HARCUS SINCLAIR (a firm) v (1) BUTTONWOOD LEGAL CAPITAL LIMITED (2) RYLATT CHUBB (a firm) (3) ALTERNATIVE REAL ESTATE FUND LIMITED (4) ROSKILL ADVISORS (CAYMAN) LIMITED [2013] EWHC 1193 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2013] EWHC 1193 (Ch)Case No Claim No: HC13E00211
Between
HARCUS SINCLAIR (a firm)Claimant(1) BUTTONWOOD LEGAL CAPITAL LIMITED (2) RYLATT CHUBB (a firm) (3) ALTERNATIVE REAL ESTATE FUND LIMITED (4) ROSKILL ADVISORS (CAYMAN) LIMITEDDefendants
Before
David Donaldson Q.C.sitting as a Deputy High Court JudgeDate 20 May 2013
[1]Nature of the proceedings and essential facts In form this is an interpleader action brought by a firm of solicitors holding monies entrusted to them on a stakeholder basis in connection with an agreement ("the Agreement") for the funding of substantial litigation brought in the Commercial Court ("the Proceedings"). They seek the determination of the court as to whether and to whom they should now pay those monies, but have not otherwise taken any part in the proceedings, which are in effect a contest between the first defendants ("BLC"), who are the lenders under the agreement ("the Lender"), and the third to fourth defendants, the last two of whom are the borrowers ("the Borrower"), the second defendants ("Rylatt Chubb") being the Borrower's solicitors. Extensive pleadings have been exchanged between the two camps of defendants. The central issue is whether the Agreement has been validly terminated by BLC pursuant to a clause permitting termination if in the reasonable opinion of the Lender the Borrower's prospects of success in the Proceedings do not exceed 60%. There is a further question as to whether in any event (250,000 should be released to be used for the provision of security for costs in the underlying litigation and a similar question as regards two more modest sums in respect of costs already incurred or disbursed by the Borrower's solicitors. The court is therefore concerned with a new type of satellite litigation, of which, given recent developments in the funding of large commercial claims, the courts appear likely to see much more.[2]The underlying proceedings on which the satellite is centred in this case were issued on 21 December 2011. Pleadings closed with a Reply served on 17 May 2012. Some Part 18 responses by the defendants on 14 December 2012, and Amended Points of Claim and of Defence were served on respectively 7 December 2012 and 10 January 2013. Otherwise the action has proceeded no further. In particular, there has been no disclosure or exchange of witness statements. On 30 November 2012 Andrew Smith J ordered that the claimants provide security of (600,000 in stages, beginning with (250,000 to be provided on or before 11 January 2013 by payment into a joint solicitors' bank account (and further instalments - in cash or by bank guarantee - by 14 June 2013 and 15 October 2013), in default of which the proceedings were to be stayed until the security was provided. That initial payment of £250,000 has not been made. An application is now pending for an order striking out the Proceedings unless payment is made within a further 14 days.[3]In the circumstances, and understandably, the trial of this action before me has been expedited. An order was also made that they should be heard in private, because they involve at least some discussion of the prospects of success in the underlying Proceedings. I suspended that order for a short part of the opening discussion, but thereafter the hearing was in private. The same restriction will apply to the contents of this judgment, but strictly subject to further order. The need for protection will inevitably disappear at some point in time, when I would consider it right that copies of the judgment should be automatically sent to the major law reporters and web-sites who might have been interested in publication had it been permitted at the time of handing-down [1] . Subject to any contrary submissions from counsel, I am not however presently of the view that any embargo on the formal order embodying the judgment would be warranted.[4]Coincidentally, the underlying action also concerns a funding agreement, but one directed to the financing of potential development projects in the United Kingdom on brownfield sites. The First Claimant ("AREF") - who is the third defendant in this action - is an investment fund; the Second Claimant ("Roskill") - the fourth defendant in this action - is its investment manager. Both are Cayman Island companies. One of AREF's sub-funds, begun in 2006, was the Brownfield Fund.[5]AREF sought a "cornerstone investor" for that fund: this is said to be of critical importance, since it would have increased the prospects of further third party equity investment, with substantial attendant profits. On 22 December 2006 AREF entered into a Subscription Agreement with the Second Defendant ("FRI"), a wholly owned Irish subsidiary of the First Defendant, a South African bank, and Roskill entered into an Adviser's Agreement with FRI. FRI agreed to subscribe in cash for shares in AREF up to US $ 20 million upon receipt of drawdown notices. These would summarise the proposed investments and the amount of the share investment requested. FRI had no obligation to subscribe for the number of shares specified and was given an absolute discretion as to whether to make any particular investment. The Adviser's Agreement materially mirrored the Subscription Agreement.[6]In the first half of 2007 four drawdown notices were served covering four separate properties. FRI refused to subscribe for any shares for any of these projects, and in particular - in August 2007 - for two of them at Doseley and Womb Farm Chatteris. AREF contends (and FRI disputes) that in an email dated 17 August 2007 and/or in a conference call on 20 August 2007 in addition to refusing to participate in the proposed Doseley and Womb Farm projects FRI also repudiated the Subscription and Advisers' Agreements in their entirety by evincing an intention not to subscribe to any projects which might be put forward. The value of the claim is put by AREF at over (25 million, (since it is said that the alleged withdrawal of the defendants as cornerstone investors made it impossible to obtain supplementary funding from third parties which would have generated large profits in addition to those resulting from the finance to come from the defendants themselves). No claim is made as such for failure to invest in the two projects at Doseley and Womb Farm (and I was told by Ms Virginia Rylatt of Rylatt Chubb that the amount of loss on these individual projects would not have reached a sufficient level to make the prosecution of the claim of any commercial interest).[7]The Agreement provided that the total Facility Amount of (5,145,374 would be drawn down in one advance on the Drawdown Date, which was in the event, as I understand it, 16 September 2011. Clause 3.3 provided that:
"[T]he Lender shall make the advance of the Loan on the Drawdown Date as follows: 3.3.1 by paying to the Lender an amount equal to the Fund Protection Fee; 3.3.2 by paying to the Insurer(s) an amount equal to the Funded Premium ... 3.3.3 by paying to the Borrower's Solicitor the Security for Costs; and 3.3.4 by paying the balance of the Loan, after deducting the payments made under 3.3.1 to 3.3.3 above into the 1st Class Legal Client Account to be applied as provided in this Agreement."
