England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION (MR JUSTICE HOLLAND)

		Royal Courts of Justice Strand, London, WC2A 2LL Friday 9 November 2001

LORD JUSTICE ROBERT WALKER:

1. This appeal is concerned with an oral agreement made during the first half of August 1996 between a company called Williams Corporate Finance plc ("WCF") and a property developer, Mr Paul Adler. WCF was the claimant below and is the appellant in this court. Mr Adler was the second defendant below and is the only respondent in this court. The first defendant was Mr Gary Holland. The third defendant was Central Link Properties Ltd ("Central Link"), a company formed or acquired by Mr Adler for the purpose of the residential redevelopment of property at 188-194 St John St, London EC1. At trial there was an issue as to whether WCF's oral contract was with Central Link rather than with Mr Adler himself, but that is no longer in contention.
2. WCF carried on business at St Albans as a corporate finance consultant. It had two directors, Mr Peter Williams (who owned 80 per cent of the shares) and Mr Holland (who owned 20 per cent of the shares). At the time of the contract with Mr Adler relations between Mr Williams and Mr Holland were rapidly deteriorating and there was a final parting of the ways on 22 October 1996, when Mr Holland resigned his directorship (and then or soon afterwards transferred his shares to Mr Williams). During the previous three months Mr Adler had dealt sometimes with Mr Williams and sometimes with Mr Holland, but never with the two together. It was a recipe for misunderstandings, if not worse, and a good deal worse has been alleged on both sides. In the circumstances it is necessary to look closely at the pleaded issues, the documentary evidence (such as it is), the judge's findings, and the grounds of appeal.
3. The proceedings started life as a claim by WCF against Mr Holland alone, alleging various breaches of his duty as a director. All the sums claimed were relatively small, the claim in respect of WCF's dealings with Mr Adler being the largest. Later the proceedings were extended: WCF joined Mr Adler and Central Link as defendants and claimed from them £26,000 for a brokerage fee on the arrangement of finance for the St John's Street redevelopment. On 28 November 2000 Holland J dismissed WCF's claim against Mr Adler and Central Link, and WCF appeals with the permission of Waller LJ.
4. The amended statement of claim pleaded (in paras 4A, 4B and 4C) an agreement for a fee of £26,000 plus VAT "in consideration for [WCF] procuring certain financial arrangements for [Central Link]". One of the principal issues below, and in this court, has been what those "certain financing arrangements" were. The amended statement of claim pleaded that the fee was payable on acceptance of the offer of finance, and that WCF did procure an offer of £2.4m from Dunbar Bank plc ("Dunbar") on 6 September 1996, but that the invoice dated 19 September 1996 had not been paid. There was an alternative quantum meruit claim.
5. This pleading was supplemented by further information under Civil Procedure Rule Part 18. It was said that the fee was based on 1 per cent of a facility of £2.65m which had been requested, but on the basis that the fee would not in any event be less than £26,000. As to the terms of the proposed facility the Part 18 information stated:

"The facility to be procured was a 12 month loan facility on the best terms available subject to the instructions of [Mr Adler] acting on behalf of [Central Link] or himself. As such the claimant initially sought to obtain a facility of £2.65m including a £250,000 contingency fund. The security initially proffered was:

(i) a first fixed and floating charge over the assets of Newco [in the event, Central Link];

(ii) a first legal charge over 188-194 St John Street;

(iii) a personal guarantee from [Mr Adler] initially proposed at £200,000.

These were initial proposals to commence negotiations rather than terms to be obtained and as such were subject to bank valuation."

6. The defence of Mr Adler and Central Link took a different view of what had and had not been agreed:

"The finance arrangements which [WCF] agreed to procure were a facility from [Dunbar], with mezzanine funding obtained through a Mr Ivan Spiro in the event that any cash were required apart from Dunbar's own arrangement fee. [Mr Adler] and [Central Link] would not otherwise be required to provide either cash or security for the transaction, other than a charge on the property itself. It was agreed that if such arrangements were procured [WCF] would receive, from [Central Link], an arrangement fee of 1% of the facility offered, in addition to a like sum payable to Dunbar. There was no discussion of VAT. Nor was there any discussion or expectation of any fee being payable if a transaction were arranged on terms different from those pleaded above. [WCF] had been introduced to [Mr Adler and Central Link] by [Mr Holland] as a specialist in arranging 100% finance and Mr Williams of [WCF] proposed the transaction on that basis and no other."

