England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		13/05/2010

Mr Justice Lewison:

Introduction

1. The principal issue in this case is whether Sportsdirect.com Retail Ltd ("SD") became entitled to a proprietary interest in two parcels of shares before 2.29 pm on 8 October 2008 when Kaupthing Singer & Friedlander Ltd ("KSF") entered administration. If it did, there are subsidiary issues whether it retained that proprietary interest until February 2010. On the latter date the administrators of KSF agreed to transfer the shares to SD for a consideration part of which was paid to KSF; and part of which now represents the subject-matter of the dispute. The issue is one of real difficulty. Against the background of the onset of a global financial melt-down the parties were working at breakneck speed and without the time to think through the ramifications or consequences of what they were doing.
2. Mr Richard Handyside QC and Mr Tom Smith argued the case for the administrators. Mr George Leggatt QC and Mr Richard Hill argued the case for SD.

The facts

3. On 4 April 2007 KSF and SD entered into a master agreement intended to govern sales and purchases of shares between them. This agreement is called the Global Master Repurchase Agreement ("GMRA" or "the Repo"). The latter is less of a mouthful so that is the name I will use. In anticipation of the Repo SD had opened an account with Singer & Friedlander Investment Management Ltd (SFIM) on 2 April 2007. SFIM is a wholly owned subsidiary of KSF. The account was opened in SD's former name of Sports World International Ltd. The application form applied for an execution only dealing service, for which the use of SFIM's safe custody service was compulsory.
4. The legal structure of the Repo involved an outright sale and repurchase of securities, but it is common ground that in commercial terms it provided a form of secured financing for SD. In very broad terms the way it works is as follows. SD started with a block of shares. It sold those shares to KSF. The sale was an outright sale in the sense that KSF acquired full legal and beneficial title to the shares. Legal title passed to a nominee company within the Kaupthing group called Sinjul Nominees Ltd ("Sinjul"). It is an account holder in CREST and, as I understand it, became the registered shareholder of the shareholding as far as the company whose shares were traded was concerned. In all the transactions that followed it appears that legal title to the shares never shifted, but remained in Sinjul throughout. The subsequent transfers were therefore no more than transfers of beneficial entitlements to (or equitable interests in) the shares. The precise method in which Sinjul maintained its records of beneficial entitlement to the shares which it held as nominee is not clear. A letter from Sinjul dated 11 December 2009 implies that shares were held in a CREST account of Sinjul named "Sports World". But this does not mesh neatly with the application for an execution only account with SFIM. I was told (although this is not in evidence) that in fact Sinjul holds all its shareholdings as nominee for (and hence on trust for) SFIM and that it is SFIM which holds sub-accounts for individual clients. It is unfortunate that the evidence did not disclose the precise mechanics.
5. At this point I digress to say a little about CREST. Traditionally legal title to shares was evidenced by a share certificate; and share ownership was transferred by the execution of a stock transfer form. However, in more modern times shares can be uncertificated (or "dematerialised"). Where shares are uncertificated there is no share certificate. Instead title to shares is recorded in a computer based system called a central securities depository (CSD). In the UK the operation of CSDs is governed by the Uncertificated Securities Regulations 2001 in which a CSD is called a "relevant system". Regulation 2 (1) defines this as:

"a computer-based system and procedures which enable title to units of security to be evidenced and transferred without a written instrument…"

6. A class of shares is a security, and an individual share is a unit of that security. The only system in the UK approved by the Treasury is CREST. It is operated by Euroclear UK & Ireland Ltd which is the "Operator" for the purposes of the 2001 Regulations. The only persons who can be registered in CREST's operator register of members are either "system-members" or personal members (in which case the personal member operates through a sponsor). A system-member must nominate a bank to be its settlement bank. That bank pays for the member's purchases and receives its proceeds of sale. CREST maintains two accounts for each member: a member account and a cash memorandum account. The member account shows what securities each member owns; and the cash account shows how much credit he has with his settlement bank. When a buyer and a seller have agreed terms for a sale instructions to make the payment and to transfer the shares are sent to CREST by computer. The computer matches the buying instruction and the selling instruction and settles the transaction. It operates on the basis of delivery versus payment (DVP). In theory this is simultaneous: the money is not released unless ownership of the shares passes and vice versa. Settlement is carried out by simultaneously informing the Bank of England's inter-bank payment system to transfer the purchase price from the buyer's to the seller's account and transferring shares from the seller's account to the buyer's account in the operator register of members. This is the point at which legal title passes. The CREST reference manual also envisages what it calls "own account transfers". This kind of transfer requires the single input of instructions by the member which transfers securities between its own member accounts.
7. Under the terms of the Repo KSF assumed an obligation to transfer equivalent shares to SD on the repurchase date against payment of the repurchase price by SD. The shares to be transferred on the repurchase date were not the same shares as those which had been sold by SD to KSF: they were to be equivalent. This underlines the structure of the Repo; namely that the seller retains no legal or beneficial interest in the securities which are the subject of the Repo. This was explicitly confirmed by paragraph 6 (f) of the Repo.
8. The sale and repurchase were to take place on the same day. The difference between the selling price and the repurchase price in effect represented KSF's charge for finance. The repurchase price was calculated in accordance with the Repo; and would not necessarily represent the market value of the shares. If the market value of the shares rose between purchase and repurchase, KSF was not entitled to the benefit of this. If the market value fell, then the repurchase price would exceed the trading value of the shares. To deal with this potential exposure each party had rights under paragraph 4 of the Repo to call for margin in relation to an exposure as between the repurchase price and the trading value of the securities that had been sold.
9. Although the sale and re-purchase were to take place on the same day, they could be "rolled" to the next day, and the next day and the next day, and so on. This was done by the issue of what are in effect contract notes. It is clear that no stock transfers or equivalent documents were entered into. Nor, as far as the evidence goes, was any repo transaction effected via CREST. Computer entries were made (apparently in SFIM's computer records) which typically read either "Repo" or "Reverse Repo". It is not clear whether Sinjul altered its records as a result of these "rolls", but the likelihood is that it did not, at least until the final events which I shall recount in due course.
10. A number of the provisions of the Repo are relevant to the arguments which each side deployed. Paragraph 1 stated:

"(a) From time to time the parties hereto may enter into transactions in which one party, acting through a Designated Office, ("Seller") agrees to sell to the other, acting through a Designated Office, ("Buyer") securities and financial instruments ("Securities") (subject to paragraph 1(c), other than equities and Net Paying Securities) against the payment of the purchase price by Buyer to Seller, with a simultaneous agreement by Buyer to sell to Seller Securities equivalent to such Securities at a date certain or on demand against the payment of the repurchase price by Seller to Buyer.

(b) Each such transaction (which may be a repurchase transaction ("Repurchase Transaction") or a buy and sell back transaction ("Buy/Sell Back Transaction") shall be referred to herein as a "Transaction" and shall be governed by this Agreement, including any supplemental terms or conditions contained in Annex 1 hereto, unless the parties agree otherwise in writing."

