England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/11/2014

Mrs Justice Asplin:

1. This is a possession claim by the Claimant, LBI HF ("LBI"), in its capacity as the assignee of the mortgage of 39 Ennismore Gardens, London SW7 ("39 Ennismore Gardens"). LBI seeks an order for the possession of 39 Ennismore Gardens and a money judgment against the Defendant, Mr Kevin Gerald Stanford ("Mr Stanford") for the principal sum and interest in a total amount of more than £21 million

Background

2. This matter arose originally out of the banking relationship between the Part 20 Defendant, Landsbanki Luxembourg SA ("LLux") and Mr Stanford. In particular, LLux contends that it advanced two loans to Mr Stanford. Both loans were subject to loan agreements (together referred to as the "Loan Agreements") governed by Luxembourg law. The first was a loan of €4,500,000 under a loan agreement dated 21 March 2007 and executed in April 2007 (the "Courchevel Loan Agreement"). Although the loan was an "Uncommitted Credit Facility" it was intended to enable Mr Stanford to refinance Chalet 'Croc Blanc' Courchevel 1850, France (the "Chalet" and the "Courchevel Loan" respectively). The second loan was of £13,500,000 under a loan agreement dated 13 November 2007 (the "Ennismore Loan Agreement") and was advanced in order to enable Mr Stanford to finance the purchase of 39 Ennismore Gardens and 25 Ennismore Mews, London, SW7 (the "Ennismore Loan", together with the Courchevel Loan, the "Loans").
3. In addition, Mr Stanford granted a pledge in relation to the Courchevel Loan with which these proceedings are not concerned and a legal charge to LLux over 39 Ennismore Gardens to secure the "Secured Obligations" ("the Mortgage") under which LBI seeks possession of 39 Ennismore Gardens.
4. LBI is a credit institution incorporated in Iceland. It is in liquidation pursuant to an order of the District Court of Reykjavik. LLux is also a credit institution. It was incorporated in Luxembourg and was a subsidiary of LBI. It too is in liquidation pursuant to a judgment and order of the Luxembourg court dated 12 December 2008. Mr Stanford is a highly experienced British entrepreneur who co-founded the Karen Millen fashion chain and, amongst other things, was formerly the majority owner and chairman of the All Saints clothing chain.
5. LBI and LLux contend that Mr Stanford has not made any payments in respect of interest under the Loan Agreements since 21 November 2008 and that this failure to pay interest constitutes an Event of Default under the terms of the Loan Agreements, in respect of which the maturity dates have also passed. However, despite demand for repayment, the Loans and interest thereon have not been repaid. In fact, in July 2011, LLux commenced proceedings in the West London County Court against Mr Stanford for possession of 39 Ennismore Gardens and for judgment in the amount outstanding.
6. Thereafter, by an assignment agreement governed by Luxembourg law dated 29 June 2012 (the "Assignment Agreement"), LLux assigned the relevant loan book and associated collateral to LBI (the "Assignment"). The Assignment was made pursuant to arrangements approved by the Luxembourg court by an order dated 18 June 2012 and operated as a distribution in kind in LLux's liquidation in partial repayment of LBI's claim in the liquidation. Notice of the Assignment was given to Mr Stanford by letter dated 10 October 2012. As a result of the Assignment, on 26 March 2013, HHJ Dight made an order under CPR 19.2(4) substituting LBI as the Claimant in place of LLux. However, LLux remained a party to the proceedings as the Part 20 Defendant. At the same time, the proceedings were transferred from the Central London County Court to the Chancery Division of the High Court.
7. In summary, Mr Stanford contends that the Loans are not due and payable because he reached oral agreements with LLux prior to the entry into the Loan Agreements that: i) they would be repayable only from his share of the profits arising from a joint venture to develop properties in India ("the Joint Venture"); and ii) that interest would be 'rolled up' and would also be repayable only from his share of the profits arising from the Joint Venture. In fact, the Joint Venture failed and there were no profits nor will there be.
8. Alternatively, insofar as the Loans are found to be due and payable, there is a counterclaim against LLux that is said to operate by way of set-off to extinguish the sums owed in respect of the Loans (the "Counterclaim"). Mr Stanford seeks the payment of damages in respect of the excess. The Counterclaim has two elements. The first is a claim for damages based on an alleged breach by LLux of an agreement, partly written and partly oral, into which LLux allegedly entered to finance the Joint Venture (under the TFI Agreement, as defined in paragraph 56 below). Mr Stanford says that this claim for damages would have provided him with a defence when LLux was the Claimant and that he cannot be in any worse position as a result of the subsequent assignment of the Loans and the Mortgage to LBI.
9. The second part of the Counterclaim is a claim against LLux for damages for an alleged misrepresentation in connection with a bond ("the Bond"). The alleged misrepresentation concerns the ability of LBI to discharge the Bond pledged by Terra Firma India SàRL ("TFI"), the special purpose vehicle through which Mr Stanford and others participated in the Joint Venture, to UBS as security for a credit facility advanced to TFI. Once again Mr Stanford says that this claim for damages would have provided him with a defence when LLux was the Claimant and that he cannot be in any worse position as a result of the subsequent assignment of the Loans and the Mortgage to LBI. As I have already mentioned, by his Part 20 Claim Mr Stanford seeks an order that LLux pay him the damages assessed in respect of the Counterclaim, which exceed the amounts required to discharge LBI's claim for the sums outstanding in respect of the Loans. It is pleaded that Mr Stanford's damages could exceed £50 million.
10. LLux and LBI deny Mr Stanford's allegations. They contend that there was no oral agreement which provided for payment terms other than those found in the Loan Agreements and that, as a result, both principal and interest in respect of the Loans are due and payable. LLux also contends that Mr Stanford is unable to bring the Part 20 Claim against it because of the effect of the European Parliament and Council Directive 2001/24/EC on the Reorganisation and Winding-up of Credit Institutions ("the Directive") and the Credit Institutions Reorganisation and Winding-Up Regulations 2004 ("the Regulations"). In summary, it is said that the Directive and the Regulations have the effect that the question of whether Mr Stanford is able to bring a claim against LLux is to be determined according to Luxembourg law and that Luxembourg law prohibits Mr Stanford from bringing a claim against LLux otherwise than by filing a proof of debt in the liquidation of LLux. However, such a proof was not filed prior to the final cut-off date of 14 May 2010 set by the Luxembourg court. Accordingly, it is said that the rights assigned to LBI were not subject to any claim or counterclaim.
11. LBI and LLux go on to say that even if the Counterclaim were otherwise valid, Mr Stanford is unable to rely upon it by way of set-off as a defence to LBI's claim because the Directive and the Regulations have the effect that the question of whether Mr Stanford has a right of set-off is to be determined according to Luxembourg law and, in fact, under Luxembourg law, the Counterclaim does not give rise to a right of set-off. Lastly, it is said that even if Mr Stanford would otherwise be able to rely on the Counterclaim by way of set-off as a defence to the claim, he is unable to establish it and even if he could, he has not suffered any recoverable loss.
12. As I have already mentioned, on Mr Stanford's behalf it is said that the oral agreements are a complete defence to the claim. Further it is said that the claims against LLux for breach of the TFI Agreement and in misrepresentation are subject to English law and can be used as a defence by way of set-off against the assigned debt, despite the assignment, the Regulations and the Directive being irrelevant in the circumstances. Further, Mr McDonnell QC, who appears on Mr Stanford's behalf, says that the damages claimed in an action in fraud commenced against LBI in Iceland in the second week of the trial of this matter, would exceed the sums claimed in this action. As a result, he says that if the issues in this case are decided against his client, he will ask the court to exercise its discretion under section 36 Administration of Justice Act 1970 in order to postpone delivery up of possession of 39 Ennismore Gardens.

Preliminary matters

13. These proceedings having been transferred to the Chancery Division of the High Court in March 2013, the pre-trial review was heard by Newey J in July 2014. Further, an application to amend the pleadings in order to add a claim in fraud against LBI was heard by Nugee J on 5 September 2014. That application was rejected and has led to the commencement of the fraud proceedings in Iceland to which I have referred. At the pre-trial review the state of the pleadings was also considered and the issue of the lack of a pleaded case in misrepresentation against LBI was considered. Nevertheless, on the second day of the trial an application was made to amend the Re-Re-Amended Additional Defence and Counterclaim amongst other things, in order to plead that an alleged representation was made both on behalf of LLux and LBI and to plead reliance upon the representation by Mr Stanford. I refused that application.
14. I should add that an application was also made by Mr McDonnell on behalf of Mr Stanford on the sixth day of the hearing for relief from sanction and permission to rely upon a witness statement from Mr Thorsteinn Olafsson, a former account manager employed by LLux who had been Mr Stanford's account manager at the relevant times ("Mr Olafsson"). I refused the application and the subsequent appeal to the Court of Appeal for permission to appeal my decision was unsuccessful.

The Witnesses

15. Halldor Helgi Backman ("Mr Backman") is an Icelandic Supreme Court Attorney and a member of the Winding-up Board of LBI, appointed by the District Court of Reykjavik. He gave evidence on behalf of LBI which for the most part was based on the documentation available to him. Given his role in the liquidation of LBI he had no direct knowledge of the events with which this matter is concerned. However, during the liquidation he had spoken to Mr Olafsson on one occasion to which I shall refer. Except when cross examined as to the nature of the allegations made by the liquidators of LBI in proceedings which they have commenced against LBI's auditors in Iceland, in relation to which I found him evasive, Mr Backman sought to assist the court and was a clear, truthful and straightforward witness.
16. Marino Sigurjonsson ("Mr Sigurjonsson") is a former employee of LLux, who, at the material times, held the role of Joint Head of Credit at LLux. He was also a member of LLux's Credit Committee. I found Mr Sigurjonsson to be a careful and truthful witness and I accept his evidence. In fact, his evidence set out in his witness statement was not challenged. That evidence relates to credit procedures at LLux and Mr Sigurjonsson's involvement in the Loans. Mr Sigurjonsson confirmed in cross examination that he had no knowledge of any of the alleged discussions and oral agreements which it is alleged took place between Mr Stanford and Messrs Olafsson and Gunnar Thoroddsen, the Managing Director and Senior Manager at LLux ("Mr Thoroddsen").
17. Ms Yvette Hamilius ("Maitre Hamilius") is the liquidator of LLux. She was admitted to the Luxembourg bar in 1978 and is a highly experienced liquidator. Although at times she appeared defensive, I found her too to be a careful and truthful witness. Like Mr Backman, given her professional appointment, she had no reason to give anything other than honest evidence and I accept it. In fact, substantial parts of the evidence contained in her witness statement were not challenged.
18. Unfortunately, I found Mr Stanford to be an unsatisfactory witness. He did not always answer the question, posed others in response and on occasion was difficult, obstructive and argumentative. On a number of occasions he also made a set speech in preference to answering the question put. Furthermore, it appeared that he did not have a good recollection of all of the events in question and was often vague. He also refused to accept the content and veracity of documents including his bank statements without any real grounds for doing so and despite the fact that in closing Mr McDonnell on his behalf, made clear that the content of the bank statements until 23 September 2009 is not challenged. On numerous occasions he also gave evidence in cross examination which was contrary to the content of the documents including emails of which he himself was the author or which were addressed to him and had not been queried at the time. He also made mention of matters not in his witness statement, including for example, being present at a meeting by telephone but then immediately retracted his evidence saying that he did not even remember being on the telephone. As a result, in my judgment, Mr Stanford's evidence should be treated with a large degree of caution especially where it is not supported by contemporaneous documentary evidence.
19. Mr Sanjay Dhir ("Mr Dhir") is a businessman and an associate of Mr Stanford. He found investment opportunities for Mr Stanford in India and was heavily involved in the negotiation of the Joint Venture. Although Mr Dhir sought to assist the court, it seemed to me that he was eager to further what he saw as Mr Stanford's cause. Furthermore, at times, his evidence in cross examination was confused, in particular, in relation to a number of meetings the facts of which are central to Mr Stanford's counterclaim. He also accepted that numerous matters in his witness statement which related to a trip to Bangalore were wrong. In view of these matters I also view Mr Dhir's evidence with some caution.
20. Mr Mark Dawson ("Mr Dawson") is a solicitor who is currently a partner at Shoosmiths LLP. Between July 2004 and July 2010, he was an assistant solicitor in the corporate team at Halliwells LLP. He was instructed by Mr Dhir on behalf of Mr Stanford or possibly the K Group on the eve of the meetings at the Dorchester Hotel on 3 and 4 March 2007 to which I shall refer. Mr Dawson acknowledged that he could not remember things due to the passage of time. It also became apparent that there were no contemporaneous notes available which might have assisted his recollection. Overall, I found Mr Dawson to be a defensive witness who was concerned to support Mr Dhir and whose recollection was not always clear.

Expert witnesses

21. Professor Gilles Cuniberti has been a professor of private international law and comparative law at the University of Luxembourg since 2008. He was instructed by LLux and LBI. His main area of expertise is in Luxembourg and European international, commercial law, insolvency law and international civil procedure. He appeared to be very knowledgeable as to Luxembourg law. He was a truthful, careful, measured and thoughtful witness who sought first and foremost to assist the court and was not in the least partisan. Further, a very substantial proportion of Professor Cuniberti's expert evidence is unchallenged.
22. Maitre Yann Baden is an attorney at law authorised to practice in the Grand Duchy of Luxembourg. He was admitted to the Luxembourg Bar in 1995 and left in 2005. He returned in 2008 and became a partner in Baden & Baden. He has acted as a court appointed liquidator and trustee in bankruptcy in more than 300 cases. He was instructed on behalf of Mr Stanford.
23. In his report he not only opined upon Luxembourg law but also expressed his opinion on numerous questions of fact all of which he concluded in favour of Mr Stanford. However, not surprisingly in cross examination he accepted that his role was solely as a witness as to Luxembourg law. Nevertheless, I did not find that he adopted a balanced approach in the evidence which he gave.
24. Mr Stefan Svensson is a partner of Juris Law Office, Iceland. His expertise lies in commercial law and in particular in commercial litigation. He also teaches at the University of Reykjavik. He was admitted to appear and plead before the Icelandic Supreme Court in 2010 and has appeared in many cases concerning the Icelandic financial collapse. He provided expert evidence by way of a report dated 11 July 2014. The entirety of his evidence was unchallenged and I accept it.

Initial relationship between Mr Stanford and LLux, the first Projects in India and the "re-gearing" proposal

25. Prior to 2007 Mr Stanford was already an established customer of LLux. In fact, he opened his first personal account numbered 3059533 on 8 September 2004 and signed the bank's General Terms and Conditions of Business in that regard. Amongst other things, the General Terms and Conditions of Business provide that the relationship is governed by Luxembourg law. In October 2004 Mr Stanford also signed a "hold mail" instruction under which he instructed LLux to hold all mail including account statements addressed to him whatever the contents, at his disposal at LLux's offices until collected. As I have already mentioned, at all relevant times, a Mr Olafsson was the Account Manager responsible for Mr Stanford's accounts.
26. In fact, the documents reveal that LLux had already lent Mr Stanford the sum of £3.05m in September 2004 and in 2005 went on to finance his purchase of shares in Kaupthing Bank, at a cost of around £40m. Further in May 2005, LLux financed Mr Stanford's purchase of the Chalet by way of a loan of EUR 5.6m. In the executed version of the loan agreement signed by Mr Stanford, Mr Olafsson and Mr Sigurjonsson in his capacity as Head of Probate Banking Credit for LLux, the EUR 5.6m loan was expressed to be "an uncommitted credit facility" albeit made available to finance the purchase of the Chalet.
27. The internal credit request in relation to the Courchevel Loan dated 13 May 2005 states that Mr Stanford was already indebted to LLux at that stage in the sum of EUR 67.2m, that the total borrowing would be EUR 73m and that the total borrowing for which Mr Stanford was responsible was EUR 83m. Prior to the execution of the first Courchevel Loan Agreement, an indicative term sheet was issued by LLux in which it was expressly stated:

"...Our commitment shall be subject to loan and security documentation satisfactory to the bank and approval of the borrower. This is an indicative offer, subject to final approval by the Board of Landsbanki Luxembourg."

Prior to the execution of the loan agreement, the loan had been approved by the LLux Credit Committee. Mr Stanford also executed a mortgage over the Chalet in favour of LLux on 3 June 2005. Thereafter, in or around February 2006, Mr Stanford transferred all of his personal borrowing to Kaupthing Bank and the EUR 5.6m loan in respect of the Chalet was repaid by September of that year, having been refinanced.

28. In cross examination, Mr Stanford stated that the terms of the loan agreement and the mortgage executed in 2005 were of no consequence because, in fact, the terms upon which both LLux and LBI did business was agreed orally and was dependant upon the importance of the customer to the bank and in particular, the number of shares in LBI the customer purchased. He stated that the loan agreement in relation to the Chalet executed in 2005, the mortgage relating to it and all of the other bank documentation to which I shall refer including the Courchevel Loan Agreement and the Ennismore Loan Agreement and Mortgage, were for the purposes of compliance only and that both the business of LLux and that of LBI was conducted on very different terms than that recorded in the documentation.
29. In 2005 and 2006, having met Mr Dhir, Mr Stanford invested substantial sums in land at Nandi Hills, Bangalore and Mysore, India through Fusion India an Indian company set up for the purpose and of which Mr Dhir became a director. Mr Dhir worked full time for Fusion India and visited India at least once a month in order to identify suitable investment opportunities in India.
30. In September 2006, Mr Dhir was introduced to Mr Jitu Virwani, the founder and chairman of the Embassy group of companies ("Mr Virwani"). The Embassy group had built the Embassy Golf Links Technology Park, which was the largest serviced technology park in Bangalore. The following month Mr Stanford and Mr Dhir met with Mr Virwani in Bangalore and Mr Virwani invited Mr Stanford to participate in a joint venture to purchase and develop 25 acres of land in Cochin, Kerala, India. Mr Stanford agreed to invest £6m and paid a deposit of £4m to Embassy. However, given the scale of the other projects proposed by Embassy which were at Chennai and Pune, India, Mr Stanford sought co-investors to form a consortium which became known as the Stanford or K Group. Mr Stanford was a member of the K Group at all times. The identity of the remainder of its members was not finalised at this stage.
31. It is not in dispute that by the end of November 2006, Mr Stanford's financial assistant, Anthony Bogod ("Mr Bogod"), was seeking tax advice about potential structures for the Joint Venture between Mr Stanford and others who might become members of the K Group and Embassy, which was intended to be on a 50:50 basis. It is also not disputed that discussions with LLux had already taken place. In an email of 26 November 2006 from Mr Bogod to Paul Ayres of BDO Stoy Hayward, under the heading "FUNDING", Mr Bogod referred to the fact that the equity needed for the purchase of the land in India would be injected by the "shareholders" partially from their own resources and that part "may" be by way of a loan from LLux. He went on to state that LLux would require a Luxembourg company or LLP to which to loan the monies and that Jan Rottiers, an in-house tax adviser with LLux, had advised that "the best structure would be a Lux company owning a Mauritian company owning an Indian company owning 50% of the JV company." Very shortly thereafter on 1 December 2006, Mr Dhir sent through to India a preliminary list of financial information required in respect of due diligence in relation to Embassy.
32. In fact, by 5 December 2006 it was agreed that Mr Stanford, Mr Dhir, some potential members of the K Group and representatives of LLux and LBI, then known as Landsbanki Islands hf, would travel to Bangalore to discuss the Joint Venture. In fact, Mr Stanford sought copies of the reports which had been provided to him by Mr Virwani in order that Mr Johannesson and Mr Smarasen, potential members of the K Group, could have time to consider them before the trip to Bangalore. Mr Dhir also sent Mr Stanford the investment summary which was based on a 50% equity stake and a £61.38m "Investor Equity Contribution".
33. Further, prior to the trip to India, discussions had commenced with LLux/LBI about the possibility that they might once again become involved in funding Mr Stanford's portfolio of assets and that they might be 're-geared". On 12 December 2006 Mr Bogod, acting on Mr Stanford's behalf, sent an email to Mr Olafsson which was copied to Mr Thoroddsen, a Mr Welding at LBI ("Mr Welding") and Mr Stanford, in which he set out "the assets which might be suitable for re-gearing". These included amongst others the projects already undertaken in India through Fusion India and "Courchevel". Mr Bogod's comment under that head was "You mentioned you were interested in taking this back. It cost approximately £3.9m and is geared at 80%." Mr Thoroddsen emailed Mr Olafsson and Mr Sigurjonsson the following day with his reaction. In relation to the Indian project he stated: "Not sure but I think we should take it all. Following an independent valuation, I think we should be ready to do a 50% valuation on estimated sale price. Depends of course on enforceability." In relation to Courchevel his comment was: "we could probably squeeze something here, but I don't see the added value."
34. On 14 December 2006, Mr Thoroddsen emailed Mr Welding at LBI and copied in Mr Olafsson and Mr Sigurjonsson amongst others. The email contained his summary of a telephone discussion with Mr Welding about Mr Bogod's enquiries about re-gearing. The relevant part of the email is as follows:

"3. We do think that the Indian case is interesting, but we need to have a closer look. We will learn more this weekend. At least we could become active partners in structuring the investment out of Luxembourg.

4. Courchevel and SPH we feel is to [sic] highly levered by KB already. We are not interested there. . ."

35. By a further email of 15 December 2006 from Mr Thoroddsen to Mr Welding copied in the same way, he stated: "No 3 is yet to be seen. We would not do no 4 or 5." It is accepted that 3 is a reference to the Indian projects and 4 referred to the Chalet and Mr Stanford accepted that at that stage, LLux did not wish to lend in relation to the Chalet.

