Murray Holdings Ltd v Oscatello Investments Ltd [2018] EWHC 162 (Ch)

Case No HC-2009-000007

[2018] EWHC 162 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND WALES

BUSINESS LIST (ChD)

Venue Royal Courts of Justice, Rolls Building, 7 Rolls Buildings, Fetter Lane, London EC4A 1NL

Date 02/02/2018

Before

MR JUSTICE MANN

Between

Murray Holdings LimitedClaimant

Oscatello Investments LimitedDefendants

Mr Benjamin Strong QC and Mr Alex Barden (instructed by Sidley Austin LLP) for Claimant

Mr David Allison QC and Mr Henry Phillips (instructed by Skadden, Arps, Slate, Meagher & Flom (UK) LLP) for Defendant

Hearing Hearing dates: 12 th& 13 th October 2017

Judgment

Mr Justice Mann :

Introduction

[1]This case involves questions of construction and (depending on the construction) rectification of what is known as a Framework Agreement dated 19th December 2007 between, inter alia, the parties to this action. The rectification claim is the claimant’s - if it succeeds on its construction argument it does not need its rectification claim; if it fails on construction it seeks to run rectification. Issues of estoppel and unilateral mistake were pleaded, but not pursued at the trial. In essence the dispute concerns the net proceeds of realisation of certain economic interests in Somerfield supermarkets, and the amount of those proceeds to which the claimant is entitled before the defendant takes the rest.

[2]At the time of facts relevant to this dispute the claimant was known as Isis Investments Ltd. Since this case involves a consideration of the facts at that time it will be convenient to use the name Isis throughout rather than the claimant’s later name (Murray), and I shall do so.

[3]Mr Benjamin Strong QC led for the claimant; Mr David Allison QC led for the defendant.

Background and the terms of the Framework Agreement

[4]Kaupthing Bank (“Kaupthing) is an Icelandic bank and was one of a group of investors which acquired an interest in Somerfield supermarkets in 2005. The interest comprised shares and an interest in a loan made to a company known Tazamia Ltd, and was held in Isis (the claimant), a wholly owned subsidiary. Kaupthing more or less immediately arranged for sub-participation in that interest, with the result that it was left with an interest which represented an initial investment of £44.15m. That is an important number in this litigation. The interest with which it was left is called its “Somerfield interest” in this judgment and the company through which the group of investors held Somerfield was called “Violet” in some of the negotiations and in the Framework Agreement.

[5]In 2007 Kaupthing was in the course of restructuring its relationship with a trust set up by Mr Robert Tchenguiz (“Mr Tchenguiz”), to which it (or its group) had lent a lot of money. The trust was known as the Tchenguiz Discretionary Trust - “TDT” - of which the trustees were Investec in Guernsey and an associated trustee company (I can treat them as being Investec for these purposes). The overall restructuring arrangements were known as Project Re, and were fairly complex, but they involved the transfer of the trust’s holdings in a number of shares into a company, chosen to be the defendant (“Oscatello”), a BVI company owned by the TDT, where they would be charged to the bank to secure bank borrowing. A substantial overdraft was to be provided to Oscatello and other loans were restructured through a total return swap and contracts for differences. Further loans called Profit Participation Loans (“PPLs”) were to be introduced into the structure, £75m lent by Isis (obviously funded by Kaupthing) and £75m from the Gudmundsson brothers (again, ultimately financed by Kaupthing). These loans were at a significant rate of interest and also carried the right to share in the profit which was hoped to arise from the trust assets. The details of this do not matter (at least for present purposes).

[6]Into this arrangement was introduced the part with which this litigation is concerned. Clause 6 of the Framework Agreement provided for Oscatello (for the TDT) to acquire an interest in the Somerfield interests still held by Isis. In what follows it is common ground that the references to Violet are references to the Somerfield entity and that the economic interests referred to are Isis’s holding of its interest in Somerfield (shares and loan). Clause 6 provided: “6. VIOLET ECONOMIC RETURN 6.1 In consideration of the payment of an amount of £44.05 million (the “Violet EquityCo Price”) from Oscatello to Isis on the Closing Date, Isis hereby undertakes and agrees (and Kaupthing undertakes to procure) that all rights to dividends, distributions, bonuses, interest, return of capital, disposal proceeds and/or other economic benefits received in respect of(i) the shares held in Violet by Isis (whether from Violet (or any member of its Group)) and

(ii) the £27.15 million loan made to Tazamia Limited, (the “Violet Economic Return”) shall be applied in the following

[7]The agreement therefore provides for a waterfall of payments once the Somerfield interest is realised. Following (A) to (D) literally (and without prejudging the construction questions that arise) it seems that the costs come out first, then Oscatello gets its £44.05m back, then Isis gets a sum looking like interest, then Oscatello gets the balance. What is said by Isis to be the problem in this case arises out of the absence of any express reference to a return of Isis’s original investment of £44.15m before Oscatello gets its £44.05 at the second level of the waterfall. Isis claims to be entitled to that sum at that stage of the waterfall, either by a process of construction or by way of rectification. Putting it shortly, and using terminology which will later figure in the story, Isis says that it was understood that by 2007 the investment was worth more than the £44.15m acquisition cost and what Oscatello was doing was purchasing the “upside” of the investment (i.e. the excess of its value over the acquisition cost) for £44.05m. So far as the agreement would seem to provide that Oscatello gets the whole of the proceeds, apart from costs and an interest payment, it should be construed otherwise or rectified, because if that construction or effect were right then Oscatello would get almost the whole of the value of the investment and not just the upside or profit.

[8]For the sake of completeness I should describe the other parts of the Framework Agreement, but since none of its other terms was relied on as being helpful in the construction process I do not need to set them out verbatim. Clause 2 provided for the introduction of the PPLs, forms of which were annexed to the Agreement. Clause 3 provided for the transfer of Trust shareholdings into Oscatello and clause 5 provided for proper governance of the assets within that company. Clause 4 dealt with completion and clause 7 contained provisions for applying cash receipts as between the parties as and when received in respect of the underlying securities. Clause 8 provided warranties and the remaining provisions were general standard form provisions about confidentiality, announcements, costs, variations, an entire agreement clause, notices and jurisdiction. The only observation to make about all this is that clause 6 is an odd provision to find in the context of the rest of the agreement (which provides for the consolidation of trust holdings in one place and to a degree, the division of the spoils), but since neither side considered that particularly relevant to any of the issues I have to decide I can leave it at the level of an observation.

[9]In 2009 Isis received around £130m for the whole of the Somerfield interest (including the part disposed of by sub-participation). Disputed amounts were paid into court. Oscatello was paid over £23m in respect of its admitted entitlements. A balance of over £41m remains in court awaiting the result of these proceedings.

The evidence in this case

[10]Somewhat surprisingly, neither side called any oral evidence in this case. No witness statements were served; no Civil Evidence Act notices were served. No real explanation, and certainly no properly evidenced explanation, of this state of affairs was advanced by either party. So the only evidence was contemporaneous documentary evidence of the transaction and the odd witness statement filed at a much earlier stage in these proceedings.

[11]In assessing the evidence I have to bear in mind two things in particular. The first is the deemed admission of authenticity of disclosed documents - CPR 32.19. No party challenged the authenticity of any document shown to me or (as far as I am aware) any other document in the extensive bundles. The second is Practice Direction 32.PD.27 which provides:

“27.2. All documents contained in bundles which have been agreed for use at a hearing shall be admissible at that hearing as evidence of their contents, unless: (a) the court orders otherwise; or (b) a party gives written notice of objection to the admissibility of particular documents.”

[12]No such notice was given, and where relevant the parties (and particularly the claimant) used documents to prove facts appearing in them. This was done without challenge.

[13]Thus was the case fought entirely on the documents.

The scheme of this judgment

[14]The evidence which is relevant to construction is very different in scale (and in its nature) to the evidence relevant to rectification. In order to guard against illegitimate transgression of evidential boundaries I shall deal with construction first, considering the evidence which is relevant to that, before turning to rectification so far as necessary (and as appears, it will be necessary). That will give rise to a limited amount of duplication of the narrative, but it is the safest way of going about the exercise.

The construction point - generally

[15]Mr Strong sought to say that, on its true construction, clause 6 had the effect that £44.15m fell to be paid out to Murray as part of the waterfall provisions in that clause notwithstanding the absence of an express term to that effect. He put his case in two ways:(a) First, he said that that was an available construction of the existing wording, and since the contrary construction was not commercially sensible, and since his construction was, then his construction should be preferred.

(b) Alternatively, if the wording did not of itself support his meaning as one of the available meanings, then nevertheless when one viewed the commercial context of the contract it was apparent that something had gone wrong with the wording, and the appropriate approach was to remedy that by way of construction, with his construction being the appropriate one.

Construction - legal principles

[16]There was no dispute about the applicable principles. They are contained in the following passage in Arnold v Britton

[2015] UKSC 36

at para 15:

“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions. In this connection, see Prenn at pp 1384-1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 1 WLR 989, 995-997 per Lord Wilberforce, Bank of Credit and Commerce International SA (in liquidation) v Ali [2002] 1 AC 251, para 8, per Lord Bingham, and the survey of more recent authorities in Rainy Sky, per Lord Clarke at paras 21-30.”

[17]There is one overall unitary exercise, not a two stage exercise as has previously been suggested, and business common sense can be taken into account: “21.The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.” (Rainy Sky v Kookmin Bank

[2012] UKSC 5

), per Lord Clarke). However, an appeal to business common sense has to be kept in its place: “ … commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made.” (Arnold v Britton at para 19)

The commercial context

[18]Without the focus of a witness statement care has to be taken in establishing what the commercial context of the agreement was. There were 15 chronological bundles, 13 of which contained documents leading up to the period of the execution of the Framework Agreement, and it might have been thought that a lot of those provided or demonstrated the commercial background. However, I was taken to only a small portion of those in this context. I shall confine my findings of commercial context within the pleaded facts, particular documents and submissions made to me by the parties (and in particular Mr Strong) and other obviously agreed matters, and not range wider than that through the papers.

[19]The starting point is the historical matter of the acquisition of the Somerfield interest by Isis and its sub-participation, leaving it with its reduced interest by 2007. By that time (as appears above) the TDT, which had borrowed substantially from the Kaupthing group, was in need of restructuring for its borrowing. This was not least because of a need to meet margin calls without selling substantial shareholdings, which sale might itself depress prices and imperil recovery by the bank. In an admitted part of the pleading it is pleaded that the indebtedness of various TDT entities would be re-structured and Kaupthing would acquire an indirect interest (through Isis) in certain investments of the TDT. The pleading goes on to describe part of the refinancing:

“15.1 Various investments of the TDT Trustees (including their interest in [Somerfield]) were to be transferred to Oscatello. 15.2 Oscatello was to purchase Isis’ Somerfield Interest; and 15.3 Kaupthing (through Isis) was to provide debt financing to Oscatello via its parent company, Eliza [Limited].”

[20]The negotiations relevant to these activities were between Mr Gunnarsson on the Kaupthing side and Mr Aaron Brown of a company known as R20 Ltd on behalf of the TDT interests. In the defendant’s pleaded case it is denied that Mr Brown negotiated the Framework Agreement on behalf of the TDT or its related entitles, including Oscatello. It is averred that R20 negotiated the transaction as principal in order to recommend it to the TDT trustees. However, this sort of distinction did not emerge in the submissions of the parties at the trial before me on the construction point. It was plain enough from the material that I saw that, for the purposes of this part of the action (the construction point) Mr Brown was Mr Gunnarsson’s negotiating counterparty and a relevant person for the purposes of assessing what was shared knowledge of the contractual background.

[21]The key bit of the commercial background relied on by Mr Strong is pleaded in paragraph 22 of his Particulars of Claim. What is pleaded there is that Isis had paid £44.15m for its interest in Somerfield (net of the sub-participations), and that Mr Gunnarsson and Mr Brown considered the interest to be worth £88.2m (ie £44.05m more than had been paid). The pleading continues that there was a discussion between Mr Brown and Mr Gunnarsson which culminated in a spreadsheet being sent by the former to the latter on 28th November 2007 showing a total return to “Kaupthing” of £88.2m. It is pleaded that “they” (ie Mr Brown and Gunnarsson) considered this spreadsheet to show the value of the various investments in Somerfield. Accordingly (it is pleaded) the profit or upside on Isis’s Somerfield investment was valued by the individuals negotiating the Framework Agreement at £44.05m (being £88.2m minus the original investment of £44.15m).

[22]While it is an agreed fact that Mr Brown and Mr Gunnarsson met on 28th November, there is no record of a spreadsheet being sent on that date. The email traffic shows one sent on 1st December, whose details correspond to those referred to in paragraph 22 of the Particulars of Claim. I was not shown any spreadsheet sent on the earlier date, but Mr Strong placed a lot of reliance on the 1st December spreadsheet, and I shall assume that that is the one to which paragraph 22 was intended to refer.

[23]The defendant seems to have admitted (via a response to a Request for Further Information) that Isis had paid £44.15m for its interest in the Somerfield shares (after taking account of the sub-participation) but made no admission as to the other matters referred to in the preceding two paragraphs of this judgment. Its pleading denies that the true value of the share at the time of the Framework Agreement was £88.2m while accepting that the true value was relevant to the proper construction of clause 6.

[24]The spreadsheet on which Mr Strong firmly relies in argument was sent as an email attachment by Mr Gunnarsson to Mr Brown on 1st December 2007 when the parties were negotiating the restructuring. The email said:

“I think this reflects the status as it is now. Will you make sure the closing prices are correct?”

[25]The spreadsheet in the papers associated with this email exchange is a later version which had been modified in some unidentifiable way by Morgan Stanley, but the parties seemed to treat the material parts of the 1st December spreadsheet as the being the same. The file name of the spreadsheet is “Somerfield JV Valuation v1.xlsx”. It is a complex document which assumes considerable prior knowledge. It is headed “Somerfield” and assumes an “Exit date” of 30th November 2007. All the sums are to be taken to be millions of pounds. The left hand column contains “Assumptions” and sets out some details of how much money was put into the Somerfield acquisition by various parties, including Kaupthing, and the other parties holding the TDT-owned interests. The right hand column is headed “Equity Value on exit” and proposes a total value for all interests (not just Kaupthing’s), Kaupthing’s is shown as “88.2”, and one can see that it is mathematically made up of 3 elements further up the spreadsheet (shares and the loan). One of those items is entitled “KB - Senior Equity” under the heading “Tazamia Return”, in the sum of 46.5.

[26]I accept that this would seem to show the valuation proposed by Mr Gunnarsson for Kaupthing’s (Isis’s) interest in Somerfield was £88m but it is not quite so obvious that Mr Brown was agreeing that valuation. He replied to Mr Gunnarsson on the same day:

“I am going through the spreadsheet now. The value of Kaupthing’s Somerfield stake is £41.6m, not £88m. You can’t take the line Kaupthing in the spreadsheet as that includes the Senior Equity in Brigetta, which I didn’t think was coming in.”

[27]This is presumably a reference to the “Senior Equity” line referred to above. The aggregate of the other two lines is 41.7, and that must be the £41.6m to which he refers.

[28]Mr Strong relies on this email as showing that Mr Gunnarsson proposed an overall figure for the value of the Somerfield interest, and that that overall figure is not disputed by Mr Brown even if he seems to dispute how much of that value is going to be part of the ultimate deal. This is the foundation for his pleaded case that the negotiating individuals were working on an agreed value of £88.2m. I consider it to be a weak foundation for that submission. It is no more than a possible implication from Mr Brown’s response that he was somehow accepting £88.2m as being the value of the interest. He misdescribes part of the interest that he thought was being left out of the deal - what he was referring to was the loan part of the interest which was nothing to do with Brigetta, which was a TDT company. He also says that the value of Kaupthing’s (Isis’s) interest was £41.6m, not £88m. One can only infer a shared view of valuation at £88.2m by assuming that Mr Brown was using a shorthand, which is a reasonable assumption, and assuming that he accepted the balancing figure of £46.5m (which he was leaving out of account) was a correct valuation, which is much more questionable.

[29]Mr Strong relies on the fact that there was no subsequent document which changed the relevant figures. That may be true, but by the same token he did not show further spreadsheets which repeated the valuation and amounted to some sort of affirmation by Mr Brown which would make it clear that he, and therefore both parties, were proceeding on a shared assumption that the value of Isis’s Somerfield interest was £88.2m. There are prior spreadsheets passing between Mr Gunnarsson and Mr Brown which reflect that, or a similar value, and it is apparent enough that Mr Gunnarsson was proposing it as the value, but it is plain that at that time the valuation was not agreed. On 30th November 2007 at 13:30 Mr Brown had said that the parties needed to agree “the value of Somerfield”, so they were apparently working towards that end, but there was no indication of agreement before the spreadsheet relied on by Mr Strong.

