scheme, but it has recently come to his attention that the South Tees Development Corporation (Teesworks/STDC) has a £207 million funding black hole and so can’t finish the job.
Fortunately for Houchen, two local property developers have come to rescue, seizing control of the project, taking 100% ownership of the company Teesworks Limited, then giving the Corporation back a 10% ‘golden share’. In a recent article in the Gazette he reassured the public that the developers – Martin Corney and Chris Musgrave – would be putting up £200 million of investment in the project.
Of course, there are a few details still to be ironed out, like, for example who is going to repay the £107 million lent by the UK Investment Bank to the Tees Valley Authority to pass on to the Corporation to pay for the building of the South Bank Quay. But that’s sure to be worked out in due course. Isn’t it?
Will £200 million cover it?
In short, no. £200 million will not get the Corporation out of the woods. Houchen claims that the £200 million shortfall is for the cost of remediation. And it may well be that this is the case. But there is another issue.
At the time of the compulsory purchase (CPO) inquiry that led to the acquisition of SSI land, evidence was given on behalf of the Corporation in which the new infrastructure needed for the site was described and its cost estimated. There were four strands to the infrastructure – marine, highway, rail and utilities.
In that evidence the cost of marine infrastructure was estimated at £26 million, which was for the reinstatement of the South Bank Quay. In the event, £107 million was borrowed for this project. More than four times the original estimate. In the same document the cost of creating a highway was given as £95 million. If the real cost inflation for this is also X4 then the Corporation will be looking for nearly £400 million for this project alone.
In his comments to the Gazette, Houchen does not mention infrastructure costs or how these are to be funded. In STDC papers, what little is still made available to the public, there is mention of the forthcoming joint venture company Teesworks Power, but no mention of a highway, or of the development of rail infrastructure or utilities. Are these also to be joint ventures? Or will they be funded like the South Bank Quay through a loan to the TVCA? Or will Corney and Musgrave increase their investment? Because without that investment there will be no freeport and no regeneration.
Could the developers increase their level of investment? And are they, in reality, able to put up the £200 million as Houchen claims? On the face of it, that doesn’t look too promising.
Who are the joint venture partners?
In his comments to the Gazette on 4 February, Houchen describes Corney and Musgrave as the ‘unsung heroes’ of the STDC project, and “[b]ecause Chris and Martin are local, … [they] get the local context”. So just two friendly local lads helping us out?
No, the joint venture is a partnership, not an arrangement between the Corporation on the one hand, and Corney and Musgrave on the other. The partnership is a formal arrangement between legal entities. On the TVCA website the partners are given as JC Musgrave Capital and Northern Land Management:
Notice that JC Musgrave Capital’s achievement is particularly impressive here – “an extensive portfolio of successful large scale regeneration projects … established strong working relationships across the UK …creation of several thousand jobs”. No wonder that Houchen was keen to get this company on board. And its achievement is all the more impressive when you take into consideration the fact that the company was only set up in November 2019, five months before lockdown.
There’s more. The accounts for JC Musgrave Capital indicate the number of employees including directors, as one. That’s a big workload for one person.
Things are a little easier at Northern Land Management, incorporated in 2014 and with three directors. As the description of the company indicates, they specialise manly in housing development, and these directors through various companies they own have been responsible for the controversial housing development on parkland in Normanby, as well as the proposed development of 300 houses in Yarm on a site where they originally had planning permission for 100, and the long-running saga of the proposed garden village at Skerningham outside Darlington, which has met with concerted opposition from local residents.
Also of some concern is the state of the company’s finances. The latest available set of (unaudited) accounts, from September 2020, show that the company had a balance of -£3511. Earlier accounts show a deficit of similar size. Basically, this company appears to have very little turnover and no money.
History repeats itself for Corney
This is not first time Corney has found himself in this unenviable position. In 2014 he was in court as an interested party in a dispute between another developer and Durham County Council. His interest was that one of his companies was in a limited liability partnership (LLP) involving both of the parties to the dispute. At one point an expert witness, Mr Charles Trustram Eve, was called, who had this to say about the Council’s involvement with Corney’s company, Theakston (Properties) Ltd:
“While the landowners may, for their own reasons, be comfortable with the arrangements, I am surprised that the Council … can conclude that LLP2 can deliver its objectives. In my opinion the Agreement provides no certainty in respect of either objective and the Council has effectively ceded control to a company with no track record and no money.”
The ‘no track record’ here refers specifically to land remediation, one of the things that is central to the regeneration of the Teesworks site. And the same could very probably be said of Musgrave.
It is standard practice for developers to run lots of companies simultaneously, and Corney and Musgrave are no exception to this. So perhaps Corney and his housebuilding associates have large balances in other companies that they might be prepared to transfer into Northern Land Management. It turns out not to be the case.
We had a look at the balance sheets of all of the active companies of which Corney is a director and added them up. The aggregate balance in these companies is positive but nowhere near the £200 million investment required in Teesworks. So, is Musgrave in a position to put up the money?
The balance in JC Musgrave Capital’s last (unaudited) account was £17,740. So, something over £199 million short of the amount needed. Throw in the account balances of all the other companies of which he is a director, and the figure is a) negative, and b) running into millions.
Now it is entirely lawful for Corney and Musgrave to present Companies’ House with unaudited accounts, but it means that the balances shown are not independently verified. Effectively, these accounts are Corney and Musgrave and their associates’ own version of what their companies are worth. And by their own account their net worth is nowhere near the £200 million that Houchen claims they have to invest in the Teesworks scheme.
And even if they personally have sums that they could draw on to make this investment, they are under no obligation to make that transfer. As stated above, the partnership is not between the Corporation and the developers, it is between the corporation and two of the developers’ companies.
We have now written to Ben Houchen to ask what due diligence was carried out to ensure that the developers were in a position to make the £200 million investment that he claims is needed for the site.
He has not yet responded to that request.
Ben Houchen and the Wednesbury unreasonableness principle
In summary, Houchen has allowed two property developers to take control of Teesworks, a scheme into which significant public money is being sunk. The scheme requires expertise in land remediation, which Corney at least has been shown not to possess (and we have no reason to believe that Musgrave has either).
Contrary to his pronouncements in the press, the Corporation is not in partnership with Corney and Musgrave, but with companies owned by them.
While Houchen claims the developers are ready to invest £200 million in Teesworks, their companies’ account balances show that they do not have £200 million to spend, nor anything approaching it.
£200 million is well short of the amount needed in reality to redevelop the site in the way described by the Corporation in 2020.
As shown in our earlier articles in this series, Houchen persistently refuses to make any mention of the assets on the land. Corney and Musgrave, meanwhile, are leading the charge in the Teesworks scrap metal goldrush.
The Wednesbury unreasonableness principle is a legal concept. It states “A reasoning or decision is Wednesbury unreasonable (or irrational) if it is so unreasonable that no reasonable person acting reasonably could have made it (Associated Provincial Picture Houses Ltd v Wednesbury Corporation (1948) 1 KB 223)”
Has Ben Houchen fallen foul of this principle in allowing Corney and Musgrave to take control of Teesworks? Not necessarily, even though, to many, his decisions here seem to make little sense.
It all depends on how you interpret ‘unreasonableness’. If an elected person acts in a way that is not in the interest of the electorate, but serves the interests of his close associates, is that ‘unreasonable’, or ‘irrational’? Or is it something else?