[8]The client account referred to in Clause 3.3.4, which despite some inaccuracy I shall for convenience call the escrow account, was held by 1st Class Legal (IS) Limited ("1st Class Legal"), at that time BCL's Investment Manager in the United Kingdom, with RBS, and the Agreement provided for the Borrower to execute a charge over that account in favour of the Lender to the extent of the funds in it designated to the Borrower. On 16 September 2011 the escrow account received a large sum under Clause 3.3.4, representing the balance of the Loan after certain deductions. The first of these was the Fund Protection Fee of (1,387,989. The second was the ATE premium of (2,634,462 [2] . No deduction fell to be made under Clause 3.3.3, because "Security for Costs" was contractually defined as "the security for costs (if applicable) ordered so to be paid by the Borrower on or prior to the date hereof ..." (my underlining) and there was no such order in existence at the date of the Agreement (indeed the proceedings were not even issued until some months later). Schedule 1 to the Agreement, showing the constituent elements of the Loan, did however include a sum of (250,000 in respect of "Security for Costs" , indicating and reflecting the expectation of the parties that the court would in due course require the provision of security in at least this amount.[9]The sole mechanism for release of monies from the escrow account was set out in Clause 3.4. This required the submission of a Release Request, which had to be in substantially the form set out in Schedule 5, "accompanied by a bill of costs from the Borrower's Solicitors, together with any disbursement vouchers, detailing the Borrower's Solicitors Costs in the period covered by the bill of costs" . The Request had to specify a Release Date at least 5 business days later, at which point the Lender was required (under Clause 3.7) to instruct the release of the monies from the escrow account, unless before then it had sought details of the bill of costs or required it to be taxed under the Solicitors Act.[10]A number of Release Requests were submitted by the Borrower's solicitors, Rylatt Chubb, for ongoing costs and disbursements triggering substantial payments released to them out of the escrow account. By May 2012 the amount in that account had been reduced to (1,556,199.53. At that point it was agreed to transfer those funds to Harcus Sinclair, the interpleaders in this action, who accepted the monies on the terms of a written undertaking dated 24 May 2012 addressed to BLC and Rylatt Chubb, by which it undertook to hold those monies "for payment to be made therefrom in accordance with the terms of the Agreement and to include the payment of the legal costs and disbursements of [Rylatt Chubb] " . The undertaking continued:
"For the sake of clarity, I confirm that this undertaking is given on the basis that there is no dispute as to the ownership of the funds to which this undertaking relates. For the avoidance of doubt, the funds belong wholly to Buttonwood Legal Capital Limited [3] . Harcus Sinclair accepts no ... responsibility to either party beyond an obligation to hold the funds and make payment to Rylatt Chubb when authorised to do so by Buttonwood Legal Capital Limited."
[11]Clause 6 provided that the Loan was to be repaid on the earlier of the conclusion of the Proceedings or the Final Repayment Date, defined as two years from the date of the Agreement, i.e. 31 August 2013 [4] . It was also (under Clause 12.3) to be repaid immediately if the Agreement was terminated following an Event of Default, one of which - included in Clause 12(6) - was that "in the reasonable opinion of the Lender the Borrower's prospects of success in the Proceedings are 60% or less" .[12]On 8 January 2013 the board of BLC, having formed the opinion during a multi-continent conference call that morning that the chances of success did not exceed 60%, served a notice terminating the Agreement under Clause 12(6).[13]Rylatt Chubb wrote to Harcus Sinclair the same day asserting an equitable charge in their favour covering all Rylatt Chubb's fees and disbursements and (250,000 in respect of the instalment of security for costs to be provided under the order of Andrew Smith J by 11 January 2013. The untenable suggestion of an equitable charge has not been pursued before me. The letter did however also contend that the terms of the undertaking required payment of these sums.[14]On 9 January 2013 Ms Rylatt wrote to BLC and Harcus Sinclair disputing that BLC's opinion on the chances of success in the Proceedings was reasonable, and therefore contesting that the termination of the previous day was effective. Validity of the termination[15]Some account of the background may assist understanding of the arguments on this point.[16]Under Clauses 8(11) and 9.1(d) of the Agreement it was a condition of drawdown that the Borrower should have provided to the Lender a written Advice from its solicitors or counsel that its prospects of success exceeded 60%. The Advice provided for that purpose had been given almost a year before by John Wardell Q.C. on 3 September 2010, and consisted of eight extremely short paragraphs running to scarcely three-quarters of a page. It described itself as being "very much a preliminary view which is required to enable potential backers to decide whether to put up sufficient funds to enable the matter to proceed to the next stage being(i) a more formal advice which if favourable would be followed by(ii) the issue of proceedings." Despite those restrictive comments, the proceedings were begun in December 2011 without any further and more formal advice having been obtained. Ms Rylatt was unable to explain to me how or why this had happened.