[30]On 10th December 2007 Mr Brown emailed PwC (who were providing services to the trustees), copied to Mr Gunnarsson, with a spreadsheet apparently setting out the assets and liabilities of the new company which was to take trust assets and be at the centre of the restructuring (eventually Oscatello became). He said:

“Attached is the final asset/liability spreadsheet. We’re still checking some small figures, but you should assume this is complete.”

[31]This is a much more complex spreadsheet than that referred to above. It does not contain a valuation figure for Isis’s Somerfield interest but it contains figures which Mr Strong says can be analysed to demonstrate that Mr Brown had included a valuation figure of £88m for Isis’s Somerfield interests. There is a page which sets out (in outline) the TDT’s position in terms of assets and liabilities before restructuring (in terms of assets and debts, spread between various holding companies) and the position “On Closing”. One line reads:

“Somerfield benefit acquired from Isis investments (44,000)”

[32]Mr Strong submits that that shows cash going out to pay for those investments. He then further seeks to analyse the global assets figures to show that they contain various elements which demonstrate that they include an asset worth £44m. That may be so but it does not demonstrate an assumed valuation of £88.2m.

[33]Other documents adduced by Mr Strong refer to a valuation of what Oscatello got for its money but do not show that the parties assumed an overall value of £88.2m. Some of them are on the claimant’s side only, and precede the above spreadsheet, and do not evidence an agreement or shared assumption as to the position. Others refer to valuations which do not help. The only other document which might be of assistance to him is an internal note from the TDT trustees (Investec) to “Tchenguiz Bookkeepers” dated 19th February 2008 which does not refer to a valuation of the overall interest but which contains material from which an overall valuation can be inferred. Ms Peck of Investec wrote:

“In order to counter balance the above, it was resolved that we buy Kaupthing’s upside in the Somerfield deal. The upside was valued on 30th November 2007 as being £44,050,000. Upon the future sale of Somerfield, Isis will receive their capital, but we will receive our upside, Isis’s upside and our capital.”

[34]This is not direct evidence of the trust’s perception of the value of the interest, but in order to arrive at that figure one must infer that the trust had formed a view as to what the overall value of the interest was. No figure other than the £88.2m had ever been proposed (apart from a slightly earlier figure which was slightly greater). On 11th December Mr Brown had sent the trust: “… spreadsheets showing the total assets and liabilities and equity breakdown of the new holding company structure, as well as a PwC structure paper and reviewing the steps and tax aspects of the transaction”.

[35]It is not apparent precisely which spreadsheets were sent to the trustees, but it is more likely than not that the information available enabled them to form a view as to the value of the Isis Somerfield interest, and since no figure other than the £88.2m figure had been passing at the time it is more likely than not that they (and Mr Brown) thought that that was the value.

[36]The evidence is thinner on the point than I would normally have expected, but I consider that Mr Strong has just made out what is for him a crucial point on construction, that it is to say that there was shared understanding that the value of the asset that was being dealt with was £88.2m. As reflected above, it is accepted by the defendant that the asset value (or the perceived asset value) is a factor capable of forming part of the relevant factual background.

[37]One point that is implicit in that finding, but which I must now specifically deal with, is whether Oscatello, as counterparty to the transaction, shared that assumption. Mr Allison sought to make the point that the relevant information did not go to the “decision-makers”, so those people did not share the assumption. I consider this to be a bad point. The facts are considered later in this judgment, when I deal with rectification, but for present purposes I find that the relevant fact was assumed by all relevant people. Mr Gunnarsson clearly assumed it - he propounded it in his spreadsheet. He was a bank official who apparently did all the negotiating and structuring for the bank’s subsidiary. The directors of Isis were professional directors supplied by an Isle of Man company who acted on the basis of what they were presented with by Isis and the bank. It would be a nonsense not to attribute his assumptions to Isis.

[38]By the same token, Mr Brown did all the negotiating (wearing his hat as an employee of R20), and reported to the trustees, as reflected above. Oscatello was a vehicle intended by the trust to be the vehicle for the restructuring brought in for that purpose when the negotiations were well under way. The directors of Oscatello were other companies and they played no part in the negotiation. They implemented a deal recommended by Mr Brown and acceptable to the trustees, and they entered into the Framework Agreement via authorised signatories who were the same individuals (Ms Peck and Mr Clifford) who signed for the trustees. Mr Brown’s assumptions underpinned his recommendations to the trustees, and the trustees had his spreadsheets and a view of valuation. The trustees may well have made their own assumptions, which became those of Oscatello, but if they did not then in the circumstances Mr Brown’s knowledge of the factual matrix would fall to be attributed to the trustees.

[39]I therefore find that through one or other of those routes, Oscatello shared the assumption of the bank and Isis about the value of the Somerfield interest.

Construction - the natural meaning of the words used

[40]Although the process of construing the contract is a unitary one in which all relevant considerations must be allowed to play their respective roles, in this case it will be useful to start by considering the natural meaning of the words used and relied on by Mr Strong in order to make his case. That would seem to be entirely consonant with the judgment of Lord Clarke in Rainy Sky. If there are two possible natural meanings, one of which coincides with Isis’s case, then Mr Strong’s appeal to the surrounding circumstances and commercial common sense becomes easier. If there is a natural meaning which does not support him and a forced (or more unnatural) meaning which does, then his task is harder, but at least he has a forced meaning to work with. If there is no natural or forced meaning which assists him then he has to adopt a different approach which roots itself in commercial absurdity (though that concept is also capable of playing an important part in choosing between available meanings). One has to start somewhere, so I shall start with potential meanings of the words relied on. Mr Strong has two candidates – first, the expressions “economic benefits received” with “Violet Economic Return”, and second, the reference to costs and expenses in paragraph (A).

[41]So far as the first of those is concerned, he starts with the expression “economic benefits received” in the clause and relies on them as providing some sort of description of the list of items which precede it. He then submits that the wording is capable of encapsulating the concept of a net benefit. Thus the economic benefit for a man who buys an asset for £10 and sells it for £15 is the £5 profit. While the words might mean the actual value of the whole thing, in a given context they are capable of having the more limited meaning. They are therefore capable of describing the realisation amounts net of the purchase cost. They colour the meaning of the words which precede them. He makes a similar point about the expression “Violet Economic Return”. The expression “economic return” is capable of describing the benefit (in net terms) of the asset described, and that is perhaps its more natural meaning even if it can also describe the whole asset.

[42]I find that that submission fails. Isis (Murray) does not have available to it any natural, or less than natural, meaning of the words in their documentary context which assists it. The words “other economic benefits” have to be viewed in their context. They follow on from a list of things which are plainly descriptions of the gross amounts obtained from forms of realisation or from other beneficial distributions (dividends, interest and the like). Those matters, as they are set out, can only refer to gross sums. Mr Strong puts things the wrong way round - it is not the words “economic benefits” which colour the preceding words. The structure of the clause is such that “economic benefits” take their colour from the preceding words - the word “other” has that effect. There is no linguistic support at all for the idea that the words suddenly introduce a limitation (net as opposed to gross) on the preceding words which themselves encapsulate gross, not net, concepts. They are plainly no more than a sweeping up provision. There is nothing in the choice of words which would limit the clear gross nature of the preceding items, or suddenly import a limitation into the words themselves in relation to the things that they cover. While in other contexts Mr Strong’s construction might be available, in the present case it is not. The words are simply not capable of bearing his meaning, either by way of a natural or by way of a forced meaning.

[43]The same is true of his other words relied on - the words “Violet Economic Return”. I accept that the words “economic return” by themselves are more capable of describing a profit element than “economic benefit”, but whether that is an available meaning depends on their context. Here the words are not actually used to encapsulate or convey a concept themselves. They are a phrase used as a shorthand, or label, for a package of elements. The draftsman has told us what they mean - they mean the things in the preceding words. For the reasons given above, the packaged elements are all gross concepts with no question of their being net concepts in the sense required by Mr Strong. The term “Violet Economic Return” is then simply used as a label for the bundle. While the court is entitled to look at the label used by the parties as a guide to construction (see Chartbrook at paragraph 17) that does not assist Mr Strong here. There is no case at all for saying that the use of those words as a label is suddenly capable of limiting the wider effect of the terms (conveying gross concepts) which it is describing for the sake of convenience, or introducing an entirely new concept. If one did that one would not be using the label to assist in construing an equivocal term. One would be using it to carry out serious modifications to terms which are perfectly clear. That is sufficiently plainly wrong to enable one to say, as I do, that Mr Strong’s meaning is not one which is available to him. There is no natural or less than natural meaning of those words which is capable of supporting Isis’s case.

[44]His next candidate (based on “costs and expenses”) fares no better. They are not capable, on the basis of a natural, or even forced, meaning of catching the acquisition costs of the Somerfield interest. There are at least three reasons for this:(i) First, the costs and expenses must have been “incurred by Isis”. The acquisition costs which Mr Strong seeks to to recover were not incurred by Isis. They were incurred by Kaupthing. There is no evidence of any acquisition cost being born by Isis.

(ii) The costs and expenses are those incurred in obtaining the Violet Economic Return, ie the realisations of the Somerfield interest (described in the preceding words). They were incurred in relation to the disposal of the Somerfield interest, not in its acquisition. That is quite clear on the language.

(iii) The use of the words “if any” would be inappropriate if acquisition costs were to be brought within the recovery regime, because there would always, and inevitably, be something falling under the clause because the acquisition costs would be there. There would be no work for “if any” to do.

[45]I therefore find that there is no natural or apparently forced meaning of the words as such, in their documentary context, which would be capable of supporting Mr Strong’s case.

[46]Mr Strong seeks to supplement his case under this head by saying that the transaction seems to make no commercial sense if one considers how the clause works. Oscatello gets most of the value of an asset known to be worth over £88m while paying only about half of that. All Isis gets is the quasi-interest provided by paragraph (C). He says there are two oddities about that interest payment on Oscatello’s construction First, it is a random amount depending on when the interest is realised. Second, it is an apparently random sum calculated on a strangely precise sum of money. Nor is there any apparent commercial rationale behind the equally precise (non-rounded) sum paid by Oscatello for whatever it purchased. Those puzzles are removed when one realises that what was supposed to happen was that Isis was to have its capital back (£44.15m), with interest on that capital (hence paragraph (C)), and that in between Oscatello was to have its purchase price back and pick up any increase in value at the end. That explained all the apparently precisely formulated sums of money appearing in the clause. A commercial rationalisation is said to drive one to his construction of the words which I have considered above which gives Isis the capital cost of acquisition of the asset ahead of Oscatello. It all then makes commercial sense.

[47]I agree that there is some commercial sense in the result contended for by Mr Strong (though I make further remarks about the commercialities below), but that does not enable one to construe the words in the manner which he seeks. The comparative commercial merits of two possible constructions may shift the balance in favour of one result or the other. However, for this principle to come into play there must be two competing constructions first. Where the meaning of the words is plain on its face the comparative commercialities do not come into play. That is the case here. There are no two meanings of plain words which fall to be chosen by reference to commercial considerations. There is just one meaning (for present purposes) and no other candidate to be contested by reference to the commercialities.

[48]In fact an appeal to normal business sense raises an additional question-mark about Mr Strong’s construction. If Mr Strong were right then the acquisition cost would come out of the waterfall ahead of the costs of realisation - they are taken out before one gets to paragraph (A). That would be an unusual business arrangement. Normally one would expect the costs of realising the spoils to be taken out before the spoils are divided. It is true that in this case it would probably make no practical difference if Isis did the realisation itself, but one cannot ignore this oddity if one is testing Mr Strong’s case.

[49]In any event it is not wholly clear that the commercialities point to an inevitable commercial absurdity, as suggested by Mr Strong. Mr Allison sought to point out various factors which he said meant that one could not conclude that the bargain apparently reflected by clause 6 was as absurd, odd or as uncommercial as it was painted to be. His points mainly turned on other aspects of the overall restructuring, looking beyond clause 6.

[50]The overall restructuring is obviously a potentially important part of the factual matrix. The Framework Agreement was not the only document involved, but I was not taken to any of the other transactional documents. By and large it was described to me only in general terms, so the detail escapes me (though much of it will be irrelevant). The various commercial elements were not developed by any witness. By and large they were the subject of submissions and suggestions by counsel. That poses an obvious difficulty in assessing their weight and effect. Some of the points involve little more than surmise. The more important or significant points raised by Mr Allison were as follows.

[51]First, Mr Allison suggested that there might have been a benefit to Kaupthing in accelerating a return from an illiquid asset. Somerfield was not a listed company, and in any event the markets were in a very uncertain state in 2007. In those circumstances it might have suited Kaupthing to take the money for its interest. This seems to me to be an unlikely rationalisation. It is not apparent that the trust was sufficiently liquid to pay its £44.05m itself, and apparently required liquidity in the form of the two PPLs, one of which was made by Isis itself, and used that to pay its £44.05m. If Mr Allison were right then Kaupthing was providing liquidity to relieve itself of the effect of an illiquid position, which is not an obviously sensible or likely step.

[52]Next it was suggested that Oscatello could not have been sure it would come out ahead in the deal. On the basis of the Framework Agreement as executed it took the sole risk of the interest realising less than £44m when it was eventually realised. It was suggested by Mr Allison that that was a real risk. The deal only made sense if the market increased. There was no evidence of a shared belief that that would occur. He pointed out that, in the events which have happened, Oscatello will only recover £20m from the realisations, which leaves it out of pocket. The weight of this point is less clear. On the footing that the parties assumed a value of £88m there would have to be a very serious decline before Oscatello started to be out of pocket, and it is not obvious to me why Kaupthing would wish to avoid the effect of that risk to itself by selling the whole of its interest to Oscatello in the transaction as it appears in clause 6. On 19th November 2007 Mr Brown (amongst others) received an email from Citibank reflecting an apparent instruction to them to sell all the shareholders’ interests in Somerfield. Two days later he forwarded it to Mr Gunnarsson. It attached some documents in which Citibank proposed some fees which were related to the possible sale prices. The possible prices were across a range which (when applied to Isis’s own interest) would have put £88.2m towards the bottom of it. It certainly did not envisage a sale price which was low enough to have left Oscatello out of pocket. I doubt if the risk of so significant a decline was within the parties’ contemplation at the time.

[53]Then Mr Allison suggested that there was an advantage to Kaupthing in the transaction as reflected in the document because it was capable of providing Oscatello with funds to discharge its indebtedness. At the same time Kaupthing had the benefit of its PPL which gave it a handsome return. As well as a lot of interest, Isis would have been entitled to 9% of the increase in value of TDT assets (broadly speaking). He suggested that the interest under the PPL far exceeded the value of the Somerfield shares that was lost. I have little difficulty in rejecting the first part of this suggestion as being a rationale for the transaction. It amounted to a suggestion that Kaupthing was giving away money so that it could be used to repay Kaupthing. That makes no sense. The second part, however, cannot be so lightly dismissed. The PPLs were a very material part of the transaction (they were apparently the main thing intended to keep the TDT afloat), and the returns were good. One cannot dismiss lightly the suggestion that they were a decent quid pro quo in an overall commercial package.

[54]Before moving on I observe that I reach my conclusion on the first of those two parts despite the fact that Isis has apparently pleaded a similar purpose itself as underpinning the Framework Agreement, in earlier incarnations of these proceedings. In 2009 it was seeking the directions of the court as to how much of the loan element of the Somerfield interest fell within clause 6. Paragraph 14 of its Particulars of Claim pleaded in terms that the purpose of clause 6 was to ensure that Isis remitted to Oscatello the net proceeds of the sale of its Somerfield interest to enable Oscatello to meet its obligations to Kaupthing and to be able to fund the repayment of the PPLs. That allegation was made when Isis was under the control of liquidators. I do not know where the averment came from, but it seems extremely odd. As it happened, that averment was never the subject of a judicial finding, or the basis on which any decision was made. No estoppel is based on it. I prefer to leave it in the realms of an inexplicable averment.

[55]Probably the most significant unknown in this context, which makes it hard to find commercial absurdity in Oscatello’s construction, relates to some Sainsbury shares. Kaupthing had a holding of Sainsbury shares. It would seem that a loss had arisen on those shares. As part of the arrangement those shares were taken on by the TDT in such a way as to “take over” the loss, and this was viewed as a counterpart to Oscatello’s acquiring the Somerfield interest. This balancing is reflected in several documents, and for present purposes I can quote from one, namely the Investec memorandum of 19th February 2008 which I have referred to above. The relevant parts read:

"Please see the attached copy memo dated 17 December 2007. The 50/50 joint venture Razino entered into with Kaupthing last year came to an end on 20 December 2007 and Razino entered into a Forward Purchase Contract with Kaupthing to buy 100% of the 88m Sainsbury shares. Kaupthing effectively therefore made a loss on this deal, and by Razino purchasing the 88m Sainsbury shares, Razino 'purchased' a loss (there will be a separate posting memo on this one in due course). In order to counter balance the above, it was resolved that we buy Kaupthing's upside in the Somerfield loan. The upside was valued on 30 November 2007 has being £44,050,000. Upon the future sale of Somerfield, Isis will receive their capital, but we will receive our upside, Isis's upside and our capital."