The Trip to Bangalore

36. On 16 December 2006, Mr Stanford, Mr Dhir and some other potential members of the K Group consortium flew to Bangalore in order to attend a presentation at the office of the Embassy Group. They were accompanied on the flight by Mr Thoroddsen, Mr Olafsson and Mr Baldvin Valtysson, the General Manager of LBI's London branch ("Mr Valtysson").
37. Throughout this period Mr Olafsson remained Mr Stanford's account manager at LLux. I should add that since the collapse of LBI and LLux, Mr Olafsson has worked for Arena Wealth Management SA but has remained in close contact with Mr Stanford. In August 2009, Mr Stanford also granted him a power of attorney in order to enable him to request and receive all documents, statements and information regarding his business relationship with LLux and to require the liquidators of LLux to take various steps in relation to Mr Stanford's accounts, including to execute all foreign exchange transactions in relation to his accounts (the "Power of Attorney"), which they did. Unfortunately, Mr Olafsson was not called as a witness at the hearing whether by LLux or on behalf of Mr Stanford and Mr McDonnell only sought to introduce a witness statement made by him on the sixth day of the trial. As I have already mentioned, I was unable to allow the application to do so at such a late stage.
38. It is also unfortunate that Mr Thoroddsen was not called as a witness at the trial. In cross examination, Mr Stanford stated that he was in contact with Mr Thoroddsen but that he had "memory issues" about the trip to Bangalore and what had been discussed or agreed. In cross examination, Mr Backman stated that he had not spoken to Mr Thoroddsen at all but that Mr Olafsson had confirmed to him that he could not confirm Mr Stanford's version of events. I accept his evidence in this regard.
39. In any event, it is not in dispute that a private jet was chartered for the journey to Bangalore and that it commenced its journey in Iceland and touched down at Biggin Hill airfield in order to pick up other members of the party. In his witness statement Mr Dhir states that Messrs Johannesson, Thoroddsen, Olafsson and Valtysson were already on board and that they were drunk by the time they reached Biggin Hill. In his witness statement Mr Stanford confirms the content of Mr Dhir's witness statement to the extent that the facts and matters referred to involve him. In cross examination both Mr Stanford and Mr Dhir stated however, that Mr Olafsson, Mr Thoroddsen and Mr Valtysson had joined the plane with them at Biggin Hill and that only Mr Johannesson, a potential member of the K Group had come from Iceland. Both Mr Dhir and Mr Stanford were vague about who had been on the flight and Mr Stanford accepted that he could not remember.
40. In fact, the evidence of both Mr Dhir and Mr Stanford was incorrect. It is clear from the flight manifests which are unchallenged that the flight left Reykjavik on the afternoon of Saturday 16 December 2006 and that the passengers were Mr Jon Johannesson, Mr Magnus Armann, Mr Thorsteinn Jonsson and Mr Baldvin Valtysson. The flight left Biggin Hill on the evening of 16 December 2006 and reached Bangalore by lunchtime on Sunday 17 December. The additional passengers on that leg of the journey were Mr Stanford, Mr Dhir, Mr Olafsson and Mr Thoroddsen. The return journey commenced around lunchtime on Monday 18 December and arrived back in the United Kingdom later that day.
41. It is not in dispute that on 18 December 2006, at the end of the presentations in Bangalore, Mr Virwani acting on behalf of the Embassy group invited the K Group consortium to participate in two joint ventures involving the purchase and development of technology parks in Chennai and Pune. The proposal documents stated that the Chennai construction would take place over 5 years with retail income from completed buildings in years 3, 4 and 5 and that construction in Pune would take place over 6 years with an income stream from year 2. Although they had been circulated before the trip, Mr Dhir said in cross examination that another set of the proposal documents were provided to those members of the K Group and representatives of LLux and LBI who attended the presentation and I accept his evidence in this regard.
42. Mr Stanford alleges that on the flight back from Bangalore, Mr Thoroddsen was pushing for a 20% stake in the consortium's vehicle in return for funding 50% of its investment in the venture. Mr Stanford states that he was non-committal about this because he intended also to discuss the funding possibilities with Kaupthing, another Icelandic bank with which he had a relationship. In his witness statement, Mr Stanford goes on to state that as a result of his being non-committal, during the flight Mr Olafsson offered to refinance the Kaupthing loan over the Chalet with a five year term loan and to roll up the interest. He goes on to state that Mr Olafsson said that Mr Stanford could pay it back with income from the Indian Joint Ventures. Mr Stanford says that he then mentioned that he could use such a loan to buy a much bigger property in Knightsbridge and that as a result Mr Olafsson said that LLux would give him a loan on the same terms (a five year term and rolled up interest) for a property in London.
43. As I have already mentioned, in cross examination Mr Stanford accepted that he could not recall all of the individuals who were on the flight. He also went on to accept that on the return journey during which the alleged discussion took place, everyone was "a bit worse for wear", something which was also accepted by Mr Dhir. Mr Stanford also said that he did not remember whether, in fact, he had been non-committal about LLux/LBI having a stake in the Indian venture. Despite the reference in his witness statement to a distinct recollection of an offer to refinance the Kaupthing loan over the Chalet by way of a 5 year term with rolled up interest and a similar offer in relation to a London property during the return plane journey, in cross examination, Mr Dhir also accepted that everyone was excited and that there were discussions but that he could not remember exactly who had participated in which parts of the discussions. He accepted that no reference was made to funding the loans or the interest from profits from the Joint Venture. He also accepted that the commercial terms in relation to the projects and the participation of the K Group were still to be negotiated, and that the proposal that LLux would fund 50% of the K Group's contribution to the project remained "in principle" only.
44. In fact, in the Re-Re-Amended Defence and Counterclaim in respect of which the statement of truth is signed by Mr Stanford personally, it is pleaded that during the flight Mr Olafsson offered to re-finance the mortgage over the Chalet on favourable terms and that the agreement that the interest on the Courchevel Loan would be rolled up or deferred until the maturity date of the Courchevel Loan or the realisation of profits from the Joint Venture, whichever was the later, and the similar terms in relation to the Ennismore Loan, were reached between Mr Stanford, Mr Thoroddsen and Mr Olafsson on 14 April 2007.
45. In cross examination, Mr Stanford accepted that there was no documentary evidence to support the making of either an offer or an agreement in relation to the Chalet during the flight in the form alleged or at all. He also accepted that he did not remember having sent any emails to confirm the alleged discussion, offer or agreement and was not aware of any document in which the terms alleged had been set out. He said that he did not know whether he had mentioned it to Mr Bogod, his financial assistant and he accepted that even if there had been an offer made by Mr Olafsson in the manner pleaded, it had not been accepted. Lastly, he accepted that nothing had been agreed on the plane whether in relation to the Chalet or a loan for a London property but he said that it had been discussed. He also accepted that it was never said that if there were no profits from the Joint Venture, the proposed loans would not be repayable at all and stated that such a suggestion would be ridiculous. He also accepted that the allegation that Messrs Olafsson and Thoroddsen had offered to re-finance the Chalet was contrary to their exchange of emails prior to the flight. In response Mr Stanford said that they always did what he wanted.
46. On his return from Bangalore, on 21 December 2006, Mr Thoroddsen produced a bullet point outline headed "Project Stanford Group", which he sent Mr Olafsson and Mr Valtysson as the basis for a presentation to be made to other members of the bank the following day. The bullet points include a heading "Loan Proposal – Heads of Terms" under which the figures reveal a proposed loan of £30m in respect of half of the equity stake to be provided by the "Stanford Group" and an equity stake for "Landsbanki" itself of £8,571,429 as an equal member of the "Stanford Group". The loan terms make no reference to interest but state a duration for the loan of 5 years. Under the heading "Next steps" the bullet points "MoU, Structuring, Due Diligence, Commitment and Timing" are set out. It is not disputed that MoU is a reference to a memorandum of understanding.
47. At this stage, Mr Stanford accepted that there was no agreement as to the final composition of the K Group and what percentage interests its members would have nor was there an agreement with Embassy in relation to the Joint Venture. In fact, on 2 January 2007, Mr Stanford sent an email to Mr Asgeir Johannesson and Mr Armann who were intended to be part of the K Group consortium together with Mr Olafsson, Mr Thoroddsen, Mr Valtysson amongst others, copied to Mr Dhir and Mr Bogod in which he stated:

"Hi everyone obviously, Christmas has slowed up momentum on the Indian stuff, the DD is progressing well and time is pressing on us to make a decision. Obviously the structures and other details will be sorted but we all need to decide firstly if we still want to go ahead and then on the deal prices and what to go back with. Then how much each of us are in for (assuming Lanksbanki gearing of 50%) can we agreed a date for this decision to be made by I propose this Friday? . . . ."

48. Thereafter, on 16 January 2007, Mr Thoroddsen emailed Mr Dhir, Mr Stanford and others in the following terms:

"Dear all,

On behalf of Landsbanki I confirm that we are in principle ready to proceed as discussed. Just to clarify our role would be to lend up to 50% of the K-Group participation in the JV and have a 20% equity stake (10% of the JV). We are yet to conclude if we would want this to be through a convertible loan structure or via a direct equity injection.

Our go-ahead at this stage is however conditioned to a satisfactory due diligence process on Embassy, the JV, the land title and pledge, deal structures etc., but this we believe are conditions that we share with the rest of the K-Group. As a lender however, we will be asking for a direct pledge in the plots that would be released at the time when construction work begins - funded by local banks. . . . . .The second crucial thing for us as the lender is what type of security we will have in the event of braking up of the JV. There has been mentioning of a guaranty by Embassy - and if so, how will that be secured?

Concerning the commercial aspects of the deal, we agree to the suggestions made by you Sanjay: offer on Chennai would be made on asking price and on Pune of 40, with a performance based uplift to 50 in 2 years. As their confidence on the price of 50 is based on higher renting yields, they should not worry to allow this strategy of caution to our group.

I'm sure we all realize that at this stage there are several key elements that need to be thought through and clarified. . . . These items and more are of course subjects of the next step and will need to be negotiated through the MoU.

So bottom line – yes. Landsbanki hereby grants the go-ahead, as part of the K-Group, and asks you Sanjay to continue the "in principal" negotiations. It goes without saying that our final approval will obviously be subject to an acceptance by the banks credit committee.

We suggest that a meeting will be held asap (via conference for those not present) with reps from all the group members where we appoint those responsible on the groups behalf to negotiate the final deal. Sanjay, would you please suggest a meeting time and place?

Kind regards,

Gunnar"

In cross examination, Mr Stanford stated that he appreciated that in the email reference was made to the need for credit approval but in his experience of Mr Thoroddsen the deal was done. He said that this was Mr Thoroddsen finding a way to complete the paperwork and that he had shaken hands and made clear that the deal would be approved. He went on to add that it was at the Dorchester Hotel that the details required by the bank were negotiated.

49. Mr Dhir circulated the email to potential members of the K Group, Mr Olafsson, Mr Thoroddsen and Mr Valtysson later that day. In his email which appeared above that of Mr Thoroddsen, Mr Dhir stated "I have put our offer in as below and in principle this has been agreed." Thereafter, a meeting of the potential K Group was arranged at which LLux representatives were also to be present. It took place on 24 January 2007. The next day, Mr Dhir sent out an email setting out "the points I fell [sic] we agreed on at yesterdays meeting." The bullet points included matters to be confirmed and negotiated with Embassy together with:

" . . .

6. company to be based out of Luxembourg to be incorporated by Landsbanki followed by Mauritian companies then Indian JV, Mauritian co etc to be incorporated by EY.

. . .

8. CEO of Lux co to be Sanjay [Mr Dhir]

9. equaty [sic] box was agreed at a25% material, 20% Lansbanki, [sic] 10% Sanjay, 17.5% Hanness, 17.5% Jon, 10% Kevin"

50. It is not disputed that for the remainder of January and thereafter, Mr Dhir and Mr Bogod were working with BDO Stoy Hayward and Ernst & Young to create a structure for the Joint Venture which was most tax efficient. They were also progressing matters with Indian lawyers and progressing the drafts of a shareholders' agreement to regulate the relationship between members of the K Group and the Joint Venture agreement (the "Shareholders' Agreement"). Further, it is not in dispute that, at the end of January and the beginning of February 2007, a Memorandum of Understanding provided by Embassy was being re-negotiated on behalf of the K Group by Mr Dhir and lawyers acting for him. In fact, on 4 February 2007, Mr Dhir emailed Messrs Stanford and Bogod to explain that in order to "sort out the contractual issues" he was going back to India to meet Mr Virwani and his lawyer face to face. Thereafter, on 11 February 2007 Mr Dhir emailed Mr Olafsson stating that he had changed the existing memorandum of understanding "drastically". On 9 February 2007, Mr Olafsson having made "small modifications", had re-sent the Credit Request in respect of the Indian Joint Venture to Mr Thoroddsen, Mr Valtysson, Mr Sigurjonsson and others at LLux and LBI. The draft credit request itself was for a loan of £30m from LLux to the new Luxembourg company to be incorporated with a maturity date of 1 March 2012. The "Margin" was described as "3% over LIBOR" and under the heading "Interest Periods" it stated: "Interest to be rolled up but all disposals from underlying companies will be used against rolled up interest."
51. An indicative term sheet in respect of the loan was produced on 22 February 2007. It was headed "LUXCO SPV" under which followed the following paragraph:

"Please find below the Terms and Conditions upon which Landsbanki Luxembourg S.A. is willing to grant a Term Loan Facility in favour of a new LUXCO. This should not be considered as a binding agreement between the parties. This is an Indicative Term Sheet and the commitment of Landsbanki Luxembourg S.A. is subject to final credit approval, acceptable due diligence and final loan and security documentation, all on terms and conditions acceptable to Landsbanki Luxembourg S.A." ("the Proviso")

52. Following a telephone conference call with Mr Bogod and Mr Dhir, the term sheet was amended. However, it retained the same heading including the Proviso. At that stage other matters remained outstanding, including the Joint Venture agreement itself which was still the subject of negotiation. In cross examination Mr Stanford repeated that the Proviso at the top of the Indicative Term Sheet in its original and its amended form was standard form only for the purposes of compliance and that the deal had already been agreed.
53. It is Mr Dhir's evidence that on 28 February 2007 he met with Mr Stanford, Mr Bogod, Mr Olafsson, Mr Thoroddsen and Mr Thorvaldsson, LBI's Director of Proprietary Trading and Equity, in order to finalise the "principal terms of the deal amongst themselves" before meeting with Embassy to agree final terms. He could not recall where the meeting took place and there is little or no evidence as to what took place.
54. Thereafter, he says that the meeting with Embassy took place at Landsbanki London's offices in Botolph Street on Friday 2 March 2007. Although Mr Stanford was not present, Mr Dhir and Mr Bogod attended as did Mr Armann, Mr Johannesson and a person known as "Steini Coke" [Mr Jonsson], together with Mr Virwani, Mr Ram, Mr Madhani and Mr Chittiappa on behalf of Embassy. Mr Dhir recalls that the bone of contention was the bank's insistence that Embassy's performance be guaranteed and that in order to prevent a breakdown in the negotiations, Mr Thoroddsen offered to decamp to the Dorchester Hotel in Mayfair and to continue negotiations over the weekend. In fact, the negotiations did continue over the weekend and the K Group was represented by Messrs Dhir and Bogod only. On the evening of 2 March Mr Dhir had telephoned Mr Dawson to ask him to assist and he arrived at the Dorchester Hotel at around midday on Saturday 3 March 2007.
55. Mr Dhir's evidence is that by the end of the meetings on 3 and 4 March 2007 all of the agreements both between Embassy and the K Group and between the K Group and LLux were reached and the final terms had been agreed. He said that the entirety of the structure of the deal was concluded and that Messrs Olafsson and Thoroddsen on behalf of LLux agreed to fund half of the £60m contribution to be made to the K Group in addition to putting in its own equity share. In particular, he said that it was agreed that:

(a) LLux would rename Fusion India as "Terra Firma India SaRL" ("TFI");

(b) Mr Bogod would be on the Board of Managers and Mr Dhir would act as TFI's Chief Executive Officer;

(c) The Joint Venture would be in three phases, Phase 1 being Chennai, Phase 2 being Pune and Phase 3 being Cochin;

(d) The price to be paid by the K Group in respect of Phase 1 was 3060m IR, Phase 2 was IR 1675m and Phase 3 was $13.5m;

(e) The K Group would exit Phase 1 after 5 years (in March 2012) subject to the Phase 1 Put Options;

(f) The 'deal structure' for Phase 1 was that:

(i) TFI would purchase the entire share capital of a Mauritian company called Silva Ltd ("Silva");

(ii) Silva would enter into a joint venture agreement ("the Chennai JVA") with DSRK Holdings (Chennai) Private Ltd ("DSRK"), the Embassy company which owned the 50 acre site at Chennai;

(iii) Pursuant to the Chennai JVA, Silva would acquire a 50 per cent shareholding in DSRK.

(g) The K-Group would have certain 'put options' ("the Phase 1 Put Options") by which they could:

(i) Require Embassy to purchase the K Group's shares in Silva for 60 per cent of the Phase 1 Purchase Price at any time in the first 3 years of the Chennai JVA or the Phase 1 Purchase Price plus 5 per cent compounded IRR ("CIRR") from the third anniversary until such share purchase after 3 years of the Chennai JVA;

(ii) If Embassy did not fulfil (i), require Mr Virwani (or another Embassy company) to purchase DSRK's assets at twice the Phase 1 Purchase Price plus 5 per cent CIRR and drag DSRK to a sale or liquidation with:

a. The first IR 3060m plus 5 per cent CIRR of the proceeds being paid to the K Group;

b. The second IR 3060m plus 5 per cent CIRR being paid to Embassy; and

c. Any balance being divided equally between Embassy and the K Group.

(iii) If Embassy defaulted within 3 years or breached Foreign Direct Investment rules after 3 years but within 5 years of the Chennai JVA, require it to purchase the K Group's shares in Silva for the Phase 1 Purchase Price plus 12.75 per cent flat IRR ("FIRR");

(iv) If Embassy did not fulfil (iii), require it to purchase Silva's shares in DSRK for the Phase 1 Purchase Price plus 12.75 per cent FIRR and pay Mr Stanford €3m on account of any consequential capital gains tax liability of Mr Stanford;

(v) If Embassy did not fulfil (iv), require Mr Virwani to purchase DSRK's assets for twice the Phase 1 Purchase Price plus 12.75 per cent FIRR and drag DSRK to a sale or liquidation, with:

a. The first IR 3060m plus 12.75 per cent FIRR of the proceeds being paid to the K Group;

b. The second IR 3060m plus 12.75 per cent FIRR being paid to Embassy; and

c. Any balance being paid to the K Group.

(h) Embassy's and DSRK's obligations under the Phase 1 Put Options would be jointly and severally guaranteed by Mr Virwani, his daughter Vandana Virwani, Embassy Stockholdings Private Ltd and Embassy Shelters Private Ltd.

56. He says that flip charts containing the detail of the structure of the Joint Venture with Embassy and the commitment of LLux to fund 50% of each of Phases 1, 2 and 3 of the Joint Venture were completed that day and thereafter, the agreement partly oral and partly in writing that LLux would fund 50% of the K Group's participation in each of Phases 1, 2 and 3 of the Joint Venture in consideration for being granted an option to acquire 20% of TFI and/or the promise by the K Group to provide the remaining 50% of the required funding was also reached ("the TFI Agreement"). He says that Mr Thoroddsen handed over a bank note to Mr Virwani to symbolise that a deal had been struck. It is his evidence that, thereafter, all of the activity was merely documenting a deal which was already done.
57. Later in cross examination, Mr Dawson stated for the first time that the signatures and date of 29 March 2007 which appear on the miniature versions of the flipcharts arose because they were signed on that date as souvenirs or mementos of the deal which had already been concluded. He went on to add that Mr Thoroddsen had given the impression that he was very important and that he had indeed agreed the deal and that the subsequent necessary "box ticking" was just that, a formality which he would "make happen."
58. However, despite Mr Dhir's evidence that it had been agreed by the evening of 4 March 2007 that Fusion India would be re-named TFI, in fact the email traffic on 8, 9 and 12 March continued to refer to the corporate vehicle as Fusion India and to the project as Fusion. It was Mr Dhir himself who emailed Mr Olafsson, Mr Dawson and Mr Bogod on 13 March 2007 asking if the name could be changed from Fusion. Although it is unclear whether he was referring solely to the project name at that stage, the response from Mr Olafsson sets out the names and characteristics of various Nordic gods. On the balance of probabilities, in my judgment, it is more likely than not that, had the name of the company already been agreed to be changed to TFI, such a discussion, whether in relation solely to the project or not, would not have been conducted without any reference to the name TFI. In fact the first time that the name TFI appears in the documentation is in an email of 23 March 2007 from Mr Bogod to members of the K Group and Mr Dhir. In cross examination Mr Dhir also agreed that he was wrong about an agreement having been reached on 4 March about Mr Bogod being on the board of the new corporate vehicle.
59. In any event, on 6 March 2007 a revised Credit Request was produced by LLux and, on 9 March 2007, Mr Thoroddsen emailed Mr Olling, also at LLux, and Mr Olafsson, reminding them that it was essential that:

" ... we start asap to get comfort on

A. embassy corporate structure, net equity, main holdings, Jitu's personal wealth etc . . . .

B. The possibilities/complication on getting money out of India for exercise of the put.

. . . .

Remember - closing is on the 20^th of March!!"

60. In cross examination Mr Dhir stated that the reference to closing was to the need to produce the paperwork to reflect what had been agreed by that date. Further, in relation to an email also of 9 March 2007 from Mr Olling to Mr Dhir in which it is stated that there "probably will be a put option", Mr Dhir reiterated that it had already been agreed at the meeting over the weekend of 3/4 March at the Dorchester Hotel. In relation to Mr Bogod's email of 11 March to Mr Dawson amongst others in which he set out numerous matters which needed to be considered and commented that "a lot of work is needed before we can pass this to the other side" and that they had yet to see the drafts of the SPA, Mr Dhir accepted that there remained a massive amount to do but stated that it was only producing documentation to reflect what had already been agreed over the weekend at the Dorchester Hotel.
61. In fact, Mr Stanford accepted that the terms both of the loan from LLux, the Joint Venture and the terms of participation of members of the K Group had not been finalised by 12 March 2007. However, in cross examination he maintained nevertheless, that the deal had been done. In fact, on 12 March 2007, Mr Bogod sent an email to Mr Dhir and Mr Dawson copied to Mr Olafsson and Mr Thoroddsen amongst others setting out "OTHER KEY POINTS THAT NEED ACTIONING URGENTLY". They included:

"oan[sic] terms to be finalised with Landsbanki . . .

Luxco shareholders agreement to be actione . . .

Escrow agreement need to be drafted . .

Mauritian legal opinion to be obtained . . .

. . .

Equity box to be finalized . . .

Sanjay participation to be resolved . . ."

Nevertheless, Mr Dhir stated in cross examination that there was a commitment from Mr Thoroddsen that the loan would be forthcoming and it was only the fine details which had to be finalised.

62. On 13 March 2007 the latest version of the Credit Request which was the third was sent to Mr Thoroddsen and Mr Olling by Mr Olafsson. By this stage the loan was expressed as euros rather than pounds sterling. The loan was stated to be Euros 43.5m and the equity input to be Euros 8.7m. The equity shares of the participants in the consortium were no longer equal. They were stated to be Materia Invest owned by Mr Armann, Mr Jonsson and Mr Stanford equally, Mr Dhir who was stated to be investing through a call option and by working for Luxco, Mr Smarason, Mr Asgeir Johannesson, Mr Stanford and Ms Karen Millen. Around the same time, Mr Olafsson contacted Mr Dhir and explained the need for a valuation in relation to the land in Cochin. Mr Dhir's response was that it would take two weeks to obtain.
63. Thereafter, on 14 March 2007 Mr Stanford sent an email to Mr Bogod and the members of the K Group in which he stated:

"Hi we are nearing completion on the Chennai transaction. It looks like it will be in the last week in March.

There are some fundamentals we just need to agree, and I should be grateful if you would respond to this email to confirm your agreement to the below . . ."

He then set out a number of matters including what he proposed to be the percentage interests of the respective members of the K Group in the Joint Venture. In this regard, Mr Dhir accepted that at this stage the members of the consortium were still fighting about what share of the Joint Venture they could have. The following day, Mr Dawson sent out revised drafts of, amongst other things, the Joint Venture agreement, an option agreement and the Shareholders' Agreement. In fact, it also appears from an email from Mr Olafsson to Mr Bogod that day that Mr Stanford had been attempting to renegotiate the extent of his interest in the K Group, which was refused.

