The Judicial Committee of the Privy Council Decisions

Sentinel International Ltd v. Cordes (The Bahamas) [2008] UKPC 60 (08 December 2008)

Privy Council Appeals No 34 and 54 of 2007

Sentinel International Limited Appellant

v.

Robert E. Cordes Respondent

and

Robert E. Cordes Appellant

v.

Sentinel International Limited Respondent

FROM

THE COURT OF APPEAL OF

THE BAHAMAS

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL

Delivered the 8^th December 2008

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Present at the hearing:-

Lord Hoffmann

Lord Scott of Foscote

Lord Walker of Gestingthorpe

Lord Neuberger of Abbotsbury

Sir Jonathan Parker

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[Delivered by Lord Walker of Gestingthorpe]

The issues in outline

1. This appeal by Sentinel International Ltd ("SIL") and cross-appeal by Mr Robert Cordes arise out of a written contract dated 11 April 2000 for the sale by Mr Cordes to SIL of 90% of the shares in Management and Service Company Ltd ("MASCO"). SIL is associated with Sentinel Bank and Trust Company Ltd ("SBTC"). MASCO, SIL and SBTC are all Bahamian companies, MASCO being based in Freeport (on the island of Grand Bahama) and SIL and SBTC being based in Nassau (on Providence Island).
2. The general effect of the contract was that SIL was to pay $750,000 on completion, when share transfers and share certificates in respect of a 90% holding in MASCO were to be handed over, but a proportionate part of the holding was to be hypothecated to Mr Cordes as security for the unpaid balance of the purchase price. This balance of the total purchase price of $2,304,804.75 (some of which represented interest) was to be paid by instalments on the first, second and third anniversaries of the date of completion. Mr Cordes was to remain a director of MASCO for three years at an annual fee of $50,000. He was also to receive monthly fees paid by a particular client but these were to be credited against the unpaid instalments of the purchase price. Other directors were to be appointed to the board of MASCO as SIL should direct.
3. What actually occurred on and after 11 April 2000 differed in several respects from what the contract provided for. It will be necessary to look in some detail at some of the events between April 2000 and August 2001. At this stage it is sufficient to say that (for reasons that will appear) Mr Cordes did not transfer any shares to SIL or provide SIL with any share certificates. SIL did not pay the second instalment of the purchase price ($370,625) to Mr Cordes on the first anniversary, or at any time thereafter. Relations between the parties became increasingly contentious and SIL and Mr Cordes, on 2 and 3 August 2001 respectively, sent each other communications (one a registered letter which did not arrive until 10 August, and the other a fax which was received at once). There has been much argument about the correct legal analysis of the effect of these communications. Indeed it is central to the appeal. The cross-appeal (which arises only if the appeal fails) is concerned with the quantum of damages.
4. SIL commenced proceedings against Mr Cordes on 26 September 2001, its primary claim being for the sums of $750,000 (the first instalment) and $202,500 (fees payable to MASCO and appropriated towards the second instalment). Mr Cordes counterclaimed for damages for breach of contract.
5. On 9 June 2005, after a three-day trial during May 2005, Longley J awarded SIL $750,000, with interest, on its claim, and dismissed the counterclaim.
6. On 24 January 2007 the Court of Appeal allowed Mr Cordes's appeal but held (by a majority, that is Ganpatsingh and Osadebay JJA) that he was entitled to only nominal damages of $100. Dame Joan Sawyer P concurred in allowing the appeal but would have awarded Mr Cordes damages to be assessed "on the basis of his loss of income". The majority of the Court directed the repayment to SIL of $750,000 without interest and made a direction (in para 50 of the judgment of Osadebay JA) for the repayment of "bank account balances of MASCO's clients transferred to SIL by [Mr Cordes] pursuant to this failed transaction." The President did not dissent from these parts of the majority judgment. Before the Board counsel are agreed that the para 50 direction (which was not sought by either side) was inappropriate, and it is unnecessary to make any further reference to that point. Nor is there any outstanding issue on the sum of $202,500 which was part of the claim at first instance.
7. SIL now appeals to the Board, and Mr Cordes's cross-appeals (in fact Mr Cordes was the first to get leave to appeal, but SIL was the first to act on the leave, and in any event SIL's appeal is logically the first that needs to be decided). SIL submits that the Court of Appeal was wrong to hold that it was guilty of a repudiatory breach of contract, in particular by failing to pay the second instalment of the purchase price. Mr Cordes resists this and submits by his cross-appeal that he is entitled to substantial damages for loss of a bargain as a result of SIL's repudiatory breach of contract.