[56]The intention of the parties, being an expression of their subjective intention, and after the event, is, of course, inadmissible on the question of construction. The purpose of my referring to it at this stage is to show the possible link between the clause 6 transaction and the Sainsbury shares deal. It was never made apparent to me what the Sainsbury shares deal was all about, and what, if any, disadvantage Oscatello had from it. The parties were unable to explain it to me. However, it was part of the overall picture, and is material for suggesting that the clause 6 deal as it seems to stand was not necessarily commercially absurd. Added to that is the fact that the very existence of clause 6 in the Framework Agreement is puzzling. The overall purpose of what was happening in Project Re was a restructuring of debt. This commercial transaction inserted into this document is puzzling, since it is not an obvious part of the restructuring.

[57]The end result of considering these matters is that it is not possible to say that Oscatello’s construction of clause 6 leads to commercial absurdity. It might be thought to look odd, but not enough was established about all the surrounding circumstances which would enable one to label that construction as an absurdity which the parties cannot have intended. Mr Strong’s appeal to what he would say is the obvious commerciality of the apparent deal therefore does not work. As Lord Hoffman said in Chartbrook: “20. It is of course true that the fact that a contract may appear to be unduly favourable to one of the parties is not a sufficient reason for supposing that it does not mean what it says. The reasonable accuracy of the instrument has not been privy to the negotiations and cannot tell whether a provision favourable to one side was not in exchange for some concession elsewhere or simply a bad bargain." In the circumstances that applies to the present case. Accordingly, this way of putting the construction case fails.

Construction - remedying an obvious error

[58]That conclusion throws Mr Strong back on his alternative construction strand. He submits that if there is no apparent ambiguity in the words used which he can exploit, then nevertheless this case falls into what he said was a separate category of cases in which it was apparent that something had gone wrong and the court should remedy that and fill the gap by a process of construction.

[59]In this respect Mr Strong relies on the speech of Lord Hoffmann in Chartbrook applying, with qualifications, a dictum of Brighman LJ in East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61:

“22. In [East v Pantiles] Brightman LJ stated the conditions for what he called "correction of mistakes by construction": “Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what correction ought to be made in order to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction." 23 Subject to qualifications… I would accept this statement which is in my opinion no more than an expression of the common sense view that we do not readily accept that people have made mistakes in formal documents ... 24. The second qualification concerns the words 'on the face of the instrument'. I agree with Carnwarth LJ ... that in deciding whether there is a clear mistake, the court is not confined to reading the document without regard to its background or context. As the exercise is part of the single task of interpretation, the background and context must always be taken into consideration. 25. What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant.”

[60]It may be open to debate how much of this reasoning has survived the more recent cases on construction referred to above (see the lecture by Sir Geoffrey Vos, Chancellor of the High Court, to Canterbury University, Christchurch on 18 October 2017 entitled "Contractual Interpretation: Do judges sometimes say one thing and do another?") but I do not need to enter into that debate because the facts of this case would not fall within what Lord Hoffmann was describing in any event. There is no obvious mistake on the face of the document itself. Nothing appearing in clause 6 makes a nonsense of, or is made a nonsense by, any other provision of the Framework Agreement. Nor does the admissible context demonstrate that a mistake must have been made for the reasons given in the preceding section of this judgement. The most that can be said is that the operation of this section might arouse one's commercial curiosity, but that is not enough. The complex, and not fully investigated, context of the Framework Agreement does not demonstrate an obvious mistake, or absurdity, and it flows from that that it would not be possible to say what correction ought to be made in order to cure the mistake.

[61]Accordingly, this line of argument on the part of the claimant also fails. It further follows that the claimant loses on its construction argument.

Rectification - in outline

[62]That conclusion on construction makes it necessary to consider the rectification case. There are two substantial points to consider - the continuing common intention and whose intention is relevant for these purposes (and in particular whether the intention of the negotiators is significant either in its own right or by attribution).

[63]The claimant says that clause 6 of the Framework Agreement ought to be rectified to reflect the fact that the parties intended that Oscatello should acquire only the upside in or profit on (ie the excess in value over the acquisition cost of) Isis’s Somerfield interest, and not the whole interest. That would be achieved by requiring its acquisition costs, treated as £44.15m, to be taken out after paragraph (A) (as one of the preceding drafts did). It is Isis’s case that that was always intended, that the omission at one stage of the drafting of an appropriate clause, and the failure of anyone to notice this fundamental shift in the deal, were a mistake.

[64]Oscatello does not deny this; instead it makes no admission. Its principal fire was concentrated on whether the right people (the decision-makers) had that intention. This requires particular attention to be given to the negotiators and to those to whom they ultimately answered. I deal with that in a separate section of this judgment.

[65]In the absence of live witnesses, or statements from any witnesses made for the purposes of this claim, Mr Strong seeks to make his case from the documents. That requires a detailed consideration of the many documents passing between the parties, and some of the internal documents. Having done that, I will turn to the law before reaching my conclusions on the claim. I would point out again that I was not taken to the bulk of the documents in the 15 lever arch files before me and I have confined my attention mainly to those documents to which my attention was drawn by one side or another in support of their respective cases, with merely one or two other documents which caught my eye. Those documents, when extracted, amounted to one lever arch file.

Rectification - the entities and individuals involved

[66]As already pointed out, Isis was a wholly (indirectly) owned subsidiary of Kaupthing. It was used to hold various assets for Kaupthing (and some of its favoured customers), including the Somerfield interest acquired by Kaupthing. By an agreement dated 20th October 1996 Isis formally appointed Kaupthing to manage its assets. Kaupthing’s functions included providing “Recommendations on an investment strategy for [Isis]” (Article 1). Article 3 required Kaupthing to allow the accountant of Isis to have access to all documents and securities of Isis that were subject to Kaupthing’s management.

[67]The directors of Isis were provided by a Manx company, Simcocks Trust Ltd, a corporate services provider. Simcocks’ services were provided under its standard terms and conditions, which included the provision of company officers. One of its specified functions was handling the day to day affairs of the company (other than accounting), including the signing of cheques and dealing with correspondence. Both sides relied on statements made by Mrs Moira McHarrie, who was one of the directors provided by Simcocks, in a witness statement prepared for use at an early stage of those proceedings in April 2010. She describes how it was that the first that the directors knew of any transaction which they were asked to effect was when investments and documents recording the investments were in final form or near final form, having been prepared by of for Kaupthing. Isis (meaning her and her co-directors) was asked to approve and execute the necessary documents. She says that she always ensured that she understood what she was asked to do, and would request further information if that was required by Manx law. Paragraph 21 of that statement says that the directors made their day to day management decisions without further reference to Kaupthing. They did this at meetings held twice a day (for their various client companies). In paragraph 28 she observed that she had not seen the Investment Strategy referred to in the management agreement between Isis and Kaupthing “but I was not too concerned as I considered that it would obviously be in Kaupthing's interest as a parent company to ensure that the Investment Strategy was profitable.” It is apparent from what she says (and from what one would expect where directors of a company are provided by a service company) that neither she nor her co-directors took any part in the actual conduct of the real business of the company or any part in directing its commercial activities other than executing documents and providing some basic administration. I return to this evidence in a little more detail below.

[68]Mr Gunnarsson was a Kaupthing employee who was tasked with dealing with Project Re. It was not apparent to me (or, I think, to counsel) what his precise function was, but it is clear what he was tasked with in this case. He did all the negotiating in relation to the restructuring and also liaised with, and instructed, solicitors who were ultimately instructed to consider and draft the documentation. There was no suggestion that anyone other than him was materially involved in the negotiation which is germane to this action.

[69]On the other side of the transaction was Mr Aaron Brown. He was an employee of R20 Ltd. That company was engaged by the trustees of the TDT (Investec Trust (Guernsey) Ltd) to provide the services of Investment Adviser under a written agreement dated 5th October 2007. The services to be provided were defined as:

"the duties and functions normally undertaken by professional consultants or advisors of investment opportunities including (but not restricted to) the duties set out in the Schedule hereto."

Clause 2.2 provided:

"2.2 It is hereby agreed and understood by the parties hereto that the Trustees shall retain the power at all times to decide whether or not to act upon any matter brought to their attention by the Consultant as they shall in their absolute discretion determine including, without limitation, the power to determine whether to act, or not to act, upon any recommendation of the Consultant."

Clause 7 contains some potentially relevant restrictions: "7.1 On behalf of itself or any employee or agent acting under its supervision or direction the Consultant shall not without the prior specific consent of the Trustees: 7.1.1 have authority, nor shall it hold itself out as having authority, to bind the Trustees, the Trust or the Trust Structure; 7.1.2 commence any negotiations with or make any application to any local authority or other government body or competent agency in relation to any matter whatsoever concerning the Trust or the Trust Structure or any matters arising pursuant to the provision of the Services. 7.1.3 enter or purport to enter into any contract on behalf of or as agent for the Trustees, the Trust or the Trust Structure and, in relation to any such contract which is duly authorised by the Trustees, the Consultant shall disclose to any third party that the Trustees enter into such contract as trustees of the Trust. Schedule 1 provides that the duties of the Consultant "shall include (without limitation): 1 the identification of new business opportunities within the United Kingdom… 2. The monitoring of assets liabilities or other interests of the Trust and the reporting of the same to the Trustee.… 4. The negotiation and facilitation of arranging finance/refinance, as necessary… 9. Enter into negotiations including, where necessary, bidding on the acquisition of assets on behalf of the Trustees." 1 the identification of new business opportunities within the United Kingdom…

[70]R20 was not necessarily a company which was fully at arm’s length from the Trustees, because Mr Robert Tchenguiz , the settlor of and a beneficiary under the TDT, was also a director of R20; it was also suggested that he was the beneficial owner of the company but that was disputed and I am unable to make a finding about that. What can be said is that R20 was probably more tied into the affairs of the trust than a fully arm's-length consultant might otherwise have been.

[71]Investec (Investec Trust (Guernsey) Ltd) was a Guernsey trust company. Bayeux Trustees Ltd was apparently also a co-trustee, but no-one ever suggested at the hearing that it was a relevant participant in the restructuring events and it can probably be ignored for these purposes. No evidence was shown to me to suggest that the trustees themselves were directly involved in the negotiations which led up to the Framework Agreement. At the end of the process Mr Brown reported to them. In due course the documentation was entered into by the various trust companies involved. One of those companies was Oscatello, a BVI company. It was a shelf company which was introduced into the transaction at the end of the process in order to provide one of the vehicles for the restructuring. There was no suggestion that its directors exercised any material judgement independent of the trustees and/or R20, a point to which I return below.

[72]It is important to the case of Mr Strong that he establish that Mr Brown was really doing all the commercial negotiations, and that the role of trustee was to do the rather more formal acts. To that end he took me to some emails relating to some prior transactions which were designed to demonstrate that that was the general position in relation to trust matters. It seemed to me that, so far as the email exchanges were comprehensible outside their context, they were probably consistent with that thesis, but I am not sure they demonstrated it.

[73]However, the key role of R20 and Mr Brown is demonstrated by an engagement letter which Investec entered into with its solicitors, Kirkland & Ellis International LLP (“Kirkland”) and dated 14th August 2007. Kirkland were the solicitors who acted for the trust in relation to Project Re and the Framework Agreement. In that letter Kirkland wrote in order to: “set out the basis on which Kirkland & Ellis International LLP ... would propose to act for Investec Trust (Guernsey) Limited and Bayeux Trustees Ltd in its capacity as trustees of The Tchenguiz Discretionary Trust ("TDT"). A. Appointment 1. TDT wishes K&E to provide advice with respect to its investments and potential investments in the debt and equity markets, both public and private ... 3. We will be acting for and advising TDT and its portfolio companies only, to the exclusion of (unless otherwise agreed on a case-by-case basis) any officers, employees or consultants of TDT.... 5. As agreed with you, in the day to day operation and management of our relationship with TDT, you understand that R20 Ltd (adviser to TDT) will be our principal point of contact and that we will be entitled to obtain mandates and receive instructions from R20 Ltd (including for the avoidance of any doubt, from Robert Tchenguiz, Tim Smalley, Aaron Brown, Mark Grunnell and any other executives employed by R20 Ltd from time to time). That letter was signed by Ciara Gurney on behalf of Investec and Lydia Peck for Bayeux Trustees Limited.

[74]Mr Allison drew my attention to an exchange of emails in October 2007 in which PwC expressed concern that the discharge of the functions of R20 should not lead to it being determined that the TDT carried on business in the UK, for tax purposes. An email from Ms Gurney indicated how important it was that R20 should "follow the agreement". Rectification - the facts leading up to and relevant to the execution of the Framework Agreement

[75]In setting out the facts relating to rectification it will be necessary to go over some of the factual ground which I have already dealt with in relation to the construction point dealt with above. That is because in this context that material is part of a rather wider, different and differently focused enquiry. In relation to the construction point the enquiry related to whether or not there was a shared assumption as to value. In relation to rectification the question is whether there are manifestations of a shared common intention that Oscatello should acquire only the upside (profit) in respect of Isis's Somerfield interest and not the whole thing (apart from the interest). The points are related but the focus is different.

[76]As reflected above, by November 2007 the TDT was under pressure. On 22nd November 2007 an email internal to Investec records that Mr Brown called "(even though he is on holiday). They have arranged with Kaupthing that we will borrow a further £2.5 million – this will be available to us immediately. [Mr Brown] asked we send a utilisation request to Gudmunder at Kaupthing Iceland, for them to send the funds direct to Dawnay Day - [Mr Brown] noted this had been done previously."

[77]This email does demonstrate the centrality of Mr Brown to the business affairs of the TDT. An email of the next day suggest that the £2.5 million was required to meet a margin call by Dawnay Day, which was one of the companies which had lent monies to finance some of the Trust's assets. The same email suggested that R20 was going to try to get that lender to hold off.

[78]By this time consideration of Project Re was under way, and in anticipation of documents that would be required Mr Gunnarsson set about instructing Linklaters to act on his side in the matter of the documentation. An email from him to Linklaters of 23rd November 2007 gives some indication of the proposed shape, though not the actual final shape, of the deal. What is of significance in relation to this exchange is that it is Mr Gunnarsson who is instructing Linklaters, and as events unfolded he was the person who gave all the instructions.

[79]On 26th November 2007 Mr Gunnarsson sent to Mr Brown a draft of the main terms that he had quickly put together and he invited Mr Brown to comment on it. Later the same day Mr Gunnarsson sent to Mr Brown a "model" in the form of various spreadsheets. The spreadsheets listed the TDT assets that would be brought within the new structure and reflected various cash flows. His covering email invites Mr Brown to note that "the assets from Kaupthing, namely the Kaupthing Somerfield shares and the 44m SBRY [Sainsbury] shares are not included." There is no evidence there of how they were intended to be included at that stage.

[80]Mr Brown responded in an email the next day attaching his own version of some spreadsheets. One of his sheets is headed "Somerfield" and is an early version 1 of Mr Strong's important documents referred to above. It shows an "Equity Value on exit" at a mid price of 850m (lower than the same figure in the latest spreadsheet). However, at this stage there is no indication of what the parties were subjectively intending in relation to that.

[81]On 28th November 2007 an internal Investec note of Ms Peck records a telephone call from Mr Brown. It records him advising her that R20 were looking into the possibility of consolidating some of the assets of TDT with a view to introducing new investors. It went on:

"This phone call from AB therefore served as heads up to the Trustees of what R20 are currently working on. A formal recommendation from R20 will follow in due course."

[82]The note went on to record that Mr Brown recommended that the trust use Kirkland, and given that the trust has had a lot of dealings with Kirkland Ms Peck told Mr Brown that the trust would be comfortable in using Kirkland's services and would be agreeable to Mr Brown having discussions with Kirkland on the matter. It ends:

"AB would keep the Trustees updated on the progress they make and would provide a formal recommendation to the Trustees in due course."

[83]In terms of formalities this conversation was recorded in a resolution of the trustees dated 29th November 2007. It recorded the advice and proposals of Mr Brown and recorded a resolution to accept in principle an informal recommendation from R20 for restructuring, consolidation of positions and the injection of funds from external investments, and further resolved to appoint Kirkland to act on behalf of the trust and an authorisation for R20 to discuss the proposal with Kirkland. It ended by saying:

"IT IS NOTED that the Trustees will not make a formal decision on whether to proceed with the restructure until a formal recommendation has been received from R20 and further information and fuller details have been provided to the Trustees."

[84]On 30th November there was more traffic between Mr Brown and Mr Gunnarsson. It would seem that they were trying to achieve agreement as to the values of the assets being put into the restructuring. At 1:15pm Mr Brown sent a single sheet schedule proposing values for a lot of assets, including a figure for TDT’s own Somerfield interest. 15 minutes later Mr Gunnarsson responded by saying:

“Can you send me the whole thing - shares and stock prices. We still need also to agree the value of Somerfield.”

[85]Mr Brown responded two minutes later with a fuller multi-page document, saying that he needed to amend the cashflow. One of the pages is entitled:

“Assets from TDT and 44m shares in Sainsbury from Kaupthing.”