64. Thereafter, on 15 March 2007, Mr Bogod sent out draft documentation being the draft Joint Venture agreement, the sale purchase agreement and the option agreement. He commented that:

"As you know, many long meetings were held in London over the weekend of March 2 - 6. From the output of those meetings, Mark Dawson at Halliwells has been working on the main agreement with input form Sanjay, (Mr Dhir) me and (JVA only) Landsbanki."

Under a heading, "KEY OUTSTANDING ISSUES" he referred to a major issue in relation to put and call options having arisen that day and went on:

"The Landsbanki terms are not yet agreed in writing but we know broadly what they are going to be."

65. Further, on 15 March 2007, Mr Sigurdsson sent an email to Mr Bogod asking how everything stood. In particular, he referred to the fact that the "JV Agreement" was still being finalised. He also answered some of the questions which had already been posed. In answer to the question "Loan terms to be finalised with Landsbanki (GUNNAR/STEINI – Where are we on this please?)" Mr Sigurdsson added "EXPECTED ANY MOMENT!!"
66. On 20 March 2007, Mr Olafsson sent an email to his colleagues asking whether there were any fundamental changes needed to the third version of the Credit Request or whether they were happy with it and later that day he sent out an updated version with a request for a conference call to discuss it the following day. It was approved in that form. Thereafter, Mr Olafsson sent out a further Indicative Term Sheet on 27 March 2007 and stated that comments were required "asap". The Term Sheet was now headed "Terra Firma India sarl", the name of the Luxembourg company to which the loan was to be made. It also carried the Proviso as before.
67. Thereafter, there was a further meeting at the Dorchester Hotel on 29 March 2007. In his witness statement, Mr Dhir says that the purpose of the meeting was to discuss a draft joint venture agreement and option agreement. However, in cross examination, he accepted that, in fact, he had no recollection of the meeting. In cross examination Mr Stanford stated that the discussions at the meeting on 29 March had been a re-confirmation of what had already been agreed on 4 March and that this was not in his witness statement because it had just "popped into his head". By an email of 4.50pm on 29 March 2007, Mr Thoroddsen contacted Mr Stanford saying "Seems we have a deal!! Great work by Sanjay. We look forward to the partnership." In cross examination, Mr Stanford nevertheless maintained that the deal in the sense of the TFI Agreement had already been reached. This was despite the response to the request for Further Information in relation to his pleading in which it had been stated that the TFI Agreement was reached at around 2pm on 29 March 2007.
68. I should add that Mr Dhir went as far as to say that Mr Stanford's pleading which states that the agreement both between the K Group and Embassy (the Joint Venture agreement) and the TFI Agreement between the K Group/TFI and LLux were reached on 29 March 2007 and the Further Information provided which states that, in fact, agreement was reached at around 2pm that day, are incorrect. However, in fact, in his oral closing Mr McDonnell on Mr Stanford's behalf reiterated that Mr Stanford's case was as pleaded, namely that the agreement with Embassy and the alleged TFI Agreement were reached on 29 March 2007.
69. It seems therefore, that any case based upon the evidence of Mr Dhir and/or Mr Stanford and/or Mr Dawson that the alleged TFI Agreement was reached over the weekend of 3-4 March 2007 or at any other earlier stage has been abandoned. Whether or not that it is the case, in the light of the consistent contents of the subsequent emails to which I have referred, the further work which was being undertaken, the failure to change the name of the special vehicle company to TFI until after 4 March 2007, together with the nature of the Proviso which appeared on LLux documentation and the fact that the emails reveal that neither the loan terms nor the participants in the K Group had been finalised and neither had the Shareholders' Agreement, I would have found that such an agreement was not reached on 4 March as Mr Dhir and Mr Stanford would have it. I would have arrived at that conclusion in the light of and having applied the principles of Luxembourg law as to the formation of contracts upon which the experts are agreed. Under Luxembourg law in order for a contract to arise, it is necessary that the parties agree the main obligations of a contract and intend it to be legally binding. In this regard, I also reject Mr Stanford's evidence that the meeting of 29 March 2007 was to re-confirm the earlier agreement. Had this been the case, in my judgment, the matters to which I have already referred would have been different and in addition, Mr Stanford would have been likely to have mentioned the "re-confirmation" in his witness statement.
70. In any event, on 3 April 2007, Mr Dawson sent out the final drafts of the Joint Venture Agreement, the Option Agreement and a Project Development Management Agreement. In the email to which they were attached he stated that it was hoped that the transaction would complete in the next 24 to 36 hours and in any event by close of business on 4 April 2007. Agreements in respect of the Joint Venture were also entered into on 4 April 2007 and the first meeting of the Board of Managers of TFI at which it was resolved to enter into all of the agreements, was held that day.
71. Thereafter, on 5 April 2007, the Shareholders' Agreement was entered into by which the members of the K Group regulated their affairs with TFI. On the same day, LLux entered into an agreement with TFI for the loan of EUR 27 million by LLux to TFI ("the First TFI Loan Agreement"). Clause 2.2 of the First TFI Loan Agreement provided: "The sums made available by the Lender to the Borrower under the [First TFI] Loan Agreement shall be used by the Borrower to finance a purchase of land in Chennai India [i.e. Phase 1] for further development in a joint venture with a local developer Embassy Group".
72. Further, on 6 April 2007, Mr Dhir emailed the members of the K Group, Messrs Olafsson, Thoroddsen and Valtysson together with Mr Stanford and Mr Bogod stating, "Congratulations on completing this deal and welcome to India..."

Phase 2

73. There is no dispute that LLux subsequently paid the sum of EUR 27 million to TFI to finance TFI's participation in Phase 1 of the Joint Venture. However, in relation to Phase 2 in July 2007, Embassy had decided to acquire an additional 40 acres adjoining the land at Pune and was offering the K Group and, as a result, TFI the opportunity to participate. The price of the additional 40 acres was around US$30 million. In an email dated 13 November 2007, sent by Mr Bogod, he stated as follows:

"Subject:India/ Terra Firma

Just to be clear on the issues on this

My understanding is that:

- You have agreed to up the cost of the Pune deal from 176 Crores to 196 Crores to compensate Embassy for the extra stamp transfer costs incurred. ie an additional $5m

- You have agreed to buy the extra 40 acres at Pune at a cost of 6 Crores an acre. This is a total additional cost of around $30m

. . . . . .

We have the following issues:

- Landsbanki are not yet in the loop on most of these points, although they do know about the escrow one, and are not currently supportive of it. . . . . . .Given recent relationship issues, I expect there to be a problem from Landsbanki's end on the decision to buy a further 40 acres.

- I am not convinced TF will readily get Lansbanki funding to complete Pune, either in equity or loan terms …

Bottom line is that, as Kevin says, within a few days the relationship will end if we do not deliver on your discussions in Iceland. . . "

74. On 6 January 2008, Mr Stanford sent an email to Mr Bogod in the following terms:

"Tony just thinking gunnar [sic] always said landsbanki would do what we did in india but we still need to confirm he is there for the new pune deal? . . "

Mr Bogod responded the same day stating:

"Agreed as urgent. Gunnar and I discussed it pre Christmas and he told me then that they intend completing what they agreed to do. Bear in mind thought that what they agreed to do did not include the extra 40 acres or the Pune Price uplift and this will therefore still need approval and credit committee scrutiny at their end. . . ."

Thereafter, on 21 January 2008, Mr Bogod emailed Landsbanki and provided them with an updated report in which he outlined the changes to the deal. This was followed by an email from Mr Stanford to Mr Thoroddsen of 28 January 2008 stating that he was looking forward to seeing him in Venice and that it would be "great if we can get an answer on pune before then?" In addition, the February 2008 Report in relation to the project states under the heading "Outstanding Completions":

"Embassy I now ready to proceed with the Kerala and Pune projects. Indeed legal documents on both of these projects is well advanced and the investors are now working on the following:

final decision re ownership structure going forward (see para 6)

agreement of Landsbanki to the funding terms, especially in light of the new Pune terms (see para 3.1)"

Para 3.1 of the Report reveals that there were two new costs being $30m in respect of the additional 40 acres and $5m in additional costs. As a result, the cost to TFI had risen from EUR 43 m to EUR 78m.

75. Mr Dhir says that there were many meetings in relation to the increase in costs and that Landsbanki agreed to provide the funds at a meeting in Dubai in early February 2008. Such a meeting is not mentioned in the pleadings. In any event, in cross examination, Mr Dhir stated:

"[I] didn't go back and say, 'Wait a minute, Landsbanki have already agreed to this' because, "on his [Mr Thoroddsen's] first commitment he gave, he delivered and we got the loan and we completed on the first transaction the same way he said we would, so I had no reason to doubt him that -- he delivered it the first time, why couldn't he deliver it the second.

I understood they had to fulfill their formalities of his commitment ...  This is running exactly the same way it ran for the first deal that we actually did complete the way he said he would… I believed and trusted them that it would get done.  They had to fulfil their formalities, fulfil their documentation and it had to take its course.

In the photograph [referred to in paragraph 28 of Mr Dhir's witness statement)] "is Mr Gunnar Thoroddsen handing a token deposit note to Mr Virwani, confirming, as he did in the Dorchester, but this time in Dubai, the confirmation of the bank's support to TFI for the second Pune transaction as a new stage, including the extra 40 acres."

76. In any event, LLux considered this revised deal and produced a draft indicative term sheet on 22 February 2008 for EUR 31.25 million. The draft indicative term sheet had the Proviso set out clearly at the top of the first page. The proposed margin contained in the Indicative Term Sheet was 6 per cent over base. In an email to Mr Johannesson, Mr Stanford noted:

"Landsbanki really messing around today they pulled out of the All saints funding then they issued a term sheet on Terra Firma at 6 over base!!"

77. Thereafter, there was then an exchange between Mr Bogod and Mr Helgi Ofeigsson of LLux on 2 March 2008 in which Mr Bogod said "we are planning to complete during the week if all goes according to plan". Mr Ofeigsson responded "Regarding completion next week I must remind you that the case has not been finally approved so closing next week is in my view very unlikely". Mr Bogod emailed Mr Stanford later that day stating:

"Do these guys want this or not (OK maybe they don't.) I thought the equity was approved but they are really dragging their heels on the lending and are capable of bringing the deal down. . ."

78. When asked in cross examination whether he agreed that at this stage, LLux was not obliged to fund 50% of Phase 2 including the increased amounts, Mr Stanford responded that he could not remember and then added that he was not going to accept that. He went on to state that it had been agreed on the telephone but when challenged added that he could not recall to whom he spoke. In any event, Mr Bogod sent an email to among others Mr Stanford on 25 March 2008 stating:

"TFI is not yet in a position to close the Pune deal. As you know all the paperwork is ready to sign, but the final chunk of funding, being Landsbanki's equity and lending, is not yet in place".

79. Thereafter, on 21 April 2008 Mr Dhir sent an email to Mr Thoroddsen setting out the current position. He noted that "when we were due to complete the world markets were not favourable and as a result understandably the bank was forced to put all funding on hold." He went on to explain that a 45 day grace period had been negotiated in order to raise the finance. He went on to request temporary funding of 12 months to enable Phase 2 to be completed and saying that it was crucial that this be resolved that week. Four days later on 25 April 2008 Mr Dhir emailed Mr Thoroddsen in the following terms:

"Please could we urgently come up with a solution as we discussed as I need to send something through to Jitu. I am getting seriously concerned that we are getting close to the deadline and if I have any hope of averting a serious crisis for all I desperately need your support as you may have some suggestions that could help me either buy time with Jitu or find alternative funding".

80. In fact, it is pleaded that on or about 24 April 2008 Mr Thoroddsen telephoned Mr Dhir and informed him that LLux did not have the "liquidity" to finance 50% of Phases 2 and 3 in cash but offered a bond from LBI as security to raise cash from a third party. It is also said that during the course of that conversation, Mr Thoroddsen told Mr Dhir that he should not doubt LBI's ability to pay.
81. In any event, on 25 April 2008, Mr Dhir prepared a draft email to Mr Thoroddsen which he copied to Mr Bogod for comments, stating:

"As you are aware time is getting critical on this deal as we only have 10 days to complete the transaction from which we may be faced with unwinding the whole process. From what I understand through our communication that the deal has been approved by the bank hence your equity has already been invested however it is simply that the debt book is currently closed. . . . . . What I would request from you as a matter of urgency is confirmation that you will give me 2 options 1: that you will complete the deal by 20th May or as a back up you are prepared to give me a bank guarantee for the amount stated that I could if necessary use to raise funding from an external bank..."

In response, Mr Bogod questioned where the idea of security had come from and Mr Dhir responded:

"[It] was a last ditch attempt to get whatever I can confidentially after talking with Gunnar last night it became clear that they wish to support this and have no problems with the deal but have not got the cash even if they want to. I am assured this is a short term problem and Gunnar is very embarrassed which is why I have put them on the spot to say prove your support by giving us a bank guarantee as this is probably the only way we could even have a chance at raising the funds quickly as explaining the deal and relationship will take time".

82. In cross examination Mr Dhir accepted that the idea of a guarantee had been his. In a further email from Mr Dhir to Mr Bogod of 25 April 2008, amongst other things, Mr Dhir said:

"Gunnar told me this very confidentially, but just because they don't have the cash available today does not mean that the guarantee does not have value as I am sure they have assets to fund it if they need to also either way it may buy me time with Jitu … I am trying to get something in writing from the bank even if it is NO as so far we have had no communication so I have nothing to show Jitu I doubt I will get the guarantee but it is my chance to finally get the bank to show their cards as they are still saying they want to do this but showing very little commitment …"

83. In the meantime Mr Dhir sent a revised version of his email to Mr Thoroddsen. The revised version stated (marked up to show the changes):

"As you are aware time is getting critical on this deal as we only have 10 days to complete the transaction from wich [sic] we may be faced with unwinding the whole process. From what I understand through our communication that the deal has been approved by the bank_hence your equity has already been invested however it is simply that the debt book is currently closed . . ."

Mr Dhir explained the change in a subsequent email to Mr Bogod in the following way:

"Please see revised email I sent to Gunnar as he said he could not forward the last one as I stated they have agreed to the deal so I have amended it to sit on the fence a little".

84. Then on 30 April 2008, Mr Dhir sent an email to Mr Stanford and Mr Bogod as follows:

"Just to update you as I have finally got to the bottom of things it is clear that Landsbanki are not in a position to release cash at present so I am trying alternative ways to get this deal done. What has been suggested so for is that they may issue a bond to Jitu for the value of completion that he can cash in 12 months but may be able to borrow against for cash flow. My concern is that he may be worried about their ability to pay this later also if this happens we and he would be at risk that is at worst something went wrong with them they would not be able to pay him but would still come after the debt from us. I asked gunnar if we could tie the two together so if they don't pay him we don't have to pay our loan to them but he made it clear that wont work as we should not doubt the bank's ability to pay. As a result I am trying to spin it another way to achieve the same so they would give TFI the bond that we could give Jitu a charge over while we raise the money from another bank against it that way he gets his money and we get the bank committed and the deal done and also our debt is attached to the asset they are giving so if something goes wrong one offsets against the other. I am in talks with a bank from Kuwait through a friend of mine who knows the chairman in Dubai branch. The interesting thing is what the bank are going to want to charge us for this Bond/Guarantee as if we go to another bank they will also want to charge . Just thought I would update you …"

85. This is consistent with Mr Dhir's evidence in his witness statement in which he says that it was during a telephone conversation with Mr Thoroddsen on 30 April 2008 that Mr Thoroddsen suggested that LBI could issue a bond to Mr Virwani. In cross examination, Mr Stanford accepted that he had seen Mr Dhir's email at the time but would not comment on what he understood it to mean either at the present time or when he received it.
86. Thereafter, on 1 May 2008, in an email to Messrs Ofeigsson, Thoroddsen, Olafsson and Bogod, copied to Mr Stanford, Mr Dhir stated "you were going to consider rolling up the interest on our debt" and as a result any bond/guarantee would also need to cover the interest which would be incurred. He went on to add, "I have thought about the option of giving Jitu a bond but feel this will not work as well as if you issue a guarantee or 12 month bond to TFI then TFI could borrow against that bond to pay Jitu ..." Mr Ofeigsson replied on 2 May 2008 stating: "We are currently looking into the type of the bond and will try to provide you with a prospectus for that bond today/Monday".
87. LLux then issued revised Indicative Term Sheets on 8 May 2008 and 9 May 2008 in respect of the proposal to make a loan to TFI to enable TFI to buy a bond from LBI. Each of these revised draft Indicative Term Sheets carried the same Proviso at the top of the first page, as before. Ultimately the proposal was for LLux to loan US$49,708,000 to TFI to enable TFI to invest a further US$3,945,700 into the Joint Venture, and to enable TFI to spend US$45,762,300 on a bond issued by LBI. It was intended that TFI would then pledge this bond to UBS as security for a loan from UBS. As a result, on 13 June 2008, LLux entered into a loan agreement with TFI for a loan in the sum of US$49,708,000 ("the Second TFI Loan Agreement"). Clause 2.2 of the Second TFI Loan Agreement provided: "The sums made available by the Lender to the Borrower under the [Second TFI] Loan Agreement shall be used by the Borrower to (i) make certain payments in respect of the Transaction not exceeding US$3,945,750; and (ii) to buy, at the price of 99.7%, from Landsbanki Islands hf for the nominal amount of US$45,900,000 a bond that the Borrower uses to finance the balance monies necessary for the Borrower to effect the Transaction". The term "Transaction" was defined by clause 1.31 of the Second TFI Loan Agreement to mean (in short) Phase 2 of the Joint Venture.
88. There is no dispute that LLux subsequently paid the sum of US$49,708,000 to TFI to finance TFI's participation in Phase 2 of the Joint Venture and that TFI used US$45,762,300 to purchase the Bond from LBI on 16 June 2008.

Progress on the Courchevel Loan

89. To return to the Courchevel Loan, as late as 2 February 2007, in relation to re-financing the Kaupthing loan in respect of the Chalet, Mr Olafsson was emailing Mr Sigurjonsson saying "Shall we go for it ... Let me know ... " A credit request was processed by LLux in respect of a EUR 4.5m loan on 6 March 2007. It makes reference to the Chalet and an existing registered pledge held by "Landsbanki" in relation to the Chalet. The request makes no mention of interest being rolled up or deferred, nor does it refer to the Joint Venture at all.
90. When taken to this document in cross examination, Mr Stanford stated once again that the credit request was merely for the purposes of compliance and did not reflect the terms of the intended loan. He also remarked for the first time that he was not suggesting that it was agreed that the loan in relation to the Chalet would not be repayable at all. As I have already mentioned, he said that that would be ridiculous. He said that it would have been repayable for example, if Mr Virwani's part of the venture had failed but that it was different where in fact, the bank had failed.
91. Further, having been taken to an email of 20 March 2007 from Mr Olafsson to Mr Bogod and Mr Stanford in which reference is made to the need for a new valuation in respect of the Chalet "for the mortgage we are going to offer you" Mr Stanford insisted that it had already been agreed. Thereafter, on 21 March 2007 Mr Olafsson sent out the draft loan documentation in relation to the Chalet. Having seen the documentation, Mr Bogod replied to Mr Stanford saying:

"I think you should sign this one. Steini [Mr Olafsson] is going to take back the Courchevel property . . . and then have it revalued. This should give you a decent uplift on gearing.

It's also slightly cheaper!"

92. Mr Stanford accepted that the draft loan documentation did not contain the terms in relation to payment and payment of interest which are alleged. In fact, it contains other terms as to interest. He repeated that the documentation was only for the purposes of compliance and that he always got what he wanted. He also said that he had not told Mr Bogod about the terms which he allegedly agreed about interest and repayment because they were nothing to do with him. Nevertheless, Mr Bogod went on to negotiate the terms of the draft loan agreement in relation to the Chalet on Mr Stanford's behalf which Mr Stanford could not explain other than to say that Mr Bogod was doing his job. In fact, the third version of the draft loan agreement was received on 4 April 2007.

The Courchevel Loan Agreement

93. Although it is stated to have been entered into on 21 March 2007, the Courchevel Loan Agreement between LLux and Mr Stanford was signed by Mr Stanford on 14 April 2007 and by Mr Olafsson on behalf of LLux on 16^th April 2007. Mr Stanford accepted that he had signed it but stated that he did not read the terms because he knew what he had agreed and that was not what was in the Courchevel Loan Agreement.
94. In the Courchevel Loan Agreement, the Courchevel Loan was expressed to be in the sum of EUR 4.5m, to be an uncommitted credit facility and to be for a term of 5 years. It also expressly stated that it was for the purpose of refinancing the borrowing on the Chalet. By clause 22.1 it is also expressly stated to be governed by Luxembourg law. The further relevant terms of the Courchevel Loan Agreement are as follows:

"1. DEFINITIONS

1.2 "Account" means account number 3059533, which the Borrower has with the Lender and all sub-accounts the Borrower might open with the Lender.

. . . . . . .

1.7 "Draw Down Notice" means a written request containing (a) the amount to be drawn, (b) the [selected] currency(ies) and (c) the duration of the first Interest Period.

. . . . .

2. FACILITY AND LOAN

2.1 The Borrower and the Lender have entered into a private banking relationship in the context of which the Lender is prepared to make available to the Borrower an Uncommitted Credit Facility in the total amount of EUR 4.500.000 (Four Million Five Hundred Thousand Euro) (hereinafter the "Facility"), or the equivalent thereof in any currency available to the Lender.

The sums made available by the Lender to the Borrower under the Loan Agreement shall be used by the Borrower for the refinance of Chalet 'Croc Blanc', Courchevel 1850, France.

. . . . . .

4. CONDITIONS PRECEDENT

4.1 The obligation of the Lender to make the Facility available is conditional upon the Lender having received, no later than 5 (five) Business Days prior to the draw down date:

. . . .

(f) A Draw Down Notice two (2) Business Days prior to the drawn down date, in the form of Schedule 3 hereto.

5. DRAWDOWN

5.1 Draw Down Notice. The Facility shall be made available in one amount and shall be drawn in up to two advances subject to the Lender having received before 10.00 a.m. Luxembourg time no later than two (2) Business Days prior to the draw down date a Draw Down Notice

5.2  Minimum drawings. Any proposed advance must be a minimum of EUR 100,000 or the undrawn balance of the total Facility, and may not exceed the total Facility.

. . .

7. INTEREST PERIODS

7.1 The Borrower may select interest periods of 3, 6 or 12 months' duration or other periods available upon the Lender's acceptance, provided that the Borrower's selection is notified to the Lender no later than 10.00a.m. Luxembourg time, two (2) Business Days before the last day of an Interest Period. In the absence of a nomination by the Borrower, the length of such Interest Period shall be similar to the previous interest period.

7.2 Interest periods of duration different from the above may be accepted upon the Borrower's request, at the sole discretion of the Lender. Such request to be in form and substance satisfactory to the Lender.

7.3 If any interest period would extend beyond the final maturity date such interest period shall be shortened to end on the final maturity date.

7.4 If any interest period would otherwise end on a day which is not a Business Day, such interest period shall be extended to the next following Business Day, unless such interest period would end in a new calendar month, in which case such interest period shall end on the immediately preceding Business Day.