11. Paragraph 3(c) said that on the Purchase Date for a Transaction, the Seller was to transfer the Purchased Securities to the Buyer "against the payment of the Purchase Price" by the Buyer. Paragraph 3(f) said that on the Repurchase Date, the Buyer was to transfer Equivalent Securities to the Seller "against the payment of the Repurchase Price" by the Seller. These paragraphs contemplate that the transfer of securities (or equivalent securities) was to take place simultaneously with payment; and this is confirmed by paragraph 6 (c) which says:

"Unless otherwise agreed in writing between the parties, under each Transaction transfer of Purchased Securities by Seller and payment of Purchase Price by Buyer against the transfer of such Purchased Securities shall be made simultaneously and transfer of Equivalent Securities by Buyer and payment of Repurchase Price payable by Seller against the transfer of such Equivalent Securities shall be made simultaneously."

12. This was also confirmed by the accompanying facility letter which said that all payment of funds and delivery of securities would be "on a Delivery Versus Payment (DVP) basis via Euroclear or a recognised domestic settlement system."
13. Paragraph 6 (a) said that payment had to be made in "immediately available freely convertible funds of the relevant currency". Securities were to be transferred by one of four methods: (i) by duly executed instruments of transfer or assignment in blank; (ii) through the book entry system of CREST; (iii) through any other agreed securities clearance system; or (iv) any other method mutually acceptable to seller and buyer. In practice it was the last of these methods that was used. Paragraph 6 (d) recognised that simultaneous payment and transfer might be difficult to achieve. It stated that either party might waive its right to simultaneity "provided that transfer and/or payment shall, notwithstanding such waiver, be made on the same day". Paragraph 6 (g) said that time was of the essence of the agreement.
14. Paragraph 10 (a) of the Repo defined a number of Events of Default. These included:

"(ii) If the parties have specified in Annex 1 hereto that this sub-paragraph shall apply, Seller fails to deliver Purchased Securities on the Purchase Date or Buyer fails to deliver Equivalent Securities on the Repurchase Date and the non-Defaulting Party serves a Default Notice on the Defaulting Party or

(iii) Seller or Buyer fails to pay when due any sum payable under sub-paragraph (g) or (h) below, and the non-Defaulting Party serves a Default Notice on the Defaulting Party

(iv) Seller or Buyer fails to comply with paragraph 4 and the non-Defaulting Party serves a Default Notice on the Defaulting Party"

15. Paragraph 10 (a) went on to say that on the occurrence of an Event of Default paragraphs (b) to (f) "shall apply". Paragraph 10 (h) said:

"If Buyer fails to deliver Equivalent Securities to Seller on the applicable Repurchase Date Seller may -

(i) if it has paid the Repurchase Price to Buyer, require Buyer immediately to repay the sum so paid;

(ii) if Seller has a Transaction Exposure to Buyer in respect of the relevant Transaction, require Buyer from time to time to pay Cash Margin at least equal to such Transaction Exposure;

(iii) at any time while such failure continues, by written notice to Buyer declare that that Transaction (but only that Transaction) shall be terminated immediately in accordance with sub-paragraph (c) above …"

16. Paragraph 10 (i) said:

"The provisions of this Agreement constitute a complete statement of the remedies available to each party in respect of any Event of Default."

17. Annex 1 expressly disapplied paragraph 10 (a) (ii). Thus the parties agreed that a mere failure to deliver equivalent securities on the repurchase date did not entitle the other party to serve a default notice.
18. The principal shareholdings with which I am concerned, and which were dealt with under the Repo, are shareholdings in Blacks Leisure Group plc ("Blacks") and in JD Sports Fashion plc ("JD Sports"), two companies in the sports and leisure industry. The Blacks shares amounted to a 29.9% stake (i.e. fractionally short of the percentage required to trigger a mandatory offer under the Takeover Code). The JD Sports shares amounted to a 13.6% stake. Although the precise mechanics are not in evidence I understand that these shareholdings were initially sold by SD to KSF accompanied by whatever documents were needed to transfer legal title, as a result of which Sinjul became the registered shareholder. Thereafter the two shareholdings were repurchased and resold on a daily basis. In other words the sale and repurchase was rolled from day to day.
19. October 2008 was a turbulent time in the financial markets. Lehman Brothers had collapsed in the previous month. In early October KSF asked SD to refinance its positions under the Repo. In essence this would mean a final repurchase by SD of amongst other shareholdings, the two shareholdings and the reacquisition of legal title. The price was calculated under the terms of the Repo. There were 12,153,071 Blacks shares and 5,775,255 JD Sports shares. The aggregate price was £16.3 million-odd.
20. Almost all the dealings between the parties in the critical few days took place on the telephone. Almost all the calls were recorded and transcripts of them are in the case papers. There is thus no real dispute about who said what to whom and when.
21. In very early discussion it was contemplated that a firm of brokers called Tradition would act for SD; but that was quickly changed to another firm of brokers called Charles Stanley. Mr Keith Pinker at Charles Stanley was the principal person in charge. Mr Dave Forsey, the company secretary of SD, was the person from whom he took instructions and the decision maker at SD. On the KSF side the protagonist at this early stage was Mr Andy Cuthill of Kaupthing Singer & Friedlander Capital Markets Limited ("KSFCM"). At 15.43 on 7 October Mr Cuthill and Mr Forsey had a telephone conversation during which they discussed arrangements for the repurchase by SD of the shares in Blacks and JD Sports through Charles Stanley. SD had apparently arranged to transfer funds to Charles Stanley in anticipation of the transaction. It was envisaged that the settlement of the transaction through Charles Stanley would take place on a "stock against cash" basis. As Mr Cuthill put it:

"… I'm going to put transactions in today, selling him the JDs and selling him the Blacks Leisure … he will then instruct his people to pay me those sums of money that we talked about and we will deliver stock against the cash tomorrow."

22. Mr Cuthill and Mr Pinker spoke about a quarter of an hour later. Mr Cuthill put to him that the easiest way to do the deal was for him to instruct SFIM "who hold the stock for us" to talk to Charles Stanley's CREST man and arrange for the delivery of the two stocks against payment. Mr Pinker understood that this was "trade today and settle tomorrow".
23. Despite arrangements within CREST for simultaneous payment and transfer of legal title Mr Pinker foresaw a problem. It is not entirely clear what the precise problem was, but the upshot was, as Mr Spall of KSF (who was KSF's CREST expert) explained to Mr Cuthill, that Charles Stanley were not prepared to release the money without already having received the shares, whereas KSF would not transfer the shares without having received the money. It looked as though there was an impasse. Towards the end of the afternoon, at 17.32, Mr Cuthill spoke to Mr Lilwall of Charles Stanley. Mr Cuthill suggested that the way out was to put a "zero priority marker" on the stock. He explained that what this meant was that Mr Lilwall put the trades in at his end, CREST see that they match but they do not actually transfer the position until the cash is delivered. It is clear from the transcript however that Mr Cuthill did not know precisely how this worked. Mr Lilwall's concern seems to have been that something might happen while the trades were stuck in the CREST system. He was unwilling to trust KSF to release the shares once the cash had been delivered. So his suggestion was that Charles Stanley would deposit the monies in escrow with two solicitors and that the money would be released to KSF once KSF delivered the shares to Charles Stanley via CREST. Mr Cuthill thought that that might work and said that he would consult his colleagues. Quarter of an hour later Mr Lilwall rang back, having consulted his CREST expert. He reported that he had been told that "CREST does it all for us"; and suggested that they both put in a bargain in the morning. As he put it:

"So we both do that, then effectively the bargain, as long as you match it and we match it then the bargain won't settle unless we've got the money and you've got the stock."