[17]Up to this time BLC, whose management is based in Hong Kong, made its decisions on the advice of 1st Class Legal. In February 2012 BLC terminated its investment management agreement with 1st Class Legal, the quality of whose past services and decisions BLC was coming to doubt, and began a general review of the prospects of success in all cases which it was then funding on its recommendation. BCL was in particular disturbed that in the present case 1 st Class had recommended funding without an adequate legal opinion having been obtained as to prospects of success. Mr Terrill, a BLC director, indicated unhappiness to Rylatt Chubb about the fact that BLC had still not received a full opinion. On 28 June 2012 Mr Khan, an in-house solicitor with BLC, attended a consultation with Mr Wardell and Rylatt Chubb. Though, as recorded by Mr Khan, Mr Wardell began by saying that he had not seen anything which would materially change his earlier estimate, he was reluctant to give a current figure as he would need to consider the matter properly and take some time to reread some of the papers. When Mr Khan pointed out that his earlier advice had been given a very long time before and was very short, Mr Wardell said that he would not feel comfortable giving a detailed written opinion until after disclosure. Given his own commitments and vacation plans the earliest he could, if so instructed, provide a detailed and worthwhile opinion would be at some point in September, by which time – he said - disclosure should have been completed. In fact, disclosure has still not taken place, and I was not told on what basis Mr Wardell came to make his prognosis. In an email on 3 July 2012 to Ms Rylatt Mr Khan also recorded her as having confirmed that she would do her utmost to ensure that the written opinion, covering liability and quantum, would be received in September, and if that for any reason became unlikely she would inform Mr Khan.[18]In a letter dated 3 August 2012 she told Mr Khan that there was no prospect of disclosure from FRI until an order was obtained at the CMC but that she would provide an opinion from Mr Wardell on the two key issues of absolute discretion and repudiation. On 5 October 2012 she said that the opinion would be completed by 12 October 2012 and "definitely" by 15 October 2012. In the event it was only on 30 October 2012 that she sent him what she described as "a short Opinion" on the two points. It was indeed short. The document was under half a page: the expression of counsel's view covered a mere five lines. Mr Khan told Ms Rylatt this was inadequate and insisted that a detailed opinion was provided by suitable counsel as soon as possible. He also commented that there appeared to be no basis for the view, repeated in each of Rylatt Chubb' monthly reports to BLC, that the chances of success were 75%.[19]BLC had now had enough. They felt that they had no option but to obtain an opinion themselves from Counsel and Mr David Lewis was retained as an independent counsel for this purpose. The preparation of instructions and collation of accompanying materials was entrusted to Mr Matthew Reach, an in-house solicitor employed by Argentum Legal Services ("ALS"), a company related to Argentum Investment Management Limited ("AIM"), which provides services to third party litigation funders including BLC. The role of ALS is to monitor and advise on litigation which is the subject of such funding.[20]Ms Rylatt was informed of Mr Reach's involvement and that he would be contacting her with any question he had or information that he required, in which connection her assistance was both required and appreciated. Ms Rylatt was however far from motivated to co-operate with this review and deeply suspicious of its purpose. Having obtained the funding a year earlier, she had no incentive to facilitate or accelerate the production of an opinion which might lead to its withdrawal (if it concluded negatively on the chances of success exceeding 60%). She seems to have believed - though without any real evidential basis, and I consider wrongly - that BLC was intent on such an outcome whatever the apparent merits of the case.[21]Something of the same thoughts and emotions appeared to suffuse the oral evidence which I heard from her, in particular when being questioned about her discussions with Mr Reach. His evidence was much more dispassionate. Unfortunately, their recollections and attendance notes did not always coincide or even overlap, but I am confident that those of Mr Reach are a more reliable guide to the content of their discussions, and they form the basis of what I describe in the following paragraphs.[22]On 13 November 2007 Mr Reach sent instructions to Mr Lewis. On 16 November 2012 Mr Lewis provided a preliminary but detailed Opinion running to 110 paragraphs over 22 pages. On the central and crucial question of whether the Defendants had acted in a manner which was likely to have constituted a repudiatory breach of the Agreement he took the view that the prospects of success were on currently available evidence less than 50% (paragraphs 85 to 88 and 109.5). Most critically, he took the view that the email of 17 August 2012 did not evince or confirm an intention not to subscribe in respect of any projects that might be proposed, and that this conclusion was supported by the conference call of 20 August 2012. The final paragraph of the document envisaged a further advice when additional documentation had been collated.[23]On the same day Mr Reach mentioned to Ms Rylatt that he was not persuaded by the core claim on repudiatory breach. She replied that there was information that he had not seen. Mr Reach suggested that she should already have provided everything to him and insisted that she send over whatever was missing. She informed him of three lever arch files containing emails passing between the parties and arrangements were made for these to be collected on 19 November 2012. That was preceded by an email from Mr Reach to Ms Rylatt on 19 November 2012 in the following terms:
"Thank you for your recent e-mail. I shall endeavour to attend your office today to collect the lever arch files. As you are aware, the fund has recently sought to obtain an opinion from independent counsel as to the prospects of success in the litigation. Counsel's opinion has not yet been finalised, but the early indications are that he considers the prospects of success to be less than 60% (perhaps substantially). We shall provide counsel with the aforementioned additional documents and supplementary instruction shortly with a view to receiving his final opinion by the end of the week. Once the final opinion has been received from counsel the Funder might elect to terminate the funding agreement if the prospects of success are at an unacceptable level. Should the fund be of the opinion that the prospects of success are less than 60% it will invite you and your clients to make representations before deciding whether or not to terminate the funding arrangement. In light of the above, it is possible that the fund will not provide the funds required to meet the security for costs order in these proceedings. We are conscious that you must prepare for the forthcoming CMC and we trust this e-mail provides you with the clarity you need to enhance your preparations."
