England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR NICHOLAS STRAUSS QC SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
Case Number: HC12C00556

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/01/2016

Lord Justice Vos:

Introduction

1. These appeals raise a series of essentially 7 issues arising from the judgment of Mr Nicholas Strauss QC, sitting as a deputy judge of the High Court, delivered on 10^th December 2013 after a 6-day trial. All the issues concern the construction of two contractual documents that governed the relationships between the parties. The parties were Porter Capital Corporation ("Porter"), a factoring company incorporated in Alabama, and a shareholder guarantor of the borrower, Mr Zulfikar Masters O.B.E., who is based in England and Switzerland ("Mr Masters"). Porter factored the commercial debts of Cura Pharmaceuticals Inc, a company incorporated in New Jersey ("Cura") for a period of some 5½ years between 2004 and 2010.
2. The two documents that governed these relationships were a Commercial Financing Agreement dated 18^th November 2004 between Porter and Cura (the "CFA"), and a document entitled "Performance Covenant and Waiver" (the "PCW") also dated 18^th November 2004 by which Mr Masters (who owned 22.5% of the shares of Cura) and the other Cura shareholders guaranteed Cura's obligations to Porter. The two agreements are annexed to this judgment. I will set out only the most crucial terms in this judgment, but the CFA and the PCW need to be read in their entirety to understand the arrangements that the parties made. Clause numbers referred to in this judgment without qualification relate to the CFA.
3. The other parties to the PCW were Mr Fabio Lanzieri, the President, CEO and a 5% shareholder in Cura, who was based in New Jersey ("Mr Lanzieri"), Mr Alastair Young, a director and a 72.5% shareholder in Cura, who was based in Melbourne, Australia ("Mr Young"), and Mr Lanzieri's wife, Mrs Maria Lanzieri. Mr and Mrs Lanzieri's guarantee under the PCW was limited to the value of their interest in their home at 7, Riverside Lane, Holmdal, New Jersey (the "Lanzieris' property"), which was subject to a prior mortgage.
4. The chronology of the relationship was not complex. From 2004, Porter advanced monies to Cura under the terms of the CFA against Cura's receivables. Cura was able to monitor amounts owed, amounts held in reserve and amounts advanced on Porter's web portal. By 2^nd March 2010, Porter declared Cura in default under the CFA, claiming a balance of some $1.67 million as at 19^th March 2010. On 19^th March 2010, notice of Cura's Chapter 7 bankruptcy was issued in the US Bankruptcy Court, District of New Jersey. Porter brought three sets of proceedings under the CFA: these proceedings in England claiming some $2.67 million against Mr Masters commenced on 9^th February 2012, proceedings against Mr Young in the County Court of Victoria, Australia commenced on 5^th October 2011, and proceedings in New Jersey against Mr and Mrs Lanzieri which resulted in summary judgment on 16^th March 2012. After a mediation in Melbourne attended by Porter and Messrs Young and Masters, Porter and Mr Young entered into a settlement agreement dated 3^rd September 2012 (the "settlement agreement"), under which Mr Young paid Porter $1.2 million on 3^rd October 2012, and Porter covenanted not to pursue the proceedings against Mr and Mrs Lanzieri and to give credit for the sum it received from Mr Young in these proceedings. On 5^th October 2012, Porter's proceedings in New Jersey against Mr and Mrs Lanzieri were dismissed "with prejudice and without costs". That left only these proceedings outstanding against Mr Masters alone.
5. The judge was asked by the parties to these proceedings to decide 15 issues that he described at paragraph 46 of his judgment, and which resulted in his making 13 declarations in his order of 5^th February 2014. In addition, the judge ordered the taking of an account and later ordered Mr Masters to make an interim payment to Porter of $650,000 (both of which have been stayed pending these appeals).
6. The judge explained the way in which the CFA operated at paragraphs 9–29 by reference to its detailed provisions. I do not intend to repeat that account in this judgment. I shall, however, attempt at this stage to summarise some of the basics. Under the CFA, Porter agreed to advance money to Cura against those of its customers' receivables that it chose to purchase. Porter agreed to collect the receivables from the customer for a fee of between 2% and 6% depending on how quickly the customers paid (the "collection fee"). Porter charged Cura a range of other fees and interest. The purchase price for each receivable was its full value less the maximum collection fee (i.e. 94%), but there was a rebate of between 1% and 4% paid to Cura if the receivable was paid by the customer in less than 75 days. In respect of each invoice, Porter advanced a maximum of 75% of its value to Cura, deducting a basic "reserve" of 19% in addition to the maximum possible collection fee of 6%. Porter was to maintain a Reserve Account for Cura into which it would place the 19% reserve amount (or a greater percentage if Porter decided to do so) to be applied against charge backs or any "Obligations" of Cura to Porter defined in clause 15 as including any sums due by Cura to Porter under the CFA and any other indebtedness or liability of Cura to Porter. In practice, Porter exercised its discretion under the CFA to advance far less than the 75% of the value of the receivables to Cura. The actual average figure was approximately 20%. Exhibit B to the CFA specified that Cura should pay Porter interest on the average monthly outstanding balances on all advances at the rate of the greater of 8.5% and the Prime Rate plus 4% on an annualised basis, charged daily, collected at the end of each month until all advances are paid in full and all Obligations satisfied. Clause 8 allowed Porter to make "over-advances" to Cura to ease its short-term cash-flow problems, by way of a negative balance on the Reserve Account in return for a "one-time processing and administrative fee" of up to 3% of the over-advance, and interest on the outstanding over-advance balance at the rate of 1½% per month.