[86]On another of the pages, under an entry relating to Cash Flow, there is an entry:

“Somerfield benefit acquired from ISIS investments (88,190)”

. It looks as though this reflects money flowing out, that is to say as though the TDT entity would be paying for the whole value of the interest. Another entry records:

“Kaupthing pays the loss of the sbry holding 55,410.”

This would seem to relate to the Sainsbury shares transaction to which I have referred above, but again no explanation is given.

[87]The next page reflects the same sort of thing. Under the heading “Non-core, Kaupthing and Exista shares sold - Kaupthing sells SBRY and Somerfield into structure - Excess cash paid out and new equity paid in” there are the entries:

“Kaupthing SBRY shares acquired (191,400) Kaupthing Somerfield shares acquired (88,400)”

A fresh version was sent by Mr Gunnarsson just before midnight the same day, updated with prices as at the end of the day. The entries about Sainsbury shares and the Somerfield interest are the same. Kaupthing Somerfield shares acquired (88,400)”

[88]Thus far, therefore, the Somerfield interest has been brought into the transaction as something being acquired by TDT as part of the exercise, but at a price which reflects full value being given, or at least more than the upside. This must have occurred as a result of conversations of which there is no record and no direct evidence.

[89]Then we come to the document to which Mr Strong pinned his construction case. Mr Gunnarsson sent his version of the valuation of the Somerfield interest to Mr Brown at 15:09 on 1st December. It apparently shows the values attributable to various parties owning an interest and the right hand value shows “Equity value on exit”. He lists three Kaupthing elements - “Preference share return” at 21.6, “Remaining equity to ownership” at 20.1 and “Tazamia return - KB - Senior Equity” at 46.5. (Tazamia was an entity through which Kaupthing acquired part of its Somerfield interest, and in relation to that part Kaupthing technically had an interest in Tazamia.) Under total return Kaupthing is shown as having a value of 88.2. As a matter of mathematics that is the sum of the three earlier preceding value figures.

[90]Mr Brown responded at 14:37 on 3rd December:

“I am going through the spreadsheet now. The value of Kaupthing’s Somerfield stake is £41.6m, not £88m. You can’t take the line Kaupthing in the spreadsheet as that includes the Senior Equity in Brigetta, which I didn’t think was coming in.”

It would therefore appear that Mr Brown thought at this stage that only the Kaupthing Somerfield shares were coming in, and not the interest held through Tazamia.

[91]At this time Kirkland produced a first draft of the Framework Agreement. It was rather different in form to that which eventually materialised. It read: “6. Violet Economic Benefit Isis hereby undertakes and agrees (and Kaupthing undertakes to procure) that with effect from the Benchmark Date:6.1 if Isis receives any Economic Benefit from Violet (or any member of its Group), Isis will promptly notify [RE Holding/Parent].

6.2 Isis shall hold any Economic Benefit received by it on trust for [RE Holding/Parent]. 6.3. Isis shall on demand by [RE Holding/Parent] pay to [RE Holding/Parent] the amount of the Economic Benefit (less the third-party costs and expenses (if any) reasonably incurred by Isis in receiving such Economic Benefit). 6.4 Isis shall not dispose of its interests in Violet. 6.5. Isis shall exercise its voting rights in Violet in the same manner that the voting rights in Violet held by the TDT Group exercised." It is to be inferred that this clause was given on the instructions of Mr Brown and that those instructions indicated that the whole of an interest in Violet (the name used to describe Somerfield) was being acquired, but there is no indication in this draft of the, or any, price being paid despite the fact that previous cash flows had assumed a price.

[92]On 3rd December Mr Brown, Mr Smalley and Mr Grunnell of R20 met with representatives of the trustees (including Ms Peck). The Investec note of that meeting recorded: "The purpose of the meeting was to discuss with R20 Ltd, investment advisers to the Trust, what deals were currently ongoing, what deals were likely to be recommended to the Trustees in the future, cash positions, strategies and other matters. The attached agenda was given to all persons present.” The attached agenda was given to all persons present.”

[93]The agenda was not in evidence at the trial. On page 2 of the document Somerfield is referred to thus:

"3. Somerfield stores in the UK – refinance TS [Mr Smalley] advised that due to the lack of liquidity in the market at present, the refinance route is not possible. R20 therefore recommends to the Trustees that an auction be run in early 2008 and suggests that Citibank be appointed to run the auction."

On the next page of the note there is a further apparent reference to Project Re:

“3. Re Holding - Consolidation of positions” – AB outlined R20's current recommendations in respect of the consolidation of some of the positions and introduction of 2 new investors, being Kaupthing and Exista. AB and LP had spoken about this last week and AB is to provide a detailed recommendation to the trustees in due course. – In essence, R20 in conjunction with advice from PwC, suggest that 2 new companies be formed. Kaupthing and Exista are willing to invest £150m (£75m each) by profit participating loans. R20 recommend Kaupthing and Exista do NOT have voting rights. R20 recommend that the loans currently outstanding with Kaupthing be consolidated into one loan and the £150m received from the new investors be used to reduce the borrowing from Kaupthing…”

[94]At 18:11 on 3rd December Kirkland circulated their first draft of the framework agreement to (inter alia) Linklaters, Mr Brown and Mr Gunnarsson (but not to the trustees). They invited their review of it.

[95]On 5th December Linklaters passed certain comments on the draft to Mr Gunnarsson and to another member of the bank staff who was assisting him. I should observe that I was told that Isis (and Kaupthing) have waived privilege in all Linklaters documents so as to reveal the development of thinking on the entire Kaupthing side of the line so far as that is apparent from the documents. Apparently the TDT and the Oscatello side did not waive privilege in the Kirkland documents. Notwithstanding that it is apparent that the file does contain some documents passing between Kirkland and trust representatives. I do not know the extent of that documentation in terms of what has not been disclosed.

[96]In relation to clause 6 Linklaters wrote: "4. TRS; clause 6 (Violet Economic benefit): I have to admit to being confused as to what is contemplated regarding the Violet companies. I had understood that:(a) there will be a TRS [total return swap] entered into in respect of Kaupthing's existing holding in Violet Capital Group Limited for the purpose of transferring to RE Holdings II Ltd the equity proceeds received by Kaupthing as a shareholder of Violet Capital Group Limited and

(b) that Violet Equityco Limited will not be affected. K&S's draft contemplates (a) a TRS in relation to Violet Capital but, it seems, as a way of Kaupthing providing debt to Violet Capital and (b) under Clause 6 of the FA, the payment by ISIS as shareholder in Violet Equityco to RE of any equity proceeds in relation to Violet Equityco. With apologies if I am being slow, could you please confirm what exactly is the anticipated structure so we can document it accordingly?”

[97]It would appear that their questions about that were not answered because the terms were still being negotiated. After its email to Mr Gunnarsson they sent back the draft to Kirkland with the following comment against clause 6:

"Kaupthing to confirm: we understand that the commercial deal is still being finalised – clause 6 to be reviewed once that is established. Also to be confirmed whether this should go into a separate TRS or similar."

[98]It is to be inferred that that instruction came from Mr Gunnarsson, who was instructing them. It would appear that Linklaters (and Kirkland before them) had not got the message that some price was being paid for "Violet" even though previous documents, and cash flows, had clearly suggested that it would be paid.

[99]On 10th December Mr Brown sent a “final asset/liability spreadsheet” to PWC, with a copy to Mr Gunnarsson. The last page shows the “Total position before restructuring”. Under that the total assets held under “Kaupthing Ice” are £504,070 (the figures being given in thousands of pounds). Under that there is a heading “On Closing, assuming closing occurred on 30.11.2007, which is not the case”. The first two entries are the 2 PPLs coming in (£75,000 each). The next entries are: “Somerfield benefit acquired from ISIS investments (44,000) Kaupthing SBRY share included 193,600 Kaupthing SBRY debt included (193,600) Kaupthing SBRY share included 193,600

Kaupthing SBRY debt included (193,600)

[100]The next heading is “Total assets” and under “Kaupthing Ice” is the figure 741,670. That is an increase of 237,600 over the pre-restructuring figure of 504,070. As a matter of mathematics that can be made up of 193,600 as the value of the Sainsbury shares, and 44,000 as the value of the Somerfield interest “acquired from ISIS investments”. Mr Strong submitted that that sheet reflected both the amount to be paid and the value of what was being acquired. I do not think that that proposition was challenged by Mr Allison and in any event I find it to be correct. The Somerfield figures had changed from the 88m figure shown in the earlier spreadsheet and must have reflected developments in oral discussions. This document is inconsistent with a shared intention that the whole of the Somerfield interest would be acquired for less than its perceived value, and consistent with the claimant’s case in this matter.

[101]A spreadsheet with the same information had been sent to Mr Brown by Mr Gunnarsson previously on 7th December, with a request that Mr Brown “verify that this is the position”. Having raised a query which Mr Gunnarsson then resolved, on 10th December at 21:37 Mr Brown replied “Fine”. He was thus accepting the figures again, including those relating to the acquisition of the Somerfield interest.

[102]These figures did not change before completion.

[103]Mr Brown made his recommendation to the TDT trustees on 11th December in a written letter. It is relevant to set the letter out in full because it goes to what Mr Brown thought the acquisition of Kaupthing’s Somerfield interest related to, and because it goes to the relative functions and positions in the deal of Mr Brown and the trustees. The letter read: “ Project RE - Restructuring and Capital Injection Under the Consulting Agreement in place between Investec Trust (Guernsey) Limited as Trustees of the Tchenguiz Discretionary Trust (the Trust) and R20 Ltd, we are recommending that the Trust's "public equity subsidiaries" Alzama, Violet Capital, Razine, Roxinda, Thorson, and Glenalla (Exista), together with the Trust private equity holdings in Brigetta, Seacourt, Daniella and Limebrook, be aggregated into a new structure and recapitalised with £150 million of mezzanine debt with warrants. The purpose of the new capital is to reduce the leverage within the portfolio, principally by paying down debt within Kaupthing Luxembourg and Kaupthing Iceland, as well as to give the Trust additional capacity to meet margin calls should its core public equity holdings reduce further in value. The Trust's aggregate equity in the new holding company is £264 million. The Trust will retain 100% of the equity in the new structure and 81.9% of the economic upside. The new investors are companies controlled by(i) Kaupthing and

(ii) Agust and Lydur Gudmundsson, the principals behind Exista. Each company will invest £75m of mezzanine debt paying LIBOR +10% and return 9.05% of the economic upside in the portfolio. As part of the transaction the Trust will also enter into a Total Return Swap that will give it the economic upside of Kaupthing's investments in Violet Equity (Somerfield) and will further acquire Kaupthing's economic interest in Razino (Sainsbury) shares. I attach a spreadsheet showing the total assets and liabilities and equity breakdown of the new holding company structure, as well as a PwC structure paper reviewing the steps and tax aspects of the transaction. We would like to recommend the investment to the Trustees and await their decision. We look forward to hearing from you." We look forward to hearing from you."

[104]This is a clear statement from Mr Brown about was being acquired in relation to the Somerfield interest – it was the "economic upside". Bearing in mind that there had been a prior value attributed to the whole interest of £88m, that would be consistent with the purchase price of £44m apparently reflected in the spreadsheets and with the additional asset value of £44m also reflected there.

[105]On the next day (12th December) Mr Gunnarsson wrote a credit request for the project, addressed to Kaupthing's credit committee. It is headed “Subject: Robert Tchenguiz” and starts by setting out the position in which the TDT found itself. It reflects the fact that its assets include quite a few listed companies that had "taken a hit" since the market turmoil in 2007. There was a concern that the trust's position in certain big companies (Sainsbury and Mitchell & Butler) was such that a forced sale of the shares would result in drastic drops in share prices. He considered it to be in the best interest of Kaupthing that TDT should be able to hold on to its core positions as well as being able selectively to sell the non-core positions.

[106]He then went on to describe the setting up of a new holding company (then called Victor Holdings Limited) into which the PPL's would be injected. On page 7 there is a heading:

"Kaupthing will bring assets into the new structure” below which it is said: "

As stated in the Background section, Kaupthing and New Ortland II Equity [the Gudmundsson entity referred to in Mr Brown's recommendation to the trustees] will be injecting funding into the structure that will sit junior to the underlying debt financing, but will rank senior to the equity that TDT will contribute… In addition to the equity bought in by Kaupthing and NOIIE, Kaupthing will bring two assets into the structure. ⇨Kaupthing, through Isis Investments Ltd, will sell the upside of its Somerfield shares to the structure. This benefit has been valued at £44m. ⇨ Kaupthing will bring 44m shares in SBRY along with debt into the structure. The assets and liabilities of this transaction will net each other out." Below that Mr Gunnarsson set out some of the figures from the spreadsheets referred to above. below which it is said:

[107]In my view this document makes plain the basis on which the transaction was proposed to the credit committee. It was on the footing that only the "upside", and not the whole benefit of the Somerfield interest, was to be acquired by the new trust entity. It matches what Mr Brown was saying to his trustees, and both expositions match the latest version of the spreadsheets and reflect what was passing in negotiations between Mr Brown and Mr Gunnarsson. I make this finding despite the absence of any direct evidence of the negotiations and despite the absence of any oral evidence about it. The position is, in my view, thus far plain.

[108]Later the same day Linklaters wrote to Mr Gunnarsson asking for clarification as to what the deal was in relation to the Somerfield interest so that they could document it, and whether it was to be dealt with in the Framework Agreement as opposed to in a separate document.

[109]That letter was sent at 5:46 pm. At 9:24 pm Mr Gunnarsson wrote what Mr Strong says is a crucial email to Mr Brown, and received a crucial reply from Mr Brown at 9:28pm. The exchange was as follows (the main paragraph of Mr Gunnarsson’s email was in block capitals, which I shall reduce to lower case, and I shall correct one or two typos).

[110]Mr Gunnarsson wrote: “Aaron, Can you comment on if the below is what we agreed on? Kaupthing has invested in Somerfield with equity (17m) and preference shares (27.15m), total of 44.15m. The upside of this investment has been valued at 15.3m on the equity and 28.75m on the preference shares, total of 44.05m. It is this upside that Isis is selling to Victor Holdings II for 44m. Further to this (a new element), Kaupthing will be receiving part of future returns that can amount up to 8% per annum of the initial 44.15m investment. This return will rank senior to the return Victor Holdings II is getting. i.e. when the Somerfield shares will be sold to a third party, if there is an upside in excess of the 44M already sold to Victor, Kaupthing will get the first part of that return up to a maximum of 8% per annum of 44.15M."

Can you comment on if the below is what we agreed on?

[111]Mr Brown's response at 9:28pm was:

"Yes. Senior to any further return beyond first 44m of profit."

He followed this up two minutes later with a correcting email:

"By the way the 17m is in pref and ordinary shares in Violet equity and the 27m is in senior debt in Tazamia"

[112]In so doing he was correcting the numbers in relation to the nature of the assets to which they related, putting them the right way round (and he was right about that), but he was in no way detracting from his preceding confirmation that Mr Gunnarsson had stated the deal correctly. Mr Strong relies on this exchange as a clear manifestation of a shared common intention which "crossed the line" between the two negotiators, and that intention involved the trust having only the "upside" (profit). Although there is no express reference to Kaupthing getting back its original capital investment, that is clearly implicit in Mr Gunnarsson's proposal and the interest provision makes sense in that it operates on that part of the initial capital which Kaupthing is going to get back on any sale.

[113]With the benefit of that response from Mr Brown, Mr Gunnarsson wrote to Linklaters at 9:55 pm (just 25 minutes later) responding to their previous request for instructions. He did so by taking the email from Linklaters and using that as the basis of his reply by adding text against the relevant queries. In relation to the query relating to the Somerfield interest he wrote first (again in block capitals):

"I am happy with this being within the Framework Agreement."

[114]Then he reproduced, virtually verbatim, (and again in block capitals) the text he had proposed to Mr Brown 30 minutes before but taking on board Mr Brown's correction in relation to the figures attributable to the various elements and introducing a couple of additional immaterial words. Thus was Linklaters instructed to deal with clause 6.

[115]It would appear that Linklaters had not had time to consider and act on that email by the time they sent out a further draft at 9:57pm the same evening. Accordingly, clause 6 in that draft remained in the form referred to above. However, they had considered it by the time they wrote a further email to Mr Gunnarsson at 9:21 the following morning (13th December) in which they sought clarification on various questions by adding red text to the email that Mr Gunnarsson had sent them. Against the paragraph in which Mr Gunnarsson had reproduced what he had sent Mr Brown, Linklaters added:

"Just to make sure we are on the same page: when you say the upside is being "sold" you mean by the pass through of proceeds as set out in the Framework Agreement, correct? If so, we are all clear."

