England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		St Dunstan's House 133-137 Fetter Lane London, EC4A 1HD
		20th February 2007

No.3

His Honour Judge Peter Coulson QC:

A: INTRODUCTION

1. By an application dated 15 November 2006, two of the Defending Parties, Party 14 (Glen International Limited, "Glen") and Party 18 ("Harjivan"), sought a declaration that this long-running litigation was compromised by an exchange of letters in late October/early November 2006. That application was supported by almost all the other Defending Parties, although, for reasons which will become apparent below, the precise position of Shantaben Thakrar (Party 13) is a little more complicated. The application was resisted by the Claiming Parties, in particular Party 2, Suburban Property Company Limited ("Surburban"); Ms Shirley Jackson, the Trustee in Bankruptcy of Subhash Thakrar ("the Trustee", Party 1); and Ms Barbara Harris (Party 4).
2. At the outset of the hearing on 22 January 2007 to decide the compromise issue, at which Harjivan did not appear and was not represented, there was no list of agreed facts, no list of disputed facts on which oral evidence was or might be necessary, no list of agreed issues, and no agreed case summary. Progress on the production of a list of agreed and disputed facts took most of that day. Eventually, on 23 January 2007, a list of agreed facts was provided, together with an identification of two areas of factual dispute. Cross-examination on these limited matters took up most of that second day of the hearing.
3. There was also a dispute as to the admissibility of a limited number of documents, in five groups, which had been identified by Mr Jones QC, acting on behalf of Glen, in a Note dated 22 January. All parties agreed that, since those documents were not thought to be of great significance, it was appropriate for me to deal with the point as to admissibility in the body of my Judgment. Although the closing written submissions of Mr Jones QC, produced at the outset of the third day of the hearing on 24 January 2007, appeared to widen significantly the scope of the dispute as to admissibility of evidence, and to extend it to aspects of the oral evidence adduced the previous day by all parties, he helpfully confirmed, towards the close of the argument on that third day, that his objections were indeed limited to the five groups of documents set out in his Note of 22 January.
4. The orders made by His Honour Judge Thornton QC in respect of the compromise issue envisaged that I would notify the parties of the result of the application by Monday, 29 January 2007, with reasons to follow. In the event, at the conclusion of the argument on Wednesday 24 January 2007 (all relevant submissions having lasted just under one day), I informed the parties that, for a number of separate reasons, the application failed, and that this litigation had not been the subject of a binding compromise. I indicated that my reasons would be provided by way of a reserved Judgment which, because of other commitments, could not be made available for some time.
5. This Judgment will proceed as follows. In Section B below I set out a summary of the course of this litigation to date (taken very largely from the agreed facts) which, although it cannot hope to describe its Dickensian complexity, provides an appropriate backdrop to any understanding of the compromise issue. At Section C below, I set out the principles relating to the admissibility of evidence and the general rules of construction applicable to disputes of this sort. At Section D I deal with the limited dispute as to the admissibility of particular documents. At Section E I set out the admissible factual material which was agreed and my findings of fact in the two areas where there were disputes. At Section F below, I set out the five principal reasons why I have concluded that, on a proper application of the relevant principles, there was no binding compromise in this case.

B. CASE SUMMARY

6. In December 1996 Subhash Thakrar (Party 7, referred to below as "Subhash") brought proceedings ("the Main Action") against Suburban as principal debtor and the executrices ("the Executrices") of Neil Hughes-Narborough, the deceased de facto director of Suburban, together with Kenneth Hughes-Narborough and Rosemary Campbell (who were and are directors of Suburban) as alleged guarantors, for non-payment of fees alleged to be outstanding to Subhash's practice as Suburban's accountants and auditors, together with compound interest on such fees at the rate of 2% per month. As at December 1996 the claim, calculated by reference to these high rates of interest, was in excess of £1 million.
7. The claim was defended by Suburban, Kenneth and Rosemary (who were subsequently collectively designated as "Group 2"), and by the Executrices^[1], on the grounds (inter alia) that no such fees were due and Subhash was not entitled to charge interest at the rate he alleged. Kenneth, Rosemary and the Executrices also defended the claim on the ground that they had not guaranteed Suburban's fees. Suburban counterclaimed against Subhash and joined the Executrices as Defendants to counterclaim (inter alia) for damages for conspiracy and/or equitable compensation arising out of arrangements made between Subhash and Neil whereby (so it was said) they acquired Suburban's considerable residential property portfolio at a gross under-value.
8. In 1998, a series of claims ("the Family Actions") were brought by or in the names of members of Subhash's family ("the Family Members", namely Parties 5, 6 and 8 – 13) against the Executrices (as Neil's personal representatives) and Ms Harris personally (because she was the successor to his solicitor's practice). They were collectively designated 'Group 4'. The claims were for an account of the rent and/or proceeds of sale received by Neil's solicitor's practice (Hughes-Narborough & Thomas) in respect of various long leasehold properties registered in their names. These claims were defended by Group 4 (inter alia) on the ground that the Family Members were not the beneficial owners of these properties, which were in fact acquired by Subhash and Neil as part of their joint property venture. The Family Actions were case-managed by Judge Thornton QC and heard together with the Main Action.
9. It is to be noted that Subhash, Mukesh, Vijay, Kishan, Sheela and Naina (Parties 7 to 12) are brothers and sisters. Party 13, Shantaben, is their mother. Parties 5 and 6, Ramila Bhojani and Vijaya Radia, are cousins of the same family. In addition Sheela (Party 11) holds a power of attorney for Shantaben, who is elderly. There is a report from the Official Solicitor in respect of Shantaben's capacity, to which reference is made in Section F5 of this Judgment below.
10. The consolidated claims came on for hearing in March and October-December 2003 before Judge Thornton. Between March and October 2003:

a) The Thakrar Family's claims against Ms Harris personally were dismissed by consent;

b) The four actions brought in the names of Ramila and Vijaya were dismissed under a default judgment; and

c) Suburban's counterclaim against the Executrices was compromised.

On 29 September 2004 Judge Thornton gave judgment on the remaining claims substantially in favour of Group 2 and Group 4 and against Subhash and the Family Members.

11. In particular, by his Order made, after further argument, on 8 November 2004, and giving effect to his judgment, Judge Thornton ordered that:

a) Subhash's claims against Kenneth and Rosemary and the Executrices on the alleged guarantee be dismissed;

b) Subhash pay Kenneth and Rosemary and the Executrices their respective costs of that claim on an indemnity basis;

c) By 4 pm on 23 November 2004, Subhash pay £50,000 net of VAT to Kenneth and Rosemary respectively on account of their costs of the claim and interest on such sum at the rate of 8% per annum from 1 January 2002 until payment;

d) Suburban have judgment on its counterclaim in the sum of £1,854,762.88 and accrued interest thereof in the sum of £2,351,537.10, and continuing interest on the total sum awarded of £4,167,230.50 at the judgment rate until paid;

e) Subhash pay Suburban's costs of the counterclaim on the standard basis;

f) By 4 pm on 22 November 2004 Subhash pay £270,000 net of VAT to Suburban on account of its costs of the counterclaim and interest on such sum at the rate of 8% per annum from 1 January 2000 until payment;

g) By 4 pm on 22 November 2004 Subhash pay £250,000 net of VAT to the Executrices on account of the indemnity costs of the guarantee claim and interest on such sum at the rate of 8% per annum from 1 January 2000 until payment, and a further £5,000 summarily assessed as the costs of a dismissed Part 24 application;

h) The Family Members' claims against Group 4 be dismissed;

i) Subhash be joined as a Defendant to each of the Family Actions pursuant to Section 51 of the Supreme Court Act 1981, for the purposes of the Court's exercise of its discretion as to the costs of these claims.

12. Group 4 obtained freezing orders in respect of Subhash's and the Family Members' respective assets and Group 2 obtained a freezing order in respect of Subhash's assets. None of the sums ordered by Judge Thornton to be paid by Subhash have actually been paid. On 20 December 2004, Subhash was made bankrupt on his own petition.
13. On the same day, but after the bankruptcy order was made, Judge Thornton made further orders that:

a) By 4 pm on 3 January 2005 Subhash pay £250,000 to the Executrices on account of their costs of the Main Action;

b) The Family Members and Subhash were jointly and severally liable to pay Group 4's costs of the Family Actions; and

c) By 4 pm on 3 January 2005 Subhash and the Family Members pay £250,000 to Group 4 on account of their costs of the Family Action.

Again, these sums by way of costs have yet to be paid.