The issues on this appeal

7. The 7 issues that arise on appeal can be summarised very briefly as follows:-

i) Issue 1: the reserve account issue: whether the judge was right to decide that an over-advance with higher fees and interest only arose when there was a negative balance in the Reserve Account?

ii) Issue 2: the compound interest issue: whether the judge was right to decide that Porter was not entitled to charge compound interest on over-advances, and was entitled to charge compound interest on all advances under clause 5 and Exhibit B (to the CFA)?

iii) Issue 3: the legal fees issue: whether the judge was right to decide that Porter was not entitled to recover from Cura its legal fees and collection expenses under either clause 10 or clause 22?

iv) Issue 4: the release issue: whether the judge was right to decide that Mr Masters was not released from any part of his liability to Porter as a result of the settlement agreement?

v) Issue 5: the terminal days issue: whether the judge was right to decide that for the purpose of determining the rebate both terminal days are to be taken into account in calculating the number of days in which an invoice was paid?

vi) Issue 6: the interest on fees issue: whether the judge was right to decide that Porter was entitled to interest on its underwriting and other fees?

vii) Issue 7: the prima facie case issue: whether the judge was right to decide that Porter had shown a prima facie case that Cura owed the sums claimed and default interest from 1^st October 2008?

Connecticut law

8. It was common ground that all the issues identified in the parties' Connecticut law experts' joint report were to be decided under Connecticut law, even where there was no specifically pleaded issue of Connecticut law, provided the issue itself was pleaded; both the CFA and the PCW were expressly subject to that law. The judge refused, however, to go further so as to apply Connecticut law to issues which do not arise in the pleadings at all.
9. The judge recited certain, mostly agreed, principles of Connecticut contract law at paragraphs 55-62 of his judgment. The most relevant ones that might potentially be relevant to aspects of these appeals are as follows:-

i) When a guarantee contains clear and unambiguous language it is to be given effect according to its terms.

ii) Ambiguity exists where the parties' intent is not clear and certain from the language of the contract itself.

iii) If, but only if, a contractual provision is ambiguous (or there is a missing term, or a collateral agreement), the court can have regard to the "course of performance", that is evidence of the conduct of the parties after the contract in the course of performing it, as an aid to interpretation of the provision, although such evidence will not be conclusive on the issue.

iv) The provisions in a contract must be read together and the more specific language in a contract prevails over the more general.

Issue 1: the reserve account issue

10. The judge declared at paragraph 8 of his order dated 5^th February 2014 that Porter had wrongly charged interest at 1.5% per month under clause 8 of the CFA and not at the normal rates under Exhibit B on substantial amounts that were not over-advances according to the clear terms of the CFA.
11. Clause 8 provided as follows:-

"8. Over-Advances. While it is anticipated that the Reserve Account will carry a positive balance most if not all the time, [Porter] may, as part of this Agreement and to ease [Cura's] short-term cash-flow problems, permit the [Cura] to carry an Over-Advance balance on its Reserve Account. An Over-Advance is defined as a negative balance in the Reserve Account. Upon the establishment of each such Over-Advance, [Porter], in its sole judgment, shall have the right to charge [Cura] a one-time processing and administrative fee of up to three percent of each such amount so established as an Over-Advance. [Porter] may withhold from the Accounts Receivable or the sums it normally advances such sums as it deems necessary to satisfy any Over-Advance or negative balance in the Reserve Account. Notwithstanding anything contained herein to the contrary, [Porter] may terminate the Over-Advance facility at any time without notice to [Cura] as it deems fit. Interest shall accrue on the outstanding Over-Advance balance at the rate of one-and-one- half percent per month."