7. At trial there were fewer undisputed facts than one would expect to find in a commercial dispute between businessmen. Even the documentary evidence is suspect in some respects. But it is common ground that before the St John's Street project Mr Adler knew Mr Holland, but not Mr Williams, and that he was introduced to WCF by Mr Holland. When Mr Adler first contacted WCF Mr Holland was on holiday, and so Mr Adler's first conversations were with Mr Williams. Then on or about 14 August Mr Williams went on holiday. By then Mr Holland was back in the office and on 13 August Mr Williams passed Mr Adler's file to him. But later Mr Williams became involved again, as Mr Holland was spending much of his time out of the office working with a firm called Anderson Ross with which WCF hoped to collaborate (it was that matter which was the last straw in the business relationship between Mr Williams and Mr Holland).
8. The judge said that in the total absence of file notes it was difficult to trace the course of events. However there are some letters, written proposals and other documents which can be reliably dated and from which it is apparent that the judge's summary of the facts was not wholly accurate. The judge said of Mr Adler's first approach to WCF (on 5 August 1996) with a view to raising finance:

"It is common ground that his aspirations in this regard were demanding: his input in terms of cash should be limited to £50,000 so that effectively 100% finance would be needed to bring the moneys available up to the sum required - and he did not want to have to give any personal guarantees."

9. However it seems that it must rapidly have become apparent that these aspirations were not merely demanding; they were wholly unrealistic. The first witness statement of Mr Holland (a witness inclined to be favourable to Mr Adler) said that Mr Adler wanted "a specified maximum cash contribution and no personal guarantees" but in his supplementary witness statement Mr Holland corrected that:

" … by the time the application was submitted [to Dunbar on 15 August 1996] [Mr Adler] had already agreed that a personal guarantee would replace part of his cash contribution, even though he had not originally wanted to offer any guarantee. The point is that Mr Adler had not wanted to provide personal guarantees in respect of sums over the £250,000. The terms of the application were sanctioned by both Mr Williams and Mr Adler before it was submitted to Dunbar."

10. On 7 August Mr Williams put to Mr Ivan Spiro of Minton Holdings Ltd a written proposal showing a budget of £3.05m made up as follows:

	£m
purchase price	1.55
transaction costs, including interest	0.55
development costs	0.80
contingencies	0.15
	3.05

This proposal stated that a bank was to provide £2.65m and Mr Adler £0.05m and Mr Spiro was being asked to fill the gap in the funding by providing £350,000 mezzanine finance (that is, high-risk but potentially high-yielding capital). WCF's case is that when the mezzanine finance was not forthcoming the problem was overcome by limiting the total requirement to £2.7m and adjusting the cash-flow forecast. That is borne out by a cash-flow forecast dated 15 August 1996, which showed a maximum net outlay of about £2.652m as at April 1997, rapidly turning round with large receipts from sales of flats forecast in May 1997. By 15 August 1996 Mr Holland had taken charge of the matter, and on that date (as his supplementary witness statement records) Mr Holland submitted to Dunbar, with Mr Adler's approval, a written proposal under which Mr Adler would be guarantor to the extent of £200,000. The proposal also referred to a broker's fee of one per cent.

11. The judge described these events as follows:

"Whilst Mr Williams was away matters proceeded. During that fortnight and the early part of September there were certain developments. Dunbar's terms were advanced; they included the provision of personal guarantees. Initially this did not greatly concern Mr Adler since he reasoned that once the mezzanine funding was promised then this requirement would be withdrawn."

Mr Paul Downes (for WCF) submitted, and I accept, that here the judge was mistaken as to the sequence of events. Mr Spiro had declined to provide mezzanine finance before Mr Williams went on holiday, and there is no evidence that Mr Adler could expect his personal guarantee (to a limit of £200,000) to be merely temporary. However there is no doubt that Dunbar was increasingly demanding in its requirements, both before and after it issued a formally approved credit facility on 6 September.

12. The position as at 11 September appears from a letter of that date from Mr Holland to Mr Perry Kurash of Dunbar. On the same day Mr Holland wrote to Mr Adler expressing a shared frustration with Dunbar and stating at the end of the letter:

"Nevertheless, the Dunbar facility in its current form at least enables you to complete the project and this is what we must concentrate on at the moment. I do, however, acknowledge that the facility does not accord with your instructions and that the quantum of fees which may be payable to my firm will need to be re-negotiated."

13. On 13 September Central Link exchanged contracts to buy the property for £1.55m. On 19 September Mr Williams (who was now taking a closer interest in the matter, with Mr Holland mostly out of the office) wrote to Mr Adler as follows:

"I write with reference to our telephone discussions on 17^th September.

As you know, the facility procured from my company with Dunbar Bank dated 6^th September 1996 has been accepted by you in respect of the project detailed above. As such, my fees in the sum of £26,000 (twenty six thousand pounds) plus VAT, are now due and payable.