14. The Family Members have appealed the orders made against them to the Court of Appeal, and have paid money into Court as security to abide the result of the appeal. That appeal is likely to be considered in May of this year.
15. At an earlier stage of the Main Action, Glen and Mrs Ramila Bhojani (a maternal cousin of Subhash, Party 5) had been joined as Defendants to Suburban's counterclaim, on the footing that they were the parties into whose names the properties acquired from Suburban were transferred. However, by a Consent Order dated 20 October 2002, Glen and Ramila were released from the proceedings pursuant to a compromise agreement made between Glen, Ramila and Suburban.
16. Group 4's attempts to enforce their costs orders against the Family Members resulted in an application being made by Ramila (Party 5) in December 2005 for judgment against her to be set aside on the ground that she knew nothing about the Family Actions and that her name and identity had been used therein without her consent or authorisation. Subsequently a similar application was made by Ramila's sister, Mrs Vijaya Radia (Party 6) in February 2006.
17. In the light of the matters giving rise to Ramila's application (paragraph 16 above), in December 2005 Group 4 applied to Judge Thornton for an order, inter alia, that the Family Action be struck out as an abuse of the Court's process or as obstructing justice.
18. Meanwhile, in September 2005, the Trustee commenced proceedings against Glen and Teso International Group Ltd ("Teso", Party 15) for, inter alia, a declaration that Subhash was the beneficial owner of the shares of these two companies. The Trustee had previously obtained a freezing order in respect of all property in which it was believed Subhash had an interest, including all the assets of Glen. On 9 December 2005 the Trustee's claim was ordered to be transferred to the TCC.
19. In the light of the events at paragraphs 16 and 18 above, Group 2 applied to amend its statement of case in the Main Action to allege that the compromise of Suburban's claim against Glen and Ramila was void and/or should be set aside on the basis that it was obtained by Glen in bad faith and/or by misrepresentation. Group 2 accordingly sought to pursue its Part 20 claim against Glen and Ramila for the recovery of the properties transferred into their names.
20. The importance in this litigation of Glen, a Liberian company administered in Jersey, cannot be under-estimated. It is currently the owner of a substantial portfolio of properties. Whilst the total value of these properties is not agreed, in 2005 Glen's Director deposed to a value in excess of £31 million. The most recent accounts for the year ending March 2005 show income from the properties of £1.13 million. The Trustee has freezing orders over its assets, and was appointed as Interim Receiver over those assets in August 2006. The ownership of Glen is the principal dispute in the litigation. The rival claimants are, on the one hand, Mr Mahindra Harjivan (Party 18), a Portuguese national, and, on the other, the Trustee of Subhash Thakrar's bankrupt estate (Party 1). One of the central issues is whether the Trustee is right to say that Subhash is the beneficial owner of Glen; if so, the ownership of its properties (worth over £30 million) devolves to the Trustee for payment out to the creditors.
21. On 10 February 2006, the Trustee was granted permission to join Harjivan to her claim, on the basis that Glen and Teso allege that it is he who is the owner of their shares. On the same day Judge Thornton permitted Group 2 to file and serve a pleading setting out its claim. Importantly, he also directed that all parties, whether formally part of the proceedings covering the Thakrar litigation or Subhash's insolvency proceedings, were to be bound by the findings made at the trial.
22. On 15 June 2006, it was directed that the trial of the claims referred to in paragraphs 16 - 19 above be heard in two stages. The first stage was to be devoted entirely to fact-finding and evidence-gathering. The second stage was to deal with the legal consequences of such facts as were found. A consolidated claim form in Action HT-06-189 was issued on 29 June 2006.
23. Save for a final opportunity to the parties to make final written and/or oral submissions to him, and the production of his Judgment, Judge Thornton has now concluded the first stage of the trial. He has indicated that, subject to the outcome of this compromise issue, he will give Judgment on the fact-finding trial and, if necessary, hear and give Judgment on the legal consequences trial by the end of April 2007.
24. Suburban, Kenneth and Rosemary have submitted proofs in Subhash's bankruptcy in respect of the judgments and costs orders made in their favour against him. Her Majesty's Revenue & Customs ("HMRC", referred to in the documents as 'The Revenue') has also submitted a proof of debt in Subhash's bankruptcy and claims to be a substantial creditor. Thus the state of administration of the bankruptcy is that there is one significant unascertained creditor, namely HMRC, in respect of tax due from Subhash up to 20 December 2004, the date of the bankruptcy order. The provisional proof of debt lodged by HMRC is in the sum of £1.5 million. There may also be other creditors.
25. As noted above, the critical issues in the litigation are the claims being made by the Trustee and Group 2 to the effect that:

a) The assets nominally held in the name of Glen (the properties apparently worth £30+ million) are in fact beneficially owned by Subhash; and

b) Suburban is entitled to reclaim from Ramila and/or Glen the properties previously transferred from it to Ramila and/or Glen and/or to trace the proceeds of such properties into the hands of Ramila and/or Glen.

C. PRINCIPLES OF ADMISSIBILITY AND CONSTRUCTION

C1 General

26. The starting-point for any consideration of these topics are the five "common sense principles" enunciated by Lord Hoffman in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896. They were set out as follows:

"(1) Interpretation is the ascertainment of meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the 'matrix of fact', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749).

(5) The 'rule' that words should be given their 'natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require Judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios CIA Naviera SA v Salen Rederierna AB, The Antaios [1985] AC 191 at 201:

' … if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must yield to business common sense.'"

27. In BCCI v Ali [2002] 1 AC 251 at 269, Lord Hoffman qualified his reference to "absolutely anything" at (2) above by saying that that meant "anything which a reasonable man would have regarded as relevant. I was merely saying that there is no conceptual limit to what can be regarded as background". In the same case, Lord Bingham of Cornhill summarised Lord Hoffman's principles in this way:

"To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties' relationship and all the relevant facts surrounding the transactions so far as known to the parties. To ascertain the parties' intention the court does not of course enquire into the parties subjective states of mind but makes an objective judgment based on the materials already identified."

28. The authorities on the particular topic of antecedent negotiations are of limited assistance. In Investors Compensation Scheme, Lord Hoffman said that "the boundaries of this exception are in some respects unclear". In BCCI v Ali, Lord Nicholls of Birkenhead questioned the whole policy of excluding subjective material. And more specifically, in the New Zealand Court of Appeal in Yoshimoto v Canterbury Golf International Ltd [2001] 1 NZLR 523 Thomas J, whilst reiterating the objective approach, said that he thought that this approach:

"… would be enhanced by approaching the task of determining what the contract would convey to a reasonable person without artificially restricting the background knowledge available to the parties at the time they completed the contract. Subject to the caution which I will shortly stress, that background knowledge should be able to include reference to matters that might otherwise come under the general heading of negotiations where such a reference would undoubtedly exist to ascertain the true meaning of the party's contract."

29. In the present case, I am entirely satisfied that no party was seeking to rely on evidence of subjective intention in order to circumvent or modify the words in the relevant letters. All parties sought, without objection, to refer to the fact that the critical exchange of letters formed part of a negotiation process, and to identify the topics that had been raised as part of that process. It seemed to me appropriate – indeed, for the reasons explained below, it was critical – that when construing the alleged offer and acceptance, I needed to have regard both to the fact that the letters were part of an on-going process, and to the points of importance that had been raised therein. That was a critical part of the factual background, in accordance with Lord Hoffman's five principles. I am, of course, confirmed in that approach by the fact that it was the one adopted by all the parties before me.

C2 Particular Points

30. I do not consider that the court should approach the question of whether or not any litigation has been compromised in too legalistic a fashion. It is important that settlement should be promoted wherever possible, and that must apply, a fortiori, to a case of this magnitude, complexity and cost. In my judgment, a failure to dot an 'i' or cross a 't' should not, without more, operate to prevent what all parties intended to be a binding compromise. To that extent, I consider that the court's attitude to any alleged compromise should borrow from the pragmatic approach to contract formation advanced by Steyn L.J. (as he then was) in G Percy Trentham v Archital Luxfer [1993] 1 Lloyd's Rep 25. But this approach cannot be taken too far. Where, for whatever reason, a binding compromise has not been reached, it is wholly illegitimate for the court to try and fill in the gaps, in order to achieve a result that the parties themselves cannot be taken to have intended.
31. It is trite law that, in order for there to be an enforceable contract or a binding compromise, the parties must have intended to create legal relations: see, by way of example, Baird Textile Holdings v Marks and Spencer [2002] 1 All ER (Comm) 737. In other words, in the present case, I must be satisfied that the parties intended to create a binding compromise of this litigation by the exchange of the letters dated 26 October and 1 November 2006, the latter sent and received at 4.19pm on 2 November.
32. If an important element in the negotiations remains unresolved, then no concluded agreement has been achieved. That is because a material term of the proposed contract is outstanding. The general law is reflected in the well-known judgment of Maugham LJ in Foley v Classique Coaches Ltd [1934] 2 KB 1 at 3 where he said:

"… It is indisputable that unless all the material terms of the contract are agreed there is no binding obligation. An agreement to agree in future is not a contract; nor is there a contract if a material term is neither settled nor implied by law and the document contains no machinery for ascertaining it."

It is a matter of construction of the relevant documents, considered against the factual background, as to whether there is an enforceable agreement, or merely an agreement to agree, which is not enforceable: see Von Hatzfeldt- Wildenburg v Alexander [1912] 1 Ch 284 at 288.

33. In addition, where the party's agreement is expressed in terms that are too vague to be enforced, the Court will decline to hold that a sufficiently certain agreement has been reached: see, for example, Wilson & Whitworth Ltd v Express and Independent Newspapers Ltd [1969] 1 WLR 197 and Assi v Leeds Metropolitan University, Court of Appeal, 16 February 2001. However, it is important to differentiate between, on the one hand, a situation where the original term is too vague to be enforced, and, on the other, an argument as to whether or not one party has complied with a term couched in general language. Provided that the term is clear enough to be enforced, the ways in which it might be performed in practice are irrelevant to the issue of whether or not there was a contract in the first place.

