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Cite as: [2011] EWHC 3249 (Ch)

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		Neutral Citation Number: [2011] EWHC 3249 (Ch)
		Case No: HC10C03729

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Rolls Building,
Fetter Lane, London, EC4A 1NL

09/12/2011

B e f o r e :

THE HONOURABLE MR. JUSTICE HILDYARD
____________________

Between:

	PAUL CHALLINOR AND 18 OTHERS	Claimant
	- and -
	JULIET BELLIS & CO. (A FIRM)	Defendant
	And Between:
	JULIET BELLIS & CO. (A FIRM)	Part 20 Claimant
	-and-
	MR GEOFFREY EGAN	Part 20 Defendant

____________________

Mr Andrew Sutcliffe QC and Mr Adam Kramer (instructed by Berg Legal) for the Claimants
Miss Clare Stanley (instructed by Clyde & Co.) for the Defendant
Hearing dates: 21, 22 November 2011
____________________

HTML VERSION OF JUDGMENT
____________________

Mr. Justice Hildyard :

Nature of Application

By an amended Application Notice filed on 16^th September 2011 the Defendant firm, Juliet Bellis & Co. ("the Defendant"), seeks reverse summary judgment pursuant to CPR 24 and/or to strike out the claims against it under CPR 3.4(2) on the ground that such claims have no real prospect of succeeding at trial or are an abuse of the Court's process.

The hearing of the application has been expedited by order of Vos J. made on 5^th October 2011. The context in which expedition was ordered is that the trial of the claims has been fixed to start on or shortly after 8^th May 2012. Disclosure is set to take place by exchange of lists on 9^th December 2011. Obviously, the parties urgently need to know whether and in what form the matter is to be permitted to proceed.

Summary of conclusions

For the reasons I give below I consider that this matter can only fairly and properly be adjudicated at Trial: it is not appropriate for summary adjudication. As it seems to me, there are disputes of fact and issues of credibility that plainly make the process of disclosure and then cross-examination at a full trial essential in order to achieve a fair process.

It follows that this matter must (absent agreement) proceed. In those circumstances I propose to confine this Judgment to an explanation of the circumstances that seem to me to give rise to the need for a full trial: I will say as little as possible about the merits and focus on the undisputed or uncontroversial facts. That said, the pleadings are lengthy and it is necessary even for present purposes to delve into the contested issues also. Obviously nothing I say should be taken to be a conclusive finding or to bind the Judge at trial.

Summary of facts

The Claimants are a group of investors. The Defendant is a firm of Solicitors. Its principals at the material time were Mrs Juliet Bellis ("Mrs Bellis") and Mr Patrick Solomon. The Defendant acted as solicitors in the transaction in question. Mrs Bellis was the partner involved.

The Defendant characterises the Claimants as sophisticated investors. They had all invested previously in one or more property investment opportunities offered to them under the brand name "Albemarle" through a company providing property investment advice and services called Egan Lawson Limited ("Egan Lawson").

These investment opportunities, for which Egan Lawson attracted a loyal following, were in each case undertaken through or comprised an unregulated collective investment scheme. A number of examples were documented in the bundles prepared for this hearing.

The dispute that has given rise to the claim concerns an opportunity offered by Egan Lawson to (inter alios) the Claimants (severally) to invest in development land at or near an airport property called "Fairoaks". The corporate vehicle incorporated to carry on the investment is called Albemarle Fairoaks Limited ("AFL", which was incorporated in Guernsey, originally under the name Shelco Twenty Two Limited).

That opportunity was offered in an e-mail which is now known as the 'Teaser' e-mail, which I think it is common ground was sent or circulated to each of the Claimants. The 'Teaser e-mail' ("the Teaser") offered its recipients, as "regular investors", the opportunity to "invest straight away" and "prior to formal fund raising in September" in AFL, into which the Fairoaks property had been transferred. The Teaser encouraged this investment straight away by reference to the fact that "Shoreham was oversubscribed."

The Claimants each remitted funds to the Defendant's client account pursuant to the Teaser. When they did so, no Information Memorandum had yet been prepared; nor was there any application form. However, it is the Claimants' case that it was agreed (expressly or impliedly) that the monies thus remitted would be held in escrow in the Defendant's client account; that whilst so held they would, allegedly to compensate them for the period during which the funds were held in escrow, earn interest at 1% above base rate pursuant to loan notes to be issued by AFL ("the Interim Loan Notes"); and that upon the escrow event (as described below) being fulfilled they would be issued with new loan notes ("the Replacement Loan Notes") together with an equity interest in the form of shares in AFL or units in a unit trust above AFL ("the Equity") if such trust was created.

