Addax Bank BSC (c) v Wellesley Partners LLP [2010] EWHC 1904 (QB)

Case No HQ09X02718[2010] EWHC 1904 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 23 July 2010
Before
THE HONOURABLE MR JUSTICE EADY
Between
ADDAX BANK BSC (c)ClaimantWELLESLEY PARTNERS LLPDefendant
Ruth Holtham (instructed by Taylor Wessing) for ClaimantFiona Parkin (instructed by Simmons & Simmons) for DefendantHearing Hearing date: 12 July 2010
JudgmentMr Justice Eady :
[1]In these proceedings, issued on 26 June 2009, the Claimant is a banking company incorporated in Bahrain. It is claiming against Wellesley Partners LLP, an executive recruitment consultancy which was incorporated as a limited liability partnership in May 2004, in respect of a debt said to be due under an agreement dated 6 May 2008. The sum originally claimed was US $2,375,000 but, in the light of a number of subsequent payments, it is now limited to US $79,000. There is also a claim for interest.[2]On 12 July 2010 I heard an application on the Claimant’s behalf for summary judgment pursuant to CPR Part 24, in respect of the outstanding sum, on the basis that the Defendant has no real prospect of defending the claim and that there is no other reason why the matter should proceed to trial.[3]The background to this litigation is described in witness statements from Mr Cartwright and Mr Marsh, for the Claimant, and from Mr Channing on behalf of the Defendant.[4]Following negotiations, the written agreement was entered into between the original two designated members of the LLP, Mr Channing and Mr Brun, and a number of investors of which the Claimant was one. The agreement was drafted by Withers, who were the solicitors at that time acting for the Defendant. Despite this, it seems that Mr Channing had misunderstood the terms of the agreement reached, but I must focus on the express terms rather than on what he now says he had intended to achieve during the preliminary discussions – not least because there is an entire agreement clause. Mr Channing was a signatory of the agreement both in his personal capacity and on behalf of the Defendant. (He and Mr Brun had originally been the First and Second Defendants in the action but, following the payments to which I earlier referred, the claim was discontinued against them in September 2009.)[5]The agreement contained the following terms which are material to the present claim. By clause 6.1(b) and Schedule 1, the investors were to make the capital contributions specifically identified. The Defendant was required to pay $4,750,000 with a further $250,000 to be invested upon the creation of Wellesley Middle East. This latter sum was in fact paid but does not need to be further considered for the purposes of the present application.[6]The investors had a right under clause 25.1, for a period of 41 months, to terminate a portion of their membership of the Claimant up to a limit of 50%. This right could be exercised by service of what was called an “exercise notice”, which was not required to be in any specified form. It simply needed to identify the percentage interest which the relevant investor wished to terminate.[7]Once an exercise notice was served, this triggered an obligation within 20 days upon the Defendant to repay the relevant portion of the investor’s capital contribution. This was provided for in clause 25.3. If the money was not repaid, interest was to accrue in accordance with clause 25.5 at 1% over Barclays Bank base rate from time to time.[8]There was a corresponding obligation under clause 25.6 whereby the members were required to consent to the cancellation of the relevant investor’s interest and to the payment of the cancellation sum.[9]The Claimant exercised its option to terminate 50% of its membership in the Defendant by the service of an exercise notice dated 7 May 2009. It is said that the Defendant thereby became liable to repay the sum of $2,375,000 (representing 50% of its capital contribution) by 15 June 2009. The payment was not made.[10]These proceedings were therefore commenced, as I have said, on 26 June last year. Mr Channing and Mr Brun were originally made defendants because, under the terms of the agreement, they were each obliged to procure repayment of the debt by the Defendant.[11]Shortly after the commencement of proceedings, the Defendant made a payment of $1,525,000 to the Claimant’s solicitors. Nevertheless, defences were served on 18 August last year. One point taken was that the exercise notice was invalid because it referred to the debt as being owed in US dollars rather than sterling. (It was also claimed at that stage that the Defendant was unable to repay the debt, although this position has subsequently been abandoned.)[12]A further currency point was taken on the basis that the Claimant, having made its original capital contribution in sterling, was not entitled to claim in dollars – not least because shifts in exchange rates meant that it would thereby gain an advantage of the order of £400,000.