The facts: down to 11 April 2000

8. Mr Cordes has owned MASCO since 1978. Before that he had worked in the financial sector as an employee of the Grand Bahama Port Authority. His evidence was that MASCO was virtually dormant when he took it over and that he built it up over the years, providing corporate management and associated services to quite a large number of clients (in his evidence he gave the number as 233). Mr Cordes's wife (Mrs Wenche Cordes) was a director but took no active part in the business. His daughter Karin Sanchez, a qualified attorney, worked with him in the business. Ms Sanchez was intended to receive the 10% of the MASCO shares not sold to SIL, but her evidence at trial was that they had not yet been transferred to her.
9. In 1999 Mr Cordes, having run MASCO for more than 20 years, wished to take life more easily, and began looking for a purchaser for MASCO. He had discussions with an attorney, Mr Emanuel Alexiou of Alexiou, Knowles & Co. That firm had an office in Freeport, but its main office, where Mr Alexiou was based, was in Nassau. Mr Alexiou had for some years acted as Mr Cordes's attorney, and in the Court of Appeal the President dealt at length with the professional implications of Mr Alexiou having acted for STDC and SIL without ensuring that Mr Cordes received separate advice. That is not an issue before the Board. But it may help to explain the informality and indeed muddle which attended the completion of the contract.
10. At some time in 1999 Mr Alexiou told Mr Cordes that he had a client who might be interested in acquiring MASCO. In August 1999 Mr Cordes wrote to Mr Alexiou with quite a lot of information about MASCO. Nothing much happened until December 1999 when Mr Cordes wrote again saying that a Nassau bank was seriously interested in the acquisition. Negotiations with Mr Alexiou then began (they were not, it seems, prolonged or difficult) and a draft agreement was prepared by Mr Alexiou and approved by Mr Cordes. At this stage the purchaser was to be STBC and the completion date was to be 31 March 2000.
11. However Mr Alexiou and his clients in the Sentinel Group failed to get approval from the Central Bank of the Bahamas for STBC to acquire the MASCO shares. This led to a last-minute change of plan of which Mr Cordes (according to his evidence) was not aware until Mr Alexiou arrived at his office in Freeport on 11 April 2000 with a new contract under which the new purchaser was not STBC, but SIL. Mr Cordes had prepared share certificates and a directors' resolution approving share transfers in favour of STBC, but he was told by Mr Alexiou that they were not what was needed under the new contract. Mr Cordes seems to have accepted this without protest. He does not seem to have made any enquiries about the status or capitalisation of SIL, a company of which he knew nothing (in his re-examination [132] Mr Alexiou said, in reply to some leading questions, that it did not make a difference since Mr Cordes knew nothing about STBC either.)
12. SIL's position has been, throughout the litigation, that Mr Cordes has been in breach of contract since the very day it was signed, because he failed to hand over or tender transfers and certificates in favour of SIL (a company of which he knew nothing until Mr Alexiou produced the revised form of contract). Once the facts are known, it can be seen to be an unattractive position, especially as Mr Cordes had no independent adviser on hand at completion. His evidence was that thereafter the defect was simply overlooked, that he would readily have complied if he had been asked, and that from 11 April 2000 he regarded Mr Alexiou (on behalf of SIL) as his boss. But in the event SIL and its advisers never made any written demand or request, formal or informal, for completion of the outstanding documents, and there was no convincing evidence of any oral request (the trial judge made no finding on this point).

The contract

13. The contract as executed seems to have been adapted from an earlier draft, intended for a sale to STBC, and with the completion date specified as 31 March 2000. Clauses 3 and 4 were in the following terms:

"3. Completion of the purchase and the sale of the MASCO Shares shall take place in the City of Freeport, Grand Bahama on or before the 31^st day of March, AD 2000 (hereinafter referred to as 'the Completion Date') and time shall be deemed to be of the essence.

4. Upon the Completion Date the Vendor shall deliver to the Purchaser the Certificates for all the MASCO Shares together with duly executed transfers thereof in favour of the Purchaser or as the Purchaser shall direct. The Purchaser will then hypothecate back to the Vendor an appropriate amount of shares to secure the balance of the purchase price and the Vendor agrees to release shares back to the Purchaser from under the hypothecation as and when and in such amounts as represent payments that have been made by the Purchaser to the Vendor at that time."

Clauses 5 and 6 contained further subsidiary obligations to be performed by Mr Cordes on completion.

14. It will be apparent that the contract was incapable of performance according to its strict terms, quite apart from the last-minute introduction of SIL, because it was entered into eleven days after the specified completion date, time being of the essence of the contract. Clause 11 provided:

"11. If this Agreement is not completed on or before the Completion Date it shall nevertheless continue in full force and effect unless one of the parties hereto shall serve upon the other a Twenty-one (21) day written notice to complete (as to which time shall be deemed to be of the essence) and the party served shall at the end of the Twenty-one (21) days after receipt of such notice have failed to complete in accordance with this Agreement."

The clause also contained a provision for service of notices. Clauses 13 and 14 provided for the normal consequences of non-compliance with a notice under Clause 11.

15. Clause 16 provided:

"16. Upon the execution of this Agreement the Vendor shall give to the Purchaser and the Purchaser's authorised representatives all facilities for inspecting MASCO's account books, records, contracts, commitments and any and all other documents and will furnish the Purchaser with all such information concerning MASCO's affairs as the Purchaser may reasonably request."