8. DEFAULT INTEREST AND COSTS

8.1 In the event that the Borrower fails to pay any principle, interest or any other amount due and payable hereunder, the Borrower shall pay interest ("Default Interest") on such amount excluding any interest amount from the due date until payment is received by the Lender at the rate of 3.0% (three per cent) per annum above the interest rate.

. . .

11. GENERAL TERMS AND CONDITIONS OF BUSINESS

11.1 The Lender's General Terms and Conditions of Business shall be deemed a part of the Agreement. In case of a conflict between the Agreement and the General Terms and Conditions of Business, the provisions of the Agreement shall prevail.

. . .

13. PAYMENTS

13.1 All amounts payable by the Borrower shall be paid to the account of the Lender, according to instructions given by the Lender after reception of the Draw Down Notice, no later than 10:00 a.m. on the day when such amounts become due and the same shall be paid in full and without any deduction or withholding in respect if any taxes, duties, assessments, governmental charges or withholdings of whatsoever nature whether arising out of this Agreement or otherwise.

. . .

14. EVIDENCE OF DEBT

14.1 The Lender will inform the Borrower about the transactions by confirmations and statements.

14.2 The Lender shall maintain in accordance with its usual practice accounts evidencing the transactions made, the interest and any other charges accrued there from and all payments with respect thereto received by the Lender from time to time.

14.3 In any legal action or proceeding arising out of or in connection with the Agreement, the entries made in the accounts shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded.

. . .

16. AMENDMENTS AND WAIVERS

16.1 The Agreement may only be amended or varied in writing as signed by the Borrower and the Lender.

16.2 No delay or failure by the Lender in exercising any right or remedy shall be constructed or take effect as a waiver or release of that right or remedy and the Lender shall always be entitled to exercise all its rights and remedies unless it shall have expressly waived them in writing.

. . .

18. REPAYMENT/PREPAYMENT

18.1 Repayment. The loan shall be repaid in full no later than five (5) years after the date of signature of the Agreement, the Final Repayment Date, in the currencies in which the Loan is denominated.

19. EVENTS OF DEFAULT

. . .

19.2 Acceleration. Upon the occurrence of any Event of Default, the Lender may forthwith notify the Borrower and the Pledgor in writing whereupon the Loan shall become immediately due and payable and the Lender shall be under no further obligation to advance funds to the Borrower hereunder.

. . .

20. ASSIGNMENT

20.1 The Lender may at any time transfer in part or in whole its rights, benefits and/or obligations under this Agreement.

. . .

22. LAW AND JURISDICTION

22.1 This Agreement as well as any rights and obligations deriving there from shall be governed by and construed in accordance with the laws of the Grand Duchy of Luxembourg."

95. In addition, on 14 April 2007, Mr Stanford signed a pledge in the form set out at schedule 1 of the Courchevel Loan Agreement which was countersigned by Mr Olafsson and Mr Sigurjonsson on 16 April 2007 (the "Pledge Agreement"), a letter regarding representations relating to tax in the form set out in schedule 2 and a Draw Down Notice in the form set out in Schedule 3 to the Courchevel Loan Agreement. The Draw Down Notice was blank other than for Mr Stanford's signature and the date. In addition, on 28 December 2007, Mr Stanford signed a mortgage deed in respect of the Chalet in favour of LLux.
96. In cross examination, Mr Stanford accepted that the Courchevel Loan Agreement did not contain any terms to the effect that interest was to be rolled up or that capital and interest were only to be payable from the profits Mr Stanford received from the Joint Venture. Nevertheless, he stated that those were the terms upon which he always borrowed from LLux. In fact, Mr Stanford's pleaded case is that it was agreed on or about the date he executed the Courchevel Loan Agreement, namely 14 April 2007 that the interest would be rolled up and in his response to a Request for Further Information, it is stated that the agreement was between Mr Olafsson, Mr Thoroddsen and Mr Stanford himself. However, in his witness statement, he states that the agreement was reached with Mr Olafsson on the telephone. In cross examination, Mr Stanford was uncertain about who the agreement had been with and stated that it was not the first time he had reached such terms with LLux and that it was going on all the time. He said that he had only signed the Courchevel Loan Agreement for the purposes of compliance. His response was the same in relation to the Pledge Agreement between LLux and Mr Stanford which he also signed on 14 April 2007 by which he provided security for the Courchevel Loan.

Progress in relation to the Ennismore Loan Agreement and the Mortgage

97. Despite the fact that the Ennismore Loan Agreement is dated 13 November 2007, it is pleaded that Mr Stanford, Mr Thoroddsen and Mr Olafsson had agreed back on 14 April 2007, the same date as the alleged oral agreement in relation to the Courchevel Loan, that interest in relation to this loan should also be rolled up and paid at the maturity date of the Ennismore Loan being 30 August 2012 or upon realisation of profits from the Joint Venture, whichever was the later. In the same way as with the alleged agreement to roll up the interest on the Courchevel Loan, there is no reference in Mr Stanford's witness statement to Mr Thoroddsen having been party to the agreement.
98. In any event, a Credit Request in relation to the Ennismore Loan making no reference to rolled up interest was dated 8 August 2007 and the loan documentation was first produced and sent out to Mr Bogod to be forwarded to the conveyancing solicitors on 24 August 2007. Mr Bogod immediately emailed Mr Olafsson to seek a reduction in the arrangement fee set out in the draft documentation and the term in the draft document was amended accordingly. In fact, at one stage it was intended that the loan be made to and the property purchase be completed in the name of Mr Stanford's wife, who was his girlfriend at that stage. However, shortly before the purchase he changed his mind and 39 Ennismore Gardens was registered in Mr Stanford's name and the loan made to him.
99. It was Mr Stanford's case that in or around August 2007 a further conversation took place between Mr Olafsson, Mr Thoroddsen and Mr Stanford during which Mr Olafsson and Mr Thoroddsen stated that the Ennismore Loan would be made on terms at least as favourable as the Courchevel Loan and in particular, it was agreed that capital would be repaid from the profits of the Joint Venture and would not be repayable until the maturity date or the realisation of profits from the Joint Venture, whichever was the later and that interest would be rolled up and also paid at the later of the two dates.
100. Once again, in his witness statement Mr Stanford makes no reference to Mr Thoroddsen and suggests that the conversation took place only with Mr Olafsson. He also states that they "re-ran" the conversation that they had had in relation to the interest on the Courchevel Loan at the end of August 2007 before he executed the Mortgage. In cross examination he stated that it was felt necessary to re-confirm the terms and that the conversation had taken place on the telephone. He could not recall the date or where he was when the call took place. He also stated that he had not thought that he would be offered the same terms as the Courchevel Loan which is inconsistent with his repeated assertion that the terms were always the same and that he always got what he wanted. Furthermore, his comment that it would be ridiculous to suggest that the Loans would never have to be repaid in the event that there were no profits, applied to the Ennismore Loan as well as that in respect of the Chalet at Courchevel.
101. On 31 August 2007, Mr Stanford and LLux entered into the Mortgage as security for the Secured Obligations under the Ennismore Loan Agreement. The relevant provisions of the Mortgage are as follows:

Clause 1. DEFINITIONS AND INTERPRETATION

Clause 1.1

"Secured Obligations" means all moneys, obligations and liabilities whatsoever, present or future, actual or contingent, owing or incurred by the Mortgagor to the Bank whether solely or jointly or jointly and severally with any other person and whether as principal or surety and all Expenses except for any obligation which, if it were included, would result in contravention of Section 151 the Companies Act 1985;

. . .

Clause 2. COVENANT TO PAY

2.1 The Mortgagor hereby covenants to pay and discharge to the Bank the Secured Obligations on the due date or dates for payment and discharge or, in the absence of any such date or dates, forthwith upon any demand made by the Bank and, for the purpose of this Clause 2.1, the Expenses shall become due and payable on the date upon which they are paid or incurred (whichever is the earlier).

. . .

Clause 3. CHARGING PROVISIONS

3.1 Charge

The Mortgagor with full title guarantee and as a continuing security for the payment, discharge and performance of the Secured Obligations hereby charges and agrees to charge the Bank by way of first legal mortgage all and every interest in or over the Property.

. . .

Clause 5. POWER OF SALE

5.1 At any time after the Bank shall have demanded payment of any money or the discharge of the Secured Obligations or any part thereof or if requested by the Mortgagor the Bank may exercise without further notice and without the restrictions contained in Section 103 of the Act and whether or not it shall have appointed a Receiver all the powers including the power of sale conferred on mortgagees by the Act as hereby varied or extended and the date of such demand shall (without prejudice to the equitable right to redeem) be the redemption date."

102. In fact, as I have already mentioned, the Ennismore Loan Agreement was dated 13 November 2007. The purpose of the loan was to finance Mr Stanford's purchase of 39 Ennismore Gardens. By clause 22.1 the Ennismore Loan Agreement is expressly stated to be governed by Luxembourg Law. The other relevant clauses of the Ennismore Loan Agreement are as follows:

"1. DEFINITIONS

1.1 In this Agreement unless the context otherwise requires:

1.2 "Account" means account number 3059533, which the Borrowers have with the Lender and all sub-accounts the Borrowers might open with the Lender.

…

1.7 "Draw Down Notice" means a written request containing (a) the amount to be drawn, (b) the selected currency(ies) and (c) the duration of the first Interest Period.

. . .

2. FACILITY AND LOAN

2.1 The Borrowers and the Lender have entered into a private banking relationship. In this context, the Lender is prepared to make available to the Borrowers an Uncommitted Credit Facility in the total amount of GDP 13,500,000.00 (Thirteen Million Five Hundred Thousand Sterling Pounds) (hereinafter the "Facility"), or the equivalent thereof in any currency available to the Lender.

The sums made available by the Lender to the Borrowers under the Loan Agreement shall be used by the Borrowers to finance the Real Property.

...

4. CONDITIONS PRECEDENT

4.1 The obligation of the Lender to make the Facility available is conditional upon the Lender having received, no later than five (5) Banking Days prior to the draw down date:

...

(f) A Draw Down Notice two (2) Banking Days prior to the draw down date, in the form of Schedule 2 hereto.

5. DRAW DOWN

5.1 Draw Down Notice. The Facility shall be made available in one amount and shall be drawn in up to two advances subject to the Lender having received before 10.00 a.m. Luxembourg time no later than two (2) Business Days prior to the draw down date a Draw Down Notice.

5.2  Minimum drawings. Any proposed advance must be a minimum of EUR 100,000 or the undrawn balance of the total Facility, and may not exceed the total Facility.

. . .

6. PRICING

6.1 Interest. The Borrowers shall pay interest in respect of each Interest Period at a rate equivalent to 1.50% (150 basis points) per annum (the "Margin") on top of (i) EURIBOR in respect of any part of the Loan denominated in EUR; (ii) LIBOR in respect of any part of the Loan denominated in USD; or (iii) such other relevant reference rate in respect of any part of the Loan denominated in a currency other than EUR or USD, applicable to such currency, such reference to be determined by the Lender in connection with the Lender's approval of such currency in accordance with Clause 4.1. Any reference rate shall be based on the screen rate as at of or about 11.00 a.m. London time, two (2) Banking Days prior to the commencement of the relevant Interest Period for the offering of deposits in the relevant period and for a period comparable to the relevant Interest Period.

. . .

11. GENERAL TERMS AND CONDITIONS OF BUSINESS

11.1 The Lender's General Terms and Conditions of Business shall be deemed a part of the Agreement. In case of a conflict between the Agreement and the General Terms and Conditions of Business, the provisions of the Agreement shall prevail.

. . .

13. PAYMENTS

13.1 All amounts payable by the Borrowers shall be paid to the account of the Lender, according to instructions given by the Lender after reception of the Draw Down Notice, no later than 10:00 a.m. on the day when such amounts become due and the same shall be paid full and without any deduction or withholding in respect of any taxes, duties, assessments, governmental charges or withholdings of whatsoever nature whether arising out of this Agreement or otherwise.

14. EVIDENCE OF DEBT

14.1 The Lender will inform the Borrowers about the transactions by confirmations and statements.

14.2 The Lender shall maintain in accordance with its usual practice accounts evidencing the transactions made, the interest and any other charges accrued there from and all payments with respect thereto received by the Lender from time to time.

14.3 In any legal action or proceeding arising out of or in connection with the Agreement, the entries made in the accounts shall be prima facie evidence of the existence and amounts of the obligations of the Borrowers therein recorded.

. . .

16. AMENDMENTS AND WAIVERS

16.1 The Agreement may only be amended or varied in writing as signed by the Borrowers and the Lender.

. . .

18. REPAYMENT/PREPAYMENT

18.1 Repayment. The Loan shall be repaid in full no later than 30th August 2012, the Final Repayment Date, in the currencies in which the Loan is denominated.

. . .

19. EVENTS OF DEFAULT

. . .

19.2. Acceleration. Upon the occurrence of any Event of Default, the Lender may forthwith notify the Borrowers and the Pledgor in writing whereupon the Loan shall become immediately due and payable and the Lender shall be under no further obligation to advance funds to the Borrowers hereunder.

20. ASSIGNMENT

20.1 The Lender may at any time transfer in part or in whole its rights, benefits and/or obligations under this Agreement.

. . .

22. LAW AND JURISDICTION

22.1 This Agreement as well as any rights and obligations deriving there from shall be governed by and construed in accordance with the laws of the Grand Duchy of Luxembourg."

103. Despite the fact that there is no evidence of any Draw Down Notice for £13.5m having been submitted by Mr Stanford, there is no dispute that the loan of £13.5m was made available and that the sum of £13.5m was drawn down and used to complete the purchase of 39 Ennismore Gardens. The figure appears in the bank statements for Mr Stanford's account number 3059533 with LLux.

Insolvency

104. On 7 October 2008, the Icelandic Financial Supervisory Authority took control of LBI and on 12 December 2008, LLux went into liquidation. Mr Stanford ceased to make payments of interest in respect of either the Courchevel or the Ennismore Loans after 21 November 2008 and he says that on 29 December that year UBS demanded repayment or collateralisation of the UBS loan made to TFI as a result of the diminution in the value of the Bond provided by LBI. TFI became the subject of insolvency proceedings in Luxembourg in January 2009 and, in April that year, Mr Backman and two others were appointed as the winding up board of LBI.
105. In his opening submissions, Mr McDonnell highlighted four documents in relation to the insolvency of LBI ("the Reports"). He described them and their contents as follows:

i) the Truth Report was by a special investigative commission appointed by the Icelandic Parliament to report on the collapse of the Icelandic banks and their causes. He said that this states that, as a consequence of LBI's funds being held at branches outside Iceland, from 2007 onwards, the Central Bank of Iceland did not have sufficient funds at its disposal to perform its role as the lender of last resort to LBI. Additionally, its exposure to lending to its owners was very high. Furthermore, it states that LBI came "extremely close to insolvency at the end of March beginning of April 2008", and, on 1 April 2008, the Governor of the Central Bank of Iceland told the Prime Minister of Iceland that LBI could withstand no more than 6 days of pressure on its funds;

ii) The Lynx Report was into the causes of the collapse on the instructions of the Icelandic special prosecutor. He said that this stated that: LBI's profits were increased artificially and substantially; LBI did not disclose that it had illegally incurred large exposures to related parties, which led to an incorrect capital adequacy ratio being reported to FME, the Icelandic Regulator; substantial loans, relative to LBI's equity, were made to related parties; and concludes (under "Effects") that, but for misstatements in its 2007 annual report, LBI would have lost its banking licence immediately after its publication in January 2008;

iii) The PwC Claim, a pleading under Icelandic procedure signed by Mr Backman, setting out a claim against Pricewaterhouse Cooper for negligence in that it is said that they were responsible for the misstatements as to LBI's position in its 2007 accounts which they audited and should, allegedly, have drawn attention to, and PwC's defence; and

iv) the Deloitte memoranda, four reports by Deloitte to the winding-up board of LBI, relating to particular issues in the case against Pricewaterhouse Cooper, which identifies the fact that the LBI's minimum capital adequacy ratio was 6.49% at the end of March 2008 and 6.08% at the end of June, and therefore below the required statutory minimum of 8%.

106. In any event, on 11 February 2009, a letter was sent to Mr Stanford on behalf of LLux in liquidation enclosing a statement of his account as at 11 December 2008, which was the last valuation generated before the liquidation of LLux. The relevant part of the statement was as follows:

"Date: 10.02.2009

As per: 11.12.2008

Customer No: 3059533


107. In response, Mr Stanford sent a letter from his home address, dated 25 March 2009 in which he set out the balances which had been shown in the letter. They were:

"Balances at that date were as follows:

CASH: 301843 1/001.000.840	$ 575,099
OVERDRAFT: 3018431/001 .000.352.	1SK (23,642)
OVERDRAFT: 3059533/001.000.826	£ (1,033,623)
OVERDRAFT: 3059533/001.000978	€ (2.709)

LOAN ACCOUNTS

3059533/451.000.826	£ (15,464,872)
3059533/451.000.978	€ (1,085,182)

He then went on to give three specific instructions in the following terms:

"1. As per previous arrangements, please firstly use my $ cash account to offset the Overdraft of Ms Katla Jonasdottir, if any.

2. Offset the remainder of my $ cash account against my GBP overdraft.

3. Transfer all GBP borrowings (accounts 3059533/451.000.826 and 3059533/001.000.978) into €s with immediate effect."

108. Thereafter, on 3 August 2009, Mr Stanford granted Mr Olafsson, who by that time was at Arena Wealth Management SA, the Power of Attorney. As a result, on 22 September 2009, Mr Olafsson requested "the EUR mortgage facility to be drawn in EUR instead of GBP on his account. So following the FX transaction the GBP facility will be drawn in GBP and EUR facility will be drawn in EUR. Please fix both loans for 12 months." The following day LLux confirmed that the request had been carried out. Thereafter, Mr Stanford received written demands dated 22 October 2009 for the repayment of £13,848,636.41 in respect of the Ennismore Loan and EUR 5,005,686.41.
109. On 24 February 2010, the Luxembourg District Court ordered that the final date by which any declaration of claim or petition to establish a debt in the liquidation of LLux must be filed by 14 May 2010. In fact, Mr Stanford filed two claims in that liquidation in respect of his accounts and accounts relating to him.

Assignment to LBI

110. Thereafter, as I have mentioned previously, on 29 June 2012, LLux entered into the Assignment Agreement with LBI. For the purposes of the Assignment Agreement LLux was represented by Maitre Hamilius as its liquidator. It was recited that LBI, the assignee, was a creditor of LLux for the "LI Claim", which was defined as "the claim the Assignee has against the Assignor as acknowledged and approved by the Liquidator" and that the assignor was "prepared to partially repay the LI Claim by a distribution in kind (dation en paiement) of the Loan Book."
111. It was expressed that the assignor [LLux] "irrevocably assigns to the Assignee by way of a distribution in kind all rights, titles and interests in, to and under the Loan Book and the Collateral (the "Assignment")." "Collateral" and "Loan Book" were defined in the following way:

""Collateral" means all security rights, titles and interests, transferring all benefits including but not limited to pledges, mortgages, guarantees and guarantee clauses in the general terms and conditions of the Assignor relating to the Loan Book.

"Loan Book" means the loan portfolio of the Assignor, including related assets thereto such as interest, security and collateral, consisting of the lombard loan book, the private mortgage loan book, the loans guaranteed by credit institutions loan book, the project finance loan book, the K/S loan book, the corporate real estate loan book, the other loan book and the loans to credit institutions loan book, as listed in Schedule 1 of this Agreement."

Further, by clause 6 the Assignment Agreement is expressly stated to be construed in accordance with the laws of the Grand Duchy of Luxembourg. Mr Stanford's name appears in Schedule 1 to the Assignment Agreement, the case type is stated to be "private mortgage" and the "Outstanding Exposure EUR" is expressed to be "23,618,792". Under the heading "final maturity" the date of 10.04.12 is inserted, despite the fact that the final maturity date on the Courchevel Loan was 16 April 2012 and on the Ennismore Loan, 30 August 2012.

112. A Notice of Assignment dated 10 October 2012 was sent to Mr Stanford in which it was stated that a detailed description of the assigned claims were set out in Schedule 1. Under the heading, "Date and amount of loan agreement(s)" it provided as follows:

"2l March 2007, EUR 4,500,000

13th November 2007 GBP 13,500,000

Outstanding amount on 30 September 2012 including any possible overdrafts

For the loan in EUR:

Capital	4,500,000.00
Interests	563,144.04
Default Interests	341,196.26
Total outstanding exposure of the EUR
Loan	5,404,340.30
For the loan in GBP
Capital	13,500,000.00
Interests	1,305,794.26
Default Interests	894,580.69
Total outstanding exposure of the GBP Loan	15,700,374.95

(In case of any errors or omissions, LBI reserves the right to adjust the amount(s) in accordance with the term(s) of the outstanding liabilities)"

Proceedings

113. As I have already mentioned, this action was commenced by LLux, in the West London County Court on 16 July 2011. It was later transferred to the Central London County Court on 29 July 2011 and thereafter, to the High Court, Chancery Division, on 26 March 2013. After the Assignment Agreement, by order of His Honour Judge Dight of 15 March 2013, LBI was substituted as the Claimant in these proceedings and LLux became the Part 20 Defendant.

Validity of Assignment Agreement

114. There is no dispute that the validity of the Assignment Agreement is a matter for Luxembourg Law. It is also Professor Cuniberti's evidence that the Assignment Agreement is valid under Luxembourg Law and includes the assignment of the securities held in respect of the claims which were assigned. This includes the Mortgage. In summary, he says that there is only one requirement for the validity of the Assignment Agreement, namely that the parties consented to the assignment. Maitre Hamilius gave clear evidence that LLux and LBI had agreed that LLux's rights against Mr Stanford were assigned to LBI. Further, in his unchallenged evidence, Mr Svensson explains that LBI had capacity and power to enter into the assignment as a matter of Icelandic law.
115. The only point taken by Mr McDonnell on Mr Stanford's behalf was an unpleaded one and related to the classification of the "Case type" as "private mortgage". It was suggested that as a result, only the indebtedness in respect of the Ennismore Loan had been assigned and that any further indebtedness whether by way of drawdown under the Courchevel Loan Agreement or otherwise was not assigned. It seems to me that this is entirely spurious. The Mortgage itself is an all monies charge which secured the "Secured Obligations", the definition of which I have already set out. It is a wide term and in particular, is not limited to sums due in respect of the Ennismore Loan but is drawn in order to encompass all borrowing by Mr Stanford from LLux. The figure shown in Schedule 1 to the Assignment Agreement covered all amounts outstanding at that date.

Amounts due – Has LBI proved its case?