You have requested that payment of these moneys be spread over a period of time and after consideration and discussion with you payment has been agreed as follows:

1. You pay the sum of £13,000 (thirteen thousand pounds) plus VAT on or before the 27^th December 1996.

2. The balance outstanding of a further £13,000 (thirteen thousand pounds) plus VAT, will be paid on or before the 15^th December 1996.

I shall be grateful if you will therefore sign a copy of this letter to acknowledge that my comments are accepted by you in all respects and accordingly I await hearing from you further."

There is an obvious oddity about the dates specified for payment of the two instalments. This was not resolved, but neither side placed any reliance on it.

14. Mr Adler did not reply to that letter. He did not deny that it was sent but he denied that he had made any such agreement on the telephone, either on 17 September or at all. In his witness statement he accepted that Mr Williams had frequently telephoned him, proposing to settle for sums of from £20,000 down to as little as £5,000 (any such communications would, it seems, have been without prejudice but no point was taken on that); but Mr Adler either refused to take his calls or brushed them off. In his evidence in chief Mr Adler said that these telephone calls were probably after 19 September.
15. There was therefore an acute conflict of evidence which the judge did not fully resolve. He referred to it as being a "difficult factual issue" and then (after some legal analysis which I shall have to come back to) said:

"If it were necessary I would find that there were telephone conversations as the letter recites with the meat of the discussions being in a telephone call from Mr Adler provoked by an initial short call from Mr Williams. Why should Mr Williams refer to "telephone discussions" if there had been none such?"

The judge did not in his judgment make any general assessment of the quality of the evidence of the various witnesses, as opposed to some comments on their conduct (he called Mr Holland's conduct over two letters to Mr Adler irresponsible and Mr Adler's failure to reply to Mr Williams' letter of 19 September foolish and discourteous).

16. The judge's criticism of Mr Holland was for sending two letters to Mr Adler without consultation with Mr Williams, at a time when their business relationship was rapidly deteriorating. One was the letter of 11 September: the other, which attracted the stronger criticism, was that of 14 October. Mr Holland said that he wrote this letter "on impulse" when he got back to WCF's office one evening after spending the day at Anderson Ross. It was as follows:

"I refer to our recent discussions concerning the continual shifting of the terms of the Dunbar facility.

Not only have they reduced the facility amount and structure, and required you substantial personal guarantee, it now transpires that you will be required to give them a first charge over another unencumbered freehold property as additional security. This effectively means that they are 100% covered for their exposure.

As you know, I have always sought to be absolutely fair in my business dealings with you. In the circumstances, given that my firm has not obtained a facility for you in accordance with your requirements at the outset (by virtue of lack of time, you will nevertheless utilise the facility), I confirm and acknowledge that no fee is due and payable to Williams Corporate Finance plc by you personally or by Central Link Properties Limited. I am happy to leave any ex-gratia fee for the work we have undertaken in your hands.

I am sorry that the transaction has not been concluded as you wished but hope that we can work together soon on another project with a better end result."

17. WCF's case was that it was written without authority, and was known to Mr Adler (who had then ignored Mr Williams' letter and invoice for nearly a month) to have been written without authority. If the letter was written on 14 October 1996 it was written eight days before Mr Holland resigned as a director of WCF. The judge recorded Mr Holland's evidence that he wrote the letter without having seen the up-to-date file, posted it himself and left a copy for filing, but could not explain why it was not in fact filed.
18. The judge made his main findings in para 17 of his reserved judgment. He found that there was an oral contract between WCF and Mr Adler himself (not Central Link). That is not challenged. He found that WCF's obligation was to obtain funding (not merely to use its best endeavours to do so) and that also is not challenged. The judge did not specify a date for the making of the oral contract, but he found that it was made by Mr Holland on behalf of WCF, which strongly suggests that it must have been after Mr Williams went on holiday on 13 August. But by then the proposal for the mezzanine funding had been dropped. So had the unrealistic suggestion that Mr Adler would incur no personal responsibility at all, apart from putting up £50,000.
19. Mr Downes submitted that by 15 August 1996 Mr Adler's aspirations had come down to the essential stipulation that 100 per cent of the requisite finance (revised downwards to £2.7m) should be obtained from Dunbar, apart from Mr Adler's £50,000 contribution, and that he had accepted (however reluctantly) that he could not hope to avoid any personal guarantee and any collateral security (that is, security in addition to a fixed and floating charge of Central Link's assets and undertaking). Having studied all the documentary evidence (apart from the three letters which may be self-serving) I find it to be consistent with Mr Downes' submission, and inconsistent with the submission of Mr Adrian Salter, that Mr Adler was still stipulating for these further requirements at the time of the oral contract.
20. Mr Adler's evidence in the course of cross-examination seems to have been rather discursive and argumentative, but on the whole it seems to me to be largely consistent with WCF's case. Both sides relied on one exchange:

"Q … And you were interested in 100% with additional security. A Correct.

