“1. Volkomen is owed 17m by Cheval and has a debenture over its assets. 2. Volkomen ranks after the banks. 3. Volkomen debt can be reduced to 14m without banks consent but just notice to the bank 4. The balance sheet of Cheval is Assets 41m. Banks 25m Volkomen 17m So are + - square position 5. Thus it does not pay to enforce Volkomen’s debenture as banks will step in and force a firesale of properties held as securities. 6. We thus want to continue Cheval trading and it can make a profit of 2m with bank support and further reduced overheads …. 7. Ellis will probably retire… 8. Colin Halpern (the buyer) wants to continue owning 100 per cent of Cheval as he claims he needs this on his balance sheet and I believe him… We have no problems with this. 9. We must have management control to run the co with no shareholder interference. 10. The banks want V to convert its loan to redeemable prefs which is fine with us. We need the banks. 11. Colin will, in the pref conversation documents, give us total voting and management control. This is good but they want only accrue a small pref coupon which is only payable on redemption. NO GOOD we need an annual pref coupon accruing off the balance sheet at 9 per cent pa. 12. The pref documents will allow V to sell the company and no divs or profits can be paid to shareholders until V prefs paid in full with accrued coupons. V wants in addition 25 per cent of the capital gain. 13. The unpaid purchase price of 1.5m plus int is unpaid and Colin wants this to be passed to Cheval to pay. How? This is not acceptable. The debt is guaranteed by HS Real, a Colin Halpern offshore co, and he wants this released. This is not acceptable. It will only be released when we and V are paid in full.”
“At our meeting at RIBA on11 December 2008 , I gave Mr Halpern a copy of the Final MoU and we reviewed it together. I recall that Mr Halpern specifically asked me if the Final MoU was ‘subject to contract’. I was not immediately aware of the answer, and we both looked at the document and quickly found the wording under the heading on the first page. On discovery of the ‘subject to contract’ wording, Mr Halpern initialled next to those words, and then signed the document on its second page on behalf of HS Real and CIL.”
“Subject to Contract” and then on the bottom of the page. On the second page he has signed the MOU on behalf of CIL and HS Real. 26. Mr Halpern recalled: “I do not know why the document is headed “Subject to Contract”
“from a review of the memorandum of understanding it does seem as if some additional side letters/a brief shareholders agreement may also be required to cover matters such as the RH Real Guarantee…”
“The way forward now involves the amendment of the current Volkomen debt into longer term debt so that the Banks remain comfortable that Cheval has the long term support of Volkomen. Key features of the changes to the current Volkomen facility: 1. Debt can’t be called for 2 years 2. Debt carries features such that the holders control the board 3. Instrument doesn’t carry interest until year 3 when the rate is increased to make up for the interest free period All other aspects of the agreed proposed restructure remains unchanged (i.e. order of repayments and deferral of HS Real guarantee.) The accounts need to be lodged at Companies House by31 January 2009 ”
“Ok but Jeff to confirm. We need to project a cash flow as we collect loans to repay banks and volkomen then with a capt payment it is easier to swallow int deferral. How much can Volkomen be paid before banks? I recall 4 mill? We also need to recover the 1.5m due to Spring over a period.” 28. Later that same day Mr A. Margolis circulated a revised draft Loan Facility Agreement between Volkomen and Cheval. A further draft was circulated on7 January 2009 and the new Loan Facility Agreement (“LFA”) was signed and returned by Ms Houtman for Volkomen on27 January 2009 , just in time for Cheval to meet the accounts deadline of31 January 2009 . Clause 5 of the LFA purported to give Volkomen the right to appoint a majority of the directors of Cheval until such time as the Loan Facility was repaid in full. 29. In the meantime Mr A. Margolis had drafted and circulated what he called the “Top Co Agreement” for approval before being sent to HS Real. He explained that this “deals with various matters that were in the Memorandum of Understanding, but could not be included in the New Loan Facility agreement between Cheval and Volkomen.”
“… Whilst as you suggested yesterday Cheval can pay a dividend to [CIL] (not us) it needs our banks approval and Cheval needs to be in a profit position including past losses of approximately GBP 6m to be able to pay any dividend. As you say if there is a dividend then [CIL] on receipt can pay over what is due to us i.e. capital and interest. Management fees are much more difficult and any large amount cannot be justified and as such it is illegal and against the banks covenants to use Cheval’s Funds to finance the purchase of its shares. The Dividend route may be doable but will take many years and Volkomen, the major creditor, will not allow this until they are repaid… … So for us to wait many years is not realistic or fair. You have to come up with something. When a dividend does come up from Cheval it will all be yours.”
“In the present case the Government acted in the hope that a voluntary arrangement in principle expressly made “subject to contract” and therefore not binding would eventually be followed by the achievement of legal relationships in the form of grants and transfers of property. It is possible but unlikely that in the circumstances at present unforeseeable a party to negotiations set out in a document expressed to be “subject to contract” would be able to satisfy the Court that the parties had subsequently agreed to convert the document into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transactions envisaged by the document. But in the present case the Government chose to begin and elected to continue on terms that either party might suffer a change of mind and withdrawal.”