The Defendant denies that there were any such escrow arrangements. Its case is that the Claimants advanced monies unsecured by way of loan. It had no knowledge of any intended escrow arrangements. Upon receipt of the Claimants' monies into its client account the Defendant, through Mrs Bellis (at that time one of the Defendant's two partners), then treated the funds as the property of AFL. On the instructions of the beneficial shareholder of AFL (who was in fact, Mrs Bellis's brother) those funds were applied to repay in part a bridging loan that AFL had obtained from RBS.

Ultimately, not enough investment funds were raised to pursue the Albemarle Fairoaks scheme and it was abandoned, leaving part of the bridging loan outstanding. AFL went into administration in April 2008. The Claimants have lost their money.

The essential question

The essential question in the case is whether, when remitting funds to the Defendant pursuant to the Teaser and with a view to participating in that investment, the Claimants did so subject to escrow terms or conditions such that the funds remained their property; or by way of loan, such that the funds became the property of the borrower (see per Lord Millett in Twinsectra v Yardley [2002] 2 AC 164 at [68]).

As I shall explain, there is or may be a further fundamental issue: that is whether, even if the funds did become the property of the borrower (AFL) the Defendant was properly authorised by the directors of AFL to apply the funds. But that second point was not the focus of the submissions before me.

The transaction is sparsely documented: the Claimants never entered into any written agreement as to any investment in the Fairoaks scheme or other basis for transferring the moneys they remitted further to receipt of the Teaser. There being no definitive agreement the terms on which the moneys were remitted must be discerned or implied from the circumstances and the oral evidence.

Nevertheless the Defendant contends that the fact that the monies were advanced by way of loan, ceased therefore to be the property of the Claimants, and became the property of AFL, is so clear that no trial is necessary. The Claimants reject this. They say that full disclosure and cross-examination will support and establish their case. They say that their case is plainly arguable with the requisite degree of conviction; and that there are compelling reasons for a trial.

The relevant background

The background is important. The Claimants' case is that their previous investments in Albemarle schemes informed what they did and that the template for those investments should be imported into this. It is necessary therefore to paint in a little more of the background.

In about August 2006, after it had brought forward and operated some 10 such schemes, Egan Lawson was purchased by a public company listed on the London Stock Exchange called Erinaceous Group Plc ("Erinaceous"). Egan Lawson was then re-named Erinaceous Commercial Services Limited ("ECS"). After the acquisition ECS continued to carry on business using the name Egan Lawson and the Albemarle brand. Thus the Fairoaks scheme was promoted through ECS, using the name Egan Lawson, under the Albemarle brand.

Mrs Bellis had a number of connections with Erinaceous. It is not disputed that the Defendant was retained and acted at all material times thereafter as solicitors of the Erinaceous companies, including ECS. Mrs Bellis was also company secretary of Erinaceous.

There are a number of other family connections between Mrs Bellis, Erinaceous and AFL. I return to these below. Although Counsel for the Defendant, Ms Clare Stanley, argued strenuously to the contrary, it seems to me that they may be relevant to the Defendant's plea that Mrs Bellis, when acting for ECS in promoting the Albemarle Fairoaks scheme, was not aware of the detail of the previous schemes or the way in which investors' funds were or had been in the past raised or applied.

It is a central pillar of the Claimants' case that all the Albemarle schemes followed a basic model (referred to and defined in the Amended Particulars of Claim as "the Investment Model"), and that the Defendant well knew this through Mrs Bellis.

The Claimants' case is that they especially relied on three previous Albemarle Schemes (in addition to the scheme directly the subject matter of this action) promoted after the date of the acquisition by Erinaceous of Egan Lawson. These were (a) the Albemarle Shoreham Investment (in which apparently all save the Seventh, Eighteenth and Nineteenth Claimants invested); (b) the Albemarle Croydon Investment (in which apparently all save for the Second, Third, Fourth, Fifth, Eleventh, Twelfth, Thirteenth and Sixteenth Claimants invested); and (c) the Albemarle Brighton Investment (in which apparently the Sixth, Eighth, Twelfth, Thirteenth and Fourteenth Claimants invested).