12. The judge held that this provision of the CFA was clear and unambiguous. Clause 8 provided that an over-advance only arose when there was a negative balance in the Reserve Account, so that if an advance was provided otherwise than against receivables, it was only an over-advance to the extent that the required amount was not matched by a credit balance in the Reserve Account. However, Porter has taken the view that, in such cases, the whole advance is an over-advance and has charged interest accordingly. Therefore, interest has been charged at 1.5% per month under clause 8, and not at the normal rate of interest specified in Exhibit B, on very substantial amounts which, according to the clear terms of the CFA, are not over-advances.
13. The judge rejected the contention that the fact that Porter actually operated two separate accounts could affect this issue. Porter's evidence was that the cash reserve account or the earned reserve account was the one out of which advances were paid, but that another accrued or unearned reserve account existed for sums not advanced on receivables or paid by Cura's customers. The balance on the unearned account was not, in fact, taken into account in deciding the amount of the over-advance made. The judge said that, whilst it would have made good commercial sense to have two such accounts, the CFA made no provision for them, it only provided for there to be one Reserve Account which was the accrued or unearned reserve, and clause 8 of the CFA defined an over-advance as an advance which exceeded the balance in the Reserve Account as defined. As a result, any evidence of the course of performance, which might have been otherwise relevant under Connecticut law in case of an ambiguity, fell to be disregarded.
14. Porter challenges the judge's conclusions on this issue, because it submits that clause 8 is ambiguous as to the meaning of "over-advance". The ambiguity is said to arise from the plural heading "over-advances", the reference in the 3^rd sentence of clause 8 to the "establishment of each such Over-Advance amount", and in the fourth sentence to "any Over-Advance or negative balance in the Reserve Account", which are said to point to an individual loan or advance rather than a negative balance on the Reserve Account.
15. In oral argument, Mr Mark Cawson QC, counsel for Porter, sought to reinstate the argument that Porter had been justified in operating two accounts. He pointed to the closing words of clause 5.2 that relate to the establishment of the Reserve Account and provide that: "[t]he Reserve Account may be held and applied by [Porter] in its sole discretion against charge backs or any Obligations of [Cura] to [Porter]". Porter submitted that this provision allowed Porter to "hold" and "apply" the Reserve Account in its sole discretion, allowing it either to keep it or to make it freely available to Cura as it chose.
16. Mr Iain Pester, counsel for Mr Masters, supported the judge's reasoning. In the course of argument, we asked him whether he accepted, at least, that the fee (of up to 3%) chargeable on over-advances by the 3^rd sentence of clause 8 was payable on the entirety of the over-advance loan rather than just on any negative balance on the Reserve Account. Despite some initial hesitation, Mr Pester did eventually make that concession. I think he was right to do so, because the fee charging provision in the 3^rd sentence of clause 8 refers to "the establishment of each such Over-Advance", which refers to the occasion upon which each over-advance loan is created. That points to the loan that creates the over-advance rather than the precise amount of the negative balance that is its consequence. Secondly, the fee is chargeable on "each such amount so established as an Over-Advance". Since the negative balance on the Reserve Account will be constantly changing, these words too are pointing directly to the "amount so established" i.e. the loan, rather than the negative balance.
17. Although clause 8 is not wholly felicitously drafted, that does not mean, in my judgment, that it is necessarily ambiguous. There is, as the judge rightly said, no mention at all in the CFA of two reserve accounts or of any unearned reserve account at all. I do not think that the provision of clause 5.2 allowing Porter to hold and apply the Reserve Account in its discretion gave Porter a warrant to run two accounts for the purposes of clause 8. Even if that might have been a more commercially appropriate agreement from Porter's point of view, Porter did not, I think, make an agreement that allowed it to charge its higher interest charge unless the Reserve Account as defined was in debit. I say that for the following brief reasons.
18. The infelicities pointed out by Porter are not, in my judgment, such as to call the definition of an over-advance into question. The plural "over-advances" is quite appropriate to refer to debit balances that may occur from time to time. The reference in the 3^rd sentence of clause 8 to the "establishment of each such Over-Advance amount" relates to the charging of the 3% fee, which Mr Masters now concedes is payable on the whole of the over-advance loan amount, not just the negative balance on the Reserve Account. The language used in that 3^rd sentence is, therefore, to be contrasted with the language in the last sentence (referring to the "Over-Advance balance") that provides for the interest charge. Whilst I accept that the references to both "any over advance or negative balance" in the 4^th sentence of clause 8 seems unnecessary, I cannot see how such surplus words can turn an unambiguous definition into an ambiguous one.
19. Ultimately the proper construction of clause 8 boils down to the meaning of the 2^nd and 6^th sentences of clause 8, read of course in their proper context: "An Over-Advance is defined as a negative balance in the Reserve Account" and "Interest shall accrue on the outstanding Over-Advance balance at the rate of one-and-one-half percent per month". It was suggested that the words "defined as" should be read as "to be treated as". Whilst I do not see the need to re-interpret clear words of definition, I do not think that it would make any difference if one were to do so. It is the 6^th sentence that imposes interest. That interest is to accrue on "the outstanding Over-Advance balance". The use of the word "balance" reflects the provision in the 2^nd sentence so that the element of the original Over-Advance that is to bear interest is only the "negative balance in the Reserve Account". I would, therefore, dismiss Porter's appeal on this point.

Issue 2: the compound interest issues

20. The judge's reasoning on these two related issues turned on the provisions of clause 8 set out above, and a sentence in Exhibit B which provided as follows

"[Cura] shall pay [Porter] on the average monthly outstanding balance on all advances interest, at the greater of (i) 8.5% and (ii) the Prime Rate (as published in the Wall Street Journal) plus 4.0%, on an annualized basis, charged daily, collected at the end of each month until all advances are paid in full and all Obligations satisfied".