[24]Ms Rylatt was not pleased about an Opinion being obtained separately by BLC. Remarkably, and, without seeking the consent of Mr Reach, she rang up Mr Lewis directly to challenge his reported conclusion. When he arrived to collect the files, Mr Reach protested that her behaviour had been unprofessional and should not be repeated. She assured him that the documents in the files were now complete. On 20 November 2012 he told her that they still had not received all the documents which she had. She denied this. Mr Reach asked in particular whether she had any further documents after 21 August 2007, the date of the last document in the three files, to which she replied that there was no further communication between the parties after that date.[25]On 26 November 2012 Mr Reach told Ms Rylatt that Mr Lewis's opinion was not yet finished, but it was looking weak. She said that witness evidence would reassure them. Mr Reach asked if she had draft witness statements. She said no, but that Mr Wardell had notes for draft statements following consultations with Mr David Jones (of AREF). Mr Reach asked to see those, but she told him that that would not be possible. Mr Reach then asked for her to confirm that no further documents could be provided to assist with the review. She was adamant that he had everything that could be provided.[26]On 27 November 2012 Mr Reach sent to Mr Lewis revised instructions accompanied by further documentation. The instructions addressed some of the queries raised by Mr Lewis in his preliminary opinion. They also reported the view of Rylatt Chubb that the chances of success were 75% and the assumptions on which they had confirmed that that estimate was based.[27]Mr Lewis was asked to reconsider the advice in his preliminary Opinion in the light of the additional information and give his opinion as to whether a claim could be constructed from the material provided to date where the prospects of success were equal to 60%. He was also asked to advise on the potential impact of disclosure on the prospects of success and whether it might take the chances of success over the threshold, if they were not already there.[28]The Case Management Conference in the underlying Proceedings took place, as I have indicated, on 30 November 2012. The court ordered the Defendants to answer a number of Part 18 requests within 14 days. Mr Reach asked Mr Lewis to delay his opinion until receipt of the answers to those requests. At the same hearing the claimants were ordered to provide an initial instalment of (250,000 in cash as security for costs by 11 January 2012, in default of which the action would be stayed.[29]The Part 18 answers were not passed to Mr Reach until 17 December 2012, when the Christmas vacation was looming. On 3 January 2013 he sent them on to Mr Lewis (still absent on vacation) with further instructions. By this time the BLC board, centred on Hong Kong but physically dispersed round the world, had fixed a meeting by general conference call to address this matter for 8 January 2013. Ms Rylatt had already informed BLC that to meet the last date for posting the security she would require receipt of the monies by 9 January 2013. BLC was concerned that a decision one way or the other on termination should be made by that time.[30]At 9 a.m. on 7 January 2013 Mr Lewis emailed to Mr Reach an almost finalised draft of his Further Opinion, in which he commented on his earlier opinion in a number of respects. As to his views on repudiation he stated that these were unaffected by the Part 18 responses, and repeated his view that the construction of the crucial 17 August email proffered by the Claimants was wrong.[31]Mr Lewis was also concerned that the letter of 30 August 2007 from the Claimants' solicitors, referred to in the Reply, did not speak of a repudiatory breach (as opposed to a breach relating solely to Doseley and Womb Farm). In an annotation, he expressed the wish to see that letter before signing off on the opinion, presumably to check that the account he had received of its contents (though it is unclear from what source) was correct. It is also unclear why the letter had not been received from Rylatt Chubb, who had assured Mr Reach that he had been given everything of relevance. Since, however, as is now known to be the case, Mr Lewis's stated understanding of its contents was correct, it would have served only to reinforce rather than undermine his pessimistic estimate of the prospects of success.[32]This letter, and its absence, had been mentioned in the course of a telephone conversation the previous day (a Sunday), when Mr Lewis had told Mr Reach of his negative conclusions and indicated that its absence would not prevent him from expressing a view on the merits. Nonetheless Mr Reach rang Ms Rylatt in the early afternoon of 7 January 2013 to ask for a copy of the letter. She told him that she was about to leave for a court hearing (on a different case) and would be unavailable the next day (when, as she told me, she had a private commitment at home). He asked if an assistant could dig it out and send it over. In response she complained about the trouble BLC had caused her, said goodbye, and rang off without giving Mr Reach a chance to say anything more. The document was not provided. I believe that with a better will she could probably have provided it after her return from court that afternoon.[33]At 6.28 p.m. on 7 January 2013 Mr Reach sent Mr Khan the Further Opinion in its then (not quite finalised) form, together with the original opinion of 16 November 2012 to which it made reference. This was forwarded to the members of the BLC board with a view to their telephonic conference meeting the next day. At 7.38 p.m. Mr Reach received from Mr Lewis the final version of his Further Opinion, which was substantively unchanged. It included a new sentence stating that though he would have preferred to see the letter of 30 August 2013, this was not to be.[34]The following day the board meeting took place by telephone centred on Hong Kong. The board members had copies of Mr Lewis's two opinions, though the later may have been in the form of the not quite finalised version. Mr Terrill, who took part in the discussion, told me however that he at least was aware that Mr Lewis had told Mr Reach that the absence of the letter did not affect his conclusion.[35]Having considered Mr Lewis's opinions, the board took the view that the prospects of success did not cross the 60% threshold and decided to terminate the Agreement. A letter to that effect was sent on 8 January 2013 by post, email and fax. Was the opinion of BLC reasonable?[36]Before me AREF did not seek to establish that BLC did not form the view on 8 January 2013 that the prospects of success were not in excess of 60% [5] . That left the question whether the opinion was reasonable.