116. In closing Mr McDonnell confirmed that Mr Stanford does not challenge the figures which appear in LLux's statements in respect of his accounts down to and including 23 September 2009. In fact, as a result of clause 14.2 of both the Courchevel Loan Agreement and the Ennismore Loan Agreement, the figures in the statements provided by LLux are prima facie evidence of the sums due.
117. Furthermore, it seems that Mr Stanford does not challenge the alleged indebtedness in relation to the Ennismore Loan Agreement at all. However, in relation to the Courchevel Loan Mr McDonnell says that neither LLux nor LBI can show that there were sums drawn down under the terms of the Courchevel Loan Agreement and that accordingly they have not proved their case. He points out that there are no draw down notices under the terms of the Courchevel Loan Agreement which are before the court. Although LBI and LLux have been put to proof throughout and Mr Stanford was provided with copies of all the relevant bank statements in December 2011, the details of these matters were first broached with LLux/LBI in correspondence very shortly before the trial began. Furthermore, Mr McDonnell raises this argument despite the fact that Mr Stanford accepted in cross examination that the debit amounts in the relevant bank statements related to items and services which he had purchased, some of which were supplied by tradesmen in Courchevel. In fact, Mr McDonnell made clear that none of the debit entries making up the negative balance are challenged. What he does say is that there is an absence of any entry in the bank statements which correlates with a draw down under the Courchevel Loan Agreement and accordingly, that draw down of the Courchevel Loan cannot be proved.
118. It is said on behalf of LBI and LLux that, consistent with the terms of the Courchevel Loan Agreement, the facility made available under the Courchevel Loan was "booked" to Account 3059533 and that the only other loans in relation to that account were the Ennismore Loan and a loan in respect of Montpelier Square in the sum of £5.5m. This is not challenged on behalf of Mr Stanford. LBI/LLux go on to state that the figure of £7,490,341.14 recorded as a loan on the account on 28 December 2007 was used in repayment of the Montpelier Square loan of £5.5m and that the balance of £1,990,341.14 was the first draw down under the Courchevel Loan. It is also said that all subsequent debits on the account represent advances by LLux to Mr Stanford under the Courchevel Loan Agreement and once interest is added and the total converted into Euros, it amounted to EUR 4.5m plus further interest at the date of the demand.
119. Mr McDonnell submits that the schedules show that in order to reach the 4.5m figure it is necessary to rely on EUR 2,709.23, which appears to be interest on a revolving loan of EUR 506,461.64 and that therefore, the explanation does not hold water. Furthermore, he says that the EUR 4.5 million indebtedness was only entered into LLux's books after Mr Olafsson requested the GBP account be shown in Pounds Sterling and the EUR account in Euros and he suggests that this request drew the Liquidator's staffs' attention to the fact that the loan had not been drawn down and this was their attempt at a remedy.
120. Further, he says that if LLux/LBI seek to rely upon the all monies nature of the Mortgage in order to recoup the admitted negative balance on the Account, English law would be the lex causae and as a result, he submits, Mr Stanford would be entitled to rely upon his counterclaim by way of set-off in order to extinguish the debt.
121. It seems to me that this is a particularly unattractive argument which is of no real benefit to Mr Stanford in any event. It is not suggested that there were any Loans other than those under the Ennismore Loan Agreement and the Montpelier Square loan (which are not relevant in this regard) which were available to Mr Stanford and which would have caused him to be able to draw on a facility from his account. Furthermore, it is not disputed that Mr Stanford had access to and used a further uncommitted credit facility available on the account and that the debit sums shown in his statements (which he does not dispute) represent both capital and interest payments. In the circumstances, it seems to me that the fact that there were no draw down notices before the court other than the notice signed in blank by Mr Stanford in Courchevel on 14 April 2007 is not material. Although such notices were a condition precedent to an "obligation" to lend, it seems to me that the terms of clauses 4 and 5 of the Courchevel Loan Agreement did not prevent LLux from extending the Loan and therefore the uncommitted credit facility in the absence of such notices. I come to this conclusion having applied the principle of Luxembourg law upon which the experts are agreed, namely that contracts are interpreted by assessing the meaning that both parties actually intended to give to the particular terms and that assessing that intention is a factual enquiry. It seems to me that had the parties intended that the Courchevel Loan would only be available to Mr Stanford once receipt of a draw down notice had been received, LLux would neither have allowed Mr Stanford to access the facility on the account nor would Mr Stanford have expected to do so. It seems to me therefore, that their intention as to the meaning of clauses 4 and 5 of the Courchevel Loan Agreement can be inferred from their conduct.
122. Further, it seems to me that on the balance of probabilities, Mr Stanford would have either have challenged the figures himself and stated that the Courchevel Loan had not been drawn down when he wrote to the liquidators of LLux in March 2009 or Mr Olafsson would have done so on his behalf immediately after he began to act under the Power of Attorney in August 2009, if that had been the case. Mr Olafsson was the person who had dealt directly with Mr Stanford and his staff on behalf of LLux over the relevant period and accordingly, would have had knowledge of Mr Stanford's accounts and the relevant Loans.
123. However, I agree with Mr McDonnell that the evidence produced by LLux/LBI does not support the contention that a full amount of EUR 4.5m was drawn down by way of capital. A small amount of that figure to which I have referred, appears to have represented interest on outstanding capital.
124. In any event, one way or another, in my judgment, the only Loan/Facility relevant to the outstanding indebtedness which was available to Mr Stanford was the Loan/Facility under the Courchevel Loan Agreement and the figures themselves are not challenged. In the circumstances, but for the small amount of interest which is treated as capital, in my judgment, LBI has proved its case.
125. If I am wrong and express written draw down notices were a necessary requirement for any lending under the uncommitted credit facility provided under the Courchevel Loan Agreement, it seems to me that the monies which were loaned and the interest upon the capital were provided under the LLux General Terms and Conditions of Business, which are incorporated by reason of clause 11 of the Courchevel Loan Agreement. Furthermore, such unchallenged sums by which Mr Stanford is indebted would be caught by the all monies nature of the Mortgage. However, I disagree with Mr McDonnell's conclusion that as a result, such indebtedness would be subject to English law. The General Terms and Conditions of Business of LLux are themselves governed by Luxembourg law and further, they are incorporated into the Courchevel Loan Agreement which is also governed by Luxembourg law, as an express term. Accordingly, one way or another, the result is the same. The unchallenged sums are due, they are covered by the Mortgage and, in relation to set-off, they are governed by the principles of Luxembourg law.

Was there an oral agreement that: (i) interest under each of the Ennismore Loan and the Courchevel Loan respectively should be rolled up or deferred until the maturity date of the respective loan or the realisation of profits from the Joint Venture whichever was the later; and (ii) that the principal sum due under each of the Ennismore Loan and Courchevel Loan respectively was also to be repaid only from the profits of the Joint Venture?

126. Oral agreements both as to interest and principal under each of the Loans are said to have been entered into with LLux. In fact, this aspect of the matter did not appear at all in the written closing on behalf of Mr Stanford and in his oral closing in the light of Mr Stanford's response in cross examination, Mr McDonnell made clear that he was not pursuing the Defence that the interest was not repayable because there had been no profits from the Joint Venture, nor was it being said that the capital sums themselves had not fallen due. Had it been necessary, I would have found that such oral agreements had not been reached. For the sake of completeness I should summarise what I would have found in relation to the applicable principles of Luxembourg law and the facts.
127. First, there was no dispute that under Luxembourg law a binding contract arises when the parties reach an agreement on their obligations and consider their agreement to be legally binding. There must be an actual agreement between the parties and the main obligations must be determined or determinable. There will be no contract if the main terms are too vague. Furthermore, it must be the common will of the parties that the agreement is legally binding. Not surprisingly, the parties to the contract must also be identified.
128. As I have already mentioned, it is also agreed that contracts are interpreted by assessing the meaning that both parties actually intended to give to the particular terms and that assessing that intention is a factual enquiry. Professor Cuniberti also stated that where parties reduce their agreement to writing, the omission of a particular term which was discussed orally is understood to be an indication that the parties did not intend that term to be part of the binding contract. In any event, both experts agreed that where a later agreement contradicts an earlier one, the later agreement should be interpreted as a variation of the former. Furthermore, clauses in a written agreement which require any variation to be in writing are enforceable.
129. Although it is pleaded that the agreement both in relation to capital and interest was made on 14 April 2007 between Mr Olafsson, Mr Thoroddssen and Mr Stanford, Mr Stanford's evidence was confused and unclear. He accepted that although there were discussions about the Loans on the flight back from Bangalore, nothing was agreed at that stage. However, he was unable to give any clear evidence as to the date on which the alleged oral agreements were reached, their precise terms and the individuals between whom they were agreed, in support of his pleaded case. In fact, as I have already mentioned, at one stage during his cross examination, he accepted that it would be ridiculous to suggest that it had been agreed that the capital sums due under the two Loan Agreements would not be repayable at all if there were no profits from the Joint Venture. However, he went on to distinguish between a situation in which there were no profits because the Joint Venture failed, something which he appeared to view as inconceivable and a situation in which there were no profits because the bank had failed. There is no documentary evidence of such an oral agreement. In fact, in cross examination, Mr Stanford made it very clear that he had not contemplated or suspected that LBI/LLux might become insolvent. In such circumstances and given that such an agreement neither forms part of the pleaded case nor is it mentioned in Mr Stanford's witness statement or hinted at in any documentation, I am unable to accept it. In my judgment, on the balance of probabilities, it is more likely than not that such an agreement did not arise.
130. I should add that there is no trace of the alleged agreement (as pleaded) that capital and/or interest was repayable only out of profits in any of the documentation. In fact, the email traffic, the indicative term sheets and the remainder of the documentation are all inconsistent with the alleged oral agreement.
131. Mr Stanford stated that he had spoken to Mr Thoroddsen in this regard but that he seemed to have "memory issues". Mr Backman on the other hand stated in cross examination that he had spoken to Mr Olafsson who had said that he could not confirm Mr Stanford's allegations.
132. Furthermore, as I have already mentioned, Mr Stanford was unable to give any evidence in support of the pleaded contention that an agreement was reached on 14 April 2007. When shown documentation dated 20 and 21 March 2007, Mr Stanford's consistent response was that an agreement had already been reached by that stage and he tried to suggest for the first time that there had been some kind of continuous agreement because those were the terms upon which he always borrowed money from LLux. There was no other evidence whether written or oral in support of this and I am not able to accept it.
133. The alleged oral agreement is also inconsistent with the way in which both the Courchevel Loan Agreement and the Ennismore Loan Agreement were dealt with internally, negotiated and ultimately executed. LLux's internal credit request in relation to the Courchevel Loan and indeed, the credit approval, make no reference to rolled up interest and in fact, contain contrary provisions. Furthermore, neither document refers to payment being deferred or dependent upon profits from the Joint Venture. Those matters were also absent from the draft loan agreement in respect of the Courchevel Loan which was considered by Mr Bogod and in relation to which he queried various terms and recommended the terms to Mr Stanford. Such alleged oral agreements are also inconsistent with the evidence of Mr Sigurjonsson who was Joint Head of Credit at LLux but stated that he had no knowledge of the alleged oral agreements. On the balance of probabilities, had the oral agreement been reached as alleged, in my judgment, it is more likely than not that the reference to that oral agreement and its absence from the terms of the draft loan agreement would have been raised.
134. The same is true in relation to the Ennismore Loan, in respect of which, once again, Mr Bogod was responsible for reviewing the documentation on Mr Stanford's behalf. In fact, Mr Bogod even queried the arrangement fee but made no comment upon the interest provisions or the maturity date. As I have already mentioned, in response to the documents either setting out or reflecting the terms of the agreements as executed, Mr Stanford contended that they did not mean a thing and that they were for compliance purposes only. It seems to me that such a position is entirely contrary to Mr Bogod's involvement with the drafts and his concern for example, to reduce the arrangement fee. Further, there is no documentary evidence of any kind to support Mr Stanford's alleged oral agreement.
135. It seems to me that although the Loans were extended against the background of enthusiasm about the profitability of the Joint Venture and there was an expectation that it would be possible to repay them from that part of those profits which might be distributed to Mr Stanford, which everyone hoped would be considerable, there was no actual agreement as to the alleged main obligations or terms, which were neither determined nor determinable. Nor was it the common will of the parties that anything that had been said would form a legally binding agreement.
136. In relation to rolling up interest, it appears from the bank statements that are available that in fact, LLux may well have dealt with interest due by notionally increasing the negative figure recorded as a loan. However, in this regard, I take particular note of Mr Dhir's statement that he overheard the conversation between Mr Stanford and Mr Olafsson, at which Mr Dhir makes clear that in fact, there may have been a discussion about rolling up interest but he does not consider that agreement has been reached.
137. Further, even if there had been an oral agreement, in the terms which are alleged, it is agreed that under Luxembourg law it would have been superseded by the written Loan Agreements which were later in time and inconsistent with the alleged oral agreement. Neither the Courchevel Loan Agreement nor the Ennismore Loan Agreement make any reference to rolled up interest or that the repayment of interest and/or capital were subject to the realisation of profits from the Joint Venture.

Was there a TFI Agreement and if so, does Mr Stanford have a claim in damages for breach of contract in respect of it which he can set-off against his liability to LLux under the Courchevel Loan Agreement and the Ennismore Loan Agreement?

(i) The TFI Agreement and claims arising from it

138. It is pleaded that the terms of the Joint Venture between TFI and Embassy having been agreed, LLux entered into a contract with the K Group which was partly oral and partly in writing, to finance 50% of the K Group's participation in the Joint Venture in consideration for the K Group granting LBI an option to acquire 20% of TFI. The Joint Venture is defined to include Phases 1, 2 and 3 and the K Group is said to consist of Magnus Armann, Mr Dhir, Jon Asgeir Johannesson, Thorsteinn Jonsson, LBI, Karen Millen, Hannes Smarason and Mr Stanford. It is alleged that the TFI Agreement was reached at around 2pm on 29 March 2007 at the Dorchester Hotel at the same time as the Joint Venture agreement with Embassy was finalised.
139. Thereafter, it is said that the TFI Agreement was varied to include an express term that LLux would procure the Bond. Further, it is said that it was an implied term of the varied agreement that the Bond would be adequate security to finance Phase 2 and that Mr Thoroddsen represented or warranted on behalf of LLux that LBI would pay out on the Bond, which it failed to do, and that further or alternatively, in breach of the TFI Agreement, LLux failed to finance Phase 2. As a result it is said that Mr Stanford suffered a consequential loss of profits of approximately £50m, he lost his equity investment in TFI totalling EUR 11,921,485 and/or the value of his shareholding in TFI. He says that the claim for damages would have provided him with a defence when LLux was the claimant in these proceedings and that he cannot be placed in a worse position as a result of the subsequent assignment of the loans and mortgage to LBI.
140. In addition, Mr Stanford contends that the TFI Agreement and the Loan Agreements formed part of "an interlocking and/or overarching and/or single indivisible contract under Luxembourg law" and that LLux was in breach of an implied duty of good faith in the TFI Agreement, the result of which is to discharge Mr Stanford from his obligation to repay the Loans.

(ii) The TFI Agreement itself

141. Despite the lengthy evidence given by Mr Dhir both in his witness statement and in cross examination, the evidence given by Mr Dawson, and perhaps in the light of the confused evidence given by Mr Stanford in cross examination, in his oral closing, Mr McDonnell confirmed that Mr Stanford's case in relation to the alleged TFI Agreement and the date on which it was reached is as pleaded, namely that it was reached at the Dorchester Hotel on 29 March 2007 at around 2pm in the afternoon. He says that although sufficient detail had been agreed over the weekend of 3 and 4 March 2007 to allow drafting to commence, it was not until the subsequent meeting at the Dorchester Hotel that the Joint Venture terms were agreed and the TFI Agreement was reached. Despite the pleaded case that the TFI Agreement covered all of the phases of the Joint Venture, Mr McDonnell also stated that it was at meetings in Dubai the following February that it was agreed that Embassy and TFI would proceed with Phases 2 and 3 and that 50% of TFI's commitment would be funded by LLux. The only evidence in relation to Dubai was given by Mr Dhir, who stated that it was at these meetings that Landsbanki decided it wanted to participate in relation to the additional 40 acres and this was communicated to Mr Virwani. Although the position is left unclear, I will proceed on the basis that Mr Stanford's case is that it was the additional 40 acres which was the subject of agreement in Dubai in February 2008.

(a) Who were the parties to the alleged agreement?

142. It is pleaded that the TFI Agreement was concluded between LLux and the K Group which is said to be constituted by the eight members as I have set out above in paragraph 138, including Mr Stanford, Mr Dhir and LBI. In my judgment, on the balance of probabilities, and applying the requirements of Luxembourg law in relation to the formation of a contract, to which I have already referred, it is more likely than not that even if the substance of the TFI Agreement was agreed, any agreement for the provision of finance by LLux in respect of the Joint Ventures was with TFI itself and not with the members who were said to constitute the K Group. In this regard, I take account of the following facts and matters:

i) when seeking advice from BDO Stoy Hayward on the appropriate structure for the deal in early December 2006, Mr Bogod explained to them that equity would be injected by the individual shareholders some from their own resources and some via a loan from LLux and that LLux would require a single vehicle to lend to and would like it to be Luxembourg company or LLP;

ii) although Mr Stanford accepted that nothing was agreed on the trip back from Bangalore and that most of those on board were "worse for wear", it is clear both from his evidence and that of Mr Dhir both of which I accept in this regard, that there was a high level of enthusiasm for the Joint Venture, both amongst the individual members of the K Group on the plane and Mr Thoroddsen and Mr Olafsson, the representatives of LLux;

iii) after the trip to Bangalore, Mr Thoroddsen's email of 16 January 2007 referred to confirmation in principle of a readiness to proceed subject to due diligence and credit committee approval, with lending up to 50% of the K Group participation in the Joint Venture;

iv) nevertheless, one of the matters in Mr Dhir's email setting out what he considered had been agreed at a meeting on 24 January 2007 attended by Mr Stanford, Mr Bogod, Mr Dhir, Mr Armann, Mr Johannesson, Mr Jonsson, Mr Smarason, Mr Thoroddsen, Mr Olafsson and Mr Valtysson was that there would be a Luxembourg company in which the equity would be held by four individuals, including Mr Stanford, together with LBI and a company known as Materia in which Mr Stanford was also interested;

v) the draft Term Sheet produced by LLux on 22 February 2007 referred to a facility being made available to a new LUXCO. All further revised term sheets and the revised credit request of 6 March 2007 all refer to the facility being made available to the LUXCO. The same is true of all versions of the credit requests and the indicative term sheets produced in March 2007;

vi) the meeting on 29 March 2007 was only attended by Mr Bogod and Mr Dhir, members of the Embassy group, Mr Thoroddsen and Mr Olafsson; and

vii) the Shareholders' Agreement was not executed until 5 April 2007, the same day upon which the First TFI Loan was granted by LLux to TFI in respect of its obligations under the Joint Venture agreement with Embassy.

143. It seems to me therefore, that there was no separate agreement with individual members of the K Group and Mr Stanford in particular, as pleaded or at all. The documentary evidence is all consistent with a willingness to assist in funding a company to participate in the Joint Venture, the shareholders of which and their relative interests were not finalised until the Shareholders' Agreement was signed.
144. In any event, even if I am wrong and the parties on one side of the TFI Agreement were members of the K Group represented by Mr Stanford or otherwise, and not TFI itself, in my judgment, their identities were insufficiently certain. Professor Cuniberti and Maitre Baden were agreed that as a matter of Luxembourg law, a contract can only come into existence if there are clearly identified parties. Despite having named the individuals concerned in the response to the request for further information, in cross examination Mr Stanford was uncertain about the membership which appears to have been fluid. Rather than consisting entirely of individuals together with LBI, in fact, ultimately, the shareholders who executed the Shareholders' Agreement on 5 April 2007 were Materia Invest BV, Kaulille Invest BV, Baugur Group BV, Mr Stanford, Karen Millen, Ingratua Limited and Mr Dhir. Mr Stanford's email of 14 March 2007 identified the investors as Materia, Kevin, Jon, Hannes, Sanjay, Karen and Landsbanki, which differs from the pleaded list. This is different again from the list set out in the revised credit request dated 14 March 2007. It included Landsbanki, Materia Invest ehf, Sanjay Dhir, Fjarfestingarfelagið Primus ehf, Baugur Group hf, Kevin Stanford and Karen Millen.
145. In my judgment, although it was intended quite clearly that Mr Stanford and his associates would invest in the Joint Venture, there was uncertainty as to who precisely would proceed and whether they would do so individually or through a corporate vehicle and if so, which one. As a result, it seems to me that the requirement of clearly identified parties for the purposes of reaching a binding contractual agreement in Luxembourg law was not satisfied prior to 29 March 2007 nor on that date.

(b) What did LLux agree to finance?

146. In my judgment, although it is clear that LLux agreed to provide the necessary funding for 50% of the amount required by TFI to fund its part of the Joint Venture in relation to Phase 1 and in fact, did so by way of the First TFI Loan Agreement dated 5 April 2007, on the balance of probabilities, it is more likely than not that there was no concluded agreement whether with the members of the K Group or with TFI in relation to Phases 2 and 3 in accordance with Luxembourg law and that accordingly, the TFI Agreement as pleaded was not concluded.
147. In my judgment on the balance of probabilities, had the central terms of the TFI Agreement been reached on 29 March 2007 and the parties had intended the agreement to be binding in accordance with the requirements of Luxembourg law, the alleged terms of the agreement would be reflected in the subsequent email correspondence and documentation. In fact, in my judgment, all of the documentation points away from an agreement having been reached with the members of the K Group to fund Phases 1, 2 and 3 of the Joint Venture on 29 March 2007.
148. In fact, by July 2007, the requirements in relation to Phase 2 had changed. Embassy had decided to purchase a further 40 acres of land at Pune and accordingly, the funding requirement had increased considerably. In my judgment, it is clear from the correspondence including the emails sent by Mr Dhir, Mr Bogod, Mr Stanford and Mr Thoroddsen that there was no agreement about funding Phase 2 whether at the original or at the increased level and that Mr Dhir was concerned to obtain a commitment from LLux. Had the TFI agreement been reached, it seems to me that the correspondence would have referred to the agreement and therefore, the binding commitment to fund Phase 2 whatever the cost and at the very least would have sought to enforce the TFI Agreement in respect of the funding prior to the purchase of the additional 40 acres. It seems to me that the contents of these emails are entirely inconsistent with the alleged agreement to fund all phases of the project. Had that been the case, it seems to me that Mr Dhir and Mr Bogod on Mr Stanford's behalf and Mr Stanford himself would have taken a wholly different approach with LLux.
149. In his email of 13 November 2007, Mr Bogod makes clear that he is "not convinced TF will readily get Landsbanki funding to complete Pune, either in equity or loan terms" and Mr Stanford's email of 6 January 2008 states that it is necessary to make sure that Mr Thoroddsen [LBI] "is there for the new pune deal." Although he makes reference to Mr Thoroddsen saying that "Landsbanki would do what we did in India" had he viewed it as a binding legal commitment he would have said so and the content of his email would have been different. The same is true of Mr Bogod's reply of the same date to which I refer at paragraph 74 above. The same is true of Mr Stanford's email of 21 January 2008 in which he seeks an answer from Mr Thoroddsen on Pune.
150. In my judgment, one of the bullet points under the heading "Outstanding Completions" in the February 2008 Report to which I refer at paragraph 74 is even more telling. It reads "agreement of Landsbanki to the funding terms, especially in light of the new Pune terms..." It seems to me that on the balance of probabilities had the TFI Agreement existed the bullet point would either have referred to an obligation to fund Phase 2 despite the change in terms or would have referred to the TFI Agreement and to a desire for confirmation in the light of the new terms. Mr Bogod's reaction to the position as at 2 March 2008 which he set out in an email to Mr Stanford to which I refer at paragraph 77 above is also inconsistent with the alleged TFI Agreement. It is also inconsistent with the tone of Mr Dhir's emails in April 2008 and his desperate request for a guarantee or a bond set out at paragraphs 81 to 86 above. On the balance of probabilities in my judgment it is more likely than not that Mr Dhir would have referred to the TFI Agreement in his negotiations rather than exhibit desperation.
151. Further, in this regard, I take into account Mr Stanford's unsatisfactory response in cross examination to whether LLux was obliged to fund 50% of TFI's contribution to Phase 2. He failed to confirm directly that that was the case when asked in cross-examination but went on to say that it was agreed on the telephone despite being unable to say to whom he had spoken and on which occasion. His evidence in this regard is wholly unsupported by the documents and email correspondence and was not mentioned in his witness statement and I reject it.
152. Lastly, in this regard, I also take into account that both Mr Stanford and Mr Dhir were adamant that the alleged TFI Agreement had in fact, been reached prior to 29 March 2007 and in all probability on 3-4 March. This case which is contrary to the pleading was abandoned in closing. The effect is that there is no evidence to support an agreement of the kind which is pleaded having been reached on 29 March 2007 at all and to leave the position unsatisfactory and unclear. The only documentary evidence in relation to the 29 March meeting is concerned with the nature of the Joint Venture agreement itself and, in particular, its structure, as shown in the flow diagrams. In the response to the request for Further Information, it is stated that the flow diagrams signed and dated 29 March 2007 form part of or evidence the TFI Agreement. However, they contain nothing which relates to the financing of the Joint Venture and in fact, are concerned with put options and the structure of the Joint Venture itself. Furthermore, the email from Mr Thoroddsen which states "seems we have a deal" upon which Mr Stanford also relies as evidence of the TFI Agreement, he accepted in cross examination, in fact refers to the Joint Venture Agreement itself.
153. Further, there is no evidence of any kind to suggest that prior to 29 March 2007 or at the 29 March meeting, there was any discussion or agreement as to the duration of any loan, the applicable interest rates and the repayment terms.
154. Accordingly, for the reasons I have set out, in my judgment on the balance of probabilities, the central terms of the TFI Agreement were never agreed, the identity of the parties were not agreed by 29 March 2007 and it was not agreed that it would be legally binding in order to satisfy the requirements of Luxembourg law.