[116]At 10:16 the same morning Mr Gunnarsson responded by adding his capital letters to Linklaters text, simply saying: "Correct"

[117]Mr Allison relied on this exchange is demonstrating lack of clarity so far as the lawyers were concerned. I agree that Linklaters' question was derived from their uncertainty as to what was to happen, but it is an uncertainty as to mechanics, not principle. They were seeking instructions as to how they were to give effect to the principles set out in the passage they were querying, not as to the principles themselves.

[118]One minute later, at 10:17am, Linklaters thanked Mr Gunnarsson and said they would go back to Kirkland with the input he provided.

[119]The next email exchange on 13th December started with an email from Mr Gunnarsson timed at 00:51 and sent to Mr Brown, Linklaters, Kirkland and PWC. Under the heading:

“Victor Holdings II Limited” he said: “Victor Holdings II will receive the proceeds from the loan from VH I and buy the Somerfield upside from Isis Investments.”

[120]Mr McKeeve of Kirkland responded at 09:40 remarking on what was to happen on the sale of the illiquid private company positions (including Somerfield). He was concerned with the order of payment of the proceeds of various assets. Mr Gunnarsson made observations about this, and at 11:40 Mr Brown said:

“I am happy with the structure, but not with the LTV, which we can discuss.”

The significant thing about this exchange is that Mr Brown does not take issue with the notion of Victor Holdings II buying the “upside”.

[121]At 11:57 Linklaters took up the draft with Kirland in an email copied to Mr Brown, Mr Gunnarsson and PwC. They started:

“Dear All, Please see below Kaupthing’s input on our notes on the following points which, according to my notes constitute our open issues list.”

Paragraph 3 read:

“Violet Equityco profit sharing Kaupthing have confirmed that they do not need a TRS in respect of the Somerfield holdings via Violet Equityco. I think it would nevertheless be useful to add a sentence to the FA that a TRS can be entered down the line on the same terms if needed. Below is a summary from Kaupthing of what the commercial deal here is:”

And Linklaters then set out verbatim the capitalised description of the deal that Mr Gunnarsson had sent them. They then added:

“Would K&E please revise the FA on this basis. I think we need to tweak the existing wording to: add a payment from REH II to Isis on account o[f] “purchasing” the upside - Gudmunder [Gunnarsson] please confirm reflect the retention of the 8% of the upside, as per the above” [sic] Below is a summary from Kaupthing of what the commercial deal here is:”

[122]The first involvement of the directors of Isis came on 13th December, when they (Simcocks) were asked to assist with the provision of some due diligence documents in relation to Isis (directors’ passports, details of signatories and source of funds) which Ms Peck of Investec had asked for on 11th December. Simcocks agreed to assist. Ms Peck pressed for the documents on 13th December, saying they could not sign until the material was received.

[123]At 22:46 on 13th December Kirkland circulated a fresh draft of the Framework Agreement to Linklaters, copied to (inter alia) Mr Brown, Mr Gunnarsson and representatives of PWC. It was not copied to the trustees or to the directors of Isis. The draft (marked “Subject to client comment”) contained revised wording for clause 6 as follows: “Isis hereby undertakes and agrees (and Kaupthing undertakes to procure) that all rights to dividends, distributions, bonuses, interest, return of capital, disposal proceeds and/or other economic benefits received in respect of(i) the shares held in Violet by Isis (whether from Violet (or any member of its Group)) and

(ii) the £27.15 million loan made to Tazamia Ltd, (the "Violet Economic Return") shall be applied in the following

[124]On 14th December Ms Peck sent two emails. The first was sent to Valerie Goldstein at Kirkland at 16:34 and it raised various questions arising out of the Framework Agreement as it was at that stage, which she must have been given and which she must have been reading. I am prepared to assume that that was the latest draft which contained the payment to Isis. It is not apparent from the trial bundles who sent it to her, but it is more likely to have been Mr Brown (if it matters). The email is not on its face a reply to anything sent to her. The fact that we do not know who sent it to her demonstrates that not all the trust documents have been disclosed. Her questions go more to mechanics than substance, and she got a response (from Ms Laura Carley) at 17:40. The contents of that email do not matter for present purposes.

[125]The second was at 17:03 and was an email to Brown with some questions. It is apparent from the text of the email that she had seen a draft of the Framework Agreement. She started her email:

"Hi Aaron, Not sure when I will be able to speak to you, so I thought I would send you an email. Given that agreements and mechanics for this transaction are still being worked on, the Trustees will not be able to sign today. Even if all documents were finalised in the next hour or so, the Trustees have to meet, discuss, review and understand all documents in detail and this can not happen quickly. We will therefore be looking to sign Monday/Tuesday next week, depending on the completeness of the documents. There are a few items we would like to discuss with you, perhaps on Monday, as follows: – … 4) Violet Equityco economic return – would like to discuss this with you further to gain more of an understanding.…"

[126]Each of the parties relies on this email for their own purposes. Mr Allison points to the words indicating that the trustees would in due course be considering the detail of these matters. This goes to his submissions as to what the relevant intentions of the relevant parties can be seen to have been for the purposes of rectification. Mr Strong relies on manuscript additions to this email, in Ms Peck's hand, apparently after having spoken to Mr Brown (as her email foreshadows). There is an arrow leading from point 4 to some manuscript comments which read:

"another swap – upside for their inv in Sommerfield [sic]" with two entries below that saying (one under the other): "monitorise their gain in Sommerfield" and "taking loss in Sainsbury therefore [replace?] with gain in Sommerfield"

And a further note - "[we are?] buying more Somerfield [and] Sainsbury."

[127]The question marks in those quotes reflect the fact that the available copy has had parts of the words obscured (one suspects by a sticky note) or, in one case, there is a question mark arising out of legibility. However, the thrust is clear. The important point for Mr Strong is that this document reflects that Ms Peck is told that the plan was that Oscatello was buying the "upside".

[128]This is reflected in a note that Ms Peck made of her conversation - she made it on 17th December. Paragraph 1 reflects that Mr Brown told her that although R20 was not happy with the terms of the PPLs (given the amount payable on them) “it is imperative for us that this happens and also imperative for Kaupthing”. Paragraph 4 of the note records more formally her manuscript notes recited above. It refers to the “Violet Equityco economic return” and reads: “AB confirmed that this is effectively another swap agreement. As Kaupthing are making a loss on the Sainsbury shares they are counter balancing this with the upside in their investment in Somerfield. We will effectively be buying more of Sainsbury (loss) and more of Somerfield (gain)."

[129]Other aspects of the note refer to commercial, and not merely mechanical or drafting, points. This note and the preceding email tend to demonstrate that Ms Peck was having some regard to the commercial aspects of the transaction and was trying to understand it.

[130]At 16:34 on 14th December Ms Peck emailed Kirkland giving her initial comments "having reviewed the Framework [Agreement] further". She makes no comment about clause 6.

[131]At 16:54 on 14th December Linklaters sent Kirkland a further draft of the Framework Agreement. The partner concerned had received the draft from an associate half an hour beforehand. Clause 6 has now been redrafted so that the opening words begin to look like the final form of the opening words. However, as will appear, the reference to moneys being paid to Isis have now been omitted. The clause also introduces a price to be paid by Oscatello (but the wrong one). The clause, so far as material, now read: “6.1 In consideration of the payment of an amount of £44.15 million… from Oscatello to Iris on the Closing Date, Isis hereby undertakes and agrees (and Kaupthing undertakes to procure) that all rights to dividends [etc, as per the final version] shall be applied in the following order:”(a) (A) first, in payment of any third-party costs and expenses (if any) reasonably and properly incurred by Isis in obtaining such Violet Economic Return;

(b) (B) fourthly, in payment to Isis of 8% per annum of £44.15 million; and

[132]The italics are in the original. Mr Strong suggests that it is here that the drafting went wrong. There is no evidence as to why the second and third paragraphs were removed, and no apparent instruction from anybody on the Isis side to remove them. There are obvious errors in the drafting anyway – the skip from "firstly" to "fourthly", and the error in the price. Mr Strong’s case is that the omissions were a mistake.

[133]The next day (15th December, a Saturday) Kirkland circulated a further revised draft to Linklaters, Mr Brown, Mr Gunnarsson and others. So far as clause 6 is concerned the material change is that the “fourthly” and “fifthly” have become “secondly” and “thirdly” respectively. This draft, too, was widely circulated for comment.

[134]On 17th December Mr Gunnarsson sent a memorandum to various bank officers. It is titled “Project RE” and purports to be addressed to “New Ortland II Equity Ltd”, which was the other company (apart from Isis) that was providing a PPL of £75m to the trust structure for the restructuring. Its subject is:

“New Ortland II Equity Limited participation in a portfolio of listed and unlisted equities with Kaupthing Bank and Robert Tchenguiz”

. Its terms are very similar to part of the credit committee proposal identified above, and it refers to the purchase of the upside in Kaupthing’s Somerfield interest, and the Sainsbury shares, in the same terms as the report. It demonstrates that Mr Gunnarsson had not changed his views of and intention about that part of the transaction, and points against his having given instructions to Linklaters to remove from the draft Framework Agreement the reference to Isis getting its capital cost out of any proceeds.

[135]It was on the same day that Mr Brown had his conversation with Ms Peck referred to above. The reference to purchasing Kaupthing's "upside" would seem to confirm that he had not changed his mind and his intentions about how the clause 6 arrangement was intended to work.

[136]On 17th December at 14:47 Ms Carley of Kirkland emailed Linklaters saying:

"I've spoken to Lydia and she has given the TDT confirmations on the Framework Agreement. Aaron has also asked for one amendment to Cl 6.1, with the second payment under the waterfall being the repayment of the £44m to Oscatello before Kaupthing's 8% kicks in."

This clearly suggests that Mr Brown had focused on the mechanics of clause 6, and it has to be wondered why he did not notice that there was no provision for payment to Isis out of the waterfall. Bearing in mind his explanations to Ms Peck on the same day, I consider it more likely that he did not really notice how the waterfall worked than that he had formed the intention that his client should have more than the "upside" of Kaupthing's interest.

[137]At 18:19 on the same date Kirkland circulated a revised version of the Framework Agreement, showing all changes made since the previous Saturdays draft. The writer asked for confirmation that it was now in agreed form. So far as clause 6 is concerned the specified price was still the wrong price of £44.15 million, and the insertion of a payment to Oscatello of £44m was inserted as a "secondly", with the remaining elements being renumbered accordingly. This insertion reflected what Mr Brown had said he wanted, though the amount was wrong. That error in the amount was pointed out by Linklaters in an email to Kirkland timed at 20:31 on the same day.

The circumstances of the execution of the documents

[138]It is necessary to deal with this with care in order to consider two points. First, was there any further indication of a change, or confirmation, of the parties’ positions before execution of the document, and second because those circumstances are relied on by Mr Allison as part of his case of non-attribution of the intentions of Mr Brown and/or Mr Gunnarsson to the actual parties.

[139]I shall take Isis first. It was apparently intended that Isis would appoint Mr Gunnarsson to be the company’s attorney for the purposes of entering into the Framework Agreement (and other related agreements) - that was what was achieved by the resolution that the directors eventually passed and he actually executed it for Isis.

[140]It seems that Simcocks were forewarned of the need to execute documents at some point in the week beginning 10th December. That appears from a short reference to a discussion in an email of 17th December. However, they had no documentary involvement until the week beginning 17th December. In an email exchange on the evening of Sunday 16th December Mr Gunnarsson asked Linklaters to prepare board resolutions that could be sent to Isis and Investec and, so far as Isis was concerned, that request was repeated at 9:18 on 17th December. On 17th December at 10:18 Linklaters sent to Mr Gunnarsson and one of his colleagues a draft resolution for the directors of Isis to consider and sign. A colleague sent it on to Simcocks at 11:42, and they (Ms Epifani) replied (at 12:51) that it was “fine” and she would "arrange signature and return". The next day Kaupthing pressed for signed documents and was told (at 12:15) that the director was out of the office that day but that her notes revealed further information was required.

[141]The bank was told by Simcocks that before entering into an agreement with Eliza Ltd (Oscatello’s holding company) they would normally have expected to have performed a “due diligence exercise” and establish that the company would have the means to repay the loan. The Simcocks employee (Mr Bates) asked whether due diligence could be provided, including any financial statements of the company showing its financial status. This was passed on to Mr Gunnarsson and he responded by sending a memo (for onward transmission to Simcocks). It was passed at 13:12 on the same day. It is a very similar memo to that sent in respect of the New Ortland II Equity Limited and referred to above. It contains the same two bullet points about the Sainsbury shares and selling the “upside” of the Somerfield interest as appeared in that earlier memo. I am not sure that this document was the sort of document that Simcocks were asking for, but it again demonstrates that, subjectively, Mr Gunnarsson had still not changed his mind about how the transaction worked, which goes to (at least) the probabilities of his giving new instructions to Linklaters in relation to clause 6 to remove the payment to Isis.

[142]At 15:51 Mr Bates reported that the “closing documents” would not be available to Isis that day because the director concerned was not available, but at noon the next day (19th) he reported that the documents were being reviewed and, subject to any further comments they might have, Kaupthing (Isis) would have the signed documents that afternoon. The documents - a power of attorney in favour of Mr Gunnarsson and a directors’ resolution - were sent by email at 15:41 on 19th December.

[143]The resolution was signed by Ms McHarrie and Mr David Karran of Simcocks. It recites some “Background” - the existence of the proposed Framework Agreement and some of the shareholding adjustments to be done as part of the restructuring, and then describes the documents before the board: “2. Documents. 2.1 With the above transactions in mind, the following draft documents have been examined by each director:(a) a structure paper prepared by PricewaterhouseCoopers in respect of the new corporate structure;

(b) the Framework Agreement;

(d) the PPL Agreements;

(e) [the power of attorney pursuant to which Mr Gunnarsson was to execute documents]

(f) [a process agent appointment letter enabling service on agents]. ... 4. Director confirmations 4.1. Each director by confirms [sic] that he has carefully considered the Documents and the transactions contemplated thereunder and believes the same to be in the best interests of, and commercial benefit to, the Company."

[144]Clause 5 resolves that the contents of the Documents were approved and that the directors were authorised to sign, inter alia, the power of attorney.

[145]The signed copy of the resolution bears the date 19th December 2007 on its title page. The power of attorney in favour of Mr Gunnarsson, which was executed by the same two directors, and which authorised him to execute the PPL agreements and the Framework Agreement bears the date 17th December 2007. Nobody suggested that that dating discrepancy made any difference to the present matter.

[146]As well as the resolution, there are apparently minutes of the board meeting. They are dated 11th December 2007. The authenticity of these minutes was not challenged. If they are genuine the date must be wrong. The minutes record that Ms McHarrie was elected to take the chair and then they go on: “The Chairman tabled to the meeting various documents in relation to Project RE. It was noted to the meeting that Kaupthing through Isis Investments Ltd (the "Company") is going to sell the upside of its Somerfield to the structure which has been valued at £44m and that Kaupthing will bring 44m shares in SBRY with debt into the structure with the effect being that the assets and liabilities of this transaction will net each other out. A copy of the Project RE note is attached to an forms part of these minutes. IT WAS RESOLVED THAT the documents tabled and the use of the £44m from Somerfield be approved."

[147]It seems to be assumed that the Project Re note that is referred to is the note that Mr Gunnarsson has provided. It might be thought to be a little odd that the only feature of the transaction which is specifically referred to in these minutes is the sale of the upside in Somerfield and some sort of netting out of that in relation to the Sainsbury shares. The PPL is not referred to. However, the authenticity of that document (which was produced in these proceedings as long ago as 2010) as a minute of the meeting has not been challenged and it therefore has to be taken to be genuine. So far as it is genuine it demonstrates that the directors were aware of the commercial aspects of clause 6 of the Framework Agreement and that their understanding was that there was to be a sale of the upside. Whether they appreciated that from the (somewhat buried) reference in Mr Gunnarsson's note, or whether they were told it by someone else, is not immediately apparent, but since there is no documented record of any substantive conversation about the transaction they must have appreciated this from Mr Gunnarsson's note. It does not seem to have been provided to Linklaters.

[148]That deals with execution so far as Isis is concerned. I now turn to execution by or on behalf of the TDT. There is a signed copy of the trustee resolutions dated 18th December 2007. It is signed by Ms Peck and Mr Clifford on behalf of Investec and as authorised signatory (Ms Peck) and director of (Mr Clifford) respectively of the two corporate directors of Bayeux. The structure and content of the resolutions largely follow those of the board resolution of Isis. There is a "Background" section which outlines various features of the transaction, followed by a section headed "Documents" which says:

"With the above transactions in mind, the following draft documents have been examined by the Trustees: (a) a structure paper prepared by PriceWaterhouseCoopers in respect of the new corporate structure; (b) the Framework Agreement; [(c) to (e) - various stock transfers] Together the above document shall be referred to as the "

Documents"." Followed by a section entitled "Resolutions":

"The Trustees hereby confirm that they have carefully considered the Documents and the transactions contemplated hereunder and believe the same to be in the best interests of, and commercial benefit to, the Trust. The directors of the Trustees do hereby adopt the following written resolutions: (a) the contents of the Documents be and are hereby approved;" followed by various authorities to execute the documents. [(c) to (e) - various stock transfers] Together the above document shall be referred to as the "

Documents"."