“Unless there is some principle by reason of which, in relation to its effect on the parties and the consciences of either of them, “subject to contract” revocability is invariably to be treated differently to the revocability of wills during a testator’s lifetime, I see Gillett opening up a possibility which Attorney-General of Hong Kong had seemed to deny. The possibility, after Gillett, at any rate where a very strong case can be made on the facts as to the obviousness and duration of reliance on a “subject to contract” dealing nonetheless being implemented, is that notwithstanding the Privy Council case, the right to withdraw from the dealing may be lost, as the earlier Salvation Army and Island Holdings cases had suggested could be the case.” 58. It would not be useful, and fortunately on the facts of this case it is not necessary, for me to seek to choose between what Gonthier sees as somewhat different approaches taken by appellate courts. Estoppel - Submissions of the Defendant 59. The Defendant says that Mr Epstein’s emails of 9 and 10 December are clear representations that the Claimant would not make a call on the guarantee for five years if Mr Halpern signed the MOU: “we can’t hold off on HS Real Guarantee until we have your signed agreement and confirmation of the memo sent to you.” 60. It is claimed that Mr Halpern relied on those representations and suffered a detriment as a result. 61. The email of22 December 2008 gives rise, Mr Anderson submits, to an estoppel by convention and the parties acted between the22 December 2008 email and at least27 January 2009 when the LFA was signed on the understanding that the agreement to defer the guarantee was legally binding on both parties. It was only on 2 February that Mr Epstein formed the erroneous view that the LFA was void undersection 678 of the Companies Act 2006 .Mr Anderson points to the absence of attempts to enforce the guarantee during January 2009. He points to Mr Epstein’s email that, in the light of the advice received, “Our Memo of Understanding is not legal.” 62. He also relies on other indications which it is said are consistent with a recognition that a five year deferral was in place such as the tone of the emails requesting Mr Halpern’s assistance and the fact that Mr Epstein was not aware that the MOU was subject to contract at all or that it had not been signed by Volkomen. Alternatively the Defendant says that even if Mr Epstein and Mr Margolis did not share Mr Halpern’s understanding they were aware of that understanding and deliberately encouraged it. Moreover at this point the parties had waived any requirement that the final MOU be “subject to contract” as was clear from the 22 December email and the implementation of the alternative solution through the LFA. The Defendant contends that Mr Halpern had obviously relied upon the email because otherwise he would have insisted that the agreement to defer the guarantee was recorded in a further document. In that event the parties would undoubtedly have agreed to execute a further document to extend the guarantee and Mr Halpern could in effect have ensured that was possible through the power of his role as sole director of CIL, the sole shareholder of Cheval. (This in turn led to the question of the position of Mr Sher who was the co-owner of Ambition the sole shareholder of CIL. Mr Halpern suggested, remarkably, that he would if necessary have been able to put his own interest in securing deferral of the guarantee over duties which he had owed to the shareholders of CIL as a whole. The consequence of that flagrant breach of duty would however have been limited since it was clear from Mr Sher’s evidence that if Mr Halpern had said he would only agree to the restructuring and to handing over management control if his guarantee was deferred, he would in practice have been likely to go along with that.) 63. The Defendant asserts that the entering into of the LFA was in itself a detriment to HS Real. The LFA was acted upon in order to give Volkomen actual operational control of Cheval which was given effect to in the appointment of a director, Mr Benninger, purportedly under the rights granted by the LFA. (At trial there were detailed submissions about whether Volkomen gained control. It seems that it did not do so, at least by November 2009. That is unsurprising given the solicitors’ advice provided on4 February 2009 .) Estoppel- submissions of the Claimant 64. Mr Tozzi QC and Mr Hunter submit that the emails of 9 and 10 December were not representations and would not in any event have survived the signing of the MOU. It was common ground that the 9 December email was no more than Mr Epstein pressing Mr Halpern to respond and that of the next day simply a request for the return of the document. 65. The email of 22 December proposed an alternative solution after the parties had signed, subject to contract, an MOU which provided for an arrangement which was not feasible. An alternative solution was proposed as part of that arrangement, the details of which would have needed to be worked out. Neither party communicated approval of the alternative to the other. 66. It is not correct that HS Real relied on any alleged representation by participating in or permitting the negotiations for the new LFA which gave Volkomen control over Cheval or by not negotiating further with Spring so as to ensure that an agreement not to call on the guarantee for 5 years was made. In practice Mr Halpern did nothing, as had been his practice before the signing of the MOU. He made no attempt to progress any points, did not ask what was happening or even seek to see the revised LFA. He was not relying on anything, simply carrying on as he had done from the end of May 2008. It is unrealistic to suggest that Mr Halpern permitted negotiations which he would otherwise have blocked. That was not his way. Cheval had no choice other than to reach a deal with Volkomen, Mr Sher wanted the deal done, Mr Halpern wanted Cheval on HS Real’s balance sheet – it is not correct that that wish was simply because it “looked good”