[37]Importantly, Mr Wardell QC for the Borrowers chose (no doubt wisely) not to suggest that Mr Lewis's opinion and consequent estimate of the prospects of success, and therefore BLC's reliant opinion that the chances did not exceed 60%, fell as such outside the ambit of reasonableness. It is therefore, to take a central example, not in issue that Mr Lewis's negative construction of the email of 17 August 2007, albeit differing from Mr Wardell's more favourable interpretation, was a reasonable one. The primary thrust of Mr Wardell's submissions to me was rather that the opinion was reached without sight of relevant material, specifically potential witness evidence and the letter of 30 August 2007.[38]It is surely correct, and I proceed on the basis, that the reasonableness of an opinion at a particular time, determined - as it must be - objectively, falls to be assessed by reference to not only the material which the opinion-former chooses to consider but, if wider, the totality of the material then practically available to it. That gives rise to two questions,(a) the availability of the material and, if available,(b) its impact on the reasonableness of the estimate.[39]As to witness evidence, no draft statements had been taken. The only record, according to what Mr Reach was told by Ms Rylatt, were notes taken by Counsel in two earlier consultations. She said that these could not be released to Mr Reach. I cannot in these circumstances regard the material as being available to BLC. (Nor do I consider that it was incumbent on Mr Reach, as suggested by Mr Wardell, to request Ms Rylatt to prepare a summary of the witness evidence; and indeed, given her general attitude towards his mission, I think it most improbable that she would have complied.)[40]The notes have however since been disclosed for the purpose of this action. Their contents do not in my view affect the critical assessment made by Mr Lewis that the two matters pleaded in the Amended Points of Claim - the 17 August email and the meeting of 20 August 2007 – did not evince the necessary intent to repudiate the Agreements as a whole, or in consequence BLC's opinion that the chances of succeeding in the action did not exceed 60%.[41]As to the letter of 30 August 2007, I find it surprising that it was not supplied to Mr Reach, in particular when the claimants had thought appropriate to refer to it in the Reply. It is also unfortunate that Ms Rylatt was not able to move herself to co-operative mode on the afternoon of 7 January 2012 when asked by Mr Reach to send her a copy of the letter. She complained that Mr Reach had not spelled out the urgency attaching to his request, though by hanging up abruptly she gave him no opportunity to do so, and in any event I do not believe that it would have changed her actions. However that may be, the fact remains that the letter was not available for Mr Lewis to consider or even at the time the board formed its view the following morning. Moreover, for reasons already indicated above, the contents of the letter do not affect the reasonableness of the estimate. Had it been available, it would only have served to confirm that, as stated by Mr Lewis in his opinion, the letter did not refer to repudiation - and could therefore, if anything, be advanced as an additional argument contrary to the claimants' case. As it was, he placed no weight upon it in reaching his percentage estimate of prospects.[42]Though I have dealt with the above matters since they were in the forefront of Mr Wardell's oral submissions and explored and discussed at considerable length by him and in cross-examination, they do not feature in his clients' pleaded case. In the course of the trial, an application was made to add them by amendment (as a new Paragraph 58 (b) and (c)). Given their lack of merit, for the reasons I have discussed, and the lateness of the application, I decline to accede to that application. This is in my view a more appropriate course than giving permission to make the amendment to introduce these matters and then rejecting them.[43]The only matter in fact pleaded is an assertion that to come to a reasonable opinion BLC would have had to allow AREF to make representations on the merits and consider the contents of an Opinion which Ms Rylatt had said would be produced by Mr Wardell on 14 January 2013. The unstated premise of this contention is that Clause 12.6 of the Agreement in its requirement that the estimate of prospects be a reasonable opinion extends to matters of process. That premise is in my judgment erroneous. The reasonableness of an estimate that the prospects do not exceed 60% is a purely substantive question, to be answered by an objective assessment of the available evidence against the background of the relevant legal rules and principles applicable to the claim. If the estimated figure is by that test within the ambit of reasonableness, it matters not by what route or process it was reached [6] : the result is all.[44]The same objection applies to a raft of other grounds which counsel for AREF sought to introduce by amendment mid-way through the hearing as a new Paragraph (c) to (i). At least two of these (items (e) and (h)) were also concerned not with the formation of BLC's opinion on the percentage chance of success but with its timing, in particular its desire to resolve the matter before the date when the security for costs had to be provided: this cannot impact on whether 60% was a reasonable figure as an estimate of prospects [7] . Moreover, if they had even arguable merit, all these matters (in (c) through (i)) should have been pleaded from the start so that witness statements and written submissions could have focussed on them. They should not have been left to amendment in mid-trial, and it is inadequate palliation that some of them may have featured in a Skeleton Argument or even earlier correspondence. Again, rather than allowing the amendments only then to reject them, I think it right simply to refuse permission to amend.[45]I conclude accordingly that there was an Event of Default in that the Lender had formed the reasonable opinion that the chances of success did not exceed 60%. Was BLC precluded from terminating by promissory estoppel?[46]The pleaded basis of this argument is the statement in Mr Reach's email of 17 November 2012, which I set out in paragraph 23 above, that "Should the fund be of the opinion that the prospects of success are less than 60% it will invite you and your clients to make representations before deciding whether or not to terminate the funding arrangement." It is not in issue that on 8 January 2012 BLC proceeded directly from the formation of its opinion to termination without inviting such representations.[47]I take the relevant law as authoratively summarised by Peter Gibson LJ in Emery v UCB Corporate Services Ltd [2001] EWCA Civ 675 : "27. A promissory estoppel … arises where(1) there is a clear and unequivocal promise that strict legal rights will not be insisted upon;(2) the promisee has acted in reliance on the promise; and(3) it would be inequitable for the promisor to go back on his promise. 28. Some commentators express the second condition in terms of the promisee altering his position to his detriment (see, for example, Snell's Equity 13th Edition (2000) paragraph 389-08, but that is controversial (see, for example, Chitty: Law of Contracts, 28 th Edition (1999), paragraph 3-089).