24. Now it was Mr Cuthill who was nervous about using CREST. He thought that there was a risk of non-payment even though the shares would have been delivered through CREST. Mr Lilwall thought that this could be overcome by the use of a marker; but it was left that discussions would resume in the morning. In fact Mr Cuthill rang once more at 18.07 to say that KSF would deliver the shares and then Charles Stanley would pay.
25. Early the following morning on 8 October Mr Cuthill spoke to Mr Spall. Mr Cuthill reported that KSF's treasury department were willing to put the shares into CREST and rely on Charles Stanley settling afterwards. At 8.43 Mr Spall spoke to Mr Pinker at Charles Stanley. He told Mr Pinker that Mr Cuthill had said that KSF were prepared to release the stock prior to the money coming over. Mr Pinker was understandably pleased. The money was to be sent by telegraphic transfer to a bank account whose details Mr Spall gave Mr Pinker. Mr Spall confirmed this arrangement by an internal e-mail, approved by Mr Cuthill. At 9.03 Mr Pinker reported to Mr Forsey that KSF were willing to send the stock in advance of payment. This kind of transfer is known as a "free of payment" transfer. He confirmed this in an e-mail to Mr Forsey; but there were difficulties in sending it and it does not appear to have been sent successfully until 9.47.
26. However, in the meantime Mr Stoddart of KSF's treasury department intervened. He said in an internal e-mail at 9.10 that:

"The below transfer is not free of payment between Charles Stanley. It's DVP."

27. At the same time he telephoned Mr Cuthill to say that the transfer was to be DVP "to avoid the settlement risk". Mr Stoddart said that the trade could be "cash matched" in CREST; and that he was sure that DVP worked. In an internal e-mail at 9.23 he confirmed that:

"These trades will settle in Crest DVP with NO stamp duty."

28. Mr Cuthill spoke to Mr Lilwall at 9.52. Mr Lilwall seems to have heard already that KSF would not trade except on the basis of delivery against payment. Mr Cuthill replied that he had been told that "CREST actually works". Mr Lilwall was unhappy. His fear was that if they put in £18 million and "something happens we get caught in the maelstrom".
29. At 10.21 Mr Forsey confirmed his agreement to the proposal to release the stock in advance of payment, not realising that that proposal had already been countermanded by Mr Stoddart. Twenty minutes later he spoke to Mr Cuthill. Mr Cuthill assured him that it "will be sorted". At 10.49 Mr Stoddart spoke to Mr Lilwall. Mr Lilwall said that there were "mixed messages". They had been told that KSF would deliver free into CREST with subsequent payment but that now it was "coming to us delivery versus payment". Mr Stoddart said that he was in charge of the transaction. He said that "we cannot release the stock until we have been paid"; so that DVP was the sensible thing for both parties because there would be no settlement risk in either direction. Mr Lilwall said that he was not comfortable with that because there was a settlement risk. Mr Stoddart pointed out that:

"… there is a bit of a stalemate here because obviously we cannot release any stock unless we have got guarantees that the cash is arriving and I guess you have got exactly the same problem in the reverse."

30. Mr Lilwall again suggested a form of escrow arrangement involving lodging money with a solicitor of KSF's choice. Just over 10 minutes later at 11.03 they spoke again. Mr Stoddart reiterated that DVP was the most sensible way to do it. He said that under CREST "the stock and the cash will move simultaneously". Charles Stanley were unconvinced. Mr Lilwall's parting proposal was that SD would send the money to an escrow account with a solicitor, KSF would deliver the stock free and then the escrow account would pay. Mr Stoddart said he would ring back. Two minutes later Mr Cuthill spoke to Mr Forsey and reported that they were fast approaching an impasse again. Mr Forsey reiterated that Charles Stanley were not comfortable with Mr Stoddart's suggestion of using CREST. At 11.43 Mr Stoddart himself spoke to Mr Forsey. He repeated that CREST operated a delivery versus payment system. He said that there was "zero settlement risk" and told Mr Forsey that instructions would have to be delivered to CREST by noon in order to get the transaction done that day. Mr Forsey suggested that Mr Stoddart should ring Mr Hurst at Charles Stanley. Mr Stoddart rang Mr Hurst almost immediately. Mr Stoddart pressed Mr Hurst to agree to the "market standard" of delivery against payment. He said that KSF's treasury was eliminating any possibility of settlement risk; and that KSF's account manager at Euroclear agreed. Mr Hurst was not convinced. He said that "these are not normal markets and if Kaupthing were suspended or hammered while this transaction was going through then we think that we would have an exposure that would take weeks to unravel." He again suggested that the money be held by SD's solicitor in escrow, to be released to KSF once KSF had given free delivery of the shares. Mr Stoddart noted the suggestion but said that he could not see getting that done that day. Instructions had to be given to CREST by 12 o'clock (which was now less than 15 minutes away) and KSF would also have to be comfortable with the chosen solicitor. He also pointed out that if the money was held in escrow Charles Stanley would still have a charge over it. Mr Hurst agreed. Mr Stoddart and Mr Hurst agreed that this could leave KSF short of the money. Mr Stoddart said that that was not a risk that KSF were willing to take; to which Mr Hurst retorted that he was not willing to take the risk of Kaupthing going under. He went so far as to say that if Mr Forsey instructed the trade to go through DVP he would not accept the instruction. His fear seems to have been a fear that Charles Stanley themselves might have a liability or exposure. What he would be prepared to do, however, was to send cash if Mr Forsey instructed him to. At any rate the men agreed that they were getting to the stage when the transaction was going to fail that day; and that there was an unfortunate stand off. Mr Stoddart immediately rang Mr Forsey. It was now 11.55. Mr Stoddart reported that Charles Stanley were not budging on DVP and that "the escrow thing means it's going to fail today". Mr Stoddard reiterated:

"… no one is comfortable with taking settlement risk, we just can't do it. We can't send out the stock until the cash has arrived."

31. Mr Stoddart then reported that Charles Stanley had said that "if you gave the instruction to send over the cash to us, which they can do, then we'll send the stock free of payment straight away." Mr Forsey inquired what was the chance of KSF not sending the stock; to which Mr Stoddard replied "Zero. On the JD and Blacks". He also confirmed that this method did not attract the 12 o'clock deadline. Mr Stoddart's parting shot was that he could not take the settlement risk he was not allowed to take; and that he had spoken to people as senior as he could and they would not take the settlement risk. At 11.58 Mr Lillywhite of KSF joined the conversation. He said:

"In terms of paying the cash in, if you pay the cash in to us, essentially we are just going to put that stock back in your box, if you like, at [SFIM] which is ringfenced from the rest of the group, so in terms of … facilitating the transfer of the stock to keep Charles Stanley happy and do it free of payment, that would be, if you like, the most risk free way of doing it. I mean the ideal way of doing it is doing it DVP but they are just not going to budge on it at all."

32. Mr Forsey suggested that there must still be some element of risk; but Mr Lillywhite reassured him that there was "no chance of our not delivering those shares". He amplified this in the following exchange:

"AL: The shares would just sit in your account at Singer & Friedlander Investment Management – so you would own them if you like – you would own those shares outright in that…

DF: And that cannot be sort of used or liquidated or anything – in the position that somebody else could

AL: Could grab as an asset at the bank

DF: Yes

AL: No

DF: And you could put that in writing to me, could you?"