D. THE DISPUTE AS TO ADMISSIBILITY

34. As noted above, Mr Jones QC objected to five groups of documents as being inadmissible. They were:

a) A without prejudice letter from Speechly Bircham (Group 4's solicitor) dated 27 September 2006;

b) Mr Cartier's manuscript notes of telephone discussions in September with Mr Gwillim of Speechly Bircham;

c) Extensive further notes from Mr Cartier of a meeting with a number of the parties' representatives in early October 2006;

d) An attendance note prepared by Mr Drukker of a telephone conversation with Mr Cartier of 29 September;

e) An attendance note prepared by Mr Drukker of a meeting with Mr Cartier on 10 October.

35. A curious feature of Mr Jones QC's complaint about the documents at a), b) and c) above is that they were introduced into the evidence by Mr Cartier, the solicitor whose statement is the only evidence provided in support of the application for a declaration that there has been a binding compromise, the very application which Mr Jones QC seeks to make. However, whilst it might be said that to argue that their own evidence is inadmissible reflects poorly on the intellectual coherence of the Defending Parties' case on the compromise, this point does not seem to me to be of any real significance: as I pointed out during argument, the evidence is either relevant and admissible, or it is not, and it does not generally matter who sought first to introduce it.
36. I have concluded that none of the documents identified in paragraph 34 above is of any relevance to the compromise issue. Confirmation of that, if it were needed, can be found in the fact that the parties' list of agreed facts, set out in Section E below, made no reference to these documents, or the events which they describe. I therefore approach the compromise issue having disregarded entirely the contents of the documents to which Mr Jones QC objected. It is therefore unnecessary for me to determine whether the material was inadmissible for reasons other than relevance.

E. THE FACTUAL BACKGROUND

37. Lawrence Cartier ("Mr Cartier") of Cartier & Co was instructed by Mukesh early in August 2006, not as his solicitor on the record in the litigation, but with a view to negotiating a settlement. By letter sent by email on 9 August 2006, Mr Cartier introduced himself to 'the persons concerned with the Thakrar Litigation'. These included:

a) Mr Ashok Patel of Balsara & Co, acting for Party 1, the Trustee in bankruptcy of the estate of Subhash Thakrar;

b) Mr Nicholas Drukker, of Nicholas Drukker & Co, acting for Party 2, Suburban;

c) Mr David Gwillim, of Speechly Bircham, acting for Party 4, Ms Harris.

38. Discussions and correspondence ensued between Mr Cartier and the Claiming Parties. Mr Cartier also communicated with representatives of HMRC in respect of their claim in the bankruptcy for outstanding tax. On 12 October 2006 Mr Cartier spoke to Mr Mike Palmer of HMRC.
39. On 13 October 2006 Mr Cartier wrote a number of letters. One was to Mr Palmer of HMRC in which, inter alia, he said:

"There is a desire to achieve a global settlement of all matters if possible. To progress matters it is necessary first to ascertain the extent of sums claimed including sums claimed by HMRC. You have kindly agreed that you and your assistant Mr Walsh will meet on a without prejudice basis with me and Mr Patel in my offices on Friday 27 October …"

Mr Cartier also wrote to those representing the Claiming Parties to say:

"… There appears to be general support for the initiative I have undertaken on behalf of Mukesh to try, on a without prejudice basis, to reach a global settlement of all issues. There is general agreement that HMRC ought to be a party to any global settlement with an agreed sum (or a cap on such sum) for any liability which may be due to them. … In the hope of a successful outcome of negotiations with Inland Revenue and in view of the shortage of time it will be helpful if, before the above meeting takes place, each of the representatives of the various parties to this litigation would write to me on a without prejudice basis providing me with a brief summary of their respective claims (expressed in monetary terms) together with a brief breakdown of how the relevant figures are arrived at."

40. On 23 October 2006, Mr Cartier wrote again to those representing the Claiming Parties, referring again to the upcoming meeting with Mr Palmer on 27 October, and chasing a response to the earlier request for figures:

"In the penultimate paragraph of my above letter I did indicate that it would be helpful if, before the above meeting took place, each of the representatives of the various parties to the litigation would write to me on a without prejudice basis providing me with a brief summary of their respective claims (expressed in monetary terms) together with a brief breakdown of how the relevant figures were arrived at.

I write to request that you forward the above summaries and breakdowns within the next 2 days, so that I may have an indication of the overall position before the meeting with Mr Palmer takes place."

41. On Thursday 26 October 2006, Mr Drukker wrote to Mr Cartier. He had authority from the Claiming Parties to negotiate with Mr Cartier and to send this letter. It is this letter which the Defending Parties rely on as an offer capable of acceptance by them so as to compromise the litigation. The letter read as follows:

"Without prejudice

Dear Sir,

Re: The Thakrar Litigation

We thank you for your letter of 23 October 2006.

We write on behalf, and with the authority, of what have previously been termed the 'Claiming Parties' in this latest part of this long running litigation - namely Parties 1, 2, 3, 4, 5 and 6.

As a result of discussions held between the Claiming Parties and their representatives, it has been agreed that the best and simplest way to present to your client a resolution of this litigation would be to put forward a single figure which, if paid, would compromise all outstanding matters between the parties to this litigation.

The Claiming Parties figure to settle this outstanding litigation is £20,100,000. £10,000,000 of this figure must be paid within 30 days and the rest fully secured and paid within 18 months of the agreement, together with interest at 1% calculated on a monthly basis until paid.

Please note that this figure is presented on the basis that:-

(a) No details as to its make-up or apportionment will be forthcoming, save that the proportion which Party 2 has agreed to accept represents a discount of, at least, 50% on the total potential value of its claim which, if paid in full, could wipe out the entirety of the Glen Portfolio, and is therefore non-negotiable, and that

(b) It does not include any provision for payment of any tax due to HMRC.

This offer is open for acceptance until 4.30 pm on 31 October 2006.

We look forward to hearing from you."

42. The first of the two areas of factual dispute centred on the meeting with HMRC on 27 October 2006. However, having heard extensive cross-examination on this meeting, I am unconvinced that there was any significant difference between the parties as to what was said on this occasion. I have the benefit of attendance notes made in manuscript at the time by Mr Cartier and Mr Patel, as well as a typed up (and slightly fuller) version of Mr Patel's note. Having read those notes carefully, and having considered the oral evidence, I make the following findings of fact:

a) The meeting was attended by the Trustee, her solicitor Mr Patel, Mr Cartier, and two representatives of HMRC, including Mr Palmer;

b) Mr Cartier made an opening statement in which he said, as recorded by Mr Patel, that "the key to unlocking this [the settlement of the litigation] was the Inland Revenue".

c) Mr Palmer for HMRC made plain that the Revenue could not quantify its claim and did not know when it could be quantified.

d) Mr Palmer made plain that there were two possible routes open to HMRC. One was a claim against Subhash under Section 739 of the Income Tax Act 1988, and the other was a claim to be made directly against Glen, to obtain from them the tax claimed against Subhash. If that alternative was pursued then HMRC would not have to make a claim in the bankruptcy.

e) Mr Palmer was not in a position to give any indication as to which route HMRC would ultimately pursue because, at that point, they were simply gathering evidence. They were prepared to be flexible, but only once all the relevant information had been provided to them;

f) It was agreed that the Defending Parties would provide HMRC with further financial information as soon as possible. This would include documents from Acorn, who had been appointed to manage the properties.

43. The next important series of events occurred on Tuesday 31 October 2006. There were a total of four telephone discussions between Mr Drukker and Mr Cartier or his secretary. I have contemporaneous notes from both men. Again, although it was suggested that there were significant differences between the parties in relation to what was discussed in the third and fourth of these conversations, I have concluded that there was, in truth, very little between them. The differences are largely explained by the fact that Mr Cartier's notes were made at the time, and therefore short, whilst Mr Drukker's note, typed up that evening, was much longer. My findings in relation to those four conversations are set out below.
44. The first conversation took place at about lunch time. Mr Cartier asked Mr Drukker for a 48 hour extension of time of the 31 October deadline (paragraph 41 above) until 4.30 pm on Thursday 2 November. It is agreed that Mr Cartier also asked Mr Drukker whether the Claiming Parties would be prepared to move on certain matters. Those matters were:

i) Whether the Claiming Parties would be willing to extend the period for the first payment from 30 days to 60 days, as to which Mr Drukker said that they would not because he would not;

ii) Whether the Claiming Parties would be prepared in any way to reduce the interest rate;

iii) Whether the overall settlement sum could possibly be reduced;

iv) Whether the first payment amount could be reduced to £9 million; and

v) Whether there could be agreed an order of priorities for the properties to be secured.

As to the 48 hours extension, Mr Drukker said he would come back within half an hour. As to the additional points at (i) to (v), Mr Drukker indicated that he would come back and give some indication as to what he thought on each topic.