21. On the question of compound interest under Exhibit B, the judge recorded the expert evidence on Connecticut law that is now common ground that "interest provisions will only be construed as giving rise to compound interest if they clearly so provide", but that the use of the words "compound interest" is not essential. Interest clauses have to be construed in their commercial context. The judge relied on the collection mechanism for payments in the Lockbox Account administered by Porter as making the most natural construction of "collected at the end of each month" to be "that the interest is to be debited to the account at the end of each month, with the result that it will be added to the balance monthly and so will automatically result in monthly compound interest", even though Cura was not expected to pay the interest at the end of each month. In the alternative, the judge thought that interest, if unpaid at the end of the month, became part of the "outstanding balance on all advances" and was therefore taken into account in the calculation of the following month's interest.
22. As regards the interest on over-advances, the judge held that, since the experts had agreed that, unless otherwise specified, a provision for interest means simple interest, it followed that compound interest could not be charged on over-advances. In the absence of ambiguity, the course of performance was irrelevant under Connecticut law.
23. Porter appeals the latter decision on the basis that the word "accrue" in the 6^th sentence in clause 8 providing that "[i]nterest shall accrue on the outstanding Over-Account balance at the rate of one-and-one-half percent per month" should be contrasted with the word "pay", and construed as meaning that interest should be added to the outstanding balance monthly rather than just charged to it. Porter submits that this is the commercial construction since compound interest is expressly charged for accounts under Exhibit B, and it makes no sense for only simple interest to be payable on the riskier "over-advance". If the provision in clause 8 is ambiguous, Porter claims that the course of performance that is relevant under Connecticut law supports the charging of compound interest on the over-advance. Mr Cawson relies on the fact that Mr John Land, Porter's witness on the subject, was not challenged when he said that compound interest had been charged (implicitly consistently). Mr Pester had not put to Mr Land the expert evidence of Mr Masters' forensic expert Mr Graham Nunns that compound interest had not been charged consistently.
24. Mr Masters appeals the judge's construction of the interest provision in Exhibit B. Mr Pester submits that the words are simply not clear enough. He points to authority suggesting that the word "advance" is not normally construed as including "interest", so that the use of the words "on all advances" in Exhibit B cannot include the interest that was to be collected from the previous month but remained unpaid. Moreover, it is submitted that the words "collected at the end of the month" in Exhibit B are insufficient to amount to a provision for the compounding of interest.
25. In my judgment, the three interest provisions in the CFA have first to be considered in the round. The basic interest provision is in Exhibit B. The exceptional interest provision on over-advances is in clause 8. The default interest provision is in clause 25.8. That latter provision provided that in the event of any default: "interest shall accrue on any outstanding Obligation (including unpaid legal fees and expenses) at the rate of [2%] per month". The starting point must have been Exhibit B, because if that provided for compound interest one would expect commercially to find provisions for compound interest in the more exceptional provisions. The reverse is also true as a matter of commercial expectation. If the exceptional interest provisions did not provide for compound interest, it would be surprising to find that basic interest was to be compounded. It is obviously more likely, as a matter of commercial reality, that the parties would have agreed compound interest on a default than for debts outstanding in the ordinary course. These factors would not necessarily be conclusive, but they are to be borne in mind in looking at the express wording and construing it according to Connecticut law.
26. Looking then at the three interest provisions in the round, it is clear that the default interest provision does not provide expressly or clearly for compound interest. The same applies, in my view, as the judge held, to the clause 8 interest provision. The word "accrue" cannot on any proper basis bear the meaning that Porter seeks to attribute to it. Mr Cawson's reliance on a definition of the word "accrued" from Collins American English Dictionary as "to be added periodically as an increase" and to "accumulate periodically as an increase" does not get over the fact that clause 8 has only one operative provision, not two. To provide for compound interest clearly, it would be necessary to say both that the interest would accrue at the rate of 1½ per cent per month, and that that interest would accrue from month to month or would be added monthly to the balance outstanding so as to attract interest for the following month. The word "accrue" simply means that the interest is added to the account, but does not tell you expressly what interest is to be charged upon the following month. The provision does not clearly provide for compound interest on Connecticut law principles. There is no ambiguity and no need to look at the course of performance. This conclusion makes it unlikely, but of course not impossible, that the parties can have intended to provide for compound interest under Exhibit B for unexceptional outstanding obligations.
27. In relation to Exhibit B interest, the first part of the provision tells the reader what interest is to be paid upon, namely "the average monthly outstanding balance on all advances". The second part specifies the rate. The third part says that the interest so levied is to be charged daily, and the fourth part provides that such interest is to be "collected at the end of each month". That fourth part looks at first sight to be about payment rather than compounding. To read the provision as expressly providing for compounding, it is necessary to read in words to the effect that "if the interest to be so collected is unpaid, it shall be added to the advance so as itself to be subject to interest in the following periods". The argument for Porter, of course, is that there is no purpose in the words "collected at the end of the month" if they do not at least mean that the interest will be added monthly to the account. In my judgment, however, the words do not expressly and clearly provide for compound interest for essentially three reasons. First, I do not agree with the judge that the interest becomes, if unpaid at the end of the month, part of the "outstanding balance on all advances". Interest can only become part of an outstanding balance of an advance if it is expressly agreed that it should. Interest, as Mr Pester submitted, is not automatically to be regarded as an advance. Secondly, as Lord Justice Davis pointed out in argument, the use of the words "on all advances" actually makes it less easy to see that compounding was intended. Without those words, one might have been able to infer that an unpaid interest instalment had to become part of the "outstanding balance" due to Porter, but with them it is less easy to do so. Finally, I am unable to read in the necessary words of the kind suggested above to make it clear that compounding was agreed. On the agreed principles of Connecticut law, simple interest is presumed unless clear words provide for compounding. Exhibit B does not, in my judgment, contain such clear words. I do not think that the collection mechanism relied upon by the judge can displace that conclusion.
28. I would, therefore, dismiss Porter's appeal on clause 8 interest, and allow Mr Masters' appeal on Exhibit B interest. Under Connecticut law, in my judgment, neither provision provided for compound interest to be charged.