Documentation relevant to two (the Shoreham scheme and the Croydon scheme) of these three schemes was included in the hearing bundles. The Claimants relied on that documentation and the witness statements of Lee Russell Dunnill ("Mr Dunnill"), a solicitor in the firm acting for them, Stuart Michael Wallis ("Mr Wallis", a Chartered Accountant with substantial experience in the City of London and the Eight Claimant) and Andrew Kevin Cole ("Mr Cole", also a Chartered Accountant and the Third Claimant) to demonstrate an Investment Model common to all the schemes and with common features.

The Investment Model is described by the Claimants in paragraph 7 of the Amended Particulars of Claim as follows:

"The Investment Model involved the purchase of a target property using senior debt from a third party lender combined with medium or long term equity investment from investors. These investments were made on terms that in consideration for each "unit" of investment an investor would receive a combination of (i) equities, such as shares in a limited company, membership of a limited liability partnership ("LLP") or units in unit trusts, and (ii) loan notes. The precise structure of the investment scheme (including the character of the special purpose vehicle used in each case, whether a company, LLP or unit trust) would vary depending on the nature of the investment and the most tax efficient solution but in each case the Investment Model dictated that the investor's money would be dealt with on the following basis:

7.1 The investor's money would be paid into a designated bank account (usually a solicitor's account) and held in that account to the investor's order until such time as sufficient monies had been raised and the special purpose vehicle was in a position to issue loan notes and equity in the manner described below.

7.2 A large proportion of the sum invested (usually 99.99%) would be treated as a loan repayable by the special purpose vehicle in accordance with the terms of loan notes issued by that vehicle to each investor.

7.3 If sufficient monies were not raised, with the result that the special purpose vehicle was not in the position to issue loan notes and equity to the relevant investor, the investor's funds would be repaid to him (with interest , if appropriate) from the designated bank account."

Documentation in respect of a number of other Albemarle schemes was also included in the hearing bundles. Subject to some uncertainty as to the Albemarle Brighton Scheme, these appear from that documentation to have followed substantially the same template or model as is described above. Each provided for funds sent on application to be held in escrow and belong to the payer unless and until the escrow event. I am not told whether any of the Claimants invested in any of these. I note that in the Information Memorandum for Albemarle Property Opportunities LLP Mr Wallis is described as one of the key principals of the Investment Adviser, and is also stated to have worked successfully with Egan Lawson for over four years and with Mr Egan personally for over fifteen years.

I should record that Ms Stanley, on behalf of the Defendant, urged on me that the first feature (described in quoted paragraph 7.1 above) was "patently incorrect." Of course, more detailed argument to that effect may be marshalled at trial; and a different conclusion may then be reached. But on the arguments and documentation presently available my own view is that paragraph 7.1 is a reasonable summary construction of the escrow terms and conditions provided in the documentation for the Albemarle investments concerned.

Subject to the next two paragraphs, what can I think be said from a review of these Albemarle Schemes at this stage is that it appears from the evidence presently put forward that (a) they did follow substantially the pattern or model above described and (b) in none of them did investors part with property or ownership of funds remitted before the issue and subscription of the investment units.

In the case of the Albemarle Brighton Scheme (which in fact failed to proceed) no documentation was provided. In its Defence the Defendant disclaims any role in it or knowledge of it beyond Mrs Bellis being "aware that Erinaceous was in discussions to acquire an interest in a development in Brighton which, if completed, might have involved an Albemarle fund." The (obviously as yet untested) evidence of Mr Wallis is that this investment was "slightly different to the previous investments in Shoreham and Croydon" and that he was not provided with an Investment Memorandum or an Application Form prior to his transfer of funds. His evidence is that the funds transferred were "to be held on trust for the specific purpose of investing in the Brighton investment by way of loan notes and equity, as with all previous investments". He states that when the investment did not proceed, the monies he had remitted were returned, together with interest that had accrued on "the specially designated deposit account".

However, given the lack of documentation, and that Mr Wallis's evidence is untested at this stage, I do not think I can, and it is neither necessary nor appropriate that I should, draw any conclusion or support from the Brighton investment: the evidence is presently insufficient to provide a reliable template or any reliable further support for the Investment Model. By the same token, it does not assist the Defendant's case either; and the fact that there is no dispute that the funds remitted were returned when the scheme did not proceed may tend to suggest that it was recognised that property did not pass from the payer. (I should perhaps make clear, though, that it is not asserted that the Defendant or Mrs Bellis was involved in either the receipt or the return of such funds.)