45. Having obtained instructions from the solicitors for the other Claiming Parties, Mr Drukker telephoned Mr Cartier and left a message with his secretary agreeing to extend the time limit for 48 hours until 4.30 pm on Thursday 2 November. This was the second relevant conversation that day, and was also uncontroversial.
46. Later that afternoon Mr Cartier and Mr Drukker spoke again. I have called this the third conversation. I find that in relation to the Trustee the following occurred during this conversation:

a) Mr Drukker told Mr Cartier that Mr Patel, the Trustee's solicitor, was concerned about the position of the Trustee, and that she needed to be protected. This concern arose from the need to ensure that HMRC's claim in the bankruptcy was dealt with as part of any settlement;

b) Mr Cartier said that he fully accepted that the principle of protecting the Trustee would be respected. He asked whether an undertaking from Glen and Subhash on that point would be acceptable, but Mr Drukker said no, and explained why not.

47. As I have noted, the Trustee's concerns largely stemmed from the uncertainty of HMRC's position, the amount of its claim in the bankruptcy, and the ways in which that claim might be satisfied. I note that Mr Cartier's very brief manuscript note of this conversation stated expressly that "Revenue need to be dealt with". Mr Drukker's longer note made plain that he told Mr Cartier that the Claiming Parties "would not be happy to do a deal unless proper provision had been made to the Revenue". He also records the agreement between the two men that "clearly it is in everyone's interest to ensure that the Revenue is satisfied as early as possible".
48. There was a further telephone conversation at the end of the day (Mr Cartier thought that it might have been early on the morning of 1 November but was happy to accept that it may have been late on the 31^st, which is what I find). In that fourth conversation, Mr Drukker noted that Mr Cartier said that:

"… He is not negotiating, but he wants certain aspects of it to be relaxed a little to make the deal doable. I said that I would like to have a clear understanding from all the other people on our side as to what we should be doing and then perhaps attend a negotiating meeting round the table."

49. Significantly, having referred to the possibility of a negotiating meeting, Mr Drukker's note also recorded that there was a discussion as to when such a meeting could take place:

"Neither of us can do this until Thursday [2.11.06]. He is in a drafting meeting tomorrow. However, will be here and will deal with the matter on a turn around basis with me and we will all be available Thursday."

50. On 1 November 2006 Subhash's solicitor wrote a letter to Mr Cartier in which he said that:

"I gather that later today I am to receive an amended offer, I look forward to receipt of the same."

51. At 9.13 am on Thursday 2 November 2006, the Trustee's solicitor, Mr Patel, sent Mr Cartier an email in the following terms:

"I refer to our meeting on Friday last [27.10.06] and subsequent developments. I should like to make it clear that my client, the Trustee, has given me clear instructions that she is not to be bound in any way until she has signed any agreement which she will only do so, as she made clear herself during our meeting on Friday last, pursuant to an order or direction under Section 303 of the Insolvency Act."

Mr Cartier circulated this email to the Defending Parties at 10.04 am.

52. At about 4.19 pm on 2 November Mr Cartier sent, and Mr Drukker received, a letter enclosing common form letters signed expressly by or on behalf of all the Defending Parties, except Party 13 (Shantaben) and Party 19 (the discharged former Receivers) and dated 1 November. These letters purported to accept the offer to compromise the litigation said to be contained in Mr Drukker's letter of 26 October 2006. The signatures of/for the Defending Parties are all dated 2 November 2006 and were faxed to Mr Cartier in the course of that afternoon. The common form letter, which was apparently drafted by counsel, was in these terms:

"Dear Sirs

Re: The Thakrar Litigation

We refer to your letter dated 26 October 2006, which contained an offer of settlement of the above litigation made by you on behalf of Parties 1 to 6 inclusively, that is to say ("the Offer").

We act on behalf of those parties appearing in the Schedule to this letter for the purposes only of communicating to you the acceptance of the Offer.

You have not withdrawn the Offer and indeed on the telephone yesterday you informed me that the deadline for acceptance of the Offer had been extended for a further 48 hours.

By accepting the Offer those parties identified in the Schedule become bound to the compromise with Parties 1 to 6 inclusively and it would be sensible for each of those parties to implement their agreement by drawing terms of compromise to be presented in Tomlin form to His Honour Judge Thornton QC.

The time limit set out in your Offer we will assume will run from the date of this letter being the acceptance of the Offer but please inform us if your understanding of the terms of compromise differs from ours.

As the Trustee is a party to our compromise it was for her to ensure that she was empowered to compromise her claims and we would wish to make clear that our acceptance of the Offer is not dependent on the satisfaction [of] any conditions such as obtaining approval from the Creditor's Committee or the Court or the acceptance or rejection of the Offer by any other party.

As to the meaning of the words "fully secured" those are capable of being given effect to as ordinary English words and in drafting the Tomlin Order Counsel will be willing to discuss with your Counsel the precise form of charge or other security which will satisfy that specific term.

Accordingly on behalf of those parties appearing in the Schedule to this letter we hereby give you notice of acceptance of the Offer."

53. The reply to this letter was dated 7 November 2006, sent by Mr Drukker to Mr Cartier. The first full paragraph was in these terms:

"We are pleased to note that, following on from our letter of 26 October, we have now reached agreement as to the specific amounts and timing of the payments which will be made by your clients to the Claiming Parties, namely Parties 1 to 6 in connection with the proposed settlement of these proceedings. We are, however, disappointed to note from the last two paragraphs on the first page of your letter dated 1 November that even this tentative step towards a settlement has been made the subject of qualification. We do hope that this will not result in the abortion of these promising discussions."

54. There is then a recitation of the paragraph in the alleged acceptance letter concerning the Trustee. Mr Drukker's letter goes on:

"We must make it clear that our letter to you of 26 October specifically excluded the liability of Mr Subhash Thakrar to HMRC. The figure provided to you was, as you requested, provided on a without prejudice basis as the sum (expressed in monetary terms) that would settle the Claiming Parties claims (in the case of the Trustee also including third party creditors who have so far proved and assuming that there will not be any Thakrar related claims but excluding HMRC and genuine third party claims not yet notified). Mr Thakrar's liability to HMRC is an unknown quantity (as to both amount and identity of payer) which remains to be ascertained.

We reminded you of this exclusion, and explained the reason therefor, during the telephone conversation with you on 31 October, and you confirmed that Glen would take responsibility for the payment of tax to HMRC. Whether that is technically possible in the context of Subhash's bankruptcy is a matter for the Trustee and HMRC; however, we understood the sentiment to be that the liability to HMRC would be paid from additional funds raised by Glen. If you are now saying that the Trustee is to continue to be responsible for the payment to HMRC, then your clients will need to let her know how this is to be done. In such circumstances, the approvals from the Creditors Committee and/or Court which she is as a matter of law to obtain will have to be sought as a pre-condition to signing off any settlement. …

Secondly, we note that you appear to be suggesting that there is likely to be a difference of opinion as to what constitutes 'full security'. Whilst we agree that it will be necessary to precisely establish the form and extent of the security to be given, we sincerely trust that this is not a prelude to a repeat of the very unsatisfactory aftermath to the mediation discussions in March of this year which were frustrated by your clients' refusal to provide details of the security to be offered then.

We would also point out that we do not agree that any agreement settling these proceedings should be the subject of a Tomlin Order. Certain aspects of any compromise may be set out in a schedule to an order, but the principal obligations and terms and appropriate variations to existing orders will have to be embodied in the terms of an order. And at the same time, no doubt, an application for a stay should be made to the Court.

There is much to be done before any settlement can be achieved and we would suggest that you avoid pre-determining any issue which will need to be addressed during the course of the ensuing discussions."

55. The letter then goes on to request information as to how the first payment of £10 million is to be made, details of the bank loans and so on, The letter also makes a specific point as to security:

"You will appreciate that the claiming parties view with some scepticism the possibility that, after taking into account the security (and interest payments) necessary to support the loan required for the initial £10 million, your clients will be able to pay the agreed sums without selling any properties, which will of course dilute the security. Clearly this issue will need to be resolved as part of the process of establishing acceptable security and we would ask your clients to attend to this now."

F. ANALYSIS

56. Applying the principles identified in Section C above, in construing the letters of 26 October/1 November 2006 relied on by the Defending Parties, I am in no doubt whatsoever that they did not amount to a binding compromise of this litigation. At most the exchange can be viewed as an agreement to agree; an agreement between most (but not all) parties to the Thakrah litigation in relation to one vital matter (the sum payable by the Defending Parties to the Claiming Parties) but with much more still to be discussed and resolved. My reasons for that conclusion are set out below: each of the five matters at sub-paragraphs F1 –F5 below is sufficient, on its own, to lead me to conclude that there was no binding compromise.