Q Did you complain about the fee at this stage? A It was something that was not discussed at this stage in time.

Q It did not come up? A No, but I was aware, as Gary [Holland] was, that the parameters were changing all the time.

Q That goes without saying, Mr Adler. But the point is that you were still happy to go forward because your key requirement was being met – 100% finance. A It wasn't 100% finance, was it. They were taking personal guarantees, and they were taking property in lieu of, which was collateral."

If that reflects Mr Adler's thinking at the time, he must have had an idiosyncratic understanding of what 100 per cent finance meant.

21. At an earlier stage in the cross-examination Mr Adler had been asked about his initial instructions (when Mr Holland had made a note "no guarantees personal"):

"Q It was very, very highly geared. And no mention in your witness statement that there was to be no other security.

A At the initial instructions, no, they weren't."

22. When Mr Adler was asked about the cash-flow projection (prepared on 15 August 1996) the following exchanges occurred:

"Q The point is this, and I put it to Mr Holland and he agreed with it. The reason that on these figures you do not need the Minton Holdings funds is because on these figures your cashflow accounts for sales of units before all the expenditure is incurred. That is right, is it not? A If that is what you say, yes.

Q It is obvious. Look at page 221. A What you are saying is by that period of time certain monies have come back.

Q Yes. A Okay. Fair enough.

Q And these transactions put forward at this point, at least you did not count on the Minton Holdings money in cashflow terms at all. A No.

Q I am grateful. Was 1% still the fee at this point? A Had it been 100% funding, then, yes.

Q So this was still 1%, the fee. A As initially requested, yes.

MR JUSTICE HOLLAND: So long as it was 100%. That was the key for you – the 100% finance. A 100%."

23. I am very conscious of the dangers of an appellate court fastening on to selected passages of a fairly long cross-examination without having had the trial judge's advantages of seeing and hearing the witnesses. However neither side showed any enthusiasm for a new trial – far too much time and money has been spent already on this relatively small case – and there are some reliable documents against which the oral evidence can be tested. I have with some hesitation come to the conclusion that the judge was wrong in deciding that the fee of £26,000 never became due, because (in the judge's words) "there never was any package on offer to Mr Adler as had been stipulated as triggering entitlement to the fee". The judge was in my respectful view mistaken as to what the essential stipulations were, because he failed to trace the stages through which the transaction developed, and the timing of those stages.
24. The judge approached Mr Williams' letter of 19 September on the basis that the fee of £26,000 had never become due. Even on that basis it is surprising that he treated the letter as having no significance, despite being prepared to find as a fact that the telephone conversations referred to in the letter did take place. Whether the fee had become due or not, the oral agreement reached in the conversations would be supported by consideration as the compromise (with an allowance of time for payment) of a disputed debt. Mr Salter said that this had not been properly pleaded, but the point was made in particulars dated 28 September 1999; and in any case no pleading point seems to have been raised at trial. The fact that the consideration was not spelled out in the letter is immaterial: Williams v Roffey Brothers [1991] 1 QB 1.
25. It remains to consider Mr Holland's letter of 14 October. The judge was evidently suspicious about this letter, but did not think it necessary to make any definite finding. It is therefore best to approach the points raised in the respondent's notice on the footing, questionable though it is, that the letter was written and sent on the date which it bore, and that Mr Holland had authority to bind WCF.
26. Even on that footing, the letter cannot in my view provide a defence to the claim. Mr Salter submitted that it amounted either to a contractual release, or to a waiver. But the vague reference at the end of the letter to maintaining goodwill cannot possibly turn the letter into a contractual document. Nor was there any pleading, or any evidence, of detrimental reliance on the letter by Mr Adler.
27. I would therefore allow this appeal. It is not necessary to consider Mr Downes' alternative submissions based on quantum meruit, or unjust enrichment, which was not raised in the appellant's notice (but was referred to in the accompanying skeleton argument).

LORD JUSTICE KEENE:

28. I agree.
Order: Appeal allowed; judgment for the Claimant for £26,000 with interest at the judgment rate from 1^st Jan 1997; Appellant to have costs here and below except so far as the costs below were, the subject of adverse orders for costs in any event or so far as they were attributable to issues between the Claimant and other parties not involved in the appeal; interim order for costs made in the sum of £7,500 on account of costs. (Order does not form part of the approved judgment)