The parties' respective cases: the alleged escrow arrangements

As indicated previously, the Claimants' case in a nutshell is that, in remitting moneys pursuant to the Teaser, they did so on the basis or understanding that such monies would be held in escrow subject to like terms and conditions as applied in the other Albemarle Schemes (save possibly the Brighton Scheme); and that the Defendant through Mrs Bellis well knew and must be taken to have accepted this.

In legal terms they contend that escrow terms were contractually agreed, and prevented any transfer of ownership in the moneys remitted pending satisfaction of the escrow terms. They contend for these purposes that such an arrangement may be characterised either in legal terms as an escrow or in equitable terms as a purpose trust: and that on either analysis ownership is retained by the payer.

The Defendant, on the other hand, rests on the terms of the Teaser; and also on draft Loan Note documentation apparently sent to each Claimant and described in their body as being "1% Above Base Unsecured Redeemable Loan Notes 2007." The Defendant contends that, severally and together, these documents exclude any sensible possibility of establishing that the monies remitted were subject to an escrow arrangement.

Further, on the Defendant's behalf Ms Stanley drew a sharp distinction between an escrow arrangement operating in contract, and a purpose trust operating on the conscience and taking effect in equity. She submitted that the Claimants had not pleaded, and in any event could not establish, an alternative case based on a Quistclose purpose trust. She contends that the only other way that the Claimants could theoretically succeed would be to establish dishonesty on the part of the Defendant: and any such claim had been disavowed by the Claimants.

The nature of an escrow arrangement

The starting point is to define what is meant by an escrow agreement. Ms Stanley reminded me, quoting Lord Denning MR in Alan Estates Ltd v W.G. Stores Ltd. [1982] Ch 511 (at 520), that the doctrine of escrow is a "relic of medieval times"; and it is strictly speaking applicable only to deeds. A deed delivered as an escrow becomes a deed only when the escrow condition is fulfilled, though if and when the condition is fulfilled title passes as at the date of the escrow.

However, the notion of an escrow has been translated into other contexts; and escrow accounts and escrow arrangements are commonplace and accepted in commercial transactions, denoting that notwithstanding transfer of a fund by X to Y property in the fund does not pass from X to Y until satisfaction of the agreed escrow event or condition.

The essence of such an escrow is an undertaking not to treat the funds transferred by X as the property of Y unless and until the escrow event or condition is satisfied. The effect is that X cannot undo or recall the transfer pending fulfilment of the escrow event; but Y cannot use the funds as his own until such fulfilment.

Similar to, but to my mind not always quite the same as, such an escrow arrangement is what has come to be known as a purpose or Quistclose trust. Such a trust arises where one person makes a payment to another only for a specific purpose, and the recipient takes the money knowing that the payment has been made only for that purpose: it is the fiduciary duty of the recipient not to use such money for any other purpose, and to return it entire to the person who made the payment if the purpose fails. Such a duty is not contractual: it is fiduciary; and it may exist despite the absence of any contract at all between the parties: see per Lord Millett in Twinsectra Ltd v Yardley and others [2002] 2 AC 164 at 186F.

Although I have distinguished between a contractual undertaking and a Quistclose trust in order to bring out the point that the latter can exist without the former, the distinction is unnecessary and possibly misplaced where there is an undertaking. In that event, the contractual undertaking co-exists with the trust obligation; and it follows from what Lord Millett stated in Twinsectra Ltd v Yardley at para. 99, that there is no good purpose in subtle distinctions between "true" Quistclose trusts and trusts that have their origin in an underlying contractual undertaking.

In this instance, the Claimants' case (as pleaded) is that there was either an express or an implied agreement that the Claimants' monies upon payment into the Defendant's client account would be held in escrow.

The pleadings re the escrow

In the Amended Particulars of Claim the escrow agreement (whether express or implied) with the Claimants is alleged to be in the following terms (I quote from paragraphs 18.1 and 18.2 of the Amended Particulars of Claim):

"18.1 The [Claimants'] monies would be held in escrow in the [Defendant's] client account where they would earn interest at 1% above base rate pursuant to the Interim Loan Notes until such time as AFL had issued the Replacement Loan Notes and Equity to the [Claimants].

18.2 In the event that no Replacement Loan Notes or Equity were issued, the [Defendant] would be obliged to return to the [Claimants] the amount of their investment together with interest that had accrued thereon."