Apart from the provisions as to directorships already mentioned, no other clause provided for the way in which MASCO's business was to be run after completion. That was, it seems, to be left to the control which SIL as majority shareholder, and its nominees as the majority of the directors, would exercise in the normal way under MASCO's articles of association.

The facts: April 2000 to August 2001

16. On 12 July 2000 Mr Cordes commented, in the course of a long letter to Mr Alexiou,

"Since we didn't have a formal Closing we need to clean up the Share issuance, change of Officers and Directors, new banking resolutions, and so on. We could work on it as time permits, (which it rarely seems to), but don't know if anything is apt to change because of anything else pending in Freeport?"

There was no recorded response to this comment. But Mr Cordes and his wife did sign a resolution "effective 31 March 2000" appointing as directors of MASCO Mr Alexiou, Mr James Campbell and Mr Anthony Ferguson (all part of Sentinel group's management team) together with himself and Ms Sanchez. His evidence was that this was signed two or three months after the contract was signed. But, according to his unchallenged evidence, he simply overlooked the need to transfer the shares to SIL and issue new certificates. Both he and the management of SIL acted as if those steps had been taken. Mr Cordes, as already noted, regarded Mr Alexiou as his boss. Mr Alexiou took the same view: he regarded SIL as being the 90% shareholder, for instance in the answers that he gave in cross-examination about his letter of 29 January 2001, in which he sought to renegotiate Mr Cordes's remuneration.

17. The fact that both sides overlooked this matter for so long may be surprising, but it becomes less surprising if it is considered by contrast with the matters on which overt differences of opinion did develop, and against the general background of what was happening in the financial services industry in the Bahamas during 2000 and 2001. Apart from Mr Alexiou, the Sentinel group management concerned in the acquisition of MASCO—notably Mr Smith (the Chairman of STBC) Mr Grelecki (the Chief Executive Officer), Mr Ferguson (a financial analyst) and Mr Maharaj (a financial controller)—were bankers and businessmen, not lawyers. They were interested in MASCO principally because of its client list (a recurring theme throughout the evidence). In particular, they wanted to achieve the transfer to STBC of bank accounts belonging to clients of MASCO (accounts in respect of which Mr Cordes was a signatory) in order to increase STBC's deposit base.
18. Mr Cordes accepted this in principle, but he frequently pointed out that long-standing clients would not take kindly to accounts being transferred to a new bank without their knowledge and approval (whether or not their approval was strictly required by the contractual relations between MASCO and its clients). Mr Cordes also frequently complained of having insufficient information about STBC to supply to his clients. For two of his largest clients, one from Vancouver and the other a Zurich firm referred to as EIL, Mr Cordes did arrange for meetings with STBC but according to Mr Cordes neither meeting was a success. The trial judge made no finding about these incidents but the conflicting evidence reflects the matters which were the parties' real concerns during the second half of 2000 and the first half of 2001. Some of the relevant material is in SIL's own internal documents.
19. These concerns were exacerbated by more general upheavals in the financial services industry in the Bahamas. During 2000 the Commonwealth of the Bahamas was blacklisted by the Organisation for Economic Co-operation and Development because of the deficiencies of its regulatory system for financial services. The Bahamas government and legislature reacted promptly, introducing and passing a number of new regulatory statutes which placed new burdens on the industry. At the same time clients were withdrawing funds from the Bahamas. In addition the dot-com bubble was bursting in the USA and elsewhere. EIL was particularly hard hit and MASCO (which had been getting $17,500 a month from EIL) suffered in consequence.
20. Towards the end of 2000 SIL (or another Sentinel group company) acquired another financial services company in Freeport, Chancery Corporate Services Limited ("Chancery"). The staff of MASCO were told to move into offices next door to Chancery's offices, and they did so. Ms Sanchez moved in to share an office with a partner called Jennivere, to get to know the Chancery clients, and another partner of Chancery, David Mackie, worked with Mr Cordes to get to know MASCO's clients. MASCO's computer and telephone systems were integrated with those of Chancery.
21. Some of the evidence suggests that Mr Mackie was seen as a likely successor to Mr Cordes (who wanted to retire, but seems to have been working as hard as ever). Under the contract Mr Cordes had the obligation of serving as a director of MASCO until 2003. The whole issue of how and by whom his successor would be chosen and trained seems to have been insufficiently addressed on both sides.
22. On 29 January 2001 Mr Alexiou wrote to Mr Cordes a long letter suggesting that the latter should accept a reduction in his remuneration from MASCO. Mr Cordes replied on 5 February 2001 that he was reluctant to agree. His letter included these paragraphs explaining his position:

"When you first raised the matter in November I was reluctant to agree to a reduction for several reasons. First, I felt little or no progress was being made in having me replaced and a reduction in cost certainly wouldn't add incentive. Then, due to several unrelated factors, I was spending more hours than ever at work and considering the remuneration was substantially less than when I owned the company it didn't make much sense. By October the Swiss fund [EIL] had felt the toll of the market decline and our management group reluctantly forgave a performance fee earned, but not collected, which for my portion was in the seven digit range. This didn't help my retirement fund but to show good faith I reduced my MASCO monthly draw by $5,000 retroactive to April 1, 2000 and to say the least was somewhat surprised and disappointed to find it wasn't well received.