Issue 3: the legal fees issue

29. Porter claimed US$756,233.08 in legal fees by the start of the trial, initially under clause 22. The fees were incurred partly in these proceedings, but also in the proceedings against other guarantors in New Jersey and Australia. A schedule of fees, but no attorneys' bills, were provided to Mr Masters, and no formal demand had been made for those fees to be paid in that amount by either Cura or Mr Masters.
30. Against that background, the judge held that the fees were not recoverable because clause 22 provides that "[Cura] agrees to reimburse [Porter] on demand for the following …" and no formal demand had ever been made for payment. Porter was not assisted by clause 2 of the PCW which provided that in the event of any default (as defined but including under the CFA) "the Obligations hereby guaranteed shall become … due and payable … forthwith without demand or notice", because until there was a demand on Cura, there was no default in payment of any Obligations under the CFA. The judge then held that clause 10(b), which entitled Porter to recover all enforcement costs and expenses with no requirement for a demand, was also no help to Porter, because it covered a whole range of expenses arising in different circumstances, providing that the failure to reimburse any of them constituted a Default, triggering a whole range of remedies. On its proper construction, clause 10(b) also required a demand, whether or not one had regard also to clause 22, because otherwise there could be the absurd situation where a Default occurred without Cura even knowing that it was obliged to pay an expense or the amount that it had to pay. Once clause 22 was taken into account, the obviously necessary and sensible requirement for a demand prevailed. Finally, the judge relied on the case of Storm Associates Inc. v. Baumgold 186 Comm 237 440 A.2^nd 306 where the Supreme Court of Connecticut held that "a contractual provision for reimbursement of fees incurred (whether legal or medical) is enforceable on presentation of an appropriate bill", deciding that since no such bill had been presented, no liability had arisen.
31. Porter contends that the judge was wrong about the need for each of a formal demand and the presentation of a bill. The words "on demand" in clause 22 of the CFA were no more than a commercial term of art meaning "when asked". This construction, submits Porter, chimes with clause 1 of the PCW by which Mr Masters agreed to guarantee: "full payment and prompt and faithful performance by [Cura] of all its present and future indebtedness and obligations to [Porter]". Clause 1 of the PCW also made clear that "the words 'indebtedness' and 'obligations' are used herein in their most comprehensive sense … including without limitation attorneys' fees, whether due or not …". The reference to "attorney's fees" had to be to those arising under clause 22 of the CFA. Clause 14 of the PCW waiving the requirement of any action against Cura bolstered that submission. Moreover, there was no absurdity in making the liability arise before notification gave rise to the actual obligation to pay. As for the requirement for a bill to be presented, Porter submits that the judge misconstrued Storm Associates supra, which was just a procedural decision concerned with overcoming the usual U.S. rule against costs-shifting, rather than a decision as to a bill being a prerequisite to liability in all cases.
32. Mr Pester submitted that the judge was right. He emphasised that no written demand for these fees under clause 34 of the CFA had ever been served on Cura and that it was common ground that it was now too late for such a demand to be served after Cura's bankruptcy. Clause 10(b) was only apt to apply to non-litigation expenses rather than the attorneys' fees covered expressly by clause 22, because the general must give way to the specific. Clause 1 of the PCW did not, said Mr Pester, assist Porter, because there was no demand under clause 22 and therefore Cura had no crystallised liability which could be the subject of the guarantee.
33. In my judgment, the judge was right to say that the words "on demand" in clause 22 required a written demand for the fees before Cura could be liable for them. That is the normal meaning of the words used. But at that point, I am afraid, I part company with the judge's reasoning. Before considering clause 1 of the PCW, it is necessary properly to understand the distinction between clauses 22 and 10(b). It is worth setting out the pertinent parts as follows:-

i) Clause 22 provided as follows:-

"[Cura] agrees to reimburse [Porter] on demand for the following:

22.1 The actual amount of all fees, costs and expenses, including but [not] limited to attorneys' fees, which [Porter] may incur in any action to enforce [the CFA] or any related transaction … including but not limited to , any complaint to determine non-dischargeability of any guarantor of [Cura's] debt …"

22.2 the actual fees, expenses, and costs, including but not limited to photocopying … travel, expert witness fees, attorneys' fees, and all other fees, costs and expenses incurred in complying with any subpoena or other legal process attendant to any litigation in which [Cura] is a party".

ii) Clause 10 provided:-

"Payment of Expenses and Taxes; Indemnification.

[Cura] will (a) pay or reimburse [Porter] for all of [Porter's] put-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of, and any amendment, supplement, or modification to the Transaction Documents … including without limitation, the fees and disbursements of counsel to [Porter]; (b) pay or reimburse [Porter] for all its costs and expenses incurred due to the enforcement or preservation of any rights under the Transaction Documents, and the Verification of the Accounts Receivable and the credit worthiness of the customers, including without limitation, fees and disbursements of counsel to [Porter]; (c) pay, indemnify and hold [Porter] harmless from any and all recording and filing fees …; (d) pay for monthly statements at $0.73 cents each plus all postage expended by [Porter]; … (g) pay, indemnify, and hold [Porter] harmless from and against any and all claims, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever, whether threatened, pending or determined (including attorney's fees and court costs now or hereafter arising from this Agreement or any activities of the company) (referred to as the "Indemnified Liabilities") …"

34. Clause 22 is a specific provision requiring Cura to "reimburse" Porter on demand for certain incurred expenses. Clause 10, on the other hand, is a provision requiring Cura to either "pay" Porter, "pay or reimburse" Porter, or "pay, indemnify and hold harmless Porter" for a broad range of costs and expenses. There is, as the judge said, some overlap between the costs and expenses covered by clause 22 and those covered by clause 10(b). But that does not, in my judgment, mean that clause 10(b) can be ignored or written down, nor does it mean that the court is justified in reading the requirement for a demand into clause 10, whether in part or across all its sub-provisions. The point here is that clause 10 requires Cura to indemnify Porter, and clause 22 requires Cura to pay only when the amount is demanded. An analogous distinction is well known in the law of liability insurance as between indemnity policies and "pay to be paid" policies. It is a crucial difference, because the clauses here give rise to two different species of liability, which could quite comprehensibly have been agreed to cover the same costs or expenses. I do not, therefore, accept Mr Pester's submission that clause 10(b) is dealing only with non-litigation expenses. The words do not admit of that interpretation. They require Cura to "pay or reimburse Porter for all its costs and expenses incurred due to the enforcement … of any rights under the [CFA and the PCW]". Enforcement can include litigation. At first sight, the attorneys' fees claimed fall full square within clause 10(b) as much as they do within clause 22.1.
35. In my judgment, the principle that the general must give way to the specific cannot apply here where the clauses in question, whilst general and specific in the sense of the expenses covered, are not of the same legal genus.
36. Moreover, I have no doubt that clause 1 of the PCW puts an end to any uncertainty there might have been. That clause provided as follows:-

"[The guarantors] unconditionally guaranty to [Porter] full payment and prompt and faithful performance by [Cura] of all its present and future indebtedness and obligations to [Porter]. The words "indebtedness" and "obligations" are used herein in their most comprehensive sense and include any and all advances, debts, obligations, and liabilities of [Cura] heretofore including without limitation attorneys' fees, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether [Cura] may be liable individually or jointly with others, or whether recovery may be or hereafter become barred by any statute of limitations or otherwise become unenforceable".