The directors of the Trustees do hereby adopt the following written resolutions:

[149]So far as Oscatello is concerned, there is a document structured similarly to the Isis resolution with similar recitals and clause 4 contains "Director Confirmations" in the same terms as clause 4.1 of the Isis resolutions. Those resolutions are also signed by Ms Peck and Mr Clifford in different capacities – see below.

[150]The transaction then completed.

Post-execution events

[151]Various post-execution documents are relied on by Mr Strong as demonstrating the pre-completion common intention that only the upside was being acquired.

[152]On 20th December 2007 Mr Brown asked Ms Olafsdottir of Kaupthing for a single sheet that showed the final position as a result of all the repositioning. He received a quite complicated single sheet showing the movement of funds and with a box labelled “Balance sheet” at the bottom right corner. In that box there is listed:

“Asset (summerfield upside) - 44,050,000”

. The significance of that entry is obvious. Nothing else on the document suggests the asset was the bulk of the interest in Somerfield. There was no protest from Mr Brown or the trustees to the effect that they were expecting some greater interest in Somerfield.

[153]On 30th December Mr Gunnarsson sent some colleagues a situation update showing the value of the equity in the relevant TDT assets. The next day he corrected himself by observing that he had forgotten “to take upside in Somerfield purchased by Isis”. This is, of course, not a document which crossed the line between Kaupthing or Isis and Oscatello, but it does reinforce the evidence of Mr Gunnarsson’s understanding (if it needs reinforcing).

[154]On 14th January 2008 Mr Gunnarsson wrote to Mr Brown:

“Sometime before Xmas we talked about you writing a short memo on the equity upside in Somerfield. Do you think you will have time to put something simple on paper? Our auditors are pressing for justification on the 44m and I was going to use this memo.”

Mr Brown responded:

"Yes. Will do shortly."

He never did provide the memo (or at least it has not been produced), but in any event did not dispute the reference to "upside".

[155]On the TDT side of the line there is the memorandum to the Tchenguiz bookkeepers from Ms Peck referred to above. A fuller recitation of that memo is as follows: “In a posting memo dated 7th January 2008 (saved under Eliza Limited) to yourselves, it was stated that the treatment of the payment of £44,050,000 from Oscatello to Isis Inv Ltd on 21 December 2007 would be confirmed to you. After further review of the Framework Agreement (clause 6) and discussions with our investment advisers, R20 Limited, the background to this payment is as follows. Please see attached copy memo dated 17th December 2007. The 50/50 joint venture Razino entered into with Kaupthing last year came to an end on 20th December 2007 and Razino entered into a Forward Purchase Contract with Kaupthing to buy 100% of the 88m Sainsbury shares. Kaupthing effectively therefore made a loss on this deal, and by Razino purchasing the 88m Sainsbury shares, Razino 'purchased' a loss (there will be a separate posting memo on this one in due course). In order to counter balance the above, it was resolved that we buy Kaupthing's upside in the Somerfield deal. The upside was valued on 30th November 2007 as being £44,050,000. Upon the future sale of Somerfield, Isis will receive their capital, but we will receive our upside, Isis's upside and our capital."

[156]The memo goes on to propose ways in which that should be entered into the ledgers.

[157]That is obviously a critically important document in ascertaining what the intention of the trustees was in relation to the Somerfield interest, and it is also important in establishing the close links between the intentions of Mr Brown and those of the trustees and their vehicle Oscatello. In the trial bundles this memo is accompanied by a copy of the final form of clause 6 of the Framework Agreement in which someone on the trustees’ side (probably Ms Peck) has made some annotations. Against the heading to the clause she has noted:

"discuss with Aaron"

. At the foot of the page there are some annotations which have probably been slightly truncated in the copying but their intent is clear enough. They read (one above the other): " - we bought Kaupthing's profit in their interest in Somerfield. - direct and Tazamia valued Somerfield 30/11/07 - our upside and Kaupthing upside in jv - they get capital out then we get [text probably obscured]".

valued Somerfield 30/11/07

[158]This seems to demonstrate a clear understanding on the part of Oscatello, R20 (Mr Brown) and the trustees that what was purchased was the upside and that Isis would get its capital back on a sale. It supports the other evidence which suggests that that was the intention on the TDT/Oscatello side of the transaction up to and beyond the date of completion.

[159]Other documents from Mr Gunnarsson, in the context of the sale of Somerfield to the Co-op, demonstrate his continued understanding of the position as being one in which Isis would get its capital back and Oscatello would get the upside or profit on the investment. I will not lengthen this judgment further by setting out that material. It is sufficient to note it and that it is inconsistent with his having a change of mind about the effect of the transaction.

[160]On 9th July 2008 there was a meeting between Ms Ciara Gurney of Investec and Mr Tchenguiz. There is an Investec note of that meeting. It would seem (judging by that note) that Mr Tchenguiz was concerned that certain inquiries made by Mr Clifford of Investec (and Oscatello) were somehow queering the pitch of Mr Tchenguiz in the latter’s relationship with Kaupthing, which was apparently close. The note records:

“RT [Mr Tchenguiz] reiterated that he wouldn’t be suing Investec, as all Investec did was act on the recommendations of R20, primarily himself. He reiterated that it was all his fault that things were in such a mess… RT was most concerned that if Kaupthing were to think that RT could not carry out what he had agreed with Kaupthing, or that other parties could override his decisions, then he felt that would be end of the partnership with Kaupthing. He said it was all done on trust between him and the head guy at Kaupthing and the trustees asking questions could jeopardise that relationship. CPG reminded RT that he wasn’t the one making the decisions. RT confirmed that understood [sic] all of that but, notwithstanding that, that was what Kaupthing thought.”

[161]It is likely that this meeting did not concern just the aftermath of Project Re and that it concerned other holdings as well. It tends to indicate two things about the relationship between the trust and Mr Tchenguiz. First, it indicated that Mr Tchenguiz expected the trust to do what he (and by implication R20) wanted. Second, it indicates that, at least at this stage, the trust considered that it had an independent function which prevented that happening.

The history of these proceedings and previous evidence given

[162]These proceedings have a long and somewhat tangled history in which the position of Isis as to the proper approach to clause 6 of the Framework Agreement has reversed over time. Since Mr Allison did not suggest that Isis’s previous conduct prevented it from taking its current stance as a matter of estoppel or otherwise it is not necessary to consider the history in detail, but since he made certain points about it, and in particular about evidence previously provided by Ms McHarrie, it is necessary to describe that history briefly. I mainly take it from the unchallenged account given in Mr Allison’s skeleton argument. Further details can be seen from the judgment of Asplin J on a case management conference, reported at

[2013] EWHC 7 (Ch)

[163]The proceedings were commenced in February 2009, but took a very different form. The original claim concerned the true construction of the reference to the Tazamia loan in clause 6. That point was determined (without, it seems, much argument) in February 2011 by Lewison J. By then Isis’s Somerfield interest had been sold and the proceeds paid into court, where they have remained ever since. Isis went into liquidation in March 2010, and by 2011 the liquidators were considering an alternative approach to clause 6. They claimed that the clause was invalid for a variety of reasons centring on acts of misfeasance, and they also sued directors and others for misfeasance. The premise of the proceedings at this stage was that clause 6 had the effect now contended for by Oscatello - that Oscatello got the lion’s share of the proceeds of sale with Isis getting only its interest payment - and that that was an unjustifiably bad bargain. Damages were sought against Oscatello, Eliza Ltd and Kaupthing, and allegations of illegality, breach of fiduciary duty and conspiracy were made.

[164]Part of the response of Kaupthing in those proceedings was to run the construction point now run by Isis, and if that failed to run the rectification point now run by Isis. In answer to those claims Isis said the construction arguments were “impossible”. So far as the rectification claim is concerned it took the point that its (Isis’s) directors did not address their minds to the idea of selling the upside in any meaningful way or consider what the term might mean. While accepting that Mr Brown and Mr Gunnarsson seemed to have considered that clause 6 involved a sale of the “upside”, it was not clear what significance was given to that.

[165]The action in that form never fought and was subject to various stays while a scheme of arrangement was proposed. On 20th January 2015 a Deed of Settlement and Release was entered into. Schemes were approved which had the effect of dealing with all relevant debts with the result that the liquidation proceedings came to an end and Isis came back under the control of Kaupthing. On 23rd January 2015 the proceedings were formally stayed further with a carve-out which permitted the running of the claims which have come before me. On 2nd June 2015 Isis filed amended Particulars of Claim running the present points, thereby adopting the case of Kaupthing which it had previously resisted.

[166]That provides the context for some evidence relied on by Mr Allison. At an early stage of the proceedings (on 27th April 2010) Ms McHarrie provided a witness statement which set out Simcocks’ functions in relation to Isis and Kaupthing. One of the main purposes of that witness statement was to deal with allegations that Mr Tchenguiz had entered into some informal but binding deal over a meal with a senior Kaupthing official, the nature of which does not matter for present purposes, though it is important to bear in mind that this was not a witness statement intended to focus on the issues which have now been made to arise in these proceedings. She sets out the services that Simcocks provided, which included “handling the day to day affairs of the Company (other than accounting), including signing or countersigning cheques, dealing with correspondence, faxes and telephone calls.” The manner in which transactions were dealt with was set out in paragraph 17: “During the period between January 2006 and December 2007 Isis was contacted on various occasions by Kaupthing in connection with investment. Invariably, the investments and documents recording the investments were in final or near final form, having already been prepared by or on Kaupthing’s behalf, and Isis was asked to approve the investments and execute the necessary documents. I always ensured that I was informed of, and understood, the nature of the investment and where necessary, would request further information to ensure the investments in question complied with Manx legislation…"

[167]Mr Allison also pointed to paragraph 21:

“21. I, together with my fellow director (Mr Karran and Ms Griffiths), made all the day-to-day management decisions in relation to Isis without further reference to Kirna [Isis’s immediate holding company] or Kaupthing. In this respect, it is (and was at all material times) STL’s internal procedure to have two meetings a day which would usually be attended by all the directors of client companies. The business of client companies, including consideration of documents, would be transacted at these meetings. If the matter was urgent, the directors of Isis would attend an ad hoc board meeting to deal with that matter. In this respect the decision-making process for Isis was formal.”

[168]Paragraph 28 deals with investment activities. It points out that Isis was an asset manager for Kaupthing and that the contract was rather general. She points out that Article 2 provided that investment would be done according to an investment strategy. Ms McHarrie goes on:

“Unfortunately, I have not seen that Investment Strategy but I was not too concerned as I considered that it would obviously be in Kaupthing’s interest as a parent company to ensure that Investment Strategy was profitable.”

[169]From paragraph 44 onwards Ms McHarrie then describes the events leading to the execution of the documentation relating to the Framework Agreement. She also describes her understanding of the structure of the arrangement, obviously working from the documentation that she had. Her understanding was that “Oscatello would require the Violet Economic Return (“the VER”) for the sum of £44.05 million, this being funded by a loan to it from Eliza. Eliza, in turn, was financed by a loan from Isis to Eliza (the Isis PPL) of £75m.”

[170]I shall return to the effect of this evidence when considering aspects of the rectification claim.

Rectification - the law

[171]There was little dispute about this, so I can set out the principles fairly briefly.

[172]This was said by the claimant Isis to be a “common mistake”, as opposed to a unilateral mistake, case of rectification. Both sides accepted that the basic principles can be taken to be set out in the judgment of Peter Gibson LJ in Swainland Builders v Freehold Properties Ltd

[2002] EGLR 71

at para 33:

“33. The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake the instrument did not reflect that common intention.” (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake the instrument did not reflect that common intention.”

[173]The requirements were phrased slightly differently by Etherton LJ in Daventry DC v Daventry & District Housing Ltd

[2011] EWCA Civ 1153

, reflecting the need for objectivity apparently required by Lord Hoffmann’s judgement in Chartbrook:

“80. Lord Hoffmann's clarification was that the required "common continuing intention" is not a mere subjective belief but rather what an objective observer would have thought the intention to be: see Chartbrook at [60]. In other words, the requirements of "an outward expression of accord" and "common continuing intention" are not separate conditions, but two sides of the same coin, since an uncommunicated inward intention is irrelevant. I suggest that Gibson LJ's statement of the requirements for rectification for mutual mistake can be re-phrased as: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) which existed at the time of execution of the instrument sought to be rectified; (3) such common continuing intention to be established objectively, that is to say by reference to what an objective observer would have thought the intentions of the parties to be; and (4) by mistake, the instrument did not reflect that common intention.”

[174]The intention must be proved to convincing degree. As Leggatt J said in Tartsinis v Navona Management Company

[2015] EWHC 57

at para 85:

“85. The explanation for the statements that "convincing proof" is needed where rectification is claimed lies in the very nature of the allegation that the written instrument does not record the parties' common intention. It is not, in truth, the standard of proof which is high, thereby differing from the normal civil standard, but that sufficiently strong proof is needed to counteract the evidence of the parties' intention displayed by the instrument itself: see Thomas Bates & Son Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505, 521, per Brightman LJ; The "Nai Genova" [1984] 1 Lloyd's Rep 353, 359. As Lord Hoffmann has observed in relation to the interpretation of contracts, in words which are however equally applicable to claims for rectification, "we do not easily accept that people have made linguistic mistakes, particularly in formal documents": Investors Compensation Scheme Ltd v West Bromwich Building Society[1998] 1 WLR 896, 913. The fact that the parties to a contract have approved particular language as the appropriate expression of their bargain is thus often itself cogent evidence that the document correctly records their common intention, so that convincing proof will be needed to displace that inference.”

[175]On the facts of this case I do not have to confront the difficulties about objectivity which might be said to flow from Chartbrook and identified by Leggatt J (see paragraphs 89-99).

Findings on rectification intention

[176]In this section I consider the evidence on the intention of the individuals involved for the purposes of the doctrine of rectification. There is a significant question in this case as to whether, and to what extent, the intention of the individuals falls to be attributed to each party. I deal that question in a separate section of this judgment.

[177]The principals who were negotiating were Mr Brown and Mr Gunnarsson. The claimant maintains that all the conditions for rectification are fulfilled as between them. Oscatello, acting by its liquidators, said in its skeleton argument that it was not in a position to admit or deny any agreement between those individuals as to the payment of £44.15m to Isis out of the Violet Economic Return. Most of Mr Allison’s submissions on rectification were directed to the attribution point and whether the right people had the right intention. At the end of his submissions he made some short remarks about what he said was ambiguity as to what was agreed between Mr Brown and Mr Gunnarsson, and as to what Ms Peck intended, but his submissions did not go farther than that.

[178]I shall deal first with Mr Brown and Mr Gunnarsson, who were the negotiators and principal individuals involved. I find that as between them the evidence of a common intention that Isis should have its £44.15m out of the proceeds is very convincing (if not irrefragable). The general pattern of the dealings set out above shows that that was the shared (and communicated) intention at an early stage, there is no evidence it was changed, and no plausible case can be mounted for saying that it changed. The documents and exchanges set out above, and my comments on them, are self-explanatory in this regard, but the main points which emerge are as follows.

[179]The negotiation and the views of the parties can be sufficiently gleaned from the correspondence. The parties had not reached a clear position about the Somerfield shares before 10th December. The first suggestion of the final intended shape of the Somerfield (Violet) transaction does not appear until the spreadsheet of 10th December, and then only as a matter of inference, but matters become clear when Mr Brown reports to the trustees on 11th December and Mr Gunnarsson sent in his credit request on 12th December. Both men refer to the “upside” of the Somerfield holding, probably because that is the term that they used between themselves. Its natural meaning, in its context, is the excess of the value over the purchase price (ie the profit). It is a completely inappropriate expression to use to describe the whole of the interest in the shareholding.

[180]That is then followed by Mr Gunnarsson’s email at 9:24 on the same date (12th December). That is a clear email setting out the basis of the deal and a clear acceptance of that by Mr Brown. Mr Allison says that this email contains an ambiguity in that it does not say expressly that Isis will have the first £44.15m of any return and the reference to “upside” is not enough to import this. I disagree. The email is plain. It does not need to spell out that Isis is to have its money back because that is plainly implicit in the structure of the deal set out in the email. The actual return is mechanics. The email is setting out the principles. Mr Allison also relied on the fact that subsequent correspondence indicated that Linklaters were not clear about the terms - see their comments on their email of 9:21 of 13th December (“Just to make sure we are on the same page:…). There are two answers to this. First, the fact that lawyers detect an ambiguity does not necessarily demonstrate there is real ambiguity. The second is the answer provided above - the lawyers were seeking clarity on mechanics, not principles.

[181]Mr Brown’s views and intentions are reflected in what he is recorded as having told Ms Peck on about 14th December and recorded in her manuscript and typed notes. She was plainly told that the “upside” was being acquired.