(ii) Breach of contract upon which Mr Stanford can rely?

155. In the circumstances, the further issues under this head do not arise. However, for the sake of completeness, I will set them out. First, if the TFI Agreement had been concluded as pleaded, was there a breach of it? There is no dispute but that LLux paid the sum of EUR 27 million to TFI under the First TFI Loan Agreement in respect of Phase 1 of the Joint Venture. There was no breach of contract in that regard. Further, LLux advanced the sums due under the Second TFI Loan Agreement. As a result, even if the TFI Agreement existed, LLux met its obligation and advanced the monies.
156. However, it is pleaded that the TFI Agreement was varied to include an implied term or warranty that the Bond would be adequate security to finance Phase 2. It is Professor Cuniberti's evidence that there is no special doctrine of implied terms in Luxembourg law and that everything about the terms of an agreement is a question of fact for the judge as to what the parties have agreed. Maitre Baden states in his second written report that "obligations can be implied"; however, in cross examination, he clarified this to mean that the Civil Code supplements the agreements of the parties on the main obligations with the accessory obligations of the contract, and that these are not implied but provided for by the law, and apply if parties do not agree to amend them or put in something else.
157. I have already found that the TFI Agreement did not exist and therefore, could not be varied. However, if I am wrong and it did exist, there is no evidence of any intention to vary it or upon which implied terms might be based. Further, if and to the extent that it is suggested that the warranty was as to the solvency of LLux and or LBI, the circumstances in which the Bond was suggested and was forthcoming are inconsistent with the existence of such a warranty. Mr Dhir's email of 30 April 2008 makes clear that it was precisely because of his concerns about the solvency of Landsbanki that the Bond was sought.
158. Secondly, even if there had been a breach of contract by LLux in failing to fund Phase 2 of the Joint Venture, would Mr Stanford have been able to rely upon it? This is a short point which only arises on the basis that there was an agreement with the K Group and a breach of that agreement. I have found first that the TFI Agreement in the sense of an agreement between the K Group and LLux did not exist and that if it did, it did not cover all three phases of the Joint Venture and there was no breach of it. If I am wrong about all of that, and the TFI Agreement as pleaded was, in fact, concluded and there was a breach of it, in principle, Mr Stanford as one of the K Group might have been able to rely upon it. However, as I have already decided, the agreement to provide funding for Phase 1 of the Joint Venture was with TFI. Although Mr Stanford was one of the shareholders in TFI and led the consortium of shareholders, in my judgment, the evidence does not support a conclusion that he himself was party to any agreement about the funding of the Joint Venture. Accordingly, in my judgment, this aspect of the claim was bound to fail.

(iii) Loss

159. If I am wrong about the existence of the TFI Agreement as pleaded and furthermore, Mr Stanford himself is able to rely upon breach of it and there was such a breach, has Mr Stanford suffered loss which he would be able to recover from LLux? In this regard, Mr Allison QC on behalf of LLux submits that any loss suffered is in fact, reflective of TFI's loss and was not suffered by Mr Stanford independently. As a result, he says that it cannot be relied upon by Mr Stanford. Mr Stanford counterclaims for his equity investment in TFI totalling EUR 11,921,485, the value of his shareholding in TFI and/or the consequential loss of profits totalling £50m.
160. The experts on Luxembourg law agree that under Luxembourg law the shareholders of a company may not seek compensation for losses suffered by the company itself and that they may only recover losses which are distinct and personal to them. Further, they confirm that the loss of the company that may result in the reduced value of the shares is a loss of the company and is not personal to the shareholders. In cross examination, Maitre Baden agreed that these principles reflect the current state of Luxembourg law and that Mr Stanford cannot claim for TFI's losses. However, in his report Maitre Baden also made reference to the concept of Net Asset Value (VNI - valeur net d'inventaire), having opened the door to the possibility of loss suffered through the loss in value of the shareholding. In his oral closing, Mr McDonnell accepted that this was Maitre Baden's view of a possible future development in Luxembourg law and does not reflect the law at present.
161. There is no evidence whatsoever to support a contention were it made, that Mr Stanford's loss as a result of the diminution in the value of his shares in TFI was personal to him. It was suffered by all of the shareholders in TFI as a consequence of the loss of value of the Bond and TFI's subsequent insolvency. When LBI collapsed, inevitably the Bond owned by TFI fell in value, resulting in a demand by UBS for further collateral, which TFI was unable to provide. As a result TFI became insolvent and the loss suffered by TFI had a major impact on the value of Mr Stanford's shares in TFI. In fact, Mr Alexander and Mr Allison also submit that Mr Stanford's claim for the loss of future profits from the Joint Venture is also a claim for loss suffered by TFI. The profits when earned were those of TFI and not Mr Stanford himself.
162. In response, Mr McDonnell says that the question of reflective loss is governed by English law and referred me in oral closing to Giles v Rhind [2003] Ch 618. In that case, the Court of Appeal held that although in general a shareholder could not recover damages from a wrongdoer for a loss which was reflective of loss suffered by the company, there were no reasons in principle to prevent a shareholder from recovering damages where the wrong done to the company had made it impossible for it to pursue its own remedy against the wrongdoer. In particular, he referred me to paragraph 34 in the judgment of Waller LJ at which he stated:

"34. One situation which is not addressed is the situation in which the wrongdoer by the breach of duty owed to the shareholder has actually disabled the company from pursuing such cause of action as the company had. It seems hardly right that the wrongdoer who is in breach of contract to a shareholder can answer the shareholder by saying "the company had a cause of action which it is true I prevented it from bringing, but that fact alone means that I the wrongdoer do not have to pay anybody".

He also referred me to paragraph 74 and 79 of the judgment of Chadwick LJ at which he considered the situation in which the company itself had not pursued a remedy, in the following way:

"74. . . . . The premise which underlies that passage is that the company has, and can pursue, its own cause of action. Absent that premise there would be no danger of double recovery at the expense of the defendant; and no occasion to protect the interests of the creditors and other creditors of the company. It is, I think, clear that Lord Millett was not addressing his observations, in that passage, to a case where the company has abandoned its cause of action against the wrongdoer; a fortiori, he was not addressing those observations to a case where the company has had to abandon its cause of action because of the wrong done to it by the wrongdoer.

. . .

79. The policy consideration to which, as it seems to me, Lord Millett is referring in that passage is the need to avoid a situation in which the wrongdoer cannot safely compromise the company's claim without fear that he may be met with a further claim by the shareholder in respect of the company's loss. That, I think, is what he had in mind when he referred to the difficulty which a liquidator would have in settling the action if a shareholder, or creditor, were able to go behind the settlement. He had recognised, in the previous paragraph, that an aggrieved shareholder or creditor could sue the liquidator; his concern was to limit their remedy to a claim against the liquidator. Similar considerations apply where the company's claim is settled by the directors. But, in such a case, there is the further consideration that directors who are also shareholders (or creditors) should not be in a position where settlement of the company's claim at less than its true value (or abandonment of that claim) leaves them with a claim which they can pursue against the wrongdoer in their own interest. If that is a correct analysis of that passage, then the passage presents no difficulty in the case where the company has not settled its claim, but has been forced to abandon it by reason of impecuniosity attributable to the wrong which has been done to it. In such a case the policy considerations to which Lord Millett referred are not engaged. And it is difficult to see any other consideration of policy which should lead to the conclusion that a shareholder or creditor who has suffered loss by reason of a wrong which, itself, has prevented the company from pursuing its remedy should be denied any remedy at all."

163. Mr McDonnell submitted that TFI has become insolvent as a result of the conduct of LLux and as a result had not been in a position to pursue its own remedies. In response, Mr Allison on behalf of LLux says that even if the principle of reflective loss is governed by English rather than Luxembourg law, there is no evidence whatever to suggest that TFI was not able to pursue its claim and therefore, that the principle in Giles v Rhind would apply. On the contrary, rather than being unable to pursue its loss, Mr Allison referred me to two orders of the Luxembourg Court approving a settlement agreement between the receiver of TFI and Maitre Hamilius as the liquidator of LLux under which TFI agreed to sell its shares in each of its 100% subsidiaries, Altavista Investment Limited and Silva Limited for not less than a specified price being EUR 8m and EUR 8.5m respectively and, in return, the pledge over the shares held in favour of LLux was waived. A further agreement was reached as to the proceeds of the shares.
164. It seems to me that there can be no doubt whether in English or Luxembourg law that the losses which Mr Stanford seeks to recover against LLux are in fact reflective of the loss suffered by TFI as a result of the diminution in the value of the Bond, the steps taken by UBS and the ultimate collapse of TFI. There is no evidence to suggest that the diminution in the value of his shares in TFI and the loss of prospective distributions of profits are all reflective of the damage caused to TFI itself. There is no evidence to the contrary. Further, even if the principle in Giles v Rhind were adopted in Luxembourg law, in relation to which there is no evidence, it seems to me that the exception to the principle of reflective loss in English law would not apply. TFI has neither been prevented by the diminution in the value of the Bond from pursuing its own remedy against LLux and in fact, it seems, has done so in some part by the agreement for the distribution of shares in the subsidiaries to which I have referred.

(iv) Interlocking or overarching contract

165. Mr Stanford also contends that that the TFI Agreement, the Courchevel Loan Agreement and the Ennismore Loan Agreement should be treated as a single indivisible contract. In fact, Maitre Baden in his report states that the wider banking relationship would not itself make the three agreements indivisible and the experts agree that for the purposes of Luxembourg law, they were not objectively linked and that such a link would not exist without the clear agreement of Mr Stanford and LLux. Mr Stanford has neither pleaded nor sought to prove that such a clear agreement was reached. In any event, there is no evidence of such an agreement and accordingly, it seems to me that the requirements of Luxembourg law under which it might be argued that the three agreements are indivisible have not been made out.

(v) Duty of Good Faith?

166. Mr Stanford also seeks to rely upon the duty of good faith which arises pursuant to Article 1134 of the Luxembourg Civil Code. However, it was not clear whether this element of the Defence and Counterclaim was being pursued in closing. In any event, I will set it out in summary. Mr Stanford sought to allege that LLux was obliged to warn him of the risks in connection with the Bond and LBI's true financial position and/or the risk that the Bond would be devalued and/or the consequent risk that the defendant would receive no profits from the Joint Venture.
167. Professor Cuniberti's evidence was that the duty of good faith is very limited under Luxembourg law. He stated that whilst for example, it can control the exercise of a contractual discretion, it cannot give rise to new rights or obligations. Professor Cuniberti also gave evidence that in Luxembourg law where the customer is a habitual or competent investor, the bank is under no duty to warn of risks and that Mr Stanford would be characterised as such. In this regard, he referred to the decision of the Luxembourg court on 19 February 2014 in Ghrenassia in which an individual who was primarily an opera singer but also held "several management positions in French companies... and therefore has some experience in the field of business" was held to be a habitual or competent investor.
168. Messrs Alexander and Allison submit that there are a number of fundamental problems with Mr Stanford's reliance upon the good faith principle. First, it was not Mr Stanford who purchased the Bond and it was never suggested that he should do so. TFI was the purchaser. Secondly, on the basis of Professor Cuniberti's evidence, the duty does not give rise to new rights or obligations and in any event, as Mr Stanford accepted that he is a well-known entrepreneur and is and was a director of many companies, based upon the decision in Ghrenassia, it is more likely than not that he would be held to be a competent and habitual investor to whom there was no obligation to warn of risks.
169. They also point out that clauses 12 of the Courchevel Loan Agreement and the Ennismore Loan Agreement and clauses 9 of the First TFI Loan Agreement and the Second TFI Loan Agreement provide that:

i) the borrower acknowledges that he understands that leveraged investments are investments of a highly speculative character, which involve considerable risk and which may give rise to losses; and

ii) investment decisions with respect to the funds to be made available under the loan agreement are to be made solely by the borrower, who agrees to bear full responsibility for the outcome of such investments and acknowledges that LLux is not responsible for commercial arrangements made with respect to such investments or losses incurred by the borrower due to such investments.

It was Professor Cuniberti's evidence based upon the Ghrenassia decision that such terms are effective under Luxembourg law to exclude any duty to advise.

170. First, in my judgment, on the facts, a duty of good faith in relation to the Bond is not available to Mr Stanford. He was not the purchaser of the Bond nor was it ever mooted that he should be. Mr Stanford was only one of a number of shareholders in TFI, the actual purchaser. Even if it were established that the duty was owed to Mr Stanford in such circumstances, it seems to me, given Mr Stanford's undeniable standing as an experienced entrepreneur with experience in borrowing and financial products, that, in the light of the Ghrenassia decision, it is more likely than not that a court in Luxembourg would hold that he was a competent and/or habitual investor to whom the duty of good faith did not apply.
171. However, I do not consider the clauses in the TFI Loan Agreements to be relevant. Mr Stanford was not a party to those agreements and was merely a shareholder in the borrower. Furthermore, it seems to me that the clauses in the Ennismore Loan Agreement and the Courchevel Loan Agreement to which he was a party can only be relevant to those loans and his personal borrowing and cannot impinge upon any duty which is alleged to arise in relation to the Bond.
172. In any event, as a result had this aspect of the defence been pursued in closing, I would have found that it was more likely than not that the duty of good faith could not have been relied upon by Mr Stanford in relation to the Bond first because he was not party to it and therefore, did not invest in it and in any event, because I consider it more likely than not that he would be held to be a competent and habitual investor.

(vi) Was LLux liable for misrepresentation and if so, can it be relied upon against LLux as a set-off and thereafter against LBI as assignee?

173. It is pleaded that on 24 April 2008, Mr Thoroddsen, the managing director of LLux telephoned Mr Dhir and informed him that LLux did not have the "liquidity" to finance 50% of the Phases 2 and 3 of the Joint Venture in cash. However, it is stated that he offered a bond from LBI as security to raise monies from a third party and in the course of that conversation stated to Mr Dhir, who at that stage was the Chief Executive Officer of TFI, that he "should not doubt the Claimants' [LBI's] ability to pay." This is termed the "Bond Representation."
174. Although it is pleaded that in reliance upon the Bond Representation the K Group procured TFI to execute the Pune SPA and procured Altavista to execute the Pune JVAs and an Option and Guarantee Agreement, it is not pleaded that the Bond was purchased in reliance upon the Bond Representation. However, it is pleaded that the Bond Representation was untrue because it is said that LBI was not able to discharge its liabilities in respect of the Bond. Once again it is said that this would have provided Mr Stanford with a defence against LLux and that he cannot be in a worse position against LBI.
175. In the written closing on behalf of Mr Stanford it is stated that reliance is placed on section 2(1) Misrepresentation Act 1967 and it was accepted that such a claim is governed by English law. However, in oral closing, Mr McDonnell also relied upon both negligent misstatement and contractual warranty for the first time. I will address each in turn.

(i) s2(1) Misrepresentation Act 1967

176. Section s2(1) Misrepresentation Act 1967 (the "1967 Act") provides as follows:

"Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made the facts represented were true".

177. It is not in dispute that in order to establish a claim under section 2 it is necessary to establish first that there has been a representation of fact. The further propositions are also accepted namely: Expressions of opinion and predictions as to future events are not actionable unless the maker of the statement is shown to have misrepresented the true state of his own views: Clerk & Lindsell (20^th ed., 2013), paras 18-05 to 18-15; the representation must have been made to the claimant or with the intent that it be communicated to the claimant; the maker of the statement must be shown to have intended the claimant to rely on the statement; the claimant must show that he acted to his detriment in reliance on the representation; the reliance must take the form of entering into a contract with the maker of the representation; the representation must be shown to have been false; where there is no allegation of fraud, the Court must be satisfied that the maker of the statement did not have reasonable grounds to believe that the facts represented were true; and, the claimant must show that he suffered loss as a result of his reliance on the misrepresentation.
178. In essence, Mr McDonnell submits that there is no reason to doubt Mr Dhir's evidence concerning the statement by Mr Thoroddsen which was relayed to Mr Stanford by an email 30 April 2008 the text of which I set out at paragraph 84 above. He submits that the Bond Representation was clearly made to Mr Dhir with the intention that it should reach Mr Stanford as a major investor and leader of the K Group and that it was intended to persuade Mr Stanford through Mr Dhir. Mr McDonnell also says that the Bond Representation should be viewed against the background that in the early part of 2008 it had been proposed that Phase 2 of the Joint Venture be extended by the purchase of the additional 40 acres and the acceleration of the project and that the Term Sheet for the borrowing had been approved both by LLux and LBI by 22 February 2008. He says that at around that time, Mr Virwani had questioned the ability of the bank to fund Phases 2 and 3 and that led to the email of 14 March 2008 to Mr Bogod from Mr Thoroddsen to which I have referred. The subject of the email is "For your comfort" and in particular, it sets out statements about Landsbanki under headings such as "Our Financial Strength", "Financially strong" "Well Funded" and "Well Regulated". He also pointed out that it was on 27 March 2008 that Mr Stanford made his equity contribution to TFI. He also added that it was highly unlikely that the bond suggestion was made without discussing the matter with officials of LBI in Iceland.
179. He submits that the Bond Representation was untrue and must have been known to be so by the directors of LLux, two of whom were also joint Chief Executive Officers of LBI. I should add that this information was proffered in cross examination by Maitre Baden, an expert witness in Luxembourg law and not a witness of fact. That the Bond Representation was untrue, Mr McDonnell says, can be inferred from the Reports and the evidence of Mr Backman during which he accepted that, from the middle of 2007 until its collapse, the Chairman of LBI controlled more than 60% of its shares and LBI itself owned 25 – 35% of his own shares, despite a statutory limit of 10%, and Deloitte, acting for the liquidators, calculated that LBI's capital adequacy ratio at the end of March 2008 was only 6.49%, when the minimum allowed by the relevant statute was 8%. Mr McDonnell also relied upon the content of the liquidators' claim in Iceland against PwC, "the PwC Claim", in which it is alleged that PwC should have discovered such matters. In cross examination, Mr Backman accepted that although he relied upon the reports made by Deloitte, he believed that the allegations against PwC were true although they are yet to be determined by a court in Iceland.
180. Mr McDonnell also says that Mr Stanford plainly relied upon the Bond Representation because, as the leading member of the K Group, he agreed to vary the TFI Agreement and proceeded to enter into the contractual documents for Phases 2 and 3 of the Joint Venture under which his own contribution to the equity requirements was increased to 30%. He adds that there has been no attempt to prove that Mr Thoroddsen had reasonable grounds to believe and did believe up to the time when the contractual documents for Phases 2 and 3 were entered into on 13 June 2008 that LBI would be able to meet its obligations under the Bond.
181. Mr Alexander submits that this is a hopeless case which fails for a total of eight reasons. First he says that there is no actionable representation of fact. He says that what is pleaded is a representation as to the future and if it is a representation at all, it is only of opinion in relation to which there is no evidence that the opinion was not genuinely held. He pointed out that the context of the 30 April 2008 email was in fact, the issue of a bond to Mr Virwani and not to TFI at all and that Mr Dhir had accepted that the "ability to pay" referred to there was a reference to the bank's ability to pay Mr Virwani. He also drew my attention to the fact that in cross examination, Mr Stanford had accepted that he had no recollection of the 30 April email and could not comment upon what he would have understood from the email at the time and did not appear to understand it.
182. Furthermore, Mr Alexander says that, at best the Bond Representation is a representation by LLux as to the creditworthiness of LBI and, as a result, falls within section 6 Statute of Frauds Amendment Act 1828 (Lord Tenterden's Act). As a result, he says that it cannot be relied upon because the Bond Representation itself was not in writing. That section provides as follows:

"No action shall be brought whereby to charge any person upon or by reason of any representation or assurance made or given concerning or relating to the character, conduct, credit, ability, trade, or dealings of any other person, to the intent or purpose that such other person may obtain credit, money, or goods upon, unless such representation or assurance be made in writing, signed by the party to be charged therewith".

183. In fact, Mr McDonnell confirmed that the Bond Representation was a representation by LLux as to the creditworthiness of LBI. However, in this regard, he relied upon Banbury v Bank of Montreal [1918] AC 626 and UBAF Ltd v European American Banking [1984] QB 713. The Banbury case is authority for the proposition that section 6 of Lord Tenterden's Act does not apply to an innocent misrepresentation but is concerned with an action for deceit for which there must be fraud and damage. Mr McDonnell then referred me to a passage in the judgment of Ackner LJ in the UBAF case at 718H – 719A which is in the following form:

"The following propositions are common ground. (1) The section applies to fraudulent misrepresentations only: Banbury v. Bank of Montreal [1918] A.C. 626. Accordingly, the section has no application to the alleged innocent but negligent misrepresentations - hence the second issues referred to hereafter. However, the representations alleged to give rise to liability under section 2(1) of the Misrepresentation Act 1967 are also within Lord Tenterden's Act, because the person making the representation is liable only if he "would be liable to damage in respect thereof had the misrepresentation been made fraudulently."