37. In my judgment, it is hard to see how a liability under clause 22 in respect of attorneys' fees is not a contingent liability of Cura, even if that liability has not yet crystallised. It is even harder to see how attorneys' fees that Cura is liable for under clause 10(b) should not fall due from the guarantors under clause 1 of the PCW. The provisions of clause 2 of the PCW (referred to above) and of clause 14 of the PCW (specifically providing that no action is first required against Cura) reinforce this construction.
38. For these reasons, therefore, I cannot agree with the judge as to Mr Master's liability for attorneys' fees, costs and expenses. Plainly they must be reasonable fees, costs and expenses. There will need to be a further hearing to determine the issue of how much is due and any claims made by Mr Masters that the sums claimed are unreasonable.
39. It only remains to consider the judge's final point to the effect that the case of Storm Associates supra meant that no attorneys' fees could be recovered without the bills having been provided to Mr Masters. Let me say at once that I cannot see any justification for Porter's stance on this issue. If there were material privileged contents of the bills, they could perhaps have been legitimately redacted, but there was no justification for Porter's point blank refusal to provide the bills they seek to have reimbursed. If they fail to do so in the taking of the account, they will bear the consequences. But, as Mr Pester was ultimately constrained to accept, there is nothing in Storm Associates that can require there to be a bill delivered as a pre-requisite to the liability for costs and expenses under either of clause 22 or clause 10. The Court in Storm Associates merely held, as a matter of procedure, that in the U.S. court context, a contractual provision for reimbursement of fees incurred can be enforced by presentation of a bill. It did not say that no liability under the terms of a quite different agreement could arise in the absence of such a bill.
40. I would, therefore, allow Porter's appeal on this issue and declare that the legal fees and other collection expenses claimed by Porter can be recovered from Mr Masters under clause 1 of the PCW subject to their being shown not to have been reasonably incurred.

Issue 4: the release issue

41. On this issue, paragraph 4 of the judge's order provided that "Mr Masters was not released, whether entirely or pro tanto, from his obligations under the PCW by reason of [the settlement agreement]". This is a slightly surprising declaration since the judge also recorded at paragraph 68 of the judgment that Porter had covenanted in the settlement agreement to give credit for the sum received in these proceedings (which had been done). What I think the judge meant to order was that Mr Masters was not released from his obligations under the PCW by either Porter's release of Mr and Mrs Lanzieri's guarantee under the PCW up to the value of their interest in their home, or by Porter's release of the mortgage over the Lanzieris' property.
42. The judge held that the question turned on the construction of two aspects of clause 12 of the PCW which provided that the guarantors "hereby consent that from time to time, before or after a default by [Cura], with notice to or assent from the [guarantors], any security at any time held by or available to [Porter] for any obligation of [Cura] for all or any portion of the Obligations may be exchanged, surrendered or released …". The two aspects were whether Mr and Mrs Lanzieri's property was "security for any obligation of [Cura]", and whether clause 12 of the PCW required "notice or assent" for any release of security. The judge held that the guarantees were security for Cura's obligations, and the Lanzieri property was not security only for the guarantors' obligation as Mr Masters had submitted. The judge also held that he could apply the Connecticut law approach to construction which allowed him to alter the literal language of the contract without resort to the equitable doctrine of reformation to correct the error which was plain on the face of the PCW. The only reasonable interpretation of clause 12 of the PCW was, therefore, that the words "with notice or assent from [the guarantors]" were to be read as meaning "without notice or assent from [the guarantors]". The first words of clause 12 of the PCW made that clear, as did common sense, the normal commercial position, and consistency with other clauses in the PCW. In any event, it made no difference to the result, because Mr Masters had to show under Connecticut law that he had suffered loss as a result of such a release, and he could not do so, since Porter would only have had to notify him of the release to allow it to do what it did.
43. Mr Masters submits that nothing was received by Porter in return for the release of Mr and Mrs Lanzieris' guarantee or the release of their property from the mortgage provided for in clause 20 of the PCW. The $1.2 million was paid by Mr Young alone. The principle of impairment of securityship status has been recognised by the Supreme Court of Connecticut in Lestorti v. DeLeo 298 Conn 466, 479 (2010) where it was held that "[i]n general, if a creditor acts in such a manner as to impair the suretyship status of a secondary obligor, the secondary obligor's duties are discharged to the extent of the impairment".
44. On the first point decided specifically by the judge as to the construction of clause 12 of the PCW, Mr Masters submits that there is a clear conceptual difference between security for the principal debtor's obligations on the one hand and security for the guarantors' obligations on the other hand. The term "Obligations" was defined in clause 1 of the PCW as referring to Cura's obligations, and clause 20 of the PCW makes clear that the mortgage of the Lanzieris' property was security for the obligations of all the guarantors. In any event, the guarantee should be construed under Connecticut law against Porter, who drafted it. On the second point, Mr Masters submits that the judge's approach was surprising but the point is not specifically appealed as it is academic. Rather, it is submitted that, if the judge had correctly decided the first point, he would have had to decide a range of submissions made by Mr Masters as to the burden of proving that Mr Masters had not sustained loss being on Porter, and the consequence of the release being that Mr Masters will now no longer be able to recover contribution from Mr and Mrs Lanzieri to the value of their property.
45. In my judgment, the judge was right as to the first point of construction because clause 12 of the PCW makes it clear that the guarantors consented to the release of "any security at any time held or available to [Porter] for any obligation of [Cura]". It does not seem to me to be possible to say that the Lanzieris' property was not security available to Porter for Cura's obligations. It is obviously right to say that the Lanzieris' property was mortgaged to secure the obligations of all the guarantors. But the guarantors were providing security to Porter for Cura's obligations, and the mortgage of the Lanzieris' property was provided to secure the guarantors' obligations under the PCW which was itself to secure Cura's obligations to Porter. Thus, it is wrong to submit that the mortgage was not granted to secure, albeit indirectly, the obligations of Cura to Porter.
46. I am fortified in this view by a consideration of clause 22 of the PCW which relates to subrogation. It provides that: "[n]otwithstanding any payments made by the [guarantors] … [the guarantors] shall have no right of subrogation in and to [the CFA] or any other security held by or available to [Porter] for the Obligations [defined in clause 1 of the PCW] or the payment thereof …". The "no subrogation" provision itself is irrelevant to the proper meaning of clause 12 of the PCW, but it is striking that the draftsman has used the same phrase "security … held by or available to [Porter]" for Cura's obligations in both clauses 12 and 22 of the PCW. In clause 22 of the PCW, the "security held by or available to Porter" can only be referring to the mortgage over the Lanzieris' property mentioned in clause 20 of the PCW. Accordingly, it would be illogical and inconsistent to construe the same words in clause 12 of the PCW as excluding a reference to the mortgage over the Lanzieris' property.
47. For that reason, it seems to me that the judge was right to hold that clause 12 of the PCW operated as Mr Masters' consent to Porter releasing the Lanzieris' from the guarantee and the Lanzieris' property from the mortgage backing that guarantee.
48. This conclusion disposes of Mr Masters' appeal on the release issue, but I should say for the avoidance of doubt that I agree with the judge that the qualification in clause 12 of the PCW is to be read as meaning "with[out] notice to or assent from [the guarantors]" for the reasons he gave. The other points raised by Mr Masters do not, therefore, arise. I would, therefore, dismiss Mr Masters' appeal on this point, although I would for the reasons already given wish to amend the declaration in paragraph 4 of the judge's order.