In the Amended Reply dated 8^th November 2011 (which purports, and under the CPR in effect is required, to be consistent with the Amended Particulars of Claim) it is stated (at paragraph 22.2) that the basis on which the Defendant accepted and understood the monies were paid into its client account was that

"the [Claimants'] monies were to be held by the [Defendant] to the [Claimants'] order until such time AFL was in a position to issue Loan Notes and Equity in accordance with the Investment Model."

Previously, in the Reply before its amendment, the Claimants had stated (in paragraph 26.2) as follows:

"…the [Claimants'] monies were to be held by the [Defendant] to the [Claimants'] order until such time as (i) sufficient monies had been raised to repay the Bridging Loan and (ii) AFL was in a position to issue Loan Notes and Equity in accordance with the Investment Model."

Counsel for the Defendant sought to make some play out of these apparent differences, as also out of the fact that in the case of the Eighth Claimant (Mr Stuart Wallis) a further stipulation is pleaded to reflect (so he alleges) a telephone conversation he says he had with Mrs Bellis in which he says he agreed (and I now quote his first Witness Statement) an "additional and specific assurance that my money would be held in escrow by her firm, in an account in my name, pending my further instructions."

Of course, these differences may have to be explored at Trial. The fact that the Claimants have had apparent difficulties in formulating the exact terms of the agreement they say were express but otherwise falls to be implied might suggest that the case is contrived. But it may be that the differences are more apparent than real; the versions of the escrow terms now and previously pleaded may not, in my view, necessarily be inconsistent.

Put another way, the difference at first sight between the version in the Amended Particulars of Claim and that in the Reply before its amendment is the condition in the latter of what is in effect an aggregate minimum subscription (enough to repay the Bridging Loan); but that condition is pleaded in paragraph 16 of the Amended Particulars of Claim and is also implicit in the condition as pleaded in paragraph 18.2(A)(ib) because the repayment of the Bridging Loan was a precondition of the issue of Replacement Loan Notes and Equity.

In any event, the Amended Reply, although still in slightly different terms, is not to my mind substantively inconsistent with the Amended Particulars of Claim in this regard.

As to the particular position of Mr Wallis, the dispute as to whether there was a telephone conversation between him and Mrs Bellis with respect to escrow conditions, and if so its results, is again a matter for trial; all I need say for the present is that Mr Wallis's additional condition is not necessarily inconsistent with the other conditions pleaded.

The important point for present purposes, as it seems to me, is that the agreement pleaded and the conditions alleged to have been agreed as consideration for the payments made could, to my mind, accurately be described as an escrow agreement or as giving rise to a purpose or Quistclose trust. In (respectively) law and equity the effect would be (if the agreement is established) that the monies could only be applied at the direction of the recipient for the prescribed purpose and/or on satisfaction of the escrow conditions.

The question in this case then becomes whether the Claimants have a reasonable (as distinct from a purely theoretical or fanciful) prospect of establishing such an agreement in the terms alleged, either express or implied, and that the Defendant was privy or party to it so as to become bound by it in law or equity.

Analysis of Defendant's case

The principal documents that the Defendant relies on are (1) the Teaser and (2) the draft Interim Loan Notes and (3) an Engagement letter ("the Engagement Letter") dated 13^th July 2007 which (though its authenticity has been questioned by the Claimants) appears to record the terms of the Defendant's retainer. (The Defendant relies also on various e-mails in further support: I have taken these into account also but these three seem to me the most important documents.)

Put shortly, the Defendant contends that the terms of the Teaser, and in particular (a) its call for investment "straight away", a transfer of money "next week" and an immediate issue of loan notes, with (b) a promise of a paid return of 1% above base rate to "commence immediately" precludes any realistic argument that monies paid pursuant to the Teaser were paid subject to escrow, with the payer retaining ownership.

The Defendant says that this conclusion is reinforced by (and indeed inexorably follows from) the issue and terms of the draft Interim Loan Notes. It is important to note that they are draft and not executed documents; but it does appear that they were sent to the Claimants; and at least one acknowledged and returned the draft. The Defendant submits that the fact and terms of the Interim Loan Notes are inconsistent with the payment (i) being other than a loan and (ii) the retention by the payer of property in the monies paid. To quote the Defendant's Skeleton Argument: "the Loan Notes….make it clear beyond reasonable argument that [the Claimants] were being invited, pending the establishment of a Unit trust, to invest in AFL by way of unsecured loans."