184. Mr McDonnell submits that the point was accepted as common ground, is accordingly, not binding upon me and is clearly wrong. In response, Mr Alexander submitted that the common ground reached between Leonard Hoffmann QC as he then was and Kenneth Rokison QC was clearly correct. He pointed out that under section 2(1) of the 1967 Act, although the cause of action is in respect of negligent misrepresentation, the section makes clear that the representor is only liable if he "would be liable to damages in respect thereof had the misrepresentation been made fraudulently." He says therefore, that the very section requires the consideration of whether the representor would be liable had there been fraud and therefore, section 6 comes into play. I have to say that I agree with him. One of the requirements for the imposition of liability for negligent misrepresentation is expressly stated to be that the representor would have been liable if the representation were fraudulent. In such circumstances, in my judgment it would be necessary to look to section 6 and accordingly, section 6 is also relevant to a claim under section 2(1) of the 1967 Act. I consider the concession made by eminent counsel and accepted by the Court of Appeal to have been correct. In this case, it is not disputed that the nature of the Bond Representation falls within the ambit of section 6 and that it was not made in writing. Therefore, in my judgment, as a result of section 6 an action cannot be brought based upon it.
185. Furthermore, I would also have found, were it necessary, that the representation made to Mr Dhir was one of fact, in the sense that it was intended to relate to the creditworthiness of LBI, and in fact, was made to TFI and not to Mr Stanford at all. I would also have found that there is no evidence that it was intended that Mr Stanford personally should rely upon it. Mr Dhir was the CEO of TFI and confirmed in cross examination that the reference to "we" in his email of 30 April 2008, in which he related the representation to Mr Stanford and explained it, had been to TFI.
186. In addition, in my judgment, Mr Stanford has neither alleged nor is he able to show that he, as opposed to TFI, relied upon the Bond Representation. His injection of equity capital took place in March 2008, before the Bond Representation was made and the bible of documents entered into in June 2008 in relation to Phase 2 of the Joint Venture were entered into by TFI and not by Mr Stanford himself. Furthermore, as both the purchase of the Bond and the contract in relation to Phase 2 were entered into by TFI and not by Mr Stanford, it seems to me that Mr Stanford cannot satisfy the requirement of section 2(1) of the 1967 Act that he has entered into a contract after a misrepresentation was made to him by another party to that contract (emphasis added).
187. Mr Alexander also submits that there was no evidence to suggest that the representation was untrue. He pointed out that LBI did not collapse until 8 October 2008 at the height of the global financial crisis and after the collapse of Lehman Brothers. He also says that Mr Stanford cannot show that as at 24 April 2008, the date of the Bond Representation, LBI was unable to discharge its future liabilities in respect of the Bond. In my judgment, although the matters contained in the Reports (which were summarised in Mr McDonnell's opening and not considered in any detail) together with the answers given in cross examination by Mr Backman are far from positive indicators, they do not go directly to the issue of solvency and there is no clear evidence in support of the contention that as at 24 April 2008 LBI was unable to discharge its future liabilities in respect of the Bond.
188. It is unnecessary therefore, to deal with the issue of whether it has been proved that Mr Thoroddsen as the person making the representation had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true. If it had been necessary, I would have found that the onus of proving reasonable grounds of belief falls upon the representor. Accordingly, it would have been insufficient for LLux merely to say that there is no evidence to suggest that Mr Thoroddsen did not have reasonable grounds for his belief.
189. In any event, I also agree with Mr Alexander that Mr Stanford cannot show that he suffered loss as a result of the alleged misrepresentation. Any reliance was that of TFI and the contracts allegedly entered into as a result were also entered into by TFI. The loss flowing was also suffered by TFI. At best, it seems to me that the loss which Mr Stanford seeks to recover is reflective of TFI's loss. I have already dealt with this aspect of the matter.

(ii) Negligent Misstatement and/or breach of warranty

190. The only pleaded reference to negligent misstatement and contractual warranty in the widest sense is at paragraph 126(3) of the Re- Re Amended Additional Defence and Counterclaim at which it is stated: Further or alternatively, Mr Thoroddsen represented and/or warranted on behalf of LLux that the Claimant would pay out on the Bond and/or the TFI Agreement was varied to include that warranty as an express term." Nevertheless, in his oral closing Mr McDonnell made clear that claims under both heads were pursued.
191. In this regard he referred me to Esso Petroleum Co Ltd v Mardon [1976] 1 QB 801, a well-known case in which it was held that a statement made as to potential throughput of a garage was a contractual warranty because it was a factual statement made by a party, who had or professed to have special knowledge and skill with the intention of inducing the other party to enter into a tenancy contract. It was also held that the misstatement was made by a party holding itself out as having special expertise in circumstances which gave rise to a duty to take reasonable care to see that the representation was correct. The plaintiff company was held to be in breach of the contractual warranty and liable in negligence.
192. Mr Allison on behalf of LLux submits that there can be no claim for breach of contractual warranty because there is no relevant contract between Mr Stanford and LLux or LBI. The First and the Second TFI Loan Agreements were between TFI and LLux and the Bond was purchased by TFI from LBI. Accordingly, Mr Stanford was not induced to enter into a contract at all. In relation to negligent misstatement, he points out that the pleadings make no reference to the main requirements of such a claim including the special knowledge of assumption of responsibility giving rise to a duty of care.
193. I have to say that I agree. This claim was first raised after the close of the evidence and there is nothing to sustain it. There are no relevant contracts between Mr Stanford and either LBI or LLux arising after the alleged misstatement which would give rise to an argument that there was a contractual warranty upon which Mr Stanford could seek to rely. Furthermore, there was no evidence to support a duty of care owed to Mr Stanford for the purposes of a claim in negligence. In any event, these claims also suffer from the fact that there is no independent loss suffered by Mr Stanford himself as a result. For all these reasons, in my judgment these claims raised by way of counterclaim and set off cannot succeed.

Set-off against LLux and set-off against LBI as assignee?

194. If I am wrong about all of the matters already addressed and, in fact, Mr Stanford does have a counterclaim for damages whether under section 2(1) of the 1967 Act, breach of warranty, negligent misstatement, or as a result of the alleged breach of the TFI Agreement, could such damages be set-off against the amounts due from Mr Stanford under the Courchevel Loan Agreement and the Ennismore Loan Agreement first against LLux and then, against LBI?
195. Mr Allison on behalf of LLux says "no" for numerous reasons. First, Mr Allison relies upon the effect of Luxembourg insolvency law. He says that it is Luxembourg law which applies because of the effect of Article 10 of the Directive which is reflected in the Regulations. The relevant provisions of Article 10 are as follows:

"(1) A credit institution shall be wound up in accordance with the laws, regulations and procedures applicable in its home Member State insofar as this Directive does not provide otherwise.

(2) The law of the home Member State shall determine in particular -

…

(c) the conditions under which set-offs may be invoked;

(e) the effects of winding-up proceedings on proceedings brought by individual creditors, with the exception of lawsuits pending, as provided for in Article 32;

(f) the claims that are to be lodged against the credit institution…

(g) the rules governing the lodging, verification and admission of claims."

Article 32 of the Directive provides that the law of the forum of the proceedings will determine the effects of winding-up proceedings on pending lawsuits. It is in the following form:

"The effects of…winding-up proceedings on a pending lawsuit…shall be governed solely by the law of the Member State in which the lawsuit is pending."

196. Article 61-1 of the Luxembourg Financial Sector Code provides that the Luxembourg court alone is "competent to pronounce the dissolution and liquidation of a company subject to Luxembourg law" and Article 61-2(2) provides that:

"Luxembourg law shall determine in particular:

. . .

(c) the conditions of opposability of an offsetting;

. . .

(e) the effects of the liquidation procedure on individual prosecutions with the exception of current legal proceedings . . . .

. . .

(g) the rules concerning the production, verification and admission of financial claims . . ."

197. The effect of the inter-relationship between Article 10(2)(c) and Article 32 and the materially identical provisions found in Articles 4(2)(f) and Article 15 of the Council Regulation (EC) 1346/2000 have been considered in a number of cases including Syska v Vivendi Universal SA [2009] Bus LR 1494 and Lornamead Acquisitions Ltd v Kaupthing Bank hf [2013] 1 BCLC 73. In the Syskia case the Court of Appeal made clear that the law of the Member State in which insolvency proceedings were opened determines whether new lawsuits could be brought against the insolvent estate after the opening of the insolvency proceedings.
198. Further, the decision of Gloster J (as she was then) in the Lornamead case is authority for the proposition that where a credit institution is subject to an EEA insolvency measure in its home Member State prior to the issue of proceedings in England, it is the law of the home Member State that will determine whether the English court is required to stay the proceedings. In that case, Gloster J noted that Icelandic law being the law of the home Member State prohibited the commencement of claims against Kaupthing and considered whether the English court would be required to give effect to that position under the Directive and the Regulations. At [94] of the judgment she concluded that it would be required to do so in the following terms:

"In my judgment, Kaupthing's arguments in relation to Issue 2 are correct. If Kaupthing were indeed subject to a EEA insolvency measure in May 2010, any attempt by this Court to determine the merits of Lornamead's claim in the English Proceedings, even for the so-called limited purpose of deciding whether Kaupthing had any "property or assets", would undermine the purpose of the 2001 Directive, namely to give effect throughout the EEA to all aspects of the relevant insolvency regime of a credit institution's home state, as part of one universal and unitary process, including its moratorium and dispute resolution mechanisms. It would also undermine the role of the Icelandic Court, as the supervisory Court of Kaupthing's insolvency. Accordingly, in my judgment, were the Court of Appeal to allow the appeal from Burton J's judgment, and to hold that Kaupthing was subject to a EEA insolvency measure in May 2010, this Court should stay the English Proceedings pursuant to Regulation 5, so that Lornamead's claim can be resolved in Kaupthing's liquidation in accordance with the Icelandic insolvency procedure."

199. Furthermore, the judgment of the European Court of Justice in LBI hf (formerly Landsbanki Islands hf) v Kepler Capital Markets SA (Case C-85/12) makes clear that the exception in Article 32 applies only to lawsuits pending at the time of the opening of the winding-up proceedings in the home Member State.
200. In this case of course, the winding-up proceedings in respect of LLux were opened by judgment and order of the Luxembourg court on 12 December 2008; and these proceedings in which the counterclaim and set-off are pursued were not commenced until 16 July 2011. As a result the exception for pending lawsuits set out in Article 32 of the Directive does not apply. Mr Allison says therefore, that it is Luxembourg law as the law of the home Member State that must be applied in order to determine whether Mr Stanford is able to bring a claim (in this case the counterclaim and set-off) against LLux.
201. As a result of the insolvency, Mr Allison says that Luxembourg law prohibits Mr Stanford from bringing a claim against LLux for payment following the commencement of its liquidation and requires all claims to be made by filing a proof of debt. In this regard, Mr Allison referred me to the order of the Luxembourg District Court in the winding up proceedings in respect of LLux in which it is expressly stated that the rights of unsecured creditors to bring claims against LLux are suspended, it expressly applied Articles 452 and 454 of the Luxembourg Commercial Code, which prohibit the commencement of proceedings and expressly ruled that, with effect from the date of the order being 12 December 2008, claims could only be brought against the liquidator. The Court also set out the requirement for creditors to file proofs of debt and for the challenge to the rejection of such a proof. Further, by order of 24 February 2010, the Luxembourg court set a final cut off date for filing proofs of debt in the LLux liquidation of 14 May 2010.
202. Although before the cut off date Mr Stanford filed two proofs of debt in the winding up by LLux, he did not submit a proof in relation to his Part 20 claim, whether in relation to the alleged breaches of contract and duty or in relation to the misrepresentation/negligent misstatement/breach of warranty claim.
203. Mr Allison submits therefore that Article 10(2)(c) of the Directive requires Luxembourg law to be applied and under that law Mr Stanford's counterclaim cannot be admitted against LLux for two reasons. The first is that as a result of the failure to file a proof of debt in respect of the counterclaim before the cut off date, the counterclaim is inadmissible against LLux and therefore, cannot be relied upon as a set-off against the sums due under the Loan Agreements. He says that if Luxembourg law precludes Mr Stanford from bringing the counterclaim this must be recognised and given effect by this court as a result of the Directive and the Regulations. He also adds that to the extent that the counterclaim is governed by Luxembourg law, for example, the claim for damages in respect of the breach of the TFI Agreement, English law will recognise the discharge of those claims by reason of the failure to file a proof of debt in LLux's liquidation: Wight v Eckhardt Marine GmbH [2004] 1 AC 147, at [35]; Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Metaux (1890) 25 QBD 399, at 405.
204. In relation to the effect of a failure to file a proof before the cut-off date, Mr Allison referred me to the evidence of Professor Cuniberti. His evidence is that as a result of Article 452 of the Luxembourg Commercial Code no creditor is able to bring proceedings against LLux and that all claims must be made by way of proof in the liquidation, the principle being stated as a matter of public policy. This evidence was not challenged during cross examination.
205. In fact, Point 9 of the Joint Statement of the experts states that they are agreed that:

"After the opening of insolvency proceedings, creditors may not seek payment through either judicial or enforcement proceedings from the insolvent debtor for claims which arose before the opening of the insolvency proceedings.

…

The prohibition of seeking payment from the insolvent debtor applies to counterclaims made by creditors which would result in a payment by the insolvent debtor."

206. However, Maitre Baden's evidence overall was less clear. He stated in his first report that a creditor "may not bring an action against [LLux] seeking an order for payment for a claim owed by [LLux] (which is a logical consequence of the moratorium…". In cross examination he also agreed: that the effect of liquidation judgment in respect of LLux is to apply the stay in Article 452 of the Luxembourg Commercial Code; that after the commencement of the liquidation, creditors may not seek payment through judicial or enforcement proceedings and that the prohibition applies to counterclaims which would result in a payment by LLux; that the facts of this case cannot be distinguished from those of the Cour de Cassation in the Blum case; that the decisions of the Luxembourg courts in the liquidation of LLux, including the Court of Appeal decisions in Muller v Landsbanki Luxembourg and Rabier v Landsbanki Luxembourg, are to the effect that a creditor cannot bring a claim for payment after the commencement of the liquidation of LLux; and that Mr Stanford was barred by Luxembourg law from seeking a money judgment against LLux.
207. In particular, in the Muller case the Luxembourg Court of Appeal stated at 989:

"It is recalled that the creditor is not admissible, during the liquidation, to summons the company in liquidation, nor the receiver for payment, that he can take legal action only by declaration of claim"

And in Rabier v Landsbanki Luxembourg SA the Court of Appeal stated at 1001:

"The principle laid down by Article 452 of the Commercial Code entails that the creditor can no longer assert his rights with regard to the liquidation estate except by suing the receiver, that the suspension of actions is linked to that of enforcement procedures, that the obligation to prove debts is the corollary of the prohibition of individual lawsuits.

The action that is suspended by Article 452 of the Commercial Code is any action that amounts to an individual enforcement during the bankruptcy, and in this case, during the liquidation of the company LANDSBANKI.

The means that the creditor is not allowed, during the liquidation, to summons the company in liquidation, or the liquidator, for payment. He can only act by way of proof of debt."

208. Further, Maitre Baden was taken to the decisions of the District Court of and in Luxembourg in Bosson v Landsbanki Luxembourg S.A, and Ghrenassia, in which in each case the court had considered the effect of a cut off date in a liquidation in Luxembourg and had found that the failure to file a proof of a debt in respect of a claim prior to the cut off date renders the claim inadmissible as a set-off. In Ghrenassia, the Luxembourg District Court found at 1146:

"Moreover, it must also be noted that set-off for connected claims always presupposes a declared claim…

Now, in view of the cut-off date for submission of proofs of debts set at 14 May 2010 by the final judgment of this court dated 24 February 2010, the application is forbidden from lodging an additional claim as a liability in the liquidation."

Further, in Bosson, the Luxembourg District Court found that a counterclaim would not give rise to a right of set-off where no proof had been filed and stated at 1121:

"Incidentally, it should be noted that offset for related claims always implies a declared claim."

209. Maitre Baden nevertheless relied upon the decision of the Cour de Cassation in Viguie and his written evidence in his third report was that the Luxembourg courts could accept a claim after a bar date made by petition and not by filing a proof of debt in the liquidation. He accepted however that "could" meant whether something was possible as opposed to impossible or untrue. He also accepted in cross examination that such a petition would, in any event, need to be issued in the Luxembourg court supervising the liquidation.
210. The Viguie case, the title of which is A.) and B.) v Maître Yvette Hamilius, is a decision of the Cour de Cassation of the Grand Duchy of Luxembourg of 30 January 2014. It was decided, therefore, before the Muller, Rabier and Ghrenassia decisions to which I have already referred. In any event, in the Viguie case, the Viguies applied to the District Court of and in Luxembourg to have their proof of debt in the liquidation of Landsbanki Luxembourg admitted as a liability in the bank's liquidation.  The liquidator, Maître Hamilius, counter-claimed and applied for an order for the Viguies to pay the balance owed by them, under agreements with the bank. The District Court rejected the proof of debt and upheld the counter-claim against Mr Viguie but not against Mrs Viguie. On appeal, the Court of Appeal held that the new claims raised in the Viguies' defence to the counter-claim, for invalidity of the agreements and investments, were inadmissible, because they were raised for the first time on appeal, and therefore the appeal was unfounded. The Cour de Cassation was asked, therefore, to determine whether the Court of Appeal had been correct in dismissing the Viguies' appeal on such grounds. It held that the Court of Appeal had violated Article 529, paragraph 1 of the New Code of Civil Procedure, as the claims were raised as defences against the liquidator's counter-claim and were, therefore, admissible on appeal. Article 529, paragraph 1, states:

"No new claim shall be made on appeal, unless it is for set-off or the new claim is the defence to the principal action"

The decision of the Court of Appeal was therefore quashed.

211. However, Maitre Baden accepted in cross examination that the reasons of the Cour de Cassation were contained in the paragraphs below the arguments of the appellants, set out in italics in the judgment, and that it made no mention in the decision of the cut off date imposed by the Luxembourg courts for the filing of proofs or its effect. He also accepted that the only point of law decided by the Cour de Cassation was the procedural question of whether a new defence as opposed to a new counterclaim, could be raised for the first time on appeal.
212. Accordingly, taking all of the expert evidence in the round, on the balance of probabilities, in my judgment, under Luxembourg law, unless a claim or counterclaim is made against the liquidators of a Luxembourg company by filing a proof of debt in the liquidation before a cut-off date, it can no longer be relied upon against the company in liquidation. I come to this conclusion based upon the clear and unequivocal evidence of Professor Cuniberti, the decisions to which I have been referred and the responses given by Maitre Baden in cross examination, the culmination of which was that he accepted that there may be a prospect in the future that Luxembourg law develop in order to permit a claim or counterclaim to be lodged after a bar date by a petition in the court supervising the liquidation but that that was for the future.
213. I should add that in his oral closing Mr McDonnell referred me to paragraph 7-39 of Dicey, Morris and Collins, "The Conflict of Laws" 15^th ed in support of the proposition that it is English law which governs in this case. That paragraph provides as follows:

"(4) Set-off and counterclaim. Set-off is of two kinds. It may be a claim of a certain kind which the defendant has against the claimant and which can conveniently be tried together with the claim against the defendant. The question whether a set-off of this kind can be raised in an action is one of procedure for the lex fori. A set-off may, on the other hand, amount to an equity directly attaching to the claim and operate in partial or total extinction thereof; an example is the compensation de plein droit of French law. The question whether a set-off of this kind exists is one of substance for the lex causae, ie the law governing the claim the defendant asserts has been discharged in whole or in part. A counterclaim is a claim by the Defendant which, though not operative by way of set-off, can conveniently be tried together with the claim against the defendant. The question whether a claim can be raised by way of counterclaim is one of procedure for the lex fori."

In my judgment, as a result of the effect of the Directive which is given effect in English Law by means of the Regulation, it makes little difference whether the Counterclaims in this matter are counterclaims or true set offs. The extract from Dicey, Morris & Collins makes clear that under English Private International law, to the extent that the claims made by Mr Stanford as a defence are true set off, they are governed by Luxembourg law which is the law governing the claim which he asserts has been discharged and to the extent they are mere counterclaims the procedural issue of whether they can be raised is one for English law which as a result of the Directive and the Regulation looks to Luxembourg insolvency law. I return to the significance and effect of Luxembourg insolvency law below.

214. I should add that it is also agreed that the effects of the Assignment Agreement are also governed by the law governing the Assignment Agreement and the claims assigned, both of which are Luxembourg law.
215. Further, Mr Allison goes on to submit that clause 13 of both Loan Agreements has the effect as a matter of Luxembourg law to exclude any claim of set-off. The experts agreed that parties entitled to invoke set-off may also exclude their right to it by agreement and that such clauses are enforceable under Luxembourg law. Further, Professor Cuniberti stated that clause 13.1 of the Loan Agreements should be interpreted as a matter of Luxembourg law "as being an enforceable waiver/exclusion of the Borrower's [Mr Stanford's] right to assert set-off to a claim by the Lender … for sums due under the Loan Agreement." This was not challenged by Mr McDonnell in cross-examination. He submits therefore, that, as a matter of the law of contract in Luxembourg, Mr Stanford was unable to raise any set-off against the sums due under the Loan Agreements and accordingly, the position is no different after the assignment to LBI. The claim which was acquired from LLux was one against which Mr Stanford cannot assert a set-off, as he has waived that right to do so.
216. Further, it is agreed that Article 1692 of the Luxembourg Civil Code provides that the assignment of a claim entails the assignment of "accessories" of the claim. In other words, under Luxembourg law, a claim is assigned with all its existing accessories or "features". Professor Cuniberti explained:

"All features of the claim assigned will follow this claim when assigned, and, therefore, whichever advantage the assignor had will be received by the assignee, and whichever difficulty or limit to its right it had will be received by the assignee as well"

In a circumstance in which the parties are all solvent, Maitre Baden agreed with Professor Cuniberti's analysis of the position. He confirmed that any feature of the claim that prevented set-off against the assignor would equally prevent set-off against the assignee.