Issue 5: the terminal days issue

49. This was a construction issue as to the period of time represented by the provisions of Exhibit B. Exhibit B provided that if an invoice was paid by Cura's customer "between 1-30 days", a certain rebate would be allowed, and if the invoice was paid "between 31-45 days", another rebate was allowed, and so on. The judge decided that the words "between 1-30 days" referred to a period separating two points in time, so that the language of the contract justified the inclusion of both terminal dates.
50. Mr Masters submitted that the judge was wrong for essentially 3 reasons. First, the experts had given evidence that the normal U.S. approach was to include only one terminal date, subject to certain exceptions none of which applied here. Secondly, the word "between" meant if anything the space between the terminal points not including either terminal date, and thirdly the provision should once again be construed against Porter as the drafter seeking to rely on it. The amount at issue under this issue is said to be $71,083.87 plus interest.
51. I find this a somewhat confusing issue, since it seems obvious that if an invoice must be paid by a date 30 days from, say, the 1^st of the month, it should be paid by 31^st of that month (if the month has 31 days). On the judge's analysis, however, the wording used here meant that, if an invoice were issued on 1^st of the month, the maximum rebate would only be obtained if the payment were to be made by 30^th of that month. The first analysis notionally gives the customer 30 days plus the number of hours on the first day between the time of issue and midnight. The second analysis gives the customer 29 days plus the same number of hours.
52. In my judgment, the general rule under U.S. law also reflects the normal meaning of the words used. The words "between 1-30 days" must mean that if the payment is made 30 days after the invoice is issued, the rebate is earned. If the invoice is issued at noon on the 1^st day of the month, 30 days later is noon on the 31^st of the month. Thus, if the judge's construction is adopted, Cura and its customer are deprived of 12 hours within which they ought to have been allowed to pay and obtain the benefit of the full rebate. The result, of course, is that the full rebate is actually earned for 30.5 days, but that is the consequence of allowing the full 30 days rather than less than 30 days. Exhibit B plainly contemplates that the time allowed will be measured in whole days ending at midnight not, for example, at close of business. In the (somewhat confusing) language that the parties and the judge have adopted, for the purpose of determining the rebate the first terminal day is to be excluded in calculating the number of days in which an invoice was paid. I think the judge was wrong on this issue and Mr Master's appeal should be allowed.