[13]A further payment of $700,000 was made on 25 August last year, which led on 3 September to the discontinuance of the claims against Mr Channing and Mr Brun. It is recorded on an order of Master Eyre of that date that the discontinuance had taken place in the light of the payment of a total of $2,225,000.[14]Directions for trial were given on 11 December 2009, which included an order that the parties were to make disclosure by lists on 8 March of this year. The Defendant failed to comply with this timetable and served its list late, only after Master Foster had made an unless order. Meanwhile, two further payments were made by the Defendant of $50,000 on 26 March and $21,000 on 23 April.[15]The trial was due to take place in a window commencing on 1 July, but the Claimant decided that it could not be ready in time because of the late disclosure on the Defendant’s part. Accordingly, on 9 June, an application was made for summary judgment supported by a witness statement from Mr Cartwright. The Defendant only served its evidence in response on 5 July.[16]A number of defences have been put forward by Ms Parkin on the Defendant’s behalf, by way of resisting summary judgment, which Ms Holtham for the Claimant has characterised as “spurious”.[17]The first point made by the Defendant was based on the terms of the agreement and conveniently referred to by counsel as the construction argument. Ms Parkin refers to the claim form which identifies the currency of the agreement as being US dollars. The requirements of CPR Part 16 Practice Direction 9.1 include, where a claim is for a sum of money expressed in a foreign currency, an obligation to state: 1) that the claim is for payment in a specified foreign currency, 2) why it is for payment in that currency, 3) the Sterling equivalent of the sum at the date of the claim, and 4) the source of the exchange rate relied on to calculate the Sterling equivalent. It was in order to comply with these requirements that the claim form stated that US dollars represented the currency of the agreement.[18]Ms Parkin points to the absence of any such express provision in the agreement itself and to the fact that no reference is made in the particulars of claim, either, to the claimed currency of the agreement. The nearest the pleading comes to addressing the point is in paragraph 5:
“Under the Agreement Addax invested US $4,750,000 by way of capital contribution and a further sum of US $250,000 to be invested on the formation of Wellesley Partners Middle East. These investments are recorded at Part 2 of Schedule 1 to the Agreement.”
[19]This pleading is addressed at paragraph 5 of the original defence:
“ … It is denied that the Notice was valid. ‘Capital Contribution’ is defined in clause 1.1 of the Agreement as ‘any money paid or assets transferred to the LLP by a Member … ’. The Capital Contribution made by Addax was £2,540,000. In the circumstances Addax were not entitled to claim 50% of US $4,750,000 under clause 25.3 of the Agreement but 50% of the sum actually invested.”
[20]Schedule 1 to the agreement, upon which reliance is placed in paragraph 5 of the particulars of claim, simply identifies each of the investors and specifies the particular capital contribution to be made against each name. In every case the sum is given in US dollars.[21]It is on this basis that Ms Holtham argues that the contractual obligation was to invest in dollars and, correspondingly, once the right to recall a proportion of the investment has been validly exercised, that the repayment should also be in dollars.[22]Matters are not quite so straightforward, however, since the original investment was in fact made in sterling and Ms Parkin invites the conclusions that(a) this is inconsistent with the contention that the currency of the agreement was US dollars and(b) any obligation to repay would likewise be in sterling.[23]Ms Holtham responds first by pointing to the fact that, although the investment itself was in sterling, this was by agreement and the amount of the sterling payment was fixed by reference to the current equivalent in dollars. In other words, the obligation was measured in US dollars but it was discharged by payment in the sterling equivalent.[24]I was shown an email dated 13 May 2008 from a Mr Cuffe of Withers addressed to Mr Cartwright and copied to Mr Channing. It concerned the discharge of the Claimant’s obligation to make its capital contribution. The material words are as follows:
“The dollar exchange rate on the FT website today (see attached scan) is 1.94740. By my calculations, £2,567,525.93 should be sent. I should be grateful if you would confirm that you agree and send us confirmation once the money has been wired.”
[25]Secondly, Ms Holtham refers to the undoubted fact that, in so far as the Defendant has subsequently paid the Claimant back, each of those payments has been made in dollars. Thus, even though the contract contained no express reference to an agreed currency of the agreement, she argues that the parties operated on the basis that the payments were either to be made in dollars or, at least, to be quantified by reference to the value of US dollars at the relevant time. Accordingly, she argues, the claim form was correct in giving its reason for claiming in a foreign currency in accordance with the Practice Direction cited above.[26]Ms Parkin has a separate but related point on currency. She submits that the exercise notice of 7 May 2009 was not valid and thus did not trigger an obligation on the Defendant’s part to repay any portion of the Claimant’s investment. She says that it should have stipulated payment in sterling. This point does not appear to have been taken until the Defendant responded to the application for summary judgment. It is hardly consistent, however, as Ms Holtham points out, either with the specific contractual obligation stipulated in Schedule 1 to the agreement or with the payments on behalf of the Defendant subsequently having been made in US dollars.[27]It is necessary to consider some further aspects of the agreement in this context.[28]Ms Parkin highlights the definition of ‘Capital Contribution’:
“Any money paid or assets transferred to the LLP by a Member (other than by way of a loan for which specific written arrangements between that Member and the LLP shall have been made) less any consideration paid by the LLP (including liabilities assumed) for the payment or transfer.”
She therefore submits that the definition is by reference to “money paid” and, as I have already recorded, the payment made by the Claimant was in fact in sterling. (As it happens, for reasons which remain at the moment unclear, the actual sum paid did not correspond to Mr Cuffe’s calculation in the email of 13 May 2008, but that does not seem to affect the validity of the argument now raised.) Correspondingly, says Ms Parkin, the Defendant’s obligation, upon receipt of the exercise notice served on behalf of the Claimant in May 2009, would be to return the relevant portion of the capital contribution (i.e. of the money paid in sterling). Ms Holtham’s response is that this definition section cannot override the specific requirement for the contribution to be made in dollars, as set out in Schedule 1.[29]Ms Parkin also made a point by reference to Schedule 5 of the agreement. This contains (at paragraph 5 of Part 3) a provision for the maximum liability of each of the initial members. In the case of both Mr Channing and Mr Brun the aggregate liability was identified in sterling.[30]Ms Parkin goes on to argue that a conundrum arises with regard to clause 7 of the agreement (‘Profits and Losses’). The clause is concerned inter alia with the allocation of profits and losses to the Members of the LLP. Each Member was to have a current account and the Claimant was to be entitled to a proportion of the profits due to it in priority to the other Members (referred to as the ‘Investor Priority Share’). In the event that the LLP was unable to pay such a share in any financial year due to insufficient profits, the unpaid Investor Priority Share was to remain a debt of the LLP until paid (referred to as the ‘Investor Priority Debt’). The obligation was to pay the Debt in the following financial year. This was all somewhat academic since, as Ms Parkin pointed out, the LLP was yet to make a profit. Nevertheless, it could give rise to difficulty if Ms Holtham’s submissions about the currency of the agreement are correct. It is provided in clause 7.5 as follows:
“For the avoidance of doubt, if the Investor Priority Share is a negative sum by reason of the profit allocation exceeding 15% of the Capital Contribution, no amount shall be payable by way of Investor Priority Share.”
How is all this to work, asks Ms Parkin, if the Claimant’s share has to be calculated by reference to a capital contribution expressed in dollars, whereas all of the LLP’s calculations for the purposes of accounts generally, and profits in particular, are to be made in sterling? In particular, if a currency conversion has to take place in relation to the Claimant, as appeared to happen originally in the light of Mr Cuffe’s email, what would be the material date for the calculation? The problem would not arise if the calculations are all to be done in sterling and she submits that should be the right interpretation, presumably on grounds of business efficacy.[31]Ms Parkin drew my attention to Rule 237 in Dicey, Morris and Collins, The Conflict of Laws (14th edn):
“(1) Where there is doubt as to the currency in which a debt is expressed (money of account), and especially where the expression used for the denomination thereof connotes the currencies of two or more States … , the money of account must be ascertained by construing the contract in accordance with the law applicable to it. (2) Where English law is the law applicable to a contract, the parties are presumed to have referred to the currency of the country with which the contract is most closely connected.”
It is provided in clause 33.1, in this instance, that English law governs the contract.[32]For a variety of reasons, Ms Parkin submits that England is the country with which this contract is most closely connected. In particular, the LLP was incorporated in England and Wales; it operates in London; its invoices are in sterling; its accounts have to be filed in accordance with English law (and in sterling); all of the other investors in the LLP were resident in England (as would appear to emerge from the addresses given in Schedule 1).[33]In the light of these ingenious points, Ms Parkin suggests that it cannot sensibly be said that her construction argument has no real prospect of success. If the currency of the agreement is to be treated as sterling, then the capital contribution would have to be regarded as having been made in sterling: thus there would be no entitlement to recover in accordance with clause 25 in US dollars. If she is right about this, Ms Parkin claims that the consequence is that the Claimant has already been paid all the sums to which it would be entitled (having regard to shifts in the exchange rate). In any event, she contends that a trial is necessary to determine with which jurisdiction the contract has the closest connection.[34]I have come to the conclusion that Ms Holtham’s submissions are correct on this construction argument, since I can see no reason otherwise why the obligation of the Claimant (and indeed the obligations of other investors) should have been defined in Schedule 1 in terms of US dollars; nor why it should have been necessary to calculate (as in Mr Cuffe’s email) the capital contribution in sterling by reference to US dollars; nor why all the other payments made to the Claimant should have been made in US dollars. Thus I reject Ms Parkin’s first point. I do not accept either that the parties’ respective obligations were to be discharged by payment in sterling or that the exercise notice of 7 May 2009 was invalid. I do not consider it necessary for such questions to be postponed until after a trial.[35]Ms Parkin has two other alternative arguments based upon set-off. In respect of each of these, she recognises that it is necessary to obtain the court’s permission to amend. She argues both that she has a legal set-off and, if it is necessary to rely upon it, an equitable set-off. The background giving rise to these claims is to be found in the witness statement of Mr Channing. It is said that the Defendant is entitled to set off sums outstanding under a different contractual arrangement, predating the agreement sued upon, in a total of £100,000, which obviously exceeds the amount of the remaining claim. The two relevant invoices, each in the sum of £50,000, are dated respectively 1 March and 1 April 2008. They are expressed to be in respect of monthly retainer fees.[36]Detailed terms were set out in a letter of 29 January 2008 from Mr Channing to Yousef Al-Essa, who is described as the chief executive officer of the Claimant bank. This contained inter alia the Defendant’s terms for carrying out consultancy work with a view to the appointment of senior executives and contained the following paragraph:
“In this instance, because of the multiple nature of the projects involved [sic]. We would suggest a fee structure similar to that we have in place with other clients with whom we are executing multiple projects. In these circumstances we charge a retainer of £50,000.00 PER MONTH for a six month period, with a review after that. As each candidate is place[d] we accrue a fee according to 30% of the total agreed compensation. As above. Our fees are then reconciled with the retainers paid and any adjustments are maid [sic] at that point. Once the retainers have been covered by candidate placements, we initiate a new set of retainers to cover ongoing work.”
No formal agreement was entered into, but Yousel Al-Essa replied (in response to a chasing email from Mr Channing) on 6 February 2008 in these terms:
“Rupert Thank you for the proposal. We are ok with the terms. I will sign it and sent it to you as soon as possible. Lets talk when you get a chance to decide on which candidates we like best. Best regards, Yousef”
This gave rise to what has been described as the ‘executive search agreement’. Yousef”[37]It is said that the Defendant thereafter carried out certain work on the Claimant’s behalf and the invoices were in due course rendered in accordance with this arrangement. This is described in Mr Channing’s witness statement, who alleges that work continued to be undertaken on the Claimant’s behalf through to November 2008.[38]The invoices dated March and April 2008 were not paid, for whatever reason, and it is said that accordingly there is a liquidated debt in respect of which the Defendant has a valid set-off and counterclaim.[39]Ms Parkin’s first argument was based on a legal set-off. She drew my attention to Mr Derham’s work The Law of Set-Off (3rd edn, 2002), at paras 2.13 to 2.15. It is clear that the Statutes of Set-Off, of 1729 and 1735, apply in the case of mutual debts. Those debts need not be connected in any way, but there must be mutuality. The law is succinctly stated in the words of Cockburn CJ in Stooke v Taylor (1880) 5 QBD 569, 575, to the effect that a statutory plea of set-off “is available only where the claims on both sides are in respect of liquidated debts, or money demands which can be readily and without difficulty ascertained”. More recently, the principle was reformulated by Lord Hoffmann in Stein v Blake [1996] AC 243, 251, who stated that the relevant debts must be “ … either liquidated or in sums capable of ascertainment without valuation or estimation”. These descriptions would appear apt to cover each of the monthly retainer fees invoiced by the Defendant.[40]There may, of course, be valid reasons why these debts are not owing, but I am only concerned at the moment with the preliminary questions of(a) whether permission should be granted at this stage to raise the plea by way of amendment and(b) whether such a defence would have a realistic prospect of success. Ms Parkin argues that, in accordance with the overriding objective, permission should be given to amend, and that the Claimant would thereby not suffer any inconvenience or prejudice that could not be compensated ultimately by way of a costs order. As so often, my attention was drawn to the words of Peter Gibson LJ in Cobbold v London Borough of Greenwich [1999] EWCA Civ 2074:
“The overriding objective (of the CPR) is that the court should deal with cases justly. That includes, so far as practicable, ensuring that each case is dealt with not only expeditiously but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party caused by the amendment can be compensated for in costs, and the public interest in the administration of justice is not significantly harmed.”
I invited Ms Holtham to comment on whether or not the Claimant was likely to be prejudiced in ways that could not be compensated for by a costs order. She took instructions and I understood the answer to be in the negative.[41]In these circumstances, it seemed to me right to grant permission to amend to raise a defence of set-off despite the lateness of the application and, for the reasons I have given, it cannot be said that it has no realistic prospect of success. Nor, so far as I can see, is there likely to be any adverse impact on the administration of justice such as, for example, by causing a postponement of the trial date. That window has already been lost.[42]In the light of my ruling on Ms Parkin’s second point, it is strictly unnecessary for me to go on to consider counsel’s arguments relating to equitable set-off. Nevertheless, for the sake of completeness, it would be right for me to do so.[43]Reference was made by both counsel to the recent case of Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667, where Rix LJ considered the current state of the law in this field in some detail. His conclusions were stated in paragraph [43]. For present purposes, I believe it is only necessary to cite two of the sub-paragraphs:
“(v) Although the test for equitable set-off plainly therefore involves considerations of both the closeness of the connection between claim and cross-claim, and of the justice of the case, I do not think that one should speak in terms of a two-stage test. I would prefer to say that there is both a formal element in the test and a functional element. The importance of the formal element is to ensure that the doctrine of equitable set-off is based on principle and not discretion. The importance of the functional element is to remind litigants and courts that the ultimate rationality of the regime is equity. The two elements cannot ultimately be divorced from each other. It may be that at times some judges have emphasised the test of equity at the expense of the requirement of close connection, while other judges have put the emphasis the other way round. (vi) For all these reasons, I would underline Lord Denning’s test, freed of any reference to the concept of impeachment, as the best restatement of the test, and the one most frequently referred to and applied, namely: ‘cross-claims … so closely connected with [the plaintiff’s] demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim’. That emphasises the importance of the two elements identified in Hanak v Green; it defines the necessity of a close connection by reference to the rationality of justice and the avoidance of injustice; and its general formulation, ‘without taking into account’, avoids any traps of quasi-statutory language which otherwise might seem to require that the cross-claim must arise out of the same dealings as the claim, as distinct from vice versa … .”
It is thus clear that I must have in mind the formal and functional elements when applying the principles to the facts of this particular case.[44]In seeking to demonstrate a close connection between the unpaid invoices and the present claim for return of the balance of the investment, Ms Parkin unfortunately introduced a number of communications that were ‘without prejudice’. Her point could have been made by evidence to the effect that long drawn out negotiations had taken place between the parties, over many months, in which it had been sought to resolve all outstanding issues including those which form the subject of the claim and proposed counterclaim. She wished simply to demonstrate that the parties themselves had, in that context, perceived them all as interconnected. There was thus no need to reveal the correspondence itself.[45]Whether there is a sufficiently close connection, in any particular case, will be a question of fact and degree on which the judge must form an impression. Ms Parkin’s primary case is that there was such a connection from the outset. Although the agreement reached in January 2008 in respect of monthly fees was obviously separate from that now sued upon, they both concerned the commercial and financial relationship between the parties. Moreover, she made the secondary point that it subsequently became clear that they themselves regarded it as appropriate to negotiate protractedly over the general state of accounting between them and not to draw a rigid distinction between the different transactions. Ms Parkin points to a further passage in the judgment of Rix LJ in the Geldof case, at [46], to show the potential relevance of later events in judging the closeness of a connection in the context of equitable set-off:
“ … Geldof itself, by insisting on the payment of the supply contract invoices as a pre-condition of returning to work on the installation contract, was bringing the two contracts into intimate relationship with one another, even if unjustifiably, and that relationship became inseparable and irrevocable when [Simon Carves Ltd] brought the installation contract to an end, as it arguably did, in reliance on Geldof’s poor performance under the installation contract coupled with its insistence of prior payment. Even if the two contracts had not been connected up to that point, those events brought the two contracts into a close and inseparable relationship with one another, and, in my judgment, made it manifestly unjust to enforce payment under the supply contract without taking into account the cross-claim for repudiation of the installation contract. It is true that, in one sense, the cross-claim did not arise from the supply contract and the claim made under it by Geldof in these proceedings. But it did arise from the use to which Geldof had sought to put its supply contract claim. In my judgment, that would suffice, on any formulation of the test for equitable set-off. Such a point may not have been the subject of previous decision, but I would regard it as within the rationale of the test for equitable set-off.”
[46]I have come to the conclusion that Lord Denning’s criteria from The Nanfri [1978] 2 QB 927, as cited by Rix LJ, are satisfied on the facts of the present case. If I were to accede to Ms Holtham’s argument and grant summary judgment, the likelihood is that separate proceedings would be commenced and the history of the transactions explored over again. It seems to me that it would be artificial and unjust to enforce payment of the debt already sued upon without regard to the state of account between the parties as it stood generally at that time.[47]I would uphold both Ms Parkin’s second and third arguments and thus reject the application for summary judgment.[48]When this judgment was made available to counsel in draft, I made no mention of the Claimant’s entitlement to interest having accrued on the outstanding capital repayment. This was, I believe, because I had been told by Ms Holtham that the Defendant admitted its entitlement under clause 25.5 of the agreement to interest at 1% over Barclays Bank Plc base rate. She invited me at that stage to address the point before handing down. I therefore record that entitlement subject to set-off and/or counterclaim.

Cited in 1 later judgment