33. The next conversation between Mr Lillywhite and Mr Forsey began at 12.15. Mr Lillywhite said that KSF had everything bar 700,000 shares in JD Sports and 575,000 shares in Blacks. The conversation continued:

"AL: So if you were willing, in line with our conversation previously, to make that CHAPS payment to instruct Charles Stanley to make that payment to us, for the residual stock and I can give you that, that, the amount of money we are lending against that stock, then we've got that stock here ready to deliver free of payment to Charles Stanley.

DF: Which stock are you willing to send free delivery?

AL: So that's JD and Blacks Leisure but it would be against that, as we discussed a little earlier, your instruction for a CHAPS payment to essentially come back, but I would send you an email just confirming the segregated nature of the account at Singer & Friedlander Investment Management

DF: So let me clarify. You're still not willing to send what you would normally be willing to do to someone like Charles Stanley, any stock free delivery? Is that correct?

AL: That's correct. Well we are willing to undertake the normal process which is delivery versus payment, absolutely but that's them pushing back on that.

DF: Yeah but you are not willing to send the stock free delivery are you?

AL: Not without receipt of the cash

DF: You want the cash first?

AL: Correct. Or simultaneously."

34. In the course of further discussion Mr Lillywhite reiterated that the logistics issue was that Charles Stanley were not willing to do delivery versus payment; and Mr Forsey said that it was impossible to send money out in advance of sending the stock. Mr Forsey then asked whether what was proposed was cash up front with instantaneous return of stock. The conversation continued:

"AL: Delivery versus payment with them, or essentially, we will put all of the stock into your account in the investment management business which is segregated, you provide us with the cash and then we will send it free of payment to Charles Stanley.

DF: And where is it held currently?

…

AL: Currently, its in Treasury, so that's our account effectively, with that investment management business. So we can transfer that almost immediately.

DF: How can we get comfort that that legal process is safe and that transaction of moving it into that segregated client account is safe?

AL: That's the crux.

DF: That is the crux of it yes?

AL: Exactly. I need to send you a note to that effect to give you that comfort.

DF: And I need legal people to sort of say that it is then ringfenced and secure?

AL: Sure."

35. A few minutes later, at 12.31, they spoke again. The crux of the conversation was as follows:

"DF: Well. We are going to go down the option of moving it into that segregated account and then paying you

AL: Right OK

DF: So can you get that stock moved

AL: Sure

DF: All that you have, obviously, into that segregated account and then email me what we need to do next and confirm that it is segregated and protected.

AL: Yes, that is exactly what I am doing now.

DF: You're doing it now?

AL; I'm doing it now

DF: So it will move, so shall I stay on the line?

AL: Sorry, well I can tell you verbally if you like what cash we need to receive in order to deliver free of payment

DF: Yes, can you confirm that it is in the segregated client account

AL: Yes, we will do."

36. At 12.51 Mr Lillywhite e-mailed Mr Forsey, copied to (among others) Mr Stoddart. The e-mail read:

"Dave

Following our conversation earlier please see below a summary of what we are proposing.

JD Sports:

We have 5,775,255 shares that we are able to deliver

The loan amount against this stock is £11,032,218.56

Blacks Leisure:

We have 12,153,071 shares that we are able to deliver

The loan amount against this stock is £5,269,043.11

The total loan amount against this stock is £16,301,261.67 this is what we require to be delivered to the SWI Sterling Account via CHAPS transfer - on receipt of these funds we transfer the stock Free Of Payment to Charles Stanley in CREST.

We have moved the stock to the SWI Account at SFIM – to be clear, this is a segregated account with a separate legal entity. SFIM is subject to distinct financial resources requirements, continues to satisfy those requirements and stock will be held in a separate nominee account. In the unlikely event of SFIM's insolvency, those stock holdings would be ring-fenced from a liquidator and would be owned beneficially by you."

37. Mr Wallace says in his first witness statement that the shares were transferred to an account held by SFIM which, at the time, was named "Sports World International". This is confirmed by screenshots. These show that the shares were credited to account number 09142, of private client 2007002. That was the account with SFIM that SD had opened in anticipation of the Repo. The accompanying description of the instruction, as recorded in the computer records reads "Outright". The computer records do not give the precise time of these events, but in the light of the evidence I find that the movement took place between 12.30 and 12.50, probably in the course of the one minute conversation between Mr Lillywhite and Mr Forsey at 12.31.
38. SD's primary argument is that these events had the legal effect that beneficial ownership of the shares passed from KSF to SD, with the consequence that the shares (or the proceeds of sale of the shares) are not available for distribution among KSF's general creditors. SD's secondary argument is that this conversation amounted to a binding contract for the sale and purchase of the shares. That contract was (and remains) specifically enforceable, with the result that the effect of the contract is that beneficial ownership of the shares passed from KSF to SD.
39. At 13.04 Mr Stoddart sent an internal e-mail to Ms Crowther instructing her to freeze all SD accounts immediately until payment had been received. He did not inform anyone at SD that he had given this instruction.
40. At 13.13 Mr Forsey replied to Mr Lillywhite's e-mail of 12.51. He said:

"Excellent thanks we will look to move forward on this basis asap. I will be in touch and bob mellors will be coming over to see you personally to progress this face to face. Please call me thanks"

41. At 14.29 Floyd J made an order appointing the administrators, and KSF entered administration. One effect of the administration order was that the Administrators became responsible for the management of the affairs, business and property of KSF (Insolvency Act 1986, Sch. B1, para. 68(1)). Neither KSF nor any officer of KSF was then able to exercise any "management power" without the consent of the administrators (Insolvency Act 1986, Sch. B1, para. 64(1)). For these purposes, a "management power" is any "power which could be exercised so as to interfere with the exercise of the administrator's powers" (para. 64(2)(a)).
42. At some time in the afternoon Mr Mellors of SD went to KSF's offices to oversee the mechanics of payment but could not gain access. He e-mailed Mr Lillywhite at 16.21. He asked Mr Lillywhite to speak to Mr Berman at Mischon de Reya (Mishcons), who were SD's solicitors, to deliver the share certificates on their undertaking to hold them to KSF's order. He said that SD were putting them in funds to settle the outstanding facility. At 17.43 Mr Thorvaldson (the CEO of KSF) also asked Mr Lillywhite to speak to Mr Berman. No one at SD gave any instruction for the making of a CHAPS transfer into the account mentioned in Mr Lillywhite's e-mail.
43. On the same day, at 18.21 one of the joint administrators sent a letter to all KSF's staff. The "take home message" was that it was business as usual. The letter said in terms that the existing management structure would remain in place; and that the directors and their existing management team would remain responsible for the day to day operations. In my judgment this letter amounted to consent by the administrators to the exercise of management powers by the personnel at KSF within the scope of their pre-administration authority.
44. At some point on the same day NatWest, which was the clearing bank though which KSF accessed the CHAPS system, ceased to act on KSF's instructions to transact outward payments through CHAPS. However, it continued to receive inward payments for the credit of KSF. Those payments were received either into KSF's nostro account (an account one bank holds with a bank in a foreign country, usually in the currency of that foreign country) or into a suspense account at RBS to which the administrators had access. Ms Crowther of KSF had herself said in a telephone call at 17.46 that RBS were freezing payments to KSF. She was in the process of setting up a new account at HSBC.
45. At 18.54 Mr Peter Welch, the Head of Business Development at KSFCM, emailed Ms Crowther, Mr Cuthill, Jonathan Berman and Kevin McGuinness at Thring Townsend Lee & Pemberton solicitors ("TTLP"). The e-mail read:

"Following various conversations with Andy and I, would you please liaise between yourselves to ensure that the requisite monies are paid to release the above shareholdings. We are keen to see this done in the morning. To be clear:

Lucy is the Asset Manager

Jonathan is Lawyer acting for [SD]

Kevin is the Lawyer acting for Kaupthing…

Kevin – will you speak to Jonathan tonight …to ensure we can get this sorted out for first thing tomorrow."