It probably doesn't matter but I don't agree $72,000 is a reasonable wage for an experienced manager. I know salaries here are considerably lower than Nassau but when I last reviewed this several years ago I found the only appropriate persons here, in other jobs, were earning closer to $100,000. In any event, it seems rather irrelevant as in my opinion I see no justification for staying on at what Sentinel may have to pay for a replacement officer because I don't want the job, and only agreed to stay on long enough to have an orderly transition.

I can roughly follow your calculations endeavouring to realise a 20% return but I think it is unreasonable to consider that I should make it possible at my personal expense because Sentinel are behind in plans for my replacement.

I really hope you will be able to see this from my point of view. I would also like to mention that since our move to Chancery Court last month it has become easier to commence integration and David Mackie has been particularly helpful in this respect. We nevertheless have a long way to go."

23. Mr Alexiou wrote again on 8 February. The first substantive paragraph of his letter was as follows:

"Bob, I do see it from your view, and I must say, that it seems, to me, that one would like to have his cake and eat it too, type of view."

From then on relations between the two sides continued to deteriorate.

24. At the end of March and the beginning of April Mr Ferguson sent a volley of emails to Mr Cordes and his daughter. An email which Ms Sanchez sent on 2 April to Mr Ferguson sets out her feelings with some candour:

"I therefore find it very hard to believe that in your email of the 26^th, you requested that I forward the information to you by email so that you could assume the running of it when my father goes on a reduced time basis. Not having heard from you about Pathfinder's portfolio for a long time and then suddenly you wish to go over everything by email, not even in person, was to say the least very unsatisfactory.

I would have hoped that we could have discussed this, and several other matters, in person."

Ms Sanchez gave details of why some accounts with STBC had been closed and continued:

"I find it very unfortunate that you appear to think that MASCO has nothing complimentary to say about SBT. We have, as you admit, hit several roadblocks with SBT and as far as we are concerned they all seem to stem from communication problems. We have constantly requested information and advice and even though you seem to write it down in your book while you are here and say you will get back to us with an answer, we don't get an answer and if we do, it's because we've had to follow it up again and again.

It is not only MASCO that struggles with this lack of communication and until it is resolved, we will continue to be concerned. An example of some of the outstanding matters include interest rates, statements to be emailed and SBT financial statements that have been repeatedly requested for almost a year.

Furthermore, I find it very upsetting that you find it necessary to state that MASCO, as part of SBT, should be directing business to SBT. We have certainly done this and continue to do so, in spite of some of our concerns. We are making every effort to try to make the transition a smooth and friendly one but I obviously appear to be running into more problems than I am aware."

She then complained (in a paragraph that is not wholly legible in the record) about an unannounced visit by two STBC employees to review confidential files of MASCO clients, and continued:

"I hope that you can understand some of my concerns and since we are a team now, I would have thought we could have discussed these things in person, or even over the telephone for that matter, before sending such self-serving emails.

By the way, we too work towards satisfying our clients and in that regard try to provide the best quality service possible.

Hoping we can resolve these issues."

25. On 18 April 2001 Mr Cordes sent Mr Alexiou, for the account of SIL, an invoice for the second instalment stated to be due under the contract on 31 March 2001. The invoice was for $343,769, representing $370,625 decreased by a credit for six payments of $17,500, but then increased for interest. Mr Alexiou sent a written acknowledgment of the invoice but it was not paid.
26. During May there were relatively cordial email exchanges between Ms Sanchez and Mr Ferguson and Mr Maharaj. But on 14 June 2001 Mr Alexiou and Mr Grelecki paid a visit to Freeport and had a meeting with Mr Cordes. The only written record is a memorandum made shortly afterwards by Mr Cordes, but its correctness was not seriously challenged. The first part of the memorandum was as follows:

"I asked when I was going to be paid what was due under my contract and Grelecki said I had not adhered to the terms of the contract and implied when I did I would be paid.

He stated that I had defaulted by not transferring more client bank accounts to Sentinel. I responded that he couldn't expect me to do that without financial statements of SBT to produce to prospective clients, which statements I emphasised I had been asking for for over a year without any results. The matter was dropped.

He then stated that I hadn't taken sufficient steps to replace myself resulting in the cash drain of my compensation having an adverse effect on the accounts. I stated there was nothing in the contract regarding this but that I had always considered it Sentinel's responsibility. He then said something about not cooperating with Chancery to integrate with them and thereby eliminate the need of me.

He complained about the cash flow not being up to Sentinel's wishes and said I had removed $100,000 from MASCO at Closing. I assume he was referring to the elimination of the retained earnings at March 31, 2000, to which Sentinel was not entitled but which in any event was utilised mainly to create a reserve for unearned fee income, not previously kept due to the former cash basis of accounting.

