CHANCERY DIVISION
B e f o r e :
sitting as a Deputy High Court Judge
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HARCUS SINCLAIR (a firm) |
Claimant |
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-and- |
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(1) BUTTONWOOD LEGAL CAPITAL LIMITED (2) RYLATT CHUBB (a firm) (3) ALTERNATIVE REAL ESTATE FUND LIMITED (4) ROSKILL ADVISORS (CAYMAN) LIMITED |
Defendants |
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Crown Copyright ©
Nature of the proceedings and essential facts
"[T]he Lender shall make the advance of the Loan on the Drawdown Date as follows:
3.3.1 by paying to the Lender an amount equal to the Fund Protection Fee;
3.3.2 by paying to the Insurer(s) an amount equal to the Funded Premium ...
3.3.3 by paying to the Borrower's Solicitor the Security for Costs; and
3.3.4 by paying the balance of the Loan, after deducting the payments made under 3.3.1 to 3.3.3 above into the 1st Class Legal Client Account to be applied as provided in this Agreement."
"the security for costs (if applicable) ordered so to be paid by the Borrower on or prior to the date hereof ..." (my underlining)
and there was no such order in existence at the date of the Agreement (indeed the proceedings were not even issued until some months later). Schedule 1 to the Agreement, showing the constituent elements of the Loan, did however include a sum of (250,000 in respect of "Security for Costs", indicating and reflecting the expectation of the parties that the court would in due course require the provision of security in at least this amount.
"accompanied by a bill of costs from the Borrower's Solicitors, together with any disbursement vouchers, detailing the Borrower's Solicitors Costs in the period covered by the bill of costs".
The Request had to specify a Release Date at least 5 business days later, at which point the Lender was required (under Clause 3.7) to instruct the release of the monies from the escrow account, unless before then it had sought details of the bill of costs or required it to be taxed under the Solicitors Act.
"for payment to be made therefrom in accordance with the terms of the Agreement and to include the payment of the legal costs and disbursements of [Rylatt Chubb]".
The undertaking continued:
"For the sake of clarity, I confirm that this undertaking is given on the basis that there is no dispute as to the ownership of the funds to which this undertaking relates. For the avoidance of doubt, the funds belong wholly to Buttonwood Legal Capital Limited[3]. Harcus Sinclair accepts no ... responsibility to either party beyond an obligation to hold the funds and make payment to Rylatt Chubb when authorised to do so by Buttonwood Legal Capital Limited."
"in the reasonable opinion of the Lender the Borrower's prospects of success in the Proceedings are 60% or less".
Validity of the termination
"very much a preliminary view which is required to enable potential backers to decide whether to put up sufficient funds to enable the matter to proceed to the next stage being (i) a more formal advice which if favourable would be followed by (ii) the issue of proceedings."
Despite those restrictive comments, the proceedings were begun in December 2011 without any further and more formal advice having been obtained. Ms Rylatt was unable to explain to me how or why this had happened.
"Thank you for your recent e-mail. I shall endeavour to attend your office today to collect the lever arch files.
As you are aware, the fund has recently sought to obtain an opinion from independent counsel as to the prospects of success in the litigation. Counsel's opinion has not yet been finalised, but the early indications are that he considers the prospects of success to be less than 60% (perhaps substantially). We shall provide counsel with the aforementioned additional documents and supplementary instruction shortly with a view to receiving his final opinion by the end of the week. Once the final opinion has been received from counsel the Funder might elect to terminate the funding agreement if the prospects of success are at an unacceptable level. Should the fund be of the opinion that the prospects of success are less than 60% it will invite you and your clients to make representations before deciding whether or not to terminate the funding arrangement.
In light of the above, it is possible that the fund will not provide the funds required to meet the security for costs order in these proceedings. We are conscious that you must prepare for the forthcoming CMC and we trust this e-mail provides you with the clarity you need to enhance your preparations."
Was the opinion of BLC reasonable?
Was BLC precluded from terminating by promissory estoppel?
"Should the fund be of the opinion that the prospects of success are less than 60% it will invite you and your clients to make representations before deciding whether or not to terminate the funding arrangement."
It is not in issue that on 8 January 2012 BLC proceeded directly from the formation of its opinion to termination without inviting such representations.
"27. A promissory estoppel … arises where
(1) there is a clear and unequivocal promise that strict legal rights will not be insisted upon;
(2) the promisee has acted in reliance on the promise; and
(3) it would be inequitable for the promisor to go back on his promise.