46. Mr McGuinness spoke to Mr Berman that evening. Following his conversation he e-mailed Ms Crowther and Mr Cuthill (among others) at 20.01 asking for details of the account to which payment was to be made. Although Mr Welch replied on the following day at 9.02 saying that "we really need to get this done today" Mr Lillywhite instructed Ms Crowther at 9.35 not to do anything "right now as we are in standstill". Ms Crowther accepted that instruction but at the same time informed him that there was an account at HSBC into which they would request the money be paid.
47. At 10.11 Mr Cuthill spoke to Mr Stoddart. Mr Stoddart confirmed that he had transferred the Blacks and JD Sports Shares to SFIM on 8 October 2008 because "we'd have made an agreement with Dave Forsey"… and that he was happy with that as long as we sent the e-mail, he said that he would instruct the cash"; and that KSF had transferred the shares simultaneously. In answer to the question, what right would the administrators have to prevent SFIM releasing the stock?, Mr Stoddart said "I don't know, I guess. If the stocks are SFIM, I guess we've made the instruction to block the SFIM account. ….Yeah, OK, I guess that's what's all, that's everything that's holding it at the moment." It was concluded that, if KSF knew that they had the cash, then the stock could be released.
48. On 9 October 2008 Mishcons transferred £19,000,000 to TTLP. It was sent on the basis of an undertaking given by Mr McGuinness to hold the money to Mishcons' order. Mr McGuiness confirmed receipt at 12.39. The monies sent by Mishcons to TTLP were returned by TTLP to Mishcons, at Mishcons' request, on 10 October 2008. They were never released to KSF. On the same day Mr Berman wrote to one of the joint administrators. In his letter he said that there had been an agreement for the return of the shares but before "a suitable mechanism had been agreed for the repayment of the Sterling debt and the return of the [shares]" the administration had intervened. His letter also said that SD was willing to put Freshfields (the administrators' solicitors) in funds sufficient to repay the entirety of the Sterling and Euro debt under the Repo. There is no reply to that letter in the case papers.
49. On 13 November KSF made a margin call for a total of £6 million. That sum was calculated on the basis that the Blacks and JD Sports shares were still subject to the Repo. SD did not comply with the margin call; so on 19 November 2008 KSF gave a notice of Event of Default pursuant to paragraph 10(a)(iv) of the Repo. Under the terms of the Repo, this notice, if valid, had the effect that all the outstanding transactions under the Repo were to be closed out with the outstanding obligations valued and netted off, and with the net balance then being payable. KSF's subsequent valuation shows an amount of £370,397.92 as owing by KSF to SD after netting off.
50. On 21 November 2008 Mishcons asserted a trust in relation to the shares. It was not until considerably later that they advanced the alternative argument that there had been a specifically enforceable agreement for the sale of the shares.
51. It was subsequently agreed that KSF would sell the shares to SD; and that has now been done. The market value of the shares had risen considerably in the meantime. What is in effect in issue is the difference between the value of the shares at the date of that agreement and the price at which the transaction would have proceeded back in October 2008. It is, however, agreed that the only issues I need to decide are:

i) Whether SD acquired the beneficial ownership of the shares before KSF entered administration and, if so

ii) Whether anything has happened since to divest it of that beneficial ownership.

Did beneficial ownership pass on reallocation of the shares?

The principles

52. The creation of a trust (which necessarily involves the passing of beneficial ownership in property) requires certainty of intention, certainty of subject matter and certainty of object. The first of these is sometimes referred to as "certainty of words", but this may be too restrictive. In Twinsectra Ltd v Yardley [2002] 2 AC 164 Lord Millett said (§ 71):

"A settlor must, of course, possess the necessary intention to create a trust, but his subjective intentions are irrelevant. If he enters into arrangements which have the effect of creating a trust, it is not necessary that he should appreciate that they do so; it is sufficient that he intends to enter into them." (emphasis added)

53. This consistent with what Megarry J said in Re Kayford Ltd [1975] 1 WLR 279:

"The sender may create a trust by using appropriate words when he sends the money (though I wonder how many do this, even if they are equity lawyers), or the company may do it by taking suitable steps on or before receiving the money. If either is done, the obligations in respect of the money are transformed from contract to property, from debt to trust. Payment into a separate bank account is a useful (though by no means conclusive) indication of an intention to create a trust, but of course there is nothing to prevent the company from binding itself by a trust even if there are no effective banking arrangements." (Emphasis added)

54. Similarly in Multi Guarantee Co Ltd [1987] BCLC 257 Nourse LJ described the issue as:

"whether in substance a sufficient intention to create a trust was manifested by [the settlor]"

55. In considering that question I must look at all the evidence with the exception of the hearsay evidence of Mr Stoddart's subjective intention (to which I have not referred in setting out the facts).
56. There is no difficulty about the remaining certainties. The subject matter of the alleged trust was the shares; and the beneficiary under the alleged trust was SD.

Segregation of the shares

57. Mr Handyside pointed out that in Re Kayford Megarry J had said that segregation of money by payment into a separate bank account was "a useful (though by no means conclusive) indication of an intention to create a trust"; and that in Multi Guarantee the Court of Appeal held that there was no trust despite the fact that the disputed monies were in fact paid into a separate account. On the other hand in R v Clowes [1994] 2 All ER 316, 325 Watkins LJ said:

"As to segregation of funds, the effect of the authorities seems to be that a requirement to keep moneys separate is normally an indicator that they are impressed with a trust, and that the absence of such a requirement, if there are no other indicators of a trust, normally negatives it. The fact that a transaction contemplates the mingling of funds is, therefore, not necessarily fatal to a trust." (Emphasis in original)

58. The contest seems to be one between "useful" on the one hand and "normal" on the other. Moreover, if one is dealing with bank accounts the bank's customer will usually be the alleged trustee. In other words the segregation in question still results in an account in the name of the alleged trustee with no express indication that the account is held for the benefit of someone else. Here, by contrast, the shares were held in part of an account expressly designated as SD's client account. This fact seems to me to give force to Mr Leggatt's argument that segregation had the effect that SD was intended to become the beneficial owner of the shares.