(a) Promise

[48]In paragraph 36 of his pleading Counsel for the Borrower asserted that Mr Reach's statement was a representation to Ms Rylatt that BLC would not terminate the Funding Agreement on the basis of any view as to the merits of the case without inviting Rylatt Chubb and AREF to make representations as to the merits of the case, the contents of any opinion provided to BLC, and the decision whether any rights of termination should be exercised. This is an extensive and in my view unwarranted gloss on Mr Reach's words. In particular, while the statement did not limit the representations which might be made in response to the invitation, it did not undertake to disclose to AREF or seek its comments on Mr Lewis's detailed written advice to the board (though from a later oral remark to Ms Rylatt on 26 November 2012 I suspect that Mr Reach did in fact anticipate taking this course). Nonetheless, it is clear that a breathing space was being intimated for representations between the formation of an opinion by BLC that the prospects fell below 60% and a decision to terminate, and none was in the event afforded.[49]Counsel for the Lender, Mr David Lord Q.C. suggested that the representation was only operative in the precise context in which it was given on 17 November 2012, and lost its force after later developments. It is true that at that stage there was no order for security for costs to provide a long-stop date for the possible termination of the Agreement, whereas in the event that date could not have been met if an opportunity to make representations had been afforded [8] . Nor was it then known that additional material in the form of responses to Part 18 requests would be ordered by the court, and that their consideration might delay the production of the opinion. I remain however unpersuaded that it is legitimate or even possible to graft a temporal restriction on to the content of the representation or its continued operation, the more so since Mr Lord appeared tellingly unable to formulate one.

(b) Reliance

[50]AREF in its pleading advances three matters as constituting reliance on the representation.[51]Firstly, reference was made to the fact that Rylatt Chubb had arranged for an opinion to be provided by Mr Wardell and his junior on 14 January 2013. It was not said in the pleading that the provision of this opinion was delayed in reliance on the representation, and Ms Rylatt did not give evidence to this effect. Indeed, the evidence which she did give indicated, if anything, the contrary. In mid-December 2012 she decided, for reasons which remain far from obvious, that the Part 18 answers would enable her counsel to provide what had previously been rejected as impossible, namely an opinion with a percentage estimate of prospects of success. The date of Monday 14 January 2013 was intimated (to my mind rather optimistically) because she thought that she could not get counsel to deal with the matter before the previous Friday, 11 January 2013, for which she had booked a consultation.[52]Secondly, it was pleaded that AREF proceeded with the security for costs application with the knowledge that BLC would invite representations before termination. Again, it was not stated that it did so in reliance upon Mr Reach's statement, nor did Ms Rylatt so testify. Moreover, AREF had no choice in the matter. To say, as does the pleading, that AREF "proceeded with" the security for costs application is a misuse of words - the application was being made by the other side.[53]Thirdly, it was pleaded that Rylatt Chubb continued to act and incur disbursements. Yet again, it was not stated that this conduct was in reliance upon Mr Reach's representation. Nor did Ms Rylatt say so in her evidence, let alone identify the work done and disbursements incurred by reason of any such reliance. It is also inherently improbable. Given that Mr Reach had very properly spelt out the serious possibility of termination even after any representations, she would have been taking a large risk if she incurred any further substantial avoidable costs before that question had been resolved. In practice, at least the bulk of the costs – in particular those associated with the CMC – would have been unavoidable: non-participation was not a realistic option. More, it is most unlikely that Ms Rylatt would have been affected in this regard by the knowledge that she could make representations to people whom she appears to have regarded as bent on termination come what may.[54]In the result I do not consider that the necessary element of reliance has been established. (c) Inequitable?[55]While it is not therefore necessary to examine the third requirement of a promissory estoppel, that it should be inequitable for the promisor to act in disregard of the promise, I will nonetheless indicate my views briefly.[56]At least in large part, the "equity" of the situation appears to me to turn on the detriment if any suffered as a result of any reliance. If (contrary to what I have said above) AREF (through Rylatt Chubb) did act in reliance on the representation, it has not established that it suffered any detriment by doing so [9] . And, even if that were in turn wrong, I would not have considered the level of any such detriment sufficient to render departure from the promise inequitable. The effect of Clause 12.8[57]Clause 12.8 of the Agreement, headed "Variation and Waiver" provides that: (1) Any variation of this Agreement shall be in writing and shall be signed by a duly authorised representative on behalf of the parties. . .. (3) Any waiver of any right under this Agreement shall only be effective if it is in writing ..."[58]Clause 1.8 excludes electronic mail from "writing" and in consequence the email of 17 November 2012 would not satisfy Clause 12.8.[59]Mr Lord submits, firstly, that the promise, if enforceable by reason of an estoppel, constituted a variation of the Agreement and was therefore ineffective by virtue of sub-clause (1) [10] . Mr Wardell suggests in counter that he merely seeks to preclude temporarily enforcement of a right arising under the contract. In practical effect, however, that is to remove the right of termination until fulfilment of a condition not included in the Agreement, and can therefore properly be described as a variation of that right. I see no reason to ascribe any different understanding to the parties in interpreting Clause 12.8(1).[60]Mr Wardell also suggests that Clause 12.8(1) is restricted to a variation made by a contract between the parties. Clause 12.8(1) is plainly intended to preclude a party from being held to an alteration of its rights based on a promise not contained in a prescribed form of writing (not including email). Its wording does not require the variation to arise from an agreement amounting in law to a contract (even if that were, contrary to my view expressed above, not the case here). Nor I can see any argument of purpose or function which should lead the court to impose such a restriction. The clause therefore applies in my view to any alteration of rights under the Agreement resulting from a promise, regardless of whether the other elements which add legal effect to that promise do so by giving rise to a contract or to an estoppel.[61]In any event, assuming (contrary to what I say above) that AREF had acted to its detriment in reliance on Mr Reach's promise, the facts would appear to me properly capable of being analysed as a unilateral contract: the act of reliance would have operated as both acceptance and consideration in response to a promise. On that basis, I do not consider that the effect of Clause 12.8(1), even if it were restricted to a variation effected by a legal contract, could be avoided by couching the legal analysis in the alternative form of a promissory estoppel.