Grelecki was extremely aggressive and Mani [Mr Alexiou] was trying to temper matters, so much so that I couldn't help wonder if it was a put up "good guy/bad guy" routine. At one stage Grelecki said—Well let's unwind the deal and you give us our money back, at which point Mani quickly said that I didn't want to do that."

The last paragraph of the memorandum is concerned with matters of detail on MASCO's accounts.

27. On 18 June 2001 Mr Cordes faxed a letter to Mr Alexiou. The letter began as follows:

"I am still puzzled and amazed to have been told that Sentinel think they can pressure me into doing something that has surely been their responsibility since acquiring control by withholding funds that are unquestionably due and owing. As it took over two months for me to be told this is the strategy it makes me wonder if this is the whole story. A review of our contract confirms my belief that there is no conceivable way that I have violated the terms. Agreed there is the one drafting error regarding the payment of the ESL$17,500 but the intent is clearly shown in correspondence. I really find the accusations outrageous in the light of the enormous effort I have made to keep the business from suffering in spite of all the difficulties."

The second paragraph was concerned with accounting matters, especially the accusation of Mr Cordes having removed $100,000. The letter concluded:

"At this stage, with the terms of the agreement having been challenged, I am very concerned with a need to protect my position. I am very reluctant to have to go to independent counsel but unless the matter is resolved I seem to have little choice. I do hope you will consider having the decision reversed and would be very grateful to receive payment by the end of this month."

28. Mr Alexiou did not acknowledge Mr Cordes's letter. During July there were some fairly routine exchanges not involving SIL's top management. Then in August 2001 came Mr Grelecki's registered letter of 2 August to Mr Cordes, and the faxed letter of 3 August from Mr Cordes's attorney, Mr Sweeting (sent before the letter of 2 August had arrived).

The judge's findings

29. Before turning to the legal effect of those two letters it is appropriate to address some findings made by Longley J on which Mr Wales (for SIL) placed much reliance. The judge made a number of findings of fact in the course of a passage which it is best to set out in full:

"14. Not long after the execution of the agreement tensions developed between the parties. The plaintiff had claimed that it wanted to purchase the shares of the defendant so that it could gain access to the client list of MASCO, and more specifically the bank accounts of the clients of MASCO.

15. Therefore shortly after the agreement was signed the plaintiff required the defendant to transfer 75% of the bank accounts of MASCO to the Bank.

16. The defendant resisted this. He contended that that would not have been prudent in the light of the blacklisting of the Bahamas in 2000, and without first obtaining the permission of the clients together with some information on the Bank, neither of which he said were forthcoming. One particular source of controversy was a bond account with several million dollars that the plaintiff wanted transferred. The defendant, notwithstanding that after the closing he claimed to have regarded Mr Alexiou as his boss, rejected that.

17. The plaintiff's position was that the defendant was a signatory on the accounts and therefore needed no further authorisation to carry out its instructions to transfer the accounts. That remained a bone of contention. Mr Sweeting accepted the plaintiff's contention that the defendant could have transferred the accounts without further authorisation.

18. As it transpired, by the time the agreement was terminated in August of 2001 only roughly 20 of the total company accounts—200 accounts according to the defendant and 400 plus according to the plaintiff—were transferred to the Bank. The aggregate amount of those accounts according to the defendant was more than $9m.

19. On the evidence, having seen and heard these witnesses it seems quite clear to me that the defendant wanted to ensure that his preferred clients, were kept under his control and he was not prepared to follow instructions from the principals of the plaintiff, even from one who he claimed was the president of the plaintiff.

20. According to Mr Alexiou, the plaintiff did not wish to strong-arm the defendant because the nature of the business was such that personality played a significant role. The clients knew the defendant at MASCO and if they were not handled properly they might leave. But it was not helping their objective to grow their business and so this remained a constant source of aggravation to the principals of the plaintiff and the Bank.

21. Therefore, when the first anniversary payment became due the plaintiffs refused to pay the amount owed, as the controversy remained unresolved.

22. That culminated in a meeting in June 2001 at which the defendant was told that unless he performed his part of the bargain, the plaintiff would make no further payments.

23. At this stage the shares of MASCO had still not been transferred."

30. The judge then summarised the respective positions taken by the parties on the legal issues (paras 24-31). He continued as follows:

"32. On the evidence I am satisfied that the plaintiff repeatedly called for the defendant to perform his part of the bargain and I am further satisfied that they did not waive their rights to shares of MASCO that they had paid for. What they did waive was the right to call for them at closing but not the right to the shares. The right to the shares was never abandoned or waived and the obligation of transfer remained up until the termination of the agreement.

33. I would therefore find as a matter of fact that the plaintiff did not waive or abandoned their entitlement to the shares of MASCO or their right to claim damages for breach of contract for failure to deliver them. And I would also hold that the defendant was in breach of the agreement by failing to deliver the shares of MASCO. Mr Sweeting accepted this and was satisfied that in the circumstances the damages, which would have flowed naturally from the defendant's breach, would have been $750,000."