Reasons for segregation

59. It is also necessary to consider why KSF gave the instruction to SFIM that it did. The background was the (well-founded) fear that KSF would imminently enter into some form of insolvency process. Until the late morning of 8 October all the discussions had involved a transfer of the shares via CREST which of necessity would have involved a transfer of legal title. KSF was not willing to transfer legal title without the cash. But from SD's perspective the thing to avoid at all costs was the possibility that the shares might belong to KSF and thus be available for distribution to KSF's creditors. Mr Lillywhite of KSF understood that. In the conversation which he joined at 11.58 on the morning of 8 October, he was well aware that Charles Stanley would not agree to a DVP transaction. He said to Mr Forsey:

i) that the shares would be put into SD's "box" at SFIM;

ii) that SFIM was "ringfenced" from the rest of the group;

iii) that once the shares were in the SD box "you would own those shares outright" even if CREST "fell over";

iv) That the shares could not be grabbed as an asset of the bank;

v) That this arrangement would keep Charles Stanley happy.

60. First, if Charles Stanley were to be kept happy the arrangement had to be "better" from SD's perspective than DVP. DVP is the simultaneous exchange of shares and cash. So the arrangement had to be better that that. Second, if the shares were to be incapable of being "grabbed" as an asset of the bank, then they had to cease to be an asset of the bank. Since the bank only had an equitable interest in the shares (legal title being held by Sinjul) that could only be done by the bank's ceasing to have that equitable title. Third, Mr Lilywhite said in terms that once the shares were in SD's "box" they would own them "outright". It is true that Mr Lillywhite began his initial explanation with the words "if you pay the cash to us then…". However, he knew that an arrangement under which cash was paid over before the shares were transferred was completely unacceptable to Charles Stanley who had already adamantly rejected DVP. I cannot read those words as a precondition of what followed. What he was driving at was the intended effect of putting the shares into SD's "box" rather than the conditions under which they would be put into that "box".
61. In the conversation at 12.15 Mr Lillywhite returned to the theme. This time, after referring to DVP he said:

"… we will put all of the stock into your account in the investment management business which is segregated, you provide us with the cash and then we will send it free of payment to Charles Stanley."

62. In this conversation the order of events is:

i) The shares are put into a segregated account;

ii) The cash is provided; and

iii) The shares are sent free of payment to Charles Stanley.

63. So the payment of the cash was not a precondition of moving the shares; and there can have been no point in putting the shares into a segregated account if they were still to belong beneficially to KSF. That must have been what Mr Forsey was driving at in the same conversation when he asked if moving them into the segregated account was "safe" and was assured that it was. It was in this context that in the conversation at 12.31 Mr Forsey said that they were going down the route of "moving it in to that segregated account and then paying you". In the same conversation he wanted confirmation that the shares were being moved to the client account. Both he and Mr Lillywhite must have understood:

i) That the movement would take place before payment;

ii) That the object of moving the shares into the segregated account was to keep them out of the hands of the bank's creditors;

iii) That the client account was an account for the benefit of the bank's clients and not for the bank itself;

iv) Consequently once they were in the segregated account they would belong beneficially to SD.

64. What I understand by the third stage in the process (sending the shares free of payment to Charles Stanley) is the transfer of legal title via CREST. In other words Sinjul would cease to hold legal title which would pass to Charles Stanley.
65. To my mind this is confirmed by the e-mail of 12.51. I quote again the relevant parts:

"The total loan amount against this stock is £16,301,261.67 this is what we require to be delivered to the SWI Sterling Account via CHAPS transfer - on receipt of these funds we transfer the stock Free Of Payment to Charles Stanley in CREST.

We have moved the stock to the [SD] Account at SFIM – to be clear, this is a segregated account with a separate legal entity. SFIM is subject to distinct financial resources requirements, continues to satisfy those requirements and stock will be held in a separate nominee account. In the unlikely event of SFIM's insolvency, those stock holdings would be ring-fenced from a liquidator and would be owned beneficially by you."

66. The first point to note is that what was to happen on receipt of the funds was the transfer of stock via CREST. This, as I have said, was the transfer of legal title. Second, the e-mail reiterates that the stock has already been moved to a segregated account. Third, it states explicitly that the account is the SD account: in other words that SD is the client for whom the stock is held. Fourth, it says that in the event of SFIM's insolvency the stock would be ringfenced from a liquidation. In other words if the whole group collapsed the shares would not be available for distribution among creditors. Fifth, it refers expressly to beneficial ownership which will be that of SD. Mr Handyside argued that the use of the phrase "would be owned beneficially" was conditional. As a matter of syntax that is no doubt correct. But the condition is not payment of the cash; it is the contingency of SFIM's insolvency (which has not in fact happened). Again, I cannot read this as saying that beneficial ownership would only pass on payment of the cash. The whole tenor of the e-mail points the other way.
67. Moreover it is borne out by the computer entries that KSF made or caused to be made recording that the shares were transferred "outright".

Contra-indications

68. Mr Handyside relied on Mr Stoddart's expressed attitude. He pointed out that Mr Stoddart had insisted at the beginning of the conversation starting at 11.55 that he could not take any settlement risk and that senior people would not allow him to. He repeated that just before Mr Lillywhite joined the conversation at 11.58. It was also Mr Stoddart who drafted the e-mail and in the light of his previously expressed refusal to take settlement risk Mr Handyside said that it was inconceivable that it was intended that beneficial ownership in the shares would pass before the cash had been received. He also pointed out that within minutes of sending the e-mail Mr Stoddart had given instructions to freeze the SD account at SFIM.
69. These are cogent points. However, first it seems to me that the position changed between that conversation and the conversation (to which Mr Stoddart was not a party) which took place at 12.15. If a week is a long time in politics, quarter of an hour was a long time against the turbulent background of the markets on 8 October. Second, what Mr Stoddart was objecting to was a transfer via CREST which would have transferred legal title, whereas what in fact happened was a transfer of beneficial ownership. Third, as Mr Stoddart himself accepted in the conversation at 10.11 on 9 October, he thought that there had been an agreement with Mr Forsey by which the stock would be moved simultaneously with the instruction of the cash. This was as close to DVP as circumstances would allow and must necessarily have been intended to transfer beneficial ownership. Fourth, in this case it seems to me that actions speak louder than words and that the instruction to SFIM to hold the shares in SD's client account "outright" must be taken to reflect KSF's intention. Finally, I do not consider that Mr Stoddart's unilateral internal action in instructing SD's account to be frozen (which had not been discussed with Mr Forsey and which does not even appear to have been discussed internally) can alter the position. Mr Stoddart has not explained why he gave instructions to freeze the account; and the freezing of the account is consistent with a belief not that beneficial ownership remained with KSF but that KSF had a lien for the price (see below).

Was writing required?