[182]Thus far it seems quite clear what the intentions of Mr Brown and Mr Gunnarsson were - a sale of the upside (profit) only. The drafting process managed to reflect that, and then ceased to do so, and that carried into the final documentation. It is not apparent precisely how that happened. It must either have been because the lawyers’ instructions changed, or because they made a mistake as to what the parties intended or in the drafting itself. Although there has been no evidence from any witness with any knowledge of the drafting process, and no complete disclosure of privileged material on the Oscatello side, it seems to me to be clear that the deal did not change. There is no evidence of a change, and plenty of evidence that it was intended by Mr Brown and Mr Gunnarsson to remain the same. When asked by the directors of Isis for due diligence documents, Mr Gunnarsson sent them the memo which clearly referred to a sale of the upside; and the minutes of the directors recorded that. So far as both Mr Brown and Mr Gunnarsson are concerned, the other post-execution documents referred to above show a shared and continuing understanding that the deal still concerned the “upside” and not the whole of the economic interest (minus the 8% interest). If the transaction had shifted in favour of Oscatello to the tune of £44m one would have expected that that intention to be reflected somewhere, and it simply is not.

[183]I therefore find that so far as Mr Brown and Mr Gunnarsson are concerned, all the requirements for rectification intention as set out in the above authorities, existed. There was a continuing common intention, outwardly expressed,

[184]Next I turn to the apparent intentions of the individuals acting for Investec (and Oscatello) and the directors of Isis as the contracting company on the Kaupthing side.

[185]There is direct evidence relating only to Ms Peck on the Oscatello side and Ms McHarrie on the Isis side.

[186]On the evidence the principal individual involved on the trust side was Ms Peck, and she and Mr Clifford signed the trustees’ resolution. The directors of Oscatello were corporate directors, who signed by Ms Peck and Mr Clifford. There is little or no evidence about Mr Clifford’s involvement (other than his executing the final documentation), but there is some evidence of what Ms Peck was told and what she said to Mr Brown, from which one can easily infer what she intended. On 11th December she was told by Mr Brown, in his letter, that the trust would acquire the “economic upside” of Kaupthing’s investment in Somerfield. I do not consider there is any relevant ambiguity in that expression in its context - it must mean the profit. It is to be contrasted with the expression a few words later in relation to the Sainsbury shares - “Kaupthing’s economic interest” (my emphasis).

[187]Between 14th and 17th December she sought clarification of various points from Mr Brown. He told her that the trust would be getting the “upside” - see the manuscript and typed notes referred to above. There was no indication that she dissented from the proposition and explanation put forward by her negotiator, and the likelihood is that she accepted it. That that remained her understanding of what was intended is confirmed by her note to the book-keepers of 19th February 2008. It is quite clear from this note what she meant by “upside” because she valued it at £44,050,000.

[188]In between the notes of December 2007 and the note to the book-keepers there are, of course, the executed documents, including the resolutions of the trustees and directors which state that the directors have carefully considered the documentation. Mr Allison, as he is entitled to do, points to that provision as being evidence of what the directors intended, and says it shows they intended to enter into documents containing the terms which they contained, and no other terms. I agree that it is some prima facie evidence of that fact, but it cannot be a complete answer to all evidence pointing to another intention. It is not a conclusive statement. On the facts of this case it is a somewhat formulaic statement (originating in solicitors’ draft) which does not outweigh the non-formulaic evidence which shows that so far as Ms Peck had an understanding of the deal it was one in which Oscatello was to acquire the upside of the Somerfield investment and not the whole of the economic interest (minus the interest-like payment payable to Isis), and intended that that should happen at all times after the idea was presented to her.

[189]So far as Mr Clifford is concerned, there is no evidence as to his actual personal intention at all save for the statements in the trust and corporate resolutions which he signed. The documents do not seem to show that he was involved in any way prior to execution. The inference is that Ms Peck took the lead, and he took his lead from her.

[190]So far as Ms McHarrie is concerned it is less clear that she had a positive intention to sell the upside only. I am satisfied that she will have been less concerned to understand the nature and commercial desirability of the transaction than Ms Peck. She did not seek an explanation of it prior to executing documents, and only got the memo with its reference to the upside when her colleague asked for something else. The only indication that she had any idea that the upside was being sold was the curious minute of the board meeting which refers to it. Her witness statement seeks to paint a picture of independence and, to a degree, of an independently formed view of the transaction, but in essence her job was to check the technical correctness of documents that were put before her and make sure there was nothing obviously wrong about them. That is demonstrated by the fact that she was usually not involved until the transaction documents had been prepared or were in the course of preparation. She did not have the time or information to enable her to absorb the nature of the deal other than the nature appearing from the execution documents. I think it unlikely that she personally had or formed the intention to sell only the upside sufficient (if it were necessary) to constitute one side of the intention necessary for rectification. If I am wrong about that then the minute reflects an intention on her part which coincides with the claimant’s case.

[191]I reach that conclusion without reference to the fact that in the earlier stages of the litigation Isis’s stance was not merely to propound the Framework Agreement as it stood, but actually to resist the idea that it should be rectified. There may have been all sorts of reasons for that stance - tactical reasons, an absence of relevant information, or (at least in the early stages) overlooking the possibility. I do not think that that stance has any real evidential impact for present purposes.

[192]I have also born in mind the absence of any evidence from any of the participants in this process (save for Ms McHarrie’s witness statement, which is a form of evidence though not geared to these proceedings). As I have observed, no evidenced reason was given for not calling any of the obvious witnesses. However, neither side invited me to draw a particularly adverse inference on this point from this failure and I shall not do so. The newly discovered appreciation of the need for objectively established common intentions probably makes it easier to maintain a rectification case without calling witnesses. I consider that, so far as the question of intentions is concerned, the intentions are sufficiently clearly (indeed very clearly) established (as set out above) by the contemporaneous documentary evidence. It is an intention which is objectively manifested and was obviously shared as beween the individuals that I have identified.

Attribution - the law

[193]Having reached the decisions that I have reached as to the intentions of the two main protagonists (Mr Brown and Mr Gunnarsson) it is now necessary to deal with the question of whether those intentions should be attributed to the principals - Isis and Oscatello - because Mr Strong’s first case is that they should be so attributed. Oscatello takes the point that the parties in this case are corporate parties, and it is necessary to ascertain the individuals whose expressed intentions are said to be attributable to those entities. The need to do that arises particularly acutely where, as here (in the case of Mr Brown and Mr Gunnarsson) the primary individuals with the relevant intention are not directors.

[194]I have already found that Ms Peck had the relevant intention, which she acquired through her communications with Mr Brown. But in case I am wrong about that I will consider the extent to which Mr Brown’s clear intention should be attributed to Oscatello, and the question of attribution is more likely to arise in relation to Isis because of my finding about the (lack of the) relevant intention in Ms McHarrie.

[195]Both entities are companies, and the company’s primary attribution rules are to be found in their respective constitutions - Meridian Global Funds Management Asia Ltd v Securities Commission

[1995] 2 AC 500

. In the case of each company the primary decision makers are, in the normal way, the respective company boards. If the directors had the relevant intention for the purposes of the doctrine of rectification then no attribution problem arises. However, authority provides examples of situations where the intention of someone who is not a director falls to be treated as the relevant intention for the purposes of rectification. One of the best examples is Hawksford Trustees Jersey Ltd v Stella Global UK Ltd

[2012] 2 All ER 748

, and it is probably the best illustration of the principles applicable in the area.

[196]In that case trustees held shares in a company which had been settled on them by a Mr Begg. He was not an agent of the company, and had no powers delegated to him, but he nonetheless negotiated a share purchase agreement with the defendant which was in due course formalised in documentation which was executed by the trustees. It was said that by a mistake the formal documentation did not correspond with the intentions of the parties and as a result the consideration payable was too little. Rectification was sought, and on the trustees’ side the intention that was relied on was the intention of Mr Begg. It was held on the facts that his intention was the relevant one on the facts of the case because of his position vis-a-vis the trustees. The important findings in the case are the following (per Patten LJ):

“35 It is apparent from this that Hawksford was content to sell the shares on the terms which Mr Begg had negotiated and which he had approved. There is no suggestion that the officers of the trustee company applied any independent judgment in the matter. But the defendants' case is that this is not enough. The decision whether to go ahead with the transaction was one which rested with the trustee and which was taken by it even if it involved little more than rubber-stamping what Mr Begg had agreed. 39. [citing from findings of the judge below] … I am satisfied however that Mr Begg was authorised to negotiate and agree in principle the terms of the SPA on the clear understanding that the Claimant would accept the terms as negotiated and agreed by Mr Begg, specifically the commercial terms including the detailed payment provisions, so that so long as the Claimant was satisfied that its own interests would not be prejudiced by entering into the SPA on the terms negotiated and agreed by Mr Begg it would follow his recommendation.”

[197]Based on those findings Patten LJ held that it was right to attribute the intention of Mr Begg to the trustees (or the board of the trustee company). He analysed the situation thus:

“41 Mr Stewart is, I think, right in his submission that the decision-maker ought in principle to be the person who has the authority to bind the company to the contract. The expressed intentions of a mere negotiator will therefore be immaterial unless he is also the decision-maker or shares in a relevant way those intentions with the person who is the decision-maker on behalf of the company. But, whilst those principles are easily stated, their application to the facts of any given case may be less straightforward. In a corporation with a defined and well-understood decision-making structure the division of responsibility should be readily apparent at least if the prescribed procedures are followed. But this is not a case of that kind. Although the trustee alone by its officers had the power to enter into the SPA and the Amended SPA, it is clear from the judge's findings of fact that this decision was largely a formality provided that the terms of the sale were acceptable to Mr Begg. His role as a negotiator was therefore critical both to his own willingness to see the shares sold on the terms he had agreed and to the trustee's decision to sell them on that basis. 42. Consistently with the understanding and modus operandi agreed between Hawksford and Mr Begg, the judge has found that Mr Robinson and Mr Carr gave no thought to the definition of 2007 EBITDA in the Amended SPA and, as decision-makers, were not actually privy to what those provisions about Minimum Earn Out were intended to achieve in relation to the 2007 consultancy payments. But it is, I think, also apparent from paragraphs 121-122 of his judgment that they authorised Mr Begg to negotiate the terms of both versions of the SPA (and to instruct Halliwells to produce a contract which contained them) on what the judge described as the clear understanding that Hawksford would agree to sell on those terms unless its own interests would thereby be prejudiced. In practice this meant (as the judge records in paragraph 122) that Hawksford would follow Mr Begg's recommendations if he was happy to enter into the SPA on the terms he had negotiated. 43. Even if this does not make Mr Begg the decision-maker, what it does, I think, do is to demonstrate, when looked at objectively, that the trustee entered into the Amended SPA with the positive intention that it should give effect to the terms which Mr Begg had negotiated and agreed. On the judge's findings of fact it would not have agreed to sell on any other terms. Hawksford did nothing to indicate to the defendants that it intended to contract on any different terms from whose which Mr Begg had agreed and which the judge found constituted the common intention of both parties. It merely proceeded to execute the document which both sides believed contained those terms. The actual expression of accord which the judge found existed in the e-mails and other communications passing between Mr Begg and the defendants therefore continued up to the execution of the Amended SPA because that was the only and apparent basis on which the trustee and the defendants entered into the contract. Mr Robinson and Mr Carr made no amendments of their own to the Amended SPA and were clearly seen and understood to be giving legal effect to what Mr Begg had agreed. The fact that they were in error in this respect entitles the trustee, in my view, to obtain rectification of the Amended SPA in the form ordered by the judge. It is therefore a case where, on the facts, the mistaken assumption on the part of Mr Begg was shared by Hawksford. The fact that Mr Robinson and Mr Carr gave no specific thought to the definition of 2007 EBITDA is irrelevant.”

[198]What one derives from that are the following principles:(a) One is looking for the person who in reality is the decision maker in the transaction in order to find intentions in relation to rectification.

(b) In the case of the company that person will usually be the person with authority to bind the company.

(c) Someone who is not a person with power to bind can nonetheless be treated as the decision maker if that is the reality on the facts.

(d) The intention of a “mere negotiator” may be relevant if it is shared with the actual decision maker; but, as it seems to me, that is because the intention has become that of the actual decision maker.

(e) Where a person who would normally be expected to be the decision maker (such as the board of a company) leaves it to a negotiator to negotiate a deal and produce a contract by instructing solicitors, on the understanding that the decision maker would do a deal on those terms, then the negotiator’s intention is the relevant one, either because that person is the decision maker, or, if that description is not apt, because the technical decision maker has simply adopted the intentions of the negotiator (Hawksford at paragraph 43; and see Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2013) EWHC 2688 (TCC) at para 130).

[199]I was shown other authorities in which, on their facts, the intention of a negotiator was not attributed to the contracting party (Barnet LBC v Barnet Football Club Holdings Ltd

[2004] EWHC Civ 119

; George Wimpey UK Ltd v VI Construction Ltd

[2005] EWCA Civ 77

). These are really cases which turn on their own facts, and are only of assistance if the facts provide a striking parallel with the present case. In my view, as will appear, they do not.

Attribution

[200]I turn, therefore, to apply those considerations to the facts of the present case, starting with Mr Gunnarsson and Isis.

[201]It is not helpful to the claimant’s cause that there is no oral evidence to supplement what appears from the documents. Oral evidence of how the relationship between Isis and Kaupthing worked would have assisted in closing what otherwise might be gaps in the evidence, and I am not minded to assist the claimant in bridging those gaps by taking the process of inference a long way. However, Ms McHarrie’s witness statement was in evidence and each side relied on various parts of it for their own purposes in relation to attribution, so I shall refer to it and take from it what it is proper to take. In doing so I bear in mind that it was provided at an early stage in an action whose shape was very different, and one of its main purposes was to deal with criticisms of a later disposal by Oscatello of its own interests in Somerfield, and not to deal with the sort of issues arising in the present case at all.

[202]On the basis of that witness statement, and the other evidence, the following points emerge.(a) The technical relationship between Kaupthing and Isis was that the former was engaged to manage the latter’s assets. However, Ms McHarrie understood that Isis operated as an investment vehicle for Kaupthing and Kaupthing’s preferred customers (para 9 of her witness statement). Kaupthing had a bank account in the name of Isis for Isis’s benefit, but the directors of Isis were not signatories on that account. That is not a badge of an independent board exercising the normal sort of decision-making jurisdiction of a normal company.

(b) Simcocks provided corporate services to Isis. These were essentially administrative. Among its functions was to handle the “day to day affairs” of Isis. Isis was to provide “standard administration services” (McHarrie para 16). Its activities consisted primarily of “passively holding a limited number of investments at any one time” (McHarrie witness statement para 9). There is no suggestion that they were to provide directors who would actually (and actively) take any important business decisions. The list of activities undertaken by Simcocks, and set out in paragraph 14 of Ms McHarrie’s witness statement, are all of an administrative nature, including the reference to “day to day activities”, of which the examples given are signing cheques, and dealing with correspondence, faxes and telephone calls.

(c) The general pattern is that Isis would be contacted when the final documentation for investments was in a final or near final form (McHarrie para 17), having already been prepared “on Kaupthing’s behalf”, and Isis was asked to “approve the investments and execute the necessary documents”. That strongly suggests that by and large Kaupthing arranged transactions and presented them to the directors for finalisation and not for any form of commercial consideration or judgment. That would be in keeping with the “administrative” nature of Simcocks’ functions.

(d) Ms McHarrie said:

“I always ensured that I was informed of, and understood, the nature of the investment and where necessary, would request further information to ensure that the investments in question complied with Manx legislation.” (para 17) However, in the context of the rest of her witness statement this does not mean that she embarked on an anxious consideration of the wisdom, propriety, commerciality and sense of the investment. I consider it means that she considered the transaction in the context of Manx legislation and perhaps looked for obvious mistakes. The business side of matters was not for her. In paragraph 21 she describes the decision-making process as “formal” because it was always transacted at (and not outside) board meetings, held twice a day for the companies for which Simcocks provided directors. In my view this again reflects the technical, not substantial, decision-making process that the directors carried out. (e) Until 2009 Mr Einarsson, Kaupthing’s chairman, was a director of Isis. However, he never attended any board meetings during Simcocks’ tenure and never participated in the management of Isis. No other director had contact with him. This, I find, was because once documentation had been presented by Kaupthing the directors were satisfied that Kaupthing wished the transaction to be carried out in its (Kaupthing’s) interest, and the other directors acted accordingly. It was not necessary for Mr Eniersson to represent Kaupthing’s interest in the transaction. (f) Ms McHarrie was never concerned with the Investment Strategy (see above) because she assumed that what Kaupthing proposed was in Kaupthing’s interest (para 28). (g) Ms McHarrie’s witness statement gives some evidence of what her attitude was when presented with various important documents relating to the Somerfield holding in 2005. She records (para 38): “I did not think it necessary to obtain separate legal and investment advice as to the transaction in circumstances where such advice had already been obtained and indeed where Kaupthing was Isis’s Asset Manager and a bank with an excellent reputation”

[203]The general picture emerging from this is one where the role of Isis directors was very limited when it came to investment transactions. It was largely a compliance role. The directors were not consulted before or during a negotiation; they played no part in the negotiation or structuring of any investment; they played no part in considering its desirability. It is not apparent that the directors had any expertise in that respect. All that was done by Kaupthing, probably technically as Isis’s investment manager, but in reality as the true beneficiary and promoter of the investment.