31. The judge's conclusion in para 19 was not supported by any particularised assessment of the oral evidence which he had heard (from Mr Alexiou, Mr Ferguson, Mr Cordes and Ms Sanchez) and he made almost no reference to the contemporaneous documentation, some of which has been set out or summarised above. He made no reference to MASCO's moving in with Chancery and apparently integrating successfully with that company.
32. Their Lordships are inclined to think that the conclusion in para 19 may have been rather hard on Mr Cordes and Ms Sanchez. But it is unnecessary to consider whether it was against the weight of the evidence—a contention that Mr McCormick, for Mr Cordes, did not put forward—since it was not concerned with Mr Cordes's obligation to transfer MASCO shares, and to provide share certificates. The fact is that that obligation was completely overlooked by both sides even up to and including the exchanges of 2 and 3 August 2001, by when they had presumably taken legal advice. Paras 22 and 23 of the judgment juxtapose "the bargain" and the non-transfer of the shares, but the real bargain, for SIL's top management, was to acquire clients and to secure the transfer of their bank balances to STBC. That was SIL's real complaint from beginning to end, but it was never a pleaded issue in the case.
33. In para 32 the judge made a similar juxtaposition which does, with all respect to him, give a misleading picture. SIL's management did repeatedly call on Mr Cordes to transfer the bank accounts, as already recounted. It did not call on Mr Cordes to transfer his shares to SIL and provide share certificates. It never made a single demand or request in writing and there was no convincing evidence of any oral request. It has never been suggested that SIL served a notice under Clause 11 of the contract requiring final completion of the contract within 21 days.
34. As to para 33 of the judgment, it was never suggested on behalf of Mr Cordes that SIL had permanently waived its right to call for final completion. But SIL condoned (and indeed, through Mr Alexiou, more or less invited) the technical breach which Mr Sweeting acknowledged in his opening. Mr Sweeting does not appear, from the record, to have accepted that the measure of damages for the breach was $750,000. So long as SIL had not called for final completion, it could not complain of a repudiatory breach, nor could it point to any loss caused by the delay. Until 3 August 2001 Mr Cordes acted throughout as if SIL had been the 90% shareholder in MASCO at law as well as in equity, and the management of SIL seem to have proceeded on the same footing.

The letters of 2 and 3 August 2001

35. The letter dated 2 August 2001 from Mr Grelecki to Mr Cordes was in the following terms:

"Notice of breach & non-completion

April 11 2000 Agreement for sale between Robert Cordes and Sentinel International Limited ("the agreement")

It is with regret that we have to write to you as set out below.

Per the terms of the subject Agreement, please be advised that the Agreement is still not completed fifteen (15) months after the execution date and we consider you to be in material breach of said Agreement. It is our view that you have deliberately frustrated the completion of this transaction by not assisting with the transferring of the business to the control and custody of the purchaser.

Many attempts and requests were made to you to introduce the purchaser to the client base and this was never done. Attempts were made to gain control of the companies under your care and management by having you resign as a director and signatory of the many companies managed by MASCO. None of this has happened.

The intended acquisition has not transpired. The Agreement has not been fulfilled. What has occurred is the purchaser, who paid their money to you, has not received what it paid for. Further, it seems that the vendor does not want to part with that which he has agreed to sell.

The Agreement has been totally frustrated by you. After much correspondence and several face to face discussions, Sentinel International has concluded that it will be impossible for the parties to complete the Agreement according to the original terms and conditions.

During our meeting in June, I informed you that we would make no further payments to you under the terms of the Agreement until you had made significant progress towards completing the transaction. Since that time nothing has been accomplished.

Accordingly, we hereby demand repayment of all consideration paid to you by Sentinel International and/or its affiliates. We expect the repayment to include an interest amount calculated on the amount advanced using a market rate commensurate with commercial transactions of this type.

We sincerely hope that we can resolve this issue amicably and would suggest that we meet in Nassau at a mutually convenient time next week. You may reach me in Nassau at 242-502-7106 or in Orlando at 407-514-2411."

36. The letter dated 3 August 2001 from Mr Sweeting to SIL (sent by fax, it will be recalled, before the letter of 2 August had been received) was in the following terms (after a heading referring to the contract):

"We act on behalf of Robert E Cordes in respect of the above captioned matter.

Time being of the essence in the contract, we have advised our client that yourselves are in repudiatory breach of Clause 2(b) thereof. We hereby put you on notice that our client accepts your repudiation and considers that the contract is now at an end. In the circumstances, the shareholders have held an extraordinary meeting and removed your representatives from the Board of Directors of MASCO.

We will contact you in the near future to discuss resolution of the issues outstanding between our client and yourselves."