F1 No Intention To Create Legal Relations

57. In my judgment, the letters do not demonstrate an intention on the part of the parties to create legal relations simply by the exchange of the letters themselves. I find that all the parties knew and were aware that this immensely complicated litigation would have to be the subject of a detailed compromise agreement (or, at the very least, a detailed Court order) and that only when such a document had been drafted, agreed and signed by all parties would a compromise be effected.
58. The first reason for this conclusion derives from the nature and purpose of the letter of 26 October. It must be construed in context. On two occasions in October, namely the 13^th and the 23^rd, Mr Cartier had sought in writing a breakdown of the sums that each of the Claiming Parties were claiming in the litigation. This was of fundamental importance if he was to have any prospect of bringing about an overall settlement. The letter of 26 October referred, and was a reply, to that request: instead of breaking down their individual claims, Mr Drukker, on behalf of all the Claiming Parties, had indicated an overall figure which, if it was agreed by the Defending Parties by 31 October 2006, the Claiming Parties would take in settlement. Mr Drukker's letter was therefore the answer to Mr Cartier's question of 13 October, which had been repeated on 23 October. It was simply an attempt to agree the first (and critically important) first step in the process, namely the overall figure for which the litigation could be settled.
59. Secondly, the word 'offer' only appeared once in the letter of 26 October, and that was right at the end. What is "this offer" to which that penultimate paragraph makes reference? As a matter of construction, it can only be "the Claiming Parties' figure to settle this outstanding litigation [of] £20,100,000" referred to in the fourth paragraph of the letter. Thus the "offer" related solely to the overall figure, and not to all the other matters which would have to be agreed in order to compromise the litigation (such as costs, security, the status of and variations to existing court orders, the position of HMRC, the status of the separate bankruptcy proceedings, the other creditors in the bankruptcy etc).
60. The third reason why I consider that the letter of 26 October 2006 was intended to be the first stage in a settlement process, and not an offer capable of binding acceptance, can also be found in the fourth paragraph of the letter of 26 October. That talks about the payment of the £20.1 million in two tranches, £10 million being paid "within 30 days and the rest fully secured and paid within 18 months of the agreement". The reference to 'the agreement' suggests some further stage, some formal 'agreement', beyond any response to the letter itself. Moreover, the Defending Parties could not say that this reference to 'the agreement' automatically meant their simple acceptance of the offer of the overall figure: their own replies dated 1 November indicated merely that this was their assumption, and recognised that this might not be shared by the Claiming Parties.
61. Fourthly, after the letter of 26 October, and before its purported acceptance, there was the (fourth) discussion on 31 October which, as set out in paragraphs 48 and 49 above, demonstrated that both Mr Drukker and Mr Cartier were envisaging a further stage in the settlement process, even if the £20.1 million overall figure could be agreed. I have quoted there from Mr Drukker's attendance note which talked about the need for "a negotiating meeting round the table", and the detailed discussions as to when this might take place.
62. Fifthly, the pro-forma letter dated 1 November from the Defending Parties also talked expressly about the need to draw up the "terms of compromise" and made two separate references to the need for a Tomlin order. The second reference is in the context of discussions between counsel as to the precise terms of any agreement between the parties. Again, as a matter of construction, it seems to me that the Defending Parties were themselves saying that the simple exchange of letters was not sufficient to compromise the litigation and that a further negotiation/drafting exercise was going to be necessary.
63. In my judgment, confirmation of the fact that the parties cannot be taken to have intended to create legal relations by the exchange of these letters can be seen in the letter of 7 November from Mr Drukker (see paragraphs 53 to 55 above). That expressly referred to the need for the preparation of a full compromise agreement. One of the points expressly made in that letter was the need for appropriate variations to existing orders. That was entirely sensible, given that, for example, the Court of Appeal had required the Defending Parties to make a substantial payment into court to abide the result of the appeal. This sum had been paid, so agreement would be needed as to its payment out, and to whom the money in court was to be paid. There were also the numerous adverse costs orders made against the Defending Parties by His Honour Judge Thornton QC. It was inevitable that any compromise agreement would have to deal with all appropriate variations to all such orders, as well as the separate bankruptcy proceedings.
64. For all these reasons, therefore, I consider that, on a true construction of the letters, when seen against the relevant factual background, the parties did not intend to compromise this litigation simply by the exchange of letters. The parties all plainly envisaged further discussions, negotiations and the drafting of a detailed compromise agreement or court order. The agreement of the £20.1 million figure was simply the first stage, albeit an extremely important one, in that process.
65. This conclusion, of course, also explains a number of other elements of the dispute. For example, it is the Claiming Parties' case that Mr Drukker had the authority to write the letter of 26 October, but not to settle the case. That important distinction makes perfect sense when one understands that the Claiming Parties wanted him to indicate the £20.1 million figure in answer to Mr Cartier's questions of 13 and 23 October, and to start the settlement process, but they did not intend that such a letter was a composite offer capable of creating, without more, a binding compromise. They did not instruct Mr Drukker to write a letter that offered, without more, to settle the whole litigation and, in my judgment, the proper construction of the letter demonstrates that he did not do so.
66. Furthermore, just standing back from the detailed content of the letters for a moment, it seems to me that it would be contrary to commercial common sense to conclude that these two letters, which themselves contain a large number of uncertainties, arguments and unresolved matters, could be or were intended to settle such complex litigation. Of course, many cases can be settled by the simple exchange of letters of offer and acceptance. But given the heroically complicated nature of these proceedings, it simply defies logic to suggest that the litigation could be, let alone was, settled by the exchange of the letters of 26 October and 1 November.
67. For all these reasons, therefore, I conclude that the exchange of letters in late October early November 2006 did not create legal relations between the parties. The exchange represented an important start, because it identified - in answer to Mr Cartier's request - the total amount that the Claiming Parties would accept from the Defending Parties, provided it was accepted by 31 October. But, as was plain from a number of the relevant documents, it was the start, rather than the end, of the settlement process.