[204]The directors’ approach to the Project Re transactions was the same. The directors did not receive, and it would seem did not expect to receive, any advance warning of the transaction. They were told that documents would need to be executed, and the emphasis of the dealings was to get that job done. They were presented with documents prepared by solicitors who had been instructed by Kaupthing and in whose instructions the directors had played no part. The only supporting document sought was a “due diligence” one showing ability to repay the loan (probably a naive request in the circumstances). One can infer from that that the directors were content that all other aspects of the transaction had been dealt with to Kaupthing’s satisfaction, and were not minded to query it or understand it fully. It is consistent with that that the resolution appointing Mr Gunnarsson as attorney provided (as it did) that he should have power to amend the transactional documents as he saw fit. That demonstrates his real role in the matter. It is true that the directors had the same power under the resolution, but it would seem that they would never have been likely to have needed it save at the instance of Kaupthing, and in the end they did not execute the transactional documents – Mr Gunnarsson did. He actually signed as one of two signatories for Kaupthing and on behalf of New Ortland as well.

[205]All that evidence points to Mr Gunnarsson being the decision-maker in the case of Isis. He negotiated the deal, instructed the solicitors and (I infer) procured that the matter be placed before the directors of Isis. The directors had no real decisions to make as to whether to enter into the documents, save to ensure that the documents were formally correct. They sought some “due diligence” material, but if they thought that they had a role in that respect which was anything other than formal then it was confined to the specified aspect (the ability to repay). They had no real decisions to make as to whether the transaction overall should be entered into. In substance they were in the same position as the trustees in Hawksford - they would enter into a transaction which Kaupthing wished them to enter into.

[206]The terms of the resolution do not, in my view, change that situation. The resolution was not prepared by the directors. It was prepared by solicitors for them to sign. On the facts of this case the directors cannot conceivably have reached the stated conclusions recorded in resolution 4.1 on the basis of the documents relied on. The documents they refer to are the formal transactional documents and a corporate structure plan (judging from the document referred to at 2(a)). They would not reveal the complex commercial considerations in play in the matter. All that, and how the thing worked, was left to Mr Gunnarsson - or rather, emanated from him, and underpinned what the directors were asked to do. The documents to which they refer do not include the memorandum, which it is likely that someone read, because it was the only source of the upside point which appears in the minutes. I find that the references in the resolutions have no real evidential value in their context. I do not consider it likely that the directors embarked on any sort of exercise which would make them any more than technical decision makers within Isis (like the directors of the trustee company in Hawksford), and would not make them the real decision makers in the sense referred to in that case.

[207]The directors are to be contrasted with the decision-making entities in two of the cases referred to me and identified above. In Barnet the real decision makers were officers and a councillor whose decision had to be ascertained from the terms of a report by reference to which they obtained their authority and which was inconsistent with the rectification case. The intention of the negotiator, who prepared the report, was irrelevant because the real decision makers did not know of it or share it. They had the report. That is completely different from the present matter.

[208]In Wimpey, on the facts, the board that took the decision was one which was not constituted by an administration company (see the judgment at para 3). The group’s policy was that a decision was to be taken by the main board, which required a commercial and legal report. It was therefore a real decision-taker, and equipped itself to that end. The present case is nothing like that.

[209]It does not affect that conclusion to say, as Mr Allison does, that Mr Gunnarsson had no authority to bind Isis. It is true that he lacked technical authority, but he was still the real decision maker. He was driving the transaction, even through the credit committee. Mr Begg had no authority in Hawksford either, but he was still the decision maker or one whose decision the trustees would almost inevitably adopt. The same is true of Mr Gunnarsson in the present case.

[210]In this analysis I have not ignored the separate minute which seems to record that the directors had formed a view about the upside. I am sceptical as to whether that really reflects their intention, but if my scepticism is unfair then it assists the claimant, because it means that on the one aspect that is important to this litigation they did have a particular point drawn to their intention and considered it, and formed an intention on it, and that intention is the one relied on by Isis.

[211]That deals with the Kaupthing/Isis side of the transaction. It is now necessary to consider similar points in relation to the Oscatello side of the transaction.

[212]Mr Strong’s primary case seemed to be that Mr Brown’s intention should be attributed to Oscatello and the trustees. He said that the documents showed that Mr Brown was dealing with all the commercial matters, and the trustees’ functions seemed to be to deal with mechanics. At the beginning it seemed they would implement whatever he brought about in negotiations. The Kirkland engagement letter showed that Mr Brown was able to give instructions, and in this case he was the only person who actually did (with the apparent consent of the trustees). The facts were said to show that he was the decision maker and the trustees did merely administration. It was R20’s job to put the deal together, and there the trustees (and the board of Oscatello) would have no reason not to approve what he recommended.

[213]I do not consider that Mr Strong has made out this case. The documents show that the engagement of Ms Peck was rather greater than the engagement of Ms McHarrie. She knew about the negotiations some time before she was invited to execute documents. The position was outlined to her prior to her receiving a formal recommendation (see the “heads up” memorandum of 28th November 2007). In due course the trustees received a formal recommendation (in accordance with the sort of functions identified in R20’s contract) in the letter of 11th November. This is a completely different procedure from that which occurred between Mr Gunnarsson and Isis, in which there was no recommendation, an explanation which was an accident and a clear expectation that Isis would execute the documents they were sent without inquiry or explanation.

[214]Having received the recommendation Ms Peck did not merely accept and implement it without more.

[215]While her letter to Laura Carley of 14th December deals with technical matters, her dealings with Mr Brown of the same day (her email, her conversation as annotated and her typed up note) demonstrate that she wanted to understand certain commercial aspects of the transaction. This is consistent with her wishing to take her own decision on the point and not merely accept Mr Brown’s say-so.

[216]In my view these exchanges do not demonstrate that Mr Brown was the real decision maker for the purposes of attribution. He had no power to contract, but that is not conclusive. He was certainly a driving force, and I accept that it was always likely that his recommendations would be accepted. That is because it was his job, not the trustees’, to come up with commercial arrangements, and it is likely that Mr Tchenguiz himself had influence and seriously expected that what he wanted would happen (see the 2008 discussion with Ms Peck). However, this does not mean that that the trustees (and in this case Ms Peck) were not the real decision makers. She demonstrated sufficient independence in her questions to make her the ultimate decision maker. This was not a Begg-like case. She was not effectively committed to doing what Mr Brown negotiated, even though it was always likely she would.

[217]Of course, since I have found that in effect she had the same intention as Mr Brown in respect of what the trust was to acquire (the upside of the Somerfield interest, not the value of the whole interest) the inability to attribute Mr Brown’s intention to her does not adversely affect the claimant’s rectification case. She had the requisite intention herself.

[218]There are, however, further attribution points concerning Mr Clifford and Oscatello. I have already observed that there is no apparent evidence of what Mr Clifford’s attitude, intention and knowledge were before he signed on behalf of the trust and (as director of the corporate director) on behalf of Oscatello. There is no evidence of his involvement at all. I am prepared to find, and do find, that one of two things happened in relation to him. Either he signed without inquiry because Ms Peck had considered the matter and was prepared to sign, in which case Ms Peck’s intention should be attributed to him on a Begg basis, or he made inquiry of Ms Peck and was privy to her material, in which case he actually shared her intention. Oscatello has not sought to adduce any evidence suggesting otherwise.

[219]So far as Oscatello is concerned, Mr Allison submitted that the decision makers were Ms Peck and Mr Clifford, and it was impossible to make the link between Mr Brown and his intentions on the one hand and Oscatello on the other. He pointed out that Oscatello was not a party to the R20 appointment contract and did not even become a part of the TDT structure until 12th December 2007, shortly before the transaction completed. It had been incorporated in June 2007 but within another Tchenguiz trust (known for short as the TFT). So Mr Brown was not the decision maker for Oscatello. The intention relevant to rectification should not be attributed to it.

[220]There was little positive evidence about Oscatello and its decision-making structure in the papers before me (certainly not in the papers I was shown). In the early stages of the transaction the trust company which was to be the relevant party to the transaction was identified by what seems to be a generic title or by the name Victor Holdings. By 13th December 2007 the trustees had apparently identified Oscatello as being the relevant company, because Ms Peck emailed the Kirkland solicitors, copied to Mr Gunnarsson, Mr Brown and others, saying:

“The 2 BVI companies for this project will remain to be called Eliza Limited and Oscatello Limited. (Eliza will effectively be the ‘RE Holdings I’ company and Oscatello the ‘RE Holdings II company’). The names of these companies may be changed in the future, but this will be after completion.”

[221]Since it is known (or accepted) that Oscatello was acquired the preceding day, the inference is that the trustees set about finding a vehicle that they could use, acquired Oscatello for that specific purpose, and inserted it into the transaction. The 13th December draft Framework Agreement is accordingly the first one to identify Oscatello as the relevant party.

[222]Oscatello was not in any real sense an active participant in the process up until completion. It simply sat in the trust waiting to do the job the trustee required of it, which was to be a party to the reconstruction transaction and in particular to become a party to the Framework Agreement. Its directors were two corporate directors – Finistere Directors Ltd and GFT Directors Ltd. It is not clear whether those companies were Investec companies or separate service companies, but that does not matter for present purposes. When the Oscatello resolutions were signed they were signed on behalf of those companies by Ms Peck and Mr Clifford respectively. Ms Peck signed as “Authorised Signatory” and Mr Clifford simply signed as a director of GFT. Those were the capacities in which Ms Peck and Mr Clifford signed the Framework Agreement as well.

[223]The inference from all this is that the Oscatello directors were not, as such, the decision makers in this transaction. Oscatello was acquired in order to participate, and was effectively controlled by the trust officers, and its participation was procured. Despite the wording of the Oscatello resolution, I do not think that its directors will have formed any further independent view as to what the transaction was about, its merits or whether it was right for Oscatello to enter into the Framework Agreement. Its decision makers were those who made the decision for the trust – actually, the same people. Alternatively, this was a Hawksford situation in which Oscatello was always going to do what the trust required. In those circumstances whatever intention ought to be attributed to the trust ought to be attributed to Oscatello, which was simply the trust’s chosen vehicle. But since the individuals were the same this debate has an artificial or contrived air about it. The identity of intention is actually obvious.

[224]That is not quite the way in which the matter is pleaded. The attribution point in relation to Oscatello is pleaded in two ways. The Particulars of Claim read:

“29. As regards the Framework Agreement: 29.1 The knowledge and intention of Mr Gunnarsson and Mr Brown are to be attributed to Isis, and (if relevant) Kauthing and New Ortland and to Oscatello and (if relevant) to Eliza and the TDT Trustees respectively… 29.3 Mr Brown was the representative of R20, which provided advice in relation to this transaction to and/or for the benefit of Oscatello and its ultimate shareholder, the TDT Trustees. Further, R20 was controlled by the principal beneficiary of the TDT, Robert Tchenguiz. Mr Brown negotiated on behalf of Oscatello and on executing the Framework Agreement its corporate directors (GFT Directors Limited and Finistere Limited) intended to enter into a transaction which gave effect to the terms he had agreed. …. 29.3(A) Insofar as it is relevant, Mr Brown also negotiated on behalf of the TDT Trustees and Eliza, and in entering into the Framework Agreement the TDT Trustees and the board of Eliza intended to enter into a transaction which gave effect to the terms he had agreed.”

[225]These analyses do not quite govern the entire ground in respect of the attribution possibilities. One might have an interesting debate as to whether Mr Brown was technically negotiating on behalf of Oscatello when Oscatello only became a trust company on 12th December (although R20’s retainer did provide for it to act for trust companies, so to that is a starting point for the possibility). But as a matter of sensible analysis Oscatello entered into the transaction because the trustees decided it should, not because it was directly following the advice of Mr Brown or allowing Mr Brown to be the decision maker.

[226]So Mr Allison may be right in a pleading point that he took, to the effect that the pleading in relation to Oscatello did not necessarily match the way the case was put, or perhaps the way in which I have analysed it. However, he took it relatively faintly, and in my view it does not avail him. The real attribution question in this case is one as between Mr Brown and the trust, and between Mr Gunnarsson and Isis. Oscatello has been in no way disadvantaged by the fact that an analysis of the situation comes up with an analysis which does not quite accord with the pleading. There was and can be no suggestion that if the matter had been pleaded in a manner which reflected my analysis then Oscatello would have taken some sort of different evidential course – it could not sensibly be suggested that it would have suddenly decided to call Ms Peck, or Mr Clifford, or Mr Brown, when they were not otherwise being called. In the circumstances this pleading point is no bar to giving effect to my findings as to attribution. Mistake

[227]That deals with the intention of the parties and attribution. I have already found that the intention persisted up to, and after, the execution of the final documentation. The last element in rectification is the mistake. It must be established that by a mistake the final documentation does not reflect that continuing common intention. Having found the intention, and there being no apparent reason why the documentation did not reflect it when instructions were apparently given to the lawyers and understood, it becomes obvious that there was a mistake which no-one spotted. How it actually came about is not apparent, but that does not prevent the court from identifying its existence, and I so find. Conclusion

[228]It follows that the claim for rectification succeeds. Isis (Murray) has demonstrated a continuing common intention of the parties (via attribution where necessary) to the effect that Isis was to have its acquisition cost out of the proceeds of a Somerfield sale before Oscatello got the remainder by way of upside (subject to the interest), and that intention persisted until the date of completion. By a mistake, whose source cannot be identified but which is nonetheless a mistake, that was not reflected in the Framework Agreement. The Framework Agreement should be rectified in such a manner as provides for Isis to have a payment out of the proceeds of sale of the Somerfield interest after the payment of expenses and before Oscatello’s first payment. The precise form of order which should be made will be determined on or after the hand-down of this judgment if it is not otherwise agreed.

[229]The claim which seeks to arrive at that result by a process of construction fails.

order

(a) (A) first, in payment of any third party costs and expenses (if any) reasonably and properly incurred by Isis in obtaining such Violet Economic Return;

(b) (B) secondly, in payment to Oscatello of £44.05 million;

(d) (D) fourthly, in payment to Oscatello of any remaining amounts. 6.2 Isis hereby also undertakes and agrees (and Kaupthing also undertakes to procure) that: (A) If Isis receives any Violet Economic Return, Isis will promptly notify Oscatello; (B) Isis shall hold Oscatello’s proportion of any Violet Economic Return received by it on trust for Oscatello; (C) Isis shall on demand by Oscatello pay to Oscatello the amount of the Oscatello’s proportion of any Violet Economic Return in accordance with the provisions of clause 6.1; (D) Isis shall not transfer or otherwise dispose of any or all of its ownership or economic interest (direct or indirect, legal or beneficial) in Violet; and

(e) (E) Isis shall exercise its voting rights in Violet in the same manner that the voting rights in Violet held by the TDT Group are exercised. 6.3 Kaupthing, Isis, TDT, Eliza and Oscatello each agree that, if requested by any of the other Parties referred to in this clause 6.3, they shall enter into a total return swap agreement to govern the distribution of the Violet Economic Return on the same terms as this clause 6.” (A) first, in payment of any third party costs and expenses (if any) reasonably and properly incurred by Isis in obtaining such Violet Economic Return; (B) secondly, in payment to Oscatello of £44.05 million; (C) thirdly, in payment to Isis of 8% per annum of £44.15 million; (D) fourthly, in payment to Oscatello of any remaining amounts. (A) If Isis receives any Violet Economic Return, Isis will promptly notify Oscatello; (B) Isis shall hold Oscatello’s proportion of any Violet Economic Return received by it on trust for Oscatello; (C) Isis shall on demand by Oscatello pay to Oscatello the amount of the Oscatello’s proportion of any Violet Economic Return in accordance with the provisions of clause 6.1; (D) Isis shall not transfer or otherwise dispose of any or all of its ownership or economic interest (direct or indirect, legal or beneficial) in Violet; and (E) Isis shall exercise its voting rights in Violet in the same manner that the voting rights in Violet held by the TDT Group are exercised. order: first, in payment of any third-party costs and expenses (if any) reasonably and properly incurred by Isis in obtaining such Violet Economic Return; secondly, in payment to Isis of £44.15 million, being its original investment amount; thirdly, in payment to Oscatello of £44.05 million; fourthly, in payment to Isis of 8% on any amount over and above £88.2 million; and fifthly, in payment to Oscatello of 92% of any amount over and above £88.2 million." This drafting would seem to encapsulate the apparent expressed intention of the parties' negotiators so far as it gives Oscatello its money back plus most of the profits, while allowing Kaupthing its own money back. However, it gets wrong the interest provision and consequently gets wrong the fifth layer of the waterfall and fails to provide for Oscatello to pay a price for the “Violet Economic Return”.