The Court of Appeal's reasoning and conclusions

37. The Court of Appeal reversed the judge's finding that Mr Cordes was in repudiatory breach of contract. It held (effectively in paras 29 to 42 of the judgment of Osadebay JA) that SIL should have served a 21-day notice under clause 11 of the contract, and that only on Mr Cordes's non-compliance with that notice would there have been a repudiatory breach which SIL was at liberty to accept.
38. Mr Wales attacked that conclusion on grounds which were all based on detailed analysis of the language of the contract. Mr Wales emphasised the sequential character of the obligations. His submissions appear to their Lordships to ignore the realities of the situation, which were that the original completion meeting (at which Mr Alexiou was the only lawyer present) was bungled, and the failure to achieve completion properly was unaccountably overlooked for the whole duration of the contract. Clause 11 was a familiar clause requiring the giving of a 21-day notice to complete, and that clause also seems to have been overlooked throughout the life of the contract. SIL's real complaint, based on STBC's failure to obtain the transfer of as many bank accounts as it had hoped, was not a term of the contract (and could not have been, since MASCO was not a party to the contract). There was no repudiatory breach by Mr Cordes for SIL to accept.
39. The Court of Appeal also held that SIL was in breach of contract in failing to pay the second instalment of the purchase price (although only nominal damages were awarded, in accordance with the majority view). This was dealt with shortly in the judgment of Osadebay JA in para 38:

"It seems to us therefore in the circumstances that the respondent's refusal to pay the instalment of the purchase price for the shares which was due on the first anniversary of the completion date—31 March, 2000—is in fact a repudiation of its obligations under the contract and amounts to an anticipatory breach of the contract which entitled the appellant to treat the contract as discharged."

40. Mr Wales attacked this by arguing that time was not of the essence of SIL's obligation to pay the second instalment. He relied by analogy on the general rule in section 12(1) of the Sale of Goods Act (c 337) (although it does not apply to a sale of shares). Mr McCormick's first line of defence was that (in a contract not drafted to the highest standards) the wording at the end of clause 3 extended not only to the initial completion meeting, but also to all payments due under the contract. Their Lordships cannot accept that submission. But Mr McCormick also deployed a second and stronger line of argument which calls for fuller consideration.

SIL's appeal: conclusions

41. For the reasons already mentioned, their Lordships consider that Mr Cordes was not in repudiatory breach of contract. Whether SIL was itself in repudiatory breach in failing to pay the second instalment of the purchase price depends on whether (despite time not being of the essence initially) Mr Cordes can meet one or both of the following tests. One is that he gave reasonable notice, after the instalment was due, calling on SIL to pay, so making time of the essence (the familiar but not wholly accurate way of putting it: Behzadi v Shaftesbury Hotels Ltd [1992] Ch 1, 12, 24). The other is whether SIL had, by its conduct between 31 March and 3 August 2001, evinced an intention no longer to be bound by the contract. If either of these tests is satisfied, the letter of 3 August 2001 was an acceptance of SIL's repudiatory breach. The fact that the letter gave a reason which was insufficiently explained, or even a bad reason, was no obstacle, so long as there was no element of "blowing hot and cold": see The Mihalis Angelos [1971] 1 QB 164, 165-169, 200, 204 and Cyril Leonard & Co. v Simo Securities Trust Ltd [1972] 1 WLR 80, and compare Panchaud Freres SA v Etablissements General Grain Co [1970] 1 Lloyd's Rep 53.
42. Their Lordships consider that both tests are satisfied in this case. Mr Cordes sent in his invoice on 18 April 2001. Mr Alexiou simply acknowledged it. No payment was made, and no explanation for non-payment was provided until the meeting at Freeport on 14 June 2001. On that occasion Mr Grelecki implied that Mr Cordes would be paid when he complied with the terms of the contract, which was explained, not in terms of share transfers and share certificates, but in terms of transferring more client bank accounts to SBTC. The transfer of bank accounts was not a term of the contract between Mr Cordes and SIL. Following on that meeting Mr Cordes wrote to Mr Alexiou on 18 June denying any breach of contract, and asking for the second instalment to be paid by the end of the month. It was not paid, and has never been paid.
43. In their Lordships' opinion Mr Cordes's letter of 18 June 2001, assessed against the background of earlier events, gave a reasonable period of notice and had the effect of making it a repudiatory breach for SIL not to make the requisite payment by 30 June 2001. That breach also showed a disregard by SIL of its basic obligations which went to the root of the contract: see Lord Wilberforce in Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC 757, 778-779, distilling the earlier citations of high authority. This stance was confirmed by the terms of Mr Grelecki's letter of 2 August which (although unknown to Mr Cordes and his attorney) was in the post when the letter of 3 August was faxed to SIL.
44. Their Lordships will therefore humbly advise Her Majesty that SIL's appeal should be dismissed with costs before the Board and in the courts below.