70. Normally any disposition of an equitable interest in shares would require signed writing (Law of Property Act 1925 s. 53 (1) (c)). The question of compliance with these formalities was not addressed either in the evidence or in the skeleton arguments. In response to a question from me it became clear that it is common ground that these requirements do not apply to a transfer of title under the Repo. Section 53 (1) (c) is disapplied "in relation to" financial collateral arrangements (which include repurchase agreements): Financial Collateral Arrangements (No 2) Regulations 2003 reg. 4 (2). It is common ground that the repurchase of the shares was to take place under a financial collateral arrangement, and therefore that section 53 (1) (c) was disapplied. Mr Handyside, however, argued that although section 53 (1) (c) would not apply to a straight repurchase under the Repo, it did apply to the disposition of an equitable interest in the shares as alleged by SD. It is not at all clear to me why he said that this was so. Throughout the life of the Repo all that appears to have passed backwards and forwards were equitable interests in the shares. The Repo itself expressly allowed the parties to agree a mutually acceptable method of delivery of the shares; and in my judgment that is what the parties agreed in the present case. In addition section 53 (1) (c) is disapplied "in relation to" a financial collateral arrangement which seems to me to be a phrase of wide import. The Financial Collateral Arrangements (No 2) Regulations 2003 give effect to Directive 2002/47/EU one of whose avowed purposes was to simplify or abolish formal restrictions on activities carried out under a financial collateral arrangement, and the Regulations should be interpreted with that policy in mind. Many member states do not recognise the distinction between legal and beneficial interests in property; and it seems to me that a national court should be wary of applying different formal requirements to different methods of transmission of ownership under financial collateral arrangements, against the background of a Directive intended to simplify financial collateral arrangements across the whole of the European Union.
71. One consequence of the fact that shares are dematerialised is that the usual formalities for the transfer of property and interests in property are disapplied, even if financial collateral arrangements are not involved. Thus regulation 38 of the Uncertificated Securities Regulations 2001 provides that:

"(5) Sections 53 (1) (c) and 136 of the Law of Property Act 1925 (which impose requirements for certain dispositions and assignments to be in writing) shall not apply (if they would otherwise do so) to—

(a)     any transfer of title to uncertificated units of a security by means of a relevant system…"

72. SD argued that this regulation also applied, and that this was another reason why section 53 (1) (c) did not require to be satisfied. This was disputed by the administrators who argued that it only applied to transactions that actually took place via CREST. The point is an important one, but in view of the common ground about financial collateral arrangements, it does not arise. The argument is complex and was only raised in written submissions after the hearing had ended. The evidence on the precise arrangements within the Kaupthing Group for the holding of shares, accounts and sub-accounts is by no means clear. No evidence was placed before me to explain the detailed workings of CREST. In those circumstances it would be unwise for me to embark on an inconclusive and unnecessary discussion of the arguments.

Conclusion

73. The upshot is that I have concluded that beneficial ownership of the shares passed to SD between 12.30 and 12.50 on the understanding that Mr Forsey would instruct the necessary payment to be made by CHAPS. Whether this disposition can be undone or set aside as a result of KSF's subsequent insolvency was not the subject of any argument before me.

Was there a concluded specifically enforceable contract?

The principles

74. In Lysaght v Edwards (1876) 2 Ch D 499, 506 Sir George Jessel MR said:

"It appears to me that the effect of a contract for sale has been settled for more than two centuries; certainly it was completely settled before the time of Lord Hardwicke, who speaks of the settled doctrine of the Court as to it. What is that doctrine? It is that the moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold, and the beneficial ownership passes to the purchaser, the vendor having a right to the purchase-money, a charge or lien on the estate for the security of that purchase-money, and a right to retain possession of the estate until the purchase-money is paid, in the absence of express contract as to the time of delivering possession."

75. Thus the effect of the contract is that the buyer acquires the beneficial interest in the property and the seller retains a vendor's lien. This was said in the context of a contract for the sale of land which is a species of contract that is usually specifically enforceable. However, it is common ground that the same principles apply to a contract for the sale of shares, if that contract is specifically enforceable. In general a contract for the sale of shares in a publicly quoted company will not be specifically enforceable. This is because damages will generally be an adequate remedy. From the seller's perspective a buyer's failure to pay sounds in money only, and thus damages will adequately compensate him. From the buyer's perspective if the seller fails to deliver the shares, he will normally be able to go into the market and buy more shares himself, with the result that again he can be adequately compensated in damages. However, where the shares are not readily available in the market the position is different. In such a case the contract is specifically enforceable. Shares will not be readily available in the market if, for instance, the company is a private unquoted company. But even if the company is a quoted company whose shares are listed on a recognised stock exchange, a contract for the sale of shares may be specifically enforceable if the quantity of shares contracted to be sold cannot readily be acquired in the market. In Duncuft v Albrecht (1841) 12 Simons 189, 198 Shadwell V-C said:

"Then the only question is whether there has been any decision, from whence you can extract a conclusion that the Court will not decree a specific performance of an agreement for the sale of such shares? Now, I agree that it has been long since decided that you cannot have a bill for the specific performance of an agreement to transfer a certain quantity of stock. But, in my opinion, there is not any sort of analogy between a quantity of 3 per cents. or any other stock of that description (which is always to be had by any person who chooses to apply for it in the market), and a certain number of railway shares of a particular description; which railway shares are limited in number, and which, as has been observed, are not always to be had in the market. And, as no decision has been produced to the contrary, my opinion is that they are a subject with respect to which an agreement may be made which this Court will enforce."

76. Neither side suggested that these principles were inapplicable in the case of shares traded through CREST (but see Palmer Company Law para. 6.708 and Uncertificated Securities Regulations 2001 reg. 31 (2)). I have proceeded on the assumption (but without deciding) that the same principles apply. It may seem odd that what, in a different context, Lord Browne-Wilkinson called "hard-nosed property rights" should depend on the willingness of the court to grant a discretionary remedy but that, as I understand it, is the law.
77. The contract in the present case is alleged to have been made orally in the course of the telephone conversation between Mr Forsey and Mr Lillywhite at 12.31 on 8 October and then confirmed by e-mail at 12.51. It is common ground that in deciding whether a contract has been made orally the court may have regard to the subsequent conduct of the parties; Carmichael v National Power plc [1999] 1 WLR 2042, 2050-1 (Lord Hoffmann); Maggs v Marsh [2006] BLR 395 (Smith LJ).

Was there a binding contract?

78. Whether there was a binding contract is not an easy question to resolve. I was provided with the digital recordings of the two critical conversations; and have listened to them more than once. In my judgment the proposal that Mr Lillywhite put to Mr Forsey in the conversation beginning at 12.15 was an offer capable of acceptance. The proposal was that:

"…we will put all of the stock into your account in the investment management business which is segregated, you provide us with the cash and then we will send it free of payment to Charles Stanley."

79. Mr Forsey repeated that proposal, having been told that KSF could move the stock almost immediately:

"Less the stock that you haven't got ... and then we pay in for that stock. Is that the proposal?"

80. Mr Lillywhite confirmed that it was and said that he would e-mail that proposal straight away. However, before the e-mail arrived, Mr Forsey was back on the telephone at 12.31 to say:

"… we are going go down the option of moving it into that segregated account and then paying you" to which Mr Lillywhite answered "Right. OK".

81. Mr Lillywhite thereupon moved the shares into SD's client account "box". In my judgment that conversation amounted to an acceptance by Mr Forsey of the "option" or "proposal" that Mr Lillywhite had put to him a few minutes earlier; and was understood as such by Mr Lillywhite. That understanding was necessary in order for him to move the shares into SD's client account "box".
82. In my judgment, therefore, the contract was that:

i) KSF would move the stock into SD's client account with SFIM, which was a segregated account;

ii) SD would then pay for the stock;

iii) Upon payment KSF would cause legal title to be transferred to Charles Stanley via CREST.