Issue 6: the interest on fees issue

53. Clause 12.3 of the CFA provides that the underwriting fee of $45,000 "shall be due and payable on the date hereof out of the monies advanced hereunder to [Cura] by [Porter]". The judge recorded that that was not done. He then rejected Mr Masters' submission that there was no provision in the CFA for interest on fees (apart presumably from clause 25.8), and that interest had therefore been wrongly charged. In the judge's view, if a fee was due but unpaid, the amount of the fee was ipso facto advanced, and was to be added to the amount on which compound interest was payable under Exhibit B.
54. Mr Masters submits that a fee is not an "advance", and the judge was wrong to say that it could be. Exhibit B only allows interest to be charged on "all advances". The fee in question here was an unpaid fee, but never an advance.
55. It seems to me that there is some support for Mr Masters' view in the wording of Exhibit B itself that says that interest will be payable "until all advances are paid in full and all Obligations are satisfied". It will be recalled that "Obligations" are defined in clause 15 as including "any other indebtedness or liability of [Cura] to [Porter] …" including "all future advances or loans which may be made at the option of [Porter] to [Cura]". Thus "Obligations" would certainly include unpaid fees, but it is by no means so clear that "all advances" can include unpaid fees.
56. I raised with the parties in the course of argument the question of whether the fee in question was in fact deducted from the Reserve Account established and maintained by Porter under clause 5.2. That seems to be what happened at least in respect of the initial $45,000 underwriting fee. Ultimately, however, the point turned out to be a red herring as there was no evidence before the judge as to any agreement as to how that or any other fee should be treated. In these circumstances, Mr Pester submitted that this question turned on the proper construction of clauses 12.3 and Exhibit B, and not on the actual accounting treatment of the fees.
57. It was also argued that the specific wording of clause 12.3 turned the unpaid underwriting fee into an advance within Exhibit B, because it was "due and payable … out of the monies advanced hereunder to [Cura]". It was, therefore, paid out of the advance, which cannot have reduced the advance itself, so the sum in question still remained due as an advance. In my judgment, even this argument cannot turn an underwriting fee into an advance. It does not matter how it was agreed that the fee should be paid. The fact was that it was not paid. The CFA contemplated that it would be paid, not, as Mr Cawson submitted, that it would not. Had the parties made an agreement as to what was to happen in the event of non-payment, they would probably have provided for ordinary interest on unpaid fees as well as on advances. But they did not do so, expressly or otherwise.
58. In my judgment, therefore, the judge was wrong to decide that Porter was entitled to interest pursuant to Exhibit B on its underwriting and other fees. I would, therefore, allow the appeal against paragraph 12 of the judge's order declaring that "Porter can recover interest on an underwriting fee of $45,000 and on any other fees due under the CFA but not paid", since the intention of this declaration seems to have been that interest was payable on the relevant fees under Exhibit B, which I do not think it was.

Issue 7: the prima facie case issue

59. This issue was first reduced by half because Mr Pester abandoned the argument that Porter had failed to show that there was a prima facie case that monies were due from Cura. Thereafter, the final part of the issue concerning interest was sensibly conceded by Porter at the hearing.
60. In the briefest of outline, the judge decided that Porter had shown on the balance of probabilities that Cura owed it the sums claimed because of various documents it had produced including copious schedules. That transferred the evidential burden to Mr Masters to show that some or all of the amounts claimed against Cura were not due from Cura or that he had been released. It was, as I have said, no longer suggested at the hearing that Porter had failed to establish a prima facie case.
61. Mr Masters did however pursue his appeal on the question of whether the judge had been right to decide that Porter was entitled to charge default interest at 2% per month under clause 25.8 from 1^st October 2008 to 2^nd March 2010. The declaration to that effect at paragraph 13 of the judge's order was said to be in conflict with the declaration at paragraph 7 of the order that clauses 25.8 and 25.9 were penalties and unenforceable under Connecticut law, but that Porter could charge "default interest at the contractual rates for advances and over-advances".
62. Mr Cawson conceded that the two decisions of the judge could not be reconciled, and agreed that interest from 1^st October 2008 was payable at the rates specified under either clause 8 or Exhibit B. I would, therefore, allow this part of the appeal and declare that Porter was only entitled to charge contractual rates of interest under either clause 8 or Exhibit B from 1^st October 2008 to 2^nd March 2010.

Conclusions

63. I can, therefore, summarise my conclusions on the 7 issues appealed as follows:-

i) On the reserve account issue (paragraph 152-159 of the judgment and paragraph 8 of the judge's order), the judge was right to say that clause 8 of the CFA defined an over-advance as an advance which exceeded the balance in the Reserve Account as defined, so clause 8 interest was only payable on such balances. The extent of that interest needs to assessed at a further hearing.

ii) On the compound interest issues (paragraphs 119-125 of the judgment and paragraph 6 of the judge's order), the judge was wrong to say that compound interest was payable under Exhibit B, and right to say that compound interest was not payable under clause 8. Thus, only simple interest was payable under the CFA.

iii) On the legal fees issue (paragraphs 160-170 of the judgment and paragraph 9 of the judge's order), the judge was right to say that the words "on demand" in clause 22 required a demand for the fees before Cura could be liable for them, but wrong to say that a demand was necessary before fees and expenses could fall due under clause 10 of the PCW (read together with clauses 1, 2 and 14 of the PCW). There will need to be a further hearing to determine the issue of how much is due and any claims made by Mr Masters that the sums claimed are unreasonable. There is no pre-requisite for a bill to be delivered.

iv) On the release issue (paragraphs 102-111 of the judgment and paragraph 4 of the judge's order), the judge was right to hold that clause 12 of the PCW made it clear that the guarantors consented to the release of "any security at any time held or available to [Porter] for any obligation of [Cura]", so that the Lanzieri property was security available to Porter for Cura's obligations.

v) On the terminal days issue (paragraphs 173-176 of the judgment and paragraph 11 of the judge's order), the judge was wrong. The words "between 1-30 days" must mean that if the payment is made 30 days after the invoice is issued, the rebate is earned so that, in the language of the case, the first terminal day is not to be taken into account in calculating the number of days in which an invoice was paid.

vi) On the interest on fees issue (paragraphs 177-178 of the judgment and paragraph 12 of the judge's Order), the judge was wrong to decide that Porter was entitled to interest pursuant to Exhibit B on its underwriting and other fees.

vii) On the prima facie case issue (paragraphs 76-77 and 179 of the judgment and paragraphs 2 and 13 of the judge's Order), it was open to the judge to decide as a matter of fact on the evidence he heard that Porter had shown a prima facie case that Cura owed the sums claimed, but the judge was wrong to declare that Porter was entitled to default interest under clause 25.8 of the CFA from 1^st October 2008 to 2^nd March 2010.

64. I would therefore allow both appeals to the extent indicated above and otherwise dismiss them.

Lord Justice Davis:

65. I agree.

The Chancellor:

66. I also agree.

Annexed documents:

The CFA

The PCW