Third, but by no means least, the Defendant contends that it is clear from the terms of the Engagement Letter that Mrs Bellis was proceeding on the basis that the Claimants would be advancing loans to repay borrowings, with no thought of any trust or escrow arrangements. The Engagement Letter records the scope of the Defendant's retainer as being to act for AFL in the conveyancing transaction under which it was to acquire the land at Fairoaks Airport, and to receive monies from investors and pay them to RBS.

The Defendant particularly stresses the following passage in the Engagement Letter:

"Shelco Twenty Two Limited has been incorporated in Guernsey to take the legal title to the Development Land. As you know, the usual vehicle which has been previously used for projects of this type is a limited liability partnership but in view of the recent stamp duty land tax changes, Geoff has been advised that this is no longer appropriate. I understand that Geoff is taking his own advice as to the structure which will be adopted for the fund raising but that, until that structure is in place, investors will be making loans to Shelco Twenty Two Limited in order, first of all, to repay the equity bridge of £7m and secondly to repay the loan which will be made by Erinaceous Group plc of the balance need to complete (likely to be £15m)…

This firm does not have the expertise to advise on the structure which should be adopted in the future as a vehicle for investors. As indicated above, Geoff is taking his own advice on this (initially from Ric Berman) and I understand that Lucy is also assisting in liaising with Ozannes in Guernsey. Following my discussion with Geoff and Michael, however, I can confirm that I am agreeable to receiving the monies from investors on the basis that these monies are remitted either by way of loan to Shelco Twenty Two Limited or as an investment in whatever structure is put in place for the project and that these monies will be immediately utilised to repay monies owed to the Royal Bank of Scotland…"

The Defendant makes the further point that this documentary evidence is not contradicted by any other documentary evidence: and I was not referred to, and there do not appear to have been, any written communications between the Claimants and the Defendant or ECS or anyone else to support the Claimants' case that the payments were made in escrow and the Claimants retained their beneficial ownership in the moneys paid.

The Defendant also highlights unexplained inconsistencies. For example, it contends that the Claimants' case that they retained property in the monies they transferred is belied by the provision for interest at 1% above base rate, which is likely to have been in excess of the amount actually earned in the client account.

Analysis of Claimants' case

I turn to the Claimants' case that their claim is plainly arguable and should proceed. Lacking (so far as I am aware) any direct support in the documentary evidence, the Claimants' retort (or at least the retort of Mr Cole and Mr Wallis, who each provided a Witness Statement, and I shall proceed as if what they say would be echoed by the other Claimants) is that they never understood either the Teaser or the draft Interim Loan Notes to be intended to invite or denote an immediate loan.

Their evidence is that they never intended to make an unsecured loan, and expected the monies paid to be held in escrow, both for that reason and because that was the model established in previous Albemarle investment opportunities. They read the Teaser as inviting investment not simply a loan. They contend that its terms (and especially the reference in it to its aim being to raise equity) support their case that the monies were being paid by way of a structured equity investment, and that Mrs Bellis well appreciated this: the Investment Model being the mix of equity and loan arrangements outlined previously.

The Engagement Letter is described in the Claimants' Skeleton Argument as "both curious and highly dubious". They question its authenticity and make a number of points:

(1) that it is addressed to the beneficial owner of the shares in AFL rather than its directors (who alone could in company law contract and give instructions on its behalf);

(2) that if Mr Cummings is treated nevertheless as a de facto director, his UK residence would totally defeat the purpose of using an offshore company;

(3) that the letter is "couched in curious terms" given that it is a letter from Mrs Bellis to her brother;

(4) that it is at odds with the steps paper to which it refers and e-mails at the time, especially in its suggestion that it was "Geoff" who was taking advice on the structure to be adopted, whereas in an e-mail dated 15^th August 2007 Mrs Bellis states that she is taking advice from Price Waterhouse Coopers on the best structure.

The Claimants also pray in aid obvious commercial sense: unsecured lending at 1% above base rate is most unlikely and commercially peculiar. To quote from the Witness Statement of the Third Claimant, Mr Cole (at paragraph 16):

"to suggest, as I understand [Mrs Bellis] to do, that I would make an unsecured loan to AFL which could be used (together with other investment funds) in a piecemeal way in return for a 1% over base rate return but no rights to any profits in the investment is a commercial nonsense. I did not agree to this and would never have agreed to this."

As to that last point, the Defendant respond that evidence of subjective intention is inadmissible, if indeed relevant at all; and that the available documentation must simply be construed objectively in accordance with general rules of contractual interpretation.