217. As a result, as a consequence of clause 13 of the Loan Agreements, and as a matter of Luxembourg law, (without reference to insolvency) Mr Allison submits that Mr Stanford cannot defeat the claim by the set-off of a counterclaim against LLux and therefore, after the Assignment he cannot do so against LBI. Putting it another way, he says that when LLux sold the claims under the Loan Agreements to LBI, LLux was selling a claim that could not be defeated by the set-off of a counterclaim by Mr Stanford against LLux and in accordance with Luxembourg law, when LBI acquired the claims from LLux, LBI bought claims that could not be defeated by the set-off of a counterclaim by Mr Stanford against LLux. To reiterate, he says this is a result of clause 13 of the Loan Agreements, which takes effect as a matter of Luxembourg contract law, irrespective of any further or additional provisions of Luxembourg insolvency law.
218. Secondly, Mr Allison also submits that Luxembourg insolvency law prohibits Mr Stanford from seeking to rely on a counterclaim as founding a right of set-off unless it satisfies the requirements of "dettes connexes" as a matter of Luxembourg law, and he says that those requirements are not satisfied. In this regard, he also referred me to the judgment of the Luxembourg court in the winding up proceedings in which it ordered:

"With effect from [the date of this judgment], set-off shall no longer be permissible save in the following cases:

- where there are connected debts…"

219. In fact, the experts agree that under Luxembourg law there are four types of set-off. The first is legal set-off which they agree is not available on the facts of this case. The second is contractual set-off under which parties can agree to set-off reciprocal claims. That also does not apply here. The third is judicial set-off and the fourth, "dettes connexes". The experts' agreed position in relation to judicial set-off and dettes connexes is as follows:

"12. Judicial Set Off (non connected debts)

Luxembourg courts have the power to order set off of claims irrespective of whether the debts are connected. The only conditions are that the claims 1) be reciprocal and 2) have the same object (typically money).

Judicial set off occurs when it is ordered by a court.
It may not be ordered after the opening of insolvency proceedings against one of the parties.

. . .

14. Set off of connected debts

When the reciprocal debts of the parties are connected, set off can operate even after the opening of insolvency proceedings. The only conditions are that the debts be reciprocal and have the same object (typically money.)

The experts disagree as to whether, in the context of insolvency proceedings, lodging proof of debt is an additional requirement and whether the debts are connected in the present case.

220. I will deal with judicial set-off and dettes connexes in reverse order. As I have already mentioned, Mr Allison submits that dettes connexes is not available against LLux. Although Mr McDonnell did not appear to pursue the issue in closing, for the sake of completeness I will set out the expert evidence on the point and what my conclusion would be.
221. Professor Cuniberti's unchallenged evidence was that the claims under the Loan Agreements and the Counterclaims arise under independent contracts and do not constitute dettes connexes. However, in his written evidence Maitre Baden stated that they "could" amount to dettes connexes. Nevertheless, he acknowledged in cross examination that "could" means only that something is not impossible or untrue. In cross examination he stated that it is possible for dettes connexes to arise in the present case dependent upon: (i) Mr Stanford proving his case on the counterclaims; and (ii) the Luxembourg courts taking a different approach to dettes connexes in the future. He also confirmed expressly that the Luxembourg courts have found that the requirements for dettes connexes will not be satisfied unless the claims arise out of the same contract.
222. Further, although the point was not explored directly with Maitre Baden the decision of the Luxembourg court in Ghrenassia was that the requirements for dettes connexes would not be satisfied where one claim is contractual and the other is tortious. It held at 1146:

"Now, it is settled case law in matters of receivership and liquidation that, even though arising from the conclusion of the same agreement, some claims cannot be set-off. Such is the case where one is presented with a contractual obligation and a tortious obligation. As the condition of connectedness assumes that the claims have a contractual basis, there cannot be set-off if one of them arises from fraud…"

223. It seems to me therefore, that in fact, there is no difference between the experts on the availability under Luxembourg law as it stands at present, of dettes connexes in the present case and on the balance of probabilities, I find that under Luxembourg Law the principle is available in the circumstances described by Professor Cuniberti. Accordingly, in my judgment it would not be available to Mr Stanford as against LLux.
224. I now turn to judicial set-off. As I have already mentioned, the experts agree that the principle is not available after the opening of insolvency proceedings against one of the parties. Of course, in this case, any attempt to rely upon such a principle arises after the insolvency proceedings commenced in relation to LLux. However, Mr McDonnell submits that LBI as the assignee of the claims against Mr Stanford is not entitled to take the protection of the insolvency regime in Luxembourg which protected LLux against judicial set-off and therefore, it is open to Mr Stanford to seek to set-off his counterclaims against the claim in this action because it is now in the hands of LBI and not the liquidator of LLux.

Can Judicial set-off be relied upon against LBI as assignee from LLux?

225. Article 1692 of the Luxembourg Civil Code provides that: "the sale or assignment of a claim includes the accessories of the claim, such as security, prior charges and mortgages." In cross examination, Professor Cuniberti considered the provision in French and suggested that it would be better understood as: "the sale or assignment of a claim includes the accessories of the claim, such as personal security (like a guarantee), in rem rights which arise not by consent but automatically by operation of the law and mortgages."
226. Mr McDonnell says therefore, that the first question under domestic Luxembourg law is whether the effects of the insolvency which prevents judicial set-off against LLux is part of the "accessories" which are assigned? Mr McDonnell relied upon paragraph 9 of Maitre Baden's Supplementary Report which is in the following form:

"Once the debtor has been notified of the assignment, the assignee is substituted for the assignor as creditor. Under no circumstances can the debtor be placed in a less favourable position as a result of the assignment. Accordingly, an assignment cannot deprive the debtor of his right to counterclaim or set-off and any right Mr Stanford has to counterclaim or set-off against LLux as assignor he has against LBI as assignee."

227. As he points out, Professor Cuniberti's evidence was much the same. In cross examination when asked what the jurisprudence in Luxembourg is on the position between assignee and debtor, he answered:

"Well, that's the principle I've already laid down. Any feature of the claim will be assigned to the assignee, so the choice of law agreement, choice of court agreement, time limits, everything including possible rights of set-off that the debtor may be entitled to exercise against the assignor, the principle being that you cannot assign what you do not have and you can only assign what you have. So what Landsbanki Luxembourg has is a claim with possibly a right of set-off which could be exercised by the debtor against Landsbanki Luxembourg. Therefore, that's all it can assign, and that's all it has assigned."

228. However, he went on to make clear that in his opinion, the effect of Luxembourg insolvency law under which the claim could not be defeated by a counterclaim against LLux was part of what had been assigned. He explained that he had first seen this point when it was raised for the first time in Mr McDonnell's skeleton argument for the hearing, had thought about it and done some research but had not been able to find either French or Luxembourg authority on the point. Nevertheless, he added that he considered it to be a clear point of principle and followed from Article 1692. He said that:

"So not specifically in the context of insolvency law, but the general principle is article 1692 of the Luxembourg Civil Code which provides that the assignment of the claim entails the assignment of all accessories of the claim. So it's a general principle of Luxembourg and French law of obligations, an assignment of claim will entail the assignment of all possible - we call that accessories or exceptions if they are drawbacks."

229. Mr McDonnell says that Professor Cuniberti's conclusion that the effect of the insolvency regime whilst the claim is vested in LLux is an "accessory" for the purposes of Article 1692 is an implausible construction of the article and that Maitre Baden's conclusion, that there was a distinction between the aspects that relate to the claim and those that relate to the person [the assignor], the latter of which would not be assigned, and so the inability to bring a exercise set-off against LLux due to its insolvency would not be assigned to LBI, should be preferred. Mr McDonnell pointed out that the result would be the same if the Assignment and Counterclaim were to be determined under English law where the assignee takes subject to equities, a principle applied to legal assignments by section 25(6) Judicature Act 1873, now replaced by section 136 Law of Property Act 1925. As authority for the proposition, he referred me to Mangles v Dixon (1852) 3 HLC 702 and to Bank of Boston Connecticut v European Grain and Shipping Ltd ("The Dominique") [1989] QC 1056 at 1101D – 1103C.
230. He also says that such a conclusion is supported by Joint Administrators of Heritable Bank plc v Winding up Board of Landsbanki Islands hf [2013] 1 WLR 725, a decision of the Supreme Court and in particular, by the dictum at paragraph 60. Before turning to that dictum I should set out some detail about the case. The Heritable case was concerned with circumstances which arose because both Landsbanki Islands hf, now known as LBI, incorporated in Iceland and its wholly owned subsidiary, Heritable Bank plc, a credit institution incorporated in Scotland, both went into liquidation. The question which arose was succinctly described by Lord Hope of Craighead at [38] in the following way:

"As will be apparent form what has been said so far, the issue in this case is how cross–claims between two credit institutions are to be dealt with in insolvency proceeding in two different EEA states."

231. What the court was considering, therefore, was a clash of insolvency regimes. The factual background which is complex is important to an understanding of the decision. LBI had submitted three claims in the administration of Heritable one of which was rejected on the ground that Heritable had claims against LBI which equalled or exceeded the amount of LBI's claim and served to extinguish it by set-off applying Scots law. Meanwhile the administrators of Heritable had lodged four claims in the winding up of LBI, three of which had been rejected. The administrators had objected to that rejection and the matter had been referred to the Icelandic court. On the Board of LBI's appeal against the rejection of their claim by the administrators of Heritable, the Lord Ordinary in the Outer House of the Court of Session held that a ruling in the Icelandic winding up proceedings should, to the extent that it is final and binding in Iceland, be recognised and given effect in the United Kingdom so that if the Iceland court were to decide that Heritable had no valid claim, that decision would have effect in the United Kingdom "as if it were part of the general insolvency law of the United Kingdom" pursuant to regulation 5(1) of the Credit Institutions (Reorganisation and Winding up) Regulations 2004, with the effect that Heritable's claim could not be used by way of set-off in its own administration. Subsequently, the administrators withdrew their claims in the winding up of LBI and the proceedings in Iceland were discontinued. It was then argued on behalf of LBI that the discontinuance of the proceedings had extinguished Heritable's claim and that that was binding in the proceedings in Scotland.
232. The Inner House of the Court of Session rejected that argument, sustained the reclaiming motion and recalled the Lord Ordinary's interlocutor, holding that while the withdrawal of the administrators' claim in LBI's winding up discharged the underlying debt owed to Heritable under Icelandic law and that that had effect in Iceland, it did not have effect for the purposes of Heritable's winding up proceedings in Scotland. The Board of LBI appealed to the Supreme Court and their appeal was dismissed.
233. Lord Hope of Craighead gave the judgment of the court with which Lords Walker, Kerr, Reed and Carnwath agreed. He reiterated the question with which the Court was concerned at [43] in the following way:

"43. The question, in short, is whether Icelandic law binds the administrators of Heritable. Does it govern the question whether the claim that Heritable wishes to maintain in its administration against Landsbanki by way of set-off against Landsbanki's claim against it still subsists for this purpose? Must it be taken to have been extinguished for this purpose because it can no longer be maintained against Landsbanki in the winding-up proceedings in Iceland? The parties are agreed that there is no previous case law which addresses this issue."

234. He went on to consider the applicable law and the interaction of the common law and insolvency law at [44] and [45] as follows:

"44. The position at common law was explained in the Inner House by Lord President Hamilton: 2012 SC 209, para 29. A debt under a contract whose proper law is the law of another jurisdiction may, for the purposes of Scots law, be discharged by insolvency proceedings in that other jurisdiction: Rochead v Scot (1724) M 4566. But such proceedings will not, for the purposes of Scots law, discharge a debt where the proper law of the contract is not the law of the jurisdiction in which the proceedings are taking place: Adams v National Bank of Greece SA [1961] AC 255, where the proper law of the contract was that of England: St Clair and Drummond Young, The Law of Corporate Insolvency in Scotland 4th ed, (2011) para 22.31. The position under the common law of England is the same: Antony Gibbs & Sons v La Socie´te´ Industrielle et Commerciale des Me´taux (1890) LR 15 QBD 339. The question whether an obligation has been extinguished is governed by its proper law: Wight v Eckhardt Marine GmbH [2003] UKPC 37, [2004] 1 AC 147, para 11, per Lord Hoffmann; Dicey, Morris & Collins, The Conflict of Laws 14th ed, (2006) vol 2, para 31R-092, Rule 200.

45. The proper law of the revolving credit facility is English law. So, if the matter were to be regulated by the common law, the position would be that what happened to Heritable's rcf claim in Iceland would have no bearing on the question whether it could be used by way of set-off against Landsbanki's rcf claim in the administration of Heritable in Scotland. The effect of the Directive, however, is that the common law must give way to the law under which proceedings resulting from the insolvency of credit institutions must be conducted by the Member States to the extent, if any, that it directs. The question is whether it, and the Regulations which give it effect, contains such a direction. The answer is to be found by construing the Directive and the Regulations which implement it, and applying that construction to the facts."

235. Having considered the relevant provisions of the Directive and the Regulations, Lord Hope concluded at [48]:

"48. It follows that the fact that Heritable's claims against Landsbanki have been extinguished for all the purposes of the winding-up of Landsbanki in Iceland cannot be questioned in the administration of Heritable in Scotland. Iceland, as Landsbanki's home EEA State, has sole jurisdiction for this purpose, and the effects of the insolvency proceedings in Iceland must be recognised in Scotland. But does it follow that the administrators of Heritable must treat Heritable's rcf claim as having been extinguished here too because of the effects on that claim of what has happened in Iceland? The answer indicated by article 10(2) suggests the contrary. It states that the law of the home Member State shall determine, among other things, the conditions under which set-offs may be invoked, the rules governing the admission of claims and the distribution of the proceeds of the realisation of assets, the ranking of claims and the rights of creditors who have obtained partial satisfaction after the opening of insolvency proceedings."

236. He went on to consider LBI's argument that regulation 5(1) which states that an EEA insolvency measure has effect in the United Kingdom in relation to any debt or liability of an EEA credit institution "as if it were part of the general law of insolvency of the United Kingdom" has the effect that the extinction of Heritable's claim in Iceland because it was no longer being pursued there had effect in the United Kingdom as if the EEA insolvency measure in Iceland in respect of LBI was part of the law of insolvency of the United Kingdom too.
237. Having considered the Regulations and in particular, regulation 5, he concluded at [54]:

"54. But these provisions are concerned only with an EEA insolvency measure in relation to a credit institution which is located in another EEA State. It is only for that purpose that an EEA measure is to have effect as if it were part of the general law of insolvency in the United Kingdom. They apply to the winding-up of Landsbanki in Iceland. But they do not apply to the administration of Heritable in Scotland. The rules which apply to Heritable, which is a UK credit institution, are set out in Parts 3 and 4 of the Regulations."

He went on:

"57. Regulation 28 preserves the right of creditors to demand the set-off of their claims against the claims of the affected credit institution, where set-off is permitted by the law applicable to the credit institution's claim. This is the other side of the application of the principle of set-off that is referred to in regulation 22(3)(d). It reinforces the point that issues of set-off are to be determined in the home EEA State, as the common law of Scotland requires, according to the proper law of the contract. It is conceived in the interests of creditors in other EEA States, bearing in mind that exclusive jurisdiction is given to the United Kingdom as the home Member State. Their right to claim set-off is put onto the same basis as creditors in the United Kingdom. This gives effect to article 23(1) of the Directive, and it respects the principle of unity and universality on which the Directive's provisions are based.

58. The key to a proper understanding of regulation 5(1), therefore, lies in an appreciation of the fact that, while it is designed to give effect to the mandatory choice of the law of insolvency of the EEA State in which the foreign credit institution is located, it is not concerned in the least with the effects of the mandatory choice of Scots law for the administration of Heritable in Scotland. Those effects are provided for in Part 3 and 4 of the Regulations, which have nothing to do with the effects of the mandatory choice of the law of Iceland for the winding-up of Landsbanki.

59. I would therefore reject the argument for Landsbanki, on the ground that it fails to take account of the scheme of the Directive and the Regulations. But I think that there is also much force in Mr Moss's argument, which built on points made by the Lord President in his opinion at 2012 SC 209, paras 32 and 40, that Landsbanki's argument produces an arbitrary and unprincipled outcome.

60. As the Lord President observed in para 32, the logic of Landsbanki's argument is that Heritable's claims against Landsbanki would have been extinguished even if Heritable had been a wholly solvent company. It might have decided that there was no point in pursuing a claim in Landsbanki's winding-up because the prospects of a dividend were remote and the costs of doing that outweighed any possible advantage. However sound that assessment might have been, its effect would have been that Heritable would have been unable to set-off its claim by way of a defence to a claim pursued against it in Scotland by Landsbanki. The only way for a creditor to avoid that result would be to lodge and maintain its claim in the insolvency proceedings in the other Member State, even if the prospects of recovering anything were nil. This would also be, as the Lord President said in para 40, to give universal priority to the process in which a decision happened to be made first. That would encourage forum shopping, especially where there was a prospect of inconsistent findings as to the validity of a claim in different Member States. It is hard to believe that this was intended by the framers of the Directive.

61. These arguments do not, of course, provide an answer in themselves to Landsbanki's case. But they do suggest that it is crucial to pay close attention to the scheme of the Directive to which the Regulations give effect. When this is done the answer is, in my opinion, entirely clear."

238. Mr McDonnell asks why then should it have been necessary for Mr Stanford to lodge a proof of debt in Luxembourg and in addition, why should priority be given to the Luxembourg insolvency provisions by enabling LBI to take advantage of them in this litigation in England, especially where the claim was purchased by LBI for full value? He suggests that LBI seeks to inherit LLux's "cloak of invulnerability to counterclaims … in Llux's liquidation" which if they exist are the rights of a liquidator in Luxembourg.
239. Mr Allison's response on behalf of LLux, whose submissions were adopted by LBI, has a number of aspects to it. First he says that in this case it is accepted that the claims under the Loan Agreements are governed by Luxembourg law and that the Assignment Agreement and therefore, the effects of the assignment are also governed by Luxembourg law. Under those very Loan Agreements, the right of set-off was excluded and Professor Cuniberti's opinion as to the way in which clause 13 of the Loan Agreements would be interpreted under Luxembourg law was not challenged in cross examination. Therefore, as I have already mentioned, he submits that the claims which were assigned were in their very essence, not subject to the potential for any set-off and therefore, they remain of that nature in the hands of LBI as assignee. Mr Stanford's position is no better and no worse than it was against LLux, the assignor. Under Article 1692 of the Luxembourg Civil Code the assignment of the claim entailed the assignment of the claim with all of its features or "accessories" including the effect of waiver of the right of set-off in the Loan Agreements themselves.
240. In this regard Mr Allison referred to Professor Cuniberti's explanation in cross examination that:

"All features of the claim assigned will follow this claim when assigned, and, therefore, whichever advantage the assignor had will be received by the assignee, and whichever difficulty or limit to its right it had will be received by the assignee as well"

He went on to explain that the assignment is 'transparent' so that the debtor's position is precisely the same as it was before the assignment, and all benefits and disadvantages are preserved unchanged. In this regard, Mr Allison also relied upon paragraph 9 of Maitre Baden's supplemental report to which I have already referred and upon which Mr McDonnell relied for the opposite proposition. As a consequence he says that the asset in the liquidation of LLux was a claim against which no set-off could be asserted and that is what was sold/assigned and purchased for full value. Accordingly, he says that Mr Stanford remains unable to rely upon the set-off or any counterclaim against LLux and that Luxembourg insolvency law is irrelevant.

241. Further or alternatively, he says that as a result of the Directive and the Regulations, the effect of Luxembourg Insolvency law must be recognised and given effect to by the English court. Mr Allison seeks to distinguish this case from the decision in the Heritable case on the basis that it was concerned with a clash of two EEA home state insolvency jurisdictions. The question arose under the Directive and the Regulations as to whether the Scottish court was required as a result of the Directive and the Regulations to apply Icelandic law or whether in the liquidation of Heritable to which under the Directive and the Regulation, Scottish law applied, Scottish law was nevertheless required to apply Icelandic law as a result of regulation 5.
242. In this case, Mr Allison says that Luxembourg law governs the claims and as a result under the Directive and Article 10(2) in particular, and the Regulation that law also governs whether set-off applies. There is no clash of applicable law and there are no competing sets of insolvency regimes. Both private international law and insolvency law in the form of Article 10(2) point to the application of Luxembourg law.
243. I agree with Mr Allison. It seems to me and also there is no dispute but that as a matter of private international law, the English court looks to the proper law of the contract whether it is the Loan Agreements or the Assignment Agreement in order to determine their effect, including the right of set-off.
244. There is no question of a clash of insolvency regimes here and the questions under consideration in Heritable therefore, do not arise. In fact, the judgment of Lord Hope supports the conclusion which I have reached. This is not a case where an insolvency regime is being allowed too great a reach. It is the insolvency law of the home EEA state, in other words, Luxembourg law which is determining the effect of set-off in accordance with Article 10(2) in a Luxembourg insolvency. The question under consideration in Heritable therefore, is of no relevance here. As Lord Hope points out at paragraph [57] of his judgment, it is necessary that set-off in an insolvency be determined in the home member state in order to put all the creditors on the same basis.
245. Furthermore, the dictum in paragraph [60] is just that. It is not necessary for the decision. Furthermore, there is no suggestion that the proposition would be sound where there is only one law which is both the proper law of the agreements, governs the right of set-off and is the law applicable to the insolvency. Further, in this case even aside from the Directive and the Regulations:

i) Insofar as Mr Stanford's counterclaims are governed by Luxembourg law (as pleaded in respect of the alleged TFI Agreement), the English common law will recognise the discharge of those claims by reason of the failure to file a proof of debt in LLux's liquidation: see Wight v Eckhardt Marine GmbH [2004] 1 AC 147, at [35]; Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Metaux (1890) 25 QBD 399, at 405.

ii) The filing by Mr Stanford of two proofs of debt in LLux's liquidation operates as a submission to the consequences of LLux's liquidation: see Rubin v Eurofinance SA [2013] 1 AC 236, at [161] to [167].

The position is therefore, completely different from that posited at [60].

246. The question of whether the effects of the Luxembourg insolvency are "features" or accessories which passed with the claim when it was assigned are not addressed at all. That is the question here. In my judgment, the effect of the expert evidence before the court is that, indeed, the effect of the insolvency provisions in Luxembourg are a facet or for the purposes of Article 1692 an "accessory" of the claim and accordingly, are assigned. No doubt, it was for this reason that full value was paid for the claims on assignment. This is Professor Cuniberti's evidence. In my judgment, paragraph 9 of Maitre Baden's supplementary report does not suggest otherwise.
247. In my judgment therefore, even if contrary to the unchallenged evidence of Professor Cuniberti, clause 13 was ineffective to waive any right to set-off in relation to claims under the Loan Agreements and as a result the claims had the potential for set-off to arise, the effect of the failure to lodge a proof of debt in respect of the counterclaim in Luxembourg and the inability to rely upon legal set-off as a result of the insolvency are both facets of the claims which are assigned. I do not find such a conclusion surprising. If a right of set-off were resurrected upon assignment, the liquidator would not be able to sell the assets of an insolvent company. Furthermore, whether or not the right was resurrected would depend upon the jurisdiction in which any further proceedings were commenced. The result would be a lottery. Furthermore, why should Mr Stanford actually benefit from an assignment rather than be treated in the same way as all other creditors and debtors of LLux?
248. Accordingly, in my judgment, as a matter of both English Private International law and as a result of the Directive and the Regulations, the issue of set-off and admission of counterclaims is governed by Luxembourg law and under that law, Mr Stanford cannot proceed with the counterclaims against LLux's claim because he did not file a proof of debt in respect of it before the bar date and the debts which were assigned were not susceptible to set off. As a result of the effect of the Directive and the Regulations it makes no difference whether the proper law of a counterclaim is English or Luxembourg law. Mr Stanford cannot raise the counterclaims against the assignee, LBI.