F2 No Agreement By The Trustee

68. There can, I think, be no doubt that the Trustee is a critically important party in the Thakrar litigation. It is her case that Subhash Thakrar is the beneficial owner of the shares in Glen and she therefore seeks, in his bankruptcy, to recover the assets of Glen. Glen are the only one of the Defending Parties with any substantial assets.
69. On behalf of the Defending Parties, Mr Jones QC puts forward two alternative (and diametrically opposed) positions regarding the Trustee and her connection with the alleged settlement. His primary submission was that the alleged settlement included a settlement of the Trustee's claims. In the alternative, if he was wrong about that, he maintained that it was open to the Defending Parties to settle the litigation with the other Claiming Parties, but not with the Trustee, thus leaving the action by the Trustee continuing.
70. I can deal shortly with that second argument, because it seems to me to be misconceived. The letter of 26 October, which Mr Jones QC relies on as an offer capable of acceptance in order to compromise the litigation, identifies the figure of £20.1 million as "a single figure which, if paid, would compromise all outstanding matters between the parties to this litigation". Accordingly, as a matter of simple construction, if this letter is to be given any legal effect as an offer, it could only have had such effect if all parties to the litigation were agreed both as to its terms and to the acceptance of its terms. It simply cannot be construed as an offer which, as Mr Jones QC argued, was being made by some (or even just one) of the Claiming Parties; neither, as a matter of construction, could it be accepted by some (or even just one) of the Defending Parties. As a matter of construction, it was not capable of being treated as an offer that was made, or was capable of acceptance, on a joint and several basis.
71. Accordingly, as a matter of construction, it was quite impossible for the Defending Parties to purport to accept the offer in the letter of 26 October, and then contend that the compromise thereby created did not include the Trustee. Indeed, it should be noted that they did not do so: the letters dated 1 November, and sent and received on 2 November, explained in terms why the Defending Parties were arguing that the Trustee was a party to the compromise.
72. Furthermore, that result, which is essentially a matter of construction of the two letters, is entirely in accordance with the factual background and commercial common sense. A settlement without the Trustee would have been completely unworkable. Given that none of the Defending Parties have any substantial assets except Glen, and given that, on this scenario, the Trustee's claim against Glen remained unresolved, the Defending Parties - without Glen - would simply not be able to pay the £20.1 million. Indeed, because of the freezing orders, they would not be in a position to make any payments at all to the Claiming Parties in purported settlement of the £20.1 million. The freezing orders would remain in place because, on this scenario, the claim brought by the Trustee had not been settled. Therefore, in my judgment it is fanciful even to suggest that this litigation could have been compromised without the Trustee.
73. Of course, as I have made clear in paragraph 69 above, that contention was Mr Jones QC's alternative argument. His primary position was that the settlement included the Trustee. He said that the Trustee had authorised the letter of 26 October and that the subsequent discussions on 31 October, and Mr Patel's email sent early in the morning of 2 November, did not affect the Trustee's position as one of the parties to the alleged compromise. At most, he said, the email from Mr Patel amounted to a 'condition subsequent' which did not affect the validity of the letters dated 1 November and received at 4.19 pm on 2 November. He contended that the Trustee had not withdrawn from the offer process.
74. I do not accept any of those submissions. It is clear that the Trustee was content for the letter of 26 October 2006 to be written: as I have already explained, this appears to have been an attempt to reach agreement as to the overall figure that would be accepted in respect of the Claiming Parties' claims, rather than an offer the acceptance of which would, without more, settle the whole case. But whatever the position as at 26 October, it is clear that the Trustee became concerned about the process and, on 31 October, those concerns were expressly made the subject of the detailed (third) telephone conversation between Mr Drukker and Mr Cartier (paragraphs 46 and 47 above). It was agreed by both men that the position of the Trustee had to be protected, because she could not settle her claims without confirmation of HMRC's position in the bankruptcy. Furthermore, were there any doubt about it, Mr Patel's email, received at 9.13 am on the morning of 2 November 2006 - namely, before any purported acceptance and therefore before any allegedly binding compromise - made clear beyond doubt that the Trustee "is not to be bound in any way" until there was a written compromise agreement which she had signed, and there was a Court order to that effect.
75. In my judgment, the email made it clear to the Defending Parties that, to the extent that they considered it to be an offer capable of acceptance, the Trustee was not bound by the letter of 26 October, and thus not bound by any purported acceptance thereof. That was the purpose of it, and the email makes no sense otherwise. The email did not say that, in some way, the Trustee agreed to be bound by the letter of 26 October (or any offer which it contained) and would subsequently seek retrospective permission from the Court to ratify any agreement based on the letter. Instead, the letter said that she will not be bound "in any way" by anything other than a written agreement which she had signed. In such circumstances, as both Mr Cranfield and Ms Giret QC separately submitted, the email amounted to a withdrawal by the Trustee from any prior offer, whether express or implied. She was no longer bound by the letter of 26 October and/or any purported acceptance of it. In the absence of a signed compromise agreement, the Trustee cannot be regarded as a party to any alleged agreement, and that means, for the reasons set out above, that there has been no settlement of this litigation.
76. Of course, on one analysis of the email, the Trustee was only putting in clear terms what I have already found to be the proper construction of the letter of 26 October, namely that it was not intended, on its own, to settle the Thakrah litigation, and that a detailed compromise agreement, signed by all parties, was always going to be required (see sub-paragraph F1 above).
77. As to the condition subsequent argument, it seems to me clear that neither the email of 2 November 2006, nor the earlier discussions on 31 October 2006, amounted to a condition subsequent. Mr Jones QC's argument in principle was, I think, that the compromise agreement remained binding unless "certain facts are ascertained to exist or upon the occurrence or non-occurrence of some further event, then the contract is to cease to bind": see Chitty on Contracts, 29^th Edition, para 12-030. But in my judgment, that puts the position in the present case the wrong way round. The authorities dealing with conditions subsequent, like Head v Tattersall [1871] LR 7 EX7, make clear that a condition subsequent arises when, at the time that the contract was entered into, the parties had agreed that, if X happened, or Y was shown to be wrong, the contract came to an end. Here, there was no contract in the first place, and no such agreement can be discerned from the exchange of letters on which the Defending Parties rely. The email did not say that the Trustee would be bound unless X happened; instead it said, without qualification, that she would not be bound at all unless and until she had signed a written agreement, which she has not done. As a matter of law, that is not a condition subsequent.
78. Furthermore, it seems to me that a proper construction of the Defending Parties' letters of 1 November 2006 supports my analysis that the Trustee was not bound by the alleged offer and acceptance. As I have already pointed out, the Defending Parties do not there suggest that, in some way, the Trustee was not or did not need to be a party to the alleged compromise. The letter instead acknowledged that the Trustee had endeavoured to change her position after 26 October, but sought to argue that this attempt at a change had no legal significance. That is the only meaning and purpose that can be ascribed to the paragraph that starts "As the Trustee …" set out at paragraph 52 above. As I pointed out in argument, it is a curious feature of the Defending Parties' case that the letters on which they rely, as an unequivocal acceptance of the purported offer of 26 October, themselves set out many of the arguments with which I have been concerned as to why there was in fact no such binding compromise. The paragraph in question is only explicable on the basis that the Defending Parties knew that the Trustee had changed her position and that, on its own, this change might well mean that there could be no compromise. Accordingly they were seeking to get their arguments in first, by seeking to suggest that the Trustee could not change her mind. Not only do I reject that submission as a matter of law, but I also find that, since the alleged acceptance letter included such a passage, it must have been clear to everyone that, even as at 2 November 2006, there was no binding compromise.
79. Accordingly, for this second independent reason, I am satisfied that there was no binding compromise. The Trustee was and is a critical party in the litigation. The Trustee was not bound by any agreement based on the letter of 26 October because, before any question arose of its acceptance, she had expressly stated that she was not so bound. Without the Trustee, there could be no settlement, for the reasons explained above. In my judgment, the Defending Parties were always in difficulties on this point, given that the pro-forma letter dated 1 November, on which they rely as an unequivocal acceptance of a complete offer, actually devotes a lengthy paragraph to trying to argue round this clear obstacle to a binding compromise.

F3 No Agreement On Tax Liability

80. The third independent reason why I have concluded that there was no binding compromise concerns the outstanding claim by HMRC in Subhash's bankruptcy. There can be no doubt that this was a vital matter – and was seen by all parties as a vital matter – which had to be resolved and agreed before there could be a binding compromise of the litigation. No such agreement was ever reached.

(i) The Importance of HMRC

81. The understanding that all parties had of the importance of HMRC in the settlement of this litigation can be demonstrated from a number of the documents that form part of the factual background. As set out in paragraph 39 above, on 13 October 2006, Mr Cartier wrote, to both HMRC and the solicitors for the Claiming Parties making it clear that HMRC had to be a party to any global settlement of the litigation, and that the extent of HMRC's claim had to be ascertained as part of that settlement process. Of course, neither of these things had happened by 2 November; indeed, they have still not happened. That perhaps eloquently demonstrates the difficulties with the Defending Parties' contention that, despite the absence of any agreement in respect of the HMRC, the litigation has somehow still been compromised.
82. Following the letter of 26 October there was the meeting on 27 October with Mr Palmer of HMRC. As set out in paragraph 42 above, I have found (and the notes of that meeting made plain) that Mr Cartier stated at the outset of that meeting that the key to unlocking the settlement of the case was the Inland Revenue. The importance HMRC was emphasised again during the third telephone conversation on 31 October 2006. As set out in paragraphs 46 - 48 above, I have found that, during this conversation, both Mr Cartier and Mr Drukker agreed that the vital thing was to resolve the position with HMRC so as to ensure, as Mr Drukker's attendance note put it, "that the Revenue is satisfied as early as possible".
83. In other words, there can be no doubt that, on 2 November 2006, when the Cartier letters were received by Mr Drukker, all parties were agreed that the claim by HMRC was a fundamental matter which had to be resolved as part of any binding compromise of the litigation. I find that they were right to have reached such a conclusion. Until HMRC's claim had been met, the Trustee could not wind up the estate. The question then becomes: did the compromise agreement, on which the Defending Parties now rely, settle the question of HMRC's claim in a way that was enforceable? The answer to that question is in the negative for two separate reasons.

(ii) The Uncertainty of the Letter of 26 October 2006

84. The letter of 26 October 2006 made plain that the £20.1 million did not include for any provision for payment of any tax due to HMRC. It made no proposals as to who would pay any such tax liability. The position was left therefore entirely uncertain, despite the importance of the matter. This, of course, is explicable by the fact that the letter of 26 October 2006 was an attempt to agree a global figure to compromise the claims being made by the Claiming Parties, as a first stage to an overall settlement. This left over the potential liability of Party 7 or Party 14 to HMRC, which was a matter which was still being discussed, and was not a matter within the direct control of the Claiming Parties.
85. I accept Mr Cranfield's submission that this uncertainty continued right up until the end of the hearing before me of the compromise issue. Mr Jones QC, on behalf of Glen, submitted in his closing submissions that the exclusion of the HMRC claim from the letter of 26 October somehow clearly conveyed to the Defending Parties that they would have to satisfy HMRC, in addition to paying the £20.1 million. With great respect to Mr Jones QC, that is simply not an argument available to him on the true construction of the words in the letter of 26 October. There is nothing in the letter which suggests that. The Claiming Parties may have wanted such sums to be paid by Glen, and Mr Drukker gave evidence to that effect, but there is nothing in the letter which suggests that this was a matter which formed any part of the purported offer of 26 October. To demonstrate this central uncertainty Mr Sen, in his closing submissions on behalf of some of the other Defending Parties, maintained a position that was the complete opposite to that advanced by Mr Jones QC, and argued that if the letter of 26 October had to be read as meaning '£20.1 million plus whatever liability accrues to HMRC' "it would amount to a complete re-writing of the offer". As a matter of construction, I consider that Mr Sen was probably right about that, but this conflict between the Defending Parties as to the meaning of the offer demonstrated that this important matter was left wholly uncertain by the exchange of letters.
86. Accordingly it seems to me that, on the true construction of the letter of 26 October, the position in relation to HMRC was left wholly uncertain. The letter did not address the point either way. The diametrically-opposed contentions advanced by certain of the Defending Parties at the hearing eloquently demonstrated the uncertainty of this part of the letter. It could not therefore form the basis of a binding compromise.