However, it must be borne in mind that in this case there is no entire written agreement: and in any event, I consider that evidence of other terms as well as of previous course of dealings is plainly admissible and relevant. It is a matter of looking at the circumstances as a whole, including the earlier Albemarle schemes and the investment model that Mrs Bellis herself recognises the Albemarle Fairoaks scheme was based upon, to determine (a) what was the agreement between the parties and (b) what obligations the Defendant or its clients assumed as regards the moneys paid into its client account.

I do not understand it to be in dispute, and if it is disputed it seems to me to be plainly arguable, that the Albemarle Fairoaks scheme was intended and understood by the investor Claimants to follow at least in substantial part the template or model of earlier Albemarle property investment schemes, and most obviously the Albemarle Shoreham scheme.

For example, the Teaser referred explicitly to the Albemarle Shoreham investment, and stated that the two schemes were to be merged in due course. The Albemarle Shoreham investment contained a written escrow agreement. The Teaser also refers to and was addressed to "our regular investors".

Further, in a Memorandum re AFL that Mrs Bellis prepared for Stephen Dickinson of Legis Group (the Guernsey Trust Company which provided AFL's corporate director) [B/272] dated 14^th December 2007 she referred in its first paragraph to Messrs Egan and Lawson having

"over the past few years, developed a successful model for investment in development projects. They look for a project which has an income yield (and therefore can support borrowing) and which also has development potential to give a return to investors. The property is purchased using senior debt and an equity bridge facility. Investors are then invited to invest in order to repay the equity bridge, and, if necessary, to provide working capital."

The question then is whether the Defendant was party to that agreement, or sufficiently aware of relevant facts so as to give rise to a trust obligation, not to apply the funds paid in pending the escrow event.

Unless the documents relied on by the Defendant are to be treated as conclusive, it seems to me clear that what precisely Mrs Bellis (and thus the Defendant) knew of the various previous schemes and their detail is a matter for trial; and similarly any objective assessment is appropriately undertaken after full disclosure. On the present evidence, I am not persuaded that the documents relied on by the Defendant are conclusive.

I consider that the Teaser is capable of being read as the Claimants contend; and I understand it to be an accepted fact that the draft Interim Loan Notes were never issued and never therefore became binding. They form part of the evidence but they do not conclusively define the nature of the arrangements; and it may be that they were understood to be an interim record of amounts to be held in escrow.

The Engagement Letter will plainly require detailed examination as to its terms and its context, and possibly (despite the evidence so far provided by the Defendant to the effect that its metadata support it having been dated correctly, which the Claimants have disputed) its authenticity. However, I am not persuaded that it is definitive or conclusive of what Mrs Bellis understood by the overall arrangements either. I think the arrangements require to be examined in the round.

Looking at the matter in the round, I consider that it is sufficiently arguable to warrant a trial that Mrs Bellis, and through her the Defendant, must have been cognisant of the model used in previous Albemarle investments (including Shoreham) and must be taken to have understood that any payments made by invitees pursuant to the Teaser were held in escrow and remained their property beneficially unless and until satisfaction of the escrow conditions.

I have in mind particularly the following:

(1) her Memorandum re AFL for Stephen Dickinson dated 14^th December 2007 (to which I have referred previously) which prima facie suggests an understanding of the Investment Model developed in previous Albemarle schemes, and various e-mails between her and (inter alios) Geoff Egan and Douglas Lawson (who appear to have assumed her understanding);

(2) her apparent involvement in the Albemarle Shoreham transaction, in which there were express escrow arrangements agreed;

(3) her familiarity with the concept of a unit trust/loan note mix and other features particular to the Investment Model as seems to be evinced also by such e-mails, and the corollary that it appears at least arguable that she knew that the Claimants all envisaged an equity investment secured by an ownership interest in the investment vehicle;

(4) the telephone conversation which Mr Wallis says he had with Mrs Bellis to discuss the escrow arrangements (the fact and content of which can only be determined at trial);

(5) the inherent unlikelihood that investors would lend unsecured at 1% above base rate, which it is arguable would have prompted further enquiry by a solicitor engaged in the transaction acting reasonably and prudently;

(6) the suggestion (which will have to be explored at trial and cannot either be verified or disproved now) that through her close links or ties in various ways with AFL and Erinaceous Mrs Bellis had further detailed knowledge of the Investment Model and to what extent it was to be adopted in the Albemarle Fairoaks scheme. These links or ties included that

(a) she was company secretary of Erinaceous and was involved in all the group's affairs;