28. Some commentators express the second condition in terms of the promisee altering his position to his detriment (see, for example, Snell's Equity 13th Edition (2000) paragraph 389-08, but that is controversial (see, for example, Chitty: Law of Contracts, 28th Edition (1999), paragraph 3-089). However, the fact that the promisee has not altered his position to his detriment is plainly most material in determining whether it would be inequitable for the promisee to be permitted to act inconsistently with his promise."
(a) Promise
(b) Reliance
(c) Inequitable?
The effect of Clause 12.8
(1) Any variation of this Agreement shall be in writing and shall be signed by a duly authorised representative on behalf of the parties.
...
(3) Any waiver of any right under this Agreement shall only be effective if it is in writing ..."
Security for costs
"From: Alternative Real Estate Fund Ltd and Roskill Advisors (Cayman) LtdTo: Argentum Associates Ltd [now named BLC]
Dated:
Dear Sirs
Loan Agreement dated [ ] (the "Agreement")
1. We refer to the Agreement. This is a Release Request. Terms defined in the Agreement have the same meaning in this Release Request unless given a different meaning in this Release Request.
2. We request a release of funds from the Ist Class Legal Client Account [now the Harcus Sinclair account] as follows:
Proposed Release Date [ ] (or, if that is not a Business Day, the next Business Day)
Amount ...
3. We confirm that each and every condition of the Agreement is satisfied on the date of this Release Request.
4. We attach a bill of costs which we certify has been prepared in accordance with Clause 3.6(1) of the Agreement.
Yours faithfully,
...
authorised signatory for
Alternative Real Estate Fund Ltd and Roskill Advisors (Cayman) Ltd"
"Under the Loan Agreement of 31 August 2011 you ("the Lender") paid to 1st Class Legal monies of which (pursuant to Clause 3.3.3) (250,000 was allocated for security for costs. The balance of those monies (including the (250,000 for security for costs) was transferred by agreement to Harcus Sinclair on or about 24 May 2012.
In accordance with Clause 3.3.3, and given the forthcoming CMC and the reasons explained in my letter of 16 November 2012, we request that the (250,000 is now paid to us."
Even with the most generous tolerance, it is impossible to treat this as a request "in substantially the form set out in Schedule 5". Moreover, even with the necessary alterations which I have indicated above, no request made in advance of the court order could satisfy the requirements of Clause 3.6. That may indeed be why Ms Rylatt in her letter suggested that the payment was required by Clause 3.3.3.
Disbursements and costs
Conclusion
Note 1 It is also conceivable that in the meantime through judicious editing at least part might be made available to the public, but that exercise appears to me both difficult and questionable. [Back] Note 2 This was under Clause 3.3.2 to be paid direct to the insurers. I was told that only an initial instalment had in fact been paid. That does not, however, as I understand to be accepted on both sides, affect the resolution of the matters which I have to decide. [Back] Note 3 While it is questionable whether this correctly reflects the legal consequences of the terms of the Agreement, nothing turns on the point for the purposes of this judgment. [Back] Note 4 Given the close proximity of this date my decision on termination is therefore of less practical significance than might at first appear. [Back] Note 5 Moreover, a pleaded allegation in the Borrower(s Defence and Counterclaim (at para. 45 (b)) that the power of termination had not been exercised in good faith was abandoned. [Back] Note 6 Even if elements of process had been embraced in reasonableness, I would not have considered that they included an obligation to consult the Borrower on the merits or postpone a decision pending the production by the Borrower(s lawyers of a further opinion, particularly in the light of their past record in this regard. [Back] Note 7 Nor, even if it had been relevant, would I have considered that this was in all the circumstances an unreasonable attitude on the part of the Lender. [Back] Note 8 One should also bear in mind that the order provided only for the proceedings to be stayed if the date were missed. [Back] Note 9 According to an alternative school of thought (see paragraph 48 above), the need for detriment is built into reliance and the absence of detriment would negate the estoppel at that earlier stage of the analysis. [Back] Note 10 The courts have regularly, particularly in recent years, enforced anti-variation clauses (see e.g. United Bank v Asif C.A. 11 February 2000), without considering whether the purported variation might also disable pro tanto the anti-variation clause itself, though the point was flagged, but not decided, in Spring Finance Ltd v HS Real Company LLC [2011] EWHC 57 (Comm) at para. 53 and again in Globe Motors Inc v TRW Lucasvarity Electric Steering Ltd [2012] EWHC 3134 (QB)). It was not suggested that I should take a different approach to this logical conundrum, and it is improbable that I would have done so, had I been so invited. [Back] Note 11 Though not entirely consistently: see her letter of 26 November 2012 quoted in paragraph 76 below. [Back] Note 12 More precisely the date of drawdown of the Loan. [Back] Note 13 Apart from any factual question, there would also appear to be a possible (and unaddressed) issue as to consideration. [Back]