[62]In any event, Mr Lord has a further string to his bow in the form of sub-clause (3), in which the parties agree that no waiver shall be effective if not contained in (the right kind of) writing. If not a variation covered by sub-clause (1), the promise in the email of 17 November 2012 was, if attended by legal consequences, a waiver of the right to terminate in advance of a pause for representations.[63]For these separate and cumulative reasons I conclude that BLC was not estopped from terminating the Agreement under Clause 12.1.[64]Accordingly, I conclude that BLC was entitled to and did validly terminate the Agreement by its letter of 8 January 2012. Security for costs[65]The second question which I am asked to determine is whether AREF (or possibly Rylatt Chubb) is entitled to be paid the amount of stage one of the order for security for costs, namely (250,000. Even if, as I have determined, the Agreement has been validly terminated, AREF contends that it had an accrued right to such a payment.[66]Until some way through the hearing before me, both parties relied exclusively on arguments anchored in two quite different parts of the field of dispute.[67]AREF's argument, advanced vigorously by Ms Rylatt to BLC even before the termination of the Agreement [11] , was that the (250,000 had become payable directly to Rylatt Chubb at the start of the Agreement [12] , and should therefore be paid, belatedly, to them now. This flies in the face of the provisions requiring such a payment only if necessitated by a court order made "on or prior to" the date of the Agreement. Mr Wardell's reaction to this was that the court should interpret the words "on or prior to" as meaning "subsequent to" . That far exceeds the bounds of legitimate judicial creativity: while black can sometimes be interpreted to mean white where it is clear that there must be a mistake in the wording of the document, there is here no such case of a falsa demonstratio . Mr Wardell's submission also ignores, as it must, the fact that the (250,000 formed part of the balance of the Loan which under Clause 3.3.4 was paid into the escrow account at the outset, and so has already been paid by the Lender (albeit to a different agent for receipt).[68]For his part, Mr Lord submitted that, absent a court order in existence at the date of the Agreement, the Lender never had to pay any sum at any time in respect of security for costs. This clashes starkly with the inclusion of such a sum in the breakdown of the loan amount in Schedule 1, where (250,000 was identified as allocated to security for costs, and the fact that sum had therefore in fact been paid into the escrow account.[69]The Agreement proceeded, in short, on the clear basis that (250,000 of the loan amount, included in the monies to be (and in fact) lodged in the escrow account, would be used for payment of a future order for security for costs. This is fatal to both Mr Wardell's argument that on its true construction the Agreement required payment of that sum for future security directly to the Borrower's solicitors from the outset and Mr Lord's equally extreme submission that the Agreement imposed no obligation on the Lender ever to make any such payment (other than for a pre-existing order).[70]The rejection of those arguments, and the common reason for doing so, does however lead to a different question of construction, on which both counsel – after reflection had overcome initial antipathy - found it appropriate to make further submissions in the alternative to their more ambitious contentions. It concerns the more banal question of how the £250,000 can under the Agreement be extracted from the escrow account.[71]The procedure prescribed in Clause 3.6.1 requires a Release Request to be "accompanied by a bill of costs from the Borrower's Solicitors, together with any disbursement vouchers, detailing the Borrower's Solicitors Costs in the period covered by the bill of costs" . On this basis, the only way of obtaining payment out of the escrow account would be if Rylatt Chubb first paid the security for costs out of its own resources or outside borrowing and produced a bill of costs requiring reimbursement by its client to accompany a Release Request. Unsurprisingly, it was not suggested by either side that the parties could plausibly have envisaged such a course.[72]On that basis, both counsel felt constrained to accept that there was a casus omissus , which the court had to meet with an appropriate contractual interpretation or (which in modern analysis may be the same) implied term. This calls, in my view, in the case of an order for security for costs made after the start of the Agreement, for the bill of costs which must accompany the Release Request to be replaced (in Clause 3.6 and 3.7) by a statement from the Borrower's solicitors identifying the order for security and the amount required by it, and specifying as the date for release from the escrow account the last day on which payment must be made to enable them to lodge the security.[73]That is, however, not the end of the matter. AREF must prove that it in fact made such a Release Request with such an accompanying statement.[74]As I indicated above, the Agreement requires a Release Request to be "in substantially the form set out in Schedule 5" . That Schedule reads:
"From: Alternative Real Estate Fund Ltd and Roskill Advisors (Cayman) Ltd To: Argentum Associates Ltd [now named BLC] Dated: Dear Sirs Loan Agreement dated [ ] (the "
Agreement") 1. We refer to the Agreement. This is a Release Request. Terms defined in the Agreement have the same meaning in this Release Request unless given a different meaning in this Release Request. 2. We request a release of funds from the Ist Class Legal Client Account [now the Harcus Sinclair account] as follows: Proposed Release Date [ ] (or, if that is not a Business Day, the next Business Day) Amount ... 3. We confirm that each and every condition of the Agreement is satisfied on the date of this Release Request. 4. We attach a bill of costs which we certify has been prepared in accordance with Clause 3.6(1) of the Agreement. Yours faithfully, . .. authorised signatory for Alternative Real Estate Fund Ltd and Roskill Advisors (Cayman) Ltd"[75]Some alteration to paragraph 4 of the form (and to the attached document) is obviously required and permissible to meet the fact that the request is to fund a future payment of security for costs as opposed to a past disbursement. Otherwise, the request must contain in substance all the material elements of the form.[76]On 16 November 2012 (a fortnight before the hearing at which security was ordered) Ms Rylatt asked BLC to confirm that the funders could provide the security. In the absence of a reply she returned to the charge in a letter dated 22 November 2012 in the following terms:
"Under the Loan Agreement of 31 August 2011 you ("the Lender") paid to 1 st Class Legal monies of which (pursuant to Clause 3.3.3) (250,000 was allocated for security for costs. The balance of those monies (including the (250,000 for security for costs) was transferred by agreement to Harcus Sinclair on or about 24 May 2012. In accordance with Clause 3.3.3, and given the forthcoming CMC and the reasons explained in my letter of 16 November 2012, we request that the (250,000 is now paid to us."