(iii) The Absence of Agreement on a Material Term

87. At paragraphs 81-83 above I have set out the reasons why I consider that the position of HMRC was, and was regarded by all parties as being, a fundamental matter which had to be resolved as part of any overall compromise of the litigation. If I am wrong to conclude that the offer of 26 October 2006 was uncertain, then that could only be because this vital matter had been excluded from the offer altogether. In such circumstances, there could be no clearer example of the absence from an alleged agreement of a material term which prevented there being a binding compromise. Everyone, particularly Mr Cartier, was aware that the position of HMRC had to be resolved as part of the overall settlement; indeed, he himself described it as "the key" to that settlement. It was plain that the Trustee could not compromise her claims without the resolution of HMRC's own claim in the bankruptcy. If the offer of 26 October 2006 was clear and beyond doubt, it could only have been so because it completely excluded any reference to HMRC's claim, which then became a matter which, as Mr Sen frankly put it in his closing submissions, had to be resolved at a later date. Given its significance, the absence of any agreement as to the payment of outstanding tax to HMRC is therefore another reason why there can have been no compromise by the exchange of the two letters. Until the tax liabilities had been quantified, and either the Defending Parties had agreed to meet that quantified tax liability, and demonstrated that they could pay it, or some other agreement had been reached in respect of such liabilities, the litigation could not be compromised. The absence of this material term was therefore another reason why the exchange of letters did not compromise this litigation.
88. Finally, I should deal with a point made by Mr Cranfield, to the effect that the discussions on 31 October 2006 (paragraphs 43 – 49 above) had introduced entirely new terms of any offer (as to: (i) the need for any settlement to protect the position of the Trustee, and (ii) the need to make proper provision for HMRC's tax claim) which proposed terms were not mentioned, far less accepted, in the subsequent letters of 1 November. He said that this demonstrated that the most that happened was an agreement to agree, based on the overall figure of £20.1 million. Whilst it seems to me that this argument simply puts the points I have already covered in sub-paragraphs F2 and F3 above in a slightly different way, I agree with his analysis that, even if (which I do not accept) the offer of 26 October had been capable of being accepted before the discussions on 31 October, so as to effect a binding compromise of the litigation, that was no longer the position following the introduction of these further terms, which were not addressed at all in the purported acceptance letters. There was therefore never any coincidence between offer and acceptance (because, at the very most, the Defending Parties accepted an offer that had been superseded, and they never accepted the modified offer that had replaced it). There was thus no binding compromise.

F4 "Fully Secured"

89. The point made in paragraph 87 above, that the Defending Parties would have to be able to demonstrate that they could pay any tax liability that might arise, is of even more relevance to their ability to pay the £20.1 million. I am aware that, during the history of this litigation, there have been repeated concerns raised about the funding of the Defending Parties, and the absence of any security to meet the many orders that have been made against them. The Claiming Parties' ongoing concerns about the need to ensure that the Defending Parties provide proper security found clear expression in the letter of 26 October 2006 when, in dealing with the second proposed instalment payment of £10 million, Mr Drukker writes that this had to be "fully secured".
90. Mr Cranfield submitted that this was another material term which was not clearly defined in the letter of 26 October 2006, and which needed to be fully and properly spelt out and agreed before a binding compromise could come into effect. He pointed out that there was no discussion about, let alone agreement, as to what might constitute "full security". He argued that it was wholly unclear whether what would be necessary were first charges on the properties themselves, or some other form of security, and whether any of the individual Claiming Parties might require, for themselves, a particular form of security.
91. It is clear to me that, in the circumstances of this case, the parties had to agree the detailed provision of security by the Defending Parties – the precise form of that security - before it could be said that a binding compromise had been achieved. There are three matters of background/construction on which that conclusion is based.
92. First, there are the agreed facts relating to the first telephone conversation on 31 October between Mr Cartier and Mr Drukker. It is agreed that, during that conversation, Mr Cartier asked Mr Drukker whether the Claiming Parties would be prepared to 'move' on the issue of whether there could be an agreed order of priorities for the properties to be secured. This suggestion reflected the practical difficulties that the Defending Parties were going to have in order to provide security for such a large sum, given that the properties which would have to be sold in order to pay off the Claiming Parties represented the only real security that the Defending Parties could proffer. The need to provide security therefore presented a very real difficulty to the Defending Parties, which was why Mr Cartier was endeavouring to negotiate on it. However, this point had not been discussed further (let alone resolved) by the time that the purported acceptance letters had been sent on 2 November. The fact that it was raised in this way by Mr Cartier on 31 October demonstrated clearly that this was an important matter that had to be agreed before the litigation could be compromised.
93. Secondly, in the purported acceptance letters sent on 2 November 2006, the Defending Parties themselves acknowledged that the question of security would have to be the subject of further negotiation. Although there is a suggestion in those letters that the words "fully secured" could be given effect as ordinary English words, the letter goes on to say that, when the Tomlin order was drafted, "counsel will be willing to discuss with your counsel the precise form of charge or other security which will satisfy that specific term". That seems to me to demonstrate that the Defending Parties were aware that the provision of full security in this particular case was not going to be a straightforward matter, and was inevitably going to have to be the subject of further discussion and debate.
94. Thirdly, I note that the reply to that letter of 7 November 2006 deals in detail with the security point and states in terms the Claiming Parties' concern that, if the properties were sold to support any loan taken out by the Defending Parties to pay the initial £10 million, this will "of course dilute the security". I find that, in those circumstances, it is entirely unsurprising that Mr Drukker expressed the view that "this issue will need to be resolved as part of the process of establishing acceptable security".
95. Mr Jones QC's only real answer to this was to say that "full security" did not require further elaboration, because it was merely the opposite of "partial security". With respect, I think that makes the very point on which the Claiming Parties rely: until the details of the security had been agreed, it was always likely that, in this case, there would be a dispute as to whether any security proposed by the Defending Parties could be described as full, or only partial. That was why, in my judgment, the matter had to be agreed in detail before a binding compromise was effected.
96. Of course I accept that there can be circumstances in which an agreement, couched in relatively general terms, is enforceable by the court, and that an argument as to the ways in which such general terms might be met is an argument about breach, rather than whether or not there was an agreement in the first place. However, each agreement is different and each has to be considered against its own factual background. In the circumstances of this case, given the long and sorry history of the litigation and the failure on the part of the Defending Parties to meet the many orders made against them, I reject the contention that an agreement to the words "fully secured" was, without more, an enforceable or workable agreement. There was nothing in the letters that could help to ascertain how full security might be achieved. There was merely the clear statement by the Defending Parties in the acceptance letters that this would have to be discussed further. In my judgment, the parties needed to have a detailed agreement as to the security to be provided by the Defending Parties before the litigation could be compromised and without such agreement, there could be no such compromise. Again, therefore, the proposed compromise was either too uncertain to be enforceable or, alternatively, there was a material term (precisely how any security could be provided which would be acceptable to the Claiming Parties as "full") which had not been agreed.
97. To put this point in another way, it seems clear to me that the Claiming Parties were entitled to expect, if the base figure of £20.1 million was accepted, to then go on and discuss and agree detailed terms relating to the provision of full security. That is the proper construction of the letters. That was therefore yet another way in which the letter of 26 October 2006 was a first stage in settling this litigation, but not an offer the acceptance of which would automatically result in a binding compromise.

F5 The Position of Shantaben Thakrar (Party 13)

98. The fifth, separate reason why I have concluded that there was no binding compromise between these parties concerns the position of Party 13, Shantaben. Shantaben's position is of particular importance to Party 4 (Ms Harris) because Ms Harris is the only Defendant in the nine Thakrar family actions. She is, therefore, the only Defendant to the claim brought by Shantaben (HT-01-333). All the claims against Ms Harris personally were dismissed by consent, and those against Neil's estate were dismissed in the judgment at the end of the first trial on 29 September 2004 (paragraphs 10 and 11 above). Joint and several costs orders were made on 29 December 2004 against Shantaben and all her children. These are supported by freezing disclosure and other execution orders.
99. In many ways, I consider that the position in respect of Shantaben is entirely straightforward. As set out in paragraph 41 above, the letter of 26 October 2006 put forward a figure which, if paid, "would compromise all outstanding matters between the parties to this litigation". Accordingly, as far as Ms Harris was concerned, if this was an offer pursuant to which she was capable of being bound, the offer would have had to have been accepted by all the Defending Parties, including Shantaben, within the period stipulated for acceptance. It is common ground that it was not so accepted by Shantaben. In my judgment, there has therefore been no binding compromise, because one of the Defending Parties did not agree to the terms of the offer.
100. Notwithstanding that clear-cut position, Mr Jones QC, Mr Howard and Mr Sen each put forward (rather different) estoppel arguments which, they said, had the effect of preventing the failure of Shantaben to agree to the offer from scuppering what they said was a binding agreement. Although these arguments explored the wilder shores of the law of estoppel, I am in no doubt that they were wrong both as a matter of fact and as a matter of principle. However, given the large amount of time devoted to them, I need to set them out in some detail.
101. It appeared to be the Defending Parties' position that, at the time of the letters of 26 October 2006 and 1 November 2006, there was uncertainty as to whether or not Shantaben had the capacity to act as a party in the litigation. The Defending Parties said that this uncertainty existed on both sides until some time after the time limit for acceptance of the offer had expired, so that, in some way, the Claiming Parties are now estopped from relying on Shantaben's failure to agree to the offer in support of their contention that there was no binding compromise.
102. The agreed facts relating to Shantaben were as follows:

a) On day 15 of the fact-finding trial in front of Judge Thornton (28 July 2006) Party 11 (Sheela) who held Shantaben's power of attorney, gave evidence to the effect that Shantaben had no knowledge of the orders and judgments against her and knew nothing of other material aspects of her affairs and their management;