Mr Cordes's cross-appeal on damages

45. In his counterclaim Mr Cordes claimed damages of $2,126,886.45, representing the difference between the contract price and $177,918.30, which was pleaded to be the value of the shares (presumably the 90% holding) at 3 August 2001. This claim was obviously excessive as it failed to give credit for the first instalment of the purchase price ($750,000) and the further sum (about $200,000) for which Mr Cordes had to give credit against the second instalment. But in principle Mr Cordes was right as to the appropriate measure of damages, and the date for valuing the shares in order to quantify his loss of the bargain. Neither the view of the majority of the Court of Appeal (that only nominal damages could be awarded) nor that of the President (that the measure of damages should be the loss of income) is sustainable, and Mr Wales rightly did not seek to do so. His position was that Mr Cordes had not put forward satisfactory evidence to prove his loss, and that that issue could not now be remitted to the judge to give Mr Cordes a second chance of proving his loss.
46. The evidence that Mr Cordes produced at trial was a written report by Alison Treco, a chartered accountant of more than 20 years' standing. She had worked for KPMG (at first as an employee and then as a partner) for 24 years and had then, in 2005, established her own firm, ATS Advisory Services. In her report she valued MASCO (100%, apparently, and not a 90% holding), as at 3 August 2001, at $197,687. She made this valuation on the basis of maintainable earnings, defined as "the level below which, in the absence of unforeseen and exceptional circumstances, the earnings would not be likely to fall in an average year." She used the company's actual results for the year ending 31 March 2001, adjusted for changes in the business known to management at that date. The adjustments included the loss of the substantial fee income from EIL and the loss of 13 other clients with 22 companies. Ms Treco used an earnings multiple of 4.1, the top of the range of 3.1 to 4.1 which she considered appropriate. In an introductory note in bold type the report stated that it was prepared on information provided by Mr Cordes and Ms Sanchez, and that Ms Treco's firm had not independently verified the accuracy, completeness or reliability of the information. She said in her evidence that other information had come from her own knowledge of the industry, and from checking official sources of information.
47. In cross examination Ms Treco said that she had not previously valued the particular type of company that MASCO was, but that she had experience in valuing bank and trust companies. She also agreed that she had worked on unaudited figures provided by Mr Cordes and Ms Sanchez. Her professional judgment was that the maintainable earnings approach was appropriate for a company that was not in a growth period.
48. Mr Ferguson then gave evidence, without objection, as an expert witness for SIL. His evidence was that in the valuation of financial sector companies, generally speaking "you multiply the top line of the gross revenue, not the net revenue". You buy an earnings stream, he said, realise its synergies and cut the costs. On his approach the company would have been worth a minimum of $1m and at the high end of the range $1.5m. On the maintainable earnings approach the result would still have been in the range of $1m, if one used a multiplier of six or eight times earnings.
49. In cross-examination Mr Ferguson agreed that MASCO had a special value for Sentinel because of the synergies to be obtained. He also agreed that 2000-2001 was a period full of significant events for the financial services industry in the Bahamas. He did not agree that it was therefore right to value a company on one year's results. He agreed that if gross earnings were to be taken, a multiplier of 2.5 to 5 would be appropriate.
50. Longley J heard all this evidence but, because he dismissed the counterclaim, he made no findings about it, except (para 44):

"Further it seems to me any downturn in the business of MASCO has not been shown to be the fault of the plaintiff or due to the plaintiff's failure to make the first anniversary payment. Indeed it seemed to have been generally accepted that after the blacklisting of the Bahamas in 2000, coupled with the new legislative regulatory regime that came into being with the package of financial legislation at the end of 2000, the business of most financial services companies was adversely affected and many suffered severe losses. MASCO was no exception, and on the evidence no attempt was made to show otherwise."

But a contractual claim for damages for loss of a bargain is not of course subject to the SAAMCO principle (see South Australia Asset Management Corp v York Montague Ltd [1997] AC 191).

51. The judge's omission to make any findings on the valuation issue creates an obvious difficulty. Remission of the issue to the judge would cause further delay and expense. Mr Wales submitted that remission would in any case be inappropriate, because Mr Cordes had his chance to prove his case and had failed to take it. He relied on the fact that Ms Treco had no previous experience of valuing a company with just the same sort of business as MASCO, and on her reliance on figures from a partial source, that is Mr Cordes and Ms Sanchez. Against that Mr McCormick obtained instructions to propose a means of reaching an immediate resolution of the impasse: Mr Cordes would be content to keep the sums paid to him already, he said, without receiving any further damages. That outcome would, he said, be substantially consistent with the valuation evidence of both the expert witnesses.
52. Their Lordships do not accept either of the submissions put forward by Mr Wales. Ms Treco had a good deal of experience in valuing other companies in the financial sector, and her ready admission that she had not valued one with a business just like MASCO's did not undermine her evidence. Nor did her reliance on figures provided by Mr Cordes and his daughter. It is quite usual for valuers to work on unaudited figures, and throughout the evidence no attack was made (still less sustained) on the integrity of Mr Cordes and Ms Sanchez.
53. In their Lordships' opinion the proposal put forward by Mr McCormick is a realistic, proportionate and fair (perhaps even generous) way of avoiding further expense and delay in this contentious case. Their Lordships will therefore humbly advise Her Majesty that Mr Cordes's cross-appeal should be allowed, with an award of damages of such amount as to secure that (aside from costs and the appropriate disposal of any sums lodged as security for costs) no sum is due from either party to the other. The parties should agree the appropriate figure to be inserted in the order. SIL must pay Mr Cordes's costs before the Board and in the courts below.