Even with the most generous tolerance, it is impossible to treat this as a request "in substantially the form set out in Schedule 5 ". Moreover, even with the necessary alterations which I have indicated above, no request made in advance of the court order could satisfy the requirements of Clause 3.6. That may indeed be why Ms Rylatt in her letter suggested that the payment was required by Clause 3.3.3.[77]Nor is there any document after the order even distantly resembling a Release Request. Ms Rylatt appears to have asked whether BLC required her to provide an invoice for the security for costs or what other procedure should be adopted. She received no response and did not pursue the matter further after a letter of 22 December 2012. I was not asked to consider whether this gave rise to some form of waiver or estoppel, and rightly so in the absence of any pleading to this effect. Indeed, the basic contention that the obligation to pay had been triggered by a properly constituted Release Request was never pleaded by AREF, as it should have been if the court was to act on it.[78]For these reasons I do not consider that the Lender ever came under any obligation to pay (250,000 to Rylatt Chubb for the purpose of security, or to authorise the release of that sum for that purpose from the escrow account. More particularly, no such obligation had arisen by the time the Agreement was terminated. Had that been the case, however, the claim for payment of these monies would still have failed for the same reasons as I discuss in paragraphs 80 and 81 below. Disbursements and costs[79]On 5 December 2012 Ms Rylatt served a Release Request (exactly in the form of Schedule 5) with a proposed Release Date of 12 December 2012 for (94,498. 05 in respect of costs and disbursements. No request having been made under Clause 3.6.2 before that date, the full sum became then due and payable. BLC withheld (43,140. 25, requiring – but only belatedly - that this balance should be taxed under the Solicitors Act. Mr Lord sought to argue that the parties had reached a legal binding agreement to this effect, but in the absence of any pleading alleging this I decline to consider whether that was so [13] .[80]Mr Lord also pointed out that under Clause 12.3 of the Agreement the entire amount of the Loan became repayable immediately and without further demand on termination of the Agreement, and suggested that there would therefore be in any event a complete set-off, or perhaps more accurately a defence of circuity of action (on the basis that if paid, the (43,140. 25 would become instantaneously repayable).[81]Though correct in its practical result, Mr Lord's analysis is in my view significantly off-beam. There is no debt as such: on receipt of a compliant Release Request the obligation of the Lender was not to pay the monies but to instruct Harcus Sinclair to release the sum to the Borrower from the escrow account (see Clause 3.7). Prior to termination the forensic remedy would therefore have been not judgment for a monetary sum but an order that the Lender should instruct Harcus Sinclair to release that amount, coupled with an order to Harcus Sinclair to comply with that instruction. Since the termination, however, those monies - as part of the Loan advanced at the outset - are required under Clause 12.3 to be repaid. Since Harcus Sinclair's undertaking is to hold the monies in the account "for payment to be made therefrom in accordance with the terms of the Agreement" , they are now obliged to follow Clause 12.3 by returning all the monies held by them to the Lender. The court can only give effect to these obligations as they now exist. Unlike a monetary obligation which can accrue due before – and survive - termination, an order requiring a party to perform an act can only be made now and in the circumstances which presently obtain. It is nothing to the point that, had the release instructions been given and complied with before termination, the monies would not now be in the account and subject to Harcus Sinclair's obligation to return them to the Lender.[82]AREF also seeks release from the escrow account of (30,334.16 pursuant to a Release Request dated 22 January 2013. It is sufficient to say that, since by this date the Agreement had been terminated, the Request could generate no such entitlement. Conclusion[83]Accordingly, I will direct that Harcus Sinclair should pay the entirety of the monies in the escrow account to the First Defendant. Note 1 It is also conceivable that in the meantime through judicious editing at least part might be made available to the public, but that exercise appears to me both difficult and questionable. Note 2 This was under Clause 3.3.2 to be paid direct to the insurers. I was told that only an initial instalment had in fact been paid. That does not, however, as I understand to be accepted on both sides, affect the resolution of the matters which I have to decide. Note 3 While it is questionable whether this correctly reflects the legal consequences of the terms of the Agreement, nothing turns on the point for the purposes of this judgment. Note 4 Given the close proximity of this date my decision on termination is therefore of less practical significance than might at first appear. Note 5 Moreover, a pleaded allegation in the Borrower(s Defence and Counterclaim (at para. 45 (b)) that the power of termination had not been exercised in good faith was abandoned. Note 6 Even if elements of process had been embraced in reasonableness, I would not have considered that they included an obligation to consult the Borrower on the merits or postpone a decision pending the production by the Borrower(s lawyers of a further opinion, particularly in the light of their past record in this regard. Note 7 Nor, even if it had been relevant, would I have considered that this was in all the circumstances an unreasonable attitude on the part of the Lender. Note 8 One should also bear in mind that the order provided only for the proceedings to be stayed if the date were missed. Note 9 According to an alternative school of thought (see paragraph 48 above), the need for detriment is built into reliance and the absence of detriment would negate the estoppel at that earlier stage of the analysis. Note 10 The courts have regularly, particularly in recent years, enforced anti-variation clauses (see e.g. United Bank v Asif C.A. 11 February 2000), without considering whether the purported variation might also disable pro tanto the anti-variation clause itself, though the point was flagged, but not decided, in Spring Finance Ltd v HS Real Company LLC [2011] EWHC 57 (Comm) at para. 53 and again in Globe Motors Inc v TRW Lucasvarity Electric Steering Ltd [2012] EWHC 3134 (QB) ). It was not suggested that I should take a different approach to this logical conundrum, and it is improbable that I would have done so, had I been so invited. Note 11 Though not entirely consistently: see her letter of 26 November 2012 quoted in paragraph 76 below. Note 12 More precisely the date of drawdown of the Loan. Note 13 Apart from any factual question, there would also appear to be a possible (and unaddressed) issue as to consideration.

Cited in 1 later judgment