83. The only payment method that had been referred to in either of those two conversations was payment by CHAPS, which had also been referred to in earlier conversations. KSF had unequivocally rejected the idea of payment via solicitors on more than one occasion. It was I think implicit in the discussions between Mr Lillywhite and Mr Forsey that payment would be made by CHAPS. This was indeed confirmed in Mr Lillywhite's e-mail at 12.51 to which Mr Forsey agreed at 13.13. Accordingly, in my judgment one of the terms of the contract was that payment would be made by CHAPS.
84. The background to this contract was, of course, the Repo. Was the contract that I have found to have been made one that was made under the umbrella of the Repo; or was it free-standing? During the course of the hearing I had understood this to be in dispute, but in a note which Mr Leggatt and Mr Hill submitted after the hearing, they made it clear that SD accepted that the shares were repurchased under the Repo. I think that this is right. Paragraph 3 of the Repo said that a transaction could be entered into orally. The price was calculated under the Repo. Paragraph 6 (a) of the Repo envisaged delivery of securities in a number of different ways. Although none of the specific methods of delivery mentioned in that paragraph correspond to what Mr Lillywhite and Mr Forsey had agreed on the telephone, paragraph 6 (a) (iv) also envisaged transfer by "any other method mutually acceptable" to buyer and seller. All previous dealings (including the "rolls") must have relied on this paragraph and so, in my judgment, did the agreement I have found to have been made. Under paragraph 6 (a) of the Repo payment was to be made in immediately available freely convertible funds. This is consistent with payment by CHAPS. Paragraph 6 (c) envisaged simultaneous payment and delivery; but this was plainly waived by KSF because they knew that DVP was unacceptable to Charles Stanley. However, paragraph 6 (d) said that notwithstanding any waiver payment had to be made on the same day; and paragraph 6 (g) said that time was of the essence.
85. In my judgment therefore it was a term of the agreement that payment by CHAPS had to be made on 8 October 2008 and time was of the essence of that obligation. But Mr Leggatt accepted that even if it was a free-standing contract it was an implied term of the contract that payment would be made promptly and if practicable on the same day; and that time was of the essence of that obligation.

Was the contract specifically enforceable?

86. In his first witness statement Mr Forsey said that the shareholdings:

"… were significant strategic stakes and the stakes in Blacks and JD were particularly so as they are thinly traded stocks. Shareholdings of the size of those held in Blacks and JD would be highly unlikely to be readily available through normal trading activity, if at all."

87. This evidence was not challenged by the administrators. In my judgment therefore the contract, at its inception, was of a character that could have made it specifically enforceable.
88. Mr Handyside argues that even if that is so, specific performance is excluded by the terms of the Repo. Paragraph 10 sets out a complete code of remedies available in the event of a failure to deliver equivalent securities, and specific performance is not among them. Mr Leggatt accepted that this was so in the case of an obligation to deliver equivalent securities. But, he said, the contract on which he relied went further than being an obligation to deliver equivalent securities. It was an obligation to deliver specific shares which because of their nature gave rise to a specifically enforceable contract, and the Repo should not be construed as excluding that remedy in relation to that kind of contract. However, he accepted that the transaction did take place under the umbrella of the Repo and indeed he relied on certain of its provisions in relation to other arguments. The difficulty I have with Mr Leggatt's argument is that it seems to me to be a circular argument, in that it asserts what it seeks to demonstrate. The question is: did the agreement give rise to a specifically enforceable contract; and I do not think that the question is answered by simply asserting that because of its nature it did. If (as is common ground) parties can contract out of the right to specific performance (presumably on the basis that equity follows the law), and if (as is also common ground) the Repo did exclude specific performance as a remedy for transactions carried out under its umbrella, then it seems to me to follow that the parties must have agreed (or be taken as having agreed) that specific performance would not be an available remedy in this case.
89. I hold, therefore, that the contract was not specifically enforceable because of the terms of the Repo. I believe that it is common ground that if the contract was not specifically enforceable then no beneficial or proprietary interest passed to SD as a result of the contract.

Was the right to specific performance lost?

90. Assuming that I am wrong, and that, at its inception the contract was specifically enforceable, has the right to specific performance been lost? Payment was not made on 8 October. Nor was any instruction given to SD's bank or broker on that day to make a payment by CHAPS. Mr Forsey has suggested that the reason for that was that KSF's account had been frozen. However, in the first place that factual assertion is incorrect. It was only outgoing payments that had been frozen. Incoming payments were still being accepted. Second, there is no evidence that SD knew that KSF's account had been frozen; and accordingly that cannot provide a valid excuse for non-payment on 8 October. If, as I have held, it was a term of the contract that payment had to be made on the same day then there was a clear breach. If, on the other hand, Mr Leggatt is right in saying that it was an implied term of the contract that payment should be made promptly and, if practicable on the same day, I find that it was practicable to make a payment on 8 October. One way or another, therefore, there was a breach of contract. The Repo provided expressly that time was of the essence; and Mr Leggatt accepted that time was also of the essence of his suggested implied term. Thus, whichever analysis is correct, by the end of 8 October SD had committed a repudiatory breach of contract.
91. The sending of money to TTLP was neither payment nor a tender of payment for the simple reason that the money was to be held to Mischons' order. Whether or not Mr McGuiness had authority to accept it, the fact is that the money was never at the disposal of KSF. The subsequent offer to put Freshfields in funds may have amounted to a tender, but it was not accepted.
92. The effect of a failure to pay on time where time is of the essence of the obligation to pay was explained by Lord Hoffmann in Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514, 518:

"It is true that until there has been acceptance of a repudiatory breach, the contract remains in existence and the party in breach may tender performance. Thus a party whose conduct has amounted to an anticipatory breach may, before it has been accepted as such, repent and perform the contract according to its terms. But he is not entitled unilaterally to tender performance according to some other terms. Once 5 p.m. had passed, performance of the contract by the purchaser was no longer possible. The vendor could be required to accept late performance only on the grounds of some form of waiver or estoppel."

93. Mr Leggatt did not allege that there had been any waiver, but he did say that an estoppel had arisen. But I was unable to discern how. SD had not been told that CHAPS had become an unacceptable means of payment, and as Mr Handyside pointed out in the course of his reply there is no evidence of any reliance by SD on anything said by KSF about the timing or means of payment. The e-mail at 12.31 on 8 October clearly required payment by CHAPS. There is no real explanation of why SD failed to give instructions to make that payment; and no real explanation why Mr Mellors appears to have revived the rejected method of payment via solicitors.
94. In my judgment no estoppel has been established, with the result that KSF would have been entitled to decline to complete the contract, if matters had rested solely in contract.

Result

95. However, I hold that SD did acquire a proprietary interest in the shares before KSF entered administration.
96. KSF's application notice seeks relief which is no longer appropriate in the light of subsequent events. But the relief sought is predicated on the basis that SD acquired no proprietary interest in the shares. I think that in those circumstances I should simply dismiss the application. SD's application notice seeks delivery up of the shares against payment of £16.3 million-odd. Again that precise form of relief has been overtaken by events; but I am willing to make a suitable declaration. SD's second application notice relates to what have been called the "residual shares". I understood it to be common ground that the fate of this application would be determined by my decision on the main issue.
97. I am provisionally minded to order the administrators to pay SD's costs of all applications. In view of the sums at stake and the difficulty of the issues, I am provisionally minded to give the administrators permission to appeal if they seek it. I invite counsel to agree an order to give effect to my decision.