b) On 21 August 2006 Judge Thornton ruled and directed that Shantaben's then Counsel consider whether the Court should invite the Official Solicitor to consider intervening on her behalf;

c) On 4 September 2006 Counsel for Parties 8-13 informed the Court that he was no longer representing Shantaben. On that day a solicitor (Mr Mashru of Sohal & Co) was present on her behalf;

d) On 7 September 2006 Mr Mashru informed the Court and the parties that he would no longer be able to represent Shantaben;

e) Having obtained further information, on 14 September 2006, the Court directed that both Party 4 and Mukesh (Party 8) contact the Official Solicitor stating the Court's concerns as to the possible litigation incapacity or disadvantage of Party 13;

f) On 3 October 2006 Judge Thornton directed the Thakrar Family Members who held powers of attorney for Shantaben to inform the Official Solicitor "what the factual position was with regard to the existence of the power of attorney, whether it was still regarded as being live, and whether the holder or holders are, as they see it, acting under the power of attorney in relation to the litigation";

g) On 6 October 2006 the Deputy Official Solicitor visited Shantaben and interviewed her via an interpreter and with Sheela present;

h) On 9 October 2006 the Court directed the Official Solicitor to report to the Court in writing via email and, subject to any objections the Official Solicitor may have on grounds of confidentiality, to Party 4's legal representatives, who were to forward the same promptly to Parties 1-6 and Parties 7-13;

i) The following day, 10 October 2006, a draft of that order was circulated to all representatives and parties on the email circulation list, which included Parties 8 and 9 and Mrs Kiran Thakrar, the wife of Subhash and a Director of Party 16;

j) By an email dated 11 October 2006 Party 4 was informed by the Court of Appeal that Parties 8 - 13 "have now asked for their appeals to be heard urgently". At the same time, Kiran Thakrar sent an email to the Court copied to the parties, asserting that the Official Solicitor's report was confidential to Judge Thornton and objecting to the draft order of 9 October 2006 that it be circulated before the Thakrar Family had considered it;

k) This objection was maintained on 16 October 2006 although, on 1 November 2006, Party 4 was informed by the Court that the Judge's Order of 9 October 2006 had been approved and sealed. That order was then circulated by Party 4 on 2 November 2006 by email;

l) On 8 November 2006, in answer to an enquiry from Judge Thornton, the legal representatives of Glen and Harjivan stated in terms that Shantaben had not been approached to consent to the offer. They said that it was understood that "she would simply drop out of the picture";

m) On 15 November 2006 Mukesh said that Sheela did not regard herself as properly able to rely on her power of attorney to enter into any engagement on Shantaben's behalf. He went on to make clear in his email that "no-one claims that Shantaben has entered into the agreement";

n) On 16 November 2006 Mr Howard, acting for Subhash, sought a copy of the OS report and that was dispatched to him that morning;

o) On 5 December 2006, Sheela on behalf of Shantaben indicated that she adopted the points of claim in the compromise issue. In an earlier letter dated 20 November, Sheela purported to inform Judge Thornton that Shantaben would accept the terms of the offer. By then the time for acceptance of the offer had expired. Moreover, there has never been any confirmation of this by Shantaben herself.

103. The report of the Official Solicitor said that Shantaben may well have the capacity to play her part in the litigation.
104. The first point for me to decide is whether, as a matter of law, the alleged uncertainty over Shantaben's capacity could have had any significance in respect of the alleged compromise. In my judgment it did not. In the leading case on capacity, Masterman-Lister v Brutton & Co (Nos.1 & 2) [2003] 1 WLR 1512, Kennedy LJ said:

"It is common ground that all adults must be presumed to be competent to manage their property and affairs until the contrary is proved, and that the burden of proof rests on those asserting incapacity. Mr Langstaff submitted that where, as in the present case, there is evidence that as a result of a head injury sustained in an accident that doctors who have been consulted agree that for a time the plaintiff was incapable of managing his property and affairs he can rely on the presumption of continuance. That I would not accept. Of course, if there is clear evidence of incapacity for a considerable period then the burden of proof may be more easily discharged, but it remains on whoever asserts incapacity."

105. Accordingly, it seems to me that Mr Barker was right to maintain on behalf of Ms Harris that, throughout the relevant period, that is to say late October/early November 2006, the presumption was that Shantaben was competent, and therefore could have entered into the agreement (if that is what it was) had she chosen to do so. Happily, that presumption also appears to reflect the position as set out in the Official Solicitor's report.
106. In those circumstances, it seems to me that the fact that the Defending Parties may have considered that her capacity was uncertain is nothing to the point. Whatever their concerns (and it appears that any concerns originated with Judge Thornton rather than the Family Members) the presumption in law was clear: Shantaben had the required capacity unless the contrary was proved. There was thus no reason for treating Shantaben in any different way to the other Defending Parties. For there to have been a binding compromise, she was therefore required to accept the offer in the stipulated period, which she failed to do.
107. Now assume that I am wrong about that and that, in some way, it could be shown that, at the relevant time, both the Claiming Parties and the Defending Parties were uncertain as to her capacity. In my judgment, such a situation could not begin to suggest any form of estoppel. There was no communication by one side to the other of any shared assumption or common ground as to the possible incapacity of Shantaben. There was thus no "crossing the line" between the parties of the type required in law: see, for example, Compania Portorafori Commerciale SA v Ultramar Panama Inc (The Captain Cregos) (No.2) [1990] 2 Lloyds Rep 395, 405; The Vistafijiard [1988] 2 Lloyds Rep 343; and para 3-109 of Chitty on Contracts 29^th Edition, Vol 1.
108. In addition, even if that were also wrong, and there was some sort of shared and communicated view that Shantaben may lack capacity, I simply fail to see how such that could be turned into an estoppel, pursuant to which the Claiming Parties are now prevented from arguing that the entirety of the case has not been settled, despite the fact that the absence of Shantaben meant that one of the key Defending Parties relevant to Ms Harris was not a party to the agreement at all. As I reminded Counsel during argument, estoppel is an equitable remedy and designed to prevent unfairness. In my judgment, in the present dispute, the boot is on the other foot, and it would be manifestly unfair to suggest to Ms Harris that, because of the uncertainty over Shantaben's capacity, she had compromised her position in the litigation by reference to a purported offer and acceptance which somehow excluded one of the most significant parties, from her perspective, in the litigation. Action HT-01-333 could not be settled without Shantaben's agreement.
109. In my judgment, for any sort of estoppel argument to work here, the Defending Parties would have needed evidence that the Claiming Parties assumed or believed that Shantaben did not have to sign up to the purported agreement, or was somehow excluded from the consequences of the exchange of letters, and that this assumption or belief had been communicated to and shared/relied upon by the Defending Parties as at 2 November 2006. Of course, there was no such evidence. There was, therefore, no sustainable estoppel case.
110. In all those circumstances, I have concluded that the estoppel case was unsustainable. Accordingly, it is unnecessary for me to deal in any detail with the refinement of the estoppel case, advanced by Mr Jones QC (but not by Mr Howard) which suggested that the estoppel arose because the Official Solicitor's report had not been circulated to the relevant parties in the latter part of October 2006. Given that Kiran, a representative of one of the Defending Parties, had complained about the circulation of the report and effectively prevented it from being circulated, this point seemed to me to demonstrate rather neatly the paucity of the estoppel argument. In effect, the Defending Parties are having to rely on an alleged breach of an order (the failure to circulate the Official Solicitor's report) which they themselves induced (through Kiran's protesting email) in order to say that, in some way, the absence of Shantaben from the allegedly binding agreement was an irrelevance. For the reasons which I have given, I reject any such case.
111. Finally, on the issue of Shantaben, I should say that, in the context of this particular case, the fact that she was not a party to the alleged compromise was obviously fatal to the Defending Parties' application. This litigation has a tortuous history, in which allegations have already been made that one or more of its many parties did not know about, or was not bound by, the court's decisions. A binding compromise, to be workable, had to involve all parties. Even if (which I do not accept) the exchange of letters could have given rise to such a compromise, the absence of the Trustee from one side, or the absence of Shantaben from the other, were equally fatal to the case that the litigation has been finally compromised. Of course, the absence of both of them, as I have found, made the Defending Parties' position untenable.

F6 Other Matters

112. I should say that the Claiming Parties took other points, in addition to those at sub-paragraphs F1 – F5 above, in support of their contention that, in all the circumstances, the exchange of letters in October/November 2006 did not amount to a binding compromise. In the light of my findings in those sub-paragraphs, and the length of this Judgment already, I decline to express a view on those further points. I am, however, confident that I have dealt above with all the most important reasons put forward by the Claiming Parties as to why no binding compromise was effected by the exchange of letters.

F7 Conclusion

113. For the reasons set out above, I have concluded that there was no binding compromise reached by all the parties, and that, in such circumstances, this litigation was not resolved by the exchange of letters in late October/early November 2006. As noted above, that was the conclusion which I indicated to the parties at the end of the oral argument on 24 January 2007.
114. All questions of costs, and the precise form of the order now to be drawn up, will be dealt with when this Judgment is formally handed down on 20 February 2007.

Note 1    The sole surviving Executrix is Barbara Harris (“Ms Harris”, Party 4).    [Back]