(b) her brother was the sole nominee shareholder in AFL and acted as consultant to Erinaceous;

(c) her husband was Chief Executive of Erinaceous;

(d) her sister was Chief Operating Officer of Erinaceous;

(e) her firm acted as solicitors to Erinaceous as well as AFL;

(f) she acted for Erinaceous in the purchase of Egan Lawson and was involved in due diligence as to its business activities;

(g) following the acquisition of Egan Lawson, she was directly involved in the business activities of ECS and worked throughout the period alongside Erinaceous's directors at the company's offices in Croydon;

(h) she was intimately involved in the creation and implementation of the Albemarle Shoreham and Croydon investments as well as the (abortive) Albemarle Brighton investment.

As previously noted, the relevance of this was strenuously contested before me by Ms Stanley on behalf of the Defendant, who also objected on the ground that much of the pleading from which I have derived the above is "tendentious and embarrassingly vague". I return to the question whether the pleading lacks requisite particularity or definition later. Suffice it to say for the present that the essential issue for these purposes is clear: that Mrs Bellis's varied and close connections with those responsible for the previous schemes and this scheme bear on both the extent of her knowledge and understanding of the Fairoaks investment; they are capable of constituting grounds for thinking that her "conscience" must have been relevantly affected; and (since she has denied detailed knowledge) they may affect her credibility. They are matters that in my view are likely to be relevant and should be explored.

The pleadings are lengthy. The Amended Defence itself is over 30 pages. They raise and range over a number of other factual assertions and denials as to the way in which the Albemarle Fairoaks transaction was devised and implemented and the precise application and use of the moneys deposited in the Defendant's client account. Ms Stanley referred me to a number of e-mails and extracts from the evidence. However, having concluded that a trial is required to reach a fair adjudication, subject to one point I do not think I need, nor do I think it appropriate to delve more into the detail than this. All these matters are appropriately explored after disclosure and at trial when the witnesses may be cross-examined.

The particular position of Mr Wallis

The one point that I should perhaps say a little more about is the particular position of Mr Wallis (the Eighth Claimant). As I indicated previously, he relies in addition on an explicit telephone conversation with Mrs Bellis in which (so he alleges) he confirmed the escrow agreement and also agreed an additional condition that she should check with him before paying monies out even if the escrow conditions were otherwise fulfilled. As I have also indicated above, Mrs Bellis denies any such thing took place. The Defendant also says the agreement asserted by Mr Wallis is inconsistent with the escrow arrangements asserted by the other Claimants.

As I see it, the relevance of the agreement alleged by Mr Wallis may be three-fold. First, it would establish his individual, and slightly different, position. Secondly, it would be further evidence both of the escrow arrangements and Mrs Bellis's knowledge and acceptance of them. So Mr Wallis's evidence is of considerable importance. Thirdly, it seems to me that, unless his evidence is plainly and obviously fanciful or contrived, the factual issues it raises constitute a further factor in favour of a trial, not only of his claims (as indeed Ms Stanley accepts) but the claims of the other Claimants too. I appreciate in this latter context that it does not seem so far to have been alleged by any of the Claimants that Mr Wallis communicated his discussions to any of them, or that he had the conversation on their behalf. Nevertheless, in my view, the fact (if believable) of such a direct conversation with Mrs Bellis does tend to support the other Claimants' case as well.

Ms Stanley on behalf of the Defendant, with the support of Mrs Bellis's witness statement, valiantly took on the task of persuading me that Mr Wallis's evidence is so plainly and obviously false that I can dismiss it summarily. She emphasised in particular the following:

(1) the fact, as indeed it is, that Mr Wallis on the first day of the hearing, put forward though his Counsel, Mr Andrew Sutcliffe QC, a version and sequence of events materially different from that put forward in his first Witness Statement dated 8^th November 2011;

(2) the fact that this amended account, which is sought to be justified on the basis of mistaken recollection before having access to any documents, seeks to correct factual issues that could be demonstrated to be false, giving rise to the suggestion that it is all contrived;

(3) the fact, as indeed it is, that in none of the 3 pre-action letters sent or drafted by his solicitors on his behalf was the alleged telephone conversation even mentioned;

(4) the fact, as it appears to be, that contrary to his Witness Statement in which he stated that he had invested in the Albemarle Shoreham scheme upon the basis of an Information Memorandum that had been circulated, the truth is that he made the